As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/28/06  Enel Societa Per Azioni           20-F       12/31/05    7:3.4M                                   Bowne - Bol/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   2.66M 
 2: EX-1.1      Underwriting Agreement                              HTML     78K 
 3: EX-8.1      Opinion re: Tax Matters                             HTML     65K 
 4: EX-12.1     Statement re: Computation of Ratios                 HTML     11K 
 5: EX-12.2     Statement re: Computation of Ratios                 HTML     11K 
 6: EX-12.3     Statement re: Computation of Ratios                 HTML     11K 
 7: EX-13.1     Annual or Quarterly Report to Security Holders      HTML      9K 

      Unless we indicate otherwise, the financial information contained in this annual report is prepared in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the European Union (“EU”), that we have applied for the first time in preparing our financial statements for periods beginning after December 31, 2004. There are no differences between IFRS, as adopted by the EU, and the IFRS, as published by the International Accounting Standards Board (“IASB”), relevant for our consolidated financial statements. For a description of these principles, see note 2 to our consolidated financial statements included in this annual report. Until December 31, 2004, our financial statements were prepared in accordance with Italian GAAP and, to the extent such requirements or principles were silent on particular issues and not at variance, by those standards laid down by the International Accounting Standards Board (I.A.S.B.).

      In relation to this transition to IFRS, in April 2005 the Securities and Exchange Commission (“SEC”) adopted amendments to Form 20-F to provide a one time accommodation relating to first financial statements prepared under IFRS for foreign private issuers registered with the SEC. This accommodation permits Enel for its first year of reporting under IFRS to report two years rather than three years of statements of income, changes in shareholders’ equity and cash flows prepared in accordance with IFRS, with appropriate related disclosure and respective reconciliation of financial statement items to generally accepted accounting principles in the United States of America (“U.S. GAAP”).

      IFRS differ in certain respects from generally accepted accounting principles in the United States (“U.S. GAAP”). We describe these differences in notes 21-22 to our consolidated financial statements. Unless indicated otherwise, any reference in this annual report to our consolidated financial statements is to the consolidated financial statements (including the notes to the consolidated financial statements) included in Item 18.

      We publish our consolidated financial statements in euros. In this annual report, unless we specify otherwise or the context otherwise requires:

      To facilitate a comparison, all lire-denominated financial data for periods prior to January 1, 2001, included in this annual report have been restated from lire to euro at the fixed rate as of December 31, 1998 established by the European Central Bank of Lit. 1,936.27 = €1.00.

      For convenience only and except where we specify otherwise, we have translated certain euro figures into dollars at the rate of €1.00 = $1.1842, the noon buying rate in The City of New York for cable transfers in foreign currencies as announced by the Federal Reserve Bank of New York for customs purposes (the “noon buying rate”) on December 31, 2005, the date of the most recent balance sheet included in this annual report. By including convenience currency translations in this annual report, we are not representing that the euro amounts actually represent the dollar amounts shown or could be converted into dollars at the rates indicated. On May 31, 2006, the noon buying rate for the euro was €1.00 = $1.2833. For information about the rate of exchange between the dollar and the euro since January 1, 2000, you should read “Item 3. Key Information — Exchange Rates.”

      Unless otherwise specified or the context requires otherwise, references in this annual report to statistical, market and forecast data have been obtained or derived from industry sources and other publicly available information, such as industry reports published by the GRTN (as defined in the Glossary below), Terna and the Energy Authority (as defined in the Glossary below). Certain data may be revised from that presented in our annual reports on Form 20-F for prior years to reflect subsequent updates to, or changes in, such data. Unless otherwise indicated, statistical data and other information presented herein regarding market trends and our market position relative to competitors represent our best estimates as of the date hereof based on data derived from publicly available sources or other information obtained from independent third parties. Although we believe that such sources are reliable, we have not independently verified such information.

      Certain figures included in this annual report have been subject to rounding adjustments. Accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

      In this annual report, “Enel” and the “Company” refer to ENEL S.p.A. and the terms “Enel Group,” “Group,” “we,” “us” and “our” refer to ENEL S.p.A. together with its consolidated subsidiaries. In this document, when we use the word “currently,” we mean as of the date of this annual report.

      The following are definitions of certain terms and abbreviations that we use in this report. The explanations of electricity-related terms are not technical definitions, but are intended to assist you in understanding their meaning.

      Not applicable.

      Not applicable.

      We are the principal electricity operator in Italy, with the leading position in the generation, distribution and sale of electricity. At December 31, 2005, we had net installed capacity in Italy of approximately 42.2 GW, which we estimate to have represented approximately 49% of total Italian net installed capacity at that date. Our net electricity production in Italy in 2005 was 112.1 TWh, and, based on data provided by Terna, we estimate that our production represented approximately 39% of Italian net production during 2005. In 2005, in Italy, we distributed 259.3 TWh of electricity and sold 148.2 TWh of electricity to end users. Of the total sold, 129.7 TWh were sold to approximately 30 million customers on the regulated market, of which approximately 23.5 million were residential customers (86.9% of all residential customers in Italy, based on our estimations) and 18.5 TWh were sold on the free market. At December 31, 2005, we also had electricity generation plants outside Italy (in Spain, Bulgaria and North, Central and South America) with aggregate net installed capacity of approximately 3.8 GW, as well as sales and distribution operations in Spain with more than 0.6 million customers. In addition, in April 2005 we acquired distribution and sales operations in Romania with approximately 1.4 million customers and in April 2006 we acquired generation operations in Slovakia with a gross installed capacity of approximately 7,000 MW. Based on revenues, we were one of the largest industrial companies in Italy in 2005, with operating revenues of €34,059 million, or approximately $40,333 million. We earned net income of €3,895 million, or approximately $4,612 million, in 2005.

      We are also active in the import, distribution and sale of natural gas. In 2005, we sold approximately 6.7 billion cubic meters of gas to third parties, of which approximately 5.1 billion cubic meters were sold to nearly 2.1 million end users.

      Until June 2004, we owned 100% of Terna, the principal Italian electricity transmission company, which currently owns more than 90% of the transmission assets of Italy’s national electricity grid. In light of Italian laws and regulations providing for the reunification of the ownership and management of the Italian transmission grid and imposing certain ownership restrictions on the entity that will own and manage it, in June 2004, we sold 50% of Terna’s share capital in an initial public offering in Italy and a private placement with certain institutional investors that was not registered under the Securities Act (“the “Terna IPO”). In April 2005, we sold an additional 13.86% of Terna’s share capital in another private placement that was not registered under the Securities Act. In September 2005, we sold an additional 29.99% of Terna’s share capital to Cassa Depositi e Prestiti and in January 2006 we distributed 1.02% of Terna’s share capital as “bonus” shares that we had promised to certain Italian retail investors as part of the Terna IPO, thus reducing our current stake in Terna to 5.12%. In November 2005, the management of the Italian transmission grid was transferred from the GRTN to Terna, which was renamed Terna — Rete Elettrica Nazionale.

      One of the objectives of our management is to focus on on our core energy operations. In line with this strategy of focusing on our core energy operations, in February 2006 we completed the sale of Wind, our telecommunication company, to Weather Investments, a company in which we have a 26.1% interest.

      At the end of 2005, our management decided to re-organize the Group’s internal structure by dividing our Sales Infrastructure and Networks Division into two separate divisions (a Market Division and an Infrastructure and Networks Division) and by allocating our international generation and distribution operations, which had previously been included in other divisions, to a new International Division. This reorganization is effective as of January 1, 2006 and, therefore, our divisions are currently the following: Generation and Energy Management Division, Market Division, Infrastructure and Networks Division and the International Division. Each division is headed by a senior manager who reports directly to the Chief Executive Officer of Enel. Moreover, all non-core activities provided by companies of the Group to other Group companies have been grouped in our Services and Other Activities sector. Enel, as the parent company, defines the strategic objectives for the Enel Group and coordinates the activities of all Group companies. Each of Enel, our divisions and the Services and Other Activities sector constitutes a reportable segment for financial reporting purposes.

      The Ministry of Economy and Finance of the Republic of Italy, or the MEF, currently owns 21.4% of Enel’s shares, and Cassa Depositi e Prestiti S.p.A., a company 70% owned by the MEF and 30% owned by a consortium of Italian banking foundations, owns 10.2% of Enel’s shares.

      We have worked to face the challenges posed by market deregulation by capitalizing on our expertise in the electricity and gas sectors and by seeking new opportunities for growth in Italy and abroad. We have refocused our operations on our core energy businesses, and we aim to achieve cost leadership in the generation, distribution and sale of electricity and gas, and make customer care a high priority. In addition, we will continue to evaluate strategically relevant international opportunities, both in new markets and in our existing markets, such as Spain, Bulgaria and Romania and, in the area of renewable energy, in North, Central and South America.

      You should read the following selected consolidated financial data together with “Item 5. Operating and Financial Review and Prospects” and our consolidated financial statements and notes thereto included elsewhere in this annual report.

      Our consolidated income statement data for each of the two years in the period ended December 31, 2005 and the consolidated balance sheet data at December 31, 2004 and 2005 set forth below have been prepared in accordance with IFRS as adopted by EU, which differs in certain significant aspects from U.S. GAAP. For an explanation and quantification of such differences, see note 21 to our consolidated financial statements.

      The following table shows, for the periods indicated, information concerning the exchange rate between the U.S. dollar and the euro. These rates are provided solely for your convenience. We do not represent that the euro could be converted into U.S. dollars at these rates or at any other rate.

      The column of averages in the table below shows the averages of the relevant exchange rates on the last business day of each month during the relevant period. The high and low columns show the highest and lowest exchange rates on any business day during the relevant period.

      Enel’s ordinary shares are quoted in euros on Mercato Telematico Azionario (“Telematico”), the Italian automated screen-based trading market managed by Borsa Italiana S.p.A. (“Borsa Italiana”). Enel’s American Depositary Shares (“ADSs”) are quoted in U.S. dollars and traded on the New York Stock Exchange (“NYSE”).

      You should carefully consider the risks described below and all of the other information in this document. If any of the risks described below actually occurs, our business, economic and financial results and the trading price of Enel’s ordinary shares or ADSs could be materially adversely affected.

      Future laws and regulations issued by the European Union or the Italian national and local authorities, in particular the decisions and policies of the Energy Authority, may require significant changes in our business or otherwise affect our business in ways that we cannot predict. Any new regulations that cause us to restructure or otherwise change our business or significantly change the conditions under which we operate may have a material adverse effect on our business prospects, financial condition and results of operations. You should read “Item 4. Information on the Company — Regulatory Matters” for a discussion of these regulatory matters.

      The Italian energy markets have been the object of numerous regulatory initiatives designed to foster liberalization. The most significant effects of these initiatives on the Italian electricity market have been (i) a reduction in our generating capacity (through the mandatory disposal of three generating companies, the Gencos; (ii) the introduction of limits on the amount of energy we may produce and import; (iii) the introduction on April 1, 2004, of the Italian power exchange, where prices are determined by competitive bidding; (iv) the required disposal of certain of our municipal networks to local utilities; and (v) mandated increases in the number of consumers who are eligible to buy electricity on the free market (with all non-residential customers having become eligible as of July 1, 2004, and all customers scheduled to become eligible as of July 1, 2007).

      In the generation business, our competitors include independent power producers, municipal utilities and other operators of electricity generating capacity, including Italian and international power companies. In addition to the April 2004 introduction of the Italian power exchange, we expect that competition will increase further due to:

      Please see “Item 4. Information on the Company — Business — The Enel Group — Competition in the Electricity and Gas Markets.”

      In the sale of electricity, based on data from Terna and from GRTN (for the years before 2005), we estimate that our market share in Italy has decreased from 92% in 1999 to approximately 50% in 2005; our market share could decline further in coming years as liberalization progresses. In sales of electricity on the free market, we face competition both from other electricity producers as well as from wholesalers that resell the electricity they purchase.

      Our ability to expand our business and increase operating profits may be limited unless we are able to offset the decrease in generation and sales volumes of our electricity business through improved efficiency, increased sales in other areas of our business or international expansion.

      Our gas operations also expose us to risks relating to market regulation. Italian regulations enacted in May 2000 have sought to introduce competition gradually into the Italian natural gas market. In particular, these regulations have eased entry into some activities, including the import, export and sale of gas. From January 1,

      Our strategy is to seek both to be the cost leader in the generation of electricity and in the distribution and sale of electricity and gas in Italy and to provide high quality customer service. If we are unable to implement this strategy, or are otherwise unable to adapt our core energy businesses to meet these regulatory challenges, it may have a material adverse effect on our business prospects, financial condition and results of operations.

      For a more complete description of the regulation of the Italian energy industry and the way we expect regulatory matters to affect the electricity and gas markets, you should read “Item 4. Information on the Company — Regulatory Matters.”

      Our generation plants, as well as our distribution networks, are constantly exposed to risks related to their malfunction and other interruptions in service resulting from events outside of our control. These events may result in increased costs and other losses. Although we have acquired insurance coverage for events of this nature in line with general market practice, our coverage may prove insufficient to fully compensate us for any increased costs or losses that may occur as a result of service interruptions or malfunctions, with a consequent adverse effect on our business prospects, financial condition and results of operations. You should also read “— We face legal proceedings and potential regulatory measures arising from the 2003 power outage that affected all of Italy that could have a material adverse effect on our financial condition and results of operations. Further power outages involving our electricity operations could also adversely affect our financial condition and results of operations,” below.

      In addition, our “Telemanagement” digital electricity meter project is dependent on certain communications components and technology that are based on patents and licenses held by third parties and may require certain additional related services by third parties, such as maintenance. Please see “Item 4. Information on the Company — Business — The Enel Group — Sales, Infrastructure and Networks — Domestic Distribution and Sales Operations — Telemanagement System” for a description of this project. Interruptions in the availability of these components and technology or of the necessary related services provided by such third parties may be outside of our control, and could have a material adverse effect on our financial condition and results of operations.

      In line with our strategy to reduce generation operating costs, we are implementing a program to convert several of our thermal generation plants to adopt more efficient technology or use cheaper fuels, such as coal. We cannot predict whether we will be able to complete our conversion program in accordance with the schedule we have set or in the manner currently contemplated, nor whether we will be able to realize the anticipated benefits of this program. Any such failure could have a material adverse effect on our business prospects, financial condition and results of operations.

      In addition, there is public opposition to our construction plans and conversion of power plants in certain municipalities, and we cannot exclude the possibility that in the future, such opposition may have a material adverse effect on our development plans, and, as a result, on our business.

      Our thermal generation plants use fuel oil, natural gas and coal to generate electricity. Increases in energy prices therefore have a direct effect on our operating costs. Both the cost and availability of fuel are subject to

      Given our conversion of significant generation capacity to combined-cycle technology, we expect natural gas to constitute a significant portion of our fuel consumption in the future. In 2005, approximately 46% of the electricity we produced at our thermal plants was generated by plants using natural gas. We currently obtain a significant portion of the natural gas we use directly from Algeria and Nigeria through pipelines and by sea. Imports of natural gas from these countries may be subject to disruption due to a number of things, including maintenance works on the pipelines and bad weather conditions at sea. Any major disruption of this imported supply, as well as the emergency measures that the Ministry of Productive Activities or other Italian authorities may take in the event of such disruption, could adversely affect our ability to generate electricity using natural gas.

      If in the future there are significant or unexpected changes in the price of the fuels we use to generate electricity or if adequate supplies of fuel become unavailable, our financial condition and results of operations could be materially adversely affected.

      In recent years, we have expanded our operations outside Italy. Our operations abroad now include, among others, generation plants in Spain, Bulgaria, Slovakia and North, Central and South America, distribution networks and sales operations in Spain and distribution networks and sales operations in Romania. In 2004, we also established a joint venture to manage a generation plant in Russia, in 2005 we entered into a non-binding memorandum of understanding with French state-owned electricity company Electricité de France S.A. (“EDF”) regarding an industrial partnership that, among other things, provides for our acquisition of a 12.5% stake in EDF’s EPR nuclear power plant project.

      We expect this international expansion to continue. In particular, we have made binding offers to acquire interests in additional electricity generation companies in Panama and Slovakia and in June 2006 we (i) won the auction for a 67.5% interest in Electrica Muntenia Sud, a Romanian electricity distribution company, (ii) entered into an agreement with Grupo Rede for the acquisiton of 11 companies, which own concessions to operate hydroelectric plants in Brazil with an aggregate installed capacity of 98 MW, and (iii) acquired from the ESN Group a 49.5% interest in Res Holding, a Dutch company holding 100% of the Russian power supplier company RusEnergoSbyt. Please see “Item 4. Information on the Company — Business — The Enel Group — Generation and Energy Management — International Generation.” and “Item 4. Information on the Company — Business — The Enel Group — Sales, Infrastructure and Networks-International Distribution and Sales Operations.” We will continue to evaluate opportunities outside Italy in the generation, distribution and sale of electricity businesses in both the countries where we currently operate and new markets.

      This international expansion requires us to become familiar with new markets and competitors in order to manage and operate these businesses effectively, and exposes us to local economic, regulatory and political risks. The process of integrating acquired operations, personnel and information systems can also be difficult and could absorb management time and resources and distract management from other opportunities or problems in our business and industry. In addition, some of the companies we have acquired may require significant capital investments.

      Operating internationally may also subject us to risks related to currency exchange rate fluctuations, foreign investment restrictions or restrictions on remittances by local subsidiaries. Depending on the circumstances, unfavorable developments in or affecting our operations outside Italy could adversely affect our business prospects, financial condition and results of operations.

      In addition, in April 2006 we purchased 66% of Slovenske Elektrarne (“SE”), which currently has four nuclear power generating units with an aggregate net installed capacity of 2,398 MW and two nuclear units under construction.

      Prior to the closing of our purchase of SE, certain conditions were fulfilled, including the approval by the Slovakian government of the strategic investment plan we prepared for SE for the 2006-2013 period and the transfer to state-owned companies of the assets and liabilities of a nuclear power plant that is in the process of being decommissioned, including spent nuclear fuel and the radioactive waste produced by their operations, and the disposal of a water plant, as well as the approval by the Slovakian government of legislative provisions for a new fund for the decommissioning of nuclear installations in Slovakia and new rules governing the Slovakian electricity market. Although we believe that all of SE’s existing nuclear plants use internationally accepted technologies and are managed in accordance with Western European standards, our acquisition of the majority participation in SE’s share capital exposes us to the risks of ownership and operation of nuclear generating facilities, including the disposal and storage of radioactive materials and spent fuel, as well as of the potential harmful effects on the environment and human health. In addition, while the Republic of Slovakia and SE have ratified the Vienna Convention, potential limits may arise on the amount and types of insurance commercially available to cover the risks associated with these operations. Potential risks may also arise in connection with the decommissioning of these nuclear plants, particularly as the regulatory regime for nuclear power and nuclear decommissioning in Slovakia is currently in the process of being defined. We have not owned any nuclear power plants since November 2000, and we have not produced electricity from nuclear power plants since 1988.

      Consistent with our strategy of international expansion, we may make acquisitions of targets of very significant size. Without making any commitments, certain banks have expressed an intention to provide us with the financing necessary for such acquisitions. Should we incur significant external debt to finance any of these acquisitions, we would likely be required to make certain undertakings to the relevant banks (as customary for financings of this size and type), which could require us to get the consent of these banks in order to be able to take specified types of action. In addition, should we make any such large acquisition, we will have to manage the significant challenges inherent in our integration of the target’s business and we cannot predict whether and to what extent any such acquisition would be successful.

      On September 28, 2003, Italy suffered a complete blackout of electrical service that affected the entire country with the exception of the island of Sardinia. After the blackout, approximately 21 hours were necessary before electricity again became available to all customers.

      The Energy Authority in September 2004 initiated a formal proceeding to determine whether certain companies, including our subsidiaries Enel Produzione S.p.A. (“Enel Produzione”), Enel Distribuzione S.p.A. (“Enel Distribuzione”), Terna and Deval S.p.A. (“Deval”), may have been partially responsible for the blackout. In 2005, we settled the proceeding against Enel Produzione through the payment of €50,000. Although no further fines may be imposed on Enel Produzione in connection with this proceeding, the Energy Authority may still impose measures to improve reliability of our energy supply, which may have an adverse impact on our results of operations. The proceedings remain pending against our subsidiaries Enel Distribuzione and Deval, and a decision is expected by October 31, 2006. If the Energy Authority finds that these companies have been partially responsible for the blackout, it may impose sanctions or request undertakings from them.

      Furthermore, certain of our customers brought legal actions against us in the Italian courts seeking damages as a result of this blackout. Although the claims made by these plaintiffs are for minor amounts, an increase in the number of decisions finding us liable for such damages could result in an increase in the number of such claims filed and the magnitude of the damages sought. For more information on the civil and administrative proceedings related to the blackout, please read “Item 8. Financial Information — Other Financial Information — Legal Proceedings — Blackout litigation.”

      While we do not believe we were responsible for the blackout, we cannot exclude the possibility that we will be held liable for it by Italian courts and/or the Energy Authority. Any finding of liability on our part could result

      Although the blackout has not yet had a material impact on our operations or financial results, we cannot provide any assurance that further power outages or disruptions involving our operations will not occur in the future, or that any such outages or disruptions would not have a material adverse effect on our financial condition and results of operations. In May 2005, the Energy Authority issued proposals for public comment (through June 30, 2005) for the institution of a system of automatic compensation payable by electricity distributors to affected customers in the event of a blackout or other prolonged service interruption. For a description of this proposal, please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation — Continuity and Quality of Service Regulation.” The adoption of this system would augment the economic risks we face in the event of any such interruption in service.

      We have been and are likely to continue to be subject to regulatory and antitrust investigations in the Italian electricity market. We are currently subject to an Antitrust Authority investigation with respect to certain sharp increases in the price of electricity on the Italian power exchange in June 2004 and in January 2005. In April 2005, the Antitrust Authority opened proceedings against Enel and Enel Produzione after the Energy Authority officially concluded that these increases may have been associated with violations of antitrust law by us. For more information, please see “Item 8. Financial Information — Other Financial Information — Legal Proceedings.” If the Antitrust Authority were to hold us liable for the abusive practices alleged, it could impose a fine on us of up to 10% of our total revenues in the preceding fiscal year.

      Moreover, our subsidiary Enel Viesgo Generaciòn is currently subject to antitrust investigations in Spain for alleged abuse of dominant position. For more information please see “Item 8. Financial Information — Other Financial Information — Legal Proceedings.”

      While we do not believe we have committed any violation of antitrust laws, we cannot exclude the possibility that we will be held liable in the current investigations by the antitrust authorities in Italy or in Spain, nor that there will be other such investigations by the Energy Authority, the Antitrust Authority or other regulatory bodies in Italy or abroad in the future. Should we be held liable in the current or any future investigations, and should such liability result in the imposition of significant fines or of material restrictions on our activity, there could be a material adverse effect on our financial condition and results of operations.

      In June 2005, the European Commission launched an investigation into the functioning of the European energy market. The overall objective of the inquiry is to investigate the barriers to the development of a fully functioning open and competitive EU-wide energy market. In its preliminary report issued in February 2006, the European Commission identified market concentration, vertical foreclosure, lack of market integration, lack of transparency and price formation as the five main barriers to a fully functioning EU-wide energy market. The European Commission is expected to publish its final report at the end of 2006. Although we cannot at this stage predict what actions the European Commission may take as a result, we cannot foreclose the possibility that the report will lead to the adoption of measures that could adversely affect our operations.

      In 2005, we controlled approximately 2,000 MW of the total capacity for electricity imports into Italy pursuant to two long-term supply contracts. Since April 1, 2004, the date on which the Italian power exchange started operations, we sell the electricity imported pursuant to these contracts to the Single Buyer at terms set by an Italian ministerial decree.

      Until December 31, 2005, these long-term supply contracts enjoyed priority access to interconnection capacity for 2000 MW. However, in 2006, the French regulatory authority has decided not to assign any reserved capacity for our import of electricity under the terms of the long-term contract we entered into with the French electricity company EDF. As a consequence, only part of the electricity bought under this contract has been imported into Italy, with the remaining part being sold in France. We have appealed the decision of the French regulatory authority. Moreover, in April 2006 the European Commission has started proceedings against several Member States, including Italy, for failure to enact EU legislation. The proceedings also challenge priority access for long-term supply contracts. If the European Commission concludes that such rights are contrary to EU law, our ability to import electricity under these contracts will be impaired and we will probably be forced to pay congestion charges or to sell the electricity under this contract abroad. We believe, however, that the impact of this measure or any other measure adopted further to a decision by the European Commission that priority access rights are contrary to EU law would be in any event limited, as the contract with EDF expires in 2007 and the revenues derived from the other contract (which expires in 2011) are not material.

      We operate our hydroelectric plants pursuant to concessions granted and regulated by national and local authorities. These hydroelectric plants accounted for approximately 34% of our net installed capacity in 2005 (with 4.7% of our net installed capacity attributable to those in the Region of Trentino-Alto Adige).

      In January 2004, the European Commission determined that certain Italian regulations regarding hydroelectric concessions were contrary to EU law. In particular, the European Commission objected to renewal preferences granted to existing holders of concessions (and in the region of Trentino-Alto Adige, to the operator controlled by the local authorities) upon the expiry of those concessions, as well as to the fact that the regulations provided for the expiration of all concessions in 2029 (and for the region of Trentino-Alto Adige, in 2010), even though these concessions had previously been of perpetual duration.

      In December 2005, Italy amended the relevant regulations, abrogating the renewal preferences and postponing the expiration of all concessions for an additional 10 years. However, if the European Commission continues to pursue its formal action before the Court of Justice to enforce its request and the Court of Justice affirms the European Commission’s opinion, our hydroelectric concessions may be terminated prematurely and we may not be able to renew these concessions at all or on favorable terms. This could have a material adverse effect on our business prospects, financial condition and results of operations. The European Commission decision on whether to continue its formal action is expected in the second half of 2006.

      Recent laws have modified the expiration date for gas distribution concessions. In 2000, a decree of the Ministry of Productive Activities set the expiration date of gas distribution concessions awarded prior to May 2000 by means other than competitive tender at the earlier of their original expiration date or December 31, 2005, with the expiration date extendible for up to five years under certain conditions. The Marzano Law, as interpreted by the Ministry of Productive Activities in November 2004, provided instead that these concessions are to expire at the earlier of their original expiration date or December 31, 2007, with the expiration date still extendible for up to five years under certain conditions. The Italian administrative courts, however, disagreed with the Ministry’s interpretation. As a result, on February 23, 2006, a law confirmed that gas distribution concessions expire by law at the earlier of their original expiration date or December 31, 2007, and extended the expiration date to December 31, 2009 under certain conditions. Local authorities may extend this date by one additional year. Furthermore, certain gas distribution concessions for southern Italy, partially financed through public funds made available in the context of a public incentive plan for the use of natural gas in southern Italy, expire at the later of June 21, 2012 or twelve years from the entry into force of their approval by the Ministry of Economy and Finance. Finally, gas distribution concessions awarded prior to May 2000 by competitive tenders expire at the earlier of their original expiration date or December 31, 2012. Please see “Item 4. Information on the Company — Regulatory Matters — Gas Regulation” for more details on gas distribution concessions. The majority of our existing gas distribution concessions are currently due to expire on December 31, 2009. If the

      In November 2004, the Italian Region of Tuscany challenged the Marzano Law before the Italian Constitutional Court regarding the allocation of powers between the Italian State and the regional governments with respect to regulation of electricity and gas distribution. With a ruling as of October 11, 2005, however, the Italian Constitutional Court rejected Tuscany’s contention that regulation of electricity and gas distribution fell within the jurisdiction of regional governments. Furthermore, the Italian Regions of Tuscany and Emilia-Romagna introduced regional regulations of the energy sector, which were challenged by the Italian government before the Constitutional Court. Depending on the outcome of this case, we cannot rule out the possibility that in the future electricity and gas distribution activities might be required to comply with diverging national and regional regulations.

      While the effect of such diverging regulations on our operations is difficult at this point to predict, it is possible that it would have a material adverse effect on our financial condition and results of operations, as it would likely increase our regulatory compliance costs and create regulatory uncertainty.

      Our businesses are subject to extensive environmental regulation under Italian law, including laws adopted to implement European Union regulations and directives and international agreements on the environment. Environmental regulations affecting our business primarily relate to air emissions, water pollution, waste disposal and electromagnetic fields. The principal air emissions deriving from thermal electricity generation are sulfur dioxide (SO₂), nitrogen oxides (NOx), carbon dioxide (CO₂) and particulate matter such as dust and ash.

      We incur significant costs to comply with environmental regulations requiring us to implement preventive or remedial measures. Environmental regulations may also influence our business decisions and strategy, such as by discouraging the use of certain fuels. In addition, expressions of public concern about environmental problems associated with electricity generating plants, power lines and other facilities may result in even more stringent regulation in the future, which could further increase costs.

      In 2005, we spent a total of €450 million on measures intended to reduce the impact of our operations on the environment, including measures to comply with applicable law. Of this aggregate amount, €350 million was accounted for as current expenditures and €100 million as capital expenditures. Major capital expenditures included projects to reduce SO₂ and NOx emissions by our power plants and to install underground cables in our distribution network.

      In addition, we are parties to a significant number of legal proceedings relating to environmental matters. The aggregate amount of damages that we may be required to pay and the aggregate costs of remediation or preventive measures we may be required to implement in connection with these proceedings may be significant.

      The adoption of any additional or more rigorous environmental rules applicable to our businesses would be likely to increase our costs and could have a negative effect on our financial condition and results of operations. Please see “Item 4. Information on the Company — Regulatory Matters — Environmental Matters” and “Item 8. Financial Information — Other Financial Information — Legal Proceedings” for a more detailed discussion of environmental matters.

      In line with our strategy of focusing on our core energy operations and exiting the telecommunications business, we sold Wind to Weather Investments in a series of transactions, the last one of which was completed in February 2006. As a result of these transactions, we no longer have direct interest in Wind and we received aggregate cash consideration of €3,009 million and a 26.1% interest in Weather Investments. Weather Investments is a private consortium headed by Naguib Sawiris, who controls Orascom, an Egypt-based mobile phone operator that provides telecommunications services in the Middle East, Africa and Pakistan, is listed on the London Stock Exchange and the Cairo and Alexandria Stock Exchange and holds a minority stake in Hutchinson Telecommunications International.

      In addition, we entered into a shareholders’ agreement with Weather Investments II S.a.r.l., the majority shareholder of Weather Investments, which contemplates an initial public offering of Weather Investments, when market conditions are favorable, and provides for both our and Weather Investments II S.a.r.l.’s undertakings, subject to certain exceptions, not to sell our interests in Weather Investments before the initial public offering. We can give no assurance that we will be able to complete an offering of Weather Investments’ shares or otherwise dispose of all or any part of our interest in Weather Investments on favorable terms or in accordance with our envisaged timetable and business strategy, if at all.

      In 2005, we discontinued the operations of our former Telecommunications Division and Transmission Division, following the deconsolidation of Wind and Terna, respectively, as a result of our disposal of a controlling interest in each of these companies. We intend to use the proceeds from these sales primarily to finance our international expansion outside of Italy through acquisitions. However, should we fail to identify assets that meet the criteria set forth in our investment strategy by the end of 2007, we may use part of the available financial resources to buy back Enel shares in the market.

      Moreover, during 2005 and 2006 we also made significant acquisitions, most notably of SE, as well as entering into agreements to make other significant acquisitions. Please see “Item 4. Information on the Company — History and Development of the Company” for additional information on these transactions.

      We may continue to divest assets as a part of our ongoing efforts to refocus our activities on our core electricity and gas businesses, and to acquire new businesses as part of our international expansion. As a result, our historical consolidated financial and operational performance during or as of the end of periods ending on or prior to the consummation of these transactions may not be indicative of our future operating and financial performance.

      On May 6, 2005, INPS, the Italian social security fund, issued a circular purporting to extend an obligation for employers to make certain social security contributions to formerly state-owned companies and national public entities carrying out industrial activities. Although state-owned companies were exempted from this obligation, INPS indicated in its circular that this obligation would be applied to privatized companies with retroactive effect as of the date of privatization of the relevant entity. As we believe that this circular should not apply to us, we challenged it before the Tribunal of Rome. In March 2006, the Council of State, upon INPS’ request, expressed the opinion that INPS may not impose retroactive obligations. Though this opinion supports our position, it is not binding on the Tribunal of Rome and we cannot exclude that this court will state that the INPS circular apply to us, whether for the period after its issuance or also retroactively. In such cases, we estimate that the amounts we would be required to pay would total to approximately €80 million per year.

      On May 31, 2005, the Italian parliament passed a law to aid local governments that included, among other things, provisions regarding the determination of the deemed value of electricity generation facilities for purposes of assessing, among others, local property taxes. Under this law, owners of electric utilities are required to include in the computation of the taxable value of their facilities not only land and buildings, but also the value of removable parts of the facilities, such as generation equipment.

      Should these provisions be applied to all of the electricity generation facilities that we own and the pending and prospective litigation regarding the assessment of their deemed value be unsuccessful, we expect that our local property tax (the imposta comunale sugli immobili, or ICI) burden would increase by approximately €80 million per year.

      In addition, a recent interpretation of these provisions by the Italian Supreme Court, in a case relating to one of our facilities, may lead local authorities to claim that they apply retroactively, starting from the fiscal year 2003. We believe that these claims would be illegitimate and we would challenge them before the competent court. However, should these claims be successful, we estimate that our ICI liability would increase by approximately up to €40 million for each litigated tax period starting from 2003.

      We are defendants in a number of legal proceedings incidental to the generation and distribution of electricity and our other business activities. Our pending legal proceedings include various civil and administrative claims and disputes relating to the construction and operation of several power stations, transport and distribution lines, and other matters that arise in the normal course of our business. We have established a reserve for litigation and other contingent liabilities where we consider it probable that a claim will be resolved unfavorably and where we can reasonably estimate the potential loss involved. This reserve, which also includes provisions for other contingencies and uncertainties related to our operations, is included in other non-current liabilities in our consolidated balance sheet, and amounted to €1,146 million at December 31, 2005, of which €341 million related to legal proceedings. Please see “Item 8. Financial Information — Other Financial Information — Legal Proceedings.”

      However, we are not able to predict the ultimate outcome of any of the claims against us, and any material damages or other costs imposed on us in the event of an unfavorable outcome may be in excess of our existing reserves. We cannot exclude that unfavorable decisions in proceedings against us could have a material adverse effect on our financial position or results of operations.

      The MEF currently directly owns 21.4% of Enel’s outstanding share capital and controls Cassa Depositi e Prestiti S.p.A. (“Cassa Depositi e Prestiti”), which owns 10.2% of Enel’s outstanding share capital. Therefore, the MEF has de facto control of Enel. As long as the MEF retains control of Enel for purposes of applicable Italian law on controlled companies (which is determined based on having a majority of the vote at ordinary shareholders’ meetings or otherwise exercising a dominant influence over another company), the MEF will be able to exercise significant control over all matters to be voted on by Enel’s shareholders, including, without limitation, the election and removal of directors and possible capital increases or amendments to Enel’s by-laws. As a result, other shareholders’ ability to influence decisions on matters submitted to a vote of Enel’s shareholders may be limited.

      The Italian privatization law (as amended) and Enel’s by-laws confer upon the Italian government, acting through the MEF (which acts after consultations with and in agreement with the Ministry of Productive

      In particular, the MEF has the following special powers:

      The MEF may exercise these powers only for due cause when it believes that a concrete detriment to vital national interests would otherwise result.

      The special powers retained by the MEF are described in further detail under “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders” and “Item 10. Additional Information — By-Laws.” As a result of these powers, Enel may not enter into change of control transactions without the approval of the MEF, in agreement with the Ministry of Productive Activities. This may limit the ability of Enel’s shareholders to benefit from a premium in connection with a change of control transaction.

      The MEF and/or Cassa Depositi e Prestiti may sell Enel’s ordinary shares at any time. In October 2004, the MEF sold an additional interest of approximately 19% in an offering consisting of a public offering in Italy and a private placement to international institutional investors that was not registered under the Securities Act. In July 2005, the MEF sold a further interest of 9.3% in the Company in a similar offering. There are no minimum ownership or similar requirements under Italian law that would limit sales of additional shares by the MEF or Cassa Depositi e Prestiti.

      Sales of substantial amounts of ordinary shares by the MEF or other shareholders, or the perception that such sales could occur, could adversely affect the market price of Enel’s ordinary shares and American Depositary Shares, or ADSs, and could limit Enel’s ability to raise capital through equity offerings.

      Enel pays cash dividends in euros; as a result, exchange rate movements may affect the amounts, expressed in U.S. dollars, that investors receive from JP Morgan Chase Bank, the depositary for Enel’s ADR program (“JP Morgan” or the “Depositary”), in respect of such dividends if they hold ADSs. Moreover, the price of Enel’s ordinary shares is quoted in euros. Therefore, exchange rate movements may also affect the U.S. dollar price of the ADSs corresponding to Enel’s ordinary share price.

      The market price of Enel’s ordinary shares and ADSs may be significantly affected by factors such as variations in our results of operations, market conditions specific to our industry and changes in regulations applicable to us. In addition, stock markets can experience significant fluctuations that may be unrelated to the performance or circumstances of the specific companies whose shares are affected. Market fluctuations, as well as economic conditions, may adversely affect the market price of the ordinary shares and ADSs.

      It may be more difficult for you to exercise your rights as a shareholder if you hold ADSs than it would be if you directly held ordinary shares. For example, if Enel offers new shares and you have the right to subscribe for a portion of them, the Depositary is allowed, in its own discretion, to sell for your benefit that right to subscribe for new shares instead of making it available to you. Furthermore, in some cases, you may not be able to vote by giving instructions to the Depositary on how to vote for you.

      This annual report includes forward-looking statements. When used in this annual report, the words “seek(s),” “intend(s),” “estimate(s)”, “plan(s)”, “project(s),” “aim(s),” “expect(s),” “will,” “may,” “believe(s),” “should,” “anticipate(s)” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements regard, among other things:

      The forward-looking statements included in this annual report are subject to risks, uncertainties and assumptions about the Group. Our actual results of operations may differ materially from the forward-looking statements as a result of, among other things, the risk factors described under “— Risk Factors.” We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or events otherwise occurring after the date of this annual report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur.

      Enel was established in December 1962 as a state-owned entity (Ente Nazionale per l’Energia Elettrica) through the nationalization of approximately 1,250 private power companies in Italy. In 1992, Enel ceased to operate as a public entity and was transformed into a company limited by shares, Enel S.p.A.

      Until April 1, 1999, Italy’s electricity market was highly regulated. On that date, a new law, the Bersani Decree, came into force, beginning the transformation of the Italian electricity market into a liberalized market, in which energy prices charged by generators are freely determined. Beginning in October 1999, as required by the Bersani Decree, Enel formed separate subsidiary companies, to each of which Enel assigned the responsibility (and related assets, liabilities and personnel) for each of its significant businesses. As a part of this liberalization, Enel was also required to transfer responsibility for the management and control of the Italian national electricity transmission grid and responsibility for electricity dispatching to the GRTN, a company wholly owned by the MEF. In addition, as required by Italian legislation adopted as part of the liberalization of the electricity market, we have disposed of approximately 15,000 MW of our generating capacity through the sale of three generation companies and sold several municipal distribution companies.

      In November 1999, the MEF sold approximately 32% of Enel’s share capital in Enel’s initial public offering, in connection with which Enel’s ADSs were listed on the New York Stock Exchange and Enel’s shares were listed on the Telematico, the Italian screen-based trading market managed by Borsa Italiana. Following this sale, as part of the privatization and liberalization of the Italian electricity market, the MEF sold stakes in Enel of 6.6% in the context of a private placement transaction in November 2003 and approximately 10% to Cassa Depositi e Prestiti, a company now owned 70% by the MEF, in December 2003. In October 2004, the MEF sold an additional interest in Enel of approximately 19% in an offering consisting of a public offering in Italy and a private placement to international institutional investors that was not registered under the Securities Act. Finally, in July 2005, the MEF sold a further interest of 9.3% in the Company in a similar offering.

      Since 2000, we have expanded our operations in the gas sector through the acquisition of several independent gas distributors. Since 2000, we have also expanded our energy operations abroad, including through the purchase in 2002 of Electra de Viesgo S.L. (“Viesgo”), a company with electricity generation and distribution operations in Spain, and, in March 2003, of a controlling interest in Maritza East III Power Company AD (“Maritza East III”), a company with electricity generation operations in Bulgaria. We have also acquired power producers specializing in renewable resources in the Americas and have a 50% joint venture with Uniòn Fenosa Generaciòn S.A. in Spain called Enel Uniòn Fenosa Renovables S.A., or “EUFR”. In April 2006, we acquired a 66% interest in Slovenske Elektrarne (“SE”) for total consideration of approximately €840 million. SE, the principal electric power generation company in Slovakia, has a total gross installed capacity of approximately 7,000 MW. In June 2006 we (i) won the auction for a 67.5% stake in the Romanian power distribution company Electrica Muntenia Sud, a power distributor to more than 1.1 million customers in Bucharest, Romania, for total consideration of €820 million, (ii) acquired from the ESN Group a 49.5% interest in Res Holding, a Dutch company holding 100% of the Russian power supplier company RusEnergoSbyt with 11TWh of annual sales, for $105 million (corresponding to approximately €88 million), and (iii) entered into an agreement with Grupo Rede for the acquisiton of 11 companies that own concessions to operate hydroelectric plants in Brazil, with an aggregate installed capacity of 98 MW (closing of the transaction is subject to certain conditions, including the approval by the Brazilian electricity authority, and is expected in the second half of 2006).

      Until June 2004, we owned 100% of Terna, the principal Italian electricity transmission company, which currently owns more than 90% of the transmission assets of Italy’s national electricity grid. In light of Italian laws and regulations providing for the reunification of the ownership and management of the Italian transmission grid and imposing certain ownership restrictions on the entity that will own and manage it, in 2005 and in January 2006 we reduced our stake in Terna, the company through which we carried out our transmission activities, to

      We have also invested in telecommunications, starting in 1997, when Enel, France Télécom and Deutsche Telekom together formed our former telecommunications subsidiary, Wind. Our initial stake in Wind was 51%, which increased to 73.4% following Deutsche Telekom’s exit from the joint venture in July 2000 and our contribution to Wind on July 30, 2001, of 100% of the capital stock of Infostrada, an Italian fixed-line telephone provider we purchased in 2001 from Vodafone Group plc. Infostrada was merged into Wind as of January 1, 2002. In July 2003, we acquired the 26.6% stake in Wind then held by Wireless Services Belgium SA, a subsidiary of France Télécom, becoming Wind’s sole shareholder.

      In line with our strategy of focusing on our core energy operations, in May 2005 we entered into an agreement for the sale of Wind to Weather Investments in a series of transactions. Weather Investments is a private consortium headed by Naguib Sawiris, who controls Orascom, an Egypt-based mobile phone operator that provides telecommunications services in the Middle East, Africa and Asia and is listed on the London Stock Exchange and the Cairo and Alexandria Stock Exchange. These transactions were completed in February 2006. As a result of these transactions, we received an aggregate cash consideration of €3,009 million and a 26.1% interest in Weather Investments.

      At the end of 2005, our management decided to re-organize the Group’s internal structure by substituting our Sales Infrastructure and Networks Division with two separate divisions (a Market Division and an Infrastructure and Networks Division) and by allocating our international generation and distribution operations, which had previously been included in other divisions, to a new International Division. This reorganization is effective as of January 1, and, therefore, our divisions are currently the following: Generation and Energy Management Division, Market Division, Infrastructure and Networks Division and the International Division. Each division is headed by a senior manager who reports directly to the Chief Executive Officer of Enel. Moreover, all non-core activities provided by companies of the Group to all Group companies have been grouped in our Services and Other Activities sector. Enel, as the parent company, defines the strategic objectives for the Enel Group and coordinates the activities of all Group companies. Each of Enel, our divisions and the Services and Other Activities sector constitutes a reportable segment.

      For additional information on our divisions and their activities, please see “— Business — The Enel Group” below. For a detailed discussion of our operational and financial results in the period 2004-2005, please see “Item 5. Operating and Financial Review and Prospects.” For a description of our capital expenditures in each of the last three fiscal years, please see “— Business — The Enel Group — Capital Investment Program.”

      Enel S.p.A. is a società per azioni, or a company whose capital is represented by shares, incorporated under the laws of Italy. Enel’s statuto, or by-laws, provide that the duration of the Company is until December 31, 2100. Enel’s registered office is at Viale Regina Margherita 137, Rome, Italy. Enel’s main telephone number is +39 06 83051. Individual investors may reach our retail investor team at telephone number +39 06 8305 2081, while institutional investors may reach our investor relations team at telephone number +39 06 8305 7008. Enel is represented in the United States by our subsidiary Enel North America Inc. (“Enel North America”), located at One Tech Drive, Suite 220, Andover, MA 01810.

      We are the principal electricity operator in Italy, with the leading position in the generation, distribution and sale of electricity. Based on revenues, we were one of the largest industrial companies in Italy in 2005, with operating revenues of €34,059 million, or approximately $40,333 million. We earned net income in 2005 of €3,895 million, or approximately $4,612 million. We believe that, in terms of the volume of electricity sold in the year 2005, we were one of the largest electric utilities in Europe, and according to Bloomberg, as of May 31, 2006, we were also one of the largest publicly traded electric utilities in the world based on market capitalization.

      The following table shows selected operating data for our electricity and natural gas operations in Italy for each of the past three years. Net production equals gross production of electricity less consumption by units generating electricity and mechanical and electrical losses in production.

      In 2005, our operations were organized, reflecting our internal structure, into six business segments: Generation and Energy Management; Sales, Infrastructure and Networks; Transmission; Telecommunications; Services and Other Activities; and Corporate.

      At the end of 2005, our management decided to re-organize the Group’s internal structure by substituting our Sales, Infrastructure and Networks Division with two separate divisions (a Market Division and an Infrastructure and Networks Division) and by allocating our international generation and distribution operations, which had previously been included in other divisions, to a new International Division. Our divisions are currently the following: Generation and Energy Management Division, Market Division, Infrastructure and Networks Division and the International Division. Each division is headed by a senior manager who reports directly to the Chief Executive Officer of Enel. Moreover, all non-core activities provided by companies of the Group to all Group companies have been grouped in our Services and Other Activities sector. Enel, as the parent company, defines the strategic objectives for the Enel Group and coordinates the activities of all Group companies. Each of Enel, our divisions and the Services and Activities sector constitutes a reportable segment. However, our reorganization is effective as of January 1, 2006 and, therefore, the following description reflects the structure that we had in 2005 with our former Transmission and Telecommunications segments each being treated as discontinued operations following the deconsolidation of Terna and Wind.

      Generation and Energy Management. Our Generation and Energy Management Division is responsible for our operations related to the production of electricity and the procurement and trading of fuel for electricity generation, and until the end of 2005 also included our power generation activities in Italy and abroad. Effective as of January 1, 2006, its international operations were allocated to our new International Division.

      We are the largest producer of electricity in Italy. At December 31, 2005, we had net installed capacity in Italy of approximately 42.2 GW, which, based on data provided by Terna, we estimate to have been approximately 49% of total Italian net installed capacity at that date. Our net electricity production in Italy in 2005 was 112.1 TWh, and, based on data provided by Terna, we estimate that our production represented approximately 39% of Italian net production during 2005. Our net production declined by 10.9%, or 13.8 TWh, in 2005 as compared to 2004. As of December 31, 2005, we had 599 generating plants in Italy, consisting of thermal, hydroelectric, geothermal and other renewable resources facilities. In 2005, 73.0% of our net production was from thermal plants, 22.2% was from hydroelectric plants and the remaining 4.8% was from geothermal and other renewable resources plants. We do not own or operate any nuclear plants in Italy.

      At December 31, 2005, we also had electricity generation plants outside Italy with aggregate net installed capacity of approximately 3.786 GW, including facilities in Spain, Bulgaria and North, Central and South America. In addition we manage a generation plant in Russia, and in April 2006 we acquired generation operations in Slovakia with our purchase of SE. Effective as of January 1, 2006 our international generation operations are carried out by our new International Division.

      In 2005, the Generation and Energy Management Division had revenues after intrasegment eliminations of €14,215 million, reflecting revenues prior to intrasegment eliminations of €13,376 million in Italy and €914 million abroad. This compares to revenues after intrasegment eliminations of €13,028 million in 2004, reflecting revenues prior to intrasegment eliminations of €12,446 million in Italy and €622 million abroad.

      Sales, Infrastructure and Networks. Until the end of 2005 our Sales, Infrastructure and Networks Division operated in both the electricity and gas markets through two sub-divisions — a sales sub-division and an infrastructure and networks sub-division — responsible respectively for sales of products and services and for management of our distribution network. Effective as of January 1, 2006, these two sub-divisions became two independent divisions, the Market Division and Infrastructure and Networks Division, that replaced the Sales, Infrastructure and Networks Division. In addition, effective on the same date, international operations previously carried out by the Sales, Infrastructure and Networks Division were allocated to our new International Division.

      We are the largest electricity distributor in Italy, distributing a total of 259.3 TWh of electricity in 2005. At December 31, 2005, our Italian distribution network consisted of a total of 1,090,129 kilometer of lines, mostly medium and low voltage, and 413,429 primary and secondary transformer substations, with a total transformer capacity of 157,037 MVA.

      We are also the largest supplier of electricity in Italy. The market for electricity sales in Italy is divided into a regulated market and a free market. Customers in the regulated market must purchase electricity from their local distributor; customers in the free market may choose from whom to purchase their electricity. In 2005, we sold electricity to approximately 23.4 million residential customers, which we estimate were 86.7% of all residential customers in Italy. In 2005, we distributed and sold approximately 129.7 TWh of electricity on the regulated market, and distributed approximately 121.4 TWh of electricity and sold approximately 18.5 TWh of electricity on the free market (including sales to final customers by Enel Trade S.p.A. (“Enel Trade”), of our Generation and Energy Management Division).

      We are also active in the import, distribution and sale of natural gas. In 2005, we sold approximately 6.7 billion cubic meters of natural gas to third parties, of which approximately 5.1 billion cubic meters were sold to nearly 2.1 million end users.

      We also have electricity sales and distribution activities in Spain, and on April 28, 2005, we acquired a 51% interest in two electricity distribution and sales companies in Romania. In 2005 we distributed 9.7 TWh and sold 8.1 TWh. Since January 1, 2006, our international sales and distribution operations are carried out by our new International Division.

      In 2005, the Sales, Infrastructure and Networks Division had revenues after intrasegment eliminations of €20,422 million, reflecting revenues prior to intrasegment eliminations of €17,905 million from our Italian electricity sales and distribution operations, €913 million from international electricity sales and distribution operations, and €1,602 million from natural gas sales and distribution in Italy. In 2004, the Sales, Infrastructure and Networks Division had revenues of €19,254 million after intrasegment eliminations, reflecting revenues of €17,474 million from our Italian electricity sales and distribution operations, €391 million from international electricity sales and distribution operations and €1,396 million from natural gas sales and distribution in Italy.

      Corporate. Enel S.p.A., as the parent company, defines the strategic objectives for the Enel Group and coordinates the activities of all Group companies. In addition, Enel manages finance operations and insurance risk coverage for all Group companies and provides assistance and guidelines on organizational, human resources, industrial relations, accounting, administrative, tax, corporate and legal issues. Moreover, Enel S.p.A. is the party

      Services and Other Activities. Our Services and Other Activities sector provides several services to all Group companies including real estate, engineering and construction, information technology, personnel training and administration, factoring and insurance services. After the re-organization of our internal structure at the end of 2005, we no longer consider this sector as a separate division in light of its focus on providing support to all Group companies following our divestitures of certain non-core operations in 2004 and 2005 that previously formed part of this division. These divestitures included the sale in July 2004 of real estate firm NewReal S.p.A. (“NewReal”), to which we had contributed real estate assets having a market value of approximately €1,400 million, and the sale in May 2005 of most of our interest in water operations through the sale of our wholly-owned subsidiary Enel.Hydro and of our 20% interest in Idrosicilia S.p.A., thus reducing our stake in this company to 40%. In 2005, our Services and Other Activities sector had revenues of €1,660 million, compared to €1,794 million in 2004. Effective January 1, 2006, our EPC activities related to companies of our Generation and Energy Management Division, which were previously included in this sector, were transferred to our Generation and Energy Management Division.

      Discontinued Operations. Consistent with our objective of focusing on our core energy businesses, we reduced our presence in the telecommunications business through the transfer in 2005 and 2006 of the entire share capital of Wind to Weather Investments, a company in which we currently have a 26.1% interest. For more information please see “— Business — The Enel Group — Discontinued Operations — Telecommunications.”

      Moreover, in light of Italian laws and regulations providing for the reunification of the ownership and management of the Italian transmission grid and imposing certain ownership restrictions on the entity that will own and manage it, in 2005 and in January 2006 we reduced our stake in Terna, the company through which we carried out our transmission activities, to 5.12%. For more information please see “— Business — The Enel Group — Discontinued Operations — Transmission.”

      As a result of these divestitures, we deconsolidated Wind as of August 11, 2005, and Terna as of September 15, 2005, and no longer have a Telecommunications division and a Transmission division.

      The following chart sets forth our principal business units and the main companies through which we conduct these businesses as of May 31, 2006, as well as the country in which each such company is incorporated. All subsidiaries in the chart are directly or indirectly wholly owned by Enel, unless otherwise indicated.

      In recent years, we have streamlined our operations to focus on our core electricity and natural gas businesses, including through the divestment of a number of non-core activities. We aim to become one of the largest European electricity and gas suppliers by 2010, with the goal of creating value for Enel’s shareholders,

      Consistent with our objective of focusing on our core energy businesses, we view our 26.1% interest in Weather Investments (to which we sold Wind) solely as a financial investment. We intend to focus our non-core activities on providing competitive services to the Group.

      In addition to the interim dividend of €0.19 per share paid in November 2005, on June 22, 2006 Enel paid its shareholders a balance dividend of €0.44 per share with respect to its 2005 results. With respect to its 2006 results, Enel expects to pay its shareholders an aggregate dividend of at least €0.42 per share, part as an interim dividend in 2006 and part as balance dividend in 2007. Please see “Item 8. Financial Information — Other Financial Information — Dividend Policy.”

      In order to pursue the Group’s objectives, each of our divisions has its own set of specific strategies, as described below.

      As a result of the progressive liberalization of the Italian electricity market and the required sale of a portion of our generation capacity, we estimate that our share of the power generation market in Italy has declined from approximately 63% in 1999 to approximately 39% in 2005.

      In order to maintain profitability and provide services on competitive terms in Italy, our Generation and Energy Management Division seeks to be the lowest-cost generator of electricity, in particular by diversifying appropriately its use of fuels. In this respect, we have reduced the percentage of our total production that we generate through plants fueled by oil and natural gas (excluding natural gas-fueled plants using CCGT technology) from approximately 45% in 2002 to approximately 26% in 2005. At the same time, we have increased the percentage of electricity we generate through thermal plants fired by coal and orimulsion from approximately 22% in 2002 to approximately 27% in 2005 and our production using renewable resources from approximately 24% in 2002 to approximately 27% in 2005. We do not currently generate any electricity using orimulsion. Our aim is for approximately 30% of our overall electricity output to be generated using renewable resources.

      In order to implement its strategy, our Generation and Energy Management Division intends to:

      We currently transport more than 80% of the electricity transported in Italy on our distribution network. In our electricity distribution operations, we are seeking to face the challenges of market liberalization and changes in applicable tariff regimes by taking action to reduce costs, and in particular our cash cost per customer of distributing electricity, as well as by continuing to focus on the quality of service we provide. In particular, we intend to:

      In our natural gas distribution business, our primary objective is to operate as efficiently as possible and consolidate our market position, through both bidding on new gas distribution concessions and, where appropriate, acquiring additional gas distribution companies, particularly where there are opportunities for significant synergies with our existing operations. By controlling costs and increasing our customer base, we expect to further reduce our distribution cash cost per customer.

      As a result of the liberalization process, based on data from Terna and from the GRTN (for the years before 2005), we have seen our market share in direct sales of electricity to end users in Italy decline from approximately 92% in 1999 to approximately 50% in 2005.

      Our strategy to counter the effects of this trend is to continue to improve our quality of service and our cost-containment policies, further focus on small business clients and leverage our brand to target customers who elect to participate in the free market.

      In our natural gas sales business, we intend to increase our market share and margins by selectively expanding our customer base and increasing the volume of natural gas we sell. We seek to increase our customer base and to retain customers who elect to participate in the free market through initiatives targeting residential and medium-size businesses, including “dual fuel” offers (providing electricity and gas service through one sales network, with one customer service department and one bill) and offers tailored to customers. In addition, our goal is to lower the costs we incur in serving our customers.

      Consistent with our objective to become one of the largest electricity companies in Europe and expand our operations outside Italy, we are focusing our efforts in European markets in which we are already present (such as Spain, Slovakia, Romania and the Americas) as well as considering opportunities that may arise in other markets (such as France and other Central and Eastern Europe markets).

      Consistent with our strategy of international expansion, we may make acquisitions of targets of very significant size. Without making any commitments, certain banks have expressed an intention to provide us with the financing necessary for such acquisitions.

      In particular, our strategy in markets where we already have a presence is the following:

      Demand for electricity in Italy has grown at an average annual rate of approximately 2.0% during the past five years. The following table shows the annual rate of growth in Italy’s GDP in real terms and the annual rate of growth in electricity demand for the years indicated.

      Electricity demand grew by 1.3% in 2005, after having grown by 1.5% in 2004 and by 3.2% in 2003. Growth in demand for electricity is determined by a variety of factors, including the rate of economic growth, the level of business activity and weather conditions. In 2005, growth in demand for electricity slowed compared to that in 2004, reflecting the lower demand from small and medium-sized businesses. Please see “Domestic Distribution and Sales Operations — Sales, Infrastructure and Networks — Sales to Regulated Electricity Market.” According to data published in June 2006 by the Italian National Institute of Statistics, Italian GDP contracted by 0.6% in the first quarter of 2006 as compared to the fourth quarter of 2005, and increased by 1.5% as compared to the first quarter of 2005.

      Per capita electricity consumption is lower in Italy than in a number of other leading industrialized countries. On the basis of the data from the GRTN for 2004, the most recent available, we calculate that in 2004, electricity consumption in Italy was approximately 5,236 kWh per capita, compared to 5,208 kWh in 2003. As differences in the industrial or commercial and service sectors among countries not related to individual electricity use can distort comparisons of overall per capita production, we prefer to use per capita residential electricity use as our basic comparative measure. The following table compares per capita residential electricity consumption in Italy with that of other countries in the European Union for 2003, the most recent year for which complete data is available.

      We believe that a reason per capita residential electricity consumption is lower in Italy than in the other countries of the European Union indicated in the table above is that in the past the tariff structure established by

      We are the largest producer of electricity in Italy through our Generation and Energy Management Division. Our key subsidiaries in this division include Enel Produzione, the division’s lead company and our primary generating company, and Enel Trade, which purchases fuel for all of our generating operations, sells electricity to resellers and wholesalers, sells natural gas to gas distribution companies and is active in the fuel trading sector. Moreover, in 2004 and 2005 this division was also responsible for sales of electricity to customers with annual consumption higher than 100 GWh (which sales are carried out by our Market Division since April 2006). Since January 1, 2006, the international generation operations previously carried out by this division have been allocated to our new International Division.

      Enel Trade also carries out commodity risk management activities on behalf of all Group companies. Please see “Item 11. Quantitative and Qualitative Information Disclosure about Market Risk” for additional information on our hedging activities. We also carry out emission trading through Enel Trade.

      Until May 31, 2005, our Generation and Energy Management Division also included Enel Green Power, which specialized in producing electricity from renewable resources, Enel Logistica Combustibili S.r.l., active in the fuel logistics sector, and Conphoebus S.r.l., which provided renewable energy-related services. We merged these companies into Enel Produzione as of June 1, 2005, uniting these electricity generation-related companies into a single entity as part of our efforts to streamline and simplify the division’s operations.

      This division also carries out research and development activities, in order to provide technological innovations to our businesses. The objective of our research and development activity is to improve the efficiency and capacity of our core energy operations, to expand and make more innovative the services they offer and to reduce the environmental impact of our operations. We develop new products and processes internally and also acquire technology in the market, which we then customize for our own purposes.

      In particular, our research and development activities seek to improve the efficiency of our generation plants and distribution networks, to minimize the environmental impact of electricity generation and to develop alternative fuels and innovative technologies, including projects to develop hydrogen and high temperature solar technologies.

      We carried out research and development activities mainly through Enel Produzione in 2005. Our expenditures on research and development were approximately €20 million in 2005, in line with those in 2004.

      Moreover, as of January 2006, this division has assumed charge of the EPC activities related to the companies of the Group, which were previously carried out by our Service and Other Activities Division.

      Unless otherwise specified, all operating data furnished in this section excludes data from our generating companies located outside of Italy.

      At December 31, 2005, Enel Produzione operated a total of 599 generating plants. Our Italian generating facilities include thermal plants (which burn fossil fuels), hydroelectric plants, geothermal plants and other facilities that generate electricity from renewable resources. At December 31, 2005, these plants had a total net installed capacity of 42.2 GW, representing approximately 49% of the total net installed capacity in Italy. Our net electricity production in 2005 decreased by 10.9% to 112.1 TWh from 125.9 TWh in 2004.

      We estimate that our net electricity production in 2005 represented approximately 39% of Italian production during the year, compared to 43% in 2004.

      The following table shows the gross production in 2003, 2004 and 2005 for the Italian electricity sector as a whole in gigawatt hours, broken down by type of generating plant. Net production is the difference between gross

      Please see “— Competition in the Electricity and Gas Markets” for a more detailed discussion of the electricity markets in Italy.

      The following table shows certain statistics about our domestic generating facilities, broken down by type of plant, at December 31, 2005, and for the year 2005. The weighted average age of the plants does not take into account refurbishments or upgrades after initial construction, but does reflect the effects of the refurbishing of geothermal plants, the conversion of thermal plants into CCGT plants and the conversion of one coal unit to clean coal technology that we completed in 2005. The forced outage factor represents the amount of electricity that was not produced during the period because of unplanned outages, expressed as a percentage of the maximum theoretical amount of electricity that could have been produced during the period.

      We have no plans to construct new plants or add significant amounts of generating capacity in Italy, other than from renewable resources, in the near term. Instead, we have focused our investment plans on our existing generating plants. Please see “— Capital Investment Program — Generation and Energy Management” for a more detailed discussion of these plans.

      In Italy, at December 31, 2005, we owned 46 thermal plants with an aggregate net installed capacity of 26.9 GW, or 63.7% of our net installed capacity at that date. Our thermal net production was 81,823 GWh in 2005, as compared to 91,854 GWh in 2004, representing in each year 73.0% of our net production for that year.

      All our thermal plants consist of two or more generating units and most have a standardized design, with the generating units being of one of three types: steam-condensing units, gas turbine units and internal combustion units. Steam-condensing units consist of closed-cycle plants in which water is transformed into steam and used in a turbine to generate electricity. Steam is turned back into water through a cooling process using sea or river water or air tower cooling. Gas-turbine units burn natural gas and diesel fuel to drive a turbine and generate electricity. Internal combustion units use diesel engines to generate electricity. In addition to these conventional thermal plants, we own plants with CCGT gas turbines. At December 31, 2005, we derived approximately 68% of the net installed capacity of our thermal plants from steam-condensing units, approximately 6% from gas-turbine units in repowered steam plants, approximately 8% from gas-turbine units in open cycle, and approximately 18% from CCGT units. Internal combustion units represented a minimal part of our thermal gross installed capacity.

      Each of our conventional thermal generating units is designed to operate using one or more kinds of fuel. Single fuel units use either natural gas, petroleum products or coal, while dual fuel units can use petroleum products and either natural gas or coal, while triple fuel units can use petroleum products, coal and natural gas. In 2005, single fuel units generated approximately 51% of our net production from thermal plants (compared to approximately 55% in 2004) and represented approximately 69% of the net installed capacity of these plants at year end. Dual fuel units accounted for approximately 49% of our net production from thermal plants (compared to approximately 45% in 2004) and approximately 31% of our net installed capacity of these plants at December 31, 2005. The average thermal efficiency, or the ratio of useful energy produced to the energy consumed to produce it, of our thermal plants was 38.8% at December 31, 2005, slightly decreasing from 39.1% in 2004.

      In 1997, we began converting a number of our conventional thermal plants into CCGT plants, generally by installing one or more gas turbines and replacing conventional boilers with heat recovery steam boilers used to drive existing steam turbines. Converting plants to CCGT increases efficiency and reduces emissions. We plan for our new CCGT plants to have an expected average thermal efficiency of approximately 56%, in line with that at our existing CCGT plants.

      Since 1997, we have completed the conversion of approximately 4,300 MW of generating capacity to CCGT, and we expect to convert additional capacity of approximately 750 MW by the end of 2007. We currently estimate the average costs of conversion over the course of the project to be approximately €350,000 per MW of net installed capacity, or a total of approximately €1,800 million through 2008. At December 31, 2005, we had spent approximately €1,600 million of this total.

      In addition to our CCGT conversion program, we are planning to upgrade additional net installed capacity of approximately 4,100 MW by:

      We have made significant investments since 1990 to improve the environmental standards of our thermal plants and to comply with the emission thresholds established by applicable environmental laws and regulations. These measures have included installing desulphurization and denitrogenation units and upgrading burners and units for the treatment of waste water and ash resulting from the electricity generation process. Installation of desulphurization and denitrogenation units increases our flexibility to use different types of fuel, including lower-cost fuels such as high sulfur fuel oil, while maintaining compliance with emission restrictions.

      Our environmental capital expenditures for conventional thermal generation in 2005 were in line with those in 2004 and amounted to approximately €35 million. Please see “— Regulatory Matters — Environmental Matters” for a discussion of the environmental laws and regulations affecting our generation operations.

      At December 31, 2005, we had 500 hydroelectric plants in Italy with an aggregate net installed capacity of 14.4 GW, or approximately 34% of our net installed capacity at that date. In 2005, our hydroelectric net production was 24,883 GWh, or 22.2% of our net production for the year.

      We classify our hydroelectric plants with reservoirs by fill-in rate, which represents the time required for a plant’s reservoir to fill from empty based on normal water flow. Pondage plants have fill-in rates ranging from two to 400 hours and reservoir plants have fill-in rates exceeding 400 hours. We also have run-of-river and pumped storage hydroelectric plants.

      In 2005, pondage plants generated 24.5% of our net hydroelectric production and represented 19.7% of our net installed hydroelectric generation capacity at year end, while run-of-river plants accounted for 24.6% of our net production from hydroelectric plants and 11.5% of our net installed hydroelectric generating capacity. Pumped storage (including mixed pumped storage) plants generated 27.1% of our net hydroelectric production in 2005, and represented 52.1% of our net installed hydroelectric generating capacity, with reservoir plants accounting for the remaining approximate 23.8% of our net hydroelectric production and 16.7% of our net installed hydroelectric capacity in the same period.

      We invested €178 million in 2005 on our hydroelectric plants, including on work carried out to comply with safety and environmental regulations, as well as on refurbishment and revamping. Our hydroelectric plants generate electricity from water streams in the public domain under licenses from the Italian government. Under the Bersani Decree, the Provincial Authorities of Trento and Bolzano, which enjoy special autonomous status under Italian law, were entitled to impose earlier license termination dates for hydroelectric plants in these areas. If any of these licenses expire without being renewed, we will have to transfer the affected hydroelectric plants (with an aggregate net installed capacity of 1,975 MW, or 4.7% of our current total net installed capacity) to the governmental authority granting the license. The Provincial Authorities of Trento and Bolzano set a termination date of 2010 for the licenses they have granted. The licenses from the Italian goverment were originally due to expire in 2029 and were subject to renewal.

      In January 2004, however, the European Commission determined that certain Italian regulations regarding hydroelectric concessions were contrary to EU law. In particular, the European Commission objected to renewal preferences granted to existing holders of concessions (and in the region of Trentino-Alto Adige, to the operator controlled by the local authorities) upon the expiry of those concessions, as well as to the fact that the regulations provided for the expiration of all concessions in 2029 (and for the region of Trentino-Alto Adige, in 2010), even though these concessions had previously been of perpetual duration. In December 2005, Italy amended the relevant regulations, abrogating the renewal preferences and postponing the expiration of all concessions for an additional 10 years. However, if the European Commission continues to pursue its formal action before the Court of Justice to enforce its request and the Court of Justice affirms the European Commission’s opinion, our hydroelectric concessions may be terminated prematurely and we may not be able to renew these concessions on favorable terms or at all. The European Commission decision on whether to continue its formal action is expected in the second half of 2006. Please see “Item 3. Key Information — Risk Factors — Risks Related to Our Energy Businesses — A European Commission challenge to Italian regulations on hydroelectric concessions could adversely affect our business, financial condition and results of operations.”

      We produce energy from renewable resources, and have both significant experience in multiple technologies, including geothermal, wind and solar energy, as well as our own engineering and project development capabilities. We formerly conducted these activities through Enel Green Power, which we merged into Enel Produzione as of June 1, 2005.

      At December 31, 2005, we had 32 geothermal power plants with an aggregate net installed capacity of 671 MW. In 2005, our geothermal net production was 5,012 GWh, or 4.5% of our net production for the year.

      We also generate electricity from other forms of renewable resources, including solar photovoltaic systems and wind energy. At December 31, 2005, we operated 17 wind farms with an aggregate net installed capacity of about 277 MW and four photovoltaic solar grid connected power plants with an aggregate net installed capacity of 3 MW. Together, these plants accounted for 369 GWh of our net production in 2005.

      Most of our revenues from renewable energy come from sale agreements entered into under the CIP 6 regime, which provides incentives for the production of renewable energy, and from sales of energy produced by small hydroelectric plants, including sales on the free market through Enel Trade. We expect that the demand for energy produced from renewable resources to increase as a result of current regulations requiring producers to supply a specified amount of electricity generated from qualifying renewable resources. Please see “— Regulatory Matters — Electricity Regulation — Promotion of Renewable Resources” for additional information.

      To comply with these regulatory requirements, we can either produce electricity from qualified renewable resources ourselves, which would entitle us to receive “green certificates”, or we can purchase “green certificates” from other qualified producers or the GRTN. Based on our production for 2004, we were required to provide approximately 2.1 TWh of electricity from qualified renewable resources in 2005, the same amount we were required to provide in 2004. In 2005, we generated 1.3 TWh of energy from qualified renewable resources and purchased “green certificates” for the remaining 0.8 TWh, at a cost of approximately €90 million. We estimate that in 2006 we will increase our generation from qualified renewable resources significantly, thus reducing the amount of green certificates we have to purchase from other qualified producers or from the GRTN in order to comply with the regulatory requirements.

      We have started a capital investment program in order to reach a level of qualifying production from renewable resources of approximately 2.5 TWh by year-end 2007, which we believe will permit us to meet the regulatory requirements and may enable us to sell green certificates to the market starting in 2007. This program is expected to result in an additional increase in our renewable capacity (hydroelectric, wind and geothermal) of about 300 MW by 2010.

      We use fuel oil, natural gas, coal and other fuels in operating our thermal generation plants, and also engage in fuel trading activities. We do not use significant amounts of fuel in operating our hydroelectric, geothermal or other renewable resource plants. Italy has small reserves of fossil fuels. As a consequence, we depend on imported fuel oil, natural gas and coal for a large proportion of our energy needs.

      Our fuel costs are influenced by prices in the world market for oil, fuel oil, natural gas and coal. In 2005, the per barrel market price for oil increased from $38.2 at December 31, 2004, to $54.4 at December 31, 2005, or by 42.4%. This substantial increase was the result mainly of geopolitical factors, such as the current situation in a number of oil-producing regions, including Iraq, other parts of the Middle East, Nigeria and Venezuela, as well as structural factors, such as high production and refinery capacity utilization levels and increased demand in India, China and the United States. However, we attempt to maintain secure and flexible supplies by diversifying our sources of fuel, and are also partially hedged against rising fuel prices. Please see “Item 3. Key Information — Risk Factors — Risks Relating to our Energy Business — Significant increases in fuel prices or disruptions in our fuel supplies could have a negative effect on our business” for a description of the risks connected to significant increases in fuel prices. See also “Item 11. Quantitative and Qualitative Disclosure about Market Risk” for a discussion of our hedging activities. In addition, we seek to increase our use of less expensive fuels, such as coal, as well as fuels that have less impact on the environment when consumed, such as natural gas. However, generation using coal generally results in higher emissions levels compared to natural gas. Our ability to increase our use of coal is dependent on our ability to acquire and implement technologies that will permit us to comply with restrictions on emissions established by national and European Union authorities. Please see “— Regulatory Matters — Environmental Matters” for a discussion of these restrictions.

      We manage our fuel supply by entering into term contracts for base quantities and supplementing these contracts with purchases of fuel on spot markets both in Italy and abroad. Our long-term fuel contracts, primarily for the purchase of natural gas, will require us to pay an average of approximately €2,774 million per year over the next five years, based on current prices. Please also see “Item 5. Operating and Financial Review and Prospects — Contractual Obligations and Commitments.”

      In 2005, our aggregate fuel costs for thermal production, including fuel transport, at our plants in Italy and abroad were €3,910 million, compared to €3,598 million in 2004. This 8.7% increase was primarily due to higher prices in the international fuel markets, the effect of which was only partially offset by the lower volume of electricity production during 2005.

      From July 1997 until the start of trading on the Italian power exchange on April 1, 2004, the tariff structure contained an energy reimbursement component calculated with reference to an index of weighted average fuel prices and a consumption index based on the efficiencies expected to be obtained from the fuels comprising the fuel price index. Accordingly, we sought to use a mix of fuels less expensive in the aggregate than the fuels comprising the weighted index and to generate energy more efficiently than the efficiency levels assumed in the calculation of the “heat rate” used in the Energy Authority’s consumption index. This tariff structure also included incentives to reduce production from thermal plants and to increase the use of renewable resources.

      Since April 1, 2004, the price paid to electricity producers is determined by competitive bidding on the Italian power exchange or through freely negotiated bilateral contracts. Please see “— Regulatory Matters — Electricity Regulation — The Italian Power Exchange” for additional information.

      The following table provides a breakdown of our net electricity production in Italy for the periods indicated by primary energy source utilized. The data represent production by Enel Produzione and Enel Green Power (which in 2005 was merged into Enel Produzione).

      In 2005, the approximate percentages of our net electricity produced by thermal generation in Italy represented by each of the following fuels was approximately:

      We do not currently generate any electricity using orimulsion. The fuel oil plant at Porto Tolle, which previously we were planning to convert to burn orimulsion, will instead be converted to burn coal upon receipt of the necessary permits.

      Our subsidiary Enel Trade is responsible for the purchase and sale of fuel for all of our domestic generating operations and our natural gas sales and distribution operations in the Italian market, as well as a portion of the

      Enel Trade also sells natural gas to gas distribution companies and other third parties, and engages in fuel trading activities, as part of its management of, and efforts to optimize, its supply of fuel to the rest of the Enel Group, as well as in electricity trading. Enel Trade also trades “green certificates” in Italy, engages in similar activities at a European level and engages in trading of CO₂ emission rights, having obtained the necessary approvals. In 2004 and 2005, Enel Trade was also responsible for sales of electricity to customers with annual consumption higher than 100 GWh (which sales have been carried out by our Market Division since April 2006). In 2005, Enel Trade sold approximately 10.1 TWh of electricity to Eligible Customers and 3.8 TWh to resellers in Italy, as well as 15.5 billion cubic meters of natural gas, of which 8.8 billion cubic meters were sold to our thermal generation operations, 5.1 billion cubic meters to our gas distribution and sales operations and 1.6 billion cubic meters to third parties.

      We are reducing our need for fuel oil for power generation as a consequence of the conversions of some of our fuel-fired plants to coal and natural gas. The following table shows the amount of fuel oil supplied to our generation companies purchased from domestic and foreign suppliers in each of the periods indicated. Domestic suppliers include suppliers whose headquarters are in Italy, including the Italian energy group Eni S.p.A. (“Eni”), while foreign suppliers include suppliers and refiners outside of Italy and traders of primarily non-Italian sources of oil.