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

 6/13/05  Enel Societa Per Azioni           20-F       12/31/04    6:3.4M                                   Bowne - Bol/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 20-F        Annual Report of a Foreign Private Issuer           HTML   2.56M 
 2: EX-1.1      Underwriting Agreement                              HTML     69K 
 3: EX-4.1      Instrument Defining the Rights of Security Holders  HTML    202K 
 4: EX-8.1      Opinion re: Tax Matters                             HTML     81K 
 5: EX-12.1     Statement re: Computation of Ratios                 HTML     12K 
 6: EX-13.1     Annual or Quarterly Report to Security Holders      HTML      8K 

Commission file number: 1-14970

Viale Regina Margherita 137, Rome, Italy

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

     Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes            þ          No            o

      Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o          Item 18 þ

      Unless we indicate otherwise, the financial information contained in this annual report is prepared in accordance with Italian GAAP, which are the accounting principles prescribed by Italian law, and supplemented by the accounting principles issued by the Consiglio Nazionale dei Dottori Commercialisti e dei Ragioneri (National Board of Chartered Accountants) and, to the extent such requirements or principles are silent on particular issues and not at variance, by those standards laid down by the International Accounting Standards Board (I.A.S.B.). These principles are described in note 2 to our consolidated financial statements included in this annual report. These principles differ in certain respects from generally accepted accounting principles in the United States (“U.S. GAAP”). We describe these differences in notes 24-26 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.

      In June 2002, the Council of Ministers of the European Union (the “EU”) approved a regulation requiring all EU-listed companies, including the Company, to apply International Financial Reporting Standards (“IFRS”) in preparing their financial statements for fiscal years beginning on or after January 1, 2005. Beginning with our quarterly report for the quarter ended March 31, 2005, we publish our financial statements in accordance with IFRS. Please see “Item 5. Operating and Financial Review and Prospects — Transition to International Financial Reporting Standards.”

      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 = $1.3538, 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, 2004, 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, 2005, the noon buying rate for the euro was €1.00 = $1.2349. 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 Gestore della Rete and the Energy Authority. 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, 2004, we had net installed capacity in Italy of approximately 42.0 GW, which we estimate to have been approximately 52% of total Italian net installed capacity at that date. Our net electricity production in Italy in 2004 was 125.9 TWh, and, based on data provided by the Gestore della Rete, we estimate that our production represented approximately 44% of Italian net production during 2004. In 2004, in Italy, we distributed 261.2 TWh of electricity and sold 157.8 TWh of electricity to end users. Of the total sold, 137.0 TWh were sold to approximately 29.8 million customers on the regulated market, of which approximately 23.2 million were residential customers, which we estimate were approximately 87% of all residential customers in Italy, and 20.8 TWh were sold on the free market. At December 31, 2004, we also had electricity generation plants outside Italy (in Spain, Bulgaria and North, Central and South America) with aggregate net installed capacity of approximately 3.9 GW, as well as sales and distribution operations in Spain with more than 600,000 customers. In addition, in early 2005, we agreed to acquire generation operations in Slovakia with a net installed capacity of approximately 6,900 MW, and in April 2005 we acquired distribution and sales operations in Romania with approximately 1.4 million customers. Based on revenues, we were one of the largest industrial companies in Italy in 2004, with operating revenues of €36,489 million, or $49,399 million. We earned net income of €2,706 million, or $3,663 million, in 2004.

      We are also active in the import, distribution and sale of natural gas. In 2004, we sold approximately 6.9 billion cubic meters of gas to third parties, of which approximately 5.2 billion cubic meters were sold to nearly 2 million end users.

      Enel is in the process of divesting most of its current 36.14% interest in Terna S.p.A. (“Terna”), the principal Italian electricity transmission company, having entered into an agreement with Cassa Depositi e Prestiti (“Cassa Depositi e Prestiti”) to sell a 29.99% stake in Terna in May 2005. We also in May 2005 entered into an agreement for the sale, in a series of transactions, of our wholly owned subsidiary Wind Telecomunicazioni S.p.A. (“Wind”). Wind with its subsidiaries constitutes our Telecommunications Division, offering fixed-line telephony, mobile telephony and Internet services.

      We are also active in other sectors, including engineering and construction, information technology and facility management.

      We currently operate our businesses through six separate divisions: Generation and Energy Management; Sales, Infrastructure and Networks; Transmission; Telecommunications; Services and Other Activities; and Corporate. Please see “Item 4. Information on the Company — Business” for more information about our businesses.

      The Ministry of Economy and Finance of the Republic of Italy, or the MEF, currently owns approximately 31.3% 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 approximately 10.2% of Enel’s shares. The MEF has announced plans to sell an interest of approximately 10% in the Company in a public offering in Italy and a private placement to international institutional investors that will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), by September 2005, market conditions permitting.

      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

      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 financial statements and the notes thereto included herein have been prepared in accordance with Italian GAAP, which differs in certain important respects from U.S. GAAP. For an explanation and quantification of such differences, see notes 24 through 26 to our consolidated financial statements included herein.

      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.

      Our 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”). Our 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

      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 introduction on April 1, 2004, of the Italian power exchange, we expect that competition will increase further due to:

      In addition, in March 2005, the Energy Authority issued a decision announcing its intention to adopt measures to promote competition in the wholesale electricity market and limit the impact of market power held by dominant producers. On May 7, 2005, the Energy Authority issued several proposals for public comment by June 10, 2005, including (i) the required disposal by us of additional generating capacity, (ii) the required lease by us to third parties of generating capacity, and (iii) the partial entrusting to the Gestore della Rete of the management of certain power plants deemed essential to cover electricity demand. Please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation — The Italian Power Exchange” for additional information on these proposals.

      In the sale of electricity, based on data from the Gestore della Rete, we estimate that our market share in Italy has decreased from 92% in 1999 to approximately 50% in 2004; 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 entry into the gas sector also exposes 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. Furthermore, from January 1, 2003, gas sales were supposed to be completely liberalized, with all customers eligible to choose their supplier and sellers able to freely determine prices. However, the Energy Authority has retained the right to control prices for certain customers, mainly residential, and must decide by July 31, 2005, whether to allow distributors to freely set the prices charged to these customers. It is also still in the process of establishing regulations to govern certain activities on the free market (such as sales regulations, network codes and provider-switching procedures). We cannot predict whether or when these regulations will result in a fully liberalized market, or how the natural gas market will develop under these conditions.

      Our strategy is to seek both to be the cost leader in the generation of electricity and 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 “— Further power outages involving our electricity operations could 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 — 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 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 many economic and political factors and events occurring throughout the world, particularly those that affect fuel-producing regions. Although we attempt to manage our risk through the use of financial instruments hedging our exposure to fluctuations in the price of fuel, we can neither control nor accurately predict these factors and events.

      Our use of natural gas has increased in recent years, and, given our conversion of significant generation capacity to combined-cycle technology, we expect it to constitute a significant portion of our fuel consumption in the future. In 2004, approximately 44% of the electricity we produced was generated by plants using natural gas. We currently obtain a significant portion of the natural gas we use directly from Algeria and Nigeria. Any major disruptions of this imported supply could adversely affect our continued ability to procure sufficient quantities of 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 and North, Central and South America, distribution networks in Spain and distribution and sales operations in Romania. In 2004, we also established a joint venture to manage a generation plant in Russia, and in 2005 we agreed to purchase 66% of the largest generation company in Slovakia and 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. Please see “Item 4. Information on the Company — Business — The Enel Group — Generation and Energy Management — International Generation.” 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, the company we have agreed to acquire in Slovakia, Slovenskè Elektrárne a.s. (“SE”), currently has six nuclear power generating units with an aggregate net installed capacity of 2,640 MW and two nuclear units under construction. Under the terms of the acquisition agreement, SE will transfer its oldest nuclear power units to a company owned by the Slovakian government prior to closing of the transaction. Enel is also currently preparing a 2006-2010 investment plan for SE, to be approved by the Slovakian government, that includes new investments in nuclear capacity. 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 will expose us to the risks of ownership and operation of nuclear generating facilities, including the handling, 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.

      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 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. At the close of its inquiry (currently expected by July 31, 2005, for the portion relating to generating companies, and by November 30, 2005, for that relating to transmission and distribution companies), the Energy Authority could impose sanctions on, or request undertakings from, operators it holds at fault in the incident.

      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 the Italian courts and/or by the Energy Authority. Any finding of liability on our part could result in the imposition of fines and other administrative sanctions and in additional lawsuits by other parties against us, which could have a material adverse effect on our financial condition and results of operations.

      Although the blackout has not 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. The Energy Authority recently issued proposals for public comment for the institution of a system of automatic compensation payable by electricity distributors to affected customers in the event of a blackout of other widespread and prolonged service interruption. Please see “Item 4. Information on the Company — Regulatory Matters — Electricity Regulation — Quality of service regulation.”

      We have been and are likely to continue to be subject to regulatory and antitrust investigations in the Italian electricity market. We are currently a subject of 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. The Antitrust Authority opened this investigation, due to be completed by March 31, 2006, after the Energy Authority on April 12, 2005, 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.

      In addition, in February 2005, the European Commission announced plans to launch an investigation into the functioning of the European electricity market. We cannot predict when this investigation will take place, or what the results of any subsequent related actions taken by the European Commission may be.

      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 Authority, 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 accordance with EU directives to implement the Kyoto Protocol that established a market mechanism for the trading of CO₂ emission trading rights starting from January 1, 2005, the Environment Ministry and the Ministry of Productive Activities submitted a national allocation plan on the allowable levels of CO₂ emissions for Italy for the 2005 to 2007 period to the European Commission for approval in 2004. In an amendment to the national allocation plan published in February 2005, the Enel Group had been assigned emissions quotas of 54 million, 45 million and 45 million metric tons of CO₂ for the years 2005, 2006 and 2007, respectively. Please see “Item 4. Information on the Company — Regulatory Matters — Environmental Matters — CO₂ Emissions.” On May 25, 2005, the European Commission approved Italy’s national allocation plan including, however, modifications that reduce the allowable emissions assigned to Italy by 9% (from a total of 255 million metric tons to 232 million per year) and therefore require a revision to the February 2005

      We are not currently able to predict what emissions levels will be allocated to the Enel Group for the 2005-2007 period or for any subsequent period, nor whether such allocation will be sufficient to meet our production needs. We therefore cannot be certain that our current plans for our generation plants will be adequate to permit us to comply with the required levels once they are defined.

      Should the final allocation be insufficient, we could be required to purchase emission trading rights on the market, which could result in an increase in our electricity generation costs. At May 31, 2005, the weighted average price over the prior six months for one emission trading right for the years 2005, 2006 and 2007 was approximately €13. Any significant increase in the cost of our generation operations as a result of these new emissions limits could have a material adverse effect on our results of operations and our financial condition.

      We operate our hydroelectric plants pursuant to concessions granted and regulated by national and local authorities.

      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.

      Our hydroelectric plants accounted for approximately 34% of our net installed capacity in 2004 (with 4.7% of our net installed capacity attributable to those in the region of Trentino-Alto Adige and 29.3% to those in the rest of Italy). If the European Commission brings a 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 Marzano Law changed the expiration date for certain gas distribution concessions. Prior to enactment of the Marzano Law, gas distribution concessions awarded prior to May 2000 by means other than competitive tender expired by law 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. Under the same law, local authorities have the power to extend the expiration date from December 31, 2007 to December 31, 2008. However, two municipalities in Lombardy have not accepted this revision of the expiration date, and have passed measures that would terminate gas distribution concessions in their jurisdictions on December 31, 2005. While we have challenged these measures before the Administrative Tribunal of Lombardy, that court in February 2005 upheld them, ruling that new local legislation must be enacted for the relevant provisions of the Marzano Law to take effect. We have appealed this ruling to the Council of State, the highest competent appeals court, and a hearing on the matter has been set for June 24, 2005. While we do not believe the Administrative Tribunal of Lombardy’s ruling is consistent with the provisions of the Marzano Law, should its position be upheld on appeal and should other municipalities pass similar measures, it could have a material adverse effect on our business prospects, financial condition and results of operations. Please see “Item 8. Financial Information — Other Financial Information — Legal Proceedings — Gas concessions” for more details on this proceedings.

      Separately, in November 2004, the Italian region of Tuscany challenged before the Constitutional Court certain provisions of the Marzano Law regarding the allocation of powers between the Italian state and regions in connection with the regulation of electricity and gas distribution, including concessions. The region’s position is that, following amendments made to the Italian constitution in 2001, regulation of “local distribution” is the jurisdiction of regional governments, although the region has not to date specified what the scope of such jurisdiction would be, nor what “local distribution” precisely means. A hearing on the matter was held on May 24, 2005, and we expect the Constitutional Court to issue its ruling in the second half of 2005. We cannot predict what effect a ruling by the Constitutional Court in the region’s favor would have on the regulation of electricity and gas distribution activities and concessions in Italy, including the possibility that we might in the future be required to comply with new and varying rules in some or all of Italy’s different regions.

      Any adverse change in the regulatory framework governing our distribution activities and concessions could have a material adverse effect on our business prospects, financial condition and results of operations.

      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 (NO_x), 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, although in some cases we may recover some or all of these costs through the tariff structure or other reimbursement mechanisms provided by law. 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, transmission and telecommunications infrastructure and other facilities may result in even more stringent regulation in the future, which could further increase costs.

      In 2004, we spent a total of €607 million (including environmental taxes) on measures intended to reduce the impact of our operations on the environment, including measures to comply with applicable law. Of this aggregate of €607 million in environmental expenditures, €495 million was accounted for as current expenditures and €112 million as capital expenditures. Major capital expenditures included projects to reduce SO₂ and NO_x emissions by our power plants and to install underground cables in our distribution network. In 2004, we also incurred approximately €285 million in additional fuel costs attributable to compliance with environmental regulations.

      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. Please see also “— We may incur significant capital expenditures to comply with legislation on electromagnetic fields; we may not be fully reimbursed for these capital expenditures,” below.

We may be unable to exit the telecommunications business on acceptable terms or in accordance with the currently envisaged timetable

      On May 26, 2005, we entered into an agreement for the sale to Weather Investments II S.a.r.l. (“Weather Investments”) of a 62.75% interest in Wind. We expect to complete the sale of this majority interest during the summer of 2005; the agreement also contemplates our disposal of our remaining interest in Wind to Weather Investments S.r.l. (“Weather”) in the first half of 2006. The agreement is subject to the approval of both the Antitrust Authority and the Communications Authority. Upon completion of these transactions, we will no longer have any direct interest in Wind, but will hold an interest of 26.1% in Weather, which will then indirectly own all of Wind, as well as a controlling stake in Orascom Telecom Holding SAE (“Orascom”), an Egypt-based mobile phone company with principal operations in the Middle East, Africa and Pakistan. For additional details regarding the agreement, see “Item 4. Information on the Company — Business — Overview — Telecommunications.”

      We have entered into this agreement as part of our announced strategy to focus on our core energy business and ultimately to exit the telecommunications business. In this context, the shareholders’ agreement we expect to enter into with Weather Investments in connection with this transaction contemplates an initial public offering of Weather as soon as possible, market conditions permitting. However, we and Weather Investments will each agree, subject to certain exceptions, not to sell our interests in Weather until this initial public offering. We can give no assurance that we will be able to complete any such offering or otherwise dispose of all or any part of our interest in Weather on favorable terms or in accordance with our envisaged timetable, if at all.

      Management of the national electricity transmission grid is currently entrusted to the Gestore della Rete, which is wholly owned by the MEF. Under a decree issued in May 2004, the Gestore della Rete is required to transfer, by October 31, 2005, the management activities of the national transmission grid to Terna, our consolidated subsidiary. Upon this transfer, no electricity operator, including Enel, will be entitled to exercise voting rights in excess of 5% with respect to the appointment of Terna’s directors. In addition, the May 2004 decree requires Enel to reduce its holding in Terna to no more than 20% by July 1, 2007. Terna and the Gestore della Rete in February 2005 agreed upon terms for the transfer to Terna of the management activities of the transmission grid, subject to the approval of the Antitrust Authority. Enel currently owns 36.14% of Terna’s shares and, in May 2005, Enel agreed to sell to Cassa Depositi e Prestiti a 29.99% stake in Terna for consideration that, depending on the price of Terna’s shares on the Telematico during the 30 trading days prior to closing of the sale, will be between a minimum of €1,228 million and a maximum of €1,412 million. Closing of the transaction is subject to certain conditions, including, among other things, Antitrust Authority approval of both this sale and the transfer of management activities of the transmission grid from the Gestore della Rete to Terna. Please see “Item 4. Information on the Company — Business — Overview — Transmission.” Should this transfer fail to take place or should Enel otherwise be unable to consummate the sale to Cassa Depositi e Prestiti, there can be no assurance that Enel will be able to sell the majority of its remaining interest in Terna in accordance with its envisaged timetable or on its expected terms, if at all. Enel’s inability to dispose of this business on acceptable terms could have a material adverse effect on our business.

      We are in the process of divesting most of Enel’s current 36.14% stake in Terna, which, together with its subsidiaries, constitutes our Transmission Division, having agreed in May 2005 to sell a 29.99% stake in Terna to Cassa Depositi e Prestiti. We also in May 2005 entered into an agreement for the sale in a series of transactions of Wind, which, together with its subsidiaries, constitutes our Telecommunications Division. As a result of these transactions, we expect to deconsolidate both Terna and Wind during 2005. Our Transmission Division provided €1,023 million (or 2.8%) of our operating revenues and €509 million (or 8.0%) of our operating income in 2004, while our Telecommunications Division provided €4,714 million (or 12.9%) of our operating revenues and registered an operating loss of €456 million in 2004. We also entered into agreements

      In 2001, the Italian Parliament passed a law intended to protect the general public and workers against alleged potential long-term health effects of exposure to electromagnetic fields generated by both low frequency infrastructure, including electricity transmission and distribution lines and substations, and high-frequency infrastructure, including the transmission stations that Wind uses to provide mobile telephone services. The law provides for the adoption and implementation of programs to bring existing electricity transmission and distribution lines, substations and high frequency infrastructure into compliance with electromagnetic exposure requirements to be set by the Italian government. On July 8, 2003, the Italian government issued a decree establishing certain limits on the allowable amounts of electromagnetic exposure. We are still in the process of determining the estimated costs of complying with these limits by upgrading, moving or otherwise modifying our mobile telephony infrastructure, electricity lines and transmission and distribution facilities. Although, with respect to electricity transmission and distribution lines and substations, this law requires the Energy Authority to set criteria, terms and conditions for the recovery of the costs that the owners would bear in complying with these requirements, any actual reimbursements received may be lower than our actual costs. Our financial condition and results of operations may be adversely affected as a consequence. Moreover, we cannot assure you that the Italian government will not set even stricter limits in the future. Please see “Item 4. Information on the Company — Regulatory Matters — Environmental Matters — Electromagnetic Fields” for a more detailed description of these matters.

      On May 6, 2005, INPS, the Italian social security fund, issued a circular purporting to extend to formerly state-owned companies and national public entities carrying out industrial activities an obligation for employers to make certain social security contributions. As state-owned entities, these companies had been exempted from this obligation. In the circular, INPS indicated that this obligation would be applied with retroactive effect as of the date of privatization of the relevant entity. Although the INPS circular specifically mentions Enel Group companies as being among the entities that would be required to make such additional contributions, we do not believe that this circular should be applicable to us, nor that it may be applied retroactively under Italian law, and we intend to challenge the circular before the competent court. However, we are not able to predict the ultimate outcome of the challenge, and in the case of an unfavorable outcome, we cannot exclude the possibility that we may be required to pay such contributions. While we are still evaluating the potential impact on us of this circular, on a preliminary basis we estimate that the amounts we could be required to pay if the circular is applied to us in the form that it was issued by INPS could total approximately €500 million for any retroactive obligations and approximately €80 million per year going forward.

      On May 31, 2005, the Italian Parliament passed a new 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 the new 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. During the approval process, which was expedited to permit the conversion of a government decree into law before the Parliament’s mandate to do so expired, the Senate committed the government, and the government agreed, to take

      We are already involved in proceedings disputing property taxes levied on some of our generating facilities by certain local authorities, in connection with which we believe we have established adequate provisions in our consolidated balance sheet. At December 31, 2004, these provisions amounted to approximately €40 million.

      In any event, we intend to continue to challenge before the competent authorities any attempt by local authorities to impose additional local property taxes on us.

      Were the new rules, which took effect on June 1, to be applied without modification, we expect that our local property taxes (the imposta comunale sugli immobili, or ICI) would increase by approximately €80 million per year (excluding any amounts that would be due in respect of past years should the government or the Italian Parliament fail to take the necessary legislative actions, and/or should we not prevail in any legal challenge we bring).

      We are defendants in a number of legal proceedings incidental to the generation, transmission 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, transmission 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 €1,283 million at December 31, 2004, of which €382 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, Enel’s controlling shareholder, has significant influence over Enel’s actions

      The MEF currently directly owns approximately 31.3% of Enel’s outstanding share capital and therefore controls Enel. Cassa Depositi e Prestiti, which is controlled by the MEF, holds an additional approximately 10.2% of Enel’s share capital. 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. While the MEF has announced that it plans to sell a further interest of approximately 10% of Enel’s share capital by September 2005, market conditions permitting, the amount of shares the MEF will subsequently directly and indirectly own following such a transaction would still permit it to control Enel for purposes of Italian law. 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 by the 2004 Budget Law) 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 Activities), certain special powers with respect to Enel’s business and actions by its

      The MEF also has the following specific 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 a public offering in Italy and a private placement to international institutional investors that was not registered under the Securities Act, and has announced plans to sell a further interest of approximately 10% in the Company in a similar offering by September 2005, market conditions permitting. 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 Citibank, N.A., the depositary for Enel’s ADS program (“Citibank” 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. Also, 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),” “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 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.

      We were 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, we ceased to operate as a public entity and were 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, we formed separate subsidiary companies, to each of which we assigned the responsibility (and related assets, liabilities and personnel) for each of our significant businesses. As a part of this liberalization, we were also required to transfer responsibility for the management and control of the Italian national electricity transmission grid and responsibility for electricity dispatching to the Gestore della Rete, a company wholly owned by the MEF.

      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 subsequently 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 a public offering in Italy and a private placement to international institutional investors not registered under the Securities Act, and has announced plans to sell a further interest of approximately 10% in the Company in a similar offering by September 2005, market conditions permitting.

      Since 1999, 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, including an 80% interest in Uniòn Fenosa Energìas Especiales S.A. (now Enel Uniòn Fenosa Renovables S.A., or “EUFR”) in Spain, as well as operations in North, Central and South America. We acquired two electric distribution and sales companies in Romania in April 2005, and we entered into an agreement in February 2005 to purchase SE, the largest electricity generator in Slovakia. We expect this transaction to close by the end of 2005. As required by Italian legislation adopted as part of the liberalization of the electricity market, we have at the same time disposed of approximately 15,000 MW of our generating capacity through the sale of Elettrogen in September 2001, Eurogen in May 2002, and Interpower in January 2003, and have also been forced to sell several municipal distribution networks.

      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. Following the completion of an initial public offering in Italy and a private placement with certain institutional investors that was not registered under the Securities Act of 50% of Terna’s share capital in June 2004 (the “Terna IPO”), and the sale of an additional 13.9% of Terna’s share capital in April 2005, we currently own approximately 36.14% of Terna’s share capital. 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, Enel in May 2005 took steps to further reduce its stake in Terna, entering into an agreement to sell 29.99% of Terna’s share capital to Cassa Depositi e Prestiti. We expect to close that sale, which is subject, among other things, to antitrust approval, by the end of the third quarter of 2005, reducing our stake in Terna to approximately 5%. Please see “— Business — Overview — Transmission.”

      We have also invested in telecommunications, starting in 1997, when we, France Télécom and Deutsche Telekom together formed our 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 early 2005, we held discussions with two separate consortia regarding a potential sale of all or part of Wind. After considering binding offers proposed by each, in April 2005 we entered into exclusive negotiations with Weather Investments, 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 and is listed on the London Stock Exchange and the Cairo and Alexandria Stock Exchange. In May 2005, we entered into an agreement for the sale of Wind to Weather Investments in a series of transactions that we expect to result in our owning 26.1% of Weather (which will then indirectly control both Wind and Orascom) by mid-2006. In line with our strategy of focusing on our core energy operations and ultimately exiting the telecommunications business, the shareholders’ agreement we expect to enter into with Weather Investments in connection with this transaction contemplates an initial public offering of Weather as soon as possible, market conditions permitting, although both we and Weather Investments will each agree, subject to certain exceptions not to sell our interests in Weather until the initial public offering.

      In 2004, our operations were organized into six business divisions: Generation and Energy Management; Sales, Infrastructure and Networks; Transmission; Telecommunications; Services and Other Activities; and Corporate. In 2003, we also had a seventh division, the International Division, which included our international generation, sales and distribution operations. In 2004, our management decided to re-allocate to the relevant business divisions the operations that had been grouped in the International Division in 2003. These operations are now included, as appropriate, in the Generation and Energy Management and Sales, Infrastructure and Networks divisions.

      Each division has its own management structure, headed by a senior manager who reports directly to the Chief Executive Officer of Enel. Our Corporate Division includes Enel, which as the parent company, defines the strategic objectives for the Enel Group and coordinates the activities of the other divisions. The parent company also manages finance operations and insurance risk coverage for all Group companies, identifies opportunities for international business development, and provides assistance and guidelines on organizational, industrial relations, accounting, administrative, tax and legal issues.

      For additional information on each of our operating divisions and their activities, please see “— Business — The Enel Group,” below. For a detailed discussion of our operational and financial results in the period 2002-2004, 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 law 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 Andover Business Park, 200 Bulfinch Drive, 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 2004, with operating revenues of €36,489 million, or $49,399 million. We earned net income in 2004 of €2,706 million, or $3,663 million. We believe that, in terms of the volume of electricity sold in the year 2004, we were one of the largest electric utilities in Europe, and according to Bloomberg, as of May 31, 2005, 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 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.

      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 includes power generation activities in Italy and abroad.

      We are the largest producer of electricity in Italy. At December 31, 2004, we had net installed capacity in Italy of approximately 42.0 GW, which we estimate to have been approximately 52% of total Italian net installed capacity at that date. Our net electricity production in Italy in 2004 was 125.9 TWh, and, based on data provided by the Gestore della Rete, we estimate that our production represented approximately 44% of Italian net production during 2004. Our net production declined by 8.7%, or by 11.9 TWh, in 2004 as compared to 2003. As of December 31, 2004, we had 595 generating plants in Italy, consisting of thermal, hydroelectric, geothermal and other renewable resources facilities, which, based on data provided by the Gestore della Rete, we estimate represented approximately 52% of the total net installed capacity in Italy as of December 31, 2004. In 2004, 73.0% of our net production was from thermal plants, 22.7% was from hydroelectric plants and the remaining 4.3% was from geothermal and other renewable resources plants. We do not own or operate any nuclear plants in Italy.

      At December 31, 2004, we also had electricity generation plants outside Italy with aggregate net installed capacity of approximately 3.9 GW, including facilities in Spain, Bulgaria and North, Central and South America. In addition, we manage a generation plant in Russia and in February 2005, we agreed to acquire generation operations in Slovakia. We expect this transaction to close by the end of 2005.

      In 2004, the Generation and Energy Management Division had revenues after intrasegment eliminations of €12,982 million, reflecting revenues prior to intrasegment eliminations of €12,397 million in Italy and €623 million abroad. This compares to revenues after intrasegment eliminations of €12,607 million in 2003, reflecting revenues prior to intrasegment eliminations of €12,111 million in Italy and €518 million abroad (which in 2003 were attributed to our former International Division).

      Sales, Infrastructure and Networks. Our Sales, Infrastructure and Networks Division operates in both the electricity and gas markets through two independent 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.

      We are the largest electricity distributor in Italy, distributing a total of 261.2 TWh of electricity in 2004. At December 31, 2004, our Italian distribution network consisted of a total of 1,089,845 km of lines, mostly medium and low voltage, and 412,670 primary and secondary transformer substations, with a total transformer capacity of 153,677 MVA.

      We are also the largest seller 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 2004, we sold electricity to approximately 23.2 million residential customers, which we estimate were approximately 87% of all residential customers in Italy. In 2004, we distributed and sold approximately 137.0 TWh of electricity on the regulated market, and distributed approximately 114 TWh of electricity and sold approximately 20.8 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 2004, we sold approximately 6.9 billion cubic meters of gas to third parties, of which approximately 5.2 billion cubic meters were sold to nearly 2 million end users.

      At December 31, 2004, we also had 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 2004, the Sales, Infrastructure and Networks Division had revenues after intrasegment eliminations of €19,466 million, reflecting revenues prior to intrasegment eliminations of €17,619 million from our Italian electricity sales and distribution operations, €433 million from international electricity sales and distribution operations, and €1,421 million from gas sales and distribution in Italy. In 2003, the division had revenues of €20,433 million, reflecting revenues of €18,673 million from our Italian electricity sales and distribution operations, €386 million from international electricity sales and distribution operations (which were attributed to our former International Division in 2003), and €1,374 million from gas sales and distribution in Italy. There were no intrasegment eliminations in 2003.

      Transmission. In 2004, our Transmission Division comprised Terna, which owns more than 90% of the transmission assets of Italy’s national electricity grid, according to the latest evaluation of the Italian Energy Authority carried out in December 2004, and all the Italian grid of high voltage 380 kV lines, as well as its subsidiaries Transmissora Sudeste Nordeste S.A. and Novatrans Energia S.A., two Brazilian electricity transmission companies. The transmission grid that Terna owns carries almost all the electricity transmitted to distribution networks for sale in Italy.

      In June 2004, we completed the Terna IPO, which resulted in gross proceeds of €1,700 million. On April 5, 2005, we sold an additional 13.9% of Terna’s share capital for gross proceeds of €568 million in a private placement to institutional investors not registered under the Securities Act. We currently own 36.14% of Terna.

      These transactions were part of Enel’s announced strategy to reduce its stake in Terna to approximately 5%, following a May 2004 decree implementating a law requiring the transfer to Terna of the management and control of the national transmission grid, together with certain assets, by the Gestore della Rete by October 31, 2005. Upon this transfer, no electricity operator, including Enel, shall be entitled to control more than 5% of the voting rights with respect to the appointment of Terna’s directors. The same law requires Enel to reduce its holding in Terna to no more than 20% by July 1, 2007.

      In accordance with the May 2004 decree, Terna has amended its by-laws in order to reflect the required 5% limit on voting rights for electricity companies; this provision of its by-laws will become effective upon closing of the transfer by the Gestore della Rete to Terna of management of the transmission network.

      Terna and the Gestore della Rete in February 2005 agreed upon terms for the transfer to Terna of the management of the transmission grid for aggregate consideration of approximately €180 million, including payment of €68.3 million in cash and assumption of approximately €112 million in trade payables due to Terna from the Gestore della Rete. Closing of the transaction remains subject to approval of the Antitrust Authority.

      In May 2005, Enel agreed to sell a 29.99% stake in Terna to Cassa Depositi e Prestiti for consideration that, depending on the price of Terna’s shares on the Italian Stock Exchange in a specified period prior to closing of the sale, will be between a minimum of €1,228 million and a maximum of €1,412 million. Closing of the sale to Cassa Depositi e Prestiti is expected to take place within 15 days of satisfaction of all the conditions to closing, including authorization by the Antitrust Authority of both this transaction and the transfer of management of the transmission grid from the Gestore della Rete to Terna, as well as Terna’s calling of a

      Our agreement with Cassa Depositi e Prestiti provides that if at the time of closing, Cassa Depositi e Prestiti already owns shares of Terna (which it currently does not), the percentage of Terna’s share capital we will sell to Cassa Depositi e Prestiti will be reduced by the amount necessary to ensure that the amount of shares Cassa Depositi e Prestiti will own after the closing does not exceed the 30% threshold that under Italian law would trigger the obligation for it to launch a tender offer for all of Terna’s publicly held shares. The consideration Enel is to receive will be adjusted to reflect the actual number of shares being sold.

      Following completion of the sale to Cassa Depositi e Prestiti, and the distribution in early 2006 by the Company of “bonus” shares promised to certain Italian retail investors as part of the Terna IPO, we expect to own approximately 5% of Terna’s share capital.

      As of December 31, 2004, the transmission grid that Terna owns, which constituted more than 90% of the national electricity transmission grid, consisted of a total of approximately 38,696 km of lines and 300 primary transformer stations. The revenues of this division in 2004 were €1,023 million, of which €119 million were attributable to its transmission operations in Brazil, compared to €927 million in 2003, of which €53 million were attributable to its transmission operations in Brazil.

      Telecommunications. The Telecommunications Division comprises Wind and its subsidiaries. In May 2005, we entered into an agreement for the sale of Wind to Weather in a series of transactions that we expect ultimately to lead to our exit from the telecommunications business. Please see “— The Enel Group — Telecommunications — Overview” for additional information on Wind’s divestiture. As of December 31, 2004, Wind provided mobile telephony services to a customer base in Italy comprising approximately 12.1 million mobile customer lines and had approximately 2.4 million fixed line customers and 17.1 million registered users for its Internet access services. This division’s revenues in 2004 were €4,714 million, compared to €4,383 million in 2003.

      Services and Other Activities. Our Services and Other Activities Division includes, among other businesses, our engineering and construction, information technology and real estate services. We divested certain real estate assets through the sale in July 2004 of NewReal S.p.A. (“NewReal”), a company to which we contributed real estate assets having a market value of approximately €1,400 million, and in May 2005 divested most of our water activities. In 2004, this division had revenues of €1,799 million, compared to €2,742 million in 2003.

      Corporate. Enel constitutes our Corporate Division and, as the parent company, defines the strategic objectives for the Enel Group and coordinates the activities of all of our divisions. In addition, Enel manages finance operations and insurance risk coverage for all Group companies, identifies opportunities for international business development, and provides assistance and guidelines on organizational, industrial relations, accounting, administrative, tax and legal issues. In 2004, this division had revenues of €1,617 million, compared to €1,139 million in 2003.

      The following chart sets forth our principal business units and the main companies through which we conduct these businesses as of May 31, 2005, 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. As discussed, Enel is in the process of divesting almost all of its stake in Terna, and we are also in the process of divesting Wind. See the paragraphs “— Transmission” and “— Telecommunications” above.

      Distribution. We currently transport on our distribution network more than 80% of the electricity transported in Italy. 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. 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 natural 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.

      Sales. In our electricity sales business, as a result of the liberalization process, based on data from the Gestore della Rete, we have seen our market share in direct sales to end users in Italy decline from approximately 92% in 1999 to approximately 50% in 2004.

      In this context, we intend to continue our efforts to improve our quality of service and our cost-containment policies, further focus on our core businesses and develop service offerings targeted to various market segments.

      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 gas sold. We seek to increase our customer base through targeted marketing initiatives and promotional campaigns, as well as, where appropriate, through acquisitions of other gas companies. In order to increase profitability, we intend to target in particular residential and small business customers. Our goal is to increase our total volumes from the approximately 5.2 billion cubic meters of gas sold to end users in 2004 to approximately 7.1 billion cubic meters per year by 2009, and to increase the number of end users from approximately 2.0 million in 2004 to 2.5 million by 2006 and 3.9 million by 2009.

      In the future, we intend to offer integrated electricity and natural gas services to household consumers in order to improve the quality of service provided and achieve cost savings. In March 2005, we launched our first

      In light of Italian laws and regulations providing for the unification of the ownership and management of the Italian transmission grid and imposing certain ownership restrictions on the entity that will own and manage it, Enel expects to reduce its stake in Terna from 36.14% to approximately 5%, having in May 2005 agreed to sell a 29.99% stake in Terna to Cassa Depositi e Prestiti. Following closing of that transaction, which we expect to take place by the end of the third quarter of 2005, we will hold approximately 5% of Terna. Please see “— Business — Overview — Transmission” and “Item 3. Key Information — Risk Factors — Risks Relating to Our Energy Business — We may be unable to complete the disposal of the majority of our remaining interest in Terna on the anticipated timetable or terms” for additional information on Enel’s divestiture of Terna.

      In line with our strategic objective of focusing on our core energy businesses, we view our telecommunications activities, held through Wind, solely as a financial investment. In May 2005, we entered into an agreement for the sale of Wind to Weather Investments in a series of transactions. The agreement is subject to regulatory approvals. We expect the first of these transactions, involving our sale of a 62.75% stake in Wind, to be completed during the summer of 2005, and to dispose of our remaining interest in the first half of 2006. As a result of this agreement, we expect to deconsolidate Wind and its approximately €7 billion in debt. Upon completion of these transactions, we will no longer have any direct interest in Wind, but will hold an interest of approximately 26% in Weather.

      We have entered into this agreement as part of our announced strategy to focus on our core energy business and we expect that it will ultimately lead to our exit from the telecommunications business. Please see “— The Enel Group — Telecommunications — Overview” and “Item 3. Key Information — Risk Factors — Risks Related to Our Other Businesses — We may be unable to exit the telecommunications business on acceptable terms or in accordance with the currently envisaged timetable” for additional information on our divestiture of Wind.

      Consistent with our objective of focusing on our core energy businesses, in July 2004 we sold NewReal, a company to which we contributed real estate assets having a market value of approximately €1,400 million, and in 2005 expect to sell certain residual real estate assets now held by Enel Ape S.r.l. (“Enel Ape”), formerly APE Gruppo Enel, including Immobiliare Foro Bonaparte, Immobiliare Porta Volta and Immobiliare Progetto Ostiense. We are also considering selling our 49% stake in Leasys S.p.A., a long-term auto leasing and fleet management company, to our joint venture partner, Fidis Renting Italia, a subsidiary of Fiat S.p.A., during the course of 2005. On May 10, 2005, we sold Enel.Hydro, which held most of our activities in the water sector, for consideration of approximately €37 million.

      In addition, as of January 1, 2005, we merged Enel Facility Management, one of our real estate companies, and Enel.it S.r.l. (“Enel.it”), our information technology services company, into Enel Ape, our personnel administration company as part of our efforts to streamline and refocus this division’s activities on providing support to the Group’s other divisions.

      Demand for electricity in Italy has grown at an average annual rate of approximately 2.4% 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 0.4% in 2004, after having grown by 2.9% in 2003 and by 1.8% in 2002. 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 2004, growth in demand for electricity slowed compared to that in 2003, when demand was affected by unusually high temperatures in the spring and summer seasons. The slower growth in 2004 also reflected lower demand from small and medium-sized businesses. Please see “— Sales, Infrastructure and Networks — Sales to regulated electricity market.” According to data published in June 2005 by the Italian National Institute of Statistics, Italian GDP contracted by 0.5% in the first quarter of 2005 as compared to the fourth quarter of 2004, and contracted by 0.2% with respect to the first quarter of 2004.

      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 Gestore della Rete for 2003, the most recent available, we calculate that in 2003, electricity consumption in Italy was approximately 5,208 kWh per capita, compared to 5,160 kWh in 2002 and 5,017 kWh in 2001. 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 government regulation in Italy discouraged high-volume residential use. Please see “— Regulatory Matters — Electricity Regulation — The tariff structure” for a discussion of the current tariff structure.

      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 (previously Enel.FTL), which purchases fuel for all of our

      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, mainly through Enel Produzione. Please see “— Services and Other Activities — Research and development” for additional information on our research and development activities.

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

      At December 31, 2004, Enel Produzione and Enel Green Power together operated a total of 595 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, 2004, these plants had total net installed capacity of 42.0 GW, representing approximately 52% of the total net installed capacity in Italy. Our net electricity production in 2004 decreased by 8.7% to 125.9 TWh from 137.8 TWh in 2003 excluding from the 2003 total electricity produced by Interpower, which we sold in January 2003.

      We estimate that our net electricity production in 2004 represented approximately 44% of Italian production during the year, compared to 49.4% in 2003.

      The following table shows the gross production in 2002, 2003 and 2004 for the Italian electricity sector as a whole in kilowatt hours, broken down by type of generating plant. Net production is the difference between gross production less consumption by units generating electricity and mechanical and electrical losses in production, referred to as “power used by auxiliary installations.” Imports include electricity purchased from foreign producers on the spot market or under annual or long-term contracts. Pumped storage consumption refers to the use of electricity by pumped storage hydroelectric plants to pump water to elevated areas for use at a later time to generate electricity.

      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, 2004, and for the year 2004. 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 conversion of thermal plants into combined cycle plants we had completed at December 31, 2004. 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, 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, 2004, we owned 46 thermal plants with an aggregate net installed capacity of 26.8 GW, or 63.8% of our net installed capacity at that date. In 2004, our thermal net production was 91,854 GWh, or 73.0% of our net production for the year, compared to thermal net production of 106,669 GWh, or approximately 77.4% of our net production in 2003.

      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. 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 combined cycle gas turbines. At December 31, 2004, approximately 68% of the net installed capacity of our thermal plants consisted of steam-condensing units, approximately 6% of that capacity was represented by gas-turbine units in repowered steam plants, approximately 8% of that capacity was represented by gas-turbine units in open cycle, and approximately 18% was represented by combined cycle technology 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, 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 2004, single fuel units generated approximately 55% of our net production from thermal plants (compared to approximately 65% in 2003) and represented approximately 70% of the net installed capacity of these plants at year end. Dual fuel units accounted for approximately 45% of our net production from thermal plants (compared to approximately 35% in 2003) and approximately 30% of our net installed capacity of these plants at December 31, 2004. The average thermal efficiency, or the ratio of useful energy produced to the energy consumed to produce it, of our thermal plants was 39.1% at December 31, 2004, in line with the level at year-end 2003.

      In 1997, we began converting a number of our conventional thermal plants into combined cycle 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 combined cycle generation increases efficiency and reduces emissions. We plan for our new combined cycle plants to have an expected average thermal efficiency of approximately 56%, in line with that at our existing combined cycle plants.

      Since 1997, we have completed the conversion of approximately 4,300 MW of generating capacity to combined cycle technology, 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 €340,000 per MW of net installed capacity, or a total of approximately €1,700 million through 2007. At December 31, 2004, we had spent approximately €1,500 million of this total.

      In addition to our combined cycle conversion program, we are planning to upgrade additional net installed capacity of approximately 4,700 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 amounted to approximately €31 million in 2004. In previous years, these amounts had represented an increasing percentage of our total capital investments related to generation. However, as anticipated, in 2004, these expenditures decreased by almost €30 million, or approximately 50%, with respect to those in 2003, as a result of the completion of a major environmental investment program. Please see “— Regulatory Matters — Environmental Matters” for a discussion of the environmental laws and regulations affecting our generation operations.

      At December 31, 2004, we had 495 hydroelectric plants in Italy with an aggregate net installed capacity of 14.3 GW, or approximately 34% of our net installed capacity at that date. In 2004, our hydroelectric net production was 28,659 GWh, or approximately 22.7% 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 2004, pondage plants generated approximately 28.1% of our net hydroelectric production and represented approximately 19.7% of our net installed hydroelectric generation capacity at year end, while run-of-river plants accounted for approximately 24.4% of our net production from hydroelectric plants and approximately 11.5% of our net installed hydroelectric generating capacity. Pumped storage (including mixed pumped storage) plants generated approximately 32.8% of our net hydroelectric production in 2004, and represented approximately 52.3% of our net installed hydroelectric generating capacity, with reservoir plants

      We invested €174 million in 2004 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. These licenses expire in 2029 and are subject to renewal. 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, and, if any of these licenses expire without being renewed, we will have to transfer the affected hydroelectric plants to the governmental authority granting the license. The Provincial Authorities of Trento and Bolzano have set a termination date of 2010 for the licenses they have granted. Our hydroelectric plants in these provinces have an aggregate net installed capacity of 1,970 MW, or 4.7% of our current total net installed capacity.

      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. 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. In 2004, we conducted these activities through Enel Green Power, which, as noted above, we merged into Enel Produzione as of June 1, 2005.

      At December 31, 2004, we had 31 geothermal power plants with an aggregate net installed capacity of 642 MW. In 2004, our geothermal net production was 5.1 GWh, or 4.1% 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, 2004, we operated 18 wind farms with an aggregate net installed capacity of about 247 MW and five photovoltaic solar grid connected power plants with an aggregate net installed capacity of 4 MW. Together, these plants accounted for 235 GWh of our net production in 2004.

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

      To comply with these regulatory requirements, we can either produce electricity from renewable resources ourselves, or we can purchase “green certificates” from other qualified producers or the Gestore della Rete. Based on our production for 2003, we were required to provide approximately 2.1 TWh of electricity from renewable resources in 2004, a slight increase from the 2.0 TWh we were required to provide in 2003. Based on our production for 2004, we are required to produce 2.1 TWh of electricity from renewable resources in 2005. In 2004, we generated 1.3 TWh of energy from qualifying renewable resources, and purchased “green certificates” for the remaining 0.8 TWh, at a cost of approximately €80 million. We expect to generate approximately 1.7 TWh of electricity from qualifying renewable resources in 2005, and to purchase “green certificates” from other qualified producers or the Gestore della Rete for the remaining 0.4 TWh. In addition, we are required to provide a further amount of approximately 0.07 TWh of electricity from

      We have started a capital investment program in order to reach a level of qualifying production from renewable resources of approximately 2.4 TWh by 2006, which we believe will permit us to meet the regulatory requirements (given the expected further decline in our share of total generation in Italy), and may enable us to sell green certificates to the market starting in 2006. This program is expected to result in an additional increase in our renewable capacity (hydro, wind and geothermal) of about 250 MW by 2009.

      Our international generation operations in 2004 included Viesgo Generaciòn, an electricity generation company in Spain, currently our largest operation abroad; EUFR, a company active in Spain in the field of renewable energy; Maritza East III, which we acquired in 2003, a generating company in Bulgaria; Enel North America and Enel Latin America, active in power generation from renewable sources in North America and in Central and South America, respectively.

      We acquired the Spanish company Viesgo, which owned Viesgo Generaciòn as well as distribution companies, from Endesa S.A. in January 2002 for total consideration of €2,070 million, including €1,920 million in cash and the assumption of €150 million in debt. Viesgo Generaciòn (currently wholly owned by Enel Produzione) operates 6 thermal plants and 12 hydroelectric plants in Spain, which taken together have a total net installed capacity of approximately 2,264 MW.

      In March 2003, we acquired from Entergy Power Bulgaria Ltd. (“Entergy”), through our subsidiary Enel Generation Holding BV, 60% of the share capital of Maritza East III Power Holding BV, which in turn holds 73% of Bulgarian generation company Maritza East III, for €75.7 million. Maritza East III, which has 732 MW of net installed capacity, is working on the refurbishment, environmental upgrade and management of its lignite-fired generation plant, located on the border with Greece. The total financial outlay of Maritza East III for the project, which is expected to result in an increase in Maritza East III’s net installed capacity to 799 MW, is estimated to be about €309 million, to be funded through project financing. The remaining 40% of Maritza East III Power Holding BV’s share capital still held by Entergy is subject to put and call options exercisable by Entergy and by us, respectively, which expire in early September 2008.

      In December 2003, we acquired 80% of the share capital of Uniòn Fenosa Energìas Especiales (now EUFR), a Spanish company active in the field of renewable energy, from Uniòn Fenosa Generaciòn SA, which still holds the remaining 20%, for total consideration of €178 million. We granted Uniòn Fenosa Generaciòn SA an option to repurchase 30% of EUFR’s capital stock, which may be exercised through the end of 2007. EUFR’s assets include plants and projects for the generation of electricity from renewable resources, primarily wind and hydroelectric facilities. EUFR has 311 MW of net installed capacity currently in operation, and more than 70 MW in development that we expect to be in operation by the end of 2005.

      We have generation operations in the United States through Enel North America, a North American independent power producer specializing in renewable resources. At December 31, 2004, Enel North America operated 67 power plants in the United States and 2 in Canada with an aggregate net installed capacity of 374 MW and a net production in 2004 of approximately 1,265 GWh. On March 1, 2004, we acquired two hydroelectric plants in North America: Twin Falls, located in the State of Washington, and Lower Saranac, located in the State of New York, with an aggregate net installed capacity of 33 MW, from General Electric Structured Finance Ltd. for $44.4 million, equivalent to approximately €35.2 million. In July 2004, we acquired another five hydroelectric plants in North America with a net installed capacity of 27 MW for $7.1 million, equivalent to approximately €5.2 million. In April 2005, Enel North America also acquired full control of the 25 MW Sheldon Springs hydroelectric project located on the Missisquoi River in Sheldon, Vermont (in which it had previously owned a 1% stake). We also have generation operations in Central and South America through Enel Latin America, another power producer specializing in renewable resources. At December 31, 2004, Enel Latin America operated two hydroelectric plants and a wind plant in Costa Rica, as well as two hydroelectric plants in Chile and two hydroelectric plants in Guatemala, which together had aggregate net installed capacity of 195 MW and net production in 2004 of approximately 928 GWh.

      Enel ESN Energo, a wholly owned Russian subsidiary of Enel ESN Management BV, on June 28, 2004, entered into a three-year agreement (renewable for an additional year) to manage a combined cycle generation plant near St. Petersburg with installed capacity of approximately 450 MW with OAO North-West CHPP, which is controlled by RAO UES, the company that operates Russia’s unified power system. Enel ESN Management BV is a joint venture currently held 75% by us and 25% by ZAO ESN, a privately held Russian company.

      As part of our international expansion objectives and our efforts to consolidate our presence in Eastern and Central Europe, in February 2005 we agreed to purchase a 66% interest in SE, the principal electric power generation company in Slovakia, with an estimated market share of more than 80%, for €840 million. SE has total installed generation capacity of 6,900 MW, of which 38% is nuclear-powered, 35% is hydroelectric-powered and 27% is powered by conventional thermal sources. This acquisition will mark our reentry into the field of nuclear power generation; we have not owned any nuclear power plants since November 2000, and we have not produced electricity from nuclear power plants since 1988. SE owns six nuclear power units, with net installed capacity of 440 MW each, which we believe are equipped with internationally accepted technology. Please see “— Regulatory Matters — Environmental Matters — Discontinued Nuclear Operations.” Closing of the transaction, expected by the end of 2005, is subject to certain conditions, including the transfer to a state-owned company of the assets and liabilities of two nuclear power plants that are 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 on a new fund for the decommissioning of nuclear installations in Slovakia and new rules governing the Slovakian electricity market. The four nuclear power units that SE will retain have been recognized by the International Atomic Energy Association as being in line with Western European security standards. Closing of the transaction is also subject to the approval by the Slovak government of the strategic investment plan we are preparing for SE for the 2006-2010 period.

      In addition, on May 30, 2005, we entered into a non-binding memorandum of understanding with EDF for an industrial partnership permitting us to invest in the French electricity market, including in EDF’s latest generation European Pressurized Water Reactor, or “EPR,” nuclear reactor project.

      Under the terms of this memorandum of understanding, among other things, Enel will have a 12.5% stake in EDF’s EPR nuclear power plant project, expected to be fully operational by 2012. Under the memorandum of understanding, Enel will bear its proportional share of the costs associated with the project, including investment, operating and fuel costs, as well as its share of budgeted reactor decommissioning costs and the corresponding share of the back-end fuel and waste disposal costs. EDF will be the operator of the power plant, and will bear any related nuclear civil liability. Enel will also receive a share of the generation capacity and output proportional to its initial stake in the project, which may be increased, provided that EDF retains a majority interest. Under the memorandum of understanding, the parties have agreed to execute a definitive agreement by September 30, 2005, subject to antitrust authority approval. The agreement also gives Enel the right, starting from January 1, 2006, to access a portion of production, increasing over time to a maximum of 1,200 MW, from EDF’s existing nuclear generation capacity during the development of the EPR project.

      The following table shows the net installed generation capacity of our foreign generating companies broken down by type of plant at December 31, 2004, as well as a comparison of the totals for 2004 compared to those for 2003. Net installed capacity excludes capacity held by unconsolidated associated companies.

      Our international operations generated 12,320 GWh of electricity in 2004, as compared to 10,721 GWh in 2003, and included 6,062 GWh produced by Viesgo Generaciòn (5,880 GWh in 2003), 3,213 GWh produced by Maritza East III (2,756 GWh in 2003), 2,193 GWh produced by our North and Latin American companies (2,085 GWh in 2003) and 853 GWh generated by EUFR, which we acquired in December 2003.

      We use fuel oil, natural gas, coal and other fuels in operating our thermal generation plants, and we 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 2004, the oil market price per barrel increased from $30.11 at December 31, 2003, to $40.47 at December 31, 2004, or by 34.4%. This substantial increase was the result mainly of geopolitical factors, such as the current situation in Iraq, instability in other parts of the Middle East and the economic and political situation in 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” 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 €2,173 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 2004, our fuel costs for thermal production, including fuel transport, were €3,426 million, compared to €3,970 million in 2003. The decline of more than 13% was primarily due to the lower volume of electricity production during 2004.

      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), and for 2002 excludes production by Eurogen and Interpower.