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A N N U A L R E P O R T O P E R A T I O N S R E V I E W
ENDESA ON THE SPANISH STOCK MARKET
(CONTINUOUS MARKET) ELE ENDESA ON THE NEW YORK STOCK EXCHANGE (NYSE) ELE ENDESA ON THE
SANTIAGO DE CHILE OFFSHORE EXCHANGE ENDESPAN ENDESA WAS INCORPORATED IN 1944 AS EMPRESA
NACIONAL DE ELECTRICIDAD, S.A. AT THE GENERAL SHAREHOLDERS’
MEETING HELD ON 25 JUNE 1997 ITS NAME WAS CHANGED TO ENDESA, S.A. ENDESA, S.A. IS
REGISTERED IN VOLUME 323, SHEET 1, PAGE 6,045, OF THE MADRID TRADE AND COMPANIES REGISTER.
ITS REGISTERED OFFICE AND HEADQUARTERS ARE AT RIBERA DEL LOIRA, 60, 28042 MADRID AND ITS
CORPORATE TAX IDENTIFICATION NUMBER (NIF) IS A-28023430. AT 31 DECEMBER 2006, THE COMPANY
HAD CAPITAL STOCK OF EURO 1,270,502,540.40, REPRESENTED BY 1,058,752,117 SHARES, EACH WITH
A PAR VALUE OF EURO 1.20. ITS SHARES ARE LISTED ON THE SPANISH STOCK EXCHANGES, THE NEW
YORK STOCK EXCHANGE IN THE FORM OF AMERICAN DEPOSITARY RECEIPTS (ADRS) AND ON THE SANTIAGO
DE CHILE OFFSHORE EXCHANGE. ENDESA’S MAIN BUSINESS ACTIVITY IS THE GENERATION,
TRANSMISSION, DISTRIBUTION AND SUPPLY OF ELECTRICITY. IT IS ALSO A MAJOR OPERATOR IN THE
IBERIAN NATURAL GAS MARKET AND CARRIES OUT OTHER SERVICES THAT ADD VALUE TO ITS CORE
BUSINESS. AT 31 DECEMBER 2006 ITS TOTAL ASSETS WERE EURO 54,088 MILLION. ENDESA IS THE
LEADING SPANISH ELECTRIC UTILITY, ONE OF THE FIVE LARGEST ELECTRIC UTILITIES IN EUROPE AND
THE BIGGEST PRIVATE ELECTRICITY MULTINATIONAL IN LATIN AMERICA. IT OPERATES IN THE
ELECTRICITY MARKETS OF 15 COUNTRIES SPANNING THREE CONTINENTS. IN 2006 THE COMPANY
REPORTED NET INCOME OF EURO 2,969 MILLION, EBITDA OF EURO 7,139 MILLION, EBIT OF EURO
5,239 MILLION AND TOTAL REVENUES OF EURO 20,580 MILLION. AT THE END OF 2006, THE COMPANY
EMPLOYED 26,758 PEOPLE, 12,666 IN SPAIN AND PORTUGAL, 2,130 ELSEWHERE IN EUROPE AND 11,962
IN LATIN AMERICA.
endesa06VISION, MISSION AND VALUES 2 KEY FIGURES 4LETTER TO SHAREHOLDERS
8CORPORATE GOVERNANCE 14 GENERAL ECONOMICAND REGULATORY FRAMEWORK 34 2006
RESULTS 48ENDESA’S STRATEGY 78 BUSINESSES 90TECHNOLOGY AND INNOVATION 140
HUMAN RESOURCES 146SUSTAINABLE DEVELOPMENTAND THE ENVIRONMENT 158COMMITMENT TO
SOCIETY 166 APPENDICES 181 This publication is a translation of a report
originally issued in Spanish. In the event of a discrepancy, the
Spanish-language version prevails.
2 Annual Report 2006 VISION, MISSION AND VALUES VISION ENDESA is an energy
sector operator and provider of associated services, focused on electricity. A
responsible, efficient and competitive multinational company, committed to
health, safety and environment. A company ready to compete at global level.
MISSION To maximise the value of its shareholders investments. To serve its
markets and exceed its customers’ expectations. To contribute to the
development of its employees.
Operations Review 3 endesa06 ENDESA’s VALUES People: We work to ensure
development opportunities for all Company employees, based on merit and the
professional contribution made. Health and Safety: We are firmly committed to
occupational health and safety, promoting a culture of risk prevention. Team
work: We encourage involvement towards achieving a common goal, sharing
information and knowledge. Ethical conduct: We encourage professionalism, moral
integrity, loyalty and respect to others. Customer focus: The focus of
ENDESA’s efforts is to boost customer satisfaction by providing
competitive, high-quality solutions. Innovation: We strive constantly to improve
and find innovative solutions to meet the maximum profitability criteria.
Focused on results: Our activities are aimed at achieving the objectives of the
business project and profitability for our shareholders, endeavouring to exceed
expectations. Community and the environment: We have made a social and cultural
commitment to the Community and adapt our business strategies to preserve the
environment.
FINANCIAL DATA 4 Annual Report 2006 FINANCIAL DATA Financial data for 2004,
2005 and 2006 has been prepared under International Financial Reporting
Standards ( IFRS), while Spanish Generally Accepted Accounting Principles (GAAP)
was used for previous years. BALANCE SHEET DATA (In millions of Euros) 2002 2003
2004 2005 2006 TOTAL ASSETS 48,176 46,047 47,182 55,365 54,088 Electricity
business in Spain and Portugal 23,885 23,246 24,878 30,204 30,254 Electricity
business in Latin America 16,233 14,993 14,284 17,136 16,595 Electricity
business in Europe 4,956 5,217 6,198 6,837 7,239 Other businesses 3,102 2,591
1,822 1,188 - FIXED TANGIBLE ASSETS 27,741 26,962 28,910 32,313 33,714
Electricity business in Spain and Portugal 15,601 15,381 16,657 18,176 19,758
Electricity business in Latin America 9,286 8,575 8,715 10,565 10,084
Electricity business in Europe 2,349 2,605 3,532 3,572 3,872 Other businesses
505 401 6 - - ASSETS OF PARENT COMPANY 8,043 8,801 8,728 11,590 11,291
Electricity business in Spain and Portugal 4,145 4,767 4,819 5,918 5,936
Electricity business in Latin America 2,098 2,308 2,341 3,164 3,022 Electricity
business in Europe 1,443 1,496 1,667 1,979 2,333 Other businesses 357 230 (99)
529 - MINORITY SHAREHOLDERS' EQUITY 3,175 4,945 3,831** 4,737 4,645 Electricity
business in Spain and Portugal 90 1,604* 116 119 44 Electricity business in
Latin America 897 2,935 3,077 3,763 3,642 Electricity business in Europe 1,130
355 638 855 959 Other businesses 58 51 – – – FINANCIAL DEBT**
22,747 17,250 18,698** 18,281 19,840 Electricity business in Spain and Portugal
9,394 6,429 9,586 11,461 12,548 Electricity business in Latin America 9,599
6,560 5,350 6,109 5,618 Electricity business in Europe 1,627 2,437 2,123 1,286
1,674 Other businesses 2,127 1,824 1,639 (575) - * Includes the Euro 1,500
million in preferred notes issued in March 2003. ** Data as of 01.01.05
endesa06 Operations Review 5 KEY INCOME STATEMENT LINES (In millions of
Euros) 2002 2003 2004 2005 2006 OPERATING REVENUES 17,238 16,644 13,665 18,229
20,580 Electricity business in Spain and Portugal 11,075 10,797 6,719 9,274
10,090 Electricity business in Latin America 4,084 3,623 4,357 5,232 6,079
Electricity business in Europe 1,760 2,037 2,576 3,720 4,411 Other businesses
319 187 13 3 - EBIT 3,582 3,144 2,846 4,244 5,239 Electricity business in Spain
and Portugal 2,131 1,780 1,432 2,264 2,705 Electricity business in Latin America
1,268 1,071 1,054 1,376 1,688 Electricity business in Europe 150 268 370 618 846
Other businesses 33 25 (10) (14) - INCOME AFTER TAX AND MINORITIES 1,270 1,312
1,253 3,182 2,969 Electricity business in Spain and Portugal 2,026 1,207 888
1,358 1,843 Electricity business in Latin America (281) 84 127 262 462
Electricity business in Europe 21 52 169 425 493 Other businesses (496) (31) 69
1,137 171 EBITDA 5,278 4,750 4,521 6,020 7,139 Electricity business in Spain and
Portugal 3,205 2,824 2,472 3,266 3,835 Electricity business in Latin America
1,735 1,484 1,522 1,878 2,188 Electricity business in Europe 263 384 535 887
1,116 Other businesses 75 58 (8) (11) -
MAIN ECONOMIC FLOWS (In millions of Euros) 2002 2003 2004 2005 2006 CASH
FLOW FROM OPERATIONS 4,285 3,815 3,418 4,209 4,643 Electricity business in Spain
and Portugal 2,537 2,019 1,978 2,669 2,721 Electricity business in Latin America
1,444 1,391 942 1,180 1,218 Electricity business in Europe 179 352 511 586 704
Other businesses 125 53 (13) (226) - TOTAL INVESTMENTS 3,257 2,482 3,449 3,640
4,336 Electricity business in Spain and Portugal 1,497 1,437 2,030 2,660 2,921
Electricity business in Latin America 776 505 522 670 952 Electricity business
in Europe 378 382 448 308 463 Other businesses 606 158 449 2 - DIVIDENDS PAID
723 744 782 2,541 1,736** PER SHARE DATA (Euros) 2002 2003 2004 2005 2006
Earnings 1.20 1.24 1.19 3.01 2.80 Dividend 0.68 0.70 0.74 2.40 1.64** Cash flow
4.05 3.60 3.25 4.00 4.40 Shareholders' equity 7.60 8.31 8.11 10.95 10.66 Total
shareholder remuneration (32.70) 42.90 18.00 32.80 72.10 P/E ratio
(Price/Earnings (x)) 9.29 12.31 14.53 7.38 12.80 DATA PER AMERICAN DEPOSITARY
RECEIPTS (ADR) (Dollars)* 2002 2003 2004 2005 2006 Earnings 1.26 1.57 1.61 3.56
3.69 Dividend 0.71 0.80 1.00 2.84 2.16** * At the exchange rate at end of each
year. ** Proposal to the 2007 General Shareholders’ Meeting.
6 Annual Report 2006 FINANCIAL DATA OPERATING DATA 2002 2003 2004 2005 2006
WORKFORCE (AT THE END OF EACH YEAR) 26,354 26,777 27,153 27,204 26,758
Electricity business in Spain and Portugal 13,548 13,651 12,889 12,709 12,625
Latin American electricity business 11,166 11,796 11,735 12,317 11,962
Electricity business in Europe 1,168 1,143 2,436 2,153 2,130 Other businesses
472 187 93 25 41 INSTALLED CAPACITY (MW) 40,945 41,836 45,850 45,908 47,113
Spain and Portugal 21,897 22,643 22,503 22,416 23,021 Hydro 5,368 5,367 5,368
5,379 5,362 Classic thermal 11,956 12,598 12,884 12,632 13,089 Nuclear plant
3,632 3,637 3,393 3,397 3,397 Cogeneration and renewables 941 1,041 858 1,007
1,173 Latin America 13,328 13,333 14,053 14,095 14,317 Rest of Europe 5,720
5,860 9,294 9,397 9,775 OUTPUT (GWh)1 151,033 158,081 175,838 185,264 186,411
Spain and Portugal 90,785 93,734 95,679 93,625 88,808 Hydro 7,914 11,548 10,310
7,479 7,571 Classic thermal 53,070 52,947 58,029 61,006 54,372 Nuclear plant
28,391 27,697 25,567 23,020 24,389 Cogeneration and renewables 1,410 1,541 1,773
2,120 2,476 Latin America 42,697 46,480 55,106 57,890 62,028 Rest of Europe
17,551 17,867 25,053 33,749 35,575 SALES (GWh) 152,762 163,640 181,217 203,335
220,299 Spain and Portugal 85,602 92,996 96,731 100,868 109,412 Regulated market
62,805 67,701 65,762 64,095 71,599 Deregulated market2 22,797 25,295 30,969
36,773 37,813 Latin America 47,494 49,526 52,314 55,246 58,281 Rest of Europe
19,666 21,118 32,172 47,221 52,606 CUSTOMERS (THOUSANDS) 20,544 20,960 21,463
21,936 22,701 Spain and Portugal 10,252 10,478 10,577 10,714 11,120 Regulated
market3 10,244 10,416 10,023 9,716 10,042 Deregulated market2 8 62 554 998 1,078
Latin America 10,292 10,482 10,886 11,222 11,581 Rest of Europe – –
– – – 1 Output for hydroelectric, conventional thermal and
nuclear plants in Spain is measured according to the busbar cost. 2 To coincide
with economic data for this business we include sales made by Endesa
Energía in European countries outside of Spain and Portugal. 3 Tariff
customers does not include toll customers.
Operations Review 7 endesa06 Dear shareholder: This annual report is
intended to provide you with detailed information on the financial results
obtained by ENDESA in 2006, the actions undertaken in each of our businesses and
the degree to which we reached the commitments we had announced to our
shareholders and to the market as a whole. The overall picture demonstrates that
2006 was one of the best years in ENDESA’s history. The excellent results
of the previous year were repeated and some key aspects such as shareholder
return were surpassed. All business areas performed well, demonstrating that the
Company has one of the most solid and profitable industrial projects in the
electricity sector worldwide. ENDESA has achieved these results while at the
same time adhering to its ethos of responsibility which is a central feature of
its behaviour. It complied with good corporate governance practices in a strict
manner and ensured that serving its customers and society as a whole was its
primary business obligation. Shareholders’ legitimate interests were
defended properly and due attention was paid to employees’ security, health
and professional development. The Company has demonstrated its commitment to the
communities where it has a presence and to the preservation of the environment.
Adherence to these principles led ENDESA to be considered the world’s best
electricity company in sustainable development in 2006, according to the Dow
Jones Sustainability World index, the most prestigious sustainability index
worldwide. In an analysis of the trend marked by the Company’s key
financial figures in 2006, one highlight is the net income figure of Euro 2,969
million, just 6.7% less than the 2005 figure which was the highest in
ENDESA’s history. It is also important to bear in mind that the 2005 income
figure included, among other positive effects from the disposal of non-core
assets, a net capital gain of Euro 1,115 million from the sale of our share in
the Spanish telecommunications group, Auna. If we were to strip out the capital
gains from asset disposal in these two years, 2006 net income would be Euro
2,576 million and represent a 40% increase on 2005, thus proving ENDESA’s
ability to achieve high recurrent income. This ability is further confirmed by
the behaviour of income statement items which are most indicative of the
performance of the business itself. EBITDA was Euro 7,139 million, up 18.6% on
the previous year, and EBIT was Euro 5,239 million, an advance of 23.4%. All the
Company’s electricity businesses recorded strong net income growth. Net
income for the Spain and Portugal business totalled Euro 1,843 million, 35.7%
more than in 2005 and provided 65.9% of the profit from the Company’s
electricity business activities. The figure for the European business was Euro
493 million, up 16% and providing a 17.6% contribution while net income for the
Latin American business totalled Euro 462 million, 76.3% more than in the
previous year and contributing 16.5% of the total profit from the electricity
businesses. These figures attest to the Company’s ability to obtain
positive results in the very different geographical areas in which it operates.
Its healthy level of risk diversification is a source of competitive advantage,
as is its strongly multinational profile: 34.1 % of the profit from electricity
business activities and 46.3% of EBITDA came from activities outside the Iberian
market. All in all, the healthy results obtained by the Company in 2006 are
firmly based on the operating performance of its businesses. Electricity sales
were 220,299 GWh, up 8.3% on 2005, with significant growth in its three business
areas and a firm customer base which reached almost 23 million. Total
electricity production was 186,411 GWh, up 0.6% on 2005. Strong growth in Europe
(5.4%) and Latin America (7.1%) offset the 5.1% decline in Spain and Portugal. A
detailed analysis of the key issues marking the performance of each business
line in 2006 shows that Spain and Portugal recorded, along with the high net
income mentioned previously, EBITDA of Euro 3,835 million, 17.4% more than in
2005 and EBIT of Euro 2,705 million, up 19.5%.
These results were obtained in a year in which significant new regulatory
developments occurred in Spain. Firstly, Royal Decree Law 3/2006 was passed in
February. This provided for significant changes, including the obligation to
settle at a provisional price of Euro 42.35/MWh all sales to the wholesale
generation market that match purchases by a distributor belonging to the same
business group for sale to the regulated market. However, the Royal Decree Law
also indicated that the final price must be set in 2007 by using objective and
transparent market prices as a reference. Market prices have been much higher
that the provisional price so, once the final price is set, a positive effect
will be registered in 2007 accounts. Secondly, the Ministerial Orders which
develop the Royal Decree covering the mainland and non-mainland electricity
systems were passed in March. These Ministerial Orders set the definite method
for calculating generation activity remuneration in these systems and, as a
result, the coverage for stranded costs that the companies involved must face.
As a result of this, an entry was made in the 2006 accounts relating to stranded
costs for the period 2001-2005 for Euro 227 million. Thus, the development of
the regulatory framework affecting power generation in these systems has reached
its completion. It provides guarantees for obtaining sufficient income to ensure
reasonable cost coverage and for responding to changes in fuel prices. Finally,
in July, the proposal for the National Allocation Plan for CO2 emission rights
for the period 2008-2012 was revealed. Its content, together with ENDESA’s
portfolio of carbon credits, guarantees that the Company’s generation
assets will operate on a efficient and competitive basis and furthermore that it
is fully compatible with the targets contained in its Strategic Plan. Meanwhile,
ENDESA was confirmed as the leading company in Spain’s electricity sector,
with a 38.1% market share in ordinary regime electricity generation, 43.1% in
distribution, 55.6% in sales to deregulated customers and 43.6% in sales to end
customers. It generated 88,808 GWh in electricity in the Iberian market, 5.1%
less than the previous year due to increased rainfall in 2006 and the scheduled
maintenance downtime at various electricity units in Spain. Nevertheless, the
Company was able to cover 81.2% of its electricity sales in this market, which
rose 8.5% to 109,412 GWh, with its own output. The Company’s power
generation had a more diversified mix, was more efficient and had a better
structure that that of its competitors: 44.5% of hydro and nuclear power vs. 36%
for the rest of the sector, while the utilisation rate at thermal plants was
79%, vs. 61% for other companies. This competitive generation mix was bolstered
by the addition of 1,187 MW in new capacity: 400 MW from the finalisation of the
Cristóbal Colón CCGT in Huelva, 512 MW from various facilities in
the mainland and non-mainland systems and 275 MW from new renewable energy
facilities. In addition to this, our Company, together with International Power,
was awarded a connection point for two 400 MW CCGTs at the Tejo site in Portugal
while the Eólicas de Portugal consortium, 30% owned by ENDESA, was
awarded 1,200 MW in the wind power tender which also took place in Portugal.
Finally, a particularly significant event in the Spanish market last year was
the fact that ENDESA set a new record in its quality of supply. The
SystemAverage Interruption Duration Index (SAIDI) was 1 hour and 55 minutes for
the whole year, which marks a 14% improvement on 2005. This achievement is the
result of our Company’s firm commitment to quality of service which has led
to a 59% improvement in this measure throughout 2001-2006, thanks to the
substantial operating improvements that have been achieved and the Euro 6.5
billion invested in distribution facilities during this time, the largest amount
invested by any company in the sector. To conclude this brief summary of the
business performance in Spain and Portugal in 2006, it is worth noting that
ENDESA reinforced its position as a significant operator in Spain’s natural
gas market. It sold 23,697 GWh to 320,000 customers in the endesa06 Operations
Review 9
liberalised market while the gas distribution companies in which it holds a
share supplied 6,759 GWh to 351,000 consumers in the regulated market. By adding
the amount of gas consumed by ENDESA’s generation plants, the
Company’s share of the Spanish natural gas market has reached around 12%.
In ENDESA’s European business, EBITDA stood at Euro 1,116 million, up 25.8%
versus 2005, and EBIT at Euro 846 million, an increase of 36.9%. Operating
figures were also excellent with production of 35,575 GWh, which represents 5.4%
growth, and sales up 11.4% on 2005 to 52,606 GWh. Infrastructure in this
business received a huge boost during the year. In Italy, the repowering
programme at Endesa Italia’s thermal plants continued, and the Ostiglia 3
and Tavazzano 6 units were converted to CCGT. Also, Endesa Europa acquired a
58.35% share in Teverola and Ferrara, companies which both own a 170 MW CCGT.
The construction of the 800 MW Scandale CCGT remained on-track and substantial
progress was made in the field of renewable energies, via the inclusion of five
wind farms which are either operational or under construction, totalling 144 MW.
Construction work also started at the Livorno gas terminal, in which the Company
has a 25.5% share. Turning to France, our generation company Snet which started
to operate under the Endesa France name in December, received permission to
construct two CCGTs with a total capacity of 800 MW at the Émile Huchet
site. It also signed agreements to acquire and reserve two new sites which it
could use to locate the facilities which are currently being studied: one in the
port of Le Havre, which could be used for a coal-burning plant and another in
Lacq where two 400 MW CCGTs could be located. As for renewable energies, in 2006
the company continued to develop the 10 MW Lehaucourt wind farm which came on
stream in March 2007 and it received permission to construct five further wind
farms with more than 70 MW in combined capacity on various sites. In the supply
business, Endesa Europa and the Italian group, Merloni began selling electricity
to the Italian retail market through MPE Energia, a 50/50 joint venture.
Meanwhile, Endesa Europa Power & Fuel and Ergon Energía, which is
half-owned by Endesa Europa, continued to undertake sales activities in Italy.
These three electricity-marketing firms sold a total of 14,905 GWh throughout
the year. Snet signed several substantial electricity sales contracts in 2006,
including those agreed with the multinational Auchan (Alcampo) and SNCF, the
French railway company. Our European companies’ healthy results are also
reflected in the contribution to ENDESA, as their parent company, via dividend
payments. In 2006, Endesa Italia distributed Euro 176 million in dividends
charged to 2005 income and at the start of 2007 it agreed to pay a dividend of
Euro 216 million against 2006 earnings. In March, Snet approved a Euro 59.7
million dividend against 2005 earnings and in December an interim dividend of
Euro 36 million charged against 2006 earnings. In July, the Tahaddart plant in
Morocco approved a Euro 6 million payment out of 2005 income. In 2007, the
Polish plant Bialystock approved the distribution of the first dividend in its
history: Euro 9.1 million against 2006 earnings. On the subject of Poland,
Endesa Polska was established in September as an investment vehicle for the
Polish market and as a platform for selling to wholesale market customers and
for developing energy management business activities. One of the first results
came in December 2006 when it won the tender for 20 MW in the Poland-Germany
interconnection. Finally, it is worth recalling another significant event
concerning our business expansion in Europe which occurred this year. In March,
ENDESA signed an agreement with Mytilineos Holding, S.A. to operate in the Greek
market via a new joint venture, in which ENDESA has a 50.01% share. The new
company, which will have the largest order book of construction and development
projects in Greece, with 1,400 MW of thermal energy and 1,000 MW in renewable
capacity, will become the largest independent energy operator in the country. 10
Annual Report 2006
LETTER TO SHAREHOLDERS Operations Review 11 endesa06 The Latin American
business reported EBITDA of Euro 2,188 million, up 16.5% on the previous year,
and EBIT of Euro 1,688 million, an advance of 22.7%. 2006 marked a further step
forward in the process towards economic recovery which Latin America has been
witnessing in recent years. Growth rates were up, there was more monetary
stability and electricity demand experienced robust growth. This prompted
electricity sales for ENDESA’s Latin American companies to rise by 5.5% on
2005 to 58,281 GWh while production rose 7.1% to 62,028 GWh. This strong growth,
coupled with improvements in operating efficiency and a favourable production
mix pushed these companies’ unit margins to record levels. The margin for
generation companies stood at 26.2 dollars/MWh, an increase of 24.2%, and the
distribution margin stood at 34.6 dollars/MWh, up 7.8%. Elsewhere, further
changes are being made to the regulatory frameworks in the countries where these
companies operate. Generally speaking, the bulk of these amendments help to
improve the competitive environment and provide more stability to the business.
Apart from the 10% and 2.9% tariff increases approved by the Brazilian
distribution companies, Coelce and Ampla, respectively, the most significant
event was the tariff increase which was finally agreed in Argentina following
negotiations which began in 2002. In June, our distribution company Edesur and
the Argentine government signed a Memorandum of Understanding which provided for
a 38% increase in distribution tariffs with effect from November 2005. This
agreement was ratified by presidential decree in December 2006. In February
2007, the regulatory body ENRE approved the implementation of this increase. Its
positive effects on the distribution company’s results should start to
register in the first quarter of this year. This favourable scenario of
increasing demand, regulatory progress and wider unit margins provides full
justification for the new generation projects that our investee companies are
undertaking in the region. In the course of the year, construction work
continued in Chile on the 377 MW San Isidro II CCGT, whose 246 MW open cycle
came on-stream in the second quarter of 2007, and on the 32 MW Palmucho hydro
plant. Construction work also started on two renewable energy plants with total
capacity of 27 MW: the Canela wind farm and the Ojos de Agua mini hydro station.
Meanwhile, in Peru, construction work was completed on the 457 MW CCGTs at the
Ventanilla plant and the deal to purchase the 142 MW Termocartagena plant was
finalised. With regards to facilities that are at project stage, the most
noteworthy is the incorporation of Centrales Hidroeléctricas de
Aysén, a company 51% owned by ENDESA, whose aim is to study the
construction of five hydroelectric plants in Chile with total installed capacity
of 2,355 MW between 2008 and 2018. Also, the first brick was laid in May at the
regasification plant within the liquefied natural gas project that is being
carried out at the Quintero site in Chile, in which ENDESA has a 20% share. In
July the official opening took place for construction work on the
interconnection between six Central American countries under the auspices of the
SIEPAC project in which ENDESA has a 12.5% share. The process to simplify this
business’s corporate structure also continued throughout 2006. The most
significant events were the completion of the merger by absorption of Elesur by
Chilectra in Chile, that of Etevensa by Edegel in Peru, as well as the agreement
taken by the boards of the Colombian companies Emgesa and Betania to merge the
two. In July, International Finance Corporation (IFC), a World Bank Affiliate,
acquired 2.7% of Endesa Brasil, the holding company for ENDESA’s Brazilian
assets at a price which equates to a USD 1.85 billion capitalisation for this
holding. To conclude this overview of the Latin American business, it is
important to note two significant financial developments. The first is the
improvement in the financial position of Enersis and Endesa Chile. Both
companies experienced a substantial rally on the Santiago de Chile stock
exchange, gaining 53% and 26%, respectively, while Moody’s and Standard
& Poor’s upgraded
their ratings for both companies in the course of the year, reinstating
their investment-grade rating. The second was that this business continued to
generate cash returns for the parent company, totalling Euro 253 million in
2006, on top of the Euro 308 million contributed in 2005. In sum, looking at the
key facts and figures for our businesses in 2006, we can safely say that these
performed outstandingly during the year, enabling us to amply beat the targets
set down in our Strategic Plan for 2005-2009 announced in October 2005. As we
have mentioned previously, EBITDA advanced 18.6% which is higher than the annual
average of 13% established in the Plan and Euro 209 million above the target
set. This increase was across the board: EBITDA in Spain and Portugal came in
Euro 85 million ahead of the Company’s 2006 target. In Europe it was Euro
16 million higher Euro 108 million higher in Latin America. At the same time,
ENDESA’s financial leverage stood at 124.5% at 31 December 2006,
comfortably ahead of the Plan’s target of keeping leverage below 140%. The
Strategic Plan expressly states that good results achieved in the various
business areas should be passed on to the shareholders via a dividend payment.
Each year’s dividend should reflect the increase in profit from ordinary
activities and total net capital gains generated by the sale of non-core assets.
This commitment was scrupulously fulfilled in 2005 with the proposal of a Euro
2.4 dividend per share and approved by the company’s shareholders at the
General Meeting held on 25 February 2006. The payout totalled Euro 2,541
million, the largest dividend ever paid by ENDESA in its history. The Board of
Directors plans to meet this commitment in 2006 as well and will propose the
payment of a Euro 1.64 per share gross dividend against that year’s results
at the next Ordinary Shareholders’ Meeting. This will give a total payout
of Euro 1,736 million. If this proposal is approved, during the first two years
of its current Strategic Plan ENDESA will have paid a total of Euro 4,277
million in dividends, 43% of the Plan’s target to pay out a total of Euro
9,900 million to shareholders in 2005-2009. In order to complete our analysis of
the shareholder return in 2006, in addition to the dividend payments we must
bear in mind the significant rise marked by ENDESA’s shares on the stock
markets. The stock rose 61.3% on the Spanish equities market, much more than the
Ibex 35 which rose only 31.8% placing the company’s market capitalisation
at around Euro 38,000 million at year-end 2006. Meanwhile, on the New York Stock
Exchange ENDESA’s American Depositary Receipts (ADRs) rose 78.9% to end the
year at a record high of US$46.52 compared to the global ADR index’s
average rise of just 24.2%. In short, the dividend payment combined with the
share’s rises generated a total shareholder return of 72.1% in 2006, the
highest in ENDESA’s history. Therefore, in 2006 we beat the targets set
down in the Strategic Plan and amply fulfilled its key aims: namely to develop
our businesses taking advantage of growth in the markets where we operate and to
defend our shareholders’ interests, providing them a high return on their
investment. It is important to highlight these accomplishments which have
involved everyone who works for the Company as they have been met against the
backdrop of various take-over bids launched for the Company. Throughout this
process, ENDESA has endeavoured to defend its shareholders’ interests and
their right to decide on the Company’s future. Also of paramount importance
is our industrial project and the interests of our employees. At the same time,
the Company has not only proven its ability to run its businesses normally, but
has also obtained excellent results by taking advantage of the opportunities
which have arisen in the markets where it operates. It has maintained the
highest investment commitment in the Spanish electricity sector and set an
example of good corporate governance and sustainable development on a worldwide
scale. 12 Annual Report 2006
LETTER TO SHAREHOLDERS endesa06 These criteria, which the Company has had
to expound on numerous occasions throughout the take-over process and which have
been expressed in strict adherence to the law and corporate bylaws, will be
upheld in the future because the interests of our shareholders, customers,
employees and suppliers demand it as do the communities in which ENDESA is
present. Therefore, in order to assess ENDESA’s current situation, I would
like to give thanks to the members of the Board of Directors who have expressed
their commitment throughout the year, also the trust and support of our many
shareholders, the loyalty shown by our 23 million customers throughout the world
and the untiring work of over 26,000 employees who are an example of
professionalism and responsibility. Thanks to their generous and invaluable
efforts, ENDESA is one of the largest, most valuable, most committed and
best-managed electricity companies in the world today. And this must be rightly
acknowledged. Rafael Miranda Robredo Manuel Pizarro Moreno Chief Executive
Officer Chairman Operations Review 13
CORPORATEGOVERNANCE In 2006, the corporate bodies of ENDESA, S.A. adopted
the following resolutions on corporate governance: • On 10 January 2006,
the Board of Directors voted unanimously in favour of the following resolution
adopted by the Executive Committee of the Board of Directors on 26 December
2005: “To empower the Chief Executive Officer so that he may provide Gas
Natural or any third party with access to information that could facilitate the
progress of its bid in course or the formulation of any rival bid, all this in
the interest of ENDESA shareholders and subject to the most stringent
confidentiality standards and prevailing legislation”. • On 16 January
2006, the Board of Directors voted unanimously in favour of the following items:
– The Audit and Compliance Committee Report, the Appointments and
Compensation Committee’s Annual Report on Directors’ Compensation and
the Annual Corporate Governance Report. – To prepare the annual financial
statements for 2005, both for the Company and the Consolidated Group and, in
consideration of the results obtained, submit to the General Shareholders’
meeting a proposal for a dividend of Euro 2.4 per share payable against 2005
earnings. – To call a General Shareholders’ Meeting for 24 February
2006, at first call, or 25 February 2006, at second call. – To draw up the
proposed resolutions to be submitted at the General Shareholders’ Meeting.
– To decide on the regulations governing voting rights and proxy voting to
be applied at the General Shareholders’ Meeting from moment the meeting
call is announced. – To request the presence of a notary from the Madrid
Bar Association to take minutes of the meeting. • At its meeting of 24
January 2006, the Board of Directors examined the authorisation process for the
takeover bid for ENDESA presented by Gas Natural and resolved to empower the
Executive Committee and the CEO with the necessary authority to file an appeal
against this operation with the Spanish Council of Ministers should it be
considered in breach of the law, always acting in the defence of ENDESA
shareholders. – Lastly, the Board of Directors examined and approved the
ENDESA Group’s annual budget for 2006 in the terms presented. • On 21
February 2006, the Board of Directors studied the rival bid for the takeover
offer launched by Gas Natural for ENDESA, presented that morning by E.ON, and
voted unanimously to release the following statement: “With regard to the
takeover bid for ENDESA presented today by E.ON and in view of the conditions
offered, the Board of Directors has, in the interest of the company and its
shareholders, unanimously drawn up the following considerations and preliminary
valuation: 1. Pursuant to current legislation, ENDESA
has held talks with companies interested in the takeover process initiated by
Gas Natural on 5 September 2005. E.ON was one of these companies. These talks
have resulted in no firm commitment from any of the parties involved. 2. The
offer made by E.ON, a rival to the bid presented by Gas Natural, is a cash offer
which will allow shareholders to clearly assess the price offered and thereby
facilitate their decision. 3. The price offered by E.ON
is clearly better than the price offered by Gas Natural, although the Board of
Directors believes it still does not adequately reflect ENDESA’s real
value. 4. The Board of Directors values positively the
fact that the operation proposed by E.ON will maintain ENDESA’s industrial
project intact, envisaging no asset sales. This preliminary valuation should be
read without prejudice to the report ENDESA’s Board of Directors is
required to issue under article 20.3 of Royal Decree 1197/1991 of 26 July,
governing takeover offers, once the CNMV has approved the prospectus presented
by E.ON. The Board of Directors reiterates its commitment to the Company’s
business project, which includes a strategic plan that ratifies and confirms its
growth and earnings expectations.” • The Shareholders’ Meeting
held on 25 February 2006, adopted the following resolutions at the proposal of
the Board of Directors: CORPORATE GOVERNANCE 14 Annual Report 2006
– To approve the financial statements (balance sheet, statement of
income and notes to financial statements) of the Company and its Consolidated
Group for the year ended 31 December 2005, as well as the conduct of the
Company’s business in that fiscal year. – Appropriation of income and
distribution of dividends. – To appoint the current external auditors,
Deloitte, S.L., as the auditors of ENDESA, S.A. and of its Consolidated Group
for 2006. To engage said audit firm for the external audit of the financial
statements of ENDESA, S.A. and of its Consolidated Group for 2006, delegating
authority to the Board of Directors, in the broadest terms, to determine the
other terms and conditions of its engagement. – To revoke and render void
the authority for the derivative acquisition of shares of the Company granted by
the Annual Shareholders’ Meeting held on 27 May 2005. To grant new
authority for the derivative acquisition of treasury stock, as well as
pre-emptive rights of subscription of treasury stock, in accordance with Article
75 of the Corporations Law, on the following conditions: a) Acquisitions may be
made by any legally permitted means, directly by ENDESA, S.A. itself, by
companies of its Group, or by an interposed person, up to the maximum figure
permitted by the Law. b) Acquisitions shall be made at a
minimum price per share of its par value and a maximum price equal to its market
price plus an additional 5 percent. c) The term of this authority shall be 18
months. Acquisitions may only be made following the publication of the outcome
of the takeover bid made by Gas Natural SDG S.A. for ENDESA S.A.‘s shares,
or, if appropriate, from the moment in which the takeover bid is deemed to be
invalid for any reason (or if a rival bid is launched), in accordance with
applicable securities market legislation. – To delegate to the Board of
Directors of the Company the broadest powers to adopt as many resolutions as may
be necessary or appropriate for the performance, implementation, effectiveness
and success of the resolutions made at the Shareholders’ Meeting. – To
empower the Chairman of the Board, Manuel Pizarro Moreno, the Chief Executive
Officer, Rafael Miranda Robredo, and the General Secretary and Secretary of the
Board, Salvador Montejo Velilla, so that each and any one of them individually
may: (i) carry out such acts, legal businesses,
contracts and transactions as may be appropriate in order to register the
preceding resolutions with the Mercantile Registry, including, in particular and
inter alia, the power to appear before a Notary Public in order to execute the
public deeds or notary records which are necessary or appropriate for such a
purpose, to publish the pertinent legal notices and formalise any other public
or private documents which may be necessary or appropriate for the registration
of such resolutions, with the express power to remedy them, without altering
their nature, scope or meaning; and (ii) appear before the competent
administrative authorities, in particular, the Ministries of Economy and Finance
and Industry, Tourism and Commerce, as well as before other authorities,
administrations and institutions, especially the Spanish National Securities
Market Commission, the Securities Exchange Governing Companies and any other
which may be competent in relation to any of the resolutions adopted, in order
to carry out the necessary formalities and actions for the most complete
implementation and effectiveness thereof. • On 7 March 2006, the Board of
Directors agreed unanimously to adopt the following resolutions: – To
appoint José María Fernández Cuevas as a member of the
Audit and Compliance Committee. He will also remain a member of the Board of
Directors’ Executive Committee. – To approve, in accordance with
Article 20 of Royal Decree 1197/1991 of 26 July, governing takeover offers, the
report prepared by ENDESA’s Board of Directors on the takeover bid
submitted by Gas Natural SGG, S.A., which reads as follows: REPORT ISSUED BY
ENDESA, S.A's BOARD OF DIRECTORS REGARDING THE TENDER OFFER BY GAS NATURAL SDG,
S.A.1 The members of the Board of Directors of ENDESA, S.A. (hereinafter
“ENDESA” or the “Company”) present or represented at the
meeting held on 7 March 2006, approved by unanimous decision, under Article 20
of Royal Decree 1197/1991 of 26 July regarding tender offer practices, the
following report regarding the Tender Offer (hereinafter the “Tender
Offer” or “Offer”) by Gas Natural SDG, S.A. (hereinafter
“Gas Natural” or the “Offeror”). Items 1 and 2 describe the
Board’s position, and the rest, in accordance with the above referenced
decree, provide detailed information and opinions affecting each member
individually. Operations Review 15 0 endesa06 1 All the Reports issued by
ENDESA, S.A.‘s Board of Directors included in this chapter are translations
of Reports originally issued in Spanish. In the event of a discrepancy, the
Spanish-language version prevails.
Opinion of the Board of Directors on the Tender Offer made by Gas Natural
The Board of Directors strongly recommends that ENDESA, S.A.‘s shareholders
reject Gas Natural’s Offer for the following reasons: A. The Offer Price is
substantially lower than ENDESA’s value under customary valuation criteria
and lower still than ENDESA’s value in a change-of-control transaction such
as the Gas Natural Offer, in which a control premium is normally paid.
B. ENDESA on a standalone basis is likely to generate
greater value for its shareholders in the short and long term than Gas
Natural’s offer. C. Most of the consideration
(65.54%) offered by Gas Natural consists of its ordinary shares, whose current
trading price overstates the weak prospects of Gas Natural’s business in
the medium and long term. D The proposed combined group’s performance is
likely to reflect substantially lower synergies –and substantially higher
negative synergies and integration costs– than are currently estimated by
Gas Natural. E. The asset divestments resulting from Gas
Natural’s agreement with Iberdrola and the conditions imposed on the
transaction by the Spanish Council of Ministers would significantly weaken
ENDESA’s and Gas Natural’s existing business while strengthening the
proposed combined group’s main competitor, Iberdrola, and creating
substantial regulatory risk. F. Gas Natural’s
agreement with Iberdrola does not maximise the value of the assets being sold as
it precludes a competitive auction process. G. The
control exercised over Gas Natural by its principal shareholders creates a risk
of conduct that may run counter to the interests of ENDESA’s shareholders.
H. The Offer Price is substantially lower than a competing all-cash offer
announced by E.ON Zwölfte Verwaltungs GmbH (“E.ON”). Reasons The
principal reasons for the conclusions and recommendation of the Board of
Directors set forth above are as follows: A. The Offer Price is substantially
lower than ENDESA’s value under customary valuation criteria and lower
still than ENDESA’s value in a change-of-control transaction such as the
Gas Natural Offer, in which a control premium is normally paid. •
ENDESA’s closing price was Euro 27.45 on 6 March 2006, the day prior to the
issue of this report, reflecting the market’s perception of ENDESA’s
strong fundamentals as well as market trends in the electricity sector. •
The closing price of ENDESA’s ordinary shares on 6 March 2006 was 27%
higher than the Offer Price. • The implied value of ENDESA’s ordinary
shares on 6 March 2006 based on the average of the current trading multiples of
other Iberian utility companies is 52% higher than the Offer Price. The Offer
Price reflects an EV/EBITDAmultiple of 8.5 x in 2005, clearly lower than the
average multiple of 10.5 x for Unión Fenosa, Iberdrola and EDP. •
ENDESA’s shareholders are entitled to receive a premium for their shares in
a change-of-control transaction (“control premium”) such as the Gas
Natural Offer in accordance with market practice. However, the Offer Price does
not include any control premium. B. ENDESA on a standalone basis is likely to
generate greater value for its shareholders in the short and long term than Gas
Natural’s offer. • ENDESA’s strategic plan sets forth clear,
attainable objectives through to 2009 based on the company’s strong
economic and financial fundamentals, with a focus on returning cash to
shareholders, achieving strong organic growth, implementing an efficiency plan
and divesting non-core assets, which together provide a platform for long-term
value creation for shareholders. The Company’s key financial targets to
2009 include: – Annual average EBITDA growth of 10-11% and annual net
income growth of above 12%. – An efficiency plan envisaging EBITDA savings
of of Euro 525 million by 2009. CORPORATE GOVERNANCE 16 Annual Report 2006
– The disposal of non-core assets in excess of Euro 4 billion. –
Annual dividend growth from ordinary activities of at least 12%, and 100% payout
of net capital gains on disposals of non-core assets, with a commitment to
return to shareholders more than Euro 7 billion in dividends from 2005 to 2009.
– The implementation of a Euro 14.6 billion investment plan during the same
period based on organic growth while maintaining a leverage ratio below 1.4
(calculated by dividing total net debt by total equity, including minority
interests). • ENDESA’s performance in 2005 demostrates the feasibility
of the 2009 targets presented in the Company’s Strategic Plan for 2005 to
2009. – 33% growth in EBITDA in 2005 and 154% in net income. – 34%
(Euro 181 million) of efficiency plan targets for 2009 met in 2005. –
Non-core asset disposals in excess of Euro 3 billion in 2005, of which over Euro
2.6 billion resulted from the sale of Auna, delivering 75% of the Company’s
committed disposals. – Dividend of over Euro 2.5 billion already approved
by shareholders against 2005 earnings, delivering 35% of the Company’s
commitment on dividends. – A sound financial position, evidenced by a
leverage ratio of 1.1 at 31 December 2005. C. Most of
the consideration (65.54%) offered by Gas Natural consists of ordinary shares,
whose current trading price overstates the weak prospects of Gas Natural’s
business in the medium and long term. • According to the figures furnished
by Gas Natural, its share of the liberalised gas supply market has declined from
80% to 48% in just four years. This decline in market share is expected to
continue in view of trends seen in other liberalised markets. • Gas
Natural’s gas distribution business in Spain has generated unsustainable
returns as compared with those of its peer companies in other European
countries. As a result, Gas Natural’s returns for this business may face
significant regulatory risk in the future. • Gas Natural has no gas
production of its own, and its joint venture with Repsol has been weakened by
Repsol’s recent write-down of reserves. • Gas Natural’s earnings
growth has historically depended on income consolidation and capital gains from
its investment in Enagas, which Gas Natural would be required to reduce as a
result of this Transaction from 9.9% to one percent. Excluding the impact of
Enagas, it is estimated that Gas Natural’s net income would have totaled
approximately Euro 471 million in 2005 compared to Euro 442 million in 2004,
demonstrating annual growth of 6.5% compared to Gas Natural’s reported
annual growth rate of 16.7% and its average target annual growth rate of 10%.
• Gas Natural’s shares are substantially less liquid than
ENDESA’s, with an average daily trading volume of Euro 22 million in 2005
prior to the announcement of the Gas Natural Offer, compared to Euro 193 million
for ENDESA. As a result of this illiquidity, Gas Natural’s share price may
not reflect the market’s views about the company’s performance as
accurately as would be the case with a more liquid stock. This concern is
underscored by the fact that, as of the trading day prior to the announcement of
the Gas Natural Offer, Gas Natural’s share price was overvalued by more
than 10% relative to the average target price estimated for Gas Natural by
research analysts. • Gas Natural is proposing to issue up to 602,429,955
new ordinary shares to ENDESA shareholders, which is 4.8x Gas Natural’s
current free float. As a result of this capital increase, the price of Gas
Natural share price could vary substantially, affecting the value of the
consideration, as Gas Natural itself has disclosed its prospectus: “The
market value of Gas Natural shares offered as consideration in the Offer may
decrease as a result of their stock market performance.” • In the
event Repsol sells its 30.8% stake in Gas Natural, Gas Natural’s share
price is likely to be adversely affected by the large number of shares made
available for sale in the market. D. The combined
group’s performance is likely to reflect substantially lower synergies
–and substantially higher negative synergies and integration costs–
than are currently estimated by Gas Natural. Operations Review 17 endesa06
• Gas Natural’s forecast pre-tax synergies of Euro 350 million
per year by 2008 are overstated. ENDESA estimates that, prior to the divestments
that are required by the Spanish Council of Ministers or planned by Gas Natural,
the maximum amount of synergies achievable would be in the range of Euro 80
million to Euro 140 million, and that, after the required divestments, any
potential synergies would be even lower. • ENDESA estimates that the
combined Group’s cost structure will increase by more than Euro 200 million
per year as a result of negative integration synergies that Gas Natural has
ignored, including the adoption of a territorial corporate structure that has
proved ineffective in the past. This figure does not include additional negative
synergies from asset disposals and non quantified regulatory risk. In addition,
ENDESA estimates that integration costs from the transaction would amount to
more than Euro 600 million as compared to Gas Natural’s estimate of Euro
243 million. • ENDESA’s concerns about the combined Group’s
profitability are heightened by the absence of any adequately supported
financial targets or forecasts for the proposed new company, as is evident from
the Gas Natural Prospectus. As a result, neither ENDESA nor its shareholders
have the necessary information with which to assess the combined Group’s
ability to create value for shareholders in the future. • ENDESA is
concerned that Gas Natural’s management does not have the experience needed
to integrate or manage a company of the new Group’s scale and complexity.
The largest company acquired by Gas Natural in the past five years had an
enterprise value of Euro 272 million, which is 207 times smaller than
ENDESA’s enterprise value of Euro 56.353 billion as of the date prior to
the issue of this report. ENDESA believes that the challenges for Gas
Natural’s management of running the proposed combined Group and executing
the integration and divestments required create a very substantial risk of value
destruction for shareholders. E. The asset divestments resulting from Gas
Natural’s agreement with Iberdrola and the conditions imposed on the
transaction by the Spanish Council of Ministers would significantly weaken
ENDESA’s and Gas Natural’s joint business while strengthening that of
its main competitor, Iberdrola, and creating substantial regulatory risk. •
The asset portfolio of the combined Group after the required divestments would
be less attractive than ENDESA’s current portfolio and offer fewer
opportunities to create sustainable value for shareholders, due to the following
reasons (among others): – The new combined Group would be forced to sell
more than Euro 10 billion of assets in key markets such as Spain, Italy, France
and Poland, including the sale of 11,632 MW of assets in operation and 1,200 MW
in the pipeline. – The new combined Group’s estimated share of the
electricity generation market in Spain would fall to 30% compared to
ENDESA’s current share of 39%, while Iberdrola’s estimated share of
the electricity generation market would rise to 36% from 27%, handing
ENDESA’s market leadership to the new Group’s main competitor as
recognised by Gas Natural. Moreover, the new Group’s production would cover
a much smaller portion of the company’s supply business, requiring it to
purchase as much as 37% of its supply requirements in the spot market, compared
to 9% for ENDESA today. This added exposure to price fluctuations in the
wholesale market would make the combined Group’s results more volatile.
Meanwhile, Iberdrola’s estimated generation-sales balance would be
significantly improved, reducing the supply that it would have to purchase on
the spot market from 31% to 12%. – The new combined Group would be required
to divest approximately 5,400 MW of its generation capacity in Italy, France and
Poland, which represents 58% of ENDESA’s current generation capacity in
these countries. These divestments imply the total loss of ENDESA’s
business in France and a reduction of nearly half of ENDESA’s business in
the Italian generation market. Consequently, the transaction would result in a
substantial setback to ENDESA’s European growth project, which has been an
increasingly significant contributor to Group results in recent years. –
Gas Natural’s failure to provide any information regarding its planned
divestments makes it more difficult to assess their impact on the proposed
combined group. – The new combined Group’s geographic profile would be
less balanced and exposed to greater risk due to its increased dependence on
Latin America. CORPORATE GOVERNANCE 18 Annual Report 2006
– As a result of these divestments, the proposed combined group would
be only 10% larger in terms of enterprise value and just 2% in terms of EBITDA
than ENDESA is today, with a smaller electricity business than ENDESA’s, a
smaller presence in Europe, reduced geographic diversification in its business
and less balance between generation and sales. • ENDESA believes that the
proposed combined group would aggravate the structural problems currently faced
by the electricity sector. – The transaction would reduce the transparency
and credibility of the wholesale market for electricity. – The transaction
would impede progress toward an additive tariff that reflects the real costs of
the sector an issue on which Gas Natural has taken contradictory positions.
– The transaction would create substantial overlap in gas and electricity
distribution networks in many areas of Spain. – As a result of the
foregoing, the proposed combined group would face a high level of regulatory
risk. F. Gas Natural’s agreement with Iberdrola does not maximise the value
of the assets being sold because it precludes a competitive auction process.
• ENDESA shareholders are highly unlikely to receive the full value of the
assets that would have to be sold due to the terms of Gas Natural’s
agreement with Iberdrola and the forced nature of the sale. Recent transactions
in Spain indicate that competitive auction processes generate proceeds of as
much as 40% above the market consensus on “fair value”. However, the
price mechanism established in Gas Natural’s agreement with Iberdrola would
not generate prices at levels similar to a competitive auction process.
G. The control exercised over Gas Natural by its
principal shareholders creates a risk of conduct that may run counter to the
interests of ENDESA’s shareholders. • As stated in Gas Natural’s
U.S. Prospectus, the interests of Gas Natural’s principal shareholders may
differ from those of Gas Natural and its minority shareholders, which could
create conflicts of interest affecting the conduct of Gas Natural’s
business or potential changeof-control scenarios. H. The
Offer Price is substantially lower than a competing all-cash offer announced by
E.ON Zwölfte Verwaltungs GmbH (“E.ON”). • On 21 February
2006, E.ON, a private European energy company, announced that it intended to
make an offer for all ENDESA ordinary shares and ENDESA ADSs at a price of Euro
27.50 per share in cash. E.ON’s offer is 28% greater than the Offer Price
submitted by Gas Natural. • E.ON’s offer is all in cash, which makes
it easier for ENDESA’s shareholders to make a decision with respect to the
offer. • The Board of Directors of ENDESA, S.A. has made a preliminary
assessment of E.ON’s offer and will make a formal recommendation when such
offer is approved by the CNMV. Conclusion: Taking into account the foregoing,
the Board of Directors unanimously recommends that ENDESA, S.A.‘s
shareholders reject the Gas Natural Offer and do not tender their ENDESA
Ordinary Shares or ENDESAADSs pursuant to the Gas Natural Offer. The Board
received reports to support and reaffirm its opinion from ENDESA’s
financial advisors: Citigroup Global Markets Limited, Deutsche Bank AG London,
J.P. Morgan Plc, Lehman Brothers (Europe) Limited and Merrill Lynch Capital
Markets España, S.A., S.V., who share a negative opinion of the Offer
Price and believe that it is inadequate, from a financial standpoint, for ENDESA
shareholders. Existence of Agreements between the Company and the Offeror No
agreement exists between the Company and the Offeror with regard to the Offer.
Existence of Agreements between the Offeror and the Members of the Board of
Directors of ENDESA No agreement exists in connection with the Offer between the
Offeror and any member of ENDESA’s Board of Directors. Operations Review 19
endesa06
Individual Opinion of the Members of the Board of Directors of ENDESA None
of the members of the Board of Directors of ENDESA, present or represented, at
the meeting of 7 March 2006, expressed an individual opinion with regard to the
Offer different than the one taken collectively and which has been described
under items 1 and 2 of this document. Juan Ramón Quintás Seoane
did not attend this Board Meeting due to a potential conflict of interest
because he is the Chairman of the Spanish Confederation of Savings Banks and,
therefore, has not stated his position with regard to the Gas Natural Offer.
Intention to Tender of the Members of the Board of Directors of ENDESA None of
the members of the Board of Directors of ENDESA, present or represented, at the
meeting it held on 7 March 2006, who hold, directly or indirectly, ENDESA shares
intend to tender any of their shares pursuant to the Offer. Juan Ramón
Quintás Seoane, due to the reason explained in item 5, did not attend
this Board Meeting and has not informed ENDESA as to whether he intends to
tender his 1,525 shares of ENDESA pursuant to the Offer. Caja de Ahorros y Monte
de Piedad de Madrid has expressly informed ENDESA through Miguel Blesa de la
Parra that it does not intend to sell its shares pursuant to the Offer. The
following table specifies the number of ENDESA shares held, directly or
indirectly, by the members of the Board of Directors, as well as the equivalent
percentage of the Company’s capital held, directly or indirectly:
Percentage of Direct Members of the Board Number and Indirect of Directors of
Shares Shares (%) Manuel Pizarro Moreno 100,004 0.00944 Rafael Miranda Robredo
7,585 0.00071 Alberto Alonso Ureba – – Miguel Blesa de la Parra 600
0.00005 José María Fernández Cuevas – –
José Manuel Fernández-Norniella – – Rafael
González-Gallarza Morales 3,300 0.00031 Juan Ramón Quintas Seoane
1,525 0.00014 Francisco Javier Ramos Gascón 9,771 0.00092 Alberto Recarte
García-Andrade 21,350 0.00201 Manuel Ríos Navarro 12,472 0.00117
Juan Rosell Lastortras 10,005 0.00094 José Serna Masiá 17,496
0.00165 TOTAL 184,108 0.01734 – To approve, in compliance and accordance
with U.S. securities law, Schedule 14D-9 which contains ENDESA S.A.‘s
recommendation on the takeover offer for ENDESA S.A. and its ADS by Gas Natural,
SDG, S.A. in the U.S. – To empower the Chief Executive Officer, Rafael
Miranda Robredo, and General Secretary and Secretary to the Board of Directors,
Salvador Montejo Velilla, individually to ensure the relevant documents are
delivered to the securities markets regulators, both national and foreign, as
well as distributed in accordance with the terms set out under current
regulation and in the manner which best serves the Company’s interests.
• At the meeting held on 31 March 2006, the Board of Directors unanimously
adopted the following resolutions: – To deposit with the Madrid Mercantile
Court nº 3 a Euro 1 billion bond for the injunction granted to suspend Gas
Natural’s takeover offer for ENDESA. – To publicly disclose, following
notification to the CNMV, the following resolution: “With regard to the
ruling of 21 March 2006 made by the Madrid Mercantile Court Number 3 on Appeal
523/05, which places an injunction on the takeover bid presented by Gas Natural
and the execution of a contract signed between Gas Natural and Iberdrola
regarding the sale of ENDESA assets, and after carrying out an in-depth study of
the legal implications of the ruling and its impact on the takeover process
currently faced by the Company, ENDESA’s Board of Directors, in the
interest of the Company and its shareholders, has unanimously agreed to: 1. To
accept the ruling, which recognises as plausible the opinion put forward on
repeated occasions by ENDESA with regard to the serious legal problems posed by
the takeover bid launched by Gas Natural and specifically its agreement with
Iberdrola, as such represents collusion by the two companies the objective or
effect of which is likely the elimination of ENDESA as a competitor and the
division of its assets between them. 2. To consider that the injunction placed
on Gas Natural’s takeover bid does not affect the ongoing bidding process
for the Company, given the existence of a rival bid and its authorisation
process, pursuant to the criteria set out by the CNMV in its Information Memo
dated 24 March 2006. CORPORATE GOVERNANCE 20 Annual Report 2006
3. To assume that amount of the bond neither
determines or prejudices the existence or amount of any potential liabilities
that could derive from this process, as long as there are no reasons for such.
4. To deposit the Euro 1 billion bond stipulated in the
ruling to proceed with the injunction, while also taking legal action to appeal
against the amount, which is considered to be clearly disproportionate.
5. To make the most opportune decisions at all times,
including those regarding precautionary measures, to protect our
shareholders’ interests first and foremost, as the process of the takeover
bid for the Company runs its course and in the event of any other circumstance
arising that might affect the current situation. The Board further reserves the
right to claim any damages corresponding to ENDESA against Gas Natural and
Iberdrola, in the event that the existence of an illegal agreement between the
two companies is confirmed.” • At its meeting on 12 May 2006, the
Board of Directors unanimously agreed to appoint José Serna Masía
as Chairman of the Audit and Compliance Committee and Manuel Ríos Navarro
as Chairman of the Appointments and Compensation Committee. • Pursuant to
the ruling of 28 April 2006 issued by the Administrative Division of the Supreme
Court on case 47/2006, the Board of Directors resolved unanimously at its
meeting of 23 May 2006 to deposit a Euro 1 billion bond within one month,
bearing in mind that under the ruling, the bond may be deposited with the Madrid
Mercantile Court Nº 3 as long as the bonding institutions in that process
express their willingness to grant this item the effects of the bond presented.
• On 7 August 2006, the Board of Directors studied the National Energy
Commission’s ruling of 27 July, in which it imposed 19 conditions on E.ON
for its acquisition of a stake in ENDESA’s capital stock following a
settlement of the takeover bid presented before the Spanish National Securities
Market Commission. Pursuant to the corresponding legal opinion, according to
which the filing of appeals against the National Energy Commission’s ruling
is compatible with the passivity rule required of Directors under takeover
rules, the Board of Directors resolved unanimously to file the pertinent appeals
against the abovementioned ruling on behalf of ENDESA shareholders, concluding
that the conditions imposed by the Commission on E.ON were unjustified. The
Board also resolved to notify the CNMV of a relevant event that reads as
follows: “Upon proper counsel, ENDESA’s Board of Directors has
unanimously resolved to appeal against the resolution adopted by the National
Energy Commission on 27 July in defence of the Company’s value and in the
interests of its shareholders.” • On 24 October, 2006, the Board of
Directors studied the situation prompted by a potential approval by the CNMV of
the E.ON takeover offer and the injunctions imposed by Madrid Mercantile Court
Nº 3 and the Supreme Court, and unanimously resolved “To empower the
Company’s Chief Executive Officer, in the broadest terms possible, to
request that the injunctions set out in the Spanish Council of Ministers’
ruling of 3 February 2006 and the execution of the Gas Natural SDG, S.A.
takeover bid granted by the third circuit of the Supreme Court and the Madrid
Mercantile Court Number 3, respectively, be modified or lifted once the Spanish
National Securities Market Regulator authorises the rival bid presented by E.ON
Zwöllfte Verwaltungs GmbH. Such would be in response to any new facts and
circumstances that may affect the takeover bid processes for the Company
underway if awarded, and consequently prompt changes in the material budgets
considered, always in the interest of the Company and its shareholders. The
Chief Executive Officer may request that the injunctions be lifted or modified
with other injunctions that, excluding said risk, do not compromise the
continuity of the takeover process for the Company currently underway, and may
also dictate and carry out all procedural actions necessary for such.”
– At the same meeting, the Board of Directors unanimously agreed to adopt
the following resolutions: “I. To approve and have available the accounts
cited under Article 216 a) of the Spanish Corporations Law, under which there is
deemed to exist sufficient liquidity to distribute the amount of Euro
529,376,058.50 against 2006 earnings. II. To distribute a gross dividend of Euro
0.50 per share to ENDESA shareholders payable against 2006 earnings. III. The
interim dividend will be paid on 2 January 2007 through the banks and other
financial institutions to be announced at a later date.” – The Board
of Directors also agreed to report the following to the Spanish National
Securities Market Commission (CNMV) in the form of a relevant event:
“ENDESA, S.A.‘s Board of Directors, at its meeting of 24 October 2006,
agreed to pay a gross interim dividend against 2006 earnings of Euro 0.50 per
share. Operations Review 21 endesa06
This dividend will be paid to ENDESA, S.A. shareholders on 2 January 2007
through the banks and other financial institutions to be announced at a later
date. As a result, ENDESA shares will go ex-dividend on 2 January 2007. This
interim dividend is 63.9% higher than last January’s interim dividend
charged against 2005 earnings.” • On 21 November 2006, the Board of
Directors unanimously approved the following report issued by ENDESA on the
Takeover Bid submitted by E.ON Zwölfte Verwaltungs GmbH under Article 20 of
Royal Decree 1197/1991 of 26 July, governing takeover offers: REPORT OF THE
BOARD OF DIRECTORS OFENDESA, S.A. REGARDING THE TAKEOVEROFFER MADE BY E.ON
ZWÖLFTE VERWALTUNGS GMBH At its meeting of 21 November 2006, the Board of
Directors of ENDESA, S.A. (“ENDESA” or the “Company”), in
accordance with the provisions of Article 20 of Royal Decree 1197/1991 of 26
July governing takeover offers, approved, by unanimous vote of the directors
present, the following report on the takeover offer (the “Offer”) made
by E.ON Zwölfte Verwaltungs GmbH (“E.ON” or the
“Offeror”) for a price of Euro 25.405 per share, which was authorised
by the Spanish National Securities Market Commission (CNMV) on 16 November 2006.
This report, in addition to describing the principal features of the Offer,
contains the Board’s position on the Offer, as well as certain additional
related information. This report does not issue an opinion regarding the
increased Offer price of a minimum of Euro 35 per share that has been announced
by the Offeror, which, in accordance with the provisions of Royal Decree
1197/1991, will be properly considered once it has been formalised. Principal
Features of the Offer According to the Prospectus relating to the Offer
authorised by the CNMV, the following are the principal features of the Offer:
Offeror The Offeror is the German company E.ON Zwölfte Verwaltungs GmbH, a
wholly-owned subsidiary of the German company E.ON AG. Nature of the Offer
E.ON’s Offer competes with another offer made by Gas Natural SDG, S.A.,
which the CNMV authorised on 27 February 2006. Securities Covered by the Offer
The Offer covers the 1,058,752,117 shares of ENDESA with a par value of Euro 1.2
each, representing 100% of its capital stock. Consideration According to the
Prospectus authorised by the CNMV, E.ON offers as consideration for each ENDESA
share a full-cash price of Euro 25.405. Nevertheless, the Prospectus refers to
the E.ON’s commitment, announced in its disclosure of 26 September 2006 to
the CNMV, to increase the Offer price to at least Euro 35 per share, in
accordance with the offer increase procedures prescribed by Article 22 of Royal
Decree 1197/1991 (in the event that Gas Natural SDG, S.A. withdraws its offer)
or by Article 36.2 of the same Royal Decree (in the event that Gas Natural SDG,
S.A. does not withdraw and the sealed envelope bidding process prescribed for
competing offers is undertaken). The CNMV has postponed the sealed envelope
bidding process until Gas Natural SDG, S.A.‘s offer, which was suspended by
injunctions imposed by the Madrid Mercantile Court Number 3 (ruling of 21 March
2006) and by the third circuit of the Supreme Court (Decision of 28 April 2006),
has resumed. The CNMV will promptly disclose the deadline for and requirements
for participation in the sealed envelope bidding process once Gas Natural SDG,
S.A.‘s offer resumes. Period of Acceptance The CNMV has decided to postpone
the beginning of the period for acceptance of E.ON’s Offer due to the
above-mentioned injunctions against Gas Natural SDG, S.A.‘s offer. Either
in the event of the withdrawal of Gas Natural SDG, S.A.‘s offer or in the
presumed case that Gas Natural SDG, S.A.‘s offer is eventually resumed, the
CNMV will promptly disclose to the market, through a relevant event disclosure,
the firm date on which the acceptance period of the Offer will begin. Once the
Offer’s acceptance period begins, it will run for one month, although this
period may be extended by the CORPORATE GOVERNANCE 22 Annual Report 2006
CNMV to allow ENDESA’s General Shareholders’ Meeting to adopt the
bylaw amendments upon which the Offer is conditioned (see Section 1.6 below).
Furthermore, the CNMV may take other measures to ensure that the periods of
acceptance for the Offer and for the offer made by Gas Natural SDG, S.A.
conclude at the same time. Conditions of the Offer The effectiveness of
E.ON’s Offer is conditioned upon the acquisition of a minimum of
529,481,934 ENDESA’s shares, representing 50.01% of its capital stock.
Furthermore, the Offer is conditioned both upon ENDESA’s General
Shareholders’ Meeting making certain amendments to the Bylaws and upon
those amendments being registered on the Mercantile Registry. Specially, the
Offer is conditioned upon the elimination of all limitations or restrictions on
the number of votes that can be exercised by ENDESA shareholders (Article 32 of
the Bylaws), the removal of requirements concerning the composition of the Board
of Directors and the type of Board members, with the corresponding removal of
the restriction on the number of terms to which certain types of Board members
may be elected (Articles 37 and 38 of the Bylaws), and the removal of all
qualifications, except for those concerning the absence of legally-prohibited
conflicts of interest, on the appointment of a member of the Board of Directors
or of a Managing Director (Article 42 of the Bylaws), all described in full in
the Prospectus. Board of Directors’ Opinion of the E.ON Offer ENDESA’s
Board of Directors, by unanimous vote of those present, confirms its preliminary
assessment of the Offer, which was issued on 21 February, 2006, in response to
the announcement of the Offer. Accordingly, and without prejudicing its position
set out below on price, the Board views positively the fact that the Offer is
made entirely in cash, unlike the competing offer made by Gas Natural SDG, S.A.,
improving the consideration proposed pursuant to this. . In addition, the Board
views as positive the Offeror’s intentions, as explained in the Prospectus,
to maintain ENDESA’s industrial project, particularly its investment plan
and its staff, as well as its goal of furthering the development of the Spanish
gas and electricity markets. Nevertheless, ENDESA’s Board of Directors,
also by unanimous vote, recommends not accepting the Offer at its current price
of Euro 25.405 per share, given the Offeror’s irrevocable commitment to
raise the price to a minimum of Euro 35 per share. It is made expressly clear
that this report issued by ENDESA’s Board of Directors does not address the
increased Offer price announced by the Offeror, which will be properly
considered in accordance with the provisions of Royal Decree 1197/1991 once it
has been formalised by E.ON, either in accordance with the normal offer increase
procedure in the event that Gas Natural, SDG, S.A. withdraws its offer or,
otherwise, in accordance with the sealed envelope bidding process prescribed for
competing offers. ENDESA’s Board of Directors has received the opinion of
its financial advisors: Citigroup Global Markets Limited, Deutsche Bank AG
London, J.P. Morgan Plc, Lehman Brothers (Europe) Limited and Merrill Lynch
Capital Markets España, S.A., S.V. Conduct of the Company with respect to
the Conditions Affecting the Takeover Offer Process The Board of Directors would
like to note that, as announced in its disclosure of 16 November 2006 to the
CNMV, ENDESA has petitioned the Supreme Court to modify or lift the injunction
on both the Spanish Council of Ministers’ ruling of 3 February 2006 and the
competing bid made by Gas Natural SDG, S.A. Similarly, ENDESA has petitioned the
Madrid Mercantile Court Number 3 to lift the injunction against the execution of
Gas Natural SDG, S.A’s offer. Moreover, ENDESA’s Board of Directors
intends to call, at the appropriate time, a General Shareholders’ Meeting
to decide whether to adopt the Bylaws amendments upon which both Gas Natural
SDG, S.A. and E.ON have conditioned their respective offers. Existence of
Agreements between the Company and the Offeror No agreement whatsoever exists
between the Company and Offeror in connection with the Offer, with the exception
of the confidentiality agreement made on 16 January 2006 and described in
Section 1.8.1 of the Prospectus. Agreements between the Offeror and Members of
ENDESA’s Board of Directors No agreement whatsoever exists in connection
with the Offer between the Offeror and any of the members of ENDESA’s Board
of Directors. Individual Opinions of the Members of the ENDESA Board of
Directors None of the members of ENDESA’s Board of Directors who attended
or were represented at the Board meeting of 21 November 2006, has expressed an
individual opinion of the Offer separate from the Board’s collective
opinion, which appears in Section 2 above. Operations Review 23 endesa06
Juan Ramón Quintás Seoane did not attend the above-mentioned
Board meeting due to a potential conflict of interest related to his position as
Chairman of the Spanish Confederation of Savings Banks and, therefore, has not
stated his position on the Offer. Intention of Board Members who Hold
ENDESAShares to Accept the Offer None of the members of the Board of Directors
who attended or were represented at the Board meeting of 21 November 2006 and
who directly or indirectly hold ENDESA shares intends to tender his shares in
acceptance of the Offer at its current price of Euro 25.405 per share. Caja de
Ahorros y Monte de Piedad de Madrid, through Miguel Blesa de la Parra, has
expressed its intention not to accept the Offer at the current price of Euro
25.405 per share with respect to the ENDESA shares it owns, given the
Offeror’s commitment to raise the Offer price to a minimum of Euro 35 per
share, which will be considered at the appropriate time. Juan Ramón
Quintás Seoane, for the reason mentioned in Section 5 above, did not
attend the above-mentioned Board meeting and has not stated his intention with
respect to whether he will accept the Offer for the 1,525 ENDESA shares that he
holds. The following table indicates the number of ENDESA shares that each
member of the Board of Directors holds, directly or indirectly, as well as the
percentage of the total share capital that each direct and indirect stake
represents: Direct Members of the Board Number and Indirect of Directors of
Shares Stake (%) Manuel Pizarro Moreno 100,004 0.00944 Rafael Miranda Robredo
7,585 0.00071 Alberto Alonso Ureba – – Miguel Blesa de la Parra 600
0.00005 José María Fernández Cuevas – –
José Manuel Fernández-Norniella – – Rafael
González-Gallarza Morales 3,300 0.00031 Juan Ramón Quintas Seoane
1,525 0.00014 Francisco Javier Ramos Gascón 9,771 0.00092 Alberto Recarte
García-Andrade 21,350 0.00201 Manuel Ríos Navarro 12,472 0.00117
Juan Rosell Lastortras 10,005 0.00094 José Serna Masiá 17,496
0.00165 TOTAL 184,108 0.01734 So far in 2007, ENDESA, S.A.‘s Board of
Directors has adopted the following resolutions: • On 9 January 2007, the
Board of Directors unanimously approved the Company’s Annual Budget for
2007. • At its 23 January 2007 meeting, the Board of Directors unanimously
approved the document “ENDESA’s greater value. FY2006 forecasts and
2009 targets,” which includes ENDESA’s forecast 2006 earnings and
updated targets for 2009, ensuring the market has the most recent figures
available. – Those present or represented at the Board meeting also
unanimously approved the U.S. announcement, on a Schedule 14D-9 form, of ENDESA
S.A.‘s recommendation on the takeover offer for ENDESA’s shares and
ADS’ presented in Spain by E.ON Zwölfte Verwaltungs GmbH, S.A., a
subsidiary of E.ON AG, under the terms set out in the takeover offer report that
the Board of Directors had approved at its 21 November 2006 meeting in
accordance with Article 20 of Royal Decree 1197/1991 of 26 July, governing
takeover offers, in view of the imminent filing of the U.S. prospectus (which
did not address the increase in price announced) and in accordance with U.S.
securities market regulations. Pursuant to Schedule 14D-9, Item 7 “Purposes
of the transaction and plan or proposals,” the Board also decided that, at
that time and absent any legal requirement to make such known, the inclusion of
any additional information concerning any potential alternatives under
consideration in that section (as also described in the Schedule 14D-9 for the
Gas Natural takeover bid), particularly regarding any potential terms or the
identity of third parties, may be detrimental to the interests of ENDESA and its
shareholders. – The Board of Directors also agreed to empower Chief
Executive Officer Rafael Miranda Robredo to sign and file the Schedule 14D-9,
Item 4 of which, “The solicitation or recommendation,” required the
Board of Directors’ recommendation in the 21 November 2006 report to ensure
the Schedule 14D-9 included any facts and circumstances that may have arisen or
become known as of the time of its filing, and ensure the Schedule is delivered
to the securities markets regulators, both national and foreign, and distributed
in accordance with the terms set out under current regulation and in the manner
which best serves the Company’s interests. CORPORATE GOVERNANCE 24 Annual
Report 2006
• The Board of Directors, at its meeting on 6 February 2007,
unanimously approved the ENDESA report on the takeover offer presented by E.ON
Zwölfte Verwaltungs GmbH that includes the increase in price announced by
the Spanish National Securities Market Commission on 2 February 2007, pursuant
to Article 36.8, in relation to Article 20, both included under Royal Decree
1197/1991 of 26 July, governing takeover offers, under the following terms:
REPORT OF THE BOARD OF DIRECTORS OFENDESA, S.A. REGARDING THE TAKEOVEROFFER MADE
BY E.ON ZWÖLFTE VERWALTUNGS GMBH At its meeting on 6 February 2007, the
Board of Directors of ENDESA, S.A. (“ENDESA” or the
“Company”), attending directors unanimously approved, for purposes of
the provisions of Article 36.8, in relation to Article 20 of Royal Decree
1197/1991 of 26 July, governing public tender offers, the following report on
the Public Tender Offer (the “Offer”) formulated by E.ON Zwölfte
Verwaltungs GmbH (“E.ON” or the “Offeror”) for a price of
Euro 38.75 per share, which includes the price enhancement filed by sealed
envelope by the Offeror on 2 February 2007. This report, in addition to
describing the principal features of the Offer, as amended, contains the
Board’s position on the Offer, as well as certain additional related
information. Principal Features of the Offer According to the Prospectus
relating to the Offer authorised by the Spanish National Securities Market
Commission (CNMV), the following are the principal features of the Offer:
Offeror The Offeror is the German company E.ON Zwölfte Verwaltungs GmbH, a
wholly owned subsidiary of the German company E.ON AG. Nature of the Offer
E.ON’s Offer, which was authorised by the CNMV on 16 November 2006, was
filed as a competing Offer with respect to the public tender offer filed by Gas
Natural SDG, S.A., which was authorised by the CNMV on 27 February 2006.
Notwithstanding the above, on 1 February 2007, Gas Natural SDG, S.A.
communicated the decision to withdraw its offer, in accordance with the
provisions of Article 36.1 of Royal Decree 1197/1991 of 26 July, as a
consequence of which E.ON’s Offer is the only one presently existing on the
Company. Securities Covered by the Offer The Offer covers the 1,058,752,117
shares of ENDESA with a par value of Euro 1.20 each, thereby representing 100%
of its capital stock. Consideration In accordance with the price enhancement
presented by the Offeror by sealed envelope on 2 February 2007, E.ON is offering
as consideration for each ENDESA share an all-cash price of Euro 38.75. The CNMV
has publicly confirmed that, following the withdrawal of Gas Natural SDG,
S.A.‘s offer, the price enhancement made as part of E.ON’s Offer shall
continue to be regulated by the provisions of Chapter V of Royal Decree
1197/1991 of 26 July, as a consequence of which E.ON will not be able to make
any subsequent modification to the price. Period of Acceptance The CNMV has
communicated that the end of the acceptance period for E.ON’s Offer (which
initially runs from January 26, 2007 to February 26, 2007) will be notified as
soon as the extensions contemplated by Articles 19 and 36 of Royal Decree
1197/1991 of 26 July, on the scheme for public tender offers, can be specified.
Therefore, the aforesaid period could be extended by the CNMV in order to allow
ENDESA’s General Shareholders’ Meeting to pronounce on the resolutions
for Bylaw amendments upon which the Offer is conditioned (see sections 1.6 and 2
below). Conditions of the Offer The effectiveness of E.ON’s Offer is
conditioned upon the acquisition of a minimum of 529,481,934 shares of ENDESA,
representing 50.01% of its capital stock. Furthermore, the Offer is conditioned
both upon ENDESA’s General Shareholders’ Meeting making certain
amendments to the Bylaws and upon those amendments being registered with the
Mercantile Registry. Specifically, the Offer is conditioned upon the elimination
of all limitations or restrictions on the number of votes that can be exercised
by ENDESA shareholders (Article 32 of the Bylaws), the removal of requirements
concerning the composition of Board of Directors and the type of Board members,
with the corresponding removal of the restriction on the number of terms to
which certain types of Board members may be elected (Articles 37 and 38 of the
Bylaws), and upon removal of all qualifications, except for those concerning the
absence of legally prohibited conflicts of interest, on the appointment of a
member of the Board of Directors or of a Managing Director (Article 42 of the
Bylaws), described in full in the Prospectus. Operations Review 25 endesa06
Board of Directors’ Opinion of the E.ON Offer The Board of Directors,
by unanimous vote of members present or represented, views the terms of the E.ON
Offer favourably for the following reasons: A. The
consideration of Euro 38.75 per share, which values ENDESA’s total share
capital at Euro 41.027 billion, is fair, from a financial point of view, to the
shareholders of ENDESA. In reaching this conclusion, the Board of Directors
considered the fairness opinions rendered by ENDESA’s financial advisors
–BNP Paribas S.A. Spanish Branch, Citigroup Global Markets Limited,
Deutsche Bank AG London Branch, J.P. Morgan Plc, Lehman Brothers (Europe)
Limited and Merrill Lynch Capital Markets España, S.A.– which state
respectively that the consideration is fair, from a financial point of view, to
the shareholders of ENDESA. The offered consideration:
(i) is 109 percent higher than the closing price of Euro
18.56 per share on 2 September, 2005, the last trading day prior to the
announcement of Gas Natural’s offer, or 124 percent higher than such
closing price if the dividends paid by ENDESA since that date are taken into
account. (ii) is 65 percent higher than the implied
value of Gas Natural’s offer of Euro 22.43 per share* on the date on which
Gas Natural’s offer was withdrawn, and 56 percent higher than the preceding
offer by E.ON of Euro 24.905 per share. (iii) is 30
percent higher than the average closing price of Euro 29.82 per share over the
past 12 months, 16.3 percent higher than the average closing price of Euro 33.31
per share over the past six months, and 2.9 percent higher than the average
closing price of Euro 37.65 per share over the past 30 days; the consideration
is 0.7 percent lower than the closing price of Euro 39.04 per share on 2
February, 2007, the highest closing price in ENDESA’s history, and 1.7
higher than the closing price of Euro 38.10 per share on 5 February, 2007, the
last trading day prior to the release of this report. B.
The consideration offered by E.ON consists entirely of cash, and the Offer is
being made for 100 percent of the outstanding shares. C.
The Offeror has stated its intention to continue implementing ENDESA’s
business strategy, including ENDESA’s investment plan, and to preserve
ENDESA’s workforce, as well as its goal of promoting the development of the
Spanish gas and electricity market, all as reflected in the Prospectus. For the
foregoing reasons, and with a view to allowing ENDESA’s shareholders to
vote on the amendments to ENDESA’s bylaws required to be adopted as a
condition of the E.ON Offer, the Board of Directors has unanimously resolved to
convene an extraordinary general meeting of shareholders to be held at first
call on 20 March 2007. In addition, and for the same purpose, the Board of
Directors has determined to state its position in favour of these amendments and
recommends that the shareholders of ENDESA participate in meeting and vote in
favour of the amendments. The members of the Board of Directors of ENDESA
present or represented at the meeting of 6 February 2007, who are holders of
ENDESA shares, have unanimously expressed their intention to vote at the
extraordinary general meeting of shareholders in favour of the amendments to
ENDESA’s bylaws referred to above. Shareholder Caja Madrid, through Miguel
Blesa de la Parra, has likewise expressed its intention to vote in favour of
such amendments. Existence of Agreements between the Company and the Offeror No
agreement whatsoever exists between the Company and Offeror in connection with
the Offer, with the exception of the confidentiality agreement made on 16
January 2006 and described in Section 1.8.1 of the Prospectus. Agreements
between the Offeror and the Members of ENDESA’s Board of Directors No
agreement whatsoever exists in connection with the Offer between the Offeror and
any of the members of ENDESA’s Board of Directors. Individual Opinions of
the Members of the ENDESA Board of Directors None of the members of
ENDESA’s Board of Directors who attended or were represented at the Board
meeting of 6 February 2007, has expressed an individual opinion of the Offer
separate from the Board’s collective opinion, which appears in Section 2
above. 26 Annual Report 2006 CORPORATE GOVERNANCE * Value based on the close
market share price of Gas Natural on the 1st of February, 2007 (30.66
€/share).
Juan Ramón Quintás Seoane did not attend the above-mentioned
Board meeting due to a potential conflict of interest related to his position as
Chairman of the Confederation of Savings Banks and, therefore, has not stated
his position on the Offer. Intention to Board Members who Hold ENDESAShares to
Accept the Offer The members of the Board of Directors, who attended, in person
or by proxy, the Board meeting of 6 February 2007, and who are holders, directly
or indirectly, of ENDESA shares, have not yet adopted a decision on whether to
accept the Offer with respect to the shares held by them, and believe they will
be in a position to adopt it once the Extraordinary General Shareholders’
Meeting which must pronounce on the bylaw amendments upon which the Offeror has
conditioned the Offer has been held. They agree to make their decision public as
soon as they adopt it and always within the acceptance period of the Offer. Caja
de Ahorros y Monte de Piedad de Madrid, through Miguel Blesa de la Parra, has
stated that it has not yet adopted a resolution on whether to accept the Offer
with respect to the ENDESA shares held by this entity and that it believes will
be in a position to adopt the resolution once the aforesaid Extraordinary
General Shareholders’ Meeting has been held, agreeing to make its decision
public as soon as it adopts it and always within the acceptance period of the
Offer. Juan Ramón Quintás Seoane, due to the cause mentioned in
section 5, supra, did not attend said Board meeting, notwithstanding which he
has declared that he has not yet adopted a decision on whether to accept the
Offer with respect to the 1,525 ENDESA shares he owns, and that he will be in a
position to adopt it once the aforesaid Extraordinary General Shareholders’
Meeting has been held, agreeing to make his decision public as soon as he adopts
it and always within the acceptance period of the Offer. The following table
indicates the number of ENDESA shares that each member of the Board of Directors
holds, directly or indirectly, as well as the percentage of the total share
capital that each direct and indirect stake represents: Direct and Members of
the Board Number indirect of Directors of shares stake (%) Manuel Pizarro Moreno
100,004 0.00944 Rafael Miranda Robredo 7,585 0.00071 Alberto Alonso Ureba –
– Miguel Blesa de la Parra 600 0.00005 José María
Fernández Cuevas – – José Manuel
Fernández-Norniella – – Rafael González-Gallarza Morales
3,300 0.00031 Juan Ramón Quintas Seoane 1,525 0.00014 Francisco Javier
Ramos Gascón 9,771 0.00092 Alberto Recarte García-Andrade 21,350
0.00201 Manuel Ríos Navarro 12,472 0.00117 Juan Rosell Lastortras 10,005
0.00094 José Serna Masiá 17,496 0.00165 TOTAL 184,108 0.01734 This
report will be published once the CNMV confirms its authorisation of the
modification to E.ON’s takeover offer under the terms known. – In
addition, the Board of Directors also agreed to empower Chief Executive Officer
Rafael Miranda Robredo to sign and file the modification to Schedule 14D-9 filed
by the Company on 26 January 2007 to ensure its inclusion in the report approved
at the meeting on the takeover offer made by E.ON Zwölfte Verwaltungs GmbH
and ensure the document is delivered to the securities markets regulators, both
national and foreign, and distributed in accordance with the terms set out under
current regulation and in the manner which best serves the Company’s
interests. – The Board of Directors also unanimously agreed to convene an
Extraordinary General Shareholders’ Meeting to decide on the bylaw
amendments proposed by the offeror E.ON Zwölfte Verwaltungs GmbH for 20
March 2007, at first call, and for 21 March 2007, at second call. • On 20
February 2007, the Board of Directors unanimously approved, following a report
by the Audit and Compliance Committee, the consolidated results at 31 December
2006 along the press release to be distributed publicly along with them. •
On 7 March 2007, the Board of Directors unanimously resolved to cancel the
Extraordinary General Shareholders’ Meeting, which had been scheduled for
20 March 2007, at first call, and for the following day at second call, due to
the following circumstances: Operations Review 27 endesa06
1. The purpose of calling the Extraordinary General
Shareholders’ Meeting was solely to allow the shareholders to decide on the
bylaw amendments upon which E.ON Zwöllfte Verwaltungs GmbH
(“E.ON”) had conditioned its takeover offer (“Offer”) for
all ENDESA shares, as noted in both the call notice and the takeover offer
report approved by the Board of Directors on 6 February 2007. 2. As outlined in
the Relevant Event issued on 6 March 2007, E.ON simplified its takeover process
by removing a condition requiring ENDESA’s General Shareholders’
Meeting to adopt the agreements necessary to amend its bylaws, while the
remaining terms of its offer remained unchanged. In view of this development and
since there were no other items on the agenda for the Extraordinary General
Shareholders’ Meeting to review, there was no longer any reason for the
meeting. In addition, with a view to duly satisfying the expectations of
shareholders who had anticipated receiving a gross attendance bonus of Euro 0.15
per share as agreed by the Company for shareholders who attended the Meeting,
and although the meeting was cancelled, ENDESA awarded the bonus to its
shareholders. • On 30 March 2007, subsequent to the official approval of
the increase in price of E.ON’s takeover offer by the Spanish National
Securities Market Commission, the Board of Directors at its meeting held that
day unanimously approved the following report, which was released in accordance
with prevailing regulations: REPORT OF THE BOARD OF DIRECTORS OFENDESA, S.A. ON
THE TENDER OFFER FORSHARES MADE BY E.ON ZWÖLFTE VERWALTUNGS GMBH The Board
of Directors of ENDESA, S.A. (“ENDESA” or the “Company”), at
its meeting of 30 March 2007, approved by unanimous vote of the Directors
present for purposes of the provisions of Article 20, and related Articles, of
Royal Decree 1197/1991 of 26 July, governing takeover offers, the following
report on the Tender Offer (the “Tender Offer” or “Offer”)
made by E.ON Zwölfte Verwaltungs GmbH (“E.ON” or the
“Bidder”) for a price of Euro 40 per share. This Offer incorporates
the improved price reported by the Bidder on 26 March 2007 and authorised by the
Spanish National Securities Market Commission (CNMV) on 28 March 2007. In
addition to describing the principle features of the modified Tender Offer, this
report includes the Board’s position on the Offer as well as certain
additional information in this regard. Principal Features of the Offer According
to the Offer prospectus, which has been authorised by the CNMV, and the other
communications sent by the Bidder, the principal features of the Offer are as
follows: Bidder The Bidder is the German company E.ON Zwölfte Verwaltungs
GmbH, which is wholly owned of the German company E.ON AG. Nature of the Offer
E.ON’s Offer, which was authorised by the CNMV on 16 November 2006, was
submitted as a competing Offer with respect to the Tender Offer by Gas Natural
SDG, S.A. Gas Natural’s Tender Offer was authorised by the Spanish
Securities Market Commission on 27 February 2006. Nonetheless, on 1 February
2007, Gas Natural SDG, S.A. reported its decision to withdraw its offer pursuant
to the provisions of Article 36.1 of Royal Decree 1197/1991 of July 26.
Therefore, E.ON’s Offer is currently the only existing Tender Offer for the
Company. Shares to which the Offer applies The Offer applies to the
1,058,752,117 shares in ENDESA, with a par value of Euro 1.2 each, thus
representing 100% of its capital stock. Consideration According to the price
improvement reported by the Bidder on 26 March 2007 authorised by the CNMV on 28
March 2007, E.ON is offering as consideration for each ENDESA share an all-cash
price of Euro 40. Acceptance period Pursuant to the decision of the CNMV of 28
March 2007, the acceptance period will expire on 3 April 2007. Conditions to
which this Offer is subject The validity of E.ON’s Offer is subject to the
sole condition that the Bidder acquire a minimum of 529,481,934 shares of
ENDESA, representing 50.01% of its capital stock. Nonetheless, according to the
Offer prospectus, which has been authorised by the CNMV, the Bidder may waive
this condition pursuant to the provisions of Royal Decree 1197/1991. 28 Annual
Report 2006 CORPORATE GOVERNANCE
Opinion of the Board of Directors on the E.ON Tender Offer ENDESA’s
Board of Directors, by unanimous vote of the Directors present, views as
positive the terms of the Offer and recommends to the shareholders that they
tender their shares pursuant to the Offer for the following reasons: 1. It
fairly reflects the value of the Company and incorporates a price improvement of
Euro 1.25 per share over the most recent price offered by E.ON.
2. The consideration being offered by E.ON consists
entirely of cash, and E.ON’s offer is being made for 100 percent of
ENDESA’s shares. 3. E.ON has stated its intention
to continue implementing ENDESA’s business strategy, and particularly to
preserve the Group’s investment plan and workforce, as well as its goal of
promoting the development of the Spanish gas and electricity market, as
reflected in E.ON’s tender offer prospectus. 4.
E.ON’s offer is the only offer that complies with all current legal
requirements and that is fully supported by the legal and financial guarantees
that ensure its viability. It is also the only offer for which all required
authorisations have been obtained. In making its recommendation, the Board of
Directors of ENDESA considered the fairness opinions issued by its financial
advisors, BNP Paribas S.A. Branch in Spain, Citigroup Global Markets Limited,
Deutsche Bank AG London Branch, J.P. Morgan Plc, Lehman Brothers (Europe)
Limited and Merrill Lynch Capital Markets España, S.A., all of which
state that the consideration offered by E.ON is fair to ENDESA’s
shareholders from a financial point of view. Existence of Agreement between the
Company and the Bidder No agreement whatsoever exists between the Company and
the Offeror with respect to the Offer, except for the confidentiality agreement
dated 16 January 2006 to which paragraph 1.8.1 of the Prospectus refers.
Agreements between the Bidder and Members of ENDESA’s Board of Directors No
agreement whatsoever exists in connection with the Offer between the Offeror and
any members of ENDESA’s Board of Directors. Caja de Ahorros y Monte de
Piedad de Madrid stated in a 26 March 2007 filing with the CNMV that it has
entered into an equity swap agreement with E.ON regarding its shares of ENDESA.
Under such agreement, Caja de Ahorros y Monte de Piedad de Madrid will retain
the voting rights related to those shares. Individual Opinion of the Members of
ENDESA’s Board of Directors None of the members of ENDESA’s Board of
Directors who attended the Board meeting of 30 March 2007, either in person or
by proxy, has offered a personal opinion on the Offer other than the joint
opinion of the Board that is set forth in paragraph 2 above. Juan Ramón
Quintás Seoane did not attend that Board Meeting due to the existence of
a potential conflict of interest arising from his position as chairman of the
Spanish Confederation of Savings Banks. Therefore, he has not stated his
position on the Offer. Intention to Accept the Offer by the Members of the Board
of Directors Holding ENDESA Shares The members of the Board of Directors who
attended the Board Meeting of 30 March 2007, either in person or by proxy, and
who directly or indirectly hold shares in ENDESA have stated that they will
accept the Offer with respect to all of the shares they hold, except for 50
shares each. Caja de Ahorros y Monte de Piedad de Madrid has made its own
announcement in this respect, as indicated in paragraph 4 above. Juan
Ramón Quintás Seoane, for the reasons mentioned in paragraph 5
above, did not attend that Board Meeting, although he did state that he would
also accept the Offer with respect to all the shares in ENDESA that he holds,
except for 50 shares. The following table shows the number of ENDESA shares that
each of the members of the Board of Directors holds directly or indirectly,
together with the direct or indirect stake that this holding represents:
Operations Review 29 endesa06
Direct and Members of the Board Number indirect of Directors of shares
stake (%) Manuel Pizarro Moreno 100,004 0.00944 Rafael Miranda Robredo 7,585
0.00071 Alberto Alonso Ureba – – Miguel Blesa de la Parra –
– José María Fernández Cuevas – –
José Manuel Fernández-Norniella – – Rafael
González-Gallarza Morales 3,300 0.00031 Juan Ramón Quintas Seoane
1,525 0.00014 Francisco Javier Ramos Gascón 9,771 0.00092 Alberto Recarte
García-Andrade 21,350 0.00201 Manuel Ríos Navarro 12,472 0.00117
Juan Rosell Lastortras 10,005 0.00094 José Serna Masiá 17,496
0.00165 TOTAL 184,108 0.01734 In addition, the Board of Directors unanimously
approved, following a report from the Audit and Compliance Committee, the
financial statements, the management report and the proposed appropriation of
income or allocation of loss for 2006. • On 11 April 2007, the Board of
Directors, in response to the announcement made by the CNMV regarding the
Takeover Offer made by Acciona, S.A. and Enel Energy Europa, decided that the
Company should maintain the same conduct to date, both legally and in defence of
the interests of the Company and its shareholders, agreeing that the Company
will continue to operate under the same conditions it did under the takeover
process initiated by Gas Natural and E.ON, ratifying the authorisations and
powers conferred on 6 September 2005 by the Board of Directors upon the
Executive Committee, the Chairman and the Chief Executive Officer empowering
them to make any relevant decisions. 30 Annual Report 2006 CORPORATE GOVERNANCE
BOARDS OF DIRECTORS Honorary Chairmen FELICIANO FUSTER JAUME RODOLFO
MARTÍN VILLA Chairman MANUEL PIZARRO MORENO Chief Executive Officer
RAFAEL MIRANDA ROBREDO Directors ALBERTO ALONSO UREBA MIGUEL BLESA DE LA PARRA
JOSÉ Mª FERNÁNDEZ CUEVAS JOSÉ MANUEL FERNÁNDEZ
NORNIELLA RAFAEL GONZÁLEZ-GALLARZA MORALES JUAN RAMÓN
QUINTÁS SEOANE FRANCISCO JAVIER RAMOS GASCÓN ALBERTO RECARTE
GARCÍA-ANDRADE MANUEL RÍOS NAVARRO JUAN ROSELL LASTORTRAS
JOSÉ SERNA MASIÁ Secretary non Director SALVADOR MONTEJO VELILLA
EXECUTIVE COMMITTEE Chairman MANUEL PIZARRO MORENO Members RAFAEL MIRANDA
ROBREDO (Chief Executive Officer) ALBERTO ALONSO UREBA MIGUEL BLESA DE LA PARRA
JOSÉ Mª FERNÁNDEZ CUEVAS JOSÉ MANUEL FERNÁNDEZ
NORNIELLA Secretary SALVADOR MONTEJO VELILLA AUDIT AND COMPLIANCE COMMITTEE
Chairman JOSÉ SERNA MASIÁ Members JOSÉ Mª
FERNÁNDEZ CUEVAS FRANCISCO JAVIER RAMOS GASCÓN ALBERTO RECARTE
GARCÍA-ANDRADE Secretary SALVADOR MONTEJO VELILLA APPOINTMENTS AND
COMPENSATION COMMITTEE Chairman MANUEL RÍOS NAVARRO Members JUAN ROSELL
LASTORTRAS RAFAEL GONZÁLEZ-GALLARZA MORALES JUAN RAMÓN
QUINTÁS SEOANE Secretary SALVADOR MONTEJO VELILLA Operations Review 31
endesa06
EXECUTIVE MANAGEMENT COMMITTEE Chairman Chief Executive Officer RAFAEL
MIRANDA ROBREDO Members Executive Vice-President – Spain and Portugal
JOSÉ DAMIÁN BOGAS GÁLVEZ Executive Vice-President –
Latin America PEDRO LARREA PAGUAGA Executive Vice-President – Europe
JESÚS OLMOS CLAVIJO Senior Vice-President – Finance and Control
JOSÉ LUIS PALOMO ÁLVAREZ Senior Vice-President – Strategy
CARLOS TORRES VILA Senior Vice-President – Human Resources GERMÁN
MEDINA CARRILLO Senior Vice-President – Services and Technology ANTONIO
PAREJA MOLINA Senior Vice-President – Communication GABRIEL CASTRO VILLALBA
Senior Vice-President – Legal Adviser FRANCISCO DE BORJA ACHA BESGA General
Secretary and Secretary to the Board of Directors SALVADOR MONTEJO VELILLA
GENERAL MANAGEMENT COMMITTEE FOR SPAIN AND PORTUGAL Executive Vice-President
– Spain and Portugal JOSÉ DAMIÁN BOGAS GALVEZ Senior
Vice-President – Endesa Red JOSÉ LUIS MARÍN
LÓPEZ-OTERO Senior Vice-President – Generation MANUEL MORÁN
CASERO Senior Vice-President – Energy Management ALVARO QUIRALTE
ABELLÓ Senior Vice-President – Retailing JAVIER URIARTE MONEREO
General Manager of ENDESA in Aragon JOSÉ ANTONIO GUTIÉRREZ
PÉREZ General Manager of ENDESA in Andalusia and Badajoz JOSÉ
ANTONIO MARTÍNEZ FERNÁNDEZ General Manager of ENDESA in the Canary
Islands JOSÉ MARÍA PLANS GÓMEZ General Manager of ENDESA in
the Balearic Islands JAIME REGUART PELEGRÍ General Manager of ENDESA in
Catalonia JOSEP MARIA ROVIRA VILANOVA Deputy Vice-President – Procurements
JOSÉ MARÍA CÁMARA TERCERO Deputy Vice-President –
Strategy, Regulation, the Environment and Sustainable Development JOSÉ
CASAS MARÍN Deputy Vice-President – Human Resources MIGUEL
ÁNGEL MARTÍNEZ FERNÁNDEZ Deputy Vice-President –
Economics and Control JUAN MARÍA MORENO MELLADO Assistant General Manager
– Spain and Portugal ENRIQUE VICENT PASTOR Communications Manager –
Electricity Businessand Europe ANTONIO TORVÁ JORDÁN Deputy
Technical Manager – General Management unitfor Spain and Portugal PILAR
SEVILLA GARCÍA 32 Annual Report 2006 CORPORATE GOVERNANCE
MANAGEMENT COMMITTEE – ENDESA EUROPA Board Member-Executive
Vice-President – Endesa Europa JESÚS OLMOS CLAVIJO General Manager
Endesa Italia JOAQUÍN GALINDO VÉLEZ General Manager Endesa Francia
ALBERTO MARTÍN RIVALS Deputy General Manager – Endesa Europa ANTONIO
REDONDO CUESTA Economics and Control Manager – Endesa Europa CELIA
ORDÓÑEZ GÓMEZ Energy Management Manager – Endesa
Europa JOAQUÍN RODRÍGUEZ JADRAQUE Manager-Legal Advisor for Europe
RAFAEL FAUQUIÉ BERNAL Gas Infrastructures Manager – Endesa Europa
FRANCISCO PÉREZ THODEN VAN VELZEN Development Manager – Endesa
Europa JOSE PABLO FEIJÓO MARTÍN Deputy Country Manager – The
Maghreb JOSE LUIS ALFARO BOZALONGO Human Resources Manager – Endesa Europa
PAOLO VENERUCCI Engineering Manager – Endesa Europa CARLOS TEMBOURY
MOLINAMANAGEMENT COMMITTEE – ENDESA INTERNACIONAL Board Member-Executive
Vice-President – EndesaInternacional PEDRO LARREA PAGUAGA Chairman of
Enersis PABLO YRARRÁZABAL VALDÉS Chairman of Endesa Chile MARIO
VALCARCE DURÁN Chairman of Chilectra JORGE ROSENBLUT RATINOFF General
Manager-Energy Management – EndesaInternacional HÉCTOR LÓPEZ
VILASECO Deputy General Manager of Business – Endesa Internacional
JOSÉ MARÍA CALVO-SOTELO IBÁÑEZ-MARTÍN General
Manager – Enersis IGNACIO ANTOÑANZAS ALVEAR General Manager –
Endesa Chile RAFAEL MATEO ALCALÁ General Manager – Chilectra RAFAEL
LÓPEZ RUEDA General Secretary – Endesa Internacional ALFONSO ARIAS
CAÑETEMANAGEMENT COMMITTEE – ENDESA SERVICIOS Senior Vice-President
– Services and Technology ANTONIO PAREJA MOLINA Assistant Senior
Vice-President – Services and Technology MARIBEL FERNÁNDEZ LOZANO
Deputy General Manager – Systems andTelecommunications RAMÓN CABEZAS
NAVAS Innovation and Technology Management Manager JOSE ARROJO DE LAMO Corporate
Purchasing Manager GONZALO MARTIN PICOLA Technical Manager ARTURO MALDONADO
MAJADA Operations Manager JULIO C. CAMPILLO FERNANDEZ Deputy Manager –
Planning and Economic Control MARÍA AMOR CALZADA CANALEJO Operations
Review 33 endesa06
34 Annual Report 2006 GENERAL ECONOMICAND REGULATORY FRAMEWORK
01. INTERNATIONAL ECONOMIC SCENARIO The global economy posted year-on-year
GDP growth of 4.9 percent in 2006 vs. 2005, despite the unfavourable impact of
high oil prices which prevailed throughout most of the year. High crude prices
(Brent prices reached an all-time high of USD78.3/bbl in August) had a hefty
influence on the inflation rate, which stood at 3.1 percent at the end of the
year, though oil prices did ease significantly in the final months of the year.
The US posted sustained growth throughout the year, ending 2006 with a GDP
increase of 3.3 percent, or 0.1 percentage point higher than in 2005. This
growth was heavily underpinned by domestic demand. At the same time, the
inflation rate stood at 2.5 percent, or 0.9 percentage points lower than that of
the previous year. The US continued to run the substantial trade deficit which
has characterised its economy in recent years, with foreign debt amounting to 75
percent of GDP. In currency markets, the dollar suffered a generalised
depreciation, especially against the euro. Japan posted GDP growth of 2.2
percent, with an inflation rate of 0.3 percent. As for emerging economies, China
maintained its rapid pace of expansion, with GDP growth of 10.4 percent and
inflation of only 2.3 percent. 01.1. EUROPEAN UNION The
economy of the group of countries comprising the European Union grew in a stable
fashion in 2006, with GDP growth of 2.7 percent, mainly thanks to the favourable
performance of private consumption and investment and despite falling exports.
Nevertheless, the performances of the different national economies was very
diverse. While GDP in Spain, the Netherlands, Poland, Greece and Ireland was
higher than the average, growth in Germany, Portugal, France and Italy was below
it. The average inflation rate was 1.9 percent. 01.2. SPAIN The Spanish GDP rose
by 3.9% in 2006. This growth rate was significantly higher than the EU average
and was 0.4 percentage points higher than growth in 2005. The main factors
driving this growth were domestic demand and investment in capital goods.
Inflation stood at 3.5 percent, 1.3 percentage points higher than the EU
average. This inflation differential led to a loss of competitiveness and the
resulting trade deficit. Economic growth had a favourable impact on the
unemployment rate, which was 8.5 percent at the end of 2006, compared with 9.1
percent at the same time a year earlier. LATIN AMERICA In recent years, Latin
American economies have in general terms shown positive performance, based on
high international prices for the raw materials they produce, low interest rates
and improved domestic demand. Inflation among countries in the region is being
kept reasonably under control by the monetary policies carried out by their
respective central banks. As for economic performance in the countries in which
ENDESA has a presence, it is worth pointing out that GDP in Chile rose 4 percent
in 2006, in other words, 2.3 percentage points less than a year earlier. The
inflation rate at year’s end was 2.6 percent, 1.1 percentage points higher
than in 2005. Argentinean growth remained high, with a 8.5 percent GDP increase,
against a backdrop of high inflation (9.8 percent), some 2.5 percentage points
lower than the previous year. The high prices of Argentine agricultural products
on the international market meant that the country’s trade surplus remained
high. Brazil’s GDP growth was 3 percent in 2006, 0.7 points higher than a
year earlier. This increase was accompanied by a decrease in the inflation rate,
which stood at 3.1 percent, down from 5.7 percent in 2005. In Colombia, GDP rose
7.1 percent compared with 5.2 percent the previous year, and the inflation rate
fell from 4.9 percent in 2005 to 4.5 percent in 2006. Meanwhile, Peru ended the
year with a moderate inflation rate of 1.1 percent, and GDP growth of 7.4
percent, continuing the growth cycle its economy has enjoyed for six years.
Operations Review 35 endesa06
02. REGULATORY FRAMEWORK IN EUROPE02.1. EU LEGISLATION
02.1.1. The “Energy Package” While the
“Energy Package” was only published at the beginning of 2007, its
importance justifies its inclusion in this report. It was published on 10
January 2007 and is comprised of a wide array of documents which include the
European Commission’s main analyses and proposals with regard to the EU
energy market. It thus constitutes a fundamental element of the European Union
energy policy strategic review ordered in October 2005 by heads of state and
government at the summit held at Hampton Court (UK). The following documents
make up the Energy Package: European Commission statement on an energy policy
for Europe. The European Commission considers it essential to implement a common
energy policy that is coherent in the short, medium and long term. As a starting
point, it sets out a dual objective of limiting the European Union’s
external dependence on hydrocarbon imports and fighting climate change through a
progressive transition to more efficient energies and energies that produce
fewer CO2 emissions. To this end, it sets as a principal strategic target for
2020 a reduction of at least 20 percent in CO2 emissions from energy use
compared with 1990 levels. European Commission statement on outlook for EU
electricity and gas market. The Commission states that the process of creating a
European electricity and gas market is, at the moment, satisfactory, because
considerable goals have been reached, though the potential exists for further
benefits. To continue this progress, the Commission proposes a series of new
measures, of which the following stand out: • Separate the assets of system
operators from generators and suppliers. This is basically the model established
in Spain, in which Red Eléctrica de España is the Independent
System Operator and the main transmission company. • Enhance national
regulators’ authority and achieve more effective coordination on a
Europe-wide level. • Reduce anticompetitive behaviour in electricity and
gas markets, increasing transparency, updating gas supply contracts signed prior
to liberalisation, etc. • Establish a clear regulatory framework to
guarantee substantial investments in electricity generation and infrastructure
for natural gas imports, both of which are necessary to ensure supply in coming
years. • Implement a series of measures to ease residential and commercial
clients’ ability to switch supplier, eliminating regulated tariffs and
reinforcing the functional separation of the distribution and supply businesses.
Implementation reports on regulatory frameworks for gas and electricity in
member states. These detailed reports form the basis of the measures presented
in the previous paragraph. In the Spanish case, the report is quite critical of
the regulatory situation. The report looks unfavourably on instability in the
regulatory framework, the existence of regulated tariffs which distort the
market, the failure to transpose important elements of EU Directives and the
regulator’s scant independence. The Competition Directorate General’s
final report from its industry investigation of the electricity and gas markets.
This is a wide-ranging and thorough analysis begun in June 2005 to establish a
detailed diagnosis of the situation in European energy markets. In February
2006, a preliminary report was released, in which some of the deficiencies noted
in the study were identified, among which the high concentration of wholesale
markets and vertical integration among companies stood out. The final
conclusions are mostly in line with those outlined in the initial report. The
European Commission considers it essential to both apply current competition
laws and to develop new regulatory activities. It was announced that
investigations into particular companies would take place, which could lead to
fines or other structural measures. In May 2006, surprise inspections were
carried out at some member states’ main gas and electricity companies, such
as in Germany, France, Belgium, Italy, Austria and Hungary. No specific actions
have taken place in the Spanish market, nor have any Spanish companies been
involved. Indicative nuclear plan. The European Commission establishes a
platform for discussion about the future of nuclear energy in the context of
European energy policy. It holds that nuclear energy must be a part of the
answer to the strategic priorities of ensuring supply, competitiveness and
sustainability, since it is a technology that does not produce CO2 emissions. To
this end, it is necessary to continue making progress in security, safe
dismantling of obsolete power stations, and waste management. Commission
Statement on sustainable electricity generation with fossil fuels: toward zero
emissions in 2020. The European Commission recognises the importance of the
contribution of fossil fuels to the security of energy supply. In 36 Annual
Report 2006 GENERAL ECONOMIC AND REGULATORY FRAMEWORK
line with this, a favourable context will be established for the
sustainable use of coal, and in particular, for the implementation of
technological solutions for CO2 capture. Renewable energy road map. In March
2006 the European Council called for the European Union to become world leader
in renewable energies. To achieve this, it drew up a road map with a target for
20 percent of the energy mix to derive from renewable sources in 2020. This
European target will translate to obligatory national objectives, taking into
account each member state’s different circumstances. Commission statement
on progress in renewables. This statement ranks countries by their level of
progress in renewable energies. Spain is in the lead group, that is, countries
whose current renewable promotion policies mean that they will reach targets.
Commission Statement on progress in bio fuels. Sets a target for bio fuels to
account for 10 percent of transpor fuels in 2020. Priority interconnection plan.
This plan defines the Spain-France interconnection as a key infrastructure in
the development of the European market and notes the existence of difficulties
posing obstacles to its development. Strategic plan for energy research. 02.1.2.
Specific European Commission actions involving Spain The European Commission has
opened two infraction proceedings against Spain for the incorrect transposition
of or poor application of electricity and gas Directives. In April 2006, the
Spanish government received letters of formal notice, which constitute the first
step in the infraction procedure. On 12 December, the Commission sent two
reasoned opinions, which complete the second phase of the infraction procedure,
and on 25 January 2007 the European Commission announced a formal investigation.
The European Commission also filed a complaint against the Spanish government
before the European Court of Justice for failure to notify it of transpositions
of the electricity and gas Directives. In the case of the Gas Directive, on 16
November the Court found against Spain. The European Commission has also started
proceedings against Spain for Royal Decree Law 4/2006 which widened the
functions of the National Energy Commission (CNE), a decision discussed in
greater detail in the section in this chapter related to Spanish regulatory
news. 02.1.3. Directive on security of electricity
supply and infrastructure investment Following its approval by the council of
ministers, this Directive was published in the Official Journal of the European
Union on 4 February 2006, the culmination of the process the European Commission
started in 2003. The Directive’s objectives are to make a contribution
towards ensuring a secure supply of electricity and the correct working of the
European electricity market, ensuring appropriate generation capacity, a balance
between supply and demand, and adequate interconnection capacity among member
states. The Directive highlights, among others, the following points: • The
need for a stable regulatory framework. • The importance of a liquid
wholesale market that gives adequate price signals for generation and
consumption. • Member states’ obligation to set up a regulatory
framework that facilitates investment by managers of transport and distribution
networks. 02.1.4. Approval criteria for National
Allocation Plans for emission rights for 2008-2012 By 29 November 2006, 19
member states had notified the European Commission of their National Allocation
Plans for emission rights for the period 2008-2012. The plans drawn up by
Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, the UK
and Sweden were reviewed and commented upon by the Commission, which
standardised the criteria for analysis of the volume of rights to allocate, and
other aspects. As a result of this review, the European Commission applied a
reduction of 6 percent to the total volume allocated by these 10 member states
in their plans, and likewise lowered the threshold for using flexible mechanisms
for the cases of Ireland and Sweden. 02.2. REGULATORY
PROVISIONS IN THE SPANISH ELECTRICITY SECTOR 02.2.1. Electricity tariff for 2006
Royal Decree 1556/2005, of 28 December, set the 2006 electricity tariff,
applying the tariff methodology introduced by Royal Decree 1432/2002, of 31
December. Approval was given for a 4.48 percent increase in the average or
reference tariff. Domestic supply tariffs (2.0 and 2.0N) Operations Review 37
endesa06
increased by 4.48 percent and the remainder by around 5.05 percent, with
the exception of tariff D, applied to distributors covered by Transitional
Provision Eleven of Law 54/1997, which increased by 7.43 percent. Access tariffs
applicable in the deregulated market increased an average of 2.86 percent. In
addition, this Real Decree called for an additional review of the tariff in July
2006, to reflect mainly the settlement deficit for 2005. This additional review
was carried out through Royal Decree 809/2006, of 30 June, which resulted in an
additional increase of 1.38 percent in the average reference tariff (0.8 percent
for domestic users, and small and medium-sized business clients, and 6 percent
for industrial users). With this Royal Decree, it was decided that the regulated
activities deficit for 2005, whose final amount was set by Royal Decree
1634/2006 at Euro 3,830 million, will be recovered in 14.5 years, while
recognising the possibility of granting these rights to third parties, a move
the electricity companies holding them carried out at the end of 2006.
Meanwhile, this Royal Decree repealed the maximum 1.4 percent limit on tariff
increases that had been introduced by Royal Decree 1432/2002 on tariff
methodology. 02.2.2. Electricity tariff for 2007 Royal
Decree 1634/2006, of 29 December, established the 2007 tariff introducing
substantial differences with respect to previous years in the methodology for
deciding the rate. This Royal Decree also introduced several regulatory measures
intended to improve the functioning of regulated activities and favour
competition. Among new measures incorporated in this Royal Decree are the
following: GENERAL ECONOMIC AND REGULATORY FRAMEWORK Change vs. previous year
CPI Nominal price Real price performance Source: Royal Decree tariffs -10 -8 -6
-4 -2 2 4 6 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2.92 3.96
4.00 -3.00 -3.63 -4.85 0.32 5.92 -3.11 -8.47 3.74 3.23 3.21 1.41 0.00 -1.52
-1.95 -1.46 0 2.01 -5.57 -3.54 -0.93 3.24 1.72 1.65 -8.25 -4.12 -4.92 -4.97 2.71
2.60 1.71 2.60 2007 2.25 4.30 2.00 Cumulative 3.2 6.8 9.9 14.2 17.3 22.0 34.1
37.5 -7.6 25.2 29.2 5.3 0.0 -40 -30 -20 -10 0 10 20 30 40 1996 1997 1998 1999
2000 2001 2002 2003 2004 2005 2006 0.0 -19.7 -29.5 -32.0 -32.6 -34.9 -32.8 -33.6
-7.9 -3.1 -26.5 -12.4 -3.0 -6.5 -11.7 -17.3 -17.0 -15.7 -12.7 -14.2 0.0 -16.0
2007 40.3 -3.6 -31.3 38 Annual Report 2006 EVOLUTION OF ELECTRICITY PRICES IN
SPAIN (%)
• A reasonable forecast of the price of energy in 2007, both for the
mainland and non-mainland. However, given that adaptation of the tariff to
market prices is intended to be carried out gradually, a quarterly tariff review
mechanism is introduced, at the same time that the regulated activities
settlement deficit is recognised in advance, which will be recovered through a
surcharge on electricity tariffs and which can be granted to third parties.
• An additional improvement in the distribution business’ remuneration
of Euro 500 million, while the thresholds required of distributors for service
quality are made stricter. • Primary energy emissions (virtual capacity
auctions) starting in July 2007. This is a mechanism through which a generator
auctions the right to use part of its capacity, in the form of options for
physical delivery, which has been used to boost liquidity in some wholesale
markets, such as France. The average tariff increase established in the
above-mentioned Royal Decree is 4.3 percent, with an average rise for
residential tariffs of 2.8 percent, though it differs depending upon the
capacity contracted (clients with greater contracted capacity pay a higher price
per KWh consumed) For industrial tariffs, the average rise is 6.4 percent.
Finally, access tariffs dropped by an average of 10 percent. 02.2.3. Electricity
generation market On 24 February, Royal Decree 3/2006 was approved, with a dual
function outlined in its statement of purpose: • On one hand, “the
evolution of electricity prices in the day ahead market since the end of 2005
suggests the need to promote in a decisive manner the negotiation of bilateral
physical contracts, especially in the case of market players belonging to the
same corporate group who make simultaneous buy and sell offers of energy for the
same programming period”. • On the other hand, “internalising the
value of greenhouse gas emission rights in price setting in the wholesale
electricity market requires this situation to be reflected by reducing by equal
amounts the remuneration to generation units affected.” On the basis of
these arguments, the Royal Decree Law introduced two regulatory modifications
with a large impact on the functioning of the wholesale electricity market:
• First, it established that energy bought and sold within the same
corporate group would be assimilated in a bilateral contract for physical
delivery. This energy would be provisionally charged to distributors by the CNE
at Euro 42.35/MWh, although it specifies that this amount will be reviewed based
on objective and transparent prices in electricity markets. This modification,
which took immediate effect, will remain in place until a rule is developed
through which distribution companies negotiate their energy purchases using
bilateral contracts for physical delivery. • Second, it established the
possibility of reducing remuneration for the generation business of companies
that received free emission rights by “an equivalent amount” to the
value of the greenhouse gas emission rights allocated for free. The Government
has announced that this will be effective as of July 2007. The 2007 Royal Decree
on tariffs states that, starting 1 January 2007, the recognised price for energy
assimilated in bilateral contracts will be the market price, thus on that date
normal functioning of the system was re-established. 02.2.4. Energy acquisition
by distributors and Iberian Electricity Market (MIBEL) In 2006 several rules
designed to regulate the acquisition of energy by distributors through bilateral
physical contracts were approved or proposed aimed at reducing purchases in the
day ahead market and giving the electricity tariff greater stability. On 5 July
2006, ITC Order 2129/2006 came into force, which regulated forward electricity
contracting by distributors in the second half of that year. With this Order,
distributors were required to acquire 5 percent of their sales from tariff
clients through the purchase of “futures contracts with physical
delivery” in spot auctions managed by Operador del Mercado Ibérico
Polo Portugués (OMIP). With this rule, the intention is to give a degree
of liquidity to the Iberian Electricity Market (MIBEL) spot market, which
recently started operating, and to translate to the Spanish judicial framework
the transitory purchasing obligation on distributors through OMIP, as outlined
in the Santiago agreement of October 2004. On 30 December 2006, Ministerial
Order ITC/3990/2006 was published, extending this mechanism to 2007 and
increasing to 10 percent the percentage of demand to be acquired by each
distributor, as agreed at the Spanish-Portuguese Summit in Badajoz in November
2006. Also in December, the Ministry of Industry, Tourism and Commerce announced
a Ministerial Order putting into operation a mechanism for bilateral contracts
based on auctions of the energy solicited by distributors. endesa06 Operations
Review 39
02.2.5. Competition Transition Costs (CTCs) On June
23, the Spanish cabinet passed Royal Decree Law 7/2006, adopting emergency
measures for the energy sector. This Royal Decree marked the repeal of the sixth
transitory measure of Decree Law 54/1997 for the Electricity Sector, which gave
rise to suppression of competition transition costs (CTCs). The Royal Decree Law
includes the possibility of approving extraordinary plans for companies with
special financial difficulties, as well as a system of premiums, up to a maximum
of Euro 10 per MWh generated, allowing preferred entry into operation of plants
that use home-grown energy sources, while maintaining the extraordinary plans
and incentive systems for the use of domestic coal that existed at the date of
it coming into force. 02.2.6. CHP/Renewables In December
2006, the government presented a Proposed Royal Decree to regulate the
CHP/renewables electricity production business, taking the place of Royal Decree
436/2004. This modification is in response to Royal Decree 436/2004, which
stipulated that a review must be carried out in 2006. The draft of the proposed
Royal Decree aims to do two things: • Reach the targets for electricity
generation from renewable sources set out in the 2005-2010 Renewable Energy Plan
for all those technologies whose development has been insufficient, through the
increase of the corresponding tariff. • Guarantee a balanced reduction in
special regime production, through the establishment of a maximum and minimum
remuneration in function of the generation market price. 02.2.7. Island and
non-mainland systems On 30 March 2006, the Industry, Tourism and Commerce
Ministry approved Ministerial Orders ITC/913/2006 and ITC/914/2006 culminating
the development process for specific regulations for the island and non-mainland
electricity systems, begun with Law 54/1997, of the Electricity Industry, and
later with Royal Decree 1747/2003. The Orders approved develop the methodology
for calculating capacity payments and fuel costs, as well as a procedure for
delivery and compensation for energy in these systems. The remuneration scheme
established by these Orders for the generation business includes recognition of
the costs associated with its development in these systems: investment,
operation, maintenance, and fuel costs. 02.2.8.
Transposition of Electricity Directive In 2006, a Proposed Law was making its
way through parliament that would modify Law 54/1997 to adapt it to Directive
2003/54/EC regarding common rules for the EU electricity market. The revision
mainly affects the disappearance of tariffs and the introduction of supply of
last resort. It key aspects are as follows: • The Proposed Law states that
the disappearance of the integral tariff will take place on 1 January 2011. From
that date, only one tariff of last resort will exist, the one for domestic
users, and small and medium-sized businesses with contracted use of less than 50
kW. Several amendments to the Proposed Law have been suggested which would move
forward by at least two years the disappearance of the integral tariff. •
Supply of last resort will be the responsibility of suppliers upon which this
obligation will rest. • Distributors will be the managers of the
distribution networks they own, eliminating the concept of electricity zones.
• The Office of Supplier Changes will be created to supervise switching gas
and electricity suppliers, and will be comprised of distributors and suppliers.
• Distributors will be authorised to use their networks for the development
of telecommunications services, though they must keep separate accounts for this
business. 02.2.9. National Allocation Plan for Emissions Rights (NAP) On 24
November, Royal Decree 1370/2006 was approved regarding the National Allocation
Plan (NAP) on greenhouse gas emission rights for 2008-2012, and was then sent to
the European Commission for its definitive approval. The NAP establishes a new
emissions target for Spain in the period. Emissions must not surpass those of
1990 by more than 37 percent. The Kyoto Protocol and European regulation set a
limit for Spanish emissions of 1990 plus 15 percent. The difference between the
15 percent and the 37 percent will be covered using CO2 sinks and credits from
Clean Development Mechanisms or Joint Implementation (emission rights
corresponding to emission reduction projects in other countries). 40 Annual
Report 2006GENERAL ECONOMIC AND REGULATORY FRAMEWORK
To achieve this goal, effort is shared among industries regulated by
Directive 2003/87/EC (45 percent of emissions) and other industries (55 percent
of emissions). The NAP allocates 144.9 million tonnes of CO2/year for regulated
industries: 73.6 million tonnes of CO2/year for industrial sectors, 17.2 million
of tonnes of CO2/year for cogeneration and 54.1 million tonnes of CO2/year for
the electricity industry. In addition, it allocates a reserve for new entrants
of 7.8 million tonnes of CO2/year, common for all sectors. With this allocation,
the electricity sector assumes all of the forecast emissions deficit, while
industrial sectors receive free allocations for the totality of expected
emissions. The electricity industry’s allocation represents only 51 percent
of its real emissions in 2005, or 65 percent of the emissions the government
forecasts for the period 2008-2012. The NAP establishes the criteria to be used
to carry out distribution by facility in the electricity industry. Allocation
among coal-fired plants will partly take into account commitments regarding the
use of domestic coal and investments in desulphurisation systems and boiler
conversion. At the same time, combined cycle plants receive free allocation as a
result of operating forecasts in line with the principles outlined in the energy
plan. This gives a more even-handed treatment to the two main thermal
technologies, unlike the previous NAP 2005-2007. As for island and non-mainland
electricity systems, the emission rights deficit that could occur in them is
regarded as a cost to be remunerated in the regulation governing these systems.
The NAP 2008-2012 sets a limit of 70 percent of the allocation for use of
credits from Clean Development Mechanisms and Joint Implementation in the case
of electricity, and 20 percent in other regulated industries.
02.2.10. National Energy Commission (CNE) On 28 February
2006, Royal Decree 4/2006 of 24 February was published modifying the CNE’s
fourteenth function. This function previously stated that the CNE was
responsible for granting authorisation for the acquisition of stakes in
commercial companies by companies involved in regulated businesses. The new
version included in the Royal Decree 4/2006 extends the exercise of this
function to the following cases: • Companies carrying out activities which
are subject to some special regulation (nuclear power stations, coal-fired
plants with significant use of domestic coal, non-mainland and island
electricity systems, natural gas storage or natural gas transport destined for
Spain through international gas pipelines). • Any subject intending to
acquire a stake of more than 10 percent of a company’s capital or a stake
giving it significant influence in a company that, alone or through group
subsidiaries, carries out any of the above mentioned activities. • When
assets necessary to carry out any of the above mentioned activities are directly
acquired. Authorisations may be denied due to the existence of significant risks
or negative impacts, whether direct or indirect, on the above mentioned
businesses, protection of the general interest in the energy sector and
industrial policy objectives, or for any other issue of public safety, in
particular, security and quality of supply or safety compared with an
investment’s risk or insufficient maintenance of infrastructure. The
European Commission has opened infringement proceedings against Spain for
expanding the CNE’s functions with this Royal Decree. 02.2.11. Autonomous
Communities As part of Service Quality Plans established by Royal Decrees on
tariffs, in 2006 several Action Agreements were signed with Autonomous
Communities in which Endesa has a presence, with the goal of carrying out
investments in areas in which quality benchmarks established for the
distribution business have yet to be reached. These investments are cofinanced
by ENDESA, the Autonomous Community affected and the electricity tariff. The
government regulation was complemented in 2006 with Autonomous Community rules
which, in some cases, implied a tightening of requirements for quality,
environment or facilities. Among rules affecting ENDESA’s distribution
business are a Law regulating the special regime for the city of Barcelona,
which outlines an obligation to bury electricity lines within city limits and
birdlife protection measures in Andalusia and Extremadura.
02.3. REGULATORY ISSUES IN THE PORTUGUESE ELECTRICITY
SECTOR 02.3.1. National Allocation Plan for Emissions Rights In October 2006,
Portugal’s Cabinet of Ministers passed a joint proposal from the
Environment and Economy ministries Operations Review 41 endesa06
to approve the Portuguese National Allocation Plan (NAP) for greenhouse gas
emission rights for the period 2008-2012. The proposal was then sent to the
European Commission for final approval. The NAP sets that emissions in 2012 must
not increase more than 27 percent over 1990 levels, for a total of 77 million
tonnes of CO2 per year. The NAP allocates 32.8 million tonnes of CO2 per year to
regulated businesses with with 9.1 million tonnes of CO2 per year for industrial
sectors, 1.5 million tonnes of CO2 per year for combustion (LCPD) plants and
22.2 million tonnes of CO2 per year for the electricity industry. With this
allocation, the electricity sector assumes all of the forecast emissions
deficit, while industrial sectors receive free allocations for the totality of
expected emissions. In addition, it allocates a reserve for new entrants of 5.1
million tonnes of CO2 per year, common for all sectors. The NAP likewise
indicates that existing electricity industry facilities will receive emission
rights in proportion to their historic emissions and that all new combined cycle
plants will receive the same allocation, proportional to 5,000 hours per year of
operation. In summary, the Portuguese and Spanish electricity industries must
bear the entire deficit of each country. However, in relative terms, the effort
that the Spanish electricity industry must make is much greater, since the
allocation granted to it will mean a deficit of 35 percent of the emissions
forecast for the period 2008-2012, compared with 17 percent for the Portuguese
industry. 02.3.2. Electricity tariff for 2007 The
regulator ERSE has announced the electricity tariff revision for 2007 in
Portugal. This revision increases the Tariff for Final Sales to Clients
(equivalent to the average reference tariff in Spain) by 6.2 percent from 2006.
By segments, the tariff rise is 6.7 percent for large and medium-sized clients
and 6 percent for commercial and domestic clients. This increase is based, among
other reasons, on the need to recover the deficit produced in 2006 by the
cross-subsidy from low voltage customers to all other customers that must be
gradually corrected, and by high fuel costs. 02.4.
REGULATORY ISSUES IN THE ITALIAN ELECTRICITY SECTOR 02.4.1. Market and tariff
liberalisation The Italian electricity market should be fully liberalised by 1
July 2007 in accordance with Directive 2003/54/EC. The regulator, along with
industry players, carried out an analysis of the market situation aimed at
identifying problems and critical issues that could limit the development of
competition. As a consequence of this analysis, a regulatory framework is being
defined which is oriented toward developing competition while still protecting
small customers and guaranteeing supply continuity. Changes have also been made
in the market functioning structure (Borsa Elettrica), in the following aspects:
• In the Delibera 293/05 a new wholesale market framework was defined for
2006. This represents a step forward in the economic dispatch of output and
introduces adjustments to bring the regulatory framework up to date as regards
nonprogrammable renewable energy sources. • With Delibera 165/06, rules for
the Dispatch Services Market (MSD) are modified in order to limit the costs of
this market’s services borne by the system operator (TERNA), and in this
manner reduce final prices paid by customers. The market structure remains
basically the same compared with the original, that is, based on two types of
energy markets (the day ahead market and the balancing market) and the Dispatch
Services Market (MSD). With the Delibera della Autorità per
l’Energia 104/06 the authorities confirmed the remuneration mechanism for
2006 for operators making their plants available on days critical for meeting
national demand. The mechanism is based on specific remuneration decided by
available capacity on critical days and another, later, remuneration only
applicable if an operator’s annual income is inferior to a reference amount
published by the Autorità. On the basis of this Delibera, in 2006 Endesa
Italy received Euro 12.8 million and is due to receive payments stemming from
capacity made available in November and December 2006. Ministerial Decree
Attività Produttive of 23 June 2005 defines and quantifies the
“stranded costs” assigned to each operator, to cover non-recoverable
costs stemming from the liberalisation process. The Decree stipulates, among
other things: • Payment structure of “stranded costs” for the
period 1/07/05 – 30/06/06. 42 Annual Report 2006GENERAL ECONOMIC AND
REGULATORY FRAMEWORK
• That the remaining amount be paid quarterly by 31 December 2009. As
a result of this Decree, Endesa Italy should receive Euro 169.1 million for this
category. Currently, it has received Euro 160.7 million and is pending receipt
of Euro 10.2 million. 02.4.2. Measures to counter the natural gas supply crisis
Another noteworthy issue in 2006 was the natural gas supply crisis from January
through March (Emergenza Gas), which was prompted by Russia cutting supplies of
this fuel to Europe. In Italy, the crisis was resolved by Decree Law 19/06,
which obliged power stations that could operate with fuel-oil to maximise their
use of this energy source. These measures reduced output at plants using natural
gas and implied changes in the management of total production, with the
corresponding costs. In the case of Endesa Italy, plants affected were Tavazzano
8, Tavazzano 7, Ostiglia 4 (the three are bi-combustible, i.e. they can run on
either fuel-oil or natural gas), and Monfalcone 3 and Monfalcone 4 (both use
only fuel-oil. Decree Law 19/06 allows recovery of additional costs incurred by
companies in the Emergenza Gas solution, according to criteria outlined by
l’Autorità in Delibera 178/06, though the total amount corresponding
to each operator has yet to be decided. Operations Review 43 endesa06
02.4.3. National Allocation Plan for Emissions
Rights (NAP) The National Allocation Plan (NAP) for CO2 quotas for the period
2008-2012 was published in mid-December, as stipulated by Directive 2003/87/EC.
The draft NAP was sent to the European Commission for approval. Following its
approval, a consultation period with all interested operators will begin.
02.5. REGULATORY PROVISIONS IN THE FRENCH ELECTRICITY
SECTOR 02.5.1. Energy industry Law 2006-1537 French gas and electricity markets
will be fully open as of 1 July 2007, following EU directives. The
liberalisation process continued in 2006, though at a slow pace: : in the first
quarter of 2007, the liberalised market accounted for only 25 percent of energy
use, and alternative suppliers have very little weight compared with
Electricité de France (EDF), which serves most of the country’s
clients. Worth noting was the rise in wholesale electricity prices, in line with
a price increase in the rest of Europe. French customers who buy electricity in
the liberalised market, mainly large consumers, were affected in 2006 by
repeated increases in their electricity bills, while the regulated tariff, to
which they were unable to return, remained unchanged. Pressure from large
consumers prompted the French government to introduce, in the new energy sector
Law 2006-1537 of 7 December, a new regulated tariff, valid during a two-year
transitory period, for clients who had switched to the liberalised market. The
tariff will be levied by suppliers, who will be reimbursed for the losses they
incur by the electricity tax as well as payments from large hydropower and
nuclear producers (EDF and Electrabel). The same law also transposes EU
directives and authorises the partial privatisation of Gaz de France (GDF) in
July 2007 – 34 percent will remain the property of government agencies.
Nevertheless, EDF will remain a state company. 02.5.2. New energy objectives The
French government on 7 July 2006 published a decree, based on its 2005
multi-annual investment program (PPI), which sets new energy targets through
2015: boost wind capacity to 17,000 MW (of which 4,000 MW will be offshore) and
increase hydro output by 2,000 MW. As for gas-fired generation, the target is at
the low end of PPI, with 3,000 MW installed capacity. On 10 July, the government
revised upward the terms of purchase for electricity generated from renewable
sources. By individual decree and in the framework of energy economy
certificates, on 27 September the government assigned to Endesa France
(Snet’s new brand name) an energy savings target for supplied clients
(white certificates) of 51.8 GWh in the period between 1 July 2006 an 30 June
2009. This objective is the result of dividing the national energy sector
target, which is 30.7 TWh in the same period. 02.5.3.
National Allocation Plan for Emissions Rights (NAP) With regard to compliance
with the Kyoto Protocol, the French National Allocation Plan for 2008-2012,
which had been sent to the European Commission on 15 September, was returned to
the government for modification. On 27 December, the government sent a new plan
to Brussels, reducing global allocations by 17 percent compared with the first
version. 02.6. REGULATION OF THE NATURAL GAS BUSINESS IN
SPAIN 02.6.1. Gas tariffs in 2006 The principle regulatory news in the gas
industry in 2006 was comprised of Ministerial Orders on the economic regime for
the gas system for 2006, of 27 December 2005: • Disappearance of regulated
tariffs for large industrial clients (groups 1, 2.5 and 2.6) and interruptible
contracts, fuel-gas stations among them, with all of these consumers moving to
the liberalised market. • Creation of an interruptible fee for the
liberalised market. • The cost of raw material was Euro 2.0213 c~/kWh, 14
percent higher than the previous price. • Average tariff increases were
between 4.26 percent for group 3, which includes domestic tariffs, and 10.75
percent for large industrial consumers. • The re-gasification fee was
unchanged, the LNG storage fee rose 10 percent, while the transport and
distribution fee dropped 1.3 percent. Apart from these items, gas natural
tariffs for domestic and small industry clients and the cost of gas as a raw
material, which are reviewed every three months, were unchanged in 2006. 44
Annual Report 2006GENERAL ECONOMIC AND REGULATORY FRAMEWORK
02.6.2. 2007 tariff and other regulatory issues
Ministerial Orders approved for 2007 introduced the following items, among
others: • Establishes a new remuneration scheme for the re-gasification and
underground storage businesses. • Eliminates the current use incentive for
re-gasification plants and includes a considerable reduction in its
remuneration, which will be based on net rather than gross asset values. . In
this manner, the remuneration methodology of these facilities is brought into
line with that used for non-mainland generation or that used for electricity
distribution. • Promotes construction of underground storage facilities to
encourage system flexibility. • LNG storage fees increase by 50 percent and
by 20 percent for the fixed term of underground storage. • From 1 July
2007, regulated market tariffs are to be eliminated for industrial customers
(groups 2.1, 2.2, 2.3 and 2.4), as these customers move into the liberalised
market. Starting from that date, only domestic-commercial consumers may buy
electricity in the regulated market. • Raw material costs rose 4.8 percent
in January, compared with the previous price, which translates into an increase
of about 4.4 percent in industrial tariffs and 2.2 percent for
domestic-commercial tariffs. 02.6.3. Transposition of
Gas Directive On 1 November 2006, the Cabinet approved the proposed law to
modify the Hydrocarbons Act in order to adapt it to the EU Gas Directive
(2003/55/EC). Among the changes introduced by this law the following are
noteworthy: • Establishes the functional separation of the technical
management of the gas system from the transport business. • Transmission
companies are not allowed to put gas into the system, and distributors are
banned from supplying gas to clients in the regulated market. • Eliminates
existing tariffs and introduces a last resort tariff from 1 January 2008. Only
domestic-commercial consumers can use this tariff. This supply shall be carried
out by suppliers designated as suppliers of last resort, a category regulated by
the same draft law. • Creates the Committee to Monitor the Technical
Management of the Energy System, to be composed of representatives of the
Industry Ministry’s General Energy Secretary, the Technical System Manager
for gas, the Electricity System Operator, CORES (Corporation for Strategic
Reserves of Petroleum Products) and the CNE. • The committee’s purpose
will be to monitor the changeover of customers from the tariff regime to the
liberalised market. 03. REGULATORY FRAMEWORKIN LATIN AMERICA
03.1. CHILE In 2005 Chile approved the “Ley Corta
II” law, the primary aim of which is to establish conditions that will
permit better development of the electricity sector. The law allows generators
and distributors to trade energy through long-term tenders of up to 15 years, at
a fixed price in dollars and indexed over time. In 2006 tenders for up to 11
TWh/year were carried out, in which all distributors and generators took part
with Endesa Chile and Chilectra meeting their goals of ensuring long-term supply
and purchase of energy. The “Ley Corta I” also established a new
methodology for review of subtransmission remuneration with new tariffs for this
business being published in November 2006 which will be valid for four years.
Subtransmission corresponds to medium-or high-voltage transmission networks
which exclusively supply consumers in the concession areas of distribution
companies and which do not belong to the main transmission system or form part
of distribution networks. The change in methodology meant a reduction in
remuneration, later ratified by the Panel of Experts (an arbitration entity
which resolves technical discrepancies in the industry), which Chilectra
attended, as did the rest of the companies in the sector (33 in all). Chilectra
appealed against the implementation of this decision and is awaiting the
outcome. 03.2. COLOMBIA In December 2006, the
remuneration scheme which generation companies receive for their plants’
installed capacity, the “Capacity Charge,” was replaced by the
so-called “Reliability Charge”. Operations Review 45 endesa06
This change includes a transition period of three to four years, during
which allocation will be carried out on a pro-rata basis with regard to the
energy capacity committed by operators. Following the transition period,
allocation will be made through market tenders of up to 20 years for new
generation projects, while existing ones will have prices set on an annual basis
aimed at achieving improved earnings from this item.
03.3. BRAZIL In the distribution segment, the annual
tariff revision for Coelce was carried out. This resulted in an increase of 10
percent being approved to take effect in April. For Ampla, the tariff increase
resulting from the revision was 2.9 percent starting in March. It is worth
pointing out that the increases corresponding to the portion of income managed
under the tariff (Parcel “B” or VAD) outpaced inflation in the year
affected. Separately, ANEEL (Agência Nacional de Energia Elétrica)
approved a new methodology to be applied in the second cycle of distribution
tariff revisions. In general terms, the decision reduces regulatory risks for
tariff revisions for the period 2007-2009, since it affords less discretion in
the calculations. In particular, a safeguard of the Remuneration Base is
established for two tariff periods along with the criteria for its valuation:
price banks for generation costs and facility maintenance, adjustments in the
calculation of the Weighted Average Cost of Capital (WACC) and criteria for
definition of losses, among other aspects. In addition, on 28 November the ANEEL
announced Resolution 237, which acknowledges the concept of Observed
Availability as defined in Resolution 231 of September of the same year, and
which takes into account the non-availability of gasfired power stations due to
a lack of this fuel. The Resolution determines that this availability must be
considered by ONS (National Electricity System Operator) in programming of
short-term dispatch, and with a valid chronogram, in medium-term programming.
Nevertheless, generators which expect that they will not be able to be evaluated
using these criteria will be allowed to carry out dispatches in a different
manner, for which a specific methodology must be developed. Finally, on on 28
November the Ministry published Portaria 294, which allows distribution
companies with contracts for energy imports to hold tenders for energy a year
ahead of schedule (so-called A-1) and allows the resulting adjustment in
contracts. The Resolution allows the tariff on these contracts to be fully
reassessed, which gives greater flexibility and allows companies to adjust to a
more realistic supply situation. 03.4. PERU On July 5 a
Law for the modification of the Electricity Concessions Law was passed which
permits energy purchases among generation and distribution companies, now
carried out entirely at “busbar price” and defined by the regulator
annually, to be carried out through energy tenders covering periods of up to 10
years. In addition, it improves some functions and the make-up of the body
responsible for system operation and dispatch, and it defines additional
mechanisms to ensure the development of the electricity sector, especially the
expansion of transmission. On 16 December, the President of the Republic, along
with the head of the Cabinet, the Minister for Energy and Mines and the Minister
of Economy and Finance, signed Decreto de Urgencia 35, which “removes the
risk in the electricity market caused by a scarcity of electricity supply
contracts between generators and distributors” and which establishes
agreement between these operators, public and private, to meet demand for 2006
without the support of contracts. As a result, at the end of 2006, tenders for
up to 1,500 MW were carried out, in which distribution and generation companies
participated, with Edegel meeting its objectives of assuring the placement of
energy in the medium term. 03.5. ARGENTINA Since 2002
Edesur has been negotiating with the Argentine government to find a way and
timescale to bring distribution tariffs back into line with levels existing
before the enactment of the Emergency Law in 2002. On 15 June 2005 Edesur and
the Argentine government reached an agreement which materialised in the signing
of a Memorandum of Understanding through which the Executive authorised a tariff
increase starting in November 2005. On its part, Edesur vowed to undertake to
persuade shareholders to suspend and later withdraw the lawsuit it had filed
with CIADI (Centro Internacional para el Arreglo de Diferencias relativas a
Inversiones) as benchmarks laid out by the Agreement as conditions for
withdrawing the lawsuit were met. The Arbitration Court agreed to suspend the
CIADI process for a year as of March 2006. Ratification of the Memorandum of
Understanding on the part of the Executive occurred on 28 December 2006, with
the 46 Annual Report 2006 GENERAL ECONOMIC AND REGULATORY FRAMEWORK
corresponding presidential decree. The Regulator approved application of
the new tariff structure, as of 1 February 2007, with a 38 percent increase in
the distribution tariff. In addition, and according to the conditions of the
agreement, the tariff rise shall be acknowledged from November 2005, when the
Agreement originally became valid. The integral tariff revision, likewise
outlined in the Agreement, will take place in February 2008. As part of the same
framework, in December Argentina passed Law 26.204, postponing until 31 December
2007, Laws 25.561 for Public Emergency and its complementary laws, including Law
25.790, which forces the re-negotiation of contracts for works and services
affected by the public emergency. In the generation business, on 17 October 2005
generation operators signed a Definitive Agreement with the Secretariate of
Energy (SE) for the management and operation of projects for the readaptation of
the Wholesale Electricity Market (WEM). Under the terms of this agreement,
generation companies have undertaken to contribute their borrowings (Government
debt with the generation companies) to the construction of an additional 1,600
MW of capacity in the form of two combined cycle plants, each with a capacity of
800 MW. The plants are slated to start operating in open cycle mode in 2008 and
in combined cycle mode in 2009. The respective trusts were set up in 2006, so
that the companies would have funds. At the same time, the turnkey contract for
the facilities was awarded, with work getting underway. Also during 2006, the
tariff surcharge of 3.6 Arg$/MWh was levied on clients using more than 10 kW, to
finance said construction (Res. 1866/2005). The agreement will provide the
Argentine electricity system with a larger reserve margin and, therefore,
greater security of supply, as well as gradually restoring the regulatory
framework. Lastly, and due to the sharp increase in demand forecast for coming
years, in September, the Secretariate of Energy announced Resolution 1.281 on
security of supply, which basically encourages emergency energy, at semi-free
prices, gives priority of supply to domestic users, and medium and small
businesses (protected demand) and imposes surcharges on large consumers (of more
than 300 kW) for consumption exceeding their 2005 usage. Operations Review 47
endesa06
48 Annual Report 2006 2006RESULTS
Operations Review 49 endesa06 FINANCIAL DATA (In millions of Euros)
Financial data for 2004, 2005 and 2006 has been prepared under International
Financial Reporting Standards ( IFRS), while Spanish Generally Accepted
Accounting Principles (GAAP) was used for previous years. 2002 2003 2004 2005
2006 INCOME AFTER TAX AND MINORITIES 1,270 1,312 1,253 3,182 2,969 EBIT 3,582
3,144 2,846 4,244 5,239 FINANCIAL DEBT* 22,747 17,250 18,698* 18,281 19,840
EBITDA 5,278 4,750 4,521 6,020 7,139 DIVIDEND PER SHARE (~)** 0.68 0.70 0.74
2.40 1.64** * Figures at 01.01.05. ** Proposal to the 2007 General
Shareholders’ Meeting.
FINANCIALDATA01. KEY FIGURES Net income ENDESA reported net income of Euro
2,969 million in 2006, 6.7 percent less than in 2005 when net capital gains of
Euro 1,115 million from the sale of Auna, the Spanish telecommunications group
were recorded. Stripping out capital gains from asset sales from both years, net
income in 2006 was Euro 2,576 million, up 40 percent over 2005. These results
reflect ENDESA’s best estimate of the impact of Royal Decree Law 3/2006
based on information available as of the 2006 close, specifically the provisions
of the aforementioned legislation and the National Energy Commission’s
(CNE) interpretation thereof. These estimates were compiled based on analysis of
the various scenarios arising from a reasonable interpretation of Royal Decree
Law 3/2006.The positive or negative differences generated by each of the
scenarios contemplated to the amounts recognised in the 2006 accounts are in no
instance material to the Group’s overall financial statements The Ministry
of Industry, Tourism and Commerce has announced that the definitive amount of
the deficit from regulated activities will not be known before June 2007,
therefore any differences between that amount and the figures recorded in the
2006 accounts will be recorded in 2007. Net income for electricity businesses.
The business in Spain and Portugal posted net income of Euro 1,843 million in
2006, an increase of 35.7 percent over 2005. This includes Euro 186 million of
higher compensation, net of tax, from the non-mainland generation deficit for
the period 2001-2005 pursuant to the Ministerial Orders passed on 30 March, 2006
and is Euro 137 million lower due 50 Annual Report 2006 2006 RESULTS
NET INCOME 2006 % chg. vs. % of total in % of total in ~ Million 2005 2006
2005 Spain and Portugal 1,843 35.7 62.1 42.7 Europe 493 16.0 16.6 13.4 Latin
America 462 76.3 15.6 8.2 Other businesses* 171 -85.0 5.7 35.7 Total 2,969 -6.7
100.0 100.0 * Both years include capital gains from the sale of Auna. FINANCIAL
DATA endesa06 Operations Review 51 NET INCOME BY ELECTRICITY BUSINESS 2006
Total: Û 2,798 million +16.0%+35.7%1,843 493462 Spain and Portugal Europe
Latin America +76.3%
to the reduction in deferred taxes as a result of lower corporate tax rates
enacted in Spain for the coming years. In Europe, net income advanced 16 percent
to Euro 493 million. This figure includes Euro 118 million, net of minority
interests, related to a write-up in the valuation of this business as Endesa
Italia revalued the tax bases of its fixed assets to their book values, as
allowed by current legislation in Italy. Finally, net income for Latin America
was Euro 462 million, 76.3 percent more than in 2005. This figure includes Euro
101 million, net of minority interests, from a tax credit carryforward derived
from the corporate restructuring operations being implemented in the region.
Total revenues The Company’s total revenues in 2006 amounted to Euro 19,637
million, an increase of 12.2 percent on the year before, outstripping growth in
physical electricity sales. Sales growth was greater by value than by volume
because of increases in electricity prices in the countries were the Company
operates due to higher power generation costs. The growth in sales in 2006
covered the 11.5 percent increase in purchases and service expenses (variable
costs), which was caused by increases in fuel costs and energy purchases. Gross
margin, EBITDA and EBIT Gross margin was Euro 10,434 million in 2006, an
increase of 14.3 percent over 2005. While revenues, purchases and service
expenses rose significantly, personnel expenses and fixed operating expenses
increased by just 3.9 percent and 8.8 percent, respectively, driving EBITDA to
Euro 7,139 million, 18.6 percent higher than in 2005. EBIT advanced to Euro
5,239 million, up 23.4 percent. Net financial expenses ENDESA reported net
financial losses of Euro 939 million in 2006, a 25 percent improvement on 2005.
52 Annual Report 2006 2006 RESULTS Gross margin EBITDA EBIT ~ Million % chg.
vs/2005 ~ Million % chg. vs/2005 ~ Million % chg. vs/2005 Spain and Portugal
5,859 12.6 3,835 17.4 2,705 19.5 Europe 1,466 19.9 1,116 25.8 846 36.9 Latin
America 3,109 15.2 2,188 16.5 1,688 22.7 Total 10,434 14.3 7,139 18.6 5,239 23.4
EBITDA BY BUSINESSES 2006 Total: Û 7,139 million
+16.5%+17.4%3,8351,1162,188 Spain and PortugalEuropeLatin America +25.8% EBIT BY
BUSINESS LINE 2006 Total: Û 5,239 million +22.7%+19.5%2,705 8461,688 Spain
and PortugalEuropeLatin America +36.9% Total: E 19,637 million Spain and
Portugal Europe Latin America 9,520 +8.7% 4,190 5,927 +16.5% +15.1% TOTAL SALES
BY ELECTRICITY BUSINESSES 2006
Net interest expenses totalled Euro 969 million, 22.9 percent lower than in
2005. This amount includes Euro 54 million due to the higher interest rates to
calculate the net present value of provisions. This led to a negative amount in
2005 of Euro 111 million. The increase in net debt caused by financing the
revenue deficit on regulated activities in Spain does not impact net financial
expenses. Both the cumulative amount of the deficit financed and the amounts
pending collection as compensation for the non-mainland generation deficit earn
interest which offset the expenses. Asset disposals 1Q06 marked the end of the
period for Auna shareholders to exercise their pre-emptive rights on the 5.01
percent stake ENDESA sold to Deutsche Bank on 30 December, 2005. After the end
of this period, the sale of these shares was formalised and all the conditions
required under International Financial Reporting Standards (IFRS) regarding the
derecognition of the shares from ENDESA’s balance sheet and the recognition
of the related capital gain in its income statement have been met. Therefore, as
indicated in ENDESA’s consolidated financial statements for the year ended
31 December, 2005, in 2006 the Company recorded a capital of Euro 196 million
(Euro 171 million after tax) for the sale of the aforementioned investment. With
this disposal, the “Other businesses” line has been removed from
ENDESA’s accounts, so that in 2006 this capital gain is the only entry
under this caption. In addition, in 2Q06, ENDESA sold its 49 percent holding in
NQF Gas for Euro 59 million, booking a capital gain of Euro 27 million (Euro 21
million net of taxes) and sold off the generation assets of Brazilian operator,
Ampla, for Euro 39 million, recording a gain of Euro 30 million (Euro 12 million
after taxes and minorities). Finally, in 3Q06, and as part of ENDESA’s
strategic goal of maximising value of its real estate assets, the Company,
through its subsidiary Bolonia Real Estate, sold assets through a competitive
process in the so-called “Levante Sector” of Palma de Mallorca to the
Neinver Group. The assets sold include planning rights for approximately 180,000
m2. In addition, the Company made a financial investment in the Neiver Group
company which will head up the land’s development, taking a 45 percent
stake. The sole purpose of this investment is to participate, based on its
percentage ownership, in potential additional capital gains that could arise
from the future development of the land in question. ENDESA will not participate
in the management of this company and its investment risk is limited to the
amount of capital contributed. The total deal size is Euro 240 million,
generating a gross capital gain of Euro 185 million (Euro 165 million after
tax), net of the costs of transferring the electric facilities that were located
on the land and the cost of the 45 percent equity stake taken in the development
company. Finally, in 4Q06, ENDESA awarded BNP Paribas and Banesto the mandate to
securitise its receivable in relation to the 2005 revenue deficit from regulated
activities in Spain. The amount monetised, Euro 1,676 million, could be modified
as a result of potential changes to certain variables determining the settlement
of this receivable vis-à-vis the assumptions used by the Company. Based
on analysis performed, the Company concluded that it has transferred
substantially all the risks and benefits associated with the ownership of the
collection rights on the 2005 revenue shortfall from regulated activities, and
has accordingly derecognised the aforementioned asset from the consolidated
balance sheet. Cash flow Cash flow from operating activities in 2006 amounted to
Euro 4,643 million, up 10.3 percent on 2005. Total investments ENDESA invested a
total of Euro 4,336 million in 2006. Of this figure, Euro 3,897 million was
capex and the remaining Euro 439 million was invested in financial investments.
Operations Review 53 endesa06 CASH FLOW 2006 ~ Million % chg. vs/2005Spain and
Portugal 2,721 2.0 Europe 704 20.1Latin America 1,218 3.2 Total 4,643 10.3
Debt performance ENDESA’s net debt was Euro 19,840 million at year-end
2006, 8.5 percent higher than at year-end 2005. The increase in debt in Spain
and Portugal is due to the Euro 609 million increase in receivables related to
the tariff deficit on regulated activities in 2006 and the non-mainland
generation deficit. It also reflects the Euro 1,341 million dividend payment
made in July in connection with the capital gains realised in 2005 and which led
to a debt reduction in that year. The distribution of this income to its
shareholders was approved at the General Shareholders’ Meeting. In Europe,
the Euro 388 million increase in debt was caused by the extraordinary corporate
income tax payment the Company had to make in 2006 in order to take advantage of
tax credits generated by the increase in the tax basis of the business’
assets and to investments made during the year resulting in the assumption of
debt. In 2006 the amount of debt of the company’s Latin American operations
totalled Euro 491 million largely due to the performance of the euro against the
currencies in which this debt is denominated. When assessing ENDESA’s debt
level, it must be remembered that at 31 December, 2006 ENDESA had the recognised
right to collect Euro 2,789 million in connection with several regulatory
matters: Euro 1,341 million for financing the revenue deficit from regulated
activities, Euro 1,438 million in compensation for the non-mainland generation
deficit and Euro 10 million of stranded costs in Italy. Stripping out these
regulatory items, ENDESA’s net debt at year-end 2006 was Euro 17,051
million. 2006 RESULTS BREAKDOWN BY BUSINESS OF ENDESA'S NET DEBT (In million of
Euros) 31-12-06 31-12-05 Change % chg. Electricity business in Spain and
Portugal 12,548 11,461 1,087 9.5 Electricity business in Europe 1,674 1,286 388
30.2 Endesa Italia 748 815 (67) -8.2 Other 926 471 455 96.6 Electricity business
in Latin America 5,618 6,109 (491) -8.0 Enersis Group 4,749 5,207 (458) -8.8
Other 869 902 (33) -3.7 Other business*-- (575) 575 NA Total 19,840 18,281 1,559
8.5 * At 31 December, 2006, there was no debt assigned to "Other businesses", as
this business line disappeared as such with the sale of the 5.01% stake in Auna
completed in February 2006. The remaining debt balance was included in the
electricity business in Spain and Portugal. STRUCTURE OF ENDESA'S NET DEBT
ENDESA and direct subsidiaries Enersis Group Total ENDESA Group ~ Million % of
total ~ Million % of total ~ Million % of total Euro 15,029 100 -- -- 15,029 76
Dollar 62 -- 2,194 46 2,256 11 Other currencies -- -- 2,555 54 2,555 13 Total
15,091 100 4,749 100 19,840 100 Fixed 7,397 49 3,588 76 10,985 55 Hedged 1,720
11 249 5 1,969 10 Variable 5,974 40 912 19 6,886 35 Total 15,091 100 4,749 100
19,840 100 Avg. life (years) 5.2 5.2 5.2 INVESTMENTS 2006 (In million of Euros)
Tangible and Intangible assets Financial Total Spain and Portugal* 2,730 191
2,921 Rest of Europe 277 186 463 Latin America 890 62 952 Total 3,897 439 4,336
* Additionally, a financial investment of Euro 1,341 million for the revenue
deficit from regulated activities in 2006 was booked. 54 Annual Report 2006
The average cost of ENDESA’s total debt was 5.45 percent in 2006,
while the cost of the debt corresponding to Enersis was 9.12 percent. Stripping
this out, the average cost of ENDESA’s debt was 4.19 percent. The average
life of ENDESA’s debt at 31 December, 2006 was 5.2 years. ENDESA enjoys a
high degree of protection against interestrate risk, since 65 percent of its
total debt is either fixed-rate or hedged. Stripping out pending regulatory
assets in Spain, which carry floating-rate interest, this percentage rises to 76
percent. At year-end 2006, ENDESA in Spain and its direct subsidiaries,
excluding Enersis, had liquidity of Euro 6,197 million, of which Euro 5,854
million corresponded to unconditional undrawn credit lines. These balances are
sufficient to cover the debt falling due over the next 20 months. In addition,
Enersis had liquidity of Euro 1,218 million, of which Euro 596 million
corresponded to unconditional undrawn credit lines from syndicated loans. This
liquidity covers debt maturities for the next 22 months. ENDESA’s financial
leverage stood at 124.5 percent at 31 December, 2006, comfortably ahead of the
Strategic Plan target of keeping leverage below 140 percent. As of 30 April,
ENDESA’s long-term debt ratings were: Standard & Poor’s, A;
Moody’s, A3, and Fitch, A+, all of them under review for a possible
downgrade. 02. RESULTS BY BUSINESS LINE 02.1. BUSINESS
IN SPAIN AND PORTUGAL Net income Net income from this business was Euro 1,843
million in 2006, an increase of 35.7 percent on 2005 and equivalent to 62.1
percent to the Company’s overall bottom line. EBITDA rose 17.4 percent to
Euro 3,835 million and EBIT by 19.5 percent to Euro 2,705 million. Effects of
the new regulatory situation Income from this business includes ENDESA’s
best estimate of the impact of Royal Decree Law 3/2006 based on information
available at the end of the financial year taking into account the provisions of
the new regulation and National Energy Commission’s (CNE) interpretation
thereof. These estimates were compiled based on analysis of the various
scenarios arising from a reasonable interpretation of Royal Decree Law
3/2006.The positive or negative differences generated by each of the scenarios
contemplated to the amounts recognised in the 2006 accounts are in no instance
material to the Group’s overall financial statements. The negative impact
on 2006 figures from booking the effect of applying Royal Decree Law 3/2006 was
Euro 224 million after tax. The same Royal Decree Law provides that the
definitive price will be set based on objective and transparent market criteria.
According to these criteria the final price applied by the Spanish government to
settle these sales should be significantly higher than the provisional price of
Euro 42.35/MWh. The positive impact, if any, arising from a higher definitive
settlement price will be recognised in the 2007 annual accounts. The mechanism
for deducting remuneration from regulated generation by the value of greenhouse
gas emissions provided for in Royal Decree Law 3/2006 is also pending
development by the government. The 2006 accounts include a reduction of Euro 121
million which reflects ENDESA’s best estimate of the impact this will have
bearing in mind what has been established in the Royal Decree Law and the
CNE’s interpretation thereof. In 2006, ENDESA recorded under revenues the
amount corresponding to compensation for the non-mainland generation historical
deficit calculated in accordance with the Ministerial Orders passed on 30 March,
2006, which was above the amounts booked at 31 December, 2006. This concept
amounted to Euro 227 million and was booked as revenues which had a Euro 186
million impact on net income. Operations Review 55
endesa06 Elimination of Competition Transition Costs (CTCs) On 23 June, the
Spanish cabinet passed Royal Decree Law 7/2006, adopting emergency measures for
the energy sector. Among other measures, this law repealed the sixth transitory
provision of the Electricity Industry Law 54/1997, of 27 November, regarding
CTCs, thereby eliminating them. The elimination of the CTC mechanism has no
impact whatsoever on ENDESA’s financial statements, as no future CTCs
pending recovery were included, nor does the Company expect any future
collections as, under current circumstances, the estimated amounts will be
recovered through the market. In addition, the Royal Decree Law empowers the
government to set premiums on domestic coal consumption outside the framework of
the CTCs, so their elimination also does not affect the future collection of
these premiums by ENDESA. Revenues in Spain and Portugal Revenues from the
business in Spain and Portugal totalled Euro 10,090 million in 2006, up 8.8
percent on 2005. Of this amount, sales accounted for Euro 9,520 million an
increase of 8.7 percent. Growth was primarily due to the increase in demand, the
rise in final prices and volume sales to deregulated customers, to higher pool
prices in January and February, i.e. before Royal Decree Law 3/2006 came into
effect, and to the application of the Ministerial Orders regulating the
calculation of remuneration for mainland and non-mainland generation. Mainland
generation Sales to the ordinary regime totalled Euro 4,149 million in 2006,
Euro 350 million or 7.8 percent lower than the year before. This amount includes
sales made after 3 March to Endesa Distribución to supply regulated
companies in ENDESA’s distribution territories, which were recognised at a
provisional price of Euro 42.35/MWh in accordance with Royal Decree Law 3/2006.
As mentioned above, this provisional price is below the average pool price in
2006 which was Euro 64.83/MWh, 3.2 percent higher than in 2005. As the same
Royal Decree Law establishes that this price will be updated based on objective
and transparent market prices. ENDESA has an additional receivable that has not
been recognised in its 2006 annual accounts as it is a contingent asset subject
to the legal establishment of the definitive price, the remuneration from which,
if any, will be recognised in the 2007 annual accounts. In keeping with the
above, the negative impact on 2006 figures from selling the 19,407 GWh produced
between March and December, i.e. the electricity sold to regulated customers in
the markets where ENDESA acts as a distributor, at the provisional price of Euro
42.35/MWh was Euro 224 million before tax. Moreover, also in accordance with
Royal Decree Law 3/2006, the sale figure is calculated by deducting Euro 121
million corresponding to the amount to be recovered from the financing of the
deficit for regulated activities for CO2 emission rights allocated free of
charge. ENDESA renewable/CHP generation Revenues from sales of renewable/CHP
energy generated by consolidated companies totalled Euro 256 million, 6.7
percent more than in 2005. This underpinned a 19.7 percent increase in EBITDA to
Euro 176 million and a 15 percent increase in EBIT to Euro 115 million. 56
Annual Report 2006 2006 RESULTS SALES IN SPAIN AND PORTUGAL (In million of
Euros) 2006 2005 Change % chg.Mainland generationunder Ordinary RegimeSales to
deregulated customers 1,789 1,487 302 20.3 Supply to the Spanish market operator
OMEL 2,360 3,012 (652) -21.6 Generation from renewables/CHF 256 240 16 6.7
Regulated revenues from distribution 1,784 1,602 182 11.4 Non-mainland
generation and supply * 2,098 1,548 550 35.5 Supply to deregulated customers
outside Spain 299 220 79 35.9 Regulated revenues from gas distribution 46 39 7
17.9 Gas supply 647 326 321 98.5 Others 241 287 (46) -16.0 Total 9,520 8,761 759
8.7 * The figure for 2006 includes Euro 227 million corresponding to
compensation for the nonmainland generation deficit from previous years
calculated in accordance with the Ministerial Orders passed on March 30, 2006,
which was above the amounts recorded at December 31, 2005.
Supply to deregulated customers In the supply to deregulated customers
business, ENDESA has opted to pursue a selective supply strategy unlike other
operators who have renounced this activity in light of the pool prices and
regulatory changes. This strategy, which targets higher value added customers,
enables ENDESA to leverage the advantages of its vertical integration in
generation-supply and its highly competitive generation mix, providing the
Company with an appropriate hedge against regulatory risk and volatility in
wholesale market prices. This policy will allow ENDESA to achieve reasonable,
guaranteed returns over the medium and long run from the generation business,
thus maximising shareholder returns. This selective supply policy drove a 14.9
percent increase in the average selling price to final customers in the
deregulated market in 2006 vs. 2005. Revenues from supply to deregulated
customers in Spain (excluding tolls paid to Endesa Distribución),
totalled Euro 1,926 million, a 20 percent increase on 2005. Of this amount, Euro
1,789 million corresponded to the mainland deregulated market and Euro 137
million to the non-mainland market. Revenues from supply to deregulated European
markets other than Spain rose 35.9 percent to Euro 299 million. Distribution
Revenues from regulated distribution activities totalled Euro 1,784 million, up
11.4 percent on 2005. This included Euro 43 million in settlements from prior
years, mostly from incentives for energy losses. Stripping out this effect,
revenues from regulated distribution activities would have increased by 8.7
percent. Non-mainland generation Sales were 35.5 percent higher, at Euro 2,098
million. As indicated previously, these sales include Euro 227 million of
additional compensation above that recorded at 31 December, 2005 for deficits in
the non-mainland systems in 2001- 2005 as recognised in the Ministerial Orders
of 30 March. Gas distribution and supply Revenues from gas sales in the
deregulated market rose 98.5 percent to Euro 647 million in 2006 vs. 2005.
Revenues from regulated gas distribution totalled Euro 46 million, up 17.9
percent on 2005. The two businesses contributed a combined gross profit of Euro
150 million. Other operating revenues Other operating revenues in 2006 came to
Euro 570 million, Euro 57 million more than in 2005. This item includes Euro 254
million corresponding to the portion of CO2 emission rights allocated to ENDESA
in 2006 within the scope of the Spanish National Allocation Plan for emissions,
which are recorded under revenues. This figure is Euro 83 million higher than in
2005, mostly because of the lower value of the rights received in 2006. The
lower revenue is offset by the lower expense recorded for use of the emission
rights. Operating expenses The breakdown of operating expenses in the Spanish
and Portuguese business in 2006 is provided below: Operations Review 57 endesa06
OPERATING EXPENSE IN SPAIN AND PORTUGAL (In million of Euros) 2006 2005 Change %
chg. Purchases and services 4,231 4,072 159 3.9 Energy purchases 995 875 120
13.7 Fuel consumption 2,143 2,057 86 4.2 Power transmission expenses 365 273 92
33.7 Other supplies and services 728 867 (139) -16.0 Personnel expenses 1,062
1,041 21 2.0 Other operating expenses 1,124 1,034 90 8.7 Depreciation and
amortisation 1,130 1,002 128 12.8 Total 7,547 7,149 398 5.6
Power purchases Power purchases in the period rose 13.7 percent to Euro 995
million. These mainly entail gas purchases to supply deregulated customers,
which rose as a result of increases in sales to these customers and in gas
prices. Fuel consumption Fuel consumption amounted to Euro 2,143 million in
2006, an increase of 4.2 percent on 2005. This increase is due to the
generalised increase in raw materials prices on international markets. These
higher costs, however, were offset by the Company’s proactive fuel
procurement policy, which resulted in below-market purchasing prices. Compared
to the estimated 6.1 percent increase in fuel costs at the rest of the utilities
in the mainland system, ENDESA’s rose by only 4 percent. This has
considerably strengthened the Company’s competitive position with respect
to price and generation mix. Other supplies and services Expenses under this
item totalled Euro 728 million in 2006, Euro 139 million lower than in 2005.
This increase reflects the recognition of Euro 301 million of expenses in
connection with rights acquired to cover the CO2 emissions made in 2006, which
totalled 46.5 million tonnes: 34.8 million tonnes for the mainland and 11.7
million for nonmainland production. Expenses related to the use of emission
rights were Euro 221 million lower than in 2005, due to the lower volume of
emissions recorded in 2006 and the lower volume assigned to them. “Other
supplies and services” also includes a Euro 51 million reversal equivalent
to the amount Extremadura regional government must reimburse ENDESA in
connection with the environmental impact tax on its plants paid by the Company
from 1998 to 2005 after the Constitutional Court ruled this to be
unconstitutional on 13 June. Personnel expenses At year-end, the workforce in
Spain and Portugal was 12,666 including 41 people from “other
businesses”. This total is 43 fewer than at the end of 2005. Personnel
expenses rose 2.0 percent in 2006 to Euro 1,062 vs. 2005. These expenses include
Euro 136 million corresponding to a provision for headcount reduction, mainly
due to salary reviews which were applied in line with inflation (CPI), and a new
layoff programme in connection with the Mining Plan which will help the Company
reduce costs in line with its objectives. Net financial expenses ENDESA reported
net financial expenses for 2006 of Euro 392 million, 35.6 percent less than in
2005. Net financial expenses include Euro 11 million of revenue corresponding to
the interest accrued to 30 December, 2006 for the environmental impact tax paid
by ENDESA from 1998 to 2005, which, as pointed out previously, must be
reimbursed to the Company by the Extremadura regional government and Euro 54
million arising from the application of a lower rate to discount obligations
under workforce reductions programmes. This led to a negative amount in 2005 of
Euro 111 million. When assessing financial results, the Euro 2,779 million
financial asset corresponding to the tariff deficit and compensation for
non-mainland costs, both of which bear financial interest, must be considered.
Net financial debt at the Spain and Portugal business at 31 December, 2006 stood
at Euro 12,548 million vs. Euro 11,461 million at 31 December, 2005. This
increase is due to the Euro 609 million paid in 2006 to finance the revenue
shortfall from regulated activities, as well as the Euro 1,341 million dividend
payment made in July in connection with capital gains realised in 2005, which
had contributed to reducing debt that year. It was determined at the General
Shareholders’ Meeting to distribute these capital gains to shareholders.
Equity-accounted income Equity-accounted income in the business in Spain and
Portugal totalled Euro 53 million, a 20.5 percent increase vs. 2005. This amount
includes, among others, the contribution from Nuclenor. 58 Annual Report 2006
2006 RESULTS
Tax Income tax payable includes a loss of Euro 137 million deriving from
the lower carrying amount of deferred tax credits following the corporate income
tax rate cut enacted in Spain. The 35 percent rate prevailing in 2006 will be
reduced to 32.5 percent in 2007 and to 30 percent in 2008 and beyond. Also, in
2006 the corporate income tax inspection of the Group’s subsidiaries for
financial years 1998-2001 was concluded resulting in no expenses being paid in
this regard. Cash flow Cash flow from operations from the Spanish and Portuguese
electricity business totalled Euro 2,721 million in 2006, an increase of 2
percent on 2005. EBITDA growth outpaced the increase in cash flow from operating
activities mainly due to higher tax payments in 2006 vs. 2005 and higher
payments made in connection with the company’s obligations relating to
headcount reduction plans part of which was outsourced in 2006. Investments
Investments in Spain and Portugal totalled Euro 2,921 million in 2006. The
breakdown is as follows: 90 percent of total investment was spent on capex to
develop or enhance electricity generation and distribution facilities. The
breakdown of capex reflects the considerable effort the Company has been making
to improve service quality in Spain, with investment in distribution facilities
accounting for 53.5 percent of the total. We would highlight the significant
increase in capital expenditure to expand ENDESA’s generation capacity,
including the construction of the Cristobol Colón (400 MW) and As Pontes
(800 MW) CCGTs as well as capacity increases in renewables, where investment
totalled Euro 331 million, 129.9 percent more than in 2005. Operations Review 59
endesa06 TOTAL INVESTMENTS IN SPAIN AND PORTUGAL (In million of Euros) 2006 2005
% chg. Tangibles 2,630 2,382 10.4Intangibles 100 66 51.5Financial 191 212
–9.9Total 2,921 2,660 9.8 CAPEX IN SPAIN AND PORTUGAL (In million of Euros)
2006 2005 % chg. Generation 1,171 943 24.2 Ordinary regime 840 799 5.1
Renewables/CHP 331 144 129.9 Distribution 1,408 1,389 1.4 Others 51 50 2.0Total
2,630 2,382 10.4
02.2 BUSINESS IN EUROPE Net income Net income from the electricity business
in Europe totalled Euro 493 million in 2006, an increase of 16 percent on 2005.
This figure includes Euro 118 million after minorities due to an increase in
value of the business caused by the restatement of the tax base of Endesa
Italia’s fixed assets to their book values, in accordance with Italian law.
EBITDA Endesa Europa posted EBITDA in 2006 of Euro 1,116 million, up 25.8
percent year-over-year, and EBIT of Euro 846 million, an increase of 36.9
percent. Business in Italy Endesa Italia’s revenues totalled Euro 2,915
million in 2006, an increase of 30.0 percent from last year. This growth was
mainly the result of a 8.6 percent increase in electricity sold and a 27.6
percent increase in average electricity prices in the Italian market. Although
Endesa Italia’s fuel costs increased by Euro 254 million in 2006, this was
less than the increase in revenues (Euro 673 million) due to higher electricity
prices. On 23 February, the Italian government approved the National Allocation
Plan (NAP) for greenhouse gas emission rights, which was subsequently ratified
by the EU authorities. This NAP allocates Endesa Italia 33.9 million tonnes for
the period 2005-2007. On 4 May, 2006 the Italian national CO2 emission rights
register was formally set up for the rights allocated in the NAP and those
acquired. Endesa Italia booked Euro 66 million of revenues in 2006 from the free
allocation and use of emission rights and Euro 110 million of expenses for the
cost of emissions. Accordingly, the net cost of emission rights in the income
statement was Euro 44 million, corresponding to an estimated deficit of 3.4
million tonnes of CO2. Finally, Endesa Italia restated the tax bases of its
fixed assets to their book value, in accordance with the Italian 2006 Financial
Act. Therefore, it recorded a Euro 148 million lower corporate tax charge (Euro
118 million after minorities) corresponding to the tax savings provided for in
this norm. Earnings at Snet Earnings at Snet (which has been operating under the
Endesa France name since the end of 2006) continued to gather momentum in the
4Q06. EBITDA in 2006 rose 9.5 percent to Euro 196 million for the full-year and
EBIT by 58.1 percent to Euro 98 million vs. 2005. Revenues rose 20.4 percent
year-over-year in 2006 to Euro 1,082 million, mostly driven by the 16.6 percent
growth in energy sales to 19,022 GWh. Variables costs were Euro 173 million
higher, basically as a result of the Euro 216 million increase in energy
purchases, although this was offset by tighter control over transport and other
costs, which were 47.2 percent lower than in 2005. 2006 RESULTS EBITDA AND EBIT
IN EUROPE (In million of Euros) EBITDA EBIT 2006 2005 % chg. 2006 2005 % chg.
Italy* 916 694 32.0 749 542 38,2 Snet 196 179 9.5 98 62 58,1 Trading operations
42 46 -8.7 42 46 -8,7 Holding and other (38) (32) -18.8 (43) (32) -34,4 Total
1,116 887 25.8 846 618 36,9 * Includes Endesa Italia and 4 months of operations
in 2006 of Teverola and Ferrara, acquired in September 2006. ENDESA ITALIA KEY
DATA (In million of Euros) 2006 2005 Change % chg. Revenues 2,915 2,242 673 30.0
Gross margin 1,087 853 234 27.4 EBITDA 916 694 222 32.0 EBIT 749 542 207 38.2 60
Annual Report 2006
Finally, in 2006, Snet completed the headcount reduction plan, resulting in
a 25 percent decrease in the total workforce; the operator had 1,373 employees
on staff when Endesa Europa took control of the company. This led to a 12
percent reduction in personnel costs. These layoffs came within the framework of
discussions with union representatives. European debt ENDESA’s business in
Europe had net financial debt at 31 December, 2006 of Euro 1,674 million, Euro
388 million more than at the end of 2005. This debt derives from a one-off
income tax payment in 2Q06 linked to tax credits obtained in 2005 and 2006 and
to the acquisition in the third quarter of majority shareholdings in Centro
Energia Teverola and Centro Energia Ferrara, owners of the CCGTs, and the
assumption of their debt. Net financial results in 2006 amounted to an expense
of Euro 56 million, a decrease of Euro 8 million from 2005. Cash flow Operating
cash flow generated in the European business in 2006 totalled Euro 704 million,
an increase of 20.1 percent on the Euro 586 million generated in 2005, despite
the one-off tax payment mentioned previously. Investments Investments in 2006 in
the European business totalled Euro 463 million, of which Euro 271 million were
capex, Euro 132 million in Italy and Euro 139 million in France. These amounts
included the acquisition of 58.35 percent stakes in Centro Energia Teverola and
Centro Energia Ferrara for Euro 57 million and Euro 35 million, respectively.
ENDESA began fully consolidating these companies on 1 September, 2006. Dividends
ENDESA’s investees in Europe paid dividends to the parent in 2006. Endesa
Italia paid shareholders Euro 176 million, of which Euro 140.8 million
corresponded to Endesa Europa. In January 2007, Endesa Italia agreed to pay its
shareholders a dividend against 2006 results of Euro 216 million, of which Euro
172.8 million correspond to Endesa Europa. In addition, an agreement was reached
at Snet’s General Shareholders’ Meeting held in March 2006 to pay
shareholders Euro 59.7 million in dividends. After the Euro 21.2 million interim
dividend paid on 9 March, Snet paid out a final dividend of Euro 38.5 million,
of which Euro 25 million corresponded to Endesa Europa. Also, in December 2006
the Board of Directors approved a dividend payout of Euro 36 million charged
against 2006 earnings, of which Euro 23.4 million correspond to Endesa Europa.
Finally, at its meeting of 31 May, the Board of Directors of Moroccan utility
Energie Electrique de Tahaddart approved the payment of Euro 6 million of
dividends to shareholders, of which Euro 1.9 million corresponded to Endesa
Europa. 02.3. BUSINESS IN LATIN AMERICA Net income Net
income at ENDESA’s Latin American business totalled Euro 462 million in
2006, an increase of Euro 200 million, or 76.3 percent, on 2005 and equivalent
to 15.6 percent of ENDESA’s total net income. Improvement in generation and
distribution margins Growth in demand, tighter reserve margins and the
favourable generation mix at ENDESA’s subsidiaries caused the unit margin
of generation companies to increase by 24.2 percent in 2006 vs. 2005 to USD 26.2
per MWh produced. Generation margins, measured in dollars, increased sharply,
above all in Chile (53.4 percent) thanks to a greater contribution from hydro in
the generation mix with and to higher prices; and in Argentina (37.2 percent),
thanks to increased hydro production because of higher rainfall and higher
prices thanks to the pass-through of greater fuel costs to the wholesale
electricity market (MEM). High hydro production in Colombia led to a reduction
in the average margin due to a fall in spot prices compared to the same period
in 2005. Operations Review 61 endesa06 SNET KEY DATA (In million of Euros) 2006
2005 Change % chg. Revenues 1,082 899 183 20.4 Gross margin 332 322 10 3.1
EBITDA 196 179 17 9.5 EBIT 98 62 36 58.1
62 Annual Report 2006 In distribution, operating margins were considerably
boosted by improved pass-through of generation costs in Brazil and operating
efficiency improvements at the companies, leading to a considerable improvement
in their operating indicators. The unit margin stood at USD 34.6/MWh
distributed, an increase of 7.8 percent vs. 2005. EBITDA EBITDA in the Latin
American business totalled Euro 2,188 million in 2006, a 16.5 percent increase
on 2005. EBIT rose 22.7 percent to Euro 1,688 million. The table below shows the
breakdown of EBITDA and EBIT of ENDESA’s subsidiaries by business line and
country: Generation and transmission Chile The 6.4 percent increase in energy
generated and the significant improvement in the production mix with hydro
generation increasing to 86 percent of total generation helped earnings despite
the increase in fuel prices such as gas. This, together with the favourable
trend in the Chilean peso vis-à-vis the euro and higher wholesale prices,
generated a 57.8 percent increase in EBITDA and a 94.8 percent increase in EBIT
to Euro 576 million and Euro 483 million, respectively vs. 2005. Colombia
Electricity generation in Colombia increased 5.9 percent compared to 2005nearly
offsetting the adverse trend in prices as a result of the high level of rainfall
last year. Hence, EBITDA was just Euro 5 million lower than in 2005, at Euro 227
million, while EBIT was Euro 1 million lower at Euro 182 million. 2006 RESULTS
EBITDA AND EBIT IN LATIN AMERICA (In million of Euros) EBITDA EBIT 2006 2005 %
chg. 2006 2005 % chg. Generation and transmission 1,238 1,037 19.4 981 768 27.7
Distribution 1,036 898 15.4 802 677 18.5 Other (86) (57) NA (95) (69) NA Total
2,188 1,878 16.5 1,688 1,376 22.7 BREAKDOWN OF EBITDA AND EBIT IN LATIN AMERICA
BY BUSINESS LINE AND COUNTRY (In million of Euros) EBITDA EBIT Generation and
transmission 2006 2005 % chg. 2006 2005 % chg. Chile 576 365 57.8 483 248 94.8
Colombia 227 232 -2.2 182 183 -0.5 Brazil - Generation 159 128 24.2 140 111 26.1
Brazil - Transmission (23) 55 -141.8 (41) 38 -207.9 Peru 150 154 -2.6 108 114
-5.3 Argentina - Generation 149 93 60.2 111 66 68.2 Argentina - Transmission -
10 -100.0 (2) 8 -125.0 Total 1,238 1,037 19.4 981 768 27.7 Distribution Chile
201 192 4.7 178 168 6.0 Colombia 277 236 17.4 213 165 29.1 Brazil 422 329 28.3
335 262 27.9 Peru 87 74 17.6 54 44 22.7 Argentina 49 67 -26.9 22 38 -42.1 Total
1,036 898 15.4 802 677 18.5
Brazil — Generation The increase in electricity sales, the improvement
in the generation mix and favourable exchange rate movements underpinned a 24.2
percent rise in EBITDA and a 26.1 percent jump in EBIT to Euro 159 million and
Euro 140 million, respectively. Brazil — Transmission The difficulties in
exporting electricity fromArgentina to Brazil due to gas supply restrictions
continued, undermining results at this interconnection. EBITDA in 2006 showed a
loss of Euro 23 million, compared to income of Euro 78 million in 2005, while
EBIT was a negative Euro 41 million, compared to a positive Euro 79 million the
year before. Peru Increased electricity sales in Peru were not enough to offset
the rise in fuel costs. Therefore, despite the 5.1 percent increase in
electricity generation, EBITDA fell 2.6 percent to Euro 150 million while EBIT
totalled Euro 108 million, Euro 6 million down on the 2005 figure. Argentina
Although gas supply difficulties continued to trigger increases in fuel costs
(47.7 percent) due to the need to generate power using liquid fuels, margins
were boosted thanks to higher sales because of increased output (43.9 percent)
due to higher production, especially hydro (28 percent), coupled with price
improvements. EBITDA rose 60.2 percent in 2006 vs. 2005 to Euro 149 million and
EBIT by 68.2 percent to Euro 111 million. Distribution Chile Revenues rose 18.1
percent thanks to exchange rates, higher volume sales (4.4 percent) and the
better unit price deriving from changes in the tariff indexation. Topline growth
underpinned a 4.7 percent rise in EBITDA to Euro 201 million and a 6 percent
increase in EBIT to Euro 178 million. Colombia EBITDA at the Colombian
distribution business was Euro 277 million, 17.4 percent higher than in 2005,
while EBIT stood at Euro 213 million, up 29.1 percent. The increases were driven
by a 3.6 percent increase in revenues and by other operating income from the new
business undertaken by Codensa Hogar. Brazil Sales in the distribution business
stood at Euro 1,557 million in 2006, an 18 percent increase over 2005. This
increase reflects margin expansion due to enhanced generation price
pass-through, and, to a lesser extent, higher volumes of energy sold which was
4.6 percent. These factors, coupled with a significant decline in energy losses,
led to increases in EBITDA and EBIT of 28.3 percent and 27.9 percent,
respectively, to Euro 422 million and Euro 335 million. Peru EBITDA from
distribution came to Euro 87 million in 2006, a 17.6 percent increase on 2005,
due to 7.6 percent higher sales. Meanwhile, EBIT rose 22.7 percent to Euro 54
million. Argentina As there were no tariff increases in 2006 given that the
measures required to apply these were still not finalised at the end of the
year, sales from distribution fell 1.4 percent and were not offset by the 6
percent increase in energy purchases. This led to a 26.9 percent decline in
EBITDA, to Euro 49 million, and a 42.1 percent drop in EBIT, to Euro 22 million.
This trend will be reversed and Edesur’s 1Q07 results are expected to grow
significantly in 2006 thanks to the 38 percent DCV (distribution cumulative
value) increase approved in December and its subsequent application. Financial
results Financial results for the business in Latin America in 2006 reflected a
net loss of Euro 491 million, Euro 33 million less than in 2005. Net exchange
rate gains increased Euro 6 million in 2006 vs. 2005 from Euro 16 million to
Euro 22 million. Net interest expenses totalled Euro 513 million, Euro 27
million or 5 percent lower than in 2005. Net debt at ENDESA’s Latin
American business stood at Euro 5,618 million at 31 December, 2006, a reduction
of Euro 491 Operations Review 63 endesa06
since the start of the year. This decrease is due, among other factors, to
the appreciation of the euro vis-à-vis the currencies in which
ENDESA’s Latin American subsidiaries’ debt is denominated. This
accounted for Euro 486 million of the reduction. Flows generated during the
period have meant a total of Euro 372 million have been paid to minority
shareholders and the holding company without having to reduce debt. In May,
rating agency Fitch upgraded its ratings for Enersis and Endesa Chile from
“BBB-” to “BBB”, stable outlook, while in December,
Moody’s upgraded its ratings for both companies from “Ba1” to
“Baa3", also with a stable outlook. Also in December, Standard &
Poor’s placed its “BBB-” ratings for both utilities under review
for a possible upgrade. These upgrades mean that Enersis and Endesa Chile have
recovered their rated investment status at all three rating agencies. Cash flow
ENDESA’s business in Latin America generated Euro 1,218 million of cash
flow in 2006, an increase of 3.2 percent with respect to 2005. EBITDA growth
outpaced the increase in cash flow from operating activities mainly due to
higher tax payments in 2006 vs. 2005 as well as the payment of certain lawsuits
in Brazil which has been fully provisioned. Cash returns Cash returns from
ENDESA’s Latin American business to the parent company in 2006 totalled
Euro 253 million. The sound economic and financial situation of the businesses
in the area and the favourable outlook for future performance have helped
improve the cash returns programme. The company has raised its target from USD
1,000 million for 2005- 2009 to USD 1,600 million. Therefore, the amount
achieved in 2006, added to the USD 308 million of returns means the company has
achieved 35 percent of its target. Investments Investment in Latin America in
2006 totalled Euro 952 million, of which Euro 869 million corresponded to capex.
The scope of the work carried out under the capacity plan meant that generation
capex during the year totalled Euro 328 million, 97.6 percent more than in 2005.
Distribution capex rose 26.4 percent compared to 2005 due to increased demand in
the markets where ENDESA’s companies operate. 03. FINANCIAL MANAGEMENT IN
2006 In 2006, ENDESA took advantage of the favourable conditions of the
financial markets with high liquidity in the banking market and tighter credit
margins in the capital markets. ENDESA and its direct subsidiaries (excluding
Enersis) signed new medium and long-term loans for a total of Euro 2,175
million. It also extended the term of its bank debt and long-term credit lines
which total Euro 4,778 million. These operations plus the bond issues placed in
the capital markets throughout the year for a total amount of Euro 1,300 million
over the long-term designed to take advantage of a substantial improvement in
margins, meant that the average life of the debt undertaken by these companies
was 5.2 years in December 2006. Enersis and its subsidiaries also took advantage
of the favourable situation of the local financial markets and obtained
long-term financing under competitive conditions which means that 54 percent of
Enersis’ debt is denominated in the local currency while the remaining 46
percent is in dollars. At the end of 2006 the average life of these
companies’ debt was 5.2 years. 64 Annual Report 2006 2006 RESULTS CAPITAL
INVESTMENT IN LATIN AMERICA (In million of Euros) 2006 2005 % chg. Generation
328 166 97.6 Distribution and Transmission 493 390 26.4 Other 48 44 9.1Total 869
600 44.8
At year end 2006, 76 percent of ENDESA’s total debt was denominated in
euros, 11 percent in dollars and the remaining 13 percent in Latin American
currencies. ENDESA follows a policy whereby its companies’ debt is always
in the currency in which its cash flows are generated. At 31 December 2006, of
the Group’s total debt, 65 percent was either fixed-rate or hedged while
the remaining 35 percent was at a variable rate. This level of coverage limits
the volatility of financial expenses in the Group’s P&L. Financial
indebtedness and average cost of debt ENDESA’s net financial debt was Euro
19,840 million at 31 December 2006, an increase of Euro 1,559 million on the
figure at 1 January 2006. Of this amount, Euro 15,091 corresponded to ENDESA and
its direct subsidiaries excluding Enersis while the remaining Euro 4,749 million
corresponded to Enersis and its subsidiaries. The average cost of ENDESA’s
total financial debt was 5.45 percent, similar to the 2005 figure of 5.46
percent. We would highlight that against a backdrop of rising interest rates the
Group has managed to maintain its average cost of debt. The average cost of debt
of ENDESA and its direct subsidiaries (excluding Enersis) in 2006 was 4.19
percent compared to 4.05 percent in 2005. Meanwhile, the average cost of debt of
Enersis in 2006 was 9.12 percent, lower than the 2005 figure of 9.37 percent
despite the larger proportion of local currencies in the debt structure.
Liquidity position At 31 December 2006 the liquidity of ENDESA and its direct
subsidiaries, excluding Enersis, stood at Euro 6,197 million of which Euro 5,854
corresponded to long-term credit lines. This means the Company is able to cover
debt maturities falling due in the next 20 months without having to incur
additional indebtedness. Also, Enersis’s liquidity position at 31 December
2006 was Euro 1,218 million, of which Euro 596 million corresponded to credit
lines with the remaining Euro 622 million being cash. These amounts will enable
the Group to cover debt maturities falling due in the next 22 months.
Performance of interest rates and effects of foreign exchange In 2006 euro
interest rates rose sharply which, taking the 6- month Euribor as a benchmark,
meant rates rose from 2.63 percent initially to 3.85 percent. Long-term interest
rates, using the 10-year swap as a benchmark, rose from 3.45 percent to 4.19
percent at the end of 2006. Against this backdrop, the spread between short- and
long-term interest rates has tightened significantly. In 2006 dollar interest
rates as measured by the 6-month Libor USD rose although less than the euro,
from 4.70 percent to 5.37 percent. The 10-year interest rate swap rose from 4.94
percent to 5.18 percent. Short-term interest rates in the Latin American
countries where ENDESA is present rose moderately except for in Brazil where the
benchmark rate fell from 18 percent to 13.25 percent. Operations Review 65
endesa06 NET DEBT STRUCTURE BY CURRENCY (Million Euros) Enersis ENDESA excl.
Enersis Total Euro US dollars Chilean peso Other 19,8408% 5%11%76%
15,091100%4,749 33%21%46% BREAKDOWN OF NET DEBT BY TYPE OF INTEREST (Million
Euros)Fixed + hedged Variable Enersis ENDESA excl. Enersis Total 19,84035%
65%15,091 60% 4,74919% 81%40%
With regard to the parity between the euro and the most relevant currencies
in ENDESA’s balance sheet, we would highlight that the dollar has
depreciated 12 percent from 1.1797 USD/€ to 1.3176 USD/€. Local
currencies in Latin America depreciated against the euro ranging from 2 percent
for the Brazilian real and 14 percent for the Chilean peso. Due to the strong
euro, ENDESA’s debt as expressed in euros fell by Euro 486 million.
ENDESA’s performance in the secondary market In line with recent years,
ENDESA’s credit margins continued to decline. Meanwhile, the credit
derivatives market reached record lows at the end of the summer although it did
peak slightly at year end. The secondary bonds market remained stable with no
great changes compared to the end of 2005. Enersis and Endesa Chile’s most
liquid bonds maintained the downward trend seen in previous years. 2006 RESULTS
66 Annual Report 2006 endesa06
dec-03 dec-06 sep-06 jun-06 mar-06 dec-05 sep-03 jun-05 mar-05 dec-04
sep-04 jun-04 mar-04 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 INTEREST RATE
MOVEMENTS OVER THE PAST FEW YEARS (%) EURIBOR 3MD EURAB6E 10Y LIUSD 3MD USDAM3L
10Y Operations Review 67
d 05 06 06 06 06 j l 06 j 06 06 06 06 f b 06 j 06 120115110105100 9590
VARIATION OF LATIN AMERICAN CURRENCIES AND THE USD VS. THE EURO IN 2006 (%)
Chilean peso Peruvian sol Argentine peso Colombian peso Brazilian real USD d 06
Margin vs. IRS (%) 0.0 0.2 0.4 0.6 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
2.2 2,5 A 700 M EUR (0.06) 5,5 A 400 M GBP (0.25) 6,2 A 700 M EUR (0.24) 10 A
Credit Default Swap (0.329) 5 A Credit Default Swap (0.194) ENDESA BONDS IN
SPAIN (%) oct-06 jul-06 apr-06 jan-06 oct-05 jul-05 apr-05 jan-05 oct-04 jul-04
apr-04 jan-04 ENERSIS GROUP YANKEES BONDS (%) Margin vs. IRS (%) 0.0 0.5 1.0 1.5
2.0 2.5 3.0 3.5 4.0 0 2 4 6 8 Enersis 09.9 A 250 M$* (,62) Enersis 07.1 A 350 M$
(.68)*** Endesa Chile 2.3 A 400 M$ (.04) Endesa Chile 6.6 A 400 M$ (.57)**
Endesa Chile 8.6 A 200 M$ (,62)** Endesa Chile 20.1 A 206 M$ (1.56) oct-06
jul-06 apr-06 jan-06 oct-05 jul-05 apr-05 jan-05 oct-04 jul-04 apr-04 jan-04
2006 RESULTS 68 Annual Report 2006
Main financial transactions in 2006 We would highlight the following risk
transactions carried out by ENDESA during the year: • In January, the
company took out a ten-year loan for Euro 300 million with the European
Investment Bank. • In March, a Euro 2,000 million syndicated loan which had
been taken out in April 2005 was extended for a further year with 86 percent of
the formalized amount accepting the extension. • Also, various long-term
bilateral credit lines totalling Euro 3,058 million and falling due in five
years were extended for a further year. • A total of Euro 675 million in
bilateral credit lines were signed between March and June of which Euro 275
million correspond to five-year operations with the possibility of extending
them for a further two years. • In June the company took out a Club Deal
loan with 15 financial entities for Euro 2,700 million. The loan was structured
in two equal tranches falling due in one and two years respectively. • Also
in June, the Instituto de Crédito Oficial (Official Credit Institute)
granted ENDESA a Euro 250 million loan falling due in 2016. • Meanwhile, in
July ENDESA signed its first ever Schuldschein loan for German investors for a
total of Euro 21 million, falling due in 10 years. • In November the tariff
deficit collection rights for 2005 were agreed amounting to Euro 1,676 million.
• Through its subsidiary, Endesa Capital, S.A., the company made five
private placements for a total of Euro 1,300 million, with an average weighted
maturity of 2.81 years. • In December, the Euro Commercial Paper programme
rolled out by Internacional Endesa BV and guaranteed by ENDESA, was renewed with
the USD 2,000 million limit being changed to Euro 2,000 million. The outstanding
balance was Euro 751 million at the year end. • Endesa Capital, S.A. has
continued to hold fortnightly auctions as part of its domestic issues programme,
subscribed to by the main Spanish financial entities. The outstanding balance
was Euro 622 million at the year end. Endesa Italia entered into loan and credit
operations for a total of Euro 495 million, of which Euro 250 million
corresponded to five-year operations while the rest were for just one year.
Finally, we list below the main financial operations entered into by Enersis and
its subsidiaries in 2006: Chile: • Enersis and Endesa Chile undertook
revolving credit lines amounting to USD 200 and USD 400 million respectively
aimed at increasing the liquidity of both companies. The maturity of these
operations ranged from three to five and a half years. Brazil: • In June,
the World Bank’s International Finance Corporation (IFC) took a 2.7 percent
stake in Endesa Brasil for a total amount in reais equivalent to USD 50 million.
• In August, the Río de Janeiro Ampla distribution company issued
bonds in the local market totalling 370 Brazilian reais with maturities of five
and six years. In November it entered into a five and half year loan with the
Banco Nacional de Desarrollo for 301 million Brazilian reais. • Also,
Coelce, the distribution company in the state of Ceará, entered into an
eight-year financial operation with Banco del Nordeste for 130 million Brazilian
reais. • At the end of December, Cien which operates the interconnection
between Argentina and Brazil, refinanced the entirety of its third-party debt
via a six-year syndicated loan totalling 600 million Brazilian reais. Argentina:
• In May the Argentine generation company El Chocón refinanced its
debt via a five-year syndicated loan totalling USD 100 million. Colombia: •
Betania, the generation company, refinanced its debt by issuing a seven-year
domestic 100,000 million Colombian peso bond. It also entered into a six-year
Club Deal loan for a total of 270,000 million Colombian pesos. Peru: •
Edelnor issued domestic bonds totalling 168 million Peruvian soles falling due
between three and ten years. • Edegel launched three domestic bond issues
for a total of 80 million Peruvian soles falling due between four and seven
years. Operations Review 69 endesa06
01. TOTAL RETURNS FOR ENDESA SHAREHOLDERS ENDESA shareholders obtained a
total return of 72.1 percent in 2006, thanks to a 61.3 percent rise in the share
price and the payment of a Euro 2.4 per share dividend, which added another 10.8
percent to their returns. In the last three years, ENDESA’s shareholders
have received a total average annual return of 41 percent.
01.1. ENDESA ON THE STOCK MARKET ENDESA delivered a
strong share price performance in 2006 due to the following: • The overall
rises by international stock exchanges in general and Europe in particular. In
Europe, the best performance came from the IBEX-35, which rose by over 31.8
percent. • The excellent performance of ENDESA’s main financial
indicators. • The continued outperformance by ENDESA of the targets set out
in the company’s Strategic Plan, largely based on the excellent results of
all its businesses and a more favourable regulatory environment than originally
foreseen. • Greater public awareness of the company’s stock, as a
result of the takeover bids for 100 percent of ENDESA. 70 Annual Report 2006
2006 RESULTS Operations Review 71 endesa062006 RESULTS TOTAL RETURNS FOR
ENDESA SHAREHOLDERS (2004-2006) Dividend per share Revaluation 2004 2005
200672.1% 10.8%61.3%32.8%28.5% 18%4.6%13.4%4.3% SHARE PRICE PERFORMANCE: ENDESA
VERSUS BENCHMARK INDEXES. 2006 ENDESA DJ Euro Stoxx Util Ibex-35 DJ Euro Stoxx
50 61.3%35.1%31.8%15.12% ENDESA’S MARKET CAP. 2004-2006 (In million of
Euros) 2004 2005 200637,935 23,52518,306 x 2 ENDESA'S WEIGHTING IN THE MAIN
BENCHMARK INDEXES Index weighting Index weighting in 2005 (%) in 2006 (%) Ibex35
5.71 7.40Eurotop100 0.55 0.82DJ EuroStoxx 50 1.15 1.16 DJ EuroStoxx Utilities*
8.66 7.48 DJ Stoxx 600 0.35 0.35 * Change in consolidated group resulting from
stock market listing of French utility EDF
As was the case in each of the last three financial years, ENDESA’s
shares easily outperformed the benchmark indexes in 2006 both market (the
Ibex-35 rose 31.8 percent and the EuroStoxx 50 by 15.12 percent) and sector (the
EuroStoxx Utilities index advanced 35.1 percent). ENDESA was the Dow Jones
Eurostoxx 50 index company with the largest stock market rise in 2006,
outperforming companies such as Suez and Iberdrola. On an European level, ENDESA
ranks third in the Dow Jones Eurostoxx Utilities indexes. In 2004-2006, the
Company’s value by market cap virtually doubled, increasing by 107.2
percent. The increase in market cap and the stock’s outperformance have
resulted in an increase in ENDESA’s weighting in the various indexes.
01.2. LIQUIDITY ENDESA’s share enjoys high stock
market liquidity: average daily trading volume was around 12 million shares in
2006, a rise of 18.8 percent on 2005. This high trading level amounts to an
average of 2.9 times market cap, vs 2.5 times the average in 2005. Total trade
volume of ENDESA shares was Euro 87.408 billion, 78 percent more than in 2005.
02. ENDESA ON THE NYSE ENDESA’s ADRs (American Depositary Receipt) gained
78.9 percent on the New York Stock Exchange in 2006, closing the year at USD
46.52, its highest level ever. This was better than other foreign companies
listed on the US markets (the Global ADR index rose 24.2 percent, more than 54
percentage points lower than ENDESA) and far better than the sector performance
(the S&P Utilities Index rose 16.9 percent, in other words, 61 points less
than ENDESA’s ADR. 2006 RESULTS CAPITAL ROTATION AND AVERAGE TRADING
VOLUMEOF ENDESA SHARES 2004 2005 20062.9 2.52.1 50100150200250 Million Euros 0.5
1.0 1.5 2.0 2.5 3.0 213.2191.5137.8 Rotation Capital rotation (times) Average
trading volume (Û Mill/day) 10.1 ENDESA’S AVERAGE TRADING VOLUME
(Million of shares/day) 2004 2005 200612.0 8.1 ADR PERFORMANCE: ENDESA VERSUS
BENCHMARK INDEXESIN THE US IN 2006ENDESA ADR Index S&P Utilities DJI S&P
500 78.9%24.2% 16.9% 16.3% 13.6% SHARE PRICE PERFORMANCE: ENERSIS AND ENDESA
CHILE ON THE SANTIAGO (CHILE) STOCK EXCHANGE VERSUS BENCHMARK INDEXES IN 2006
Endesa Chile Enersis IPSA IGPA 25.8%52.6%37.1%34.4% 72 Annual Report 2006
03. ENERSIS AND ENDESA CHILESHARE PRICE PERFORMANCE In 2006, Enersis and
Endesa Chile recorded an outstanding stock market performance, underlining the
upward trend seen since 2004. Enersis’ share price rose 52 percent on the
Santiago de Chile stock exchange to 169.7 pesos. In turn, Endesa Chile’s
share price rose 25.7 percent, to end the year at 653 pesos per share. On the
New York Stock Exchange, Enersis’ ADRs rose 45.4 percent to USD 16 per
share and Endesa Chile’s by 20.3 percent to USD 36.7. Both companies far
outperformed the benchmark indexes, especially Enersis’ADR which was twice
that of the rise in the S&P ADR. As to their performance on the Latibex
market, Enersis’ share price rose 29.9 percent to Euros 12.08 a share,
which was higher than the market benchmark indicators. Endesa Chile’s share
price rose 6.9 percent, to end the year at Euros 27.8 a share. The main factors
driving the share prices of ENDESA’s Chilean subsidiaries were: • A
favourable macroeconomic environment, an improved regulatory framework, and
greater exchange rate stability. • The excellent performance of its
businesses, which, along with good regulatory management, has seen a strong
increase in both generating and distribution margins. • Successful
financial management, which has led to improved ratings by the credit rating
agencies. Moody’s upgraded Enersis and Endesa Chile’s ratings from Ba1
to Baa3, with a stable outlook, meaning that both companies have been awarded
investment grade from all three ratings agencies: Moody’s, Fitch and
Standard & Poor. • Increase in shareholder returns through dividends
and capital refunds. endesa06 ADR PERFORMANCE: ENERSIS AND ENDESA CHILE ON THE
NYSEVERSUS BENCHMARK INDEXES IN 2006 Endesa Enersis S&P ADR DJI S&P 500 Chile
ADR ADR 20.0%45.6%24.2%16.3%13.6% SHARE PRICE PERFORMANCE: ENERSIS AND ENDESA
CHILE ON THE LATIBEX VERSUS BENCHMARK INDEXES IN 2006 Endesa Enersis Ibex-35
FTSE Latibex FTSE Chile Latibex Latibex All Share Latibex Top 6.9% 29.9% 31.8%
23.8% 18.2% SHARE PRICE DATA FOR ENDESA, ENERSIS AND ENDESA CHILE IN 2006 %
Annual Average trading Index High Low Average Last chg. volume (shares)
Continuous Market ENDESA (~/share) 36.3 21.7 28.4 35.8 61.3 3,041,387,906 Chile
Stock Exchange Enersis (pesos/share) 171.9 109.7 132.8 169.7 52.6 7,714,864,222
Endesa Chile (pesos/share) 653.8 460.0 532.7 653.0 25.7 1,268,876,144 NYSE
ENDESA (USD/ADR) 47.8 26.3 36.0 46.5 78.9 23,581,900 Enersis (USD/ADR) 16.3 10.3
12.5 16.0 45.4 79,356,300 Endesa Chile (USD/ADR) 37.3 25.1 30.4 36.7 20.0
17,788,900 Operations Review 73
04. ENDESA’S DIVIDEND04.1. DIVIDEND APPROVED AT THE 2006GENERAL
SHAREHOLDERS’ MEETING ENDESA continued its commitment to increase
shareholder returns via dividends in 2006. At the General Shareholders’
Meeting of 25 February 2006, approval was given for the payment of a total gross
dividend of Euro 2.4 per share, charged against 2005 earnings. The total amount
of this dividend was Euro 2.541 billion. This represents a 225 percent increase
over the previous year and is the highest dividend in the company’s
history. This dividend is the sum of the Euro 0.305 per share interim dividend
paid on 2 January 2006, and ordinary final dividend of Euro 0.8284 per share and
the pay-out of Euro 1.2666 per share of the total net capital gains obtained
from the sale of Euro 1.34 billion of non-core assets in 2005. The ordinary
final dividend of Euro 0.8284 per share and the Euro 1.2666 per share from the
net capital gains resulting from the sale of non-core assets, which together
amount to Euro 2.095 per share, were paid on 3 July 2006. This total dividend of
Euro 2.4 per share, represents a total pay-out of 79.9 percent of net profit for
the year. Stripping out these net capital gains, the pay-out is 65.2 percent.
04.2. DIVIDEND PROPOSED AT THE 2007 GENERAL
SHAREHOLDERS’ MEETING ENDESA’s Board of Directors shall submit for
approval at its 2007 General Shareholders’ Meeting, the proposal to pay a
Euro 1.64 dividend for 2006 of which Euro 1.27 corresponds to the ordinary final
dividend and Euro 0.37 to the sale of noncore assets. It should be recalled that
on 2 January 2007 the Company paid a gross dividend of Euro 0.5 charged against
2006 earnings 74 Annual Report 2006 2006 RESULTS ENDESA DIVIDEND
PERFORMANCE(Û/per share) Dividend from capital gains from the sale of
non-strategic assets Dividend on ordinary income 2.4 2004 2005 2006 1.64 0.74
1.13 1.27 0.37 1.27 INTERIM DIVIDEND AND COMMITMENTS ON DIVIDENDS FOR 2006 0.50
2005 2006 2006 Dividend* * Proposal to be submitted to the 2007 General
Shareholders’ Meeting 0.305 +64% • Dividend on ordinary income: 1.27
e/share • Dividend from sale of nonstrategic assets: 0.37 Û/share
• Total dividend: 1.64 Û/share Interim dividend (Û/share)
The Strategic Plan: “ENDESA: Stronger business, greater value”
presented to the markets on 3 October 2005, contains a dividend policy that
mainly entails: • A CAGR for ordinary dividends of 12 percent, i.e., in
line with expectations for bottom-line net profit growth. • Distribution of
100 percent of capital gains generated on disposals of non-core assets.
According to the Company’s stated targets, this policy would entail the
pay-out of more than Euro 9.9 billion in dividends between 2005 and 2009.
05. INVESTOR RELATIONS AND ACTIVITIES OF THE
SHAREHOLDERS’ OFFICE 05.1. INVESTOR RELATIONS ENDESA maintains ongoing
relationships with its shareholders, both private and institutional investors,
as well as with the leading stock market analysts. All these shareholder groups
are provided with a constant flow of detailed information on the Company’s
performance. This is provided by ENDESA’s Investor Relations Department
with offices in Madrid and New York and a Shareholders’ Office in Madrid.
Among the activities of the Investor Relations Department in 2006, we would
highlight the two roadshows (visits to international institutional investors by
ENDESA managers) in 11 countries, entailing 175 meetings, at which the Company
contacted around 34 percent of its shareholders. The department also maintained
ongoing contacts in Spain, the rest of Europe and the US, holding 210 meetings
with investors. It also held four public presentations on quarterly results for
analysts and investors, and took part in the two sector conferences organised by
Edison Electric Institute (EEI) in the U.S. An average of 463 people attended
these presentations, 40 in person, 50 via conference call and 370 through
webcast via internet. To illustrate ENDESA’s commitment to providing the
markets with detailed information on its businesses, each year the Company
arranges for analysts and investors to visit its power plants. In 2006, 57
analysts and investors visited the Majorca power plant, and saw seven
presentations on issues relating to the generation business and regulatory
matters. We would also point out that 40 financial institutions carry out
regular research on ENDESA, making it one of the most closely followed electric
utilities in the world by the market. In 2006, analysts from these institutions
produced more than 200 reports on the Company. ENDESA’s investors relations
efforts have been publicly recognised by a substantial number of specialised
institutions. In 2006, ENDESA ranked 3rd among European electric utilities in
investor relations and 4th among Spanish companies in all industries based on a
survey conducted by the renowned Institutional Investor magazine of analysts and
investors. ENDESA was also singled out by IR Magazine as the European company
that has best carried out its investor relations activities. At the 8th edition
of the magazine’s Investor Relations Awards, ENDESA’s commitment to
total transparency and accessibility in respect of the financial community was
underscored. These awards are based on over 500 interviews with managers,
analysts and other industry professionals in the euro zone and are
internationally recognised as a benchmark for excellence in investor relations.
ENDESA was also a finalist in the “best investor relations during a
take-over or merger” and “best use of virtual conferencing”
categories. In 2006, ENDESA also ranked third in Europe and seventh in the world
in the category recognising those companies with the best practices in the
disclosure of financial information based on information provided in their
quarterly financial statements and earnings press releases. The prizes are
awarded by the prestigious consultancy firm MZ Consult. A total of 145 companies
from 31 countries participated voluntarily in the 2006 edition. Finally, in
2006, ENDESA received the “Power Company of the Year” award at the
eighth edition of the Platts Global Energy Awards, one of the most prestigious
prizes in the international energy sector. The winners are chosen from a list of
200 companies by a jury comprising national regulators, senior executives from
leading energy companies and legislators. Financial performance is of particular
importance. Operations Review 75 endesa06
05.2. SHAREHOLDERS’ OFFICE ENDESA’s
Shareholders’ Office provides a free shareholder relations service, either
in person or by telephone or e-mail, answering any queries shareholders may have
and providing them with the following information on the Company: results,
dividends, share prices, new bond issues, General Shareholders’ Meeting,
etc. In 2006, the Shareholders’ Office handled some 15,000 telephone
enquiries and 8,300 visits from private investors, most regarding the General
Shareholders’ Meeting, and sent more than 3,500 information mailings by
post or e-mail. One of the main sources of information for shareholders is
ENDESA’s website (http://www.endesa.es), which provides a large amount of
economic and financial information for the investment community through the
“Investors” section. This section contains links to quarterly
financial results, press releases and official filings, corporate presentations,
documents related to the General Shareholders’ Meeting, information on
dividends, share price performance, etc. In addition, the conference calls on
quarterly earnings are broadcast in real-time via Internet. Finally, ENDESA
sends interested investors and shareholders press releases, quarterly results
statements, reports and corporate magazines. 05.3.
ENDESA SHAREHOLDER STRUCTURE During the takeover bids made for ENDESA, the
composition of the company’s shareholders has been significantly altered:
76 Annual Report 2006 2006 RESULTS TYPE OF INFORMATION REQUESTED BY
ENDESA’S PRIVATESHAREHOLDERS IN 2006 6%54%12% 9%54% 6%19% Share
priceDividends General MeetingGeneral Info on ENDESATakeover bid by Gas Natural
19% 12%9%
• The acquisition of 10 percent of ENDESA’s capital by Acciona on
25 September 2006 which has seen the construction company’s shareholding
rise to 21.03 percent. • The acquisition of 9.99 percent of ENDESA’s
capital by Enel on 27 February 2007. The Italian company later increased its
holding in the company via equity swaps. At the end of April 2007 its total
direct and indirect stake was 24.973 percent. • The CNMV’s
communiqué of 10 April 2007 confirmed that E.ON’s takeover bid for
ENDESA had failed to prosper as the minimum amount set to accept the deal was
not reached (529,481,934 shares representing 50.01 percent of ENDESA’s
capital) and the offeror had failed to waive this condition. On 11 April,
Acciona, the Spanish construction company, and Enel from Italy announced they
were to launch a joint bid for 100 percent of ENDESA at a price of Euro 41.3 per
share to be fully paid in cash. Acceptance was conditional upon the bid being
accepted by at least 50.01 percent of the company’s capital and the
acceptance of various modifications to the Articles of Association. We should
recall that, as of April 2007, Caja Madrid is one of ENDESA’s main
shareholder with a 9.9 percent stake. Consequently, as a result of this and
other operations since the end of the 2005 financial year, ENDESA’s
shareholder structure as of 3 April 2007 is as follows: Operations Review 77
endesa0641.2% 9.9% EnelAcciona Cajamadrid Sepi Free float 24.973%*21.03% 2.9% *
“Equity swaps” included.
78 Annual Report 2006 ENDESA’S STRATEGY
In 2006, the Company made excellent progress towards meeting the targets
set out in its Strategic Plan, announced to the market in October 2005. Firstly,
both EBITDA and net profit comfortably beat the targets set thanks to the
Company’s improved performance and the actual performance of the economy
being well above the initial conservative forecasts. Secondly, there was further
confirmation and consolidation of the very positive trends in the markets in
which ENDESA operates. • Notable regulatory progress in Spain, offering a
positive future outlook. • Consolidation of higher energy prices in Europe.
• A sharp upturn in the economic recovery in Latin America. These and other
factors prompted ENDESA’s management team to announce, on 25 July 2006, a
significant improvement in forecasts and commitments to the market with respect
to those announced in October 2005. On 24 January 2007, the Company once again
raised some of its main targets for 2009, in light of the excellent provisional
results for 2006 at that time and of an improved outlook for its businesses in
the areas in which they operate. In line with these new forecasts: • EBITDA
in 2009 will be Euro 8,500 million, Euro 170 million more than the earlier
forecast, giving a CAGR of 8 percent1, in like-for-like terms, in the 2006-2009
period. • Net profit for 2009 is forecast to top Euro 3,075 million, Euro
75 million more than the earlier forecast. It will be underpinned by significant
growth in net income from ordinary activities, which is set to be Euro 2,970
million, according to current estimates, and which will account for 97 percent
of total net profit. 01. SUMMARY OF STRATEGIC PLAN
ANNOUNCED IN OCTOBER 2005 ENDESA’S strategic plan presented in October 2005
has two main planks: shareholder returns and the organic growth of its
businesses. 01.1. SHAREHOLDER RETURNS ENDESA’s
strategy is based on creating shareholder value and distributing that value in
the form of dividends. ENDESA has made a commitment to the market to pay
dividends of Euro 9,900 million in the period 2005-2009. Value creation and
payment of these dividends are based fundamentally on organic business growth
and efficient use of capital, including the sale of non-core assets.
Specifically, following the sale of stakes in Auna and Smartcom in 2005, ENDESA
will continue to sell its significant real estate portfolio, through its company
Bolonia Real Estate. 01.2. ORGANIC GROWTH ENDESA has
developed excellent business platforms in its three main business areas (Spain
and Portugal, Europe and Latin America) which give it significant growth
opportunities through market growth, organic expansion and efficiency
improvement. Operations Review 79 endesa06 IMPROVED COMMITMENT TO THE MARKET (In
million of Euros) New Commitments Commitments commitments announced in announced
in announced in October 2005 July 2006 January 2007 2009 EBITDA target 7,500
8,330 8,500 2009 Net income target 2,200 3,000 3,075 Efficiency Plan target 525
670 695 Dividend from ordinary activities (2005-09) ~5,000 ~7,600 ~7,600
Dividend from disposals (2005-09) ~2,000 ~2,300 ~2,300 Total shareholder
remuneration (2005-09) 7,000 9,900 9,900 Leverage <1.4x <1.4x <1.4x 1
Like-for-like growth deducting the historic deficit for non-mainland systems in
2006 (Euro 227 mill.) and non-recurrent regulatory items in Italy (Euro 86
mill.). DIVIDEND COMMITMENT FOR THE PERIOD 2005-2009 Annual increaseabove 12%
~7,600 million Euro in dividend on ordinary income in 2005-2009Dividend from
saleof non-strategic assets Dividend on ordinary income Distribution of 100% of
the gains ~2,300 million Euro in gains from sale of non-strategic assets +
80 Annual Report 2006 ENDESA’S STRATEGY All of these will allow ENDESA
to boost EBITDA in each of its three business areas to Euro 8,500 million in
2009, with a CAGR of 13 percent in the period 2004-2009 and of 8 percent2 in
2006-2009. To assure this growth ENDESA designed an investment plan of Euro
14,600 million for the period 2005-2009 aimed at satisfying the needs of the
markets it supplies, maintaining its market share and lead position principally
in Spain and Chile, facilitating organic expansion in Italy and France, and
giving a major boost to the renewable energies business. ENDESA in January 2007
updated the plan to include new investments destined to form the basis for
long-term growth. These investments will predominantly come on stream after
2009. In the three years remaining (2007-2009) of the 2005-2009 Strategic Plan,
ENDESA will invest a total of Euro 12,300 million with the majority destined to
the Electricity Business in Spain and Portugal (Euro 6,700 million), followed by
Europe (Euro 2,900 million), Latin America (Euro 2,500 million) and other
businesses (Euro 200 million). The investment plan is an ambitious program to
increase capacity through which ENDESA will maintain its leadership in
generation in the electricity business in Spain and Portugal and its
generation-demand balance, diversify its mix by adding new combined cycle plants
(CCGTs) and adapting coal-fired plants to regulatory requirements (especially
the EU Directive on large combustion plants). In the Electricity Business in
Europe, the goal of ENDESA’s Investment Plan is centred on transforming its
generation mix, to make it more balanced, diversified, competitive and
compatible from an environmental standpoint, and on taking advantage of growth
opportunities to anticipate market needs with new CCGTs in France and Italy. As
for the Electricity Business in Latin America, ENDESA will build new capacity,
mainly in Chile, which is the market with the lowest reserve margin and which is
the most attractive market from an economic point of view. To these investments
are added the stakes ENDESA has been acquiring in re-gasification projects in
Spain, Italy and Chile, and which will allow it to gain access under more
advantageous conditions to gas, a key fuel for the development of an important
share of new capacity. As part of its plan for new generation capacity, ENDESA
is especially focussed on growth in renewable energies, which will have an
increasing weight in its generation mix. This will allow ENDESA to balance its
position and consolidate its commitment to these energies, taking into account
its envi-EBITDA PERFORMANCE 04-09 (In million of Euros) 2004 2005 2006 2009
4,521 6,020 7,139 8,500 13% TACC 2004-2009 UPDATED INVESTMENT PLAN 2005-2009
2005 2006 2007-2009 Total 2007-2009 Total 05-09 2005-2009 Updated Updated 12.3
3.2 7.7 7.7 4.6 3.7 14.6 19.2 2005-2009 INVESTMENT PLAN (In thousand million of
Euros) 2 Growth in like-for-like terms deducting the non-mainland systems
historic deficit of Euro 227million and Euro 86 million in non-recurring
regulatory items in Italy. FORECAST INVESTMENT 2007-2009 By business By type of
investment 6.7 2.9 2.5 12.3 44% 56% 100% 0.2 Expansion Maintenance Spain and
Portugal Europe Latin America Other
onmental compatibility, the favourable economic conditions they enjoy as
well as their outlook for growth. Planned investments in this technology include
those in the Electricity Business in Spain and Portugal, and Europe, mainly in
wind farms, new investments in hydroelectric pumping stations in Spain and
Portugal, wind farms planned in Italy and France as Endesa faces the need for
green certificates, as well as the decisive commitment to developing
Chile’s hydroelectric potential, with the Aysén project and the
construction of the Palmucho plant. Planned organic growth will also be based on
the Efficiency Improvement Plan, begun in the first half of 2005. This Plan will
generate Euro 695 million in the period 2005-2009. In the Business in Spain and
Portugal, ENDESA has 60 different initiatives for efficiency improvement with
specific targets. In Europe, efficiency improvements will be based on a
reduction in fixed costs and greater efficiency in energy management, while in
Latin America, efficiencies will derive from loss reduction programs and a
reduction in fixed costs in generation and distribution. In addition, in Latin
America ENDESA has set a priority of continuing to simplify the corporate
structure inherited with the purchase of some of its main stakes. This, along
with the contribution of more than USD 1,000 million of cash to Endesa, through
dividend payments and share buybacks during the period 2005-2009, will allow it
to give more transparency to this business’ potential. It is worth pointing
out that, in the market presentation of January 2007, this commitment was raised
to USD 1,600 million, thanks to the favourable performance of the companies and
economies in countries where ENDESA has a presence. In addition, the Company is
considering restructuring companies and carrying out an IPO of Endesa Brasil.
These operations should increase cash returns by an additional USD 1,000
million. Finally, it is worth noting that ENDESA will carry out its Strategic
Plan without putting at risk the financial strength and flexibility
characteristic of its current circumstances. To this end, it is committed to
maintaining a gearing ratio of less than 140 percent throughout the period
2007-2009. Operations Review 81 endesa06 INSTALLED CAPACITY PLAN 2005-2009 BY
BUSINESS AND REVISED ESTIMATES (MW) SPAIN AND PORTUGAL 2005 2006 2007- 2005-
07-09 05-09 Dif. vs. 2009 2009 updated updated 2005-09 Plan Islands Renewables
CCGT 4601,1876,2504,603 850840 3,200 6,537287 4,890 EUROPE — ITALY 2005
2006 2007- 2005- 07-09 05-09 Dif. vs. 2009 2009 updated updated 2005-09 Plan
Renewables CCGT 230378 1,115507 216800 1,6245091,016 EUROPE — FRANCE 2005
2006 2007- 2005- 07-09 05-09 Dif. vs. 2009 2009 updated updated 2005-09 Plan
Renewables CCGT 150800 950 950 950 LATIN AMERICA 2005 2006 2007- 2005- 07-09
05-09 Dif. vs. 2009 2009 updated updated 2005-09 Plan Coal Renewables CCGT
42222589325220 90515 1,089 500825
r 02.FULFILLING THE STRATEGIC PLAN IN 2006 As we have previously mentioned,
the successful fulfilment of the Strategic Plan prompted the Company’s
management to significantly upgrade its commitment to the market.
02.1. CREATION OF SHAREHOLDER VALUE AND DIVIDEND PAYMENT
In 2006, Endesa shareholders obtained a total return of 72.1 percent, comprising
61.3 percent of share price increases (from Euro 22.22 per share on 30 December
2005, to Euro 35.83 per share on 29 December 2006) and Euro 2.4 per share
distributed as dividends, equivalent to a dividend yield of 10.8 percent. As for
dividends for 2006, ENDESA announced that it will submit for approval to the
Ordinary Shareholders’ Meeting a proposal to pay out a total dividend of
Euro 1.642. Having already paid an interim dividend of approximately Euro 1.64
per share in January 2007, the Company shall pay a final dividend of Euro 0.5
per share in July 2007 giving a total of Euro 1.14 per share. The total proposed
dividend charged against 2006 results will mean a payout of Euro 1,736 million
comprising Euro 1.27 per share for ordinary activities and Euro 0.37 per share
from the distribution of capital gains generated from the sale of non-core
assets, with these sales giving Endesa Euro 393 million in 2006 capital gains
thanks to very favourable conditions for the sale of its remaining 5 percent of
Auna (the transaction’s total value was Euro 378 million), the sale of real
estate assets (transactions with a total value of Euro 300 million) and of other
assets, including 49 percent of Portuguese company NQF (total value of
transactions: Euro 121 million). As a result, the targets announced to the
market will be amply met, with ordinary dividend growth of approximately 12
percent compared with the target announced. In the Strategic Plan’s first
two years, the company will have paid out Euro 4,277 million in dividends
charged against 2005 and 2006 income which is 43 percent of the total commitment
for 2005- 2009 (75 percent in dividends from asset sales and 39 percent in
dividends from ordinary activities). 02.2. ORGANIC
GROWTH In 2006, ENDESA beat its own operating growth targets announced to the
market in the updated Strategic Plan of July 2006. EBITDA rose 19 percent,
compared with the objective of 13 percent for the 2004-2009 period and all three
of its businesses beat expectations. These good operating results are confirmed
by net profit, which was 2 percent higher than its target. Even more significant
is the fact that net profit, excluding asset sales, rose 40 percent, leaving
ENDESA in a perfect position to reach its 2009 objective. All of these growth
targets were surpassed without exceeding the leverage limit of 140 percent. This
ratio at the end of 2006 was less than 125 percent. 82 Annual Report 2006
ENDESA’S STRATEGY 3 Subject to approval by the General Shareholders'
Meeting DIVIDEND COMMITMENT MET IN 20062 (e/share) On ordinary income From sales
of assets Complementary dividend2 Interim dividend 2005 2006 2006 2006 Total
1.13 1.642 1.272 15% 0.372 1.14 0.50 2005-2009 STRATEGIC PLAN DIVIDEND
PERFORMANCE (Mill. e) 2005 2006 2005- 2005- 2006 2009 From sales of assets On
ordinary income 1,200 1,733 1,3453 2,300 7,600 4,277 1,341 3923 2,545 9,900 43%
75% 39%
Optimising the existing business portfolio ENDESA has made notable progress
in optimising its businesses using four main courses of action: Optimising
operation in wholesale markets: Looking beyond operations in traditional
wholesale markets, the electricity pool and coal, ENDESA is putting special
emphasis on ensuring competitive costs in the acquisition of its main fuels as
it faces future growth. To this end, it is being especially active in gas and
CO2. Endesa is developing five re-gasification projects, three of them in Spain
(Sagunto, Reganosa and Gascan), one in Italy (Livorno) and another in Chile
(Quintero). The progress made at Reganosa in 2006 allows Endesa to forecast that
in 2007 it will supply gas to the As Pontes plant. In addition, ENDESA in March
2006 received authorisation to build and put into operation a offshore
re-gasification terminal at Livorno. It signed an agreement in April 2006 to
take a stake in a company developing a re-gasification project in Chile, which
will solve the gas shortage problems the country has suffered since the
Argentine crisis. As for assuring emission rights at competitive prices, ENDESA
is a pioneer in the development of Clean Development Mechanisms (CDM). The
company in 2006 signed agreements and letters of intent for CDM projects for the
equivalent of 108 million tonnes of CO2 and in the negotiation phase for
projects for the equivalent of 104 million tonnes of CO2.With these initiatives,
the company aims to cover 30 percent of its emission rights needs in Phase 1 and
50 percent in Phase 2 of the National Allocation Plan. Managing regulatory
issues: ENDESA places special emphasis on developing constructive relationships
with regulators of the electricity systems in which it operates. A series of
transcendent steps forward took place in the regulatory arena in 2006,
especially in the Electricity Business in Spain and Portugal. For example,
Spanish tariffs increased 9.1 percent in 2006, after the previously instituted
price increase ceiling was eliminated. In addition, the tariff deficit was
acknowledged, allowing companies to securitise it. As for wholesale markets,
bilateral contracts increased and the OMIP (Iberian Electricity Spot Market)
opened. In non-mainland systems, development was completed on the regulatory
methodology for recognition of costs and investments, while in national coal,
the new Mining Plan with demand incentives (Euro 10/MWh) was approved, as was
the National Allocation Plan for emission rights (NAP), whose content is fully
compatible with ENDESA meeting its Strategic Plan targets. All of these
developments are unmistakable signs that the Spanish regulatory framework, as
ENDESA has said, is making progress toward full liberalisation and recognition
of real market prices. At the same time, Latin America made progress on a
variety of regulatory issues. Brazilian distributors, for instance, received an
improvement in pass-through of energy purchase costs. After the end of the
finacial year the Argentine government approved an update of the tariffs of
ENDESA’s distributor (Edesur), which had been frozen since the 2001 crisis.
This tariff revision will boost Edesur’s revenue by 38 percent, which will
allow it to recover the tariff increases that had been agreed since 2005 yet had
not been made effective until now. Improving efficiency: ENDESA in 2006 amply
met the objectives for efficiency improvements it announced to the market, as it
exceeded forecasts by 32 percent in the period 2005-2006. In the Strategic
Plan’s first two years, ENDESA has reached 55 percent of the efficiency
improvements budgeted for the period 2005-2009. Operations Review 83 endesa06
COMPLETION OF EBITDA TARGET (Mill. e) 2004 2005 2006 2006 2009 Target Spain and
Portugal Europe Latin America 2,472 3,2663,835 3,750 4,630 535887 1,116
1,1001,400 1,5221,878 2,188 2,0802,470 6,0208,5004,521 13% 10% 21% 13% 17% 26%
17% 3%19% 7,139 6,930TACC 2004-2009 COMPLETION OF EBIT TARGET (Mill. e) 2005
2006 2006 2009 TargetRecurrent Sales of assets 2,9003,075 3,182 2,9691,841 2,576
2,4202,970 1,341393 480 10540% 2% Total figures for 2004 and 2005 include EBITDA
from “other business” for –8 and –11 million Euro,
respectively.
Giving greater transparency to the contribution of the Latin American
business: ENDESA has made considerable progress in this business line, meeting
targets for the cash flow contribution from the Latin American Business. In 2005
and 2006, the company reached 56 percent of the total committed for the period
2005-2009, which has allowed it to raise this target from USD 1,000 million to
USD 1,600 million between 2005 and 2009 as mentioned above. In addition, in 2006
progress was made in simplifying the corporate structure of this Business. In
this regard, the IFC’s acquisition of 2.7 percent of the holding company
Endesa Brasil, which since its creation in October 2005 has confirmed its
positive performance and its attractiveness as an independent business venture.
Among other operations were the merger of Chilectra and Elesur in March 2006,
which produced a simpler corporate structure and a significant change to the tax
base; the merger of Edegel and Etevensa, which, following the pertinent
approval, produced the largest generation company in Peru, giving it a more
balanced mix; and finally, the merger of Emgesa and Betania in December 2006,
through which a predominantly hydroelectric business will be combined with a
more thermal one, creating a group with lower risk. Development of current
businesses’ options Develop new conventional capacity in existing markets:
In 2006 ENDESA successfully developed the capacity plan announced in October
2005. In Spain and Portugal, among other facilities, the CCGT at
Cristóbal Colón (400 MW) came on stream, and, in non-mainland
systems, it started operation of the gas turbines at Ca’s Tresorer,
Barranco de Tirajana and Granadilla as well as the diesel groups in the Canary
Islands and Ceuta. To these developments are added the conversion of Group 3 of
As Pontes to imported coal (367 MW). As for the rest of the capacity forecast
for 2009, the As Pontes CCGT (800 MW) is expected to come into operation in
2007, while the Tejo station in Portugal (800 MW, a 50-50 venture between ENDESA
and International Power) obtained permission to connect to the national grid.
Targets for the European business capacity plan were also satisfactorily met. In
Italy the company successfully carried out the purchase of the CCGTs at Teverola
and Ferrara from the Merloni Group. Endesa also obtained permits to start
construction of the 800 MW CCGT it plans to build on its land in Emile Huchet
(France). In Latin America, ENDESA fulfilled its capacity plan for 2006, with
the CCGT at Etevensa in Peru (172 MW) coming into operation. In addition to this
project, it also acquired the gasfired plant Termocartagena (142 MW) with which
ENDESA will be able to improve its mix in Colombia. The other generation
projects proceeded at the expected pace. Develop new renewable energy capacity
and increasing its weight in the generation mix: ENDESA in 2006 continued its
commitment to renewable energies. In Spain and Portugal, it installed capacity
of 275 MW, the majority in wind farms and mini-hydro plants. These additions
were accompanied by significant growth in the project portfolio, which amounts
to more than 6,000 MW currently, and includes the awarding of 1,200 MW of wind
energy to the Eólicas de Portugal consortium, in which ENDESA holds a 30
percent stake. With these develop- 84 Annual Report 2006 ENDESA’S STRATEGY
COMPLETION OF IMPROVEMENTS IN EFFICIENCY (Mill. €) 2005 2006 2005- 2005-
2009 2006 2006 Target 181 204 385 695 292 32% 55% COMPLETION OF NEW CAPACITY (MW
installed) 2005 2006 2005-2006 2009 1,191 1,591 4,400 3,946 512 4,458 5,000 400
6,049 9,400 5,137 CCGT Islands COMPLETION OF THE CONTRIBUTION OF LATIN AMERICAN
BUSINESS (Mill. USD) Capital reductions Dividends Target 2005 2006 2005-2006
2009 Improvement 2009 Target Revised 86 207 222 132 354 600 121 56% 35% 561 308
253 1,000 1,600
ments, the Company ensures that it will meet its target of obtaining 3,000
MW of renewable energy capacity in Spain in 2009, 74 percent of which is already
in operation. In Italy, ENDESA started operation of the Iardino wind farms, with
installed capacity of 142 MW. The Company plans to install another 366 MW of
renewable energies in Italy and France between 2007 and 2009. A large portion of
this capacity is already contracted, mostly in the Framework Agreement with
Gamesa. Taking advantage of opportunities deriving from deregulation The third
strategic line of action consists of the development of competitive market
positions that allow the company to maximise profitability in those markets
where deregulation is taking place. In 2006, ENDESA was the only Spanish
electricity company which remained committed to retailing energy on the
deregulated market. Within this market, the Company was able to set an
equivalent price of Euro 60/MWh in its contract renewals, compared to the energy
sale price of Euro 42.35/MWh set by the regulator. ENDESA’s client
portfolio covers a large part of price volatility in the wholesale market and
provides an adequate hedge against certain regulatory risk. In the European
business, the supply and trading business is beginning to show its potential,
with EBITDA of Euro 42 million 2006 due largely to an increased client
portfolio. ENDESA remains strongly committed to this business line, convinced
that European markets will tend toward greater integration and that the
relationship with the final client will end up being the principal source of
value creation. In Latin America, this commitment is especially reflected in the
supply of value-added services to retail clients through service points operated
by the Company’s distributors. With this activity, alongside its regulated
business, ENDESA is able to maximise profitability. Operations Review 85
endesa06
03. TAKEOVER BIDS FOR ENDESA ENDESA has been immersed in various takeover
bids for 100 percent of its capital since 5 September 2005. Throughout the
process, ENDESA has acted to defend the interests of its shareholders and their
right to decide the Company’s future which involved securing offers which
correctly reflected its true value and preserving the main aspects of its
industrial project. The process’ main events and the Board of
Directors’ stance were as follows: • On 5 September 2005 Gas Natural
launched a takeover bid for 100 percent of Endesa at Euro 21.3 per share with
one third to be paid in cash and two thirds in shares in the offeror. The day
after the bid was announced, the Board of Directors of ENDESA stated that
“following a preliminary assessment, the bid’s financial terms are
manifestly insufficient and in no way reflect the true value of the
Company” and that “the operation is incompatible with the regulatory
and competition framework”, and therefore implies unforeseen risks
“which could cause significant damage to ENDESA’s shareholders”.
• On 16 September 2005 the Company filed an appeal with the Supreme Court
concerning the letter/request prepared by the CNMV’s Chairman regarding the
“passivity rule” (Procedure 461/05). On 10 November 2005, the Supreme
Court accepted ENDESA’s request to temporarily suspend the effects of the
letter/request. • On 19 September 2005, ENDESA requested that the European
Commission intervene and assess the Gas Natural bid from an anti-trust angle.
The European Commission ruled on 15 November 2005 stating its inability to rule
on the merger. On 29 November 2005 ENDESA appealed to the Supreme Court in
Luxembourg. This appeal was rejected on 14 July 2006. • On 8 November 2005,
the CNE decided to approve Gas Natural’s bid but imposed certain
conditions. On 10 November 2005, ENDESA lodged an appeal with the Ministry for
Industry, Tourism and Commerce which was rejected. ENDESA then appealed to the
Supreme Court. • On 22 November, Endesa, S.A. filed suit with the
Mercantile Court in Madrid against Gas Natural SDG, S.A. and Iberdrola, S.A.
alleging that the agreement between the two companies supposedly constituted
“financial assistance” which is forbidden under Article 81 of Spanish
company law (Procedure 21/2006.). • On 25 November 2005, ENDESA filed a
lawsuit against Gas Natural SDG, S.A. and Iberdrola, S.A. with the Mercantile
Court based on Section 81 of the European Community’s Constitution, in
which it stated that Gas Natural SDG, S.A. and Iberdrola, S.A. had reached an
illegal agreement under the terms of the above provision (Procedure 523/2005).
• On 30 November 2005, ENDESA filed suit with the CNMV against La Caixa
should for failing in its duty to launch a takeover bid for Gas Natural to gain
control of the company. The regulator rejected this lawsuit prompting ENDESA to
lodge an appeal. • In December 2005, ENDESA and its board members received
a lawsuit filed by Gas Natural with the Mercantile Court in Barcelona alleging
the “passivity rule” (Procedure 697/05), and requesting an injunction
which was later rejected. The process was finally resolved in 2007 with Gas
Natural accepting the rejection. Also in December 2005, ENDESA’s Board of
Directors received a lawsuit presented by Gas Natural in the Mercantile Court in
Madrid alleging individual responsibility regarding its behaviour during the
takeover process (Procedure 522/05). The case is due to be heard in May 2008.
• On 26 December ENDESA’s Executive Committee agreed to authorise that
information may be submitted to Gas Natural or any other third party which might
be interested in tabling a competing bid providing the correct guarantees were
in place and that the shareholders’ best interests were upheld. This
decision was ratified by ENDESA’s Board of Directors on 10 January 2006.
• On 3 January 2006, the Anti-Trust Court advised the Spanish government to
stop Gas Natural’s bid. • The Spanish Cabinet approved the merger on 2
February subject to 20 conditions. • On 9 February 2006, ENDESA lodged an
appeal against the Cabinet’s decision to authorise the takeover with the
Supreme Court and requested an injunction (Procedure 47/06). • On 21
February 2006, the German electricity company, E.ON Zwölfte Verwaltungs
GmbH, a subsidiary of E.ON AG (E.ON), requested authorisation from the CNMV to
table a competing bid for 100 percent of ENDESA at an initial price of Euro
27.50 per share to be fully paid in cash. 86 Annual Report 2006
ENDESA’S STRATEGY That same day, ENDESA’s Board of Directors
announced that, following a preliminary assessment of the bid, it considered the
offer to be favourable as it was a cash offer, it would also maintain the
Company’s industrial project intact and was substantially more than Gas
Natural’s bid. However, the Board stated that the price offered was not a
fair reflection of ENDESA’s real value. The Board’s communiqué
also stated that “pursuant to legislation in force, ENDESA has held talks
with companies interested in the take-over process initiated by Gas Natural on 5
September 2005. E.ON was one of these companies. These talks have resulted in no
firm commitment from any of the parties involved”. • On 27 February
2006, the CNMV authorised Gas Natural’s bid prompting ENDESA to lodge an
appeal with the Supreme Court. • Royal Decree Law 4/2006, of 24 February
which was published on 28 February, amended the CNE’s functions. The
changes included broadening function 14 of the CNE stating that the regulator
needed to authorise E.ON’s bid. • On 7 March ENDESA’s Board of
Directors released its findings on Gas Natural’s takeover bid (which the
CNMV had already approved). The bid was deemed negative and shareholders were
advised not to accept it for a number of reasons, namely: “the
consideration is substantially less than the value attached to ENDESA by
applying generally accepted valuation criteria”, “payment (65.54
percent of the total) is based mainly on the delivery of Gas Natural shares,
whose current price overstates the Company’s weak medium-and long-term
business prospect”, “under the terms of the Gas Natural and Iberdrola
agreement the disposal of assets and the conditions imposed by the Cabinet would
severely weaken the newco”. • On 21 March 2006, Madrid Mercantile
Court Nº 3 upheld ENDESA’s request for an injunction which had been
presented on 25 November 2005 concerning the Gas Natural and Iberdrola pact. The
Court suspended “the takeover bid launched by Gas Natural on 5 September
2005 for ENDESA’s shares and, therefore, the execution of all related acts
in connection with the takeover bid” as well as “the contract signed
on 5 September 2005 between Gas Natural and Iberdrola”, and ruled that
ENDESAdeposit a bank guarantee of Euro 1,000 million to cover any potential
damages which may arise. ENDESA deposited said guarantee on 4 April and Gas
Natural’s takeover bid was subsequently suspended. • On 21 April 2006
the Supreme Court ruled to suspend the Government’s authorisation
concerning Gas Natural’s bid providing the guarantee deposited on 4 April
with the Madrid Mercantile Court Nº 3 cover any damages arising from said
suspension. Operations Review 87
endesa06 • On 24 April 2006, the pertinent European Community
authorities gave their unconditional approval for E.ON’s takeover bid.
• The CNMV’s Executive Committee on 23 June 2006, rejected Gas
Natural’s complaint that E.ON had used privileged information when
preparing its own bid. • On 28 July 2006, the CNE informed the CNMV that it
would approve E.ON’s bid but with 19 conditions, including the disposal of
various of ENDESA’s generation assets in Spain totalling 7,600 MW of
capacity. • On 1 August, E.ON informed the CNMV that, following a
preliminary assessment of the CNE’s approval of its takeover bid, E.ON had
decided to lodge an appeal with the Ministry for Industry, Tourism and Commerce
focusing especially on the CNE’s conditions regarding the disposal of
assets. • On 25 September 2006, Acciona S.A. (Acciona) informed the CNMV
that it had acquired 10 percent of ENDESA’s capital at a price of Euro 32
per share. Acciona subsequently increased its stake to 21.03 percent. • On
26 September 2006, E.ON announced it would increase the price offered in its
original bid, presented on 21 February 2006, to at least Euro 35 per share.
• On 4 November 2006, the Ministry for Industry, Tourism and Commerce
issued a decision concerning the appeal lodged by E.ON on 1 August regarding the
conditions imposed by the CNE on its takeover bid. The resolution included
removing the terms for the disposal of assets. • The CNMV authorised
E.ON’s takeover bid on 16 November 2006 declaring it a rival bid to Gas
Natural’s and stating that “once the Euro 2.095 per share dividend to
be paid by ENDESA, S.A. on 3 July 2006 is taken into account, the offer will
stand at Euro 25.405 per share. However, according to the statement included in
the registry of relevant events on 26 September 2006, a copy of which is
included in the prospectus, the offeror will raise this to at least Euro 35 per
share”. The same day ENDESA requested that the Supreme Court lift the
injunction suspending the Government’s authorisation of Gas Natural’s
takeover bid, noting that “new events and circumstances have emerged that
affect the material hypothesis taken into consideration by ENDESA when bringing
the injunctions. Specifically, the final authorisation of the rival takeover bid
by E.ON justifies the decision to request the modification and lifting of the
injunctions in place in order to enable ENDESA’s shareholders to take a
decision on the potential sale of their shares within the framework of the
current takeover bids.” ENDESA also requested the Madrid Mercantile Court
Nº 3 lift its injunction. • On 21 November 2006, following the
CNMV’s authorisation of E.ON’s bid at Euro 25.405 per share,
ENDESA’s Board of Directors released its findings on the bid. The report
confirmed its initial assessment from 21 February in which it expressed its
satisfaction that the bid was to be paid fully in cash unlike Gas Natural’s
rival bid and that the price offered was higher. The Board also viewed as
positive the fact that the offeror intended to uphold ENDESA’s industrial
project and, in particular, its investment and workforce plans as stated in the
Prospectus. However, it recommended not accepting the Offer at Euro 25.405 per
share “given the Offeror’s irrevocable commitment to raise the price
to a minimum Euro 35 per share”. • On 16 January 2007, the Madrid
Supreme Court rendered the injunction imposed by Mercantile Court Nº 3 on
Gas Natural’s takeover bid, void. • On 23 January 2007, the Supreme
Court ruled that it was lifting the injunction imposed on Gas Natural’s
bid. • The CNMV announced on 25 January 2007 that the acceptance period for
E.ON’s takeover bid would commence on 26 January 2007 and conclude on 26
February 2007, inclusive, and that the acceptance period for Gas Natural SDG,
S.A.‘s bid, unless the company chose to withdraw its bid, would be
automatically extended from that same day, adding that “any modifications
to the conditions and the respective bids must be notified in a sealed envelope
on 2 February 2007". • On 1 February 2007, Gas Natural withdrew its
takeover bid for ENDESA. • E.ON’s bid, which had been presented in a
sealed envelope, was announced on 2 February 2007 in accordance with the
regulation governing rival takeover bids. The price offered by the German
company was Euro 38.75 per share. • On 6 February 2007, ENDESA’s Board
of Directors released its report on E.ON’s Euro 38.75 per share bid,
deeming the terms and conditions to be favourable and highlighting that
“E.ON’s bid is fair, from a financial point of view, to the
shareholders of ENDESA”. • On 27 February 2007, Enel S.p.A. (Enel)
informed the CNMV that it had acquired 9.99 percent of ENDESA’s capital at
a price of Euro 39 per share. It subsequently increased its stake in the company
indirectly, via equity swaps, until it had obtained 24.973 percent. 88 Annual
Report 2006 ENDESA’S STRATEGY
• Following authorisation from the CNMV, on 26 March 2007 E.ON raised
its offer price for ENDESA to Euro 40 per share. The same day Enel and Acciona
announced they had reached an agreement to manage ENDESA jointly and that they
would launch a takeover bid offering at least Euro 41 per share should E.ON fail
to obtain over 50 percent of ENDESA. • On 2 April 2007 E.ON, Enel and
Acciona announced they had reached an agreement whereby E.ON would withdraw its
bid for ENDESA should it fail to obtain over 50 percent of its capital thus
forcing Enel and Acciona to sell its assets in ENDESA in the event of the joint
takeover bid being accepted. • E.ON then informed the CNMV on 10 April 2007
that it was withdrawing its takeover bid as it had only obtained approval from
6.01 percent of the shareholders and had not renounced the condition that its
offer be accepted by at least 50.01 percent of ENDESA’s capital. • The
next day, on 11 April 2007, Enel Energy Europe S.r.L, a subsidiary of
Italy’s Enel, and Acciona requested the CNMV authorise their joint takeover
bid for 100 percent of ENDESA’s share capital at Euro 41.3 per share, paid
fully in cash, having already acquired stakes of 24.973 and 21.036 percent
respectively. That day, ENDESA’s Board of Directors announced that it
“had taken due notice of E.ON’s decision to withdraw its takeover bid
and of the significant event notified by Enel and Acciona in which both
companies made it known that they have filed a takeover bid with the CNMV for
the Company. Statements regarding the bid will be made when appropriate and in
the applicable manner”. At the date of publication of this report, this
takeover bid is in the process of being authorised by the Company. As a result
of the above events throughout the takeover processes, ENDESA’s strategy
has remained focused on defending its shareholders’ interests and
endeavouring, at all times, to ensure their ability to take a final decision on
the Company’s future. We would stress that, throughout the whole processes,
ENDESA has managed to convince the markets of the Company’s greater value.
Operations Review 89 endesa06
92 Annual Report 2006 BUSINESSESBUSINESS IN SPAIN AND PORTUGAL 01. OVERVIEW
OF ENDESA’S BUSINESS INSPAIN AND PORTUGAL ENDESA is the largest electricity
company in the Iberian region (the Spain and Portugal markets), positioning it
solidly to take advantage of the opportunities presented by the implementation
of the Iberian Electricity Market (Mibel) being carried out by the governments
of the two countries. 01.1. PRESENCE IN SPAIN ENDESA is
the leading company in the Spanish electricity sector. At the end of the 2006
financial year it had a consolidated capacity of 22,893 MW, producing a total of
88,482 GWh over the course of the year. The Company achieved a 38.1 percent
share of standard generation, 43.1 percent of distributed energy, 39.7 percent
of sales to regulated-market customers, 55.6 percent of sales to
deregulated-market customers and 43.6 percent of total sales to end customers.
It recorded the greatest volume of energy supplied to end customers through its
electricity grids (104,383 GWh in 2006), and has the most extensive distribution
grid (298,550 km) and the largest customer base (over 11 million) in the sector.
ENDESA is also the No. 1 company when it comes to sales, with 33,534 GWh sold on
the deregulated market, where the Company had 1,074,006 customers by the end of
2006. On the regulated market (i.e. the market composed of customers supplied in
accordance with rates fixed by the public authorities) ENDESA sold 71,599 GWh in
2006. 6
Operations Review 93 endesa0
ENDESA also maintains a sizeable presence in the Iberian natural-gas
market. On the regulated market, it provided this service to 351,000 users in
2006, with total gas sales of 3,782 GWh, representing a market share of 7.2
percent. On the deregulated market, gas sales were 23,697 GWh to over 320,000
customers, a market share of 11.6 percent. 01.2.
PRESENCE IN PORTUGAL In 2006 ENDESA made significant headway in the process to
consolidate its presence in Portugal, opening new headquarters in the country to
do business under the Endesa Portugal brand. In Portugal, ENDESA’s stake in
generation takes the form of a 38.9 percent holding in Tejo Energia, the owner
of the Pego coal-fired power station, which has a capacity of 600 MW and
produced 4,760 GWh in 2006. In 2006, this company was allocated a reception
point for an 800 MW CCGT, with construction scheduled to begin in 2007. It also
has a significant presence in cogeneration and windturbine generation. It holds
a 50 percent stake in Sociedade Térmica Portuguesa, the Portuguese
cogeneration market leader, with a capacity of 53.6 MW in cogeneration and 5 MW
from wind turbines. Output in 2006 was 311.48 GWh. It also wholly owns the
company Finerge, which at the end of 2006 was the country’s third wind
power company, with a consolidated capacity of 127 MW in renewables and CCGTs
and output of 326 GWh. In 2006 the Portuguese Government opened a
wind-generation tender process, awarding a 1,200 MW contract to the consortium
in which ENDESA was a partner. ENDESA holds a 30 percent stake in this
consortium through its holding in Térmica Portuguesa e Finerge. As a
result of this contract award, ENDESA has moved up to second place in the
Portuguese wind-generation sector. ENDESA is present in the deregulated
Portuguese market through Sodesa –the result of a 50/50 joint venture
between ENDESA and the Portuguese industrial group Sonae– whose portfolio
at the end of 2006 contained 3,648 supply points, accounting for the control of
approximately 2,900 GWh of energy. This makes it the country’s leading
seller of electricity. 02. ENDESA’S ACTIVITIES IN THESPANISH ELECTRICITY
SECTOR IN 2006 02.1. THE SPANISH ELECTRICITY SECTOR IN
2006 The most significant features of the evolution of the Spanish electricity
market in 2006 were as follows. • The year as a whole was dry, although
less so than 2005, with unequal rainfall distribution in each quarter. The first
three quarters were very dry and the last quarter was very wet. Hydro production
for the sector as a whole rose to 24,962 GWh, 40 percent higher than the
previous year, which had been extremely dry. • ENDESA did not suffer these
climatological effects. • Wind-generation levels were very similar to those
for hydro production. In 2006 wind plants generated 22,399 GWh, 9.4 percent up
on 2005. • The demand for electricity on the Spanish market as a whole was
2.5 percent higher than in 2005. This low growth rate was significantly affected
by the mild temperatures throughout the year, one of the warmest on record.
• Fossil-fuel prices on international markets increased steadily during the
first half of the year but fell sharply in mid-summer, although oil and derived
products fell more sharply than coal. Thanks to its fuel-buying policy, ENDESA
was less affected by these cost increases than the rest of the sector. •
During the first few months of 2006 the price of CO2 emission rights continued
the rising trend with which the previous year had ended. In late April the price
fell sharply, followed by further, but less pronounced, decreases during the
rest of the year, with a price of Euro 6–7/t of CO2 at year end. •
Royal Legislative Decree 3/2006 came into force on 28 February 2006, changing
the mechanism for the cassation of energy sale and acquisition offers made
simultaneously to the daily and inter-daily market by members of the same
business group. These changes, together with actions by certain agents after the
new law came into effect, had significant effects on how the market functioned.
94 Annual Report 2006 BUSINESSES
• Despite the moderate growth in demand, the increase in exports and
the slight fall in renewables compared with 2005 meant that standard production
was approximately 4 percent higher. This increase in production was mostly
covered by CCGTs and hydro power. Coal-fired and fueloil/ gas-fired output was
considerably lower than in 2005 for a number of reasons, including the coming
into force of Royal Legislative Decree 2006 (see above), high fuel costs on the
international market and high CO2 prices, particularly at the beginning of the
year. • It is worth noting that generation at renewables/CHP plants was 2
percent lower than in 2005, covering 19.6 percent of the system’s demand.
The volume of output by facilities of this type on the wholesale market was 41.5
percent higher than the previous year. • All these factors contributed
towards wholesale prices reaching similar levels to the previous year, with
successive markets having a much greater emphasis on final energy prices.
02.2. ENDESA ON THE DEREGULATED MARKET The Spanish
electricity market has been fully deregulated, with all customers now entitled
to choose their own suppliers. However, the real deregulated market, i.e. the
one composed of customers who really have exercised this right, accounted for 25
percent of the total, measured in energy terms, at the end of the 2006. ENDESA
supplied a total of 33.534 GWh to these customers, representing a market share
of 55.6 percent, 18.2 percent higher than at the end of 2005. As of 31 December
2006 the Company had 1,074,006 customers on this market, i.e. 79,652 more than
at the end of 2005. ENDESA’s level of customer retention in the deregulated
domestic market was 101.9 percent. Sales to customers on this market in areas
where ENDESA does not operate as a distributor grew by 58.3 percent. These
results show a high level of loyalty based on the Company’s attractive,
competitive commercial offers, which pay special attention to personalised
service; and its high level of competitiveness when it comes to capturing new
contracts in areas traditionally supplied by other companies. ENDESA has an
extensive network of physical customer-service points, with 52 sales offices and
384 service points in the territories served by its distribution grids, and by 4
sales offices and 30 service points outside its distribution markets, serving
the customers of the sales company Endesa Energía in such areas. In 2006
the Company maintained a wide range of standard products and tailor-made
services for corporate and largescale customers, depending on the level and type
of consumption, and continued to develop its information channel to advise
customers on their electricity supply, rates, efficient energy consumption and
other topics of interest. ENDESA also consolidated its business position as a
leading supplier in several major economic sectors, such as the automotive and
chemical sectors, for which integrated energy services are provided.
02.3. ENDESA ON THE REGULATED MARKET In Spain, ENDESA
distributes electricity to a market area of around 200,000 square kilometres,
largely corresponding to 20 provinces in seven autonomous regions (Catalonia,
Andalusia, the Canary Islands, Aragon, Extremadura, and Castile and Leon), with
a total population of about 20 million. In 2006, the Company’s
regulated-market customers in Spain grew by 2.3 percent compared with the
previous year, taking into consideration those who received a tariffed service
as well as those who, while situated in one of ENDESA’s distribution areas,
opted to choose their supplier. By the end of the year, the Company had over
11.2 million customers. Stripping out the latter type of customer, the total
number of customers in the regulated market would have been 10 million. The
largest increases were recorded in the Canary Islands (3 percent), Andalusia and
Extremadura (2.9 percent), and the Balearic Islands (2.3 percent). The total
energy supplied via ENDESA’s distribution grids rose to 104,383 GWh, 3.1
percent up on 2005. Growth was particularly notable in the markets of Aragon (6
percent) and the Canary Islands (4.7 percent). Operations Review 95 endesa06
TOTAL NUMBER OF ENDESA CUSTOMERS IN THE REGULATED MARKET 2006 2005 % chg.Aragon
857,549 843,195 1.7Catalonia 4,072,145 4,008,577 1.6 Balearic Islands 638,979
624,769 2.3 Andalusia and Extremadura 4,581,215 4,454,266 2.9 Canary Islands
1,066,630 1,035,430 3.0 Total ENDESA 11,216,518 10,966,237 2.3 Including
customers of AEE S.A., Depcsa and tolls.
The proportion of total energy supplied by ENDESA grids to deregulated
market customers was 31.4 per cent 2006, compared with 36.7 per cent in 2005.
ENDESA’s electricity sales on the tariff regulated market grew by 11.7
percent in 2006 compared with 2005, standing at 71,599 GWh. This was largely due
to the significant transfer of customers from the deregulated to the regulated
market. As a result of this switch-over, the energy supplied to the deregulated
market decreased by 11.5 percent, falling from 37,163 GWh in 2005 to 32,884 GWh
in 2006. These figures include sales from Endesa Energía in Spain,
Portugal and the other deregulated markets in Europe.
02.4. DISTRIBUTION INFRASTRUCTURES Within the framework
of its Strategic Plan, ENDESA invested a total of Euro 1,408 million in
distribution facilities in 2006. These investments addressed the needs resulting
from the growth of the markets supplied by ENDESA and its commitment to increase
safety and enhance the quality of supply. As a result of these investments, the
length of the lines in the Company’s distribution grids grew by 11,344
kilometres. By the end of 2006 the total stood at 298,550 kilometres, of which
27 percent corresponded to underground lines. As a result, 47 new substations
and 14,380 medium-to-low voltage transformer centres were put into operation
during the course of the year. With these, by the end of 2006 ENDESA had 937
substations and 147,110 switching centres. In turn, the transformer capacity
grew by 3,392 MVA, the equivalent of 4.7 percent of supply available at the end
of 2005. ENDESA and other companies in the sector often face difficulties when
it comes to obtaining the legal permits and rights of way necessary to implement
new distribution facilities, forcing delays in commissioning dates, setting back
improvements to the quality of service and, in some cases, hindering the
coverage of new supplies. ENDESA is intensifying its collaboration with the
various public authorities involved in order to complete those projects affected
on schedule. To the development of new grid infrastructures we must also add a
number of operations directed towards improvements in the quality of the power
supply, such as more intensive maintenance work, infrastructure renewal, an
increase in the extent of medium voltage (MV) grid automation, that is, under 36
kV, and the unification of all of the Control Centre in Andalusia and Badajoz
into a single control centre from which the HV, MV and LV grids are managed. In
2006, 1,537 remote controls were put into operation under the MV Network
Automation Plan, representing a 34.0 percent increase over the previously
existing supply. Other initiatives focused on optimising the environmental
impact of the grids and developing several rural electrification plans, backed
by the respective local governments and EU funding. The tasks undertaken by the
Company in 2006 to improve and extend its distribution infrastructure in its
Spanish territorial markets included the following: • In Catalonia, the
implementation of the Tramuntana Plan continued and the Hostafrancs, La Selva,
Cassá and Foral- 96 Annual Report 2006 BUSINESSES TOTAL POWER SUPPLIED BY
ENDESA (GWh) 2006 2005 % chg. Aragon 8,544 8,058 6.0 Catalonia 43,831 42,784 2.4
Balearic Islands 5,370 5,370 3.6 Andalusia and Extremadura 38,360 37,325 2.8
Canary Islands 8,278 7,907 4.7 Total ENDESA 104,383 101,258 3.1 ENDESA’S
ELECTRICITY SALES IN THE REGULATED MARKET (GWh) 2006 2005 % chg. Aragon 5,665
4,917 15.2 Catalonia 26,977 23,117 16.7 Balearic Islands 4,425 4,227 4.7
Andalusia and Extremadura 27,975 25,654 9.0 Canary Islands 6,557 6,181 6.1 Total
ENDESA 71,599 64,095 11.7 ENDESA’S ELECTRICITY DISTRIBUTION FACILITIES 2006
2005 % chg. High-voltage overhead lines (km) 21,394 20,885 2.4 High-voltage
underground lines (km) 783 637 22.9 Medium-voltage overhead lines (km) 79,371
78,443 1.2 Medium-voltage underground lines (km) 31,728 29,227 8.6 Substations
(No.) 937 890 5.3 Substations (MVA) 75,146 71,754 4.7 Transformer stations (No.)
147,110 132,730 10.8 Figures for 2005 may differ from those published in the
corresponding annual report due to inventory updates subsequent to its
publication. 2005 figures (as at 09/01/2006) are also provisional. The total
length of the low-voltage line network was 165,274 km at the end of 2006.
lac substations came into service, with a capacity of 360 MVA and a total
of 8 new transformers. Nine substations were extended with 11 new transformers
with a total capacity of 740 MVA. 26.1 km of new circuits were built, 20.4 km of
which was 220 kV, and the Todera–Lloret and Tarragona–Altafulla
circuits were re-powered. Finally, the development of the MV grid remote-control
Plan meant that 390 new remotely controlled points could be installed. • In
Andalusia and Badajoz, the following substations were commissioned under the
Alborada Plan: Casabermeja, Laminillos, Villanueva de Algaidas, Valdelagrana,
EADS Casa, Parque Aeronáutico, Cortijo Colorao (mobile substation), Playa
Serena (mobile substation), Agribética, La Grulla, San Jerónimo,
Petra, Vaciacostales, Torrecárdenas and Campus. These new facilities
involved the commissioning of 17 new transformers with a total capacity of 480
MVA. 44 substations were extended and 60 new transformers came into service,
with a total capacity of 1,759 MVA. 266.3 km of new circuits were built, 43.5 km
of which was 220 kV, and 348 kilometres of line was re-powered. 720 new remotely
controlled points were installed under the MV grid remote-control plan. •
In the Balearic Islands, the new Ses Veles, Torrent and Ca’s Tresorer
substations came into service with four new transformers, with a total capacity
of 143 MVA, were commissioned. Several substations were extended and seven new
transformers came into service, with a total capacity of 249 MVA. Renovation
work continued to increase the reliability of the substations at Valldurgent, Es
Bessons, Prat, Sant Antoni and Calviá. 133.1 km of new circuits were
built, replacing 91 km of lines, of which 8.1 km was 220 kV. 101 new remotely
controlled points were installed under the MV grid remote-control Plan. •
In the Canary Islands, the capacity of the Buenos Aires, Chayofa and Cuesta de
la Villa substations in Tenerife was increased along with the Tirajan and
Jinámar substations in Gran Canaria and a new substation, Guajara, was
built in Tenerife. All the necessary permits and licences were obtained for the
implementation of the South Tenerife and Gran Canaria plans, which will allow
the electricity infrastructure needed to meet growing demand on the two
islands’ main tourist centres to be developed. Finally, 259 new remotely
controlled points were installed under the MV grid remote-control plan. •
In Aragon, the following new substations came into service: Walqa,
Centrovía (distribution centre), Cartujos, San Bruno, Ecociudad and
Hospital M. Servet, involving the commissioning of seven new transformers with
total installed capacity of 233 MVA. Other substations were extended, with the
commissioning of 17 new transformers, with a capacity of 259 MVA, and the
building of 97.8 kilometres of new circuits. Plans were launched to create the
infrastructure necessary to power the 2008 Zaragoza Expo site during both the
construction and operational phases. Finally, the development of the MV grid
remote-control Plan meant that 86 new remotely controlled points could be
installed. 02.5. CONTINUITY OF SUPPLY In 2006, ENDESA
continued to improve the quality of supply to its markets, achieving grid
availability for 99.98 percent of the hours in the year, thereby continuing the
trend observed in previous years, with a 59 percent reduction in
interruptedservice times over the 2001–2006 period. The Company’s
total SAIDI (System Average Interruption Duration Index) stood at 1 hour 55
minutes in 2006, 19 minutes (14 percent) less than the previous year and the
first time in the Company’s history that the two-hour record has been
broken. Operations Review 97 endesa06 TOTAL SAIDI PERFORMANCE IN ENDESA'S
MARKETS IN SPAIN (hh:mm) 4:45 3:54 3:38 2:54 2:14 1:55 2001 2002 2003 2004 2005
2006 -59% 2005 figure does not include the effect of the Delta hurricane because
of its exceptional nature. Once included, 2005 SAIDI will be of 2 hours and 44
minutes.
In the summer, when major increases in peak demand have been recorded in
recent years, ENDESA’s distribution grid proved it was up to the task,
accomplishing the best quality levels in the Company’s history.
Specifically, during the June– August quarter, the SAIDI stood at 24
minutes, an improvement of 12.5 percent and 56 percent over the figures for the
same period in 2005 and 2004, respectively. This generally positive evolution of
the quality of supply was particularly notable in the Canary Islands, Andalusia
and Extremadura markets, with improvements of 29–36 percent.
02.6. ENDESA RED’S QUALITY POLICY The significant
improvements in the quality of supply achieved by the Company in Spain are
largely the result of Endesa Red’s General Quality Plan, which includes not
only the coordination of distribution-facility investments –over Euro 5,000
million over the last five years– but also a number of man —
agement-improvement projects that have played a major role in allowing these
results to be achieved. Projects of this type undertaken in 2006 included:
• Micro Plan. Thanks to an innovative approach to define
substation-maintenance strategies, a major increase in quality in reliability
levels is being achieved. • Meta Project, to improve incident-response
times, integrated into the new ‘TiC:T@C powered by Lean’ management
model, consisting of a set of organisational arrangements, procedures and
systems focusing on improving processes in open environments. • Formula 1
Project, oriented towards reducing interruptions in customers’ supplies
owing to scheduled grid work, with improvements of over 50 percent being
recorded in all areas. In addition to the increase in continuity of supply,
major efforts have been made within the framework of this Plan to raise the
quality levels of the other services that the Company provides for its customers
with the following initiatives: • Technical Service Management System. This
system covers all distribution operations that involve interacting with
customers: meter-equipment management, supply agreements, repair service by
telephone, and response to new applications for supply, for instance. A system
has been developed for the constant generation of improvement initiatives based
on the exchange of the information coming from internal process indicators,
measuring client perception, on-site studies of the root causes of claims,
audits and inspections. • Nabla Project. Optimisation of the building
process for new grid facilities and the commissioning of associated
“zerodefect” facilities, with a view to adapting the delivery time of
new installations, whether new third-party supplies or to address operational
requirements, as closely as possible to customers’ needs. Also, three of
Endesa Red’s initiatives specifically address the goals of producing an
acceptable return on the financial investments made: • Integrating
management of the regulation function into the business-planning cycle. •
Organisational Efficiency Plan, in order for the organisational model and
workforce sizing and training to become more efficient and even more closely in
line with the Company’s business vision. • Supplier Integration
Scheme, in order to respond to the new operational model resulting from the
Organisational Efficiency Plan when dealing with suppliers, with a view to
improving the quality, deadlines, safety, etc. of work carried out by
contractors. Finally, the Company’s efforts to improve grid-related
management activities are being recognised internationally in various business
ambits. On 20 July 2006 Endesa Red entered into a strategic partnership
agreement with the Shanghai Municipal Electric Power Co., driven by the Chinese
firm’s interest in adopting the above mentioned ‘TiC:T@C powered by
Lean’ management model. 02.7. ENDESA AND ITS
CUSTOMERS 02.7.1. Customer service After the strengthening of the
customer-service channels begun in previous years, the Company focused its
attention on the following issues in 2006: • Quality perceived by
customers. This indicator was specifically monitored, with high levels of
satisfaction recorded for all channels and processes. A quality-measurement
system was implemented for presence-channel operations –ICOs– which
supplements the previous customer vision with performance-efficiency indicators.
• The implementation of added-value services to process
electricity-supply-related incidents was completed with the inclusion of
Sevillana Endesa in the proactive process for communicating with priority
customers. Specific channels were also implemented to service major customers,
while the management ambit in the corporate segment was extended and improved.
98 Annual Report 2006 BUSINESSES
• Having consolidated the model for processing regulatedmarket claims,
the Company focused its objectives on improving claims management on the
deregulated market, setting up personal-attention teams to offer a special
service for claims of particular significance. Endesa Energía has a
regional-channel structure in place to respond to the specific needs and
characteristics of each segment of its customer base. • In the Major
Customers segment, a team of managers, organised by both sector and territory,
have acquired indepth knowledge of the needs of these customers in order to
offer them tailor-made competitive solutions. Another team specialises in
designing, bidding for and providing integrated energy solutions. • The New
Property segment has a specific channel to provide personalised service to
developers of new housing in areas where the Company is present as a
distributor. In major growth areas (such as Madrid), its objective is to capture
sales of future supplies and complement its proposed solutions with other
products and services. • Endesa’s Business channel provides customized
power and added-value services to customers who are halfway between being Major
Customers and the mass market in terms of their annual consumption. • For
the Household segment, several personal-service channels are available via a
network of 52 sales offices and 384 service points in areas where the Company
operates as a distributor and 4 sales offices or ENDESA shops and 30 service
points in virtually all regions where the Company does not operate as a
distributor. In 2006 ENDESA’s Telephone Hotline (CAT) dealt with 10,008,911
calls related to sales-management and grid-incident matters, 11 percent up on
the previous year. ENDESA’s CAT hotline consists of three physical
locations (one in Seville and two in Barcelona) integrated within a single
virtual platform. This structure affords the Company great flexibility in
managing the service and ensures a high quality of service while optimising
operating costs. In 2006 ENDESA improved its sales channel to assure customer
satisfaction over the Internet. A large number of sales campaigns were launched
for the corporate and household segments and a new business channel was
developed. New direct links for key functionalities were made available at the
online office, latest bills, changing data and entering meter readings, and the
design of the help and customer-service menu was improved. This website
–www.endesaonline.com– is the market leader in terms of the number of
different transactions that customers can carry out online. By the end of the
year the service had over 175,000 registered customers and over two million
interactions, transactions and queries were made via this channel, a marked
increase on the 100,000 the previous year. Operations Review 99 endesa06
Commercial Service Total Offices Points Points Aragon 7 30 37 Catalonia 7 159
166 Balearic Islands 3 24 27 South 32 143 175 Canary Islands 3 28 31 Own avg. 52
384 436 Others' avg. 4 30 34 Total 56 414 470 Regulated market Deregulated
market 1210 86420 CALLS HANDLED BY THE CALL CENTRE (CAT) (Millions of calls)
2.80 3.50 4.25 7.60 8.44 9.18 9.03 10.01 8.60 9.67 8.51 8.20 7.20 7.001.80 2.10
1.701.760.890.17 1992 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
2003 2004 2005 2006
02.8. ENDESA’S CUSTOMER OMBUDSMAN
ENDESA’s Customer Ombudsman works independently from the Company’s
management teams and was appointed to provide customers with an additional means
of dialogue in connection with the services that ENDESA provides on the Spanish
market, listening to the views of those wishing to address ENDESA from either
outside or within the Company. ENDESA’s Customer Ombudsman since June 2005
has been José Luis Oller Ariño. ENDESA is quite clear that his
duties are not only palliative, in the sense of finding fair solutions to
specific differences that may arise between the Company and any of its
customers, but must also help the Company to build its awareness of its
customers’ needs and expectations and come up with formulas to improve the
customer service it provides. The Ombudsman’s main activities can be
divided into three main ambits: processing and managing complaints, drawing up
recommendations and developing projects and activities. In 2006, the
Ombudsman’s recommendations to the Company included improvements to the
information provided to customers when requesting new supplies or querying bills
(for sums larger than their usual consumption, rebilling, applying surcharges
for excess consumption, etc.), improvements to the service provided to customers
on the deregulated market, changes to the criteria for action in cases of
damages caused by third parties to the distribution grid, and fixing a limit on
the depreciation applied to the value of receivers damaged for reasons
attributable to the Company itself. The Customer Ombudsman’s Office fixed
as priority goals for 2006 fostering mediation as the best way to settle any
differences between ENDESA and its customers and so contribute towards improving
the techniques and skills applied by the Company in this area. In this context,
a conference on mediation and customer service was held in Seville in April,
organised jointly with the Company’s Andalusia Regional Division, which was
attended by 200 people. Working sessions were held in November in both Seville
and Granada focused on developing negotiation and communication skills for
dealing with customers and analysing the mediation processes carried out. These
sessions were attended by 60 representatives of all the units and processes
involved in mediation. As in previous years, in 2006 ENDESA’s Customer
Ombudsman liaised and dealt with public authorities, consumer associations and
regulatory bodies, as well as in-house Company representatives. In the course of
last year, 627 complaints were received, 48 percent of which the Ombudsman was
able to resolve directly. The remainder, once they had been studied and initial
contact had been made with the customers involved, were passed on for final
processing to the usual service channels made available by the Company. Of the
complaints that met the requirements for being dealt with by the Ombudsman, 78
percent were handled and resolved by mediation between the Company and the
customer, while the remaining 22 percent were resolved by the Ombudsman
directly. Of the resolutions issued, 67 percent upheld the customers’
claims either fully or in part. Of the complaints falling within the
Ombudsman’s direct remit, 47 percent related to issues of supply quality,
35 percent to contract and billing issues, and the remainder to other issues. Of
the complaints relating to supply issues, 85 percent of those dealt with by the
Ombudsman were submitted by household customers. 02.9.
MEASUREMENT OF PERCEIVED QUALITY ENDESA regularly carries out telephone surveys
of customer perceptions of its service quality, seeking to gain in-depth
knowledge of their opinions and expectations in relation to the electricity
service supplied, develop new initiatives for improving quality and compare the
effectiveness of its sales strategies. The Company also measures the quality of
its presence channels by means of “mystery shopper” campaigns
(simulated purchases made at sales offices and service points). The telephone
interviews held in 2006 covered all customer segments and market regulators. The
average level of customer satisfaction with the overall services provided by the
100 Annual Report 2006 BUSINESSES
Company was a score of 7.86 out of 10, the highest in recent years.
Satisfaction with the quality of the electricity supply was scored at 8.07. A
new record was also achieved for the level of customer loyalty: 77 percent said
that they intended to continue to be ENDESA customers and would not hesitate to
recommend the Company to their friends and acquaintances. This loyalty level was
5.1 percent higher than the figure recorded in 2006. As a result of the
“mystery shopper” campaign, the objective quality of the
Company’s personal-service outlets was scored at 8.03 out of 10 at sales
offices and 7.10 at service points. 02.10. CUSTOMER
SERVICE EXCELLENCE PLAN CUSTOMER SERVICE ENDESA’s Customer Service
Excellence Plan, which was first launched in 2003, focuses on reducing errors
and deadlines in key customer-related processes. The results obtained to date
have been highly positive: • The average contracting time for major
corporations and enterprises has been reduced by half. • 98.4 percent of
new customer application are processed in under five days, a 4 percent
improvement. • The suitability of the CAT (telephone hotline service) to
the situation received a score from customers of 9.82 out of 10. • The time
taken to settle claims was reduced by 30 percent. • Every single
engineering project was delivered on schedule and 4 percent of projects were
subjected to budget adjustments. 03. ENDESA ON WHOLESALE MARKETS The Spanish
wholesale market is divided into three types of markets: the forward market
managed by Operador del Mercado Ibérico de Energía–Polo
Portugués (OMIP), the daily and intraday markets managed by the Operador
del Mercado Ibérico de Energía–Polo Español (OMEL),
and the operations markets managed by Red Eléctrica de España
(REE), the purpose of which is to supply the necessary backup to meet demand and
other supplementary services. In addition to these organised markets, the agents
close financial contracts among themselves to assure prices and direct-supply
contracts between generators and customers. In 2006, a total of 261,908 GWh was
produced in Spain. This, together with the 8,871 GWh imported, constitutes the
total power supply available for the system for end-customer sales through
distributors and vendors, for export and to satisfy the system’s own
consumption (grid losses, auxiliary consumption by power stations and pumping
consumption). The way in which these supplies are contracted on the wholesale
market underwent a radical change in 2006 compared with the previous year, with
a sharp increase in bilateral contracting and real-time markets. 39 percent
corresponded to direct bilateral generation contracts (including contracting
assimilated as bilateral by the distributor itself, under Royal Legislative
Decree 3/2006), 41 percent was negotiated at OMEL, 14.5 percent was negotiated
on REE operations markets, and the remaining 5.5 percent was acquired directly
by the distributors at the special renewables/CHP generation rate. This increase
in bilateral contracting and real-time markets was due to the regulation that
came in under Royal Legisla-Operations Review 101 endesa06 NUMBER CLAIMS
RECEIVED BY ENDESA’S CUSTOMER OMBUDSMAN IN 2006 52% 301 326 Not under the
Ombudsman’s competence Under the Ombudsman’s competence 48% CLAIMS
RESOLVED BY THE ENDESA CUSTOMER OMBUSDMAN 78% Mediation Resolution 22%
tive Decree 3/2006 and the elimination of the previously asymmetric payment
for guaranteed capacity, which in previous years was skewed in favour of
contracting on the OMEL market compared with bilateral contracting. Forward
contracting has been carried out in parallel to the organised market since 2001,
by means of the sale and purchase of swaps using the OMEL spot market as the
index. In 2006 market instability and regulatory changes led to a reduction in
the volume of negotiation of these products. Nevertheless, a total of 18.1 TWh
was negotiated, equivalent to the basic production of five CCGTs. These figures
demonstrate the consolidation of this market, which serves as a useful
complement to the organised markets. OMIP opened for business on 1 July 2006 and
has negotiated 5 TWh in forward contracts, falling well short of what would
normally be considered a solid start. A significant portion of contracting stems
from the requirement imposed on distributors to acquire 5 percent of their
demand on this market, which takes the form of two monthly energy auctions. All
other negotiation is continuous. During the first half of 2007, distributors are
required to obtain 10 percent of their demand from OMIP.
03.2. EVOLUTION OF ELECTRICITY PRICES ON THE WHOLESALE
MARKET The weighted average spot-market price was Euro 56.36/MWh, 68 cents/MWh
higher than in 2005. Over the course of the year, monthly levels ranged between
Euro 73.30/MWh in January and Euro 37.2/MWh in November. Given that stranded
costs on successive markets added Euro 4.02/MWh to the average price and
capacity payments a further Euro 4.45/MWh, the final price stood at Euro
64.83/MWh, 3 percent higher than in 2005. Of particular note was the sharp
increase in the weight of successive markets on the final price. Their weight on
the final price was 50 percent higher than in 2005. This high price for the year
was largely due to the following factors: low hydro production during the year,
high fuel prices on international markets, the high CO2 price during the first
quarter of the year and the increase in the cost of successive markets.
03.3. ENDESA’S SALES AND PURCHASES ON THE WHOLESALE
MARKET In 2006, ENDESA sold 73,887 GWh on the wholesale market, 28.8 percent of
the total mainland-market energy supply (ordinary regime, special production to
market and imports). Under Royal Legislative Decree 3/2006 all generation and
demand for distribution rated simultaneously within the same business group on
the spot and intraday markets is balanced and assimilated into a physical
bilateral contract between both parties. Therefore, in 2006 bilateral
contracting can be considered as being assimilated with the distributor itself.
Almost 74 percent of turnover was sold via bilateral contracting, including
19,407 GWh corresponding to bilateral con- 102 Annual Report 2006 BUSINESSES
SALES AND PURCHASES IN THE PENINSULAR MARKET (GWh) Sales Purchases Markets 0
50,000 100,000 150,000 200,000 250,000 300,000 Special regime output Ordinary
regime outputs At market At tariff Network losses Distribution at tariff
Supplies Exports Other markets Restrictions Spot market Bilateral trading
Pumping SPANISH OTC DEALS 2002 Equiv. volume (MW) Energy (TWh) Value (MÛ)
2003 2004 2005 2006 476 4,125 650 615 2,076 996 1,642 178 136 193 6 18 4 5 36
VOLUMES TRADED ON OMIP (GWh) Auctions Continuous Q3'06 Q4'06 Q1'07 Q2'07 Q3'07
Q4'07 0 500 1,000 1,500 2,000 2,500 3,000
tracting assimilated with the distributor itself, and the remaining 26
percent over the organised OMEL and REE markets. Own ordinary-regime generation
accounted for nearly 97 percent of market sales. Physical bilateral contracting
increased significantly in 2006, with ENDESA playing a leading role, as a result
of two main factors. First, the changes in capacity-payment rules that came into
force in late 2005 under Royal Decree 1454/2005 (2 December), which eliminated
the previous discrimination in favour of contracting on the spot market, and,
second, the coming into effect of Royal Legislative Decree 3/2006. endesa06
AVERAGE DAILY PRICE 2006 ((euro)/MWh) December November October September August
July June May April March February January 10090 80 70 60 50 40 30 20 10 0
Operations Review 103PRICE STRUCTURE (€/MWh) Capacity payment Successive
mkts Day ahead mkts Total 1998 1999 2000 2001 2002 2003 2004 2005 2006 64.8
62.935.7 37.345.8 38.8 39.434.8 35.1 26.09 26.3 31.9 31.5 38.9 30.3 28.756.0
56.4 1.3 2.0 2.72.52.5 2.52.4 4.0 7.751.0 7.46 4.44.5 4.54.6 5.5 4.54.5
With regard to purchases, ENDESA acquired 102,451 GWh on the wholesale
market, of which 53 percent (including contracting assimilated to bilateral
distribution) was obtained by bilateral contracting with the distributor itself
and the remainder on the organised markets. Other purchases included 3,535 GWh
for exports and 1,747 GWh of own consumption at hydroelectric pumping stations.
03.4. CO2 MARKET: COMPLIANCE WITH ETS COMMITMENTS In
2006 ENDESA continued to apply its environment policy and actions within the
framework of the EU regulations for emission-right trading (ETS), to comply with
the objectives of the Kyoto Protocol. ENDESA plays an active role in the leading
European markets (NordPool, Powernext and ECX) and has accounts open in
registers in Denmark, France and Spain (Renade) to optimise the management of
its emission-rights position. The evolution of the CO2 market fluctuated
considerably over the course of 2006, beginning with prices that were similar to
those at the end of 2005 (around Euro 22/tCO2) and peaking in April (over Euro
30/tCO2). Also in April, following the publication of the official actual
emission data for 2005, which reported fewer emissions than expected in 2005 in
Europe as a whole and therefore a surplus of rights on the market, prices fell
to around Euro 10–12/tCO2. In subsequent months prices remained fairly
stable (around Euro 15–16/tCO2), and then gradually fell to close the year
at around Euro 6–7/tCO2. A significant volume of contracting was recorded,
particularly at times when official figures were published. The allocation
assigned to ENDESA under the National Emissions Allocation Plan was 36.94
million tonnes for 2006. This allocation, which was insufficient to begin with,
together with the drought in the first half of the year, led to more rights
being consumed than the allocation accounted for. ENDESA, taking advantage of
the low prices on the CO2 market towards the end of the year, managed all its
needs on the various markets in which it operates and contracted bilaterally
with other Spanish and international agents. In order to cover its needs for the
years to come, the Company has joined several international projects to reduce
emissions (also known as “clean development mechanisms” or CDMs),
which enable some of the obligations acquired to be complied with by reducing
emissions in other countries. 104 Annual Report 2006 BUSINESSES ENDESA SALES AND
PURCHASES (GWh) Sales Purchases 0 20,000 40,000 60,000 80,000 100,000 120,000
Renewables/CHP at market Imports Ordinary regime output Distribution at tariff
Sales Exports Pumping PRICES OF CO2 EMISSION-RIGHT IN 2006 (Û/tonne)
January February March April May June July August September October November
December 35 30 25 20 15 10 50
03.5. SALES ON THE SURPLUS RENEWABLES/CHP MARKET In
2006 the renewables/CHP facilities that remained pending from 2005 came on line
and further new facilities were commissioned, leading to market sales of 2,300
GWh generated by renewable plants. 03.5.1. Opening of
Delegate Office for renewables/CHP facilities In December 2006 ENDESA’s
Energy Management Centre took over the tasks of Delegate Office for the
renewables/CHP facilities to offer this service to others. All the wind farms
owned by Endesa Cogeneración y Ren — ovables (ECyR) can now be
remotely controlled and the Company’s entire generation portfolio, both
renewable and conventional, coordinated and managed from this centre, thereby
increasing the efficiency and safety of the operation of the system.
03.6. WHOLESALE FUEL MARKET 03.6.1. International
scenario Oil began the year at over USD 60/bbl and continued to rise during the
first half of the year, peaking in August at USD 78.69/bbl. Instability in
several exporting countries contributed towards this rising trend. By the end of
the year, prices stood at over USD 60/bbl. The rising trend halted from
September onwards as a result of relaxing geopolitical tensions, an increase in
US reserves, lower demand forecasts, a total absence of hurricanes and mild
weather throughout the Northern hemisphere. In October OPEC decided to cut
production, followed by a further cut in December, positioning prices at around
USD 60/bbl and causing fluctuations of USD 58–64/bbl during the last four
months of the year. The API 4 spot coal price began the year at USD 42/t and
continued to rise as a result of cold weather in Europe and a fall in exports
from Russia and Poland, peaking in March at USD 57/t. After that, prices fell
slightly before picking up again in the summer and remaining at an average of
over USD 50/t for the rest of the year, far from the lows recorded in 2005
(under USD 40/t). Charter prices, which began to rise gradually from February
onwards, increased sharply at the beginning of the summer, largely as a result
of the short supply of spot ships, and also affected by the rise in API 2
prices, which hit over USD 70/t several times during the year. The long-term gas
price remained at high levels throughout 2006, owing to the high prices of crude
and other oil products included in the indexing of gas price formulas. The spot
gas price fell significantly over the course of the year, owing to falling
demand and the appearance of additional supplies. The Henry Hub price reference
fell to levels of USD 7/mm btu towards the end of 2006, compared with USD
11.43/mm btu during the same period in 2005. Financial markets for coal and
charters also continued to grow, with the consequent effect on advance prices
and business dealings between suppliers and consumers.
03.6.2. Fuel procurement In 2006, for its plants in
Spain ENDESA acquired 9.62 million tonnes of domestically produced coal,
including own production, 10.57 tonnes of imported bituminous coal and oil coke,
2.92 million tonnes of liquid fuel and 1.51 million m3 of natural gas.
03.6.3. Other procurement-related actions
Procurement-related actions in 2006 included: • Beginning of diesel imports
for the island of Gran Canaria and increase in storage capacity in Fuerteventura
and Lanzarote. • Significant increase in imported fuel-oil supplies to Fuer
— teventura and Lanzarote. The storage capacity on these islands now stands
at 16,000 tonnes and 20,000 tonnes, respectively. • Consolidation of
fuel-oil imports for Ceuta, Melilla and the Balearic Islands. • Increase in
the volume of diesel oil imported to Majorca for CCGTs, in anticipation of the
arrival of gas to the islands of Majorca and Ibiza. • Consolidation of
contracts for bituminous coal with a low sulphur content for Turbine II at the
Litoral thermal plant. Operations Review 105 endesa06 SUPPLY OF FUEL TO ENDESA
(INCLUDING OWN PRODUCTION) (Thousand tonnes) 2006 2005 % chg. Domestic coal
9,620 10,712 -10.19 Imported coal 10,575 10,570 +0.05 Oil coke 254 639
-60.25Liquid fuel 2,921 3,006 -2.83 Natural gas (millions of m3) 1,508 1,896
-20.46
• Sub-bituminous coal supplies from the United States were
discontinued owing to high prices. • Beginning of work, in the ambit of
UNESA, to adapt domestic-coal contracts to the new Coal-Mining Plan. • A
new agreement was made for long-term gas supplies via Medgaz, the direct
gas-pipeline link between Algeria and Spain, which will be operational in early
2009 and for which ENDESA will have an initial capacity of 0.96 bcm/year. The
associated gas-pipeline transmission contract was also signed. • The
management of deliveries under long-term gas contracts enabled ENDESA to adapt
quickly to ever more demanding regulations governing the management of the
Spanish gas system. • Signing of a new rail-transport contract with Renfe
Operadora from the Port of Tarragona to Teruel power station. • Beginning
of works for the new ship-unloading facilities at El Ferrol Exterior Port. These
works will be completed in the last quarter of 2007. • Coming into service
of the Es Botafoc quay in Ibiza, allowing supplies via the CLH system to be
supplemented with others. • Execution of fuel and parity cover to contain
costs and above all moderate the volatility of fuel costs.
03.7. RISK MANAGEMENT IN THE ELECTRICITY BUSINESS The
fuel, electricity and CO2 emission rights markets are managed together by
ENDESA’s Energy Management Department. Risk management is thereby focused
on managing marginal risks, using all advance markets and end-customer sales as
tools to obtain the appropriate balance between margin and risk. ENDESA’s
Spanish and Portuguese Business Risk Committee supervised risk positions in the
fuel, electricity and emission-rights markets, via open-position limitations and
aggregate-risk measures. Counterpart risks were also controlled via limitations
on credit exposure. Appropriate regulatory-risk assessment allowed firm
decisions to be taken in the face of the uncertainty recorded throughout the
year, arising from the temporary measures contained in Royal Legislative Decree
3/2006. Management of the customer portfolio as an instrument to contain the
regulatory and market-price risks enabled the overall business risk profile to
be kept in line with the Company’s Risk Policy for its business in Spain
and Portugal. On fuel markets, the policy of always assuring the physical supply
continued, keeping open positions very low throughout the year, by using price
closure in the physical supply or by derived products that close the price of
indexed supply contracts. Coverage was also assured for a large proportion of
fuel for 2007. The coverage function was consolidated by means of integration in
advance-market management by the Energy Management Department. Lastly, the risk
margin, which includes in a single measurement the level of market risk in the
Spanish and Portuguese energy business with a 5 percent probability of
occurrence, represents under 6 percent of the forecast annual margin for this
business for 2007. 04. ENDESA’S ELECTRICITY GENERATION04.1. ORDINARY REGIME
04.1.1. Ordinary-regime capacity ENDESA has more
ordinary regime generation capacity than any other Spanish electricity company.
At year end 2006, the total consolidated capacity was 21,849 MW. This figure
does not include Nuclenor, which does not consolidate into ENDESA for overall
integration. Of this amount, 17,494 MW corresponded to the mainland electrical
system and the remaining 4,355 MW to the Balearic and Canary Islands and the
Spanish enclaves of Ceuta and Melilla in North Africa. 106 Annual Report 2006
BUSINESSES
The structure of ENDESA’s power stations is appropriately diversified:
28.1 percent corresponds to coal-fired plants, 24.5 percent to hydro plants,
24.6 percent to conventional fueloil/ gas plants, 15.5 percent to nuclear plants
and 7.3 percent to CCGTs. This diversity safeguards the Company from the effects
of the sharp fluctuations in rainfall that are typical of the Spanish
electricity system. In addition, ENDESA’s hydroelectric plants are located
in catchment areas that are less exposed to rainfall fluctuations than those of
other electricity utilities. Accordingly, the Company’s hydroelectric
output is more stable than that of its counterparts. ENDESA’s conventional
fossil-fuel plants also have the capacity to substantially increase their output
and, as a consequence, their market share, with lower fuel costs than those of
its competitors. In summary, the sizing, structure and location of ENDESA’s
power plants affords the Company clear competitive leverage. At the end of the
year the Company’s natural-gas CCGT capacity stood at 1,589 MW, to which a
further 3,200 MW will be added over the 2007–2009 period, placing the
Company at the forefront of development in Spain of a technology that makes a
key contribution towards reducing pollutant-gas emissions and increasing energy
efficiency. The increase in mainland capacity in 2006 can be attributed to the
commissioning of the Cristóbal Colón CCGT (398 MW), which achieved
a total output of 564 GWh. ENDESA’s conventional plants continued to play
an active role in secondary-regulation markets in 2006, optimising deviations
between generation and demand in real time. These actions were possible because
of the operation of the Company’s gas-desulphurisation facilities, which
make the use of competitive fuels compatible with significant improvements in
environmental impact. 04.1.2. ENDESA’s
ordinary-regime electricity output in 2006 In 2006, ENDESA’s
ordinary-regime generation facilities recorded a total net output of 86,332 GWh,
5.7 percent less than in 2005, with a 4.2 decrease in market share to 33.9
percent, largely owing to a reduction in the use of coal-fired, CCGT and
fuel-oil/gas plants. On the mainland, the decrease was 5,820 GWh owing to the
reduced use of conventional power stations, although this was partly compensated
for by the increase in availability of the Vandellós nuclear plant.
ENDESA’s mainland coal-fired plants maintained an even higher level of
availability than in 2005, making a significant contribution to the guarantee of
supply. As for other technologies, mainland fuel-oil/gas maintained its
testimonial presence in the generation mix and its use was almost exclusively
due to the need to overcome limitations in the transmission grid in the relevant
areas. Operations Review 107 endesa06 ENDESA ELECTRICITY PRODUCTION AT BUSBAR
COST (GWh)* 2006 2005 % chg. % of Total Hydroelectric 7,571 7,479 1.2 8.8
Nuclear 24,389 23,020 5.9 28.3 Domestic coal 22,016 24,995 -11.9 25.5 Imported
coal 10,500 12,023 -12.7 12.2 Fuel-gas 964 2,417 -60.1 1.1 Combined cycle 6,431
7,757 -17.1 7.4 Total mainland 71,871 77,691 -7.5 83.2 Non-mainland 14,461
13,814 4.7 16.8 Total 86,332 91,505 -5.7 100.0 * Nuclenor's output is not
included since equity consolidation by ENDESA. ENDESA'S MAINLAND ELECTRICITY
GENERATION STRUCTURE UNDER THE ORDINARY REGIME 2006 8.9%33.9% Domestic
coalNuclearHydroelectricFuel-oil-gas CCGT Imported coal 10.5% 30.6% 14.6%1.3%
ENDESA'S INSTALLED CAPACITY STRUCTURE AS OF 31-12-2006 24.6% 15.5% CoalNuclear
HydroelectricFuel CCGT24.5%28.1%7.3%
The increase in demand by non-mainland systems was covered by a net
increase of 409 MW in the Company’s capacity. A total of 14,461 GWh was
produced, 4.7 percent higher than in 2005. If ENDESA’s electricity output
is compared with the demand in its markets, we find that a high proportion is
covered by the Company’s own facilities. 04.1.3.
New facilities, extensions and operational upgrades In 2006, ENDESA added 910 MW
to its ordinary-regime output capacity. 398 MW of this corresponds to the
Cristóbal Colón CCGT in Huelva, and the remaining 512 MW to plants
in the islands and other non-mainland systems. The following projects were
completed, developed or begun during the course of the year. Mainland system
• Testing and coming into operation of the 398 MW Cristóbal
Colón CCGT in Huelva province. Both the results of the tests and the
first few months of operation have been satisfactory. • Adaptation to
imported coal of turbine 3 at As Pontes power station in La Coruña
province, which became operational in December. Also, contracts were signed to
adapt turbines 1 and 2 and the manufacture of equipment for turbine 2 was begun,
with adaptation scheduled for 2007. • Continuation of the building of the
CCGT at As Pontes. Building and assembly work was intensified, with the first
hydraulic and system powering-up tests beginning before the end of the year.
This 800 MW installation is scheduled to be commercially operational in 2007.
• Submittal of the documents necessary to obtain substantive approvals for
the Estremera 1, 2 and 3 CCGTs in Madrid (1,200 MW), Compostilla 6, 7 and 8 in
León (800 MW), and Foix (800 MW) and Fayón (850 MW) in Zaragoza.
• Continuation of the building of desulphurisation plants for turbines 4
and 5 at Compostilla II power station in Leon and the desulphurisation plant at
Los Barrios power station in Cadiz. The supply and building contract for a
desulphurisation plant for turbine 1 at the Litoral power station in Almeria, of
similar characteristics to the plant at Los Barrios, was also signed. •
Continuation of actions to reduce NOx emissions by coalfired plants, including
the installation of low-NOx burners and combustion organisation. •
Commencement of civil works to build the coal unloading facilities at the El
Ferrol port which is due to begin operations in the last quarter of 2007.
Balearic Islands • Commissioning of turbines 1 and 2, with a unit capacity
of 75 MW, at the Cas Tresore CCGT in Majorca. The building of the parts of this
CCGT’s steam turbine continued, with commissioning scheduled for 2007.
• Continuation of assembly work at the desulphurisation plant for turbines
1 and 2 at Alcudia power station in Majorca and actions necessary to reduce NOx
emissions at the same power station. Low NOx burners were installed for both
turbines. • Launch of the project to install a 50 MW gas turbine at
Mahón power station in Minorca, scheduled for commissioning in 2008, and
completion of the commissioning of a fuel tank to supply the diesel-fired plant
at the same site. • Development of building and assembly work for two
diesel turbines with a unit capacity of 18 MW at Ibiza power station, scheduled
for commissioning in 2007. Canary Islands • Commissioning of two gas
turbines with a unit capacity of 75 MW for the Barranco 2 CCGT on the island of
Gran Canaria. Building work continued on this plant’s steam turbine,
scheduled for commissioning in 2008. • Commissioning and beginning of
commercial operations of the gas turbines at Guía de Isora, Tenerife,
with a total capacity of 45 MW, located at the substation of the same name.
• Commissioning of two 18 MW diesel turbines at Punta Grande power station
on the island of Lanzarote. Continuation of building and commissioning work on
another 18 MW diesel turbine, scheduled for commissioning in 2007. •
Commissioning of two diesel turbines with a unit capacity of 12 MW at Los
Guinchos diesel-fired power station on the island of La Palma. • Coming
into operation of fuel-oil storage tanks to supply motors at Punta Grande
(Lanzarote) and Las Salinas (Fuerteventura) power stations. BUSINESSES 108
Annual Report 2006
• Launch of the project to install two turbines with a unit capacity
of 3.5 MW at El Palmar diesel-fired power station on the island of La Gomera,
scheduled for commissioning in 2007. The fuel and cooling-water systems at this
plant are also being increased to absorb the scheduled increases in capacity.
Ceuta and Melilla (North Africa) • Commissioning at Ceuta power station of
diesel turbine No. 10 (12 MW). • Commissioning at Melilla power station of
turbine No. 12 (12 MW) and beginning of work to install motor No. 13 (also 12
MW). • Extension of electricity substations and work on the cooling systems
at Ceuta and Melilla power stations to cover the increases in capacity being
carried out. 04.2. RENEWABLES/CHP ENDESA operates in the
renewables/CHP sector through the company Endesa Cogeneración y
Renovables (ECyR). At the end of 2006, the cogeneration and renewable energy
facilities in service or under construction in Spain in which ENDESA has
interests jointly accounted for a capacity of 1,931 MW, with renewable energy
accounting for 1,487.8 MW and cogeneration and waste treatment plants for the
remaining 443.2 MW. The Company also participates in cogeneration and
renewable-energy facilities in service in Portugal, with a total a capacity of
288.9 MW at the close of 2006 (168.9 MW from renewable energy plants and 120.0
MW from cogeneration) and has holdings in cogeneration facilities in Colombia
and Mexico, with combined capacity of 35.9 MW. ENDESA’s electricity output
from cogeneration facilities and renewable energies in Spain, including supplies
to industrial cogeneration customers, stood at 3,203 GWh in 2006, of which 1,811
GWh corresponded to wind power, 498 GWh to mini-hydraulic facilities and the
remaining 894 GWh to cogeneration and other sources. In 2006 ENDESA brought 275
MW of renewable energy facilities on line in Spain and Portugal. At the end of
the year ENDESA had a further 263.4 MW in advanced construction stages, with
operations scheduled to begin in 2007. ENDESA disinvested in cogeneration plants
in Spain, with a total capacity of 79.5 MW, in which it had minority holdings.
By year end, ENDESA accounted for 6.5 percent of Spain’s total
renewables/CHP output: 3.66 percent in CHP and 8.2 in renewables. ENDESA’s
average presence in the ownership of the facilities in which it holds a stake
stands at 65.8 percent, corresponding to an attributable capacity of 1,483.1 MW,
calculated according to the percentage stake held by ENDESA in each of its
holdings in Spain and abroad, consolidating 1,173 MW of this capacity. 04.2.1
Situation by technology Wind energy. At the end of 2006 ENDESA had shareholdings
in wind farms with operational capacity of 1,247 MW, giving it a 10.72 percent
share of the total Spanish market for this technology. ENDESA’s average
stake in these wind farms is 73.3 percent. Mini-hydro plants. At the end of 2006
ENDESA had shareholdings in 37 operational mini-hydroelectric plants with total
capacity of 240.4 MW. Waste reuse. ENDESA part owns four waste treatment plants
with a total capacity of 74.8 MW. Three of these recover energy from solid urban
waste (Tirme, Tirmadrid and TRM) while the fourth uses industrial waste of
various kinds. Biomass. ENDESA has holdings in six operational biomass plants,
with a total capacity of 58.2 MW. Of these, three are bio-gas plants: one at the
Aguas de Jerez wastewater treatment plant (province of Cadiz) and the other two
at the urban solid waste landfill sites in Can Mata and El Garraf (Barcelona).
Cogeneration. At the end of the 2006 financial year,
ENDESA held stakes in Spain in cogeneration plants in service with a total
capacity of 303.1 MW. Others. ENDESA also holds stakes
in renewable-energy facilities of other types –solar photovoltaic,
environmental deimpact– with a total capacity of 7.1 MW.
04.2.2. New renewables/CHP facilities and projects Wind
• In 2006 the Company developed wind-power facilities in Spain totalling
379 MW installed capacity. Mini-hydro plants • Completion of tests and
commissioning of Rialb mini-hydroelectric plant, which is now commercially
operational, increasing the renewables capacity by 35.65 MW. Operations Review
109 endesa06
• Final phase of obtaining the necessary licences and approvals to
begin mini-hydro projects at Boeza and Chanada (León province) and La
Peña (Huesca province). Biomass • Studies continued to assess the
use of biomass at ENDESA Generación’s power stations. These studies
include assessing biomass production in pluri-annual cycles, supply logistics,
use systems and the gasifier specification. The coming into service of biomass
generation depends on the necessary legislative changes being made to recognise
energy from this source at coal-fired plants as being renewable. •
Completion of biomass co-combustion tests at Litoral power station in Almeria.
Work was begun on the project to enable biomass to be prepared and stored at
this plant. Biodiesel projects • ENDESA acquired a stake in a biodiesel
project being developed by Green Fuel Corporación S.A. in Aragon. ENDESA
has thus increased its holding in this sector, which, in addition to this
project, has three other projects in the Extremadura, Castile–La Mancha and
Andalusia regions. Photovoltaic and thermo-solar projects • Signing of an
agreement with Isofoton for the supply of solar photovoltaic panels over the
2007–2010 period to be installed at various solar plants. The necessary
licences have already been applied for and joint work has begun on a
photovoltaic solar-energy concentration pilot plant, with ENDESA also holding a
stake in a firm that owns a polysilicone manufacturing plant. • Development
of activities by year end 2007 for several 100 kW photovoltaic plants at various
Endesa Generación sites and a viability study for various thermo-solar
projects. 04.3. MINING: COAL EXTRACTION In 2006 ENDESA
extracted a total of 6.3 million tonnes of coal, equivalent to 15,315 million
therms, 12.9 percent less in terms of tonnage than in 2005 and 11.9 less in
terms of therms. This amounts to roughly 34 percent of domestic coal production
measured in tonnes. The mining operations that participated in ENDESA’s
production were the large-scale García Rodríguez cast-mining
facility at As Pontes (La Coruña), two open-cast mines near Andorra
(Teruel) –Cortas Gargallo and Gargallo Oeste– two open-cast mines in
the Guadiato basin in Cordoba (Cortas Cervantes and Ballesta Este), and finally
Corta Emma opencast mine in Puertollano, Ciudad Real. After the closure of
ENDESA’s last two underground mines in 2005 (Oportuna and María),
all the 2006 production came from open-cast mining. Coal sales decreased by 12.8
percent compared with 2005 measured in therms and were slightly higher than
production, leading to a small reduction in stocks. The significant decrease in
2005 in both production and supplies can be attributed to two factors, both of
which had been expected. First, the gradual programmed reduction in activity at
the As Pontes mine (0.7 million tonnes), running in parallel with the adaptation
of the plant’s turbines to enable them to consume only imported coal, and,
second, the adjustment of production to the decreasing activity defined in the
new coalmining plan for 2006–2012 (0.2 million tonnes). 110 Annual Report
2006 BUSINESSES MINING PRODUCTION BY TYPE OF COAL (Millions of L.H.V. therms)
Type of Producer coal 2006 2005 % chg. Endesa Generación Brown lignite
8,078 9,285 -13.0 Endesa Generación Black lignite 2,409 2,948 -18.3
Encasur Bituminous coal 3,923 4,125 -4.9 Encasur Anthracite 905 1,030 -12.2
Total 15,315 17,388 -11.9 L.H.V. = Low Heating Value WIND FARMS DEVELOPED BY
ENDESA IN SPAIN IN 2006 Gross Autonomous capacity (MW) Type Community La Torre I
16.00 Wind Andalusia El Pandero 20.00 Wind Andalusia Loma de Almendarache 12.00
Wind Andalusia Las Hoyuelas 32.00 Wind Castilla la Mancha Fuente de la Arena
30.00 Wind Castilla la Mancha Dehesa Virginia 30.00 Wind Castilla la Mancha El
Mazorral 11.05 Wind Valencia Cerro Rajola 26.35 Wind Valencia Alto Palancia II
48.00 Wind Valencia Valpardo 21.25 Wind Castilla y León Saso Plano 3.20
Wind Aragón Sierra Costera II 40.80 Wind Aragón Pena Ventosa 44.80
Wind Galicia Chan do Tenón 22.40 Wind Galicia Repotenciación Los
Valles 2.37 Wind Canary Islands Ourol 18.70 Wind Galicia Total Spain 378.92
78 percent of these supplies (measured in therms) were delivered to Endesa
Generación, 5 percent to Elcogas (in which ENDESA holds a stake) and 17
percent to Viesgo Generación. 05. ENDESA’S ACTIVITIES IN
THEPORTUGUESE ELECTRICITY SECTOR IN 2006 ENDESA’s presence in the
Portuguese electricity system mainly focuses on generating and selling
electricity on the deregulated market. In 2006 the Company consolidated its
presence on this market by opening its new head offices in Portugal and starting
trading under the Endesa Portugal brand. 05.1.
GENERATION ENDESA holds a 38.9 percent stake in Tejo Energia, which owns Pego
power station (coal-fired). This plant, with a capacity of 600 MW, is one of the
largest in the country and has been given the official go-ahead for a reception
point for an 800 MW CCGT, with building scheduled to begin in 2007. The power
station, which has pre-sold its energy long-term to the Portuguese grid,
produced 4,760 GWh in 2006. ENDESA also owns, in a 50/50 partnership with Sonae,
one of Portugal’s largest industrial conglomerates, Sociedade
Térmica Portuguesa, the Portuguese market leader in cogeneration with a
renewables/CHP capacity of 58.6 MW. ENDESA also wholly owns the company Finerge,
which at the end of 2006 had consolidated renewables and CCGT capacity of 127 MW
in service and 272 MW under construction. We would also add the Eólicas
consortium, in which ENDESA holds a 30 percent stake, was awarded the project to
develop 1,200 MW of wind capacity, the largest lot in the Portuguese wind-power
tender process. The Eólicas de Portugal project entails an investment of
over Euro 1.5 million between 2006 and 2011 and the installation of 48 wind
farms, with a unit capacity of 20–25 MW, as well as the creation of 1,500
new jobs. ENDESA holds stakes in the following new renewables/CHP facilities in
Portugal, which came into service during 2006: 05.2.
SALES TO DEREGULATED CUSTOMERS In 2006 ENDESA continued to consolidate its
position on the deregulated Portuguese market, recording total sales of 2,761
GWh, 24 percent higher than in 2005, and a market share of 60 percent. ENDESA
operates on this market through Sodesa, set up under a 50/50 joint venture with
Portuguese industrial conglomerate Sonae in 2002. Since 2006, Sodesa has been
the leading vendor on the deregulated Portuguese market, with a portfolio of
customers with over 2,900 GWh contracted. Operations Review 111 endesa06
BREAKDOWN OF ENDESA’S COAL PRODUCTION (Millions of L.H.V. therms) Receiving
Destination company plant 2006 2005 % chg. Endesa Generación As Pontes
8,078 9,285 -13.0 Endesa Generación Teruel 2,409 2,948 -18.3 Elcogas
Puertollano GICC 1,056 1,073 -1.6 Viesgo Generación Puente Nuevo 1,788
2,077 -13.9 Viesgo Generación Puertollano 2,044 2,253 -9.3 Total 15,375
17,636 -12.8 L.H.V. = Low Heating Value Instalation MW Type Enerlousado 5.12
CCGT Pracana 2.00 Wind Videira 6.00 Wind Caravelas 0.60 Wind Sra. Socorro I 6.00
Wind Serra Arga 36.00 Wind Total 55.72
06. GAS BUSINESS IN SPAIN ENDESA is present in both the regulated and
deregulated markets of the Spanish gas sector. The Company has significantly
increased its presence in recent years, reaching a particularly strong position
in sales to end customers for integrated electricity and gas services. 06.1. THE
SPANISH NATURAL-GAS MARKET IN 2006 In 2006 the expansion process experienced by
the Spanish natural gas market in recent years slowed down somewhat, with total
sales of 391,443 GWh, an increase of only 4 percent over the previous year. The
main reason for this growth was the increase in demand for electricity
generation from new CCGTs. Consumption of natural gas for electricity generation
grew by 21 percent compared with the same period the previous year, accounting
for 34 percent of the total natural-gas consumption. Also, natural gas
consumption on the conventional market fell by 3 percent. In 2006 99.8 percent
of the Spanish demand for natural gas was covered by imports, of which 32
percent came from Algeria, 20 percent from Nigeria, 17 percent from Persian Gulf
countries, 13 percent from Egypt, 10 percent from Trinidad and Tobago, 6 percent
from Norway and 2 percent from Libya. The Spanish deregulated natural gas market
continued to grow over the course of the year. This market accounted for 86
percent of total sales for the year, compared with 83.6 percent in 2005. 06.2.
ENDESA ON THE SPANISH NATURAL GAS MARKET ENDESA is present in all three areas of
the gas business in Spain: supply to deregulated customers; distribution,
transport and supply to regulated customers; and liquid natural gas (LNG)
delivery, storage, regasification and transport projects. 06.2.1. Deregulated
gas sales Conventional market As of 31 December 2006, ENDESA’s customer
portfolio on the deregulated conventional natural gas market (excluding sales
for electricity generation) held 328,811 customers, with a total annual
contracted consumption of 33,396 GWh, compared with 24,947 GWh in 2005, a 34
percent increase. ENDESA sold 23,697 GWh among 320,259 customers on this market.
This volume of energy was 28 percent more than the amount sold in 2005.
Electricity sector If we add to these sales the consumption by Endesa
Generación (bio-fuel and combined cycles) and sales for the rest of the
electricity sector, 17,962 GWh in 2006, the Company achieved a share of 12.3
percent of the total deregulated market in Spain. ENDESA on the regulated gas
market ENDESA maintains its presence in the Spanish reulated gas market through
its wholly owned subsidiary Endesa Gas, which brings together the Company’s
holdings in the distribution and tariff sales businesses. Distribution areas and
markets served Endesa Gas is present in seven of Spain’s regions and is
authorised to distribute mains gas supplies in over 200 towns and cities. At the
end of 2006, the Company supplied gas to 351,000 consumers, with a volume of
energy distributed of 6,758.8 GWh. Its market share is approximately 7 percent.
112 Annual Report 2006 BUSINESSES ENDESA’S GAS PORTFOLIO IN THE DEREGULATED
MARKET BY USE (GWh) 15,078 15,573 Cogeneration Other processes 51% 49%
ENDESA’S GAS SALES IN THE DEREGULATED MARKET BY SECTOR (2006) 7% 1%
Government and public services Agrofood Automotive and ancillary Ceramics
Commerce and services Paper Chemicals Textile Glass Other 26% 1% 15% 5% 17% 2%
19% 7%
Compared with 2005, these figures equate to an advance of 8 percent in
terms of number of consumers and an increase of 18 percent in terms of the
volume of energy supplied. Holdings by Endesa Gas in gas utilities In Spain,
Endesa Gas distributes natural gas through the companies Gas Aragón
(Aragon, with a 60.67 percent holding), Distribuidora Regional del Gas (Castile
and León, 45 percent holding), D.C. Gas Extremadura (47 percent holding),
and as the whole owner of Gesa Gas (Balearic Islands), Meridional de Gas
(Andalusia) and Gas Alicante (Valencia Region). Transport and distribution
infrastructures ENDESA is present in the gas-transport sector via the wholly
owned subsidiary Endesa Gas Transportista S.L., Transportista Regional del Gas,
S.A. (with a 45 percent holding) and Gas Extremadura Transportista, S.L. (40
percent). Together, these three companies have 371 kilometres of transport
network in service. ENDESA currently has several gas pipelines either under
construction or in the project stage which will boost the Company’s
transport network to 720 kilometres by the end of 2007. In 2006, Endesa
Gas’s distributors built 429 kilometres of new pipeline, bringing its
network to 3,303 kilometres — 13 percent up on the previous year. The
breakdown is as follows: Major gas pipelines being built in 2006 included the
following. • Pipelines commissioned in 2006: –
Salamanca-Peñaranda gas pipeline (52.9 km). – Gas pipeline to
López Soriano Recycling Technology Estate (0.6 km). • Pipelines
planned or under construction in 2006: – Zaragoza–Calatayud gas
pipeline (70 km). – Cella–Calamocha gas pipeline (56.7 km). –
Segovia–Ávila gas pipeline (67.7 km). –
Medina–Arévalo gas pipeline (29.7 km). – Fraga–Mequinenza
gas pipeline (10 km). – Alagón–La Joyosa-Sobradiel gas pipeline
(17 km). – Gallur–Tauste–Ejea gas pipeline (39 km). – Bay of
Cadiz gas pipeline (24 km).North-East Cadiz Coast gas pipeline (22 km). –
Marina Alta I gas pipeline (22.7 km). – Marina Alta II gas pipeline (20.5
km). – San Juan de Dios–C’as Tresorer–Son Reus gas pipeline
(17 km). – Cala Gració–Ibiza gas pipeline (16 km). –
Azaila–Híjar–Ariño gas pipeline (37.3 km). –
Arcos–Lebrija–Las Cabezas de San Juan gas pipeline (35 km). –
Linares–Úbeda–Villacarrillo gas pipeline (84.1 km). – Gas
pipeline to Escúzar (11.6 km). 06.6.2 Delivery, storage and
regasification projects ENDESA is involved in three projects for
LNG-regasification port terminals that are currently underway: • Reganosa,
in Mugardos (La Coruña), with a 21 percent stake. The plant will include
a 130-kilometre network of gas pipelines and have a storage and regasification
capacity of 300,000 cubic metres, enabling 412,500 Nm3/h (3.6 bcm/year) of
natural gas to be distributed. • Sagunto S.A. regasification plant in
Sagunto (Valencia), with a 20 percent stake. This plant will have a storage
capacity of 300,000 m3 and regasification capacity of 600,000 Nm3/h (5.25
bcm/year). • Gasificadora de Canarias (Gascan), in which the Company is the
majority stakeholder. Initial studies and tasks are currently underway for new
projects in Gran Canaria and Tenerife. Each of these plants is scheduled to have
storage capacity of 150,000 m3 and regasification capacity of 210,000 Nm3/h (1.8
bcm/year). ENDESA also holds a 15.8 percent stake in the technical and financial
feasibility study for the new direct gas pipeline between Algeria and Spain, via
Almeria, which is scheduled to become operational in 2009. Operations Review 113
endesa06 GAS COMPANIES STAKED BY ENDESAIN SPAIN Figures as of December 2006
Consumers GWhGas Aragón 177,132 3,346.4 Gesa Gas 88,543 497.2 D. Regional
del Gas 18,271 1,731.1 D.C. Gas Extremadura 43,229 942.0 Meridional de Gas
18,240 183.2 Gas Alicante 5,585 58.9 Total 351,000 6,758.8 Figures as of
December 2006 km in 2006 Total km in 2006 Gas Aragon 143 1,275 Gesa Gas 33 670
D. Regional del Gas 48 304 D.C. Gas Extremadura 85 506 Meridional de Gas 102 422
Gas Alicante 18 126 Total 429 3,303 BUSINESS
BUSINESS IN EUROPE ENDESA is one of the five leading electricity utilities
in Europe. Its strategy in Europe has targeted the acquisition of a majority
share in generation companies, particularly in the Mediterranean area. The
Company has taken advantage of the opportunities provided by the deregulation
implemented in various European countries in order to avail itself of
significant amounts of energy and good access to domestic markets. At the same
time, the Company managed to be present when markets with high growth potential
opened and where ENDESA’s experience translates into more highly effective
generation-capacity management. In doing so, ENDESA added a strong position in
the Italian and French generation business to its leading position in the
Iberian electricity market (Spain and Portugal). It also added marketing
operations in the deregulated markets of Italy, France and other European
countries. Added to this, the Company carried out operations in the major
wholesale markets on the continent, transnational power exchanges, and obtained
a stake in one of the most important generation facilities in North Africa: the
Tahaddart plant in Morocco. Likewise, ENDESA set up an electricity market in
Poland (Towarowa Gielda Energii) with Polish partners. In September 2006 it
incorporated Endesa Polska, a company that was set up as a vehicle for
ENDESA’s investments in Poland, for marketing to wholesale customers and
for developing energy management on the Polish market. In 2007, ENDESA signed an
agreement with Mytilineos Holding which will give it a strong position in the
Greek electricity market. 01. ENDESA IN EUROPE: KEY DATA At the end of 2006
ENDESA’s capacity in Europe stood at 9,775 MW, divided into 6,968 MW in
Italy and 2,807 MW through Snet, a French company that has been operating under
the brand name Endesa France since December 2006. In addition, in 2006 Endesa
Europa signed a Framework Agreement with Gamesa to acquire another three wind
farms in Italy which total 106 MW: 42 MW at Monteute, 20 MW at Poggi Alti, and
44 MW at Marco Aurelio Severino. These facilities are still under construction
and will come on stream in 2007. 114 Annual Report 2006
BUSINESS Operations Review 115 endesa06
ENDESA’s total production in Europe stood at 35,575 GWh in 2006, of
which 25,723 GWh was generated in Italy and 9,852 GWh by Snet. Sales totalled
52,606 GWh, of which 33,584 GWh corresponded to Endesa Italia and 19,022 GWh to
Snet. This figure did not include the energy sold by Endesa Energia in the
European deregulated markets outside the Iberian system.
01.1. GENERATION BUSINESS 01.1.1. Italy ENDESA holds an
80 percent controlling stake in Endesa Italia. A number of share operations led
to the company’s controlling stake after Elettrogen, the former Italian
generation company, was awarded to a consortium led by ENDESA in September 2006
.. This consortium was made up of ENDESA (45 percent), SCH (40 percent) and the
Italian power company ASM Brescia (15 percent). Subsequently, ENDESA acquired
shares in SCH through two purchase operations for 5.7 percent in 2002 and 34.3
percent in 2004. Finally, ENDESA sold 5.3 percent to its Italian partner ASM
Brescia in 2005, thereby allowing them to obtain 20 percent of Endesa
Italia’s capital. ENDESA’s controlling stake allows the utility to
manage a company with enormous growth potential, positioning it strongly in one
of the most attractive and strategically important electricity markets in
Europe. Endesa Italia is Italy’s third largest generator, with a market
share of 8 percent and total capacity of 6,614 MW. Its generation assets include
several conventional power stations: Tavazzano (1,840 MW), Monfalcone (976 MW),
Ostiglia (1,530 MW), Fiume Santo (1,040 MW) and Trapani (170 MW), as well as the
Terni (530 MW), Cotronei (369 MW) and Catanzaro (115 MW) hydroelectric plants
and the Florinas (20 MW) and Vizzini (24 MW) wind farms. In addition, in
September 2006 ENDESA acquired 58.35 percent of the Centro Energía
Teverola and Centro Energía Ferrara generation companies, each of which
one owned a CCGT plant with a CIP 6 tariff and a total capacity of 340 MW. Since
July 2006, ENDESA also wholly owns 100 percent of the Iardino wind farm,
currently in operation with a total capacity of 14 MW. Finally, under the
above-mentioned Framework Agreement with Gamesa, ENDESA also acquired another
five wind farms under construction, which will add a further 228 MW to its
generation capacity and which includes the previously mentioned farms
(Montecute, Poggi Alti and Marco Aurelio Severino). ENDESA’s generation
capacity in Italy recorded a net output of 25,723 GWh in 2006, a 10 percent
increase over 2005. This increase was mainly due to the full commercial
operation of Ostiglia plant’s turbine 3 in 2006, and to the purchase of the
Teverola and Ferrara CCGT plants and the Iardino wind farm. ENDESA’s sales
in Italy reached an amount of 33,584 GWh, an increase of 8.6 percent over 2005,
as a result of higher output and a 18 percent rise in power purchases from third
parties. A large part of this increase can be attributed to Endesa Europa taking
advantage of its position in France, allowing Endesa Italia to increase its
energy imports from 1,658 GWh in 2005 to 1,950 GWh in 2006. The conversion of
the Ostiglia plant’s turbine 3 and the Tavazzano plant’s turbine 6 is
part of Endesa Italia’s conventionalplant re-powering programme, which
began in 2002. This programme entails the conversion of these plants to more
efficient and environmental-friendly technologies, while also significantly
increasing their capacity. Within the framework of this programme, the following
have already been converted to combined cycle generation: turbines 1, 2 and 3 at
the Ostiglia plant and turbines 5 and 6 at the Tavazzano plant. Units 3 and 4 at
Fiume Santo have been converted to coal. Conversion of turbines 3 and 4 at the
Monfalcone plant has been postponed for a future date. Additionally,
construction work for desulphurisation units for turbines 1 and 2 at the
Monfalcone plant is now underway. This will significantly reduce emissions. Due
to EU provisions to meet Kyoto targets, Endesa Italia included Euro 37.5 million
in its 2006 accounts as the estimated cost of CO2 emissions for 2006 that were
not covered by the National Emissions Assignation Plan (NAP) approved by the
Italian government. Finally, at the end of 2006 the Italian government sent its
proposed allocations for 2008–2012 to the EU, pending approval. The
renewables business in Italy ENDESA continued to use renewable energy to produce
electricity in Italy via the Florinas wind farm, with a capacity of 20 MW, in
Florinas, Sardinia. The Iardino wind farm (14 MW) in Campania and the Vizzini
wind park (24 MW) in Sicily were added in June and December 2006, respectively.
The Company also continued to produce renewable energy by burning animal meal
and olive-industry waste for the coalfired turbines at the Monfalcone plant. 116
Annual Report 2006
BUSINESS The Trapani wind farm (32 MW) is nearly complete and is scheduled
to come on line in 2007. Both the Vizzini farm and the Trapani farm were part of
the IDAS company, which was taken over by Endesa Italia in November 2006.
Finally, in 2006 and in compliance with the Framework Agreement between Gamesa
and ENDESA, the Company purchased Montecute (42 MW), Poggi Alti (20 MW) and
Marco Aurelio Severino (44 MW) wind farms, which are currently under
construction and scheduled to be commissioned in the first quarter of 2007. Two
other wind farms were purchased in January 2007: Piano di Corda (64 MW) and
Serra Pelata (58 MW), scheduled to come on line in the first quarter of 2008. In
all, power generated by these wind farms totals 318 MW. Electricity sales in
Italy In 2006, Endesa Europa consolidated its position in the marketing of
electricity in Italy by purchasing a 50 percent stake in MPE Energia in March.
MPE Energia sells power to residential customers, whose sales rose to 1,906 GWh.
The remaining 50 percent belongs to Merloni Proyecto Energia. Sales operations
continued through Endesa Europa Power & Fuel, with sales of 5,878 GWh in
2006. Endesa Europa also holds a 50 percent stake in the Ergon Energia sales
company which sold 7,121 GWh in 2006 (the remaining 50 percent is owned by ASM
Brescia). Other Endesa Europa projects in Italy In 2006 the work begun in 2005
to build the Scandale plant continued. This plant is owned by Eurosviluppo
Elettrica (50/50 Endesa Europa and ASM Brescia). Eurosviluppo Elettrica now has
the necessary land and permits required to build two 400 MW CCGTs, each
producing electricity and heat. According to current forecasts, the plant is
scheduled to come on line in 2008. ENDESA also bought 25.5 percent of the OLT
Offshore Toscana S.R.L. Company, the owner of the Livorno regasification plant
project, which them the right to 1.5 bcm of gas as of 2008. The project received
ministerial permission to begin building work in 2006. The regasification
capability will be used to feed the CCGTs currently operated by the Company in
Italy and those scheduled for the coming years. Endesa Italia: meeting targets
In 2006 Endesa Italia developed according to its business plan. Operations
Review 117 ENDESA ITALIA POWER PLANTS Tavazzano 1,840 MW Fiume Santo 1,040 MW
Florinas 20 MW Trapani 170 MW Monfalcone 976 MW Ostiglia 1,530 MW Núcleo
de Terni 530 MW Núcleo de Cotronei 369 MW Núcleo de Catanzaro 115
MW Thermal plants Hydroelectric plants Wind farms Ferrara 170 MW Vizzini 24 MW
Teverola 170 MW Iardino 14 MW endesa06
Aside from production increase and the above-mentioned sales, the
year’s highlights included: • Growth in EBITDA and net income in a
context of stable margins. • Significant progress made in the re-powering
programme. • The takeover of IDAS by Endesa Italia. • The re-financing
of Euro 350 million of debt under more favourable conditions. • Euro 176
million in dividends distributed. Endesa Italia’s work force was downsized
by a further 2 percent. It is now is 36 percent smaller than it was when ENDESA
took control. The reductions have been made on non-hostile terms. 01.1.2. France
In September 2004 ENDESA officially purchased 35 percent of the Snet generation
company’s equity stock from Charbonnages de France (CdF), which it added to
the 30 percent it acquired in 2002. This increased ENDESA’s stake in Snet
to a controlling interest (65 percent), while consolidating its presence on the
French electricity market. The remaining shareholders are CdF and
Electricité de France (EdF). In December 2006 Snet launched its new trade
name: Endesa France. Snet owns four conventional coal-fired power stations in
France, with a total capacity of 2,477 MW, producing 8,248 GWh of electricity in
2006: Émile Huchet with a capacity of 1,086 MW; Hornaing with a capacity
of 253 MW; Gardanne with a capacity of 868 MW and Lucy 3 with a capacity of 270
MW. The bulk of its output is sold to Electricité de France (EdF). Snet
reported sales of 19,022 GWh in 2006, of which 9,852 GWh corresponded to its own
production and 9,170 GWh were power purchases from third parties. The group sold
4,532 GWh of power to 157 customers on the deregulated French market. In
addition, beyond the 2006 horizon, Snet sold 13 TWh in multi-annual contracts of
5–6 years’ duration. Desulphurisation and denitrification projects In
2005, assembly work began on the desulphurisation and denitrification systems
for two 600 MW turbines, Provence 5 at the Gardanne site and Émile Huchet
6. As of 1 January 2008, these systems will allow both groups to comply with the
EU Directive limiting the emissions produced at large combustion facilities.
Investment in the project will total Euro 162 million. The Émile Huchet
denitrification plant was completed on schedule and tests were due to continue
until the beginning of 2007. The desulphurisation system, which is considerably
more complex, was commissioned in December 2006. At Provence 5, the
project’s global progress is satisfactory. At the end of 2006, the amount
of investments came to Euro 124.9 million, or 77 percent of the overall budget.
Wind energy In 2006, Snet confirmed its intention to invest in renewable
energies, and wind energy in particular, in accordance with the industrial plan
it presented in 2005. Snet aims to achieve 200 MW in facilities for
renewable-energy technologies by 2010. In July 2006 the company received
permission to build the Ambon wind farm and permission for the Muzillac wind
farm in November. Both these facilities are located in the Brittany region.
These wind farms total 20 MW in capacity and are scheduled to become operational
in 2008. 118 Annual Report 2006 BUSINESS SNET’S POWER PLANTS IN FRANCE
Hornaing 253 MW Emile Huchet 1.086 MW Lucy 270 MW Gardane 868 MW
The 10 MW Les Moindreaux project (in the Charentes Maritimes region) was
given a favourable opinion in a survey among the local community, the first step
for it to be authorised. There are two other projects under way, totalling 43.5
MW (17.5 MW in La Marne and 26 MW in Brittany). Permits to build the first
project (Cernon) were granted in October and building work is expected to begin
in early 2007, with completion scheduled for late 2008. The Lehaucourt wind park
in the Picardie region came on stream in 2007 after the permit was granted in
2005. Currently, the company’s wind-project portfolio stands at 100 MW,
with nearly half the projects already having the necessary building permits. New
sites In 2006, the company signed agreements for the reservation and acquisition
of two new sites: • In June it signed a protocol agreement with The Port of
the Hague to reserve a 20 hectare (50 acre) plot of land for three years. It is
the ideal site for a coal-fired plant and appropriate feasibility studies will
be carried out during the reservation period. • In July the company
acquired the 15 hectare Lacq site from the municipal district of Lacq. Two 400
MW CCGT units are scheduled to be installed there. Industrial Plan In 2006 Snet
continued to develop its Industrial Plan, which includes the building of five
CCGT units (400 MW each), with a view to achieving a capacity of 2,000 MW by
2010. With these new units, the company can diversify the fuel used at its
generation facilities by introducing natural gas and compensating for the
permanent shutdown of the Lucy 3, Hornaing 3 and Émile Huchet 5 turbines,
scheduled for no later than 2015. The two 400 MW units planned for the
Émile Huchet site have already been granted the necessary building
permits, as well as operations approval. The new Hornaing CCGT has also been
granted the necessary building permit. The other CCGT projects are running
according to schedule and the company is obtaining all the necessary official
permits. Snet’s holdings Snet owns 69.58 percent of the company that owns
Bialystok, a Polish cogeneration plant. (The Polish Treasury owns the remaining
capital.) Bialystok has a capacity of 178 MWe and 468 MWt, the equivalent to 330
MWe. It produced 1,604 GWh in 2006. The Board of Directors submitted a proposal
to the General Shareholders’ Meeting to approve a dividend payout of Euro
9.1 million against 2006 results. This dividend amounts to 100 per cent of the
company’s total profits. Snet also holds a 45 percent stake in Soprolif, a
French company that owns a circulating fluid bed plant at the Gardanne site with
a capacity of 250 MW. Until 2006, Snet held a 20 percent stake in the company
and in late 2006 acquired the 25 percent that Endesa Europe owned in it, raising
its controlling percentage to 45 percent, as mentioned above. The remaining 55
percent is owned by EdF through its EDEV branch. Snet, together with Alarco,
holds 50 percent of the Altek group (Turkey). This company has 40 MW of
installed hydro capacity and at the end of 2005 inaugurated an 80 MW CCGT plant
at Kirklareli. Technically, the plant performed as forecast during its first
year of operation. Meeting Snet’s targets The good results obtained for its
main business parameters enabled Snet to meet its targets for 2006. The main
milestones were: • EBITDA grew by 10 percent and recurrent net income by 29
percent. • The company distributed Euro 74.5 million in dividends in 2006.
• Staff costs were 12 percent lower than in 2005. • In 2006 the work
force in Poland was reduced by 50 employees (18 percent). 01.1.3. Poland Endesa
Europa has decided to stay in the Polish market despite the changes in policies
for privatising energy companies in Poland that prevented the privatisation of
Dolna Odra. In September 2006 the Company set up Endesa Polska, with head
offices in Warsaw. The new company will act as an investment vehicle in Poland
and also be used to market to wholesale customers and develop energy management.
In December the Company succeeded in winning 20 MW of the Poland–Germany
interconnection for the month of January. Operations Review 119 endesa06
As mentioned above, ENDESA is present in Poland through the controlling
stake held by Snet in the 330 MW Bialystock plant, and its 10 percent holding in
the Polish market (Gielda Energii). 01.1.4. Greece In April 2007, Endesa Europa
and Mytilineos Holding of Greece signed an agreement to develop new capacity
projects in the country through a joint venture whereby Endesa Europa’s
stake will be over 50.01 percent. Under the terms of this agreement, Mytilineos
will contribute all of its energy assets, thermal and renewable, as well as its
current licences giving a portfolio of 1,400 MW (thermal) and 1,000 MW
(renewable). Endesa Europa will provide the capital for the value of these
assets. 01.2. ENERGY MANAGEMENT IN WHOLESALE MARKETS
01.2.1. Activities in European wholesale markets ENDESA operates in European
wholesale markets to manage its generation and supply activities outside the
Spain/Portugal market. Among other targets, this move gives the group the
necessary power supply to meet its contracts with customers and balance out risk
positions in those areas where it operates. Endesa Trading is the subsidiary
responsible for this area of business. In 2006 operations on European wholesale
markets were marked by the high volatility of CO2 emission rights, with the
resulting impact on futures costs on electricity. Also, volumes traded through
bilateral contracts increased on organised markets such as Powernext, EEX and
APX. Therefore, the EEX reached 89 TWh in 2005, up 35 percent compared with
2005; the APX rose to 19 TWh (19 percent up) and the French market Powernext,
where ENDESA holds a 5 percent stake, recorded a figure of 30 TWh (58 percent
up). Electricity futures did not rise significantly during 2006. Thus, the base
price for 2007, quoted at the beginning of 2006 at Euro 48.9/MWh in Germany and
Euro 51.7/MWh in France, by year’s end stood at Euro 50/MWh for Germany and
Euro 50.4/MWh for France. In contrast, the average 2006 spot prices recorded
significant increases in these two countries. The average base in both countries
was around Euro 50/MWh (Euro 49.3/MWh in France and Euro 50.83/MWh in Germany),
as opposed to averages prices of around Euro 46/MWh in 2005. 2006 spot prices
reached record highs and even came to Euro 999.99/MWh in France and Euro
2,436.63/MWh in Germany at certain times. In 2006 Endesa Trading managed a total
energy volume of 46.12 TWh, of which 11.78 TWh was for commercial operations
with Italian customers and 5.52 TWh with Snet. The remainder was for supply
contracts with big industrial consumers, distributors and other agents, and to
import and export operations in existing interconnections between Spain, France,
Germany, Holland, Belgium, Denmark, Italy and Slovenia. It should also be noted
that in the virtual volume auctions (VPP) organised in France by
Electricité de France (EdF) Endesa Trading obtained a volume of 2.6 TWh
for 2006-2008, and 0.81 TWh for 2006 in the auctions organised by Dong in
Denmark. 01.3. INTERNATIONAL EXCHANGES In 2006, the
number of interconnections that applied the explicit coordinated auctions method
grew, in line with European directives on increasing transparency and
competitiveness in interconnection capacity allocations between countries,
including the link between Spain and France. For the first time Endesa Trading
took part in capacity auctions between Germany and Holland, attaining a total
volume of 184 GWh from Germany to Holland and 265 GWh in the opposite direction.
Cross-border operations between France and Italy accounted for 1.71 TWh of
energy transmitted in 2006. With regard to interconnections between Spain and
France, power imports from Spain stood at 73 GWh while exports were 173 GWh.
01.4. CO2 EMISSIONS MARKET The first reduction of rights
in the first phase of the National Emissions Assignation Plan (NAP) took place
in April 2006. Most countries taking part in the European Emission Rights Market
(ETS) were allocated an excess of rights, pushing CO2 prices down from Euro 29
per tonne to Euro 12 per tonne in only a few days, with a dragging effect on
electricity futures. All of the above caused a sharp rise in the negotiation of
emission rights on organised markets (Powernext, Nordpool, EEX, ECX) and OTC. In
Europe, Endesa Trading channelled operations for the sale and purchase of
CO2-emission rights between Snet and Endesa Italia for a total volume of 4.40
tonnes over the 2006– 2007 period. The initial emission-right price was
21.88 ~/T, while by the end of 2006 it stood at around 6.45 ~/T. 120 Annual
Report 2006 BUSINESS
02. ENDESA IN MOROCCO On 19 January 2005 commercial activities began at the
Tahaddart CCGT plant in Morocco. This power station, with a capacity of 384 MW,
is located in the town of Tahaddart. Its shareholders are the Office National
d’Electricité (ONE), with a 48 percent stake, ENDESA with 32
percent, and Siemens with 20 percent. The plant produced 2.5 TWh in 2006, 25
percent more than in 2005. Tahaddart distributed its first dividend in July,
charged to 2005 results. The total dividend was for Euro 6 million, of which
Euro 1.9 million corresponded to ENDESA. endesa06 ENDESA IN EUROPE AND NORTH
AFRICA IN 2006 (does not include the Iberian market) FRANCE • 65% of
generation company SNET Installed capacity: 2,477 MW; Generation: 8,248 GWh
Total sales: 17,418 GWh • 45% of generation company Soprolif ** Installed
capacity: 250 MW; • 5% of Energy Exchange Powernext Volume traded: 30,000
GWh POLAND • 10% of wholesale market operator Gielda Energii • 70% of
Bialystok plant ** Installed capacity: 330 MWe Generation and sales: 1,604 GWh
MAROCCO • 32% of Energie Electrique de Tahaddart, owner of the Tahaddart
CCGT. Installed capacity: 384 MW ITALY • 80% of generation company Endesa
Italia Installed capacity: 6,614 MW Generation: 25,109 GWh Sales: 32,970 GW
• 58.35% of Teverola and Ferrara. Installed capacity: 340 MW • 100% of
Iardino wind farm. Installed capacity: 14 MW • 100% of Vizzini wind farm:
24 MW • 100% of Montecute wind farm (42 MW under construction) • 100%
of Poggi Alti wind farm (20 MW under construction) • 100% of MA Severino
wind farm (44 MW under construction) • 50% of Ergosud (800 MW under
construction) • 50% of retailer Ergon Energia • 50% of retailer MPE
• 100% of retailer Endesa Europa Power and Fuel TURKEY • 50% of Altek
** owner of a 40 MW hydroelectric plant and an 80 MW gas CCGT • 2.5% of
free central European exchange Endex with headquarters in Amsterdam Electricity
sales in European countries: 52,606 GWh* Present in deregulated markets in
France, Italy, Germany and Andorra Total energy volume traded 46,120 GWh * Does
not include the energy supplied by Endesa Energía in European countries
outside the Iberian market. ** Through Snet. Operations Review 121
BUSINESS IN LATIN AMERICA ENDESA is the No. 1 private electricity
multinational in Latin America. It is the leading electricity company in Chile,
Argentina, Colombia and Peru, and the third largest in Brazil. It supplies
electricity to five of the sub-continent’s six largest cities (Buenos
Aires, Bogota, Santiago, Lima and Rio de Janeiro); and is participating in the
Siepac electricity interconnection system that will link the six Central
American countries. The electricity utilities in which ENDESA has interests in
Latin America had a total capacity of 14,317 MW at the close of 2006. Their
aggregate output in the year was 62,028 GWh, a 7.1 percent advance on the
previous year’s level, with sales of 58,281 GWh, i.e. 5.5 percent more than
in 2005, to a total of 11.6 million clients. ENDESA’s strategy aims to
consolidate a broad business platform that is capable of using the Latin
American market’s enormous potential for growth and profitability. To this
end, it has acquired majority interests in a considerable number of electricity
generation, transport, distribution and supply companies, with the aim of
securing management control and therefore being in a position to pass on its
corporate best practices to these companies. To improve distribution to its
companies, ENDESA intends to make permanent investments in a climate of
collaboration with state authorities and in compliance with all applicable
legislation. ENDESA is present in Latin America through shareholdings such as
its 60.62 percent stake in Enersis, or stakes acquired directly in other
operators in the region. ENDESA’s commitment to the future in Latin America
and to each one of the markets in which it operates begins with the ambition of
offering better service to its customers, and to make its operations more
effective and competitive. True to that commitment, ENDESA actively takes part
in improvements to ensure supply in the countries where it is present by
providing solutions to their growing electricity needs. ENDESA’s current
goals in Latin America are to consolidate its presence by capitalising on its
current platform for growth and retain its leadership in the 122 Annual Report
2006 BUSINESS
Operations Review 123 endesa06
countries where it operates, while increasing the excellent operations of
its subsidiaries and taking advantage of the opportunities offered by the
countries’ current economic growth and demand for electricity. ENDESA is
also firmly committed to protecting the environment in the Latin American
countries where it operates. Proof of this is that 2006 culminated in the
environmental certification of all of its generation and distribution
facilities. On 31 December 2006, 100 percent of its capacity and distributed
energy was certified under the ISO 14001 environmentalmanagement standard. It
took only six years to attain this level of certification. ENDESA is also firmly
committed to corporate social responsibility in Latin America. On an in-house
level, the Company is working proactively to constantly improve the health and
safety of those working at its subsidiaries. In this regard, the Company is
certifying its systems for managing health and safety at work according to the
OSHAS 18001 standard at the majority of its workplaces. In 2006 three of the
five distribution companies owned by ENDESA in the region obtained the
certification. By the end of 2006 over 70 percent of the energy sold in the
region had obtained this certification. Externally, ENDESA continues to develop
a high number of social-action projects and in 2006 invested Euro 9 million. 01.
ENDESA’S PRESENCE IN LATINAMERICA BY COUNTRY 01.1.
CHILE 36 percent of ENDESA’s consolidated assets in Latin America are
located in Chile. The company’s workforce in Chile numbers 2,739. ENDESA is
present in the Chilean market through Enersis, in which it holds a controlling
stake of 60.62 percent. Through this holding in Enersis, ENDESA also has an
interest in Endesa Chile, the main producer in Chile, which owns 4,477 MW of
capacity either directly or through its subsidiaries. ENDESA holds a controlling
59.98 percent stake in Endesa Chile. In turn, Endesa Chile holds stakes in other
Chilean generators, such as San Isidro, Pangue, Celta and Pehuenche. The company
also owns over 50 percent of the Gas Atacama Company, which has 781 MW of
installed thermal power. Since Endesa Chile shares control over the latter
company with the other Gas Atacama shareholder, its economic magnitudes or MW of
power are not consolidated. Through Enersis, ENDESA also owns 99.08 percent of
the distributor Chilectra, which has 1.4 million customers. Enersis also has
significant stakes in property, engineering, IT and services companies both in
Chile and other Latin America countries. 01.2. COLOMBIA
21 percent of ENDESA’s consolidated assets in Latin America are located in
Colombia, where the company has 1,602 employees. ENDESA manages 2,779 MW of
capacity in Colombia. It holds a 48.48 percent stake in Emgesa, the
country’s largest generating company, with 2,238 MW of capacity, and 99.99
percent of the Betania power plant (541 MW capacity). It also holds a 48.48
percent stake in Codensa, which distributes electricity to 2.1 million
customers. ENDESA’s partner in both Codensa and Emgesa is the power company
Empresa Eléctrica de Bogotá (EEB), whose capital is mostly public
and which is controlled by the Santa Fe de Bogota municipal district. Therefore,
it owns 51.52 percent of both companies. Codensa returned Euro 34.7 million to
its shareholders in 2006 when the capital reductions took place in the year.
01.3. BRAZIL 25 percent of ENDESA’s consolidated
assets in Latin America are located in Brazil, where the company employs 3,335
staff. In 2005, ENDESA set up Endesa Brasil to group its holdings in that
country. In generation, ENDESA holds a 99.6 percent stake in the Cachoeira
Dourada hydroelectric plant (658 MW capacity) and a 100 percent stake in the
Fortaleza conventional power station (321.6 MW capacity). ENDESA also controls
100 percent of the transmission company CIEN which manages the 1,000 kilometre
power line linking Argentina and Brazil, with a capacity of 2,000 MW. In the
distribution business, ENDESA manages Ampla and Coelce (holdings of 91.9 percent
and 58.9 percent, respectively). Ampla distributes electricity to 2.3 million
customers in 124 Annual Report 2006 BUSINESS
the state of Rio de Janeiro, while Coelce sells energy to 2.5 million
customers in Ceará. 01.4. PERU 11 percent of
ENDESA’s consolidated assets in Latin America are in Peru, where the
company employs 1,146 people. ENDESA manages 1,574 MW of capacity in Peru. It
owns 61.1 percent of Edegel, with 1,425.7 MW of power, and 60 percent of the
power company Empresa Eléctrica de Piura (Eepsa), with 146 MW. The
distribution company Edelnor has a capacity of 2.3 MW. Also, ENDESA, in
conjunction with Enersis, holds a 60 percent stake in Edelnor, which distributes
electricity to 951,000 customers in the north Lima area.
01.5. ARGENTINA 8 percent of ENDESA’s consolidated
assets in Latin America are located in Argentina, where the company employs
3,091 people. In the generation business, ENDESA holds a 69.99 percent stake in
Dock Sud, a two-turbine plant with a total capacity of 870 MW. Through Enersis
and Endesa Chile it also controls 64.3 percent of the Costanera thermal power
plant (2,319 MW capacity) and 65.2 percent of the El Chocón hydroelectric
power plant (1,320 MW installed capacity). In distribution, ENDESA holds a 99.45
percent stake in Edesur which supplies electricity to 2.2 million customers in
the south Buenos Aires area. ENDESA also holds a 22.2 percent stake in Yacylec,
an electricity transmission company which operates and maintains the 282 km
Yaciretá line and the Resistencia switching station. At the end of 2005,
the Argentinean generation companies reached an agreement with the Argentinean
government to construct CCGT plants with a total installed capacity of 1,600 MW.
The facilities are scheduled to begin commercial operations in an open-cycle
mode during the first half of 2008 and in a closed cycle mode during the first
half of 2009. In turn, the government has promised to finance and gradually
restore the wholesale power market back to normal. 01.6.
CENTRAL AMERICA ENDESA is developing the Siepac project in Central America. The
company aims to build a transmission line connecting the six countries in the
region (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and Panama).
Infrastructure is being developed through the company that owns the grid, in
which ENDESA holds a 12.5 percent stake. 02. GENERATION02.1. KEY PHYSICAL
MAGNITUDES By the end of 2006, the Latin American generation companies in which
ENDESA has holdings had a total capacity of 14,317 MW. In 2006, the capacity
increased by 222 MW, mainly due to the shutdown of the Etevensa combined cycle
gas turbine plant in Peru and the acquisition of a fuel-gas plant in Cartagena
(Colombia) Capacity in Brazil also declined, due to the sale of hydraulic
generation assets owned by Ampla (60 MW), and in Colombia, where the 19.5 MW San
Antonio hydroelectric plant was closed. The total output for the Latin American
subsidiaries was 62,028 GWh in 2006, 7.1 percent up from the previous year. The
increase was mainly due to heavy growth of demand caused by a booming economy
and more water availability in the entire region that was favourable to
ENDESA’s generation facilities, which are mostly hydroelectric. Operations
Review 125 endesa06 ENDESA INSTALLED CAPACITY IN LATIN AMERICA* (MW) 2006 2005 %
chg. Chile 4,477 4,477 0.0 Argentina 4,508 4,493 0.3 Colombia 2,779 2,657 4.6
Peru 1,574 1,429 10.1 Brazil 979 1,039 -5.8 Total 14,317 14,095 1.6 * Figures
only include fully consolidated companies. Therefore, they do not include the
781 MW relating to the Atacama (Chile) power plant.
02.2. NEW PLANTS, NEW PROJECTS In 2006 ENDESA
continued to leverage the investment opportunities offered by generation in
Latin America. Its subsidiaries have several plants under construction in Chile
and Peru, as well as a number of projects under study. 02.2.1. Chile: San Isidro
II and Palmucho Endesa Chile is currently building the San Isidro II CCGT power
plant in three stages: • From April to October 2007, it will operate with
its gas turbines in open-cycle mode using fuel-oil, with a maximum capacity of
209 MW. • Between February 2008 and March 2009, it will operate as a CCGT
using fuel-oil with installed capacity of 310 MW. • From 2009 onwards, the
power plant will operate as a natural-gas CCGT, increasing the capacity to 377
MW. Total estimated investment in this project stands at USD200 million. The
company is also building the Palmucho hydroelectric plant in the Biobío
region. This is a run-of-river power plant, located at the foot of the Ralco
hydro-plant dam. It will use the other plant’s water flow (27.1 m3/s), and
have an installed capacity of 32 MW. Total investment will be USD37 million,
including civil works and equipment. The plant is due to come on stream in 2007.
The new plant will not reduce the capacity of the Ralco plant or require any new
water rights. The project has been granted the necessary approvals by the
Chilean environmental authority (Conama), which approved the Environmental
Impact Statement on 18 February 2005. 02.2.2. Chile: the
Central Interconnection System. Endesa Chile holds a stake in the building of a
regasification plant at Quintero Bay, jointly with the Metrogas and ENAP
companies. The plant will play a key role in supplying gas to Chile’s
central region. It will supply fuel to the San Isidro II CCGT and other
facilities. The new plant will be able to process 9.6 million cubic meters of
gas per day, with a storage capacity of 320,000 cubic meters of LNG (liquefied
natural gas) in two large tanks. It is scheduled to be permanently operational
by mid 2010. 02.2.3. Chile: The Aysén project In 2006, studies of the
feasibility of using the hydrological potential of the Aysen area (Region XI)
began. To that end, ENDESA created the limited company Centrales
Hidroeléctricas Aysén, S.A., in which Endesa Chile will hold a 51
percent stake and Colbun 49 percent. If the project is carried out, 2,355 MW of
installed power would be added to Chile’s power system, making a highly
significant contribution towards the continuity of the country’s power
supply. Building the power plant will require an estimated investment of around
USD2.1 billion. The project will also require a 2,000 kilometre high-voltage
power transmission line, calling for an estimated investment of USD1.5 billion.
The project will be developed by Transelec. 02.3.4. Peru: Etevensa’s CCGTs
In 2003, Etevensa, a Peruvian company, was awarded a contract to supply Camisea
natural gas. This included an agreement to increase the capacity of its thermal
power plant at Ventanilla. The company converted two of the turbines at its
power plant from fuel-oil to natural gas with installed capacity of 325 MW which
came on stream in open-cycle mode in August 2004. The project for converting to
the first turbine to the closedcycle mode came on stream in June 2006. The
subsequent conversion of the second turbine to a closedcycle mode was completed
in September. 126 Annual Report 2006 BUSINESS ENDESA POWER GENERATION IN LATIN
AMERICA* (GWh) 2006 2005 % chg. Chile 19,973 18,764 6.4 Argentina 17,752 16,154
9.9 Colombia 12,564 11,864 5.9 Peru 7,250 6,895 5.1 Brazil 4,489 4,213 6.6 Total
62,028 57,890 7.1 * Figures only relate to fully consolidated companies.
Therefore, they do not include output from the (Chile) power plant.
As a result of the extensions, the power of the Ventanilla plant increased
by nearly 172 MW although there is still a small part pending official
certification. These works have adapted a power plant that previously operated
marginally with fuel-oil to one with nearly 500 MW of CCGT capacity and the
first in Peru to use an important local resource such as gas from the Camisea
fields. Finally, on 1 June 2006 Etevensa merged with Edegel, and the Ventanilla
plant came under the Edegel umbrella. 02.3.5. Colombia: Acquisition of
Termocartagena In 2006 ENDESA acquired the Termocartagena fuel-gas plant,
situated in Cartagena de Indias, with a capacity of 142 MW. It is currently in
the process of being re-powered and converted into a CCGT plant.
02.4. ENDESA ECO In 2005, Endesa Eco, a 100 percent
owned subsidiary of Endesa Chile, was set up to administer and manage renewable
energy projects in Latin America. This company is developing the Ojos de Agua
mini-hydroelectric project in the Maule-Chile area, with a capacity of 9 MW.
Total investment in this project will be USD15 million. It is due to come on
stream in 2008. The Canela wind farm is another project developed by Endesa Eco.
The farm will have 18 MW of installed power and require an investment of USD28
million. It is scheduled to be operational by late 2007. The 6.1 MW Piruquina
mini plant on Chiloe Island is currently being studied. 03. TRANSMISSION03.1.
CIEN ENDESA owns Cien, the high-voltage electricity link between Brazil and
Argentina. The first phase of the project came into service in the first half of
2000, with a capacity of 1,000 MW. Work on the second phase began at the end of
2000, and the transmission capacity of the link was doubled in 2003 to 2,000 MW.
CIEN is currently looking at the possibility of changing its business model for
the operation of the interconnection so that it becomes reasonably profitable
again. 03.2. SIEPAC In July 2006 construction of the
Siepac project transmission line was officially begun in Panama. The 230 kV,
1,880 km backbone line will interconnect six countries in Central America and be
able to transmit 300 MW of energy. It is slated for completion in 2009 and the
estimated budget is USD370 million. The tender to contract began in 2005 and
concluded in 2006, with 12 companies bidding. The contract was awarded to
Techint, a Mexican company, for Lot 1 (Guatemala, El Salvador and Honduras) and
to a Spanish company, Abengoa, for Lot 2 (Nicaragua, Costa Rica and Panama).
03.3. OTHER TRANSMISSION ASSETS ENDESA also carries out
electricity transmission activities in Argentina as a shareholder of Yacylec,
which operates a 282 kilometre line between the Yaciretá hydroelectric
plant and the Resistencia switching station. Through Endesa Chile it holds a 50
percent stake in the Gas Atacama gas pipeline, which carries gas from the
northern area of Argentina to the Chilean Northern Interconnection System
(SING). The 950 kilometre gas pipeline came into operation in 1999.
04.DISTRIBUTION 04.1. KEY FIGURES Between them,
ENDESA’s Latin American distribution subsidiaries sold 58,281 GWh in 2006,
5.5 percent up from 2005. This increase reinforces the region’s positive
trend in electricity demand and provides further evidence to signal the end of
the region’s economic crisis in 2003. Operations Review 127 endesa06
Electricity distribution sales experienced remarkable growth in all
countries, particularly in the sales made by Edelnor (Peru) and Codensa
(Colombia), which came to 7.6 percent and 6.5 percent, respectively.
04.2. TARIFF REVIEWS The new sub-transmission tariffs
were published in Chile in November. Sub-transmission corresponds to medium or
high voltage (MV or HV) transmission grids that exclusively supply consumers in
the concession areas of distribution companies and do not belong to the main
transmission system or form part of distribution networks. The process meant a
reduction in remuneration, subsequently confirmed by the panel of experts (an
arbitration body that settles technical disputes in the sector), where Chilectra
made a bid, as did all the other companies in the sector (33 in all). Chilectra
appealed the decision, so settlement remains pending. In Brazil, Coelce’s
annual tariff review was carried out. The company obtained a 10 percent rise, to
be applied as of April, and Ampla obtained a tariff rise of 2.9 percent as of
March. In Argentina, Act No. 26204 was enacted in December, extending The Public
Emergencies Act (No. 25,561) and additional provisions included in Act No. 25790
until 31 December. Act No. 25790 obliges contracts for engineering and services
to be re-negotiated if they are affected by a public emergency. On 15 June 2005
Edesur and the government of Argentina reached an agreement that led to the
signing of a letter of understanding whereby the Executive authorised a tariff
rise as of November 2005. The Executive ratified the letter of understanding on
28 December 2006 by issuing a presidential decree. The regulatory body approved
the new schedule of tariffs which was to be applied as of February 2007,
applying a 38 percent increase in distribution tariffs. Furthermore, according
to the terms of the agreement, the tariff rise will be applied retroactively as
of November 2005, the original date on which the agreement came into effect. The
full tariff review set out in the agreement has been scheduled for February
2008. 04.3. MANAGING DISTRIBUTION LOSSES Distribution
losses suffered by ENDESA companies throughout the region recorded an
accumulated figure of 11.2 percent in 2006, as opposed to 11.8 percent in 2005.
In 2006 a project was implemented to improve energy losses in the Rio de Janeiro
distribution area operated by Ampla. The project, called “Red Ampla”,
involves incorporating the most advanced technologies into the grid to prevent
the theft of electricity. Investment in the project is Euro 47 million. There
have been clear results: for example, when customers were fitted with new
electricity meters under Red Ampla losses fell from 53.4 percent to 3.1 percent.
The number of customers connected to that grid in 2006 stood at 108,000. The
total number of customers connected to Red Ampla in December 2006 was 358,000.
The good results and the short time frame in which the investment has been
recovered, only three and a half years, make this project one of the most
successful and groundbreaking undertaken by ENDESA in the field of electricity
distribution in the region. 04.4. CUSTOMERS AND QUALITY
OF SERVICE At the close of 2006, in the five Latin American countries where it
distributes electricity, ENDESA had a total customer base of 11.6 million, 3.2
percent up on 2005. Continuing the trend seen in previous years, in 2006 ENDESA
substantially increased the quality of the service in the countries where it
operates. Specifically, the mean annual interruption time per customer dropped
by 2.9 percent, standing at 9.9 hours per year. 128 Annual Report 2006 BUSINESS
ENDESA ELECTRICITY DISTRIBUTION IN LATIN AMERICA (GWh)
2006 2005 % chg. Chile 12,377 11,851 4.4 Argentina 14,837 14,018 5.8 Colombia
10,755 10,094 6.5 Peru 4,874 4,530 7.6 Brazil 15,438 14,753 4.6 Total 58,281
55,246 5.5 ENDESA CUSTOMERS IN LATIN AMERICA (Thousands of customers) 2006 2005
% chg. Chile 1,437 1,404 2.4Argentina 2,196 2,165 1.4Colombia 2,138 2,074 3.1
Peru 951 925 2.8Brazil 4,859 4,654 4.4Total 11,581 11,222 3.2
05. ENDESA’S FINANCIAL ANDCORPORATE STRATEGY IN LATIN AMERICA05.1.
FINANCIAL STRATEGY One of the most important features of the performance of
ENDESA’s Latin American businesses in the past years has been their growing
financial strength since October 2003 to face the crises that were affecting the
region at that time and so ensure future growth and profitability. Building on
the improvements made, the business is increasingly contributing to its parent
company with significant contributions from the takings of its investments and
through very good economic performance. 05.1.1. Objectives The future financial
strategy of these businesses is based on the following objectives: • Adapt
debt terms to the average life of investments. • Optimise all ENDESA’s
companies operating in the region to equip them with efficient gearing levels.
For this purpose, capital reductions will be stepped up and the pay-outs
increased at the overcapitalised companies. Further steps will be taken to
reduce the volume of debt, lengthen repayment deadlines and reduce financial
costs at undercapitalised companies. • Maintain the level of investment in
Chilean parent companies and solid financial ratios in the other subsidiary
companies. • Tailor the level of US-dollar-denominated debt at all
ENDESA’s subsidiaries to the degree of polarisation of their revenues. The
goal is to minimise the currency risk exposure. • Maintain a high
percentage of hedged debt in case of interest rate hikes. • Maintain an
adequate level of liquidity to be able to meet estimated financial needs.
05.1.2. 2006 Financial Performance Measured in US dollars, Latin America’s
business debt showed a slight increase in 2006, in relation to the previous
year. Expressed in euros, it diminished by around Euro 500 million. The
Brazilian real, Colombian peso and Peruvian sol appreciated against the dollar,
whereas the Argentinean and Chilean pesos remained practically the same. These
movements, combined with the cash-flow hedge criterion, meant that exchange-rate
differences had no significant impact on business performance. In 2006 ENDESA
continued with its policy to improve its financial structure and the quality of
business debt in the region. As a result of this drive, in January 2005
Moody’s Investors Service raised its credit rating for Enersis and Endesa
Chile from Ba1 to Baa3 with a prospect of stability. The change meant that the
two companies attained the investment status level for the three main
international rating agencies (previously obtained from Standard &
Poor’s and Fitch). The improvement was based the two companies’ higher
level of flexibility and financial liquidity, and on the sound performance of
the electric markets where they operate. We should add that in 2006 Enersis and
Endesa Chile’s share prices rose by 53 percent and 26 percent,
respectively, on the Santiago (Chile) Stock Exchange. As the parent company and
in keeping with the financial strategy of the above-mentioned business, ENDESA
received cash from Latin America to the sum of USD253 million in 2006. Dividends
accounted for USD121 million and capital reductions that the over-capitalised
subsidiaries continued to carry out accounted for USD64 million. ENDESA ended
the good economic and financial performance of its Latin American business by
distributing Euro 113 million in dividends to the parent company, which was the
same amount it paid in 2005. This confirms the business’ important
contribution to ENDESA’s flows and the desire to have the shareholders
profit from the results. 05.2. CORPORATE STRATEGY
05.2.1. Corporate simplification initiatives Ever since operations started in
Latin America, ENDESA has carried out a policy of corporate simplification to
obtain synergies and facilitate cash returns to Spain. Operations carried out in
2006: CHILE Apart from the definitive demerger of Enersis Internacional and
Chilectra Internacional in December, there were two other significant events in
2006. Operations Review 129 endesa06
Elesur–Chilectra merger On 31 March 2006, the merger between Elesur, a
company in which Enersis holds a 100 percent stake and ENDESA’s former
vehicle for investment in Chile, and Chilectra, a Chilean distribution company,
was formalised maintaining the corporate name of Chilectra. The operation had
been begun in 2005. Incorporation of Central Hidroeléctrica de
Aysén S.A. On 4 September 2006 the limited company Centrales
Hidroeléctricas de Aysén, S.A. was incorporated to develop a
hydroelectric project in Chile’s Region XI. Endesa Chile holds a 51 percent
stake in this company and Colbun a 49 percent stake. The “Aysen
project” is looking at an estimated total capacity of 2,355 MW from five
hydroelectric plants. PERU Edegel–Etevensa merger The takeover between
Edegel, a hydraulic generation company in which Endesa Chile has a stake, and
Etevensa, a CCGT company in which Endesa Internacional holds direct interests,
was officially registered in August 2006. Formalities had begun in 2005.
COLOMBIA Winding-up of Capital Energía The winding-up of Capital
Energía S.A. was signed on 26 January 2006, giving Endesa Internacional,
S.A. a majority interest in EMGESA. Split-off of Betania In November 2006 the
Superintendency of Companies authorised the split-off of C.H. Betania, under
which 99.99 percent of the company came to be owned by ENDESA through Endesa
Chile. Emgesa–Betania agreement on merger principles On 14 December 2006
Grupo ENDESA and the EEB signed an agreement on the principles for beginning the
merger process between Emgesa and C. H. Betania. The agreement will be finalised
during the second half of 2007. BRAZIL Unbundling of Ampla In order to comply
with certain demands from the Brazilian authorities, Ampla, the distribution
company, has had to carry out various opertions to unbundle its business. On 26
June 2006 it sold 100 percent of its shares in its subsidiary Ampla
Geraçao, S.A., to the Sabricorp Group Prior to this, in December 2005, it
had set up Ampla Investimentos e Serviços, S.A. The company’s main
asset is a stake in Coelce, the distribution company. 130 Annual Report 2006
BUSINESS
ENDESA IN LATIN AMERICA BRAZIL • Ampla (91.9%)2.3 Mill.
customers• Coelce (58.9%)2.5 Mill. customers • Endesa Fortaleza (100%)
321.6 MW • Cachoeira Dourada (99.6%) 658 MW • Cien (100%)
(Argentina-Brazil interconnection line) 1,000 km 2,000 MWARGENTINA • Dock
Sud (69.99%) 870 MW • Yacylec (22.2%)282 km 507 kV• Costanera/CBA
(64.3%) 2,319 MW • El Chocón (65.2%) 1,320 MW • Edesur
(99.45%)2.2 Mill. customers PERU • Piura (60%) 146 MW • Edegel (63.2%)
1,425.7 MW • Edelnor (60%) 2.3 MW 0.951 Mill. customers CHILE • Endesa
Chile (59.98%) 4,477 MW • Chilectra (99.08%)1.4 Mill. customers COLOMBIA
• Betania (99.99%) 541 MW • Emgesa (48.5%) 2,238 MW • Codensa
(48.5%) 2.1 Mill. customers CENTRAL AMERICA • Siepac Proyecto (12.5%)
Construction of a 1,880 km long, 230 kV electricity interconnection line
endesa06 Operations Review 131
132 Annual Report 2006 BUSINESSSERVICES AND OTHER ACTIVITIES ENDEDA carries
out a broad range of extremely diverse services to lend support to its core
business. This effort is spearheaded by the Corporate Services and Technology
Department at the Company, which is responsible for corporate procurements,
systems and telecommunications, corporate wealth management and technology and
innovation. This division’s mission is to turn these functions into
value-creation tools for ENDESA’s core business throughout the world, in
order to harness the economies of scale resulting from the Company’s size,
to ensure these functions are leveraging best practices in the industry and to
promote technology and innovation. The functions carried out by the Services
division in Spain are legally and organisationally headed by Endesa Servicios,
S.L. – which owns 100% of Endesa Network Factory and 37.5% of the IT
company Sadiel– and Bolonia Real Estate –100% owned by ENDESA,
S.A.–. In Latin America the division operates mainly through Synapsis
–a company focused on technological innovation, CAM –a distribution,
logistics and global procurement company for electronic good –, the real
estate group Inmobiliaria Manso de Velasco and the engineering company
Ingendesa. These companies operate and have subsidiaries in those Latin American
countries where ENDESA is present. 01.PROCUREMENT During 2006, ENDESA managed
the acquisition of materials, equipment, works and services for a total sum of
Euro 4,492 million. Savings achieved in supply management were over 6%. Mention
should be made of the difficult environment in which it was necessary to operate
during the year, characterised by the high degree of volatility in the prices of
the main raw materials used by the producers of the materials and equipment
acquired by ENDESA (mainly copper, steel and oil derivatives). The main
initiatives undertaken during the year are listed below: endesa06
Operations Review 133
01.1. CORPORATE INITIATIVES These are business
initiatives of a transverse nature which generate synergies. The main ones were:
• Consolidation of the Purchase Intelligence function through research into
relevant subjects with an outstanding impact for the strategic development of
purchase management. • Sounding out markets: contacts with manufacturers
from China, India, the Czech Republic and other Easter European countries, the
US, Latin America, etc. with a view to identifying potential suppliers. •
Corporate Offers in the distribution business –medium andlow voltage cables
and transformers– and generation –global purchase plan within the
framework of the Capacity Plan for CCGTs–. • Definition and
standardisation of technical specifications for families of materials and
distribution teams. • Development of a Corporate Support System for the
Supply Function (SAGA). The work has made it possible to identify the needs of
supply units in each business and the degree of support application development
in each one, in order to make a firm step towards automate and improve the
business intelligence of purchasing. 01.2. BUSINESS IN
SPAIN AND PORTUGAL The total volume of purchases by ENDESA’s business in
Spain and Portugal amounted to Euro 3.088 billion in 2006, a figure that
includes procurements made by Systems and Telecommunications. Noteworthy
initiatives undertaken during the year included: • Implementation of
Purchasing Objective Agreement Sessions, which have made it possible to
integrate business aims with specific purchasing objectives, so improving
results. • Introduction of the Purchasing File Management System,
integrating specific ENDESA award processes into the standard computer system
currently in use. 01.3. BUSINESS IN EUROPE The total
amount of purchases in Endesa’s Europe business was Euro 138 million in
France and Euro 241 million in Italy in 2006. The Endesa Italia supplies unit
achieved an average saving of 13 per cent. Mention should be made of its actions
in major generation contracts, which represent 65 per cent of purchases, of
which the following should be noted: • New clean combustion systems at the
Tavazzano and Ostiglia power plants. • Re-powering of four plants at the
Terni hydroelectric complex. • Building of the gas pipeline linking the
Scandale CCGT to the Italian national network. At the same time, Endesa France
doubled the amount of purchases with respect to 2005. The following initiatives
should be stressed: • Achieving an average saving of more than 20 per cent
in service procurement, placing special emphasis on powerplant operating
expenses: maintenance of coal and ash treatment equipment, cleaning operations,
chemical products, etc. • Simplification of administrative work in the SAP
environment. • Exhaustive analysis of general expenses to anticipate 2007
management. 01.4. BUSINESS IN LATIN AMERICA Total
purchases in the Endesa business in Latin America were Euro 1.025 billion in
2006, 6.9 per cent up on the previous year. The main initiatives during the year
include the following: • Launching of the Project to Standardise Technical
Specifications in Materials and the Reduction in Diversity for MV and LV
distribution. • The Company acted as a facilitator to allow small and
medium sized companies to pool efforts in the ISO 9000, ISO 14000 and OSHAS
18000 certification processes, in line with the ENDESA’s sustainable
development policy. • An innovation plan with suppliers was set up in
Chile. A framework agreement was designed for this purpose, detailing the
structure of the innovation process with respect to aims, methodology for
generating ideas, channels of approval and types of financing for projects that
are potential businesses or product developments. 02. SYSTEMS AND
TELECOMMUNICATIONS ENDESA systems and telecommunications are aimed at supporting
Company businesses in implementing their strategies and aims, based on
perfecting the functions the service is entrusted with, and using the capacities
offered by a global company. According to a variety of experts, ENDESA will be
easily able to meet these targets. The Follow-Up report on the Systems 134
Annual Report 2006 BUSINESS
and Communications Strategic plan released in December 2005 drawn up by the
consultancy group McKinsey reflects that the Company’s expenditure on IT
technology is 1.4 per cent of revenues when the average for the utilities sector
is 2.5 and the world average 4. One of the main objectives in this area in 2006
was to make the Systems and Telecommunications function a driver of value
creation through technology. To do this the Company has a budget of Euro 1.800
billion which it will execute over the next five years.
02.1. “GLOBALISE IT” PLAN To successfully face
this challenge, the General Subdivision for Systems and Telecommunications
launched the “Globalise IT” plan in all the Company’s
geographical areas. The plan aims to establish initiatives to achieve more
efficient and integrated systems, taking into account local uses, and maximising
the value contributed to its businesses. In the medium term, the Plan envisages
freeing up Euro 60 million a year, 20 per cent of the Euro 300 million gained
during the year from the global ICT (information and communications
technologies) cash out deriving from low added value activities, to fuel
investment in ICT activities which are key to the Company’s businesses. We
note that in 2006 CMMI 2 certification was obtained for the two Software
Factories for technical systems, which comes in addition to certification
already obtained for management systems. Furthermore, the General Subdirection
for Systems and Telecommunications has obtained certification for process
quality: ISO 9001: 2000. Lastly, in 2006 the internal control model required to
comply with SOX regulations was successfully rolled out and evaluated.
02.2. COMMERCIAL SYSTEMS 02.2.1. MAJOR PROJECTS
COMPLETED Amongst the main projects completed in 2006 in the commercial systems
area, mention should be made of the following: • The first phase of the
Diana project, which through mobility solutions, supports the management of work
carried out at client addresses. • Commercial system for Portugal.
Development and implementation of functional capacities for the management of
commercial activities in Sodesa’s Medium Voltage segment. • Adaptation
to regulated and deregulated market requirements to reflect the consumption
profile and calculation method in the system for the purposes of adjusting
applicable power for those consumers with meters without any consumption time
records. • Ensuring low-voltage (electricity) and low-pressure (gas)
deregulated-market operations, giving greater efficiency to current business
processes. • Second phase of the ALMA application, to support management of
the measure, both for the actual staff and for company collaborators, using the
Internet accesses. • Intensive use of the new functionality for recording
calls and call-centre screens for all corporate systems.
02.2.2. MAJOR PROJECTS LAUNCHED Among the main projects
launched in 2006, mention should be made of the following: • Evoluciona
programme. In Phase I of the programme the first version of the functionality
map for the SCE ML and SCE MR commercial systems was drawn up. In Phase II the
conceptual design of the impact of transposing EU directives into the Spanish
regulatory framework was made. This design has identified the actions that need
to be taken to face the challenges caused by the elimination of integral gas
tariffs on 1 January 2008 –2008 Gas Project– and electricity tariffs
on 1 January 2009 –2009 Electricity Project–. • The second phase
of the Diana project was carried out, as indicated above. • Knowing our
Customer Project. The objective of this project, which is part of the Avanza
programme, is to gain a fuller understanding of the value and needs of customers
in order to offer them better commercial attention and identify new
opportunities for products and services. • First phase of the RAM project
(Redesign of Measurement Equipment) to adapt the system to the new technical
functionalities of measuring equipment, covering new needs with respect to
procurement, readings and billing. • Electronic billing, which will allow
ENDESA customers to be able to choose this type of bill, no longer needing to
receive hard copies of their bills. • System for Special Rate management
(AIRE Project), including basic processes (facility owner management,
procurement, equipment, metering and billing), relationships with other systems
(SIE economic system, ACM Datawarehouse, SIEGE electricity market and secondary
concentrator) and other additional processes. • Improving accessibility for
the ENDESA online Internet channel. The redesign will facilitate operation and
communications with end customers, and be more user-friendly for people with
disabilities, according to the AAAIC standard. Operations Review 135 endesa06
• Development and implementation of functional capacities for the
management of commercial activities carried out by the supply company Endesa
Energía for the low voltage segment of the Portuguese market.
02.3. DISTRIBUTION SYSTEMS 02.3.1. MAJOR PROJECTS
COMPLETED Featuring among the other activities in 2006 were: •
Sustainability. Execution of actions on the Siemens–Spectrum systems in
Andalusia and Catalonia to ensure their operation until their future
replacement, which is planned for 2008. These include the replacement of the
linking mechanism between the Siemens–Spectrum system and the SAC system.
• New cartographic display integrated into the EDS (ENDESA Distribution
System). • New EDS module for preparing the Annual Budget Plan. This
module, based on SAP-PS, will allow drafting of an Annual Illustrative Budget
– Resources Plan (AIB-RP) at Endesa Distribution.
02.3.2. MAJOR PROJECTS LAUNCHED Among the main projects
launched in 2006 mention should be made of the following: • Control-system
updating (Acspec) in electrical distribution areas in Aragon and the Canary
Islands. • As part of the intelligent-network project, projects started to
include the new power balance in the SAC, as well as automatic remote control of
batteries based on improved load flow. As part of the same project, the report
was commenced on voltage losses and regulation report and help in restoring
service in the MV grid. • Mansub project to carry out integral maintenance
of electrical substations based on the SAP-PM market package. • Movdis
project for technological adaptation of the mobility platform, with the aim of
increasing availability and improving services. 02.4.
GENERATION SYSTEMS 02.4.1. MAJOR PROJECTS COMPLETED The most significant
projects in 2006 were: • Introduction of the environmental-control system
at Cristóbal Colón power plant station (Huelva). •
Technological surveillance-management system. This system will make it possible
to inform generation technical staff of the latest technical developments,
allowing them to update the most important skills for carrying out their duties.
02.4.2. MAJOR PROJECTS LAUNCHED Among the main projects
commenced in 2006 in the generation systems area, mention should be made of the
following: • Introduction of new generation-control systems for power
plants in the Canary and Balearic Islands, which will make it possible to equip
island systems with the capacity for AGC (automatic generation control). •
Integrated waste-management system. Based on SAPEHS, a pilot test has been
carried out to give generation plants a corporate system allowing full waste
management. 02.5. ENERGY-MANAGEMENT SYSTEMS 02.5.1.
MAJOR PROJECTS COMPLETED Highlights include the following: • Adaptation of
regulatory changes recorded in the year. In particular, amendments resulting
from Royal Decree 03/2006 and Spanish Electric Network PO 14, as well as Royal
Decree 1747/2003 and Ministerial Orders ITC/913/2006 and ITC/914/2006 regulating
island and non-mainland systems. • Release management. The execution and
start up of SIGEDES (release-management system) facilitates integration of the
distribution-release module (SGD) with information supplied by Red
Eléctrica de España about short, medium and long-term releases.
02.5.2. MAJOR PROJECTS LAUNCHED Highlights include the
following: • EMI (Energy Management & Information) Project, whose aim
is to create a unified platform that makes the necessary information available
to the company in real time and rapidly, clearly and efficiently, to allow for
rapid decision-making in the ambit of the Energy Management Operating Centre.
• Integrated Reporting Module (IRM). This project automates data-management
processes, making information more consistent. It also allows its management via
extranet and intranet and mobile devices, and manages the evolution of the
market to aid ENDESA’s Energy Management team in decision-making processes.
• Ulises fuels. This involves the setting up of a systems plan to perform
the progressive migration of local applications to a single corporate
application that manage procurement, monitoring and billing of fuels consumed at
ENDESA power plants. 136 Annual Report 2006 BUSINESS
02.6. INTERNAL AND CORPORATE MANAGEMENT SYSTEMS A
single-supplier contract has been signed with Indra for corporate management
systems for a total of 100,000 hours/person a year over the next five years. A
new feature with respect to previous contracts is its extension to the
international field, extending the uninterrupted service timetable to the whole
day. 02.6.1. MAJOR PROJECTS COMPLETED The most
significant projects in 2006 were: • Implementation of the HR
administration project –Nostrum– in Italy, Brazil and Argentina, and
the launch of the final phase of its implementation in France. • MIC
project for the international introduction of an internalcontrol support tool to
ensure compliance with the Sarbanes-Oxley Act. • Completion of development
and implementation of the new Social Security management system (Spreso) and the
calculation package for the redundancy measures provision (Prober).
02.6.2. MAJOR PROJECTS LAUNCHED Among the main projects
commenced in 2006 mention should be made of the following: • Implementation
of a new HR administration and payroll system based on SAP R/3, which will
replace the current Sirehna system at all subsidiaries in the ambit of the
Company’s Spain and Portugal business. • Implementation of a new
occupational health and safety system (Delfos), in addition to the
functionalities developed for HR management (Nostrum) and the supervision of
contractor companies (Colabora). • Launch of the supplies-management
support project (Saga), which will develop a common management model for all
ENDESA companies internationally. 02.7.
TELECOMMUNICATIONS AND REMOTE CONTROL 02.7.1. MAJOR PROJECTS IMPLEMENTED The
most significant projects concluded in 2006 were: • Adding remote control
devices to over 1,800 MV facilities, within the framework of the Plan for
Technical Improvement of Electricity Supply Quality. • Conclusion of a
further stage of the Alborada (Andalusia) and Tramontana (Catalonia) Plans, with
the introduction of telecommunication infrastructure and services for 11 new
substations and improvements to 9 other centres already in existence. •
Entry into service of the new corporate centres that make it possible to
increase capacity and supply double channels through our own means on the main
trunks of the ENDESA telecommunications network on the mainland: North West Hub
(Centre, Leon and Galicia), North East Hub (Aragon and Catalonia) and South Hub
(Andalusia and Badajoz). 02.7.2. MAJOR PROJECTS LAUNCHED
Among the main projects launched in 2006 mention should be made of the
following: • Implementation of the main centre of the new architecture in
the operator access network, which makes it possible to standardise and improve
quality parameters in data/remote control and remote metering services for cases
in which other means of communication are required as an alternative to the
actual network. This new design makes it possible to delimit and significantly
reduce the costs of these services, with a saving of as much as 50 per cent.
• Conclusion of Phase 1 of the Alminar (Andalusia) and Hesperides (Canary
Islands) Special Plans, with the introduction of communications system for
migration to the new IEC-101 2007 remote control standard at 12 high-voltage
(HV) substations in both regions and engineering work for 30 other substations
in 2007. • Creation of a working group to carry out the Aldebarán
remote-control plan, the aim of which is to strengthen the infrastructure
systems involved in the remote control of the HV and MV grids in Aragon. 03.
CORPORATE OPERATIONS AND INFRASTRUCTURE 03.1. MAJOR PROJECTS COMPLETED We
highlight the following: • Migration to full disaster-recovery architecture
for the main business applications, to assure their recovery within a maximum of
four hours in the event of any disaster situation. • Migration from the
mainframe platform to a more powerful, scalable machine, with the consequent
improvement in the service provided via commercial Company systems. Operations
Review 137 endesa06
• Migration from the SAC Operation Assistance System to the AIX
Platform, which allows better performance and stability of this system.
03.2. MAJOR PROJECTS LAUNCHED Some of the major projects
launched in 2006 in the corporate operations and infrastructure area were:
• Q-Explo project, which will ensure inspection of programming standards
and automation of functional tests and volume, and permit monitoring of
end-to-end response times for the main business applications. • BSM
project, which will allow monitoring of the level of services in the main
applications from a business point of view. • Macrolan project, which will
make it possible for most outside point-to-point circuits to migrate to MLPS
technology, which will ensure voice and data communication at Company facilities
in Spain. 04. GENERAL SERVICES AND SAFETY The General Services and Safety Unit
made progress in 2006 in the process of integrating the Company’s business
lines in Spain and Portugal through analysis and development of the strategic
map of the function. It also continued to carry out projects shared with
businesses in the General Services and Safety areas.
04.1. GENERAL SERVICES With respect to general contracts
for building management, the maintenance service was analysed to find out
operating costs in more detail, to compare them with third parties and to
prepared overall service tendering by 2007, affecting a total of area of 265,000
square metres above ground level. Also, Service Level Agreements with all
suppliers of shared services or global contracts. A study was carried out into
the needs of each activity in vehicle fleet management. Based on this, the
distribution business fleet size was assessed, models were standardised for each
activity and the use of corporate identity signs was unified. Lastly, within the
framework of the Environmental Management System at the Company’s
headquarters, continuous savings equalling or exceeding 4 per cent were achieved
in electricity, gas and water. 04.2. SAFETY In 2006, the
situation of company installations was diagnosed with respect to that estimated
in the Safety Master Plan approved the previous year. As a result of this, the
necessary actions were assessed and a multi-year action plan was established to
carry them out. The preparation of a Crisis Plan for the company headquarters
was also commenced, with the objective of assuring the continuity of basic
processes carried out in the event of a crisis occurring and to facilitate a
return to normality once this hypothetical situation has been overcome. 05.
PROPERTY-ASSETMANAGEMENT: BOLONIA REAL ESTATES In 2006 Bolonia Real Estate S.L,
which is wholly owned by ENDESA and manages the Company’s property assets,
consolidated the land-management model launched in mid 2005. The initial
Business Plan and its Management Model have been established since then,
developing and extending the number of projects initially identified and
successfully carrying out the aims of the strategic plan prepared to that
effect. Analysts, investors and national and international consultants include
the property assets managed by Bolonia Real Estate in their assessments of the
Company. In line with this, the list of assets assessed by independent
international consultants in 2005 was significantly increased, so that a new
potential assessment was given to manageable real estate assets in November 2006
of around Euro 1.45 billion. This list of assets continues to increase through
the identification and performance of feasibility studies for land throughout
Spain, and in Latin American countries in which ENDESA is present. This involves
property located in strategic areas which have high urban value expectations,
such as Barcelona, Lérida, Malaga, Seville, Granada, Balearic Islands,
Aragon and Santiago (Chile). During 2006, a major project came to fruition with
relation to highly representative land in Palma (Majorca). In September, ENDESA
agreed to the sale of these property assets with Grupo Neinver, these being
located in the so-called “Levante” Sector and with around 186,000
square metres of building land, for a total sum of Euro 240 million. In order to
maintain a percentage of the increase in value which may still be created
through land development, Bolonia Real Estate took a stake of 45 per cent in the
new company incorporated with Grupo Neinver to this effect. 138 Annual Report
2006 BUSINESS
The conclusion of the operation represents completion of the first
land-management and improvement project with the new management model mentioned
above, aimed at creating value through property projects or the management of
natural environments, according to the intended use and location of each piece
of land. During 2006 work also continued on the dismantling and demolition of
the San Juan de Dios thermal plant in Palma de Mallorca and work started on the
construction of Gesa Endesa’s new headquarters and work centre.
Additionally, in order to meet the commitments taken out with Grupo Neinver
Bolonia work started on the recovery of land at Central III and Son Molines in
Palma de Majorca. Throughout the year, over 50 operations were also carried out
on marketing assets (land and/or buildings) through various tenders and
electronic auctions over the Internet. All these initiatives have resulted in
sales of Euro 291 million, with net income of over Euro 240 million being
secured. A marketing plan was also carried out, aimed at over 200 national and
international property investors, as well as among banks, property consultants,
administrative agents, etc. Other activities carried out in Spain in 2006 were:
• Opening of the new Unelco Endesa headquarters in Las Palmas (Canary
Islands). This is the Woermann building, with a built area of 11,110 square
metres. • The opening of three tender processes to market nine properties,
attracting over 300 investors from the property sector. • Organisation of
three electronic auctions via the Internet to sell a total of 24 properties.
• The marketing of plots in Barcelona, Salt (Gerona), Lérida,
Almendralejo (Badajoz), an office in Madrid, and housing in various parts of
Andalusia. • Introduction of a new version of the Sigo Corporate System, in
order to keep software versions updated and to improve the functionality of the
ENDESA Property Management module. The overall project was at the same time
continued to regularise and update the Company’s Corporate Property
inventory. • Organisation of the 1st Property Convention, attended by
executives, managers and professionals involved in ENDESA property management
processes. • Purchase by Bolonia Real Estate of non-industrial assets from
other ENDESA companies in Spain for a sum of over Euro 20 million, with a view
to developing their development and enhancing their value. In Latin America, we
highlight ENDESA’s participation in the Enea project through its real
estate subsidiary, Manso de Velasco. Enea is a business and residential park
(housing industry, commercial premises and services) enjoying a strategic
location in Santiago de Chile, near the Arturo Merino Benítez
International Airport. Land will be commercialised gradually over the next few
years, as urban development progresses. In 2006, total sales stood at USD 33
million. Operations Review 139 endesa06
TECHNOLOGY AND INNOVATION 140 Annual Report 2006
Operations Review 141 endesa0601. ENDESA AND TECHNOLOGY ANDINNOVATION
INITIATIVES The ENDESA model for technology and innovation (T&I) responds to
the main objectives of its businesses, especially with regards to quality,
efficiency and sustainability at the service of its customers. ENDESA’s
T&I mission is to promote and coordinate a strategic policy of technological
development, innovation and encouragement of internal capacities that is in line
with its corporate Vision and Mission, involves a competitive advantage and is a
decisive lever for the Company’s strategy and businesses. ENDESA has built
a global, decentralised T&I management model that is open to knowledge,
including strategic suppliers, research centres, future-orientated bodies,
universities and official bodies; this model gives priority to the management of
Company talent and intangibles, a function in which Endesa Energy Education
plays a fundamental role. During 2006, ENDESA developed global T&I
methodologies and tools that were common to its whole business group, such as
the Novave innovation awards for the international science community and
employees, Innovation Circles with suppliers, project management tools and the
management system known as “Innovation to Value”, which is aimed at
capturing the greatest value from R&D projects with a highly demanding
management based on venture capital and “quality gates” models.
Special mention should be made, as an outstanding initiative in the industry, of
the Endesa Innovation Circles (Cide), managed by Endesa Network Factory and in
which more than 30 of the company’s most innovative suppliers participate.
Through the Cide, ENDESA identifies opportunities and technological challenges,
expresses them in terms of technological expectations and conveys them to its
suppliers to attract RDI efforts better and to identify new joint projects
together. The innovation model developed by ENDESA was certified in the month of
July by Aenor, according to the UNE 166002 standard, which lays down the
requirements to be satisfied by an integral RDI Management system with respect
to tools, procedures, documents and the relationships between business units to
ensure their quality and efficiency in these functions. ENDESA has thereby
become the first electrical utility to achieve this mark of excellence in the
management of its RDI activities. To sum up, ENDESA maintained a technology
strategy in 2006 aimed at meeting its strategic targets and at the same time
fully in line with current global technological trends: • Globalisation:
locating common resources where they perform best. • Mainstreaming and
standardising solutions. • Simplification of processes and products.
Redesign aimed at cost value. • Open, flexible models for contacts. •
“Ramds” (reliability+availability+maintainability+durability +safety).
• Modularity and scalability: facilitating the evolution or migration of
each solution • Eco-efficiency and global sustainability. Investment in
energy efficiency. • Focus on the customer and perceived quality. •
Virtualisation: focus on service and not on its technological solution. •
On-demand solutions. ENDESA’s technological priorities are currently
focused on giving excellent and sustainable service to its customers, based on
the following approaches: 1. Sustainable and efficient
electricity generation: • Clean coal: CO2 separation, capture and storage
/enhancement; oxy-combustion, supercritical boilers, IGCC, etc. • Greater
presence of renewable energy sources –wind, solar, biomass, bio-fuels,
geothermics– in the generation mix. • Preparation for new nuclear
power generation: fourth generation reactors, technological supervision of
fusion technology –and use of the Iter technical office, with headquarters
in Catalonia– hydrogen applications, etc. 2.
Processes, both business ones (SDE, SAC, Siege, SCE projects, etc.), as well as
for internal management (SIE, Nostrum, Saga, etc.). 3.
Intelligent networks. Development of the best systems and communications
technology to achieve increasingly centralised, safe and efficient networks:
sensors, real-time data processing, decision-making, integration with the
customer and with distributed generation, etc. 02. ENDESA’S T&I
INITIATIVES IN 200602.1. GENERATION Internationally, mention should be made of
the role placed by ENDESA and Circe (Centre of Research for Energy Resources and
Consumption, Zaragoza) as the sole Spanish representatives on the European
technological platform known as Zero Emissions Fossil Fuel Power Plants (ZEP),
whose main aim is to promote a clean power generation future with coal in order
to facilitate renewal and extension of the current power stock, and to allow the
introduction of zero
emission power generation plants by 2020. During 2006, the ZEP platform,
which is strongly supported by European Union (EU) institutions, approved its
Strategic Research Agenda (SRA) and the Strategic Deployment Document (SDD). In
the EU, ENDESA participates in the most important R&D projects carried out
in the area of CO2 capture and storage such as Dynamis, Cachet, C3-Capture,
Geocapacity and Nanoglowa. In Spain, ENDESA chairs the Spanish CO2, Platform,
and heads the Cenit CO2 project (National Strategical Consortium for Technical
Research into CO2), which represents the main R&D initiative in the fight
against climate change. This consortium, which forms part of the national
Ingenio 2010 programme, coordinates the actions of 33 companies and research
bodies, with a budget of Euro 26 million in four years and an objective of
tackling a reduction in emissions, and CO2 especially, in the whole industrial
process, which includes increasing efficiency, capture (pre-combustion,
combustion and post-combustion), transport, storage and recovery of CO2. As a
consequence of the Novare awards granted for research into new energy subjects
at international level, the company also launched two new R&D projects in
the field of sustainable generation: • Novare-Plasmocol: ENDESA, with Aicia
(University of Seville) and GreenPower, are researching into the development of
pollutant abatement systems using non-thermal plasma technology. •
Novare-BioH2: ENDESA, with the University of Leon and the Coal Institute
(Incar), is researching waste recycling to obtain hydrogen and methane. Other
major projects undertaken in 2006 in the area of efficient and sustainable power
generation were: • Improvement in infrastructures and methodologies for
carrying out Technological Intelligence activities (Conoce Project). •
Development and perfection of a 5 kW fuel cell in association with the
Polytechnic University of Madrid (PUM) and the Electric Power Research Institute
(EPRI), in order to improve supply quality in distributed generation systems.
Patents are being taken out in this area for electronic systems developed to
ensure the quality of the power generated. • Abetrap Project (RFCS) for the
recovery of carbon combustion waste using new sorbents to contain emissions.
• Study of oxy-combustion techniques in collaboration with the CSIC-Incar
(Spanish Scientific Research Council/ National Coal Institute). • Efialter
project to increase efficiency of large alternators. • Several market tool
projects, such as the integrated system for forecasting secondary regulation
bandwidth, the medium and long-term water management model, the simulation model
for electricity markets, the Internet portal designed to supply climatic
rainfall information to aid the management of the hydroelectric supply
nationwide and a model to predict forward curves. • ENDESA, through its
participation in Green-Fuel Corporación, S.A., began development of
several bio-diesel production plants in 2006. The Company also continued its
research into the use of bio-diesel as an alternative to diesel and heavy
fuel-oil in the alternative internal combustion engines used in electricity
generation. • In solar energy, it continued to study and develop
photovoltaic solar energy at power plants and the use of high-temperature
thermal solar energy in electricity generation. It also launched an R&D
project (called GDV-500) for the development of direct steam-generation systems
with high-temperature solar energy, correspondingly more efficient and with less
environmental risk, because they avoid current fluids (synthetic oils). ENDESA,
as a founding partner of the Protermosolar association, promotes efforts for
greater technological and industrial development of this energy source in Spain.
• Major features of hydro energy innovation are several projects at plants
located in Latin America that, with the installation of advanced equipment in
new turbines, have obtained a noteworthy increase in energy efficiency. •
Improvements in globalised information systems, such as the CMD project, which
allows online monitoring, acquisition, processing and storage of variables in
the operating process for the Latin American generating stock, which will
facilitate monitoring and the analysis of trends and diagnosis by preventing
failures and improving maintenance and operating management. • Highlights
in new designs of boilers and advanced combustion systems: the development of a
supercritical European fluid (CFB800 project) layer, the conversion of several
boilers to new types of fuels in Spain, improving efficiency and reducing
emissions of CO2, SO2 and NOx, and new designs for the use of different types of
biomasses (grape refuse, grain, agricultural waste, etc.) in Spain, as well as
meal or coconut at various facilities in Italy that already have clean
co-combustion technology in operation, as is the case of the Monfalcone and
Fiume Santo power plants. • With respect to research and development
centred on a more efficient and less polluting use of coal, ENDESA possesses a
pioneering centre in France of recognised international prestige, the Cerchar
(Centre d’Etudes et Recherches des Charbonnages), which gives support for
the deployment of our company’s industrial strategy in Europe.
02.2. ENVIRONMENT AND SUSTAINABILITY Mention should be
made of the progress achieved in the El Hierro project, through which ENDESA, in
collaboration with the island authorities and the Canary Islands Technological
142 Annual Report 2006 TECHNOLOGY AND INNOVATION
Institute (ITC), aims to ensure that the island’s energy supply is
provided through a fully renewable hydro/wind output system, which will
guarantee fully sustainable development and will be a pioneering experience at
an international level. ENDESA is also a member of the European CO2Net network,
financed by the EU Framework Programme to capture and store CO2, and which
currently has 64 members and 11 partners from more than 18 countries; it is a
founding partner of the Spanish Hydrogen Association, together with 33 other
companies, 17 research centres and public bodies, and the Foundation for the
Development of New Hydrogen Technology in Aragon, in collaboration with 28 other
companies and institutions. The most significant environmental and
sustainable-development initiatives carried out in 2006 were: • Analysis of
the understory around the Meirama and As Pontes power plants (Galicia), in order
to obtain the maximum information possible about agents causing damage to
forests, and following the indications contained in EU Regulations about the
protection of forests against atmospheric pollution. • Research projects on
the zebra mussel in order to acquire the necessary knowledge for control of this
pest. • Joint evaluation with the Spanish Scientific Research Council
(CSIC) of the application of carbonisation/calcination processes to capture CO2.
• Biomass activities and energy crops: Biocard project, participation in
the CO2 Special Strategic Programme of the Ministry for Education and Science
(MEC) and developments for the use of specific biomasses at Spanish coalfired
power stations with direct and indirect co-combustion systems. • Ceca
NoDioxCom project to design and develop ongoing monitoring for heavy metals,
especially mercury. • The main features of the hydrogen energy vector are:
the Hidrolica project for optimised hydrogen production with wind power, the
European “Cluster Pilot Project for the integration of RES into European
Energy Sectors”, and participation in both the Spanish Hydrogen Association
and the Foundation for the Development of New Hydrogen Technologies in Aragon.
02.3. DISTRIBUTION GRIDS ENDESA’s T&I grid
initiatives aim to improve customer service quality via specific environmentally
friendly projects or measures designed to enhance efficiency and preservation
and so free up resources to improve the Company’s grids. In 2006, and on
the basis of this approach, ENDESA headed submission for the second year from
the Cenit–Denise consortium (Intelligent, Safe and Efficient Electricity
Distribution Networks) to the Centre for Technological and Industrial
Development (CDTI) of the Ministry of Industry, with the participation of three
electricity industry companies and nine research centres from Madrid, Aragon,
Andalusia, Asturias and Catalonia. The consortium has planned its R&D
activities for the next four years, with a budget of nearly Euro 30 million.
Furthermore, taking advantage of the results of the Denise initiative, ENDESA
launched the first intelligent-networks programme last year in Latin America,
with the participation of six electricity-distribution companies from five
countries in the region. Its aim is to define and carry out projects related to
the development of distribution grids. In the area of distribution in Latin
America, special mention should also be given to the following initiatives:
• Development of telecommunications technologies by Synapsis, an ENDESA
subsidiary, for the deployment of massive remote-controlled metering and
automation of networks at distribution companies in which the Company has a
stake. These technologies have supported the grid of the Brazilian company Ampla
and automation projects at the Colombian and Chilean companies of Codensa and
Chilectra, respectively. • Development of vegetable oil for transformer
insulation at the Brazilian company Coelce. 02.3.1. Endesa Network Factory To
strengthen its stake in new distribution-grid technologies, ENDESA has also
redirected the aims of its subsidiary Endesa Network Factory (ENF) with
headquarters in Barcelona and formed by a highly specialised team of engineers.
The mission of this company is to motivate, encourage and channel the
development of pioneering projects in technological innovation to contribute to
the improvement of the electrical distribution business and keep ENDESA at the
forefront of the industry. ENF focuses its activities on four major areas of
knowledge (telecommunications, protocols, company services and software and
electrical infrastructure), in which it tries to achieve the best possible and
most efficient and competitive solutions by maximising the quality/cost
relationship. Applications in the field of Information and Communication
Technologies (ICTs) are based on research, analysis and encouraging new RDI
practices in network intelligence. During 2006, ENF coordinated and promoted the
above-mentioned ENDESA Innovation Circles (Cide), in which more than 30
industrial partners, several universities and research centres participated with
the aim of aligning RDI efforts in all fields of the electricity industry. It
also actively participated in 2006 in the leading groups promoting PLC
technology (PowerLine Communications) in Europe, which are PUA (PLC Utilities
Alliance) and Cenelec, Operations Review 143 endesa06
and assumed the technical secretariat of the Spanish Networks Platform
(Futured). This initiative, part of the National Energy Programme and promoted
by the Directorate General for Technology Policy of the Ministry of Education
and Science, represents a teamwork forum for outlining needs and defining
activities and technology policies in the field of future electricity networks.
02.3.2. Grid quality ENDESA led research in 2006 into
new high- capacity conductors, the impact of new generation technologies on the
distribution network –solar plants, wind support, fuel cells, mini
co-generation– and new underwater connection technology to enhance the
quality, automation and reliability of the MV network. It also researched and
tested the use of new polymer materials, and developed improvements in earth
connections to minimise the effects of lightning. Lastly, the Mobility Plan was
unveiled to achieve greater speed in incident management, a new portable GPRS
PDA was tested, equipped with GPS technology and with access to SDE modules, and
the automation of the MV grid was extended. 02.3.3. Grid
efficiency In 2006, the Company continued with the process of standardising,
mainstreaming and approval of equipment, substations, the use of new SF6 and
hybrid technology, 66 kV cabinets, and high-voltage (HV) underground cables.
Furthermore, it researched into remote management of lowvoltage (LV) measurement
equipment connected to PLC technology to carry out remote management in
coordination with technological advances in remote-control networks and MV
remote control access. In the future, this system will involve a new model for
relations between ENDESA and its customers, through remote communications
between the supply company and systems installed at each supply point. Work
carried out in the year centred on concluding the technical and functional
specifications necessary for the various systems and on developing, determining
and implementing the PLC communications solution and progressing with the work
necessary for the required systems. The project obtained financing within the
framework of the Profit programme of the Ministry of Industry, through a
repayable zerointerest loan for a sum of Euro 719,395. Research was also carried
out into the suitability of remote control devices, access to new generations of
systems communicating by means of computers and into the broadband carrier wave.
Other efficiency-related initiatives included the continuation of the Diana
project (real time functions installed at customers’ homes), the Alma
project (designed to boost meterreading management in order to improve quality
and communication with suppliers), providing simpler access for external
partners to the Company’s IT systems, a system for forecasting
non-technical losses and a device for detecting electricity fraud by measuring
current differentials. 02.3.4. The environment at Endesa
Redes In 2006 ENDESA conducted research into the development and application of
low loss transformers in the distribution network (the European SEEDT project),
a system for identifying and improving MV technical losses and the deployment of
measures to minimise the environmental impact of bird contact or perching on
conductors or utility poles (dielectric rings and protectors). Furthermore, the
Company and the “Endesa Energy Innovation Network” chair at the
Polytechnic University of Barcelona carried out several joint research projects
and organised the 2nd International Energy Innovation Congress, which was
attended by more than 100 specialists from several countries.
02.4. SALES Projects undertaken in this area seek to
tailor ENDESA’s services to its customers’ needs and lifestyles,
paying special attention to efficient energy consumption. We can highlight the
following initiatives in the household sector in 2006: • New value-added
services in customers’ homes. • In the framework of the long-term
Project Avanza, encouraging and promoting a single view of multi-point customers
and laying the foundations for new policies for serving and getting to know
customers. • Optimising energy-market segmentation, a key aspect for
developing the above project. • Developing advanced techniques and
capacities to manage commercial campaigns. Key initiatives in the new housing
segment were: • Launch of a complete advisory service for property
developers seeking to build sustainable energy-efficient housing. •
Barcelona Digital Area, an area for displaying the latest home-related
technologies within the framework of the Brasilia project at La Salle
University. The space was used as the basis for tests on the concept and the
spreading of technological innovation and building sustainability. •
Participation in and promotion of information seminars for real estate
developers explaining the new Technical Building 144 Annual Report 2006
TECHNOLOGY AND INNOVATION
Code and specific sustainable construction developments in Spain. In the
corporate customer segment, the Company set up a series of programs for
developing control mechanisms and managing energy installations to promote
preventive and corrective maintenance in their various applications and uses. It
also carried out energy audit schemes aimed at improving customer facilities and
adapting the loads contracted to suit their needs. In the Large Customer
segment, product portfolio management was enhanced via a system with several
focus points: establishing customer-quality commitments, strengthening internal
resources and follow-up tools, defining service agreements with suppliers and
developing new products. 0.2.5. Promoting the culture of innovation and managing
talent and knowledge: Endesa Energy Education One of the cornerstones of the
ENDESA strategy is the management intellectual capital, talent and other
intangible assets in order to integrate and coordinate the way in which all
Company employees attain and manage their knowledge, regardless of geographical,
organisational or cultural barriers. The mission of the “Endesa Energy
Education” is to increase the capacity to share and generate the knowledge
and innovation of these people. Its core objective is to be a centre of
excellence, quality and intelligence to oversee the management of Company
intangibles. The following were the most significant projects and activities set
up in 2006 by Endesa Energy Education: Novare Innovation Awards In 2006 Endesa
Energy Education organised and presented the first Novare Awards for Energy
Innovation. In the competition held for the scientific community, the winning
ideas were selected from amongst 125 proposals from 15 countries by a panel of
judges composed of personalities from the energy industry and the academic
world. Novare Awards were also presented at the same event for employees, aimed
at rewarding and recognising the most innovative business ideas. Over 2,600
ideas were received from people working at all ENDESA group companies.
Organisation and sponsorship of the Barcelona Tech Summer Sessions Endesa Energy
Education participated in the organisation and was the main sponsor of technical
sessions on energy which, under the “Barcelona Tech Summer Sessions”
title, was attended by representatives from the Polytechnic University of
Catalonia, the Universities of Columbia, Chicago and Berkeley, and the
Massachusetts Institute of Technology. ENDESA Electrical Technology
Master’s Degree-ICAI In 2006 Endesa Energy Education, together with the
Senior Technical Engineering School (ICAI) at Comillas Pontifical University,
devised a Master’s Degree course on technological innovation and
strengthening technical skills. The Master’s Degree is aimed at people with
higher and technical qualifications in Engineering, graduates in Science,
Economics or Business Studies, as well as ENDESA expert employees and from the
energy industry in general. The first classes were given in October 2007. Endesa
Energy Education also contributed to the organisation of an Enersis Energy
Master’s Degree and signed an agreement with the Pontifical Catholic
University in Chile to create a professorship for technological research into
various energy fields. ENDESA Master’s Degree in Renewable Energies in
partnership with the UEM ENDESA collaborates with the European University of
Madrid (UEM) in the Official Master’s Degree in Renewable Energies, which
forms part of the Postgraduate Programme of “Efficient Projects and
Sustainability”, together with other post-graduate courses. The aim of this
Master’s Degree is to provide full training in different specific subjects
in the area of renewable energy sources, covering technological, economic, legal
and environmental issues. At the end of the Master’s course, Endesa Energy
Education will offer eight one-year grants. Energy-technology courses Endesa
Energy Education sponsors courses for non experts given by the Company’s
own staff and aimed at managerial and technical personnel who do not come from
the same business areas. The aim of these courses is to encourage long-term
training, giving support to the coverage of critical training needs, making it
possible to manage the knowledge of ENDESA experts and to thereby spread their
technical knowledge. Publicising Endesa Energy Education activities Lastly,
Endesa Energy Education devoted part of its efforts in 2006 to carrying out work
to publicise its activities through the publication of technology literature
(CCGTs and CO2 Technologies), launching a T&I bulletin, setting up the
www.escuelaendesa.comwebsite and the ENDESA knowledge-management tool
(Wikiendesa), explaining and enhancing alliances, agreements, sponsorships,
ENDESA university chairs and grants in the field of education and relations with
universities. Operations Review 145 endesa06
HUMAN RESOURCES 146 Annual Report 2006
ENDESA’s corporate values show that the Company considers human
resources as one of its most valuable assets. ENDESA is responsible for ensuring
development opportunities for all Company employees, based on merit and
professional contribution, and is committed to encouraging their involvement in
attaining common goals by sharing information and know-how. Compliance with
these values can be see in the Company’s daily endeavours to promote the
optimum management of talent, health and safety, a good life-work balance,
diversity, ongoing training, and the design and application of fair and
motivating evaluation and compensation systems.. Also, compliance with these
Values is built into the Company’s evaluation and compensation systems for
its key professionals. 01. HIGHLIGHTS IN 2006 Human resource management
highlights in 2006: • Implementation of an integrated global Talent
Management system, which includes: the evaluation of general management
competencies, a leadership model, performance management, and a system of
identification, validation and management of potential. All of these elements of
the model are managed through a global information system (Nostrum) which
permits HR management decentralisation. • Consolidation of a unified and
multinational model for executive personnel management. • Workplace health
and safety was reinforced by means of a range of initiatives, including: –
Drawing up a common management model and Endesa’s health and safety policy
to be rolled out to all businesses and companies, as well as the 2012 Scorecard.
These initiatives were approved by Endesa’s Management Committee in 2007.
– The Apolo and Delfos projects which seek, respectively, to apply a single
global perspective to all countries and business lines, and develop a shared IT
system. – 2005-2009 Strategic Plan for the Prevention of Workplace
Accidents in Spain and Portugal (PRAEVENIO Plan). – Certification of the
Latin American business under the international OSHAS 18001 standard. –
Consolidation of the ENDESAWorkplace Safety Group, with both onsite and online
support forums, the most important of which was the Second Corporate Meeting on
Workplace Health and Safety. • Consolidating management of the Endesa
Group’s employee pension plan. • Launch of pension management systems:
SPreSo, ProBER and the pension management website. 02. EVOLUTION OF THEWORKFORCE
AT ENDESAAND SUBSIDIARY COMPANIES ENDESA´s total work force consisted of
26,758 people at the end of 2006, a decrease of 1.6 percent from the same time a
year earlier. 23.8 percent of the workforce is comprised of women. ENDESA’s
workforce in Spain and Portugal fell from 12,709 people at year end 2005 to
12,625 people at year end 2006, a decrease of 0.7 percent; in the Latin American
business, it stood at 11,962 people at the end of 2006, a decrease of 2.9
percent, while in the European business, the workforce consisted of 2,130
people, 1.1 percent fewer than the previous year. Operations Review 147 endesa06
MANAGEMENT BY LEVELS AND REGIONS (at december 31, 2006) Level Spain Europe Latam
Row Total Senior execs 28 2 6 – 36 Deputy General Managers 14 – –
– 14 Managers 103 8 51 – 162 Deputy Managers 294 8 215 7 524 Total 439
18 272 7 736
2006 / 2005 2006 / 2002 Average workforce 2002 2003 2004 2005 2006 % chg. %
chg. Electricity business in Spain and Portugal* 13,688 13,596 13,659 12,833
12,663 -1.3 -7.5 Electricity business in Latin America 11,005 11,556 11,703
12,105 12,078 -0.2 9.8 Electricity business in Europe 1,302 1,162 1,523 2,333
2,172 -6.9 66.8 Other businesses 533 286 100 23 35 52.2 -93.4 Total 26,528
26,600 26,985 27,294 26,948 -1.3 1.6 * The workforce in Spain and Portugal
includes staff of the Corporation and Services (487 and 458 people,
respectively) International and European business employees who are based at
ENDESA´s headquarters (Madrid) are included under regulations outlined in
the Collective Agreement HUMAN RESOURCES AGE PYRAMID FOR LATIN AMERICA Age group
% Average workforce 25 3.3 399 25-29 11.6 1,401 30-34 16.1 1,944 35-39 16.3
1,969 40-44 18.0 2,174 45-49 14.4 1,739 50-54 9.9 1,196 55-59 7.0 845 60-64 3.4
411 >64 0.0 0 Total 100.0 12,078 AGE PYRAMID FOR SPAIN AND PORTUGAL (INCLUDES
OTHER BUSINESSES AND HEADQUARTERS) Age group % Average workforce 25 0.4 52
25-29 4.0 499 30-34 10.7 1,353 35-39 11.6 1,468 40-44 19.4 2,452 45-49 27.4
3,488 50-54 20.0 2,521 55-59 6.1 774 60-64 0.4 50 >64 0.0 6 Total 100.0
12,663 AGE PYRAMID FOR EUROPEAN BUSINESS (Excl. France) Age group % Average
workforce 25 0.0 0 25-29 2.0 22 30-34 5.3 57 35-39 11.6 125 40-44 20.8 223
45-49 25.8 277 50-54 27.2 292 55-59 6.9 75 60-64 0.1 1 64 0.0 0 Total 100.0
1,072148 Annual Report 20062006 / 2005 2006 / 2002 Workforce at year end 2002
2003 2004 2005 2006 % chg. % chg. Electricity business in Spain and Portugal*
13,548 13,651 12,889 12,709 12,625 -0.7 -6.8 Electricity business in Latin
America 11,166 11,796 11,735 12,317 11,962 -2.9 7.1 Electricity business in
Europe 1,168 1,143 2,436 2,153 2,130 -1.1 82.4 Other businesses 472 187 93 25 41
64.0 -91.3 Total 26,354 26,777 27,153 27,204 26,758 -1.6 1.5
03. INTEGRATED TALENTMANAGEMENT MODEL ENDESA’s mission, values and
goals require a merit and development-oriented personnel management strategy,
diversity and respect for equality of opportunity, striking a balance between
personal, professional and family life, and the use of compensation policies
that are equitable and motivating. In keeping with this policy, the main
personnel management initiatives in 2006 were focussed on recognition of
individuals on the basis of merit and productivity, decentralising talent
evaluation with the aim of facilitating mobility and enhancing succession plans
for key positions, developing communication avenues geared toward guaranteeing
transparency in personnel management policies, as well as on a commitment to
quality, decentralising managers’ work and using efficient processes. To
reach these goals, the following projects were undertaken in 2006:
03.1. REVIEW OF ENDESA GROUP’S GENERAL-MANAGEMENT
COMPETENCIES Following completion in 2005 of the single competencies model
shared by all ENDESA staff, 2006 saw the start of the review process for the 10
generic management skills which constitute an essential component of leadership
guidelines. This project provides a solid basis for the drawing-up and
management of Individual Development Plans. To enhance this initiative, all of
the Company’s managers and executives received online training.
03.2. SCOPE OF THE PERFORMANCE MANAGEMENT SYSTEM
Building on the performance management system redesign carried out in 2005, in
2006 the Company worked on reaching goals for cultural change and for
consolidating existing review procedures. In addition, performance management
policies were extended to the category of professional workers at ENDESA Group
companies. In 2006, 3,790 people, were assessed under this system, 600 more than
in 2005. At the same time, training and communication efforts were directed at
managers at all levels aimed at streamlining review criteria, enhancing skills
and accompanying manager teams as they organise evaluation committees (Mesas de
Calibración). 03.3. IDENTIFICATION, VALIDATION
AND MANAGEMENT OF POTENTIAL SYSTEM The design process for this system was
completed in 2006, and it will allow the Company to finalise its integrated
model for talent management in order to obtain quality information geared toward
drawing up individual development plans and managing job succession in critical
positions. 03.4. CONSOLIDATION OF NOSTRUM AS A
DECENTRALISATION AND EFFICIENCY SYSTEM By the end of 2006, the corporate system
for HR management, Nostrum, was used by all ENDESA companies, with the exception
of Endesa France and Edesur. Nostrum allows managers and employees to access
information related to the company, training, hiring, reviews, etc.,
facilitating their efforts in these areas. In this manner, Nostrum contributes
significantly to increasing personnel management efficiency and ensures an
integrated and homogeneous approach to HR management, using common guidelines
that facilitate cultural change. 04. EXECUTIVE MANAGEMENT MODEL ENDESA in 2006
consolidated its Executive Management Model which it applies to all of the
Company’s businesses, establishing a common framework, initiatives and
principles while setting guidelines for basic requirements for joining the
executive team. With this series of guidelines, presented internally as part of
the Fifth Executives’ Meeting in 2006, the Company aims for executive
management practices to be in line with principles that foster shared value
creation with a future-oriented outlook to help ENDESA to be a benchmark company
in the markets in which it operates. The following are the Company’s
executive management highlights for 2006: • Approval of the Postgraduate
Policy, which oversees ENDESA’s postgraduate programmes worldwide. •
Fifth Executive Meeting, attended by 428 executives, during which the Company
presented its Leadership Programme. • Approval of Guidelines for the
Application of the Charter Governing Executives, Employee Code of Conduct, and
Operations Review 149 endesa06
Incompatibility and/or non-competition covenants by the Commission for
Interpretation and Monitoring of the Executive Charter and Employee Code of
Conduct. • Approval of the new transfer policy for personnel and executives
(only in Spain). 05. HEALTH AND SAFETY One of the basic principles of
ENDESA’s corporate activity and of its commitment to sustainable
development is the safeguarding of workplace health and safety for the people
who work for the Company. ENDESA considers health and safety an important asset
which must be guaranteed across the board. It has therefore added health and
safety as the eighth value to its Corporate Values and refers explicitly to this
issue when defining its corporate vision. In 2006, the Company worked on several
initiatives in this area aimed at transforming the Company into the world’s
leading electric utility in terms of workplace health and safety and drew up a
new framework for its companies and businesses to follow. These initiatives were
approved in 2006 and also at the beginning of 2007. The first is its Health and
Safety Policy which sets out the general principles to be followed, in the
context of its sustainability strategy and is the benchmark for the health and
safety management model to be followed by ENDESA’s businesses and
subsidiaries when drawing up their own policies. The second is ENDESA’s
aforementioned health and safety Management Model, which was created in
partnership with representatives of the Company’s three businesses. This
Model establishes common criteria to be applied via the health and safety
management systems for ENDESA’s businesses and subsidiaries, with the aim
of promoting excellence in health and safety management and making it one of
ENDESA’s distinguishing features. The third is a series of evaluation
criteria, results indicators, preventive indicators and common goals, structured
in a workplace health and safety balanced scorecard, which allows the progress
toward achieving the company’s workplace health and safety goal of zero
accidents. This balanced scorecard is included in the Corporate and Business
Strategic Map. In accordance with the data in this balanced scorecard,
ENDESA’s accident rate, expressed in terms of frequency, improved by more
than 30 percent in the past two years, to 6.45 at the end of 2006. All three of
the Company’s business areas posted double-digit improvements in this area
in the period. These goals are valid through to 2012 by which time ENDESA plans
to be the global benchmark in terms of health and safety. The fourth initiative
is ENDESA’s participation in 2006 in the World Safety Declaration, which is
backed by the International Labour Organization (ILO) and which features the
participation of 45 large multinational companies. ENDESA’s progress in
workplace health and safety in 2006 resulted in it receiving significant
national and international recognition, among which the following stand out:
• Maximum score for its industry (100 percent) for the third consecutive
year in the category of workplace health and safety in the prestigious Dow Jones
Sustainability World Index, exceeding the sector average by 44 points. •
Prever 2006 award from the government of La Rioja in the category of Businesses
and Institutions, first recipient of the Expansion & Empleo Award for
Innovation in Human Resources and the Actualided Economica Award for the 100
Best Ideas in 2006 in the Social Responsibility category. • Awards for
subsidiary companies in Latin America for their efforts to safeguard workplace
health and safety: Ampla (Brazil), Emgesa (Colombia) and CAM (Chile). Other
significant initiatives carried out by the Company in 2006 in the area of
workplace health and safety were the following: 05.1.
OHSAS 18001 CERTIFICATION The Company is adopting this prestigious international
standard in a manner compatible with the Management Model mentioned earlier. 150
Annual Report 2006 HUMAN RESOURCESACCIDENT RATE. FREQUENCY INDEX 2004 2005
20069.27 8.126.43 -30.6% Frequency Index: Number of work place accidents with
sick leave per million hours worked
At the time of going to press, certification of ENDESA’s companies in
Latin America was 100 percent in generation (9 points better than at year end
2006) and 67 percent in distribution. Certification of the first operating units
in the Spain and Portugal business will take place in 2007, and, in the case of
the European business, in 2008. 05.2. WORKPLACE HEALTH
AND SAFETY INDICATORS IN ENDESA’S BALANCED SCORECARD (BSC) ENDESA’s
Balanced Scorecard (BSC), the methodology the Company applies in defining its
strategic guidelines, in 2006 included workplace health and safety objectives
related to an overall reduction in workplace accidents, and was extended to
ventures and companies in which ENDESA holds stakes.
05.3. AWARD FOR CONTRACTOR EXCELLENCE IN WORKPLACE
HEALTH AND SAFETY The guidelines for the ENDESAAward for Health and Safety were
established in 2006 aimed at the Company’s contractors worldwide with a
view to being launched in 2007. 05.4. INFORMATION SYSTEM
(DELFOS) The year saw development of the Delfos project, which consists of a new
workplace health and safety management information system, common to all ENDESA
companies, and which will be implemented starting in 2007. The system will
support the following requirements for management and information: Planning for
management of accident prevention, accident management, contractor accident
management, risk evaluation, workplace healthcare and workplace health and
safety statistics. 05.5. KNOWLEDGE MANAGEMENT IN
WORKPLACE HEALTH AND SAFETY ENDESA’s specialists in workplace health and
safety, who comprise the Prevention Group, have at their disposal multiple
meeting points, both in-house and virtual, to ensure an exchange of best
practices, in line with the criteria the Company uses for knowledge management.
Among initiatives carried out in 2006, of note were the Second Corporate
Workplace Health and Safety Meeting in Brazil, workplace health and safety
workshops attended by representatives of the Company’s three businesses,
the workplace health and safety forum held by videoconference, and the workplace
health and safety Cooperation Space (ECO), created on the company intranet.
05.6. RISK MANAGEMENT In line with prevention measures
in the Company’s workplace health and safety policy, internal audits were
conducted at its companies, among other initiatives, to reduce the probability
of risks materialising, and reviews were proposed to analyse the results and, if
need be, assess new targets. 05.7. PRAEVENIO PLAN In the
framework of ENDESA’s General Prevention Plan, the Spain and Portugal
Business management team in 2004 drew up, through its Joint Prevention Service,
the 2005-2009 Strategic Plan for the Prevention of Workplace Accidents
(PRAEVENIO Plan), oriented toward meeting Company objectives, reducing accidents
and helping ENDESA to be a reference in the prevention of workplace accidents.
The PRAEVENIO Plan is comprised of seven programs: Training, issue awareness,
encouragement and communication for a culture of prevention, quality principle
reaffirmation incorporating prevention into the Company’s management
systems, coordination with contractors, a reduction of accidents and
absenteeism. As part of the Plan, in 2006 the Company organised six issue
awareness days, which were attended by 550 executives and team leaders, as well
as a range of courses totalling 28,946 training hours and attended by 2,547
participants. In addition, 57 audits were carried out in work centres (50
percent of the total outlined in the Plan), of which 51 obtained the
corresponding certificates. The frequency and seriousness indices for accidents
at ENDESA’s electricity and mining business in Spain improved endesa06
TOTAL ACCIDENT RATE IN ENDESA’S ELECTRICITY AND MINING BUSINESSES IN SPAIN
(Own personnel) Accident rate 2000 2001 2002 2003 2004 2005 2006 Total accidents
with and without sick leave 1,371 1,162 1,008 857 703 564 504 Fatal accidents 2
1 3 1 1 0 5* Frequency index 17.01 16.40 16.98 16.59 14.26 11.95 9.80
Seriousness index** 0.67 0.67 0.70 0.78 0.77 0.71 0.45 * Of which, 1 heart
attack and 1 road accident. ** Measured in number of working days lost due to
accidents with sick leave per thousand hours worked Operations Review 151
significantly with the former falling from 11.95 to 9.80 and the
seriousness index dropping from 0.71 to 0.45. These results exceeded the targets
set for these items in for 2006 in the PRAEVENIO Plan. The favourable
performance of both indices likewise stands out if data for the electricity
business and for the mining business are studied individually. As for total
absenteeism, expressed as a percentage of workdays lost out of total workdays,
initial estimates suggest that in December it was 3.50, or slightly better than
in 2005, when it was 3.51. With regard to the accident rate among contractor
personnel, more than 13,000 jobs were reviewed in the context of the Plan to
ensure compliance with the Company’s protocol for workplace accident
prevention. In addition, at the Teruel thermal station the Company launched the
Alliance with Contractors Project, which aims to communicate ENDESA’s
culture of prevention to workers hired by outside companies. This project will
be extended to other production and distribution centres in 2007.
06. STRATEGIC MANAGEMENT OF EMPLOYEE RELATIONS 06.1.
COLLECTIVE BARGAINING Throughout 2006, ENDESA continued its customary policy of
dialogue and collective agreement. As of 31 December 2006, the Company had 54
collective bargaining agreements in place at subsidiaries in its eight most
important countries of operation (Spain, Chile, Argentina, Brazil, Colombia,
Peru, Italy and France) of which 52 were still valid as part of the time frames
initially agreed, and the other two were being negotiated. In all, these
agreements affect 21,377 people. In Spain, as of that date, there were four
collective agreements in force, three of which were in force and one of which
was being negotiated. In all, these agreements affect 11,651 people. In
addition, the first collective bargaining agreement for Endesa Ingeniería
was being negotiated. 152 Annual Report 2006 HUMAN RESOURCES SITUATION OF THE
COLLECTIVE BARGAINING AS OF 31 DECEMBER, 2006 Latin America Spain Europe Total
Workers Workers Workers Workers Agreements affected Agreements affected
Agreements affected Agreements affected Total agreements 47 7,893 4 11,651 3
1,833 54 21,377 Effective agreements 46 7,672 3 11,561 3 1,833 52 21,066
Agreements under negotiation 1 221 1 90 0 0 2 311 Information based on
ENDESA’s subsidiaries in its eight most important markets (Spain, Chile,
Argentina, Brazil, Colombia, Peru, Italy and France). TOTAL ACCIDENT RATE IN
ENDESA'S ELECTRICITY BUSINESS IN SPAIN (Own personnel) Accident rate 2000 2001
2002 2003 2004 2005 2006 Total accidents with and without sick leave 845 755 623
609 525 413 355 Fatal accidents 1 1 3 1 1 0 4 Frequency index 14.54 14.64 14.62
14.65 12.90 9.96 8.64 Seriousness index** 0.58 0.64 0.61 0.74 0.72 0.66 0.44 *
Of which, 1 heart attack and 1 road accident. ** Measured in number of working
days lost due to accidents with sick leave per thousand hours worked. ACCIDENT
RATE IN ENDESA’S MINING BUSINESS IN SPAIN Accident rate 2000 2001 2002 2003
2004 2005 2006 Total accidents with and without sick leave 526 407 385 248 178
151 84 Fatal accidents 1 0 0 0 0 0 1 Frequency index 44.33 35.87 42.75 35.89
30.05 39.39 29.22 Seriousness index** 1.73 1.13 1.54 1.11 1.34 1.41 0.73 **
Measured in number of working days lost due to accidents with sick leave per
thousand hours worked.
Building on the policy it has had in place since May 2004, date of the
signing of the Endesa Group’s Second Collective Bargaining Agreement, the
Company continued to make progress in labour convergence and homogenisation
standards through specific agreements with labour representatives on issues such
as working systems, simplification of salary structure, as well as establishment
of internal guidelines. Worth highlighting are an agreement for the improvement
of supply operation and quality in the areas of Andalusia and Extremadura, and
an agreement on the work regime for maintenance of conventional thermal
stations, diesel plants and combined cycle facilities, which will facilitate
considerable productivity improvements. In addition, in 2006 the Company
continued restructuring and adapting its workforce to make it more suitable to
the operative needs of the business in Spain, while it took steps to avoid
negative impacts on everyday operations by using a succession plan for affected
employees. In Latin America, as of 31 December 2006, there were 47 collective
agreements in place, of which 46 were in force and one (of a level higher than
the Company) was under negotiation. In all, these agreements affect 7,893
people. Nine new collective agreements were signed in Argentina, Brazil, Chile
and Peru during 2006. Finally, as of this date there were three collective
bargaining agreements in Italy and France, all of them in force. In all, these
agreements affect 1,833 people. One new collective bargaining agreement was
signed in Italy in 2006. 06.2. TRADE UNION
REPRESENTATION ENDESA companies in its eight most important countries of
operation had 1,171 employee representatives: 748 representatives in Spain, 255
in Latin America, 79 in Italy and 89 in France. In November and December 2006 in
Spain, the UGT and CCOO trade unions promoted trade union elections, which were
held in February 2007. This marked the second general union election following
organisational and corporate consolidation, and affected a total of 12,006
workers. Union membership among the Company’s workforce in Spain, Latin
America, and Italy stood at 52 percent, 60 percent, and 73 percent,
respectively. Membership in international labour federations breaks down as
follows: International Federation of Chemical, Energy, Mine and General
Workers’ Unions (ICEM) 44 percent; Union Network International (UNI) 11
percent; Public Services International (PSI) 8 percent; other unions: 37
percent. 06.3. WORKING CLIMATE The number of hours lost
as a result of strike action in Spain and Italy in 2006 was equivalent to 0.01
percent and 0.00006 percent of total hours worked, respectively. Labour
agreements and initiatives in 2006 were carried out at ENDESA amid a positive
work climate. ENDESA-wide, the company has applied a total of 110 measures out
of the 115 in the IFREI Study (IESE Family Responsible Employer Index) on
striking a balance between work, family and personal life.
06.4. MANAGEMENT OF CONTRACTORS Because of the dimension
and importance of workplace safety among employees of ENDESA’s contractors,
the subsidiary and solidarity responsibility issues stemming from possible
non-compliance on the part of contractors, costs associated with supervision and
the control and information it is necessary to exercise over these costs, merit
a complete and across-the-board approach. To this end, in 2006 ENDESA drew up a
protocol to provide its businesses with guidelines adaptable to each local
scenario and to have the relevant management information regarding contracting
of works and services, and with this aim it introduced a new information system,
known as COLABORA, which in 2007 will be extended to the rest of its businesses.
Operations Review 153 endesa06 PERCENTAGE OF PEOPLE AFFECTED BY COLLECTIVE
BARGAINING AGREEMENT AT ENDESA AffectedExcluded 80%20% BREAKDOWN OF UNION
MEMBERSHIP AT ENDESA 11% ICEM UNIISP Other 44% 37%8%
07. PENSION MANAGEMENT With regard to its technical and legal development,
the ENDESA Group’s employee pension plan, which came into effect on 1
January 2005, marks an important milestone in the Company’s pension
management. The plan, which combines all of the 20 ENDESA Group employee pension
plans previously in existence, has 23.639 beneficiaries and pension obligations
of more than 2,100 million euros. Despite its magnitude and technical
complexity, it is already fully adapted to the Company’s organisational
structure and can now focus on providing beneficiaries with high quality service
and information through the tool designed for it, the Participants´
Website, while optimising returns on investments. By 31 December 2006, ENDESA
had contracted out its entire pension commitments in those countries where this
is mandatory, a total sum of Euro 4,502 million, of which Euro 2,607 million
corresponded to the group pension plan, Euro 1,719 million represented insurance
policy commitments to active and retired employees, and Euro 176 million took
the form of severance payments. 08. DEVELOPMENT AND TRAINING PROGRAMMES
ENDESA’s development and training initiatives can be broken down into two
categories: • Global. These contribute to implementing a common culture,
meeting corporate targets and developing leadership at ENDESA. These are mainly
directed at managers and strategic groups of professionals. • Business
Specific. These seek to consolidate and ensure each business’ strategic
targets and standards of excellence are met. 08.1.
GLOBAL TRAINING INITIATIVES Among global training initiatives in 2006 in Spain
and Portugal, it is worth highlighting ENDESA’s leadership development
programme, whose goal is to develop leadership among the management team from a
personal, team and company wide standpoint, as well as a business standpoint, in
the context of a global marketplace characterised by continual change. Another
noteworthy measure is the Endesa Energy School, described in greater detail in
the Technology and Innovation section of this report. Finally, in 2006 a company
wide policy for post graduate training was decided.
08.2. SPECIFIC TRAINING INITIATIVES BY BUSINESS AREA In
2006 a total of 1,342,786 hours of training were recorded at all ENDESA
businesses with 78,597 people taking part. The average time spent on training
per employee was 50.14 hours with total investment amounting to Euro 11,611,066.
08.2.1. Business in Spain and Portugal In Spain and Portugal the 2006 Training
Plan clocked up a total of 409,185 hours with 30,040 people taking part. The
main activities were: • In the generation business, courses included
training in new facilities and new hires in production and engineering,
selection of staff for the Ca’s Tresorer (Balearic islands) and As Pontes
(Galicia) CCGTs, training in the new equipment and technologies being
incorporated into Company plants, as well as a variety of specific training
schemes. 154 Annual Report 2006 HUMAN RESOURCESCONTRACTED-OUT PENSION
COMMITMENTSAS OF 31 DECEMBER 2006 (Euro millions) 30.5% Pension planInsurance
for active and retired employeesSeverance payments 63.0%2,6071,719 1766.5%
MANAGED WORKFORCE WITH PENSION COMMITMENTS AND SEVERANCE PLANS AS OF 31 DECEMBER
2006 37.0% InactiveActive Early retirablesEarly retirees
48.0%30,10123,1883,5705,964 9.4%5.6% Operations Review 155
endesa06 KEY RATIOS FOR ENDESA WORLDWIDE 2006 Spain / Portugal Europe
International Total ENDESA Hours Training/ Employees 32.18 18.17 74.98 50.14
Hours Training/ Attendees 13.62 10.57 19.93 17.08 Investment/ Employees 446.92
355.56 433.25 433.56 Attendees / Employees 2.36 1.72 3.76 2.93 BREAKDOWN OF
ENDESA’S TRAINING PROGRAMMES 2006 Spain / Portugal Europe International
Total ENDESA Participants 30,040 3,666 44,891 78,597 Hours 409,185 38,736
894,865 1,342,786 Investment 5,682,635 758,051 5,170,380 11,611,066 Hours/
Employee 32.18 18.17 74.98 50.14 Workforce 12,715 2,132 11.934 26.781 ACTIVITY
BY BUSINESS LINE (ACTIVITY 2006) Participants Hours Investment Spain / Portugal
Corporate Divisions 2,096 55,087.0 1,133,363.00 Generation 9,859 150,741.0
1,597,379.00 Distribution 13,736 140,310.0 1,704,110.00 Supply 2,833 32,602.0
652,599.00 Services 1,516 30,446.0 595,184.00 30,040 409,186.0 5,682,635.00
Europe Endesa France 1,159 13,651.0 435,171.41 Endesa Italia 2,507 25,085.0
322,880.00 3,666 38,736.0 758,051.41 International Corporate Divisions 180
14,584.0 417,488.00 Generation 10,040 142,305.0 761,038.00 Distribution 31,799
627,555.0 3,318,265.00 Services 2,872 110,424.0 673,589.00 44,891 894,868.0
5,170,380.00 Total General 78,597 1,342,790.0 11,611,066.00 BREAKDOWN OF
TRAINING BY SUBJECT 2006 Subject Participants Hours Investment Quality and
environment 5,524 50,870 396,429 Sales and marketing 5,152 211,875 1,406,652
Económic – financial 1,201 44,853 364,257 Management and HR 15,217
298,050 2,910,496 Languages 2,200 88,294 673,313 IT 4,309 65,880 488,907 Other
technical 5,318 79,980 723,522 Health and Safety 22,449 127,286 1,249,079
Téchnical – Distribution 10,714 200,681 1,564,267 Téchnical
– Production 6,513 175,017 1,834,145 Total 78,597 1,342,786 11,611,066
• Online courses were aimed at enhancing sales skills in order to
boost profitability through greater non-taxable income, training oriented toward
increasing control and oversight over third parties to improve accident
prevention, work quality and environment impacts, programmes for sales personnel
to bolster team leadership and management, and adapting training to the legal
requirements stemming from market liberalisation. • The main educational
initiatives in this sales business included a course on solar photovoltaic
energy, designed for managers in the Department of Large Clients, management
training in sales, negotiation and closing, portfolio planning, complaint
management, follow-up and loyalty building, directed at managers of the
Companies and New Construction segment, as well as architectural design for the
Sales School. • Training efforts for the Services department were mainly
directed at developing skills to improve the quality of inhouse service: focus
on in-house customers and interpersonal skills. • For the holding company
which comprises corporate divisions, energy management and parent companies, the
awareness building plan for environmental management systems, training to
improve employee service, as well as training in ENDESA’s management and
procedural systems The following are noteworthy training measures carried out
across the board at all business lines: • Workplace accident prevention
courses in the context of the PRAEVENIO Plan. • Rollout of a programme
related to the training plan for workplace accident prevention. Additionally, in
Catalonia the Company held a first aid training programme for 1,117 employees.
• Ad-Hoc project, a learning initiative focused on offering training to
facilitate day-to-day work through the detection of common needs. •
Training in the HR system Nostrum, geared to managers of employee services and
to personnel administration staff with 350 employees taking part. •
Creation of a working group in conjunction with the National Qualifications
Institute (INCUAL) to encourage the growth of professions with an important
presence in ENDESA, and the availability of professionals with the necessary
qualifications. • In-house plan, aimed at experts and technicians in
employee selection and training, to achieve the integration of both functions.
08.2.2. Business in Europe A total of 3,666 people took part in the 2006
Training Plan in Europe with 38,736 hours of training across the board. We would
highlight the following initiatives: Endesa Italia • Training in Management
of Strategic Talent, comprising: – Individual coaching plans for managers
and supervisors based on Endesa’s Values. 156 Annual Report 2006 HUMAN
RESOURCES
– Training on Partner Management and Development for Human Resources
managers. – Training programme for new recruits focused on developing
skills across the board: team work, corporate culture, communicating and
managing conflicts, budget control. • Course on Cultural Change Management.
• This is aimed at communicating Endesa’s Sustainability Policy in
terms of Human Resources and its commitments. The course was aimed at
executives, managers and staff. • Course on Excellence in Health and
Safety. Endesa France • Course on Strategic Talent Management. •
Training for Tutors aimed at strengthening skills in order to contribute to the
professional development of their teams. • Effective Team Management for
people managers in order to develop the skills required to lead teams. •
Technical Training, including courses on the chemical components of water, water
treatment and combustion as well as regulation issues and electricity networks.
• Course on safety at installations. 08.2.3. Business in Latin America A
total of 44,891 people took part in the 2006 Training Plan for Latin America
with 894,865 hours of training across the board. We would highlight the
following courses offered by ENDESA’s various subsidiaries: • Edelnor
(Peru) focused on issues concerning distribution, transmission, network
analysis, product quality and service as well as electricity operations. The
courses were given by local staff. • Coelce (Brazil) launched its
“Conociendo Coelce” programme offering staff a comprehensive overview
of the its targets and activities. • Endesa Chile (Chile) offered middle
management a Leadership Skills course. • Codensa (Colombia) provided
coaching to management aimed at bolstering leadership skills. • Ingendesa
(Chile) focused on developing staff’s IT skills and their knowledge of its
consultancy projects. 09. DIVERSITY AND WORK-LIFEBALANCE MANAGEMENT POLICIES As
part of its sustainable development policy, and therefore its commitment to the
health, safety and personal and professional development of the people who work
for the Company, ENDESA ensures equality of opportunities among its employees,
fosters development of their professional talent without discrimination on
grounds of gender, age, culture, experience, or beliefs, and works to guarantee
safe and healthy working environments and a balanced combination of work,
personal and family life. In keeping with this commitment, ENDESA’s
executive committee in December 2006 approved policies regarding diversity
management and work-life balance, as platforms to ensure equality of opportunity
and its contribution to the Company’s development. The corporate action
plan in diversity management and worklife balance involves, among other
initiatives, a balanced scorecard with critical monitoring indicators, an
awareness and training plan for managers and executives, and the creation of a
diversity and work-life monitoring centre, with a triple dimension (local,
regional and company-wide), charged with the task of identifying and
communicating best practices in both diversity management and work life balance
issues. 10. PROMOTION OF YOUTH EMPLOYMENT ENDESA actively promotes youth
employment in all the countries where it operates. It has various agreements in
place with a number of local, national and international organisations
concerning education and employment. A total of 280 young people joined various
ENDESA companies in 2006 (166 in Spain and Portugal and 114 in Latin America)
under the Youth Employment Programme in conjunction with the International
Labour Organization (ILO). Those who joined had varying degrees of
qualifications, ranging from secondary school leavers to university graduates.
Operations Review 157 endesa06
SUSTAINABILITY AND THE ENVIRONMENT 158 Annual Report 2006
01. SUSTAINABILITY AT ENDESA ENDESA promotes balanced development of its
business, responding to the needs and expectations of the public it deals with,
fostering economic growth and social development of the environments in which it
operates, and preserving the natural environment at the same time, so that it is
a suitable place in which both current and future generations can live and
develop. These principles of conduct contribute to ensuring the profitability
and leadership of the company in the long term and are firmly rooted in its
Business Values. This is why ENDESA’s value includes both tangible assets
which make its industrial and commercial activities possible, as well as
intangible assets such as the brand, the relations it maintains with
shareholders, customers, employees and suppliers or its commitment to the
communities in which it performs these activities, thereby assuming and
including it in its business strategy. Therefore, sustainable development is an
integral part of the Company’s strategy, policies and operations. In 2002,
ENDESA established and published its Corporate Sustainability Strategy, which
deals with the three dimensions involved in sustainability: economic, social and
environmental dimensions. The Company understands and assumes that sustainable
development involves taking into account the needs and expectations of the
various interest groups with which it interacts and this is demonstrated through
its Sustainability Policy. This Policy is specified in the 7 Commitments for a
Sustainable Development that ENDESA published in 2003 and which reflect the
principles which guide its actions with respect to its customers, shareholders,
employees, suppliers, contractors and social environments. The company has
transferred this Sustainability Strategy to its affiliates in the countries in
which it is present, so that all of them assume these 7 commitments and include
the necessary programmes for implementing them in their Strategic Plan for the
Environment and Sustainable Development. To this end, ENDESA affiliates have
created their own Environmental and Sustainable Development Committees, as well
as having individually joined the United Nations Global Compact and drawing up
the corresponding mandatory reports. Some of them have gone further in meeting
these commitments, as in the case of the Peruvian companies Edegel and Eepsa,
which have been certified under social accountability standard SA 8000.
01.1. ADVANCES IN THE SUSTAINABLE DEVELOPMENT STRATEGY
Based on its Mission, Vision and Values and its 7 Commitments to Sustainable
Development, ENDESA prepared its 2003-2007 Strategic Plan for the Environment
and Sustainable Development, which it is implementing via a series of programmes
and specific initiatives. This makes it possible to optimise Company efforts to
harmonise maximum value creation and profitability, develop the societies in
which it operates and reduce the environmental impact inherent in its
activities. This conduct has received a positive assessment from markets, given
to companies that maintain a proven commitment to sustainable development. 80%
of this Strategic Plan has been implemented. Highlights of this rapid
implementation include sustainability initiatives, the implementation of
environmental management systems, reactions to the challenges posed by climate
change, our waste and effluents management strategy, the reduction of raw
material consumption and energy efficiency and demand management plans. The
Company’s sustainable development strategy is given concrete form by means
of the Annual Sustainable Development Action Plan (PADS). This plan, which has
been drafted under the supervision of the Sustainable Development Working Group
and approved by the Executive Management Committee, entails 62 concrete
initiatives and the participation of 12 management teams. In 2006 the main
actions carried out by these groups within the framework of this Plan were:
• To strengthen ENDESA’s commitment to the communities in which it
operates, establishing programs and systems designed to make its social
initiatives as efficient as possible and reinforcing its commitment to
transparency of information. • To make Company employees more aware of the
its commitment to sustainable development, creating a platform on the Corporate
Web to channel social and charitable initiatives. • To define the
Company’s policy in the area of managing Diversity and acheiving a good
life-work balance. • To reiterate the Company’s position of leadership
in the area of Corporate Governance and continuing to adopt its current policies
and procedures to reflect the better practices being developed internationally.
• To work continuously to improve the quality of supply and the standard of
customer care through investment and the Operations Review 159 endesa06
implementation of best operating practices. This, in turn, implies a
substantial improvement in performance indicators. • To inform customers
about responsible and safe use of power, with specific actions directed at each
segment. 40 of the 62 initiatives contained in the plan have already been
completed, 65% of the total. Only 2 of the 22 remaining measures are less than
50% complete and only 1 has been rejected as unviable. In other words, 95% of
the initiatives contained in the plan have been completed or are more than 50%
complete. 01.2. PUBLIC RECOGNITION IN THE FIELD OF
SUSTAINABILITY In 2006 ENDESA continued to consolidate its noteworthy position
in the area of sustainable development on a national and international scale as
demonstrated by its presence in the main selective sustainability indices and a
range of public awards. Highlights: 01.2.1. Dow Jones
Sustainability Indexes The Company became the best electricity utility in the
world in 2006 with respect to sustainability, according to the rating obtained
in the Dow Jones Sustainability Indexes (DJSI). ENDESA scored the maximum rating
in the electricity industry at both European and world levels for its
sustainable behaviour in the DJSI Stoxx and World indexes, respectively, which
are considered as the main international references in the field of sustainable
development. The Company obtained ratings of over 90% in 7 of the 22 factors
analysed for the compilation of the indexes and more than the average for the
industry in all of them. This is the sixth consecutive year in which ENDESA has
been in these selective indexes. The DJSI indexes, compiled by Dow Jones and SAM
Group, distinguish companies that, by occupying an outstanding position in their
respective areas of activity at a world or European level, are characterised by
their commitment to sustainable development. 01.2.2. Storebrand Investments
ENDESA was rated “Best in Class” by Storebrand Investments for its
social and environmental conduct. The Storebrand Investments appraisal and
rating system is based on an analysis of the organisation’s policies,
management systems and key indicators from social and environmental standpoints.
Storebrand only awards its “Best in Class” distinction to the highest
ranking organisations within its rating system. 01.2.3. Aspi Eurozone ENDESA has
been included in the Aspi Eurozone Sustainability Index for the third
consecutive year. This index includes the 120 best companies in the euro zone
with the best conduct and management in sustainable development and corporate
social responsibility. The Aspi Eurozone Sustainability Index is based on the
rating system of Vigeo, a European agency specialised in social corporate
responsibility, based in France, whose shareholders are institutional investors,
European trade unions and European companies of worldwide stature. The ASPI
indexes, created in 2001, are considered to be a significant benchmark for
corporate responsibility for the managers of socially responsible investment
funds (SRI) and sustainable investment funds wishing to take into account social
corporate responsibility in choosing their investment portfolios.
01.2.4. Pacific Sustainability Index In 2006 ENDESA was
acknowledged to be the sixth best European company and the ninth in the world in
the electricity and gas industry for the corporate information offered on its
website about activities in the area of sustainable development, according to a
study by the Roberts Environmental Center, an environmental research institute
at Claremont 160 Annual Report 2006 SUSTAINABILITY AND THE ENVIRONMENT
McKenna College, one of the most prestigious in the United States. The
study analyses information about environmental and social subjects supplied
voluntarily through their respective websites by the 30 biggest electricity and
gas companies in the world in accordance with their positioning in the 2005
Fortune Global 500 ranking. The results of the study are based on application of
the Pacific Sustainability Index (PSI) from the Roberts Environmental Center,
which is in turn based on assessment of how 160 environmental and social
subjects are reflected in information about sustainability supplied by the
respective companies. The results cover six dimensions or issues: commitments,
environmental information and results, and commitments, information and social
results. ENDESA reached the top spot in two of these dimensions: information and
results about social initiatives. The first of these measures the transparency
with which the Company provides information about issues related to social
investments and the development of communities, as well as relations with
employees (health and safety at work, equal opportunities, etc.) and suppliers;
the latter assesses quantitative results obtained, especially with respect to
the industry average, in meeting the Company’s social commitments.
01.3. PRESENCE IN OUTSTANDING INITIATIVES 01.3.1. The UN
Global Compact In March 2002, ENDESA signed the Global Compact, an initiative
led by the United Nations targeting companies, international workers’
associations and NGOs. The aim of the Global Compact is to promote the voluntary
adoption of ten universal principles in the areas of human rights, labour
regulations, the environment and anti-corruption. ENDESA affiliates involved in
generation and distribution in Latin America and Europe joined the Global
Compact on a direct individual basis in 2005, thereby reaffirming their
commitment to sustainable development. In December 2006, the
Compañía Americana Multiservicios (CAM), a Chilean company in
which ENDESA has a holding and which supplies a wide variety of services in
various Latin American countries also joined the Global Compact when its CEO
sent a letter of adhesion to the then UN Secretary General, Kofi Annan. In 2006
ENDESA also ratified its commitment to the Global Compact at the World Summit
held in Shanghai (China). The Company presented its strategies for sustainable
development and climate change at this summit. ENDESA also participates actively
in the Spanish Association of the United Nations Global Pact (Asepam), the
entity set up to implement the objectives and principles of the Global Compact
in Spain. This participation was strengthened in 2006 on being entrusted with
the Vice-presidency of this association, as recognition for its commitment to
the Global Compact principles, its continuous promotion of the values and
principles that go to form them inside and outside the company and its permanent
collaboration with Asepam. 01.3.2. Membership of the Excellence inSustainability
Club In 2006 ENDESA participated in the activities run by the Excellence in
Sustainability Club, which it had joined the previous year. This Club was
created in 2002 to convey the commitment of its members to sustainable
development to society as a whole and to foster sustainable development
throughout Spain’s entire business community. The Club, which is composed
of 22 of Spain’s largest companies, whose aggregate turnover represents
18%of the country’s GDP, aims to provide a forum for dialogue with
stakeholders, a platform for sustainable development benchmarking, a means to
convey good practice to other companies, and a forum for holding seminars and
issuing publications. 01.4. ENDESA NATURAL ENVIRONMENTS
Throughout its history, ENDESA and its affiliates have become owners of a wide
range of land and areas of a very diverse nature. Operations Review 161 endesa06
A large part of the above have for various reasons ceased to be linked to
the Company’s industrial activities. On some of this land, ENDESA and its
affiliates have for some time been involved in activities of an environmental
nature, others offer interesting possibilities of this type, and many more are
being analysed so that this valuable heritage can be suitably exploited through
further actions. Endesa Natural Environments is an initiative that originated
with a view to grouping together all of these activities, in order to set them
in a framework for global action. To do this, it includes a great many projects
of a very diverse nature which all make sustainable use of areas and habitats to
create value, promote the prosperity of local communities and generate
environmentally responsible actions. It also identifies Company land and areas
that could be subject to these types of activities and makes proposals to permit
its optimal use. It specifically includes actions that are currently being
performed by various ENDESA units and companies to recover areas of high
ecological value, such as former landfill sites, mines, hydraulic resources and
agricultural substrata, which are suitable for carrying out scientific and
environmental research projects, for restoring the native flora and fauna, and
for carrying out environmental training activities and promoting nature studies.
Endesa Natural Environments also support economic development in rural areas and
the conservation of national parks in which the Company owns land. In order to
manage these natural areas we work closely with the various local authorities,
universities, nature protection organisations and social actors. Endesa Natural
Environments is therefore an initiative that is closely linked to the
Company’s strategy of sustainable development, with beneficial effects on
the three dimensions that make up its idea of sustainability: economic, social
and environmental dimensions 01.4.1. Initiatives in 2006 One of the main
projects carried out by Endesa Natural Environments in 2006 was to start drawing
up an “Environmental Land Assessment Methodology”, for which reference
parameters were validated and adjusted on two areas of land owned by the
Company. By means of this methodology, it will be possible to assess vocational
use for land so that, once determined, it is possible to adapt the use made of
this land to its vocation, in line with ENDESA’s sustainability policy.
Environmental studies have also been carried out to improve the landscape and to
improve the value of land on property owned at Bahía de Bolonia (Cadiz),
Güejar-Sierra (Granada) and Sineu (Majorca) and agreements have been signed
granting use and safekeeping, including: • With A Veiga (Orense) District
Council for the development of a river promenade, jetty and nature classroom in
the area surrounding the Prada reservoir. • With Boadella (Gerona) District
Council for the development of a hydroelectric museum at the former Les Escaules
mill. • With the Catalan Ramblers Federation, an extension to the agreement
granting use of the Colomina mountain shelter in the municipal district of Torre
de Capdella (Barcelona). Finally, environmental educational work has been
carried out with the Migres Foundation aimed at school children in the area of
La Janda, within the framework of the “Awareness Campaign for the Project
to Reintroduce the Imperial Eagle and Osprey in the Province of Cadiz”.
02.ENVIRONMENT ENDESA is a company that is committed to the environment and
conducts its business responsibly, efficiently and competitively. In 2003, it
designed and started its 2003-2007 Strategic Plan for the Environment and
Sustainable Development, with the aim of reducing risk and taking advantage of
opportunities arising out of the new environment created by the changes in the
environmental legislation framework and a better assessment by investors and
other interested parties with respect to the Company’s commitment towards
sustainable development. In this way, ENDESA’s Strategic Plan for the
Environment and Sustainable Development became a key tool for reinforcing its
alignment with principles of sustainability contained in its Vision, Mission and
Corporate Values. ENDESA’s environmental management is fully integrated and
in line with its corporate strategy, and part of the Management’s decision
making processes. Based on this commitment, the Company aims to minimise the
impact of its operations on the natural surroundings in which it operates,
developing a broad range of initiatives primarily related to matters concerning
climate change, the introduction of Environmental Management Systems, and
suitable management of effluents, waste and other effects on the natural
environment. 162 Annual Report 2006 SUSTAINABILITY AND THE ENVIRONMENT
02.1. CLIMATE-CHANGE INITIATIVES In 2006 ENDESA
electricity generation facilities in Spain and Portugal and Europe which are
affected by the European Directive on Greenhouse Gas (GHG) Emissions Trading
presented confirmation of their CO2 emissions for 2005. To comply with this
Directive, the number of emission credits for each facility must equal the
actual emissions made in the corresponding period. As a result, ENDESA has added
credits acquired in the European market to the credits allocated per country. It
has therefore been necessary to carry out the following activities: • The
preparation of an action strategy to deal with directives and laws aimed at
reducing emissions. • Establishing an emission profile for each facility
and a monthly record of these. • Carrying out on-site audits to check the
accuracy of the calculation methodology presented and the information supplied.
• Adapting the Environmental Management System (EMS) tool for monitoring
and calculating CO2 emissions. Throughout 2006, ENDESA implemented the strategy
and tools prepared in the run-up to this new legislation. Progress was also made
with the investment programme to cut greenhousegas emissions, enhancing facility
efficiency and investing in new capacity at CCGTs and power plants fuelled by
renewable sources. Here are some examples of these activities: • Analysis
of existing and future power generation stock from the perspective of CO2.
• A significant increase in capacity installed at CCGTs and in the use made
of renewable energy sources. • Conversion to imported coal at the 1,400 MW
As Pontes power plant, which initially consumed domestic coal. This conversion
makes it possible to reduce CO2 emissions considerably. In 2006, the adaptation
of turbines III and IV at the plant was completed, with other units scheduled to
be adapted in 2007 and 2008. • Sale of ash and slag produced at coal
burning facilities. Participation in projects and mechanisms to reduce emissions
is a cornerstone of ENDESA’s climate change strategy. In 2006 ENDESA was a
particularly active player on an international scale in the area of Clean
Development Mechanisms (CDMs). This activity mainly involved the following
activities: • Presentation of the “Endesa Climate Initiative” in
China, India, Chile, Mexico, Russia and at the Carbon Expo 2006 in Cologne,
Germany. • Consolidating the MDL portfolio in China and Latin America with
contracts for new projects and participation in seven carbon funds. •
Creation of the Climate Change Database. • Carrying out the Siepac and Ojos
de Agua projects in Latin America. • Establishing framework agreements with
Pemex (Mexico) and Huaneng (China) to identify CDM projects. •
Participating in various carbon funds, such as the World Bank’s Umbrella
Carbon Fund, the Spanish Carbon Fund, the European Investment Bank Fund and the
Fund of the Bank for Reconstruction and Development. ENDESA also participates in
various programmes, both nationally and in Europe, which include CO2 capture
projects. Foremost among these is the participation in the working group for CO2
capture and storage in the second European Climate Change Programme. It also
participates in projects for energy crops and new types of bio-fuels, and in
2006 it continued to collaborate in the field of climate change with various
national and international bodies, such as the Spanish Office for Climate
Change, Eurelectric (Union of the European Electricity Industry), the IETA,
Carbon Expo Cologne and Carbon Expo Asia, as well as the following programmes:
• The Carbon Disclosure Project, the aim of which is to make corporate
behaviour more transparent with regard to climate change, and in which ENDESA
has been participating for several years. • Energy Wisdom Programme (EWP):
a voluntary initiative launched by Eurelectric in 2000 and based on European
electricity company projects. It reflects the efforts made by the European
electricity industry to achieve improvements in energy efficiency and in the
reduction of greenhouse gases. The contribution of ENDESA to the third cycle of
the EWP includes the presentation of 313 projects carried out in Spain and Latin
America in relation to renewable energy sources, cogeneration, improved energy
efficiency, combined cycle construction, fuel change and electricity transport
and distribution. These projects have contributed to preventing 14.7 million
tonnes of CO2 being emitted into the atmosphere in Spain and 26.7 million tonnes
of CO2 in Latin America in 2003 and 2004. Operations Review 163 endesa06
02.2. MILESTONES IN ENVIRONMENTAL MANAGEMENT
SYSTEMS ENDESA continued with its work of implementation and subsequent approval
of Environmental Management Systems (EMS) in 2006, as per International Standard
ISO 14001 and the EMAS European Regulation, for facilities in its main business
areas (power generation plants, distribution facilities, renewable energy source
facilities, company headquarter buildings, etc.). Environmental management
systems (EMS) at the following ENDESA generation plants in Spain were certified
in 2006: • The Andorra mining centre, which made it the first opencast
coalmine to achieve environmental management certification under the UNE EN-ISO
14001 standard. • As Pontes power station. After over than six years of
holding the environmental management certificate under the UNE EN-ISO 14001
standard, in 2006 it achieved certification in accordance with the guidelines of
the EMAS regulation. • North West hydroelectric power plant. It obtained
the environmental management certificate under the UNE EN-ISO 14001 standard at
the end of 2006. • South hydroelectric power plant. After passing the
initial Environmental Management System certification audit under the UNE EN-ISO
14001 standard at the end of 2006, it obtained certified recognition at the
beginning of January 2007. Furthermore, the Ebro-Pyrenees power plant obtained
certification under the UNE EN-ISO 14001 standard in early 2007. In the
distribution business, in accordance with the schedule established in the
2003-2007 Strategic Plan for the Environment and Sustainable Development, the
EMS for ENDESA Electricity Distribution in the Balearic Islands was introduced
and in December 2006 the Spanish Standards and Certification Association (AENOR)
conducted its first audit. Diagnosis of installations (Substations and Temporary
Waste Stores) also concluded in Aragon. In the European electricity business,
Endesa Italia certified 100% of its facilities under ISO 14001 in 2006. This
certification is complemented with EMAS certification for all thermal generation
centres. It also integrated its EMS, together with its occupational safety
system, being a pioneer in this area. With respect to Endesa France (Snet’s
new name), its Provence plant obtained certification in 2006 and the Company has
already started up the EMS at the rest of its plants. In Latin America, ENDESA,
through its subsidiary Endesa Chile, continued with the introduction of EMS at
its facilities, managing to obtain the ISO 14001 certificate in 2006 at 49 power
plants in Argentina, Brazil, Chile Colombia and Peru. The power plants that
concluded the process of obtaining certification in 2006 were: • The
Bocamina (Chile) power plant, which obtained EMS certification in Standard ISO
14001. • The Cartagena power plant (Colombia), which obtained certificates
in ISO 14001 and OHSAS 18001 standards for its integrated management system (the
Environment and Occupational Health and Safety). Furthermore, following the
certification achieved in 2006 by Ampla and Coelce in Brazil, 100% of the power
distributed by ENDESA in Latin America has been certified as per Standard ISO
14001. 02.3. KEY ENVIRONMENTAL IMPROVEMENT INITIATIVES 02.3.1. Waste management
In 2006 ENDESA Generation continued to improve and adapt its facilities to
reduce and minimise waste generation. Noteworthy initiatives include the
recycling of used oils, minimisation of container waste production, the use of
rechargeable or long-life batteries, and the treatment and recycling of used
cleaning detergents, among others. The Plan for the elimination and withdrawal
of equipment containing polychlorobiphenyl (PCBs) was ongoing, as was the
campaign for testing equipment for contamination with these chemicals, even
where they were not made with PCBs. 02.3.2. Emissions ENDESA conducts constant
supervision and monitoring of emissions at its power plants, supplying periodic
information to the Pubic Authorities. In 2006, and as in previous years, it
submitted information to the EPER European register and the National Inventory
of Pollutants Emitted to the Atmosphere (Corine Aire). With respect to improved
efficiency and performance, it continued to implement in-house technologies.
Special mention should be given in this area to the inclusion of Abaco
technology at some of its facilities, together with Inerco engineering. Within
the program for adapting existing power stations to the National Air Pollution
Reduction plan, the coal mix consumed by turbine IV at As Pontes power station
was modified to permit the use of 100% imported coal. 164 Annual Report 2006
SUSTAINABILITY AND THE ENVIRONMENT
02.3.3. Biodiversity In 2006 ENDESA began implementation of its 2006-2010
Biodiversity Conservation Plan, with the aim of carrying out new projects in
line with its Sustainability Policy and enhancing its natural heritage. In
accordance with the schedule established in the Collaboration Agreement between
Gesa Endesa and the Balearic Islands Regional Environmental Ministry, 120
initiatives were carried out for the protection of the osprey and the black
kite, which is in danger of extinction on these islands. In the Canary Islands,
the programme set up within the Life Project for the protection of the Egyptian
Vulture in Fuerteventura was ongoing and plans for 2007 were drawn up. The Life
Project relating to the protection of bearded vultures continued in Aragon,
complying with the schedule and budget established for the year.
02.3.4. Hydroelectric environmental management In 2006
ENDESA continued with projects planned as part of its restoration of areas in
the hydro-electric field, drawing up a national inventory of these from coded
records which include a brief description of the action to be carried out in
each of these and the specific expenditure allotted. As for projects started in
previous years, restoration work in areas around Central Pyrenean lakes in
Huesca concluded in 2006 in accordance with the established schedule.
Nevertheless, it has been considered desirable to carry out further work in
2007, thereby extending the initial scheme. Furthermore, all landscape
integration work was concluded with relation to hydroelectric development in the
Vall Fosca area, within the Peripheral Protection Area of the Aigüestortes
i Estany de Sant Maurici National Park (Lérida), and environmental
assessment and monitoring was carried out on work and initiatives involving
maintenance and adaptation of various dams: Pont de Suert, Boren, Cavallers,
Torán, Noceda, etc. With respect to new projects, the most significant
ones are environmental impact studies (EIS) on the heightening of the Estany
Gento dam and enlargement of the Moralets, Peña and Oencia power
stations, as well as commencing EISs of the building of a tailing dam at the
Canelles reservoir, an outstanding technical and environmental project.
02.4. ENVIRONMENTAL R&D In addition to the
environmental projects listed in the Technology and Innovation section of this
report, it is necessary to highlight continuation of the important zebra mussel
study in 2006. Throughout the year the habitat of this mussel expanded
significantly, affecting the entire system of large reservoirs along the lower
Ebro river, as well as other areas of the Iberian Peninsula. In 2006, work
focussed on concluding monitoring of the full annual cycle during the
development of the species in the larval phase, which commenced in 2005, and
continuing with research work relating to the presence of zebra mussel
parasites, introduced next to them, in aquatic ecosystems on the Iberian
peninsula, and in determining the bio-accumulative capacity of the species. A
second edition of Methods for Control and Eradication of the Zebra Mussel was
published at the end of 2006, which outlines the experience gained by ENDESA in
this area since 2003. Furthermore, a website was prepared for its final edition,
and which will channel information about the zebra mussel generated or known by
the Company. The ENDESA Environmental Laboratory at Lérida was used for
work in checking the presence of zebra mussel larvae in 46 water masses in
Catalonia, within the framework of an agreement signed by ENDESA, the Catalan
Water Agency, the University of Lérida, the Autonomous University of
Barcelona and Grup Natura Freixe. Lastly, the Company participated in a large
number of congresses and conferences related to this subject, both national and
international, through the submission of various papers. Mention in this area
should also be made of the International Congress on Large Dams (Barcelona), the
International Congress of Limnology (Barcelona), the International Seminar on
action strategies in waters affected by the zebra mussel (Zaragoza), the
National Congress on Invasive Species (León) or the National
Environmental Congress (Madrid). Furthermore, various articles were published in
specialist national and international magazines regarding work carried out into
the zebra mussel and integrated environmental management of controlled
reservoirs and rivers that is carried out by ENDESA. Operations Review 165
endesa06
COMMITMENT TO SOCIETY 166 Annual Report 2006
01. SOCIAL INITIATIVES AS PARTOF ENDESA’S CORPORATE ACTIVITIES ENDESA
carries out a wide range of social initiatives to allow projects which
contribute to economic, cultural and educational development in those areas in
which it operates to be carried out. This sort of action is firmly rooted in its
corporate behaviour for several reasons: • The Company’s core business
constitutes a basic service to the community. Accordingly, ENDESA takes on the
obligations corresponding to its status as a public service provider and strives
to guarantee the best possible standards of safety and quality. • Since its
incorporation in 1944, ENDESA has striven to establish relationships of
partnership and mutual trust with the social environments in which its plants
are located, along with their institutional representatives, and extends this
conduct, as best practices, to its holdings. • Social and cultural
community commitment is expressly contained in the values to which the Company
subscribed in 1999, and compliance with this commitment is required and assessed
in employee remuneration schemes. Commitment to the societies where it operates
is one of the Seven Commitments for Sustainable Development which ENDESA
approved in 2003. 01.1. CRITERIA FOR ENDESA’S
SOCIAL INITIATIVES In undertaking these activities, ENDESA adheres to the
following basic principles: • The Company’s social initiatives must be
underpinned by our belief that supplying electricity is a public service.
ENDESA’s foremost commitment to society is therefore to supply electricity
under the best possible terms and conditions. Accordingly, the Company’s
social initiatives must under no circumstances be seen as replacing or reducing
the obligations that stem from this commitment. • The social initiatives it
engages in are closely aligned with the nature and characteristics of its
day-to-day business operations, with what the Company does best, and with the
needs of the main communities with which it has a direct relationship. •
Notwithstanding the above, in the case of particularly disadvantaged
environments or communities ENDESA will endeavour to provide for urgent social
needs that cannot be adequately met by other institutions. • The Company
endeavours to perform such interventions in close partnership with the social
representatives of the areas or communities which benefit from them. •
ENDESA is aware that, because of its economic weight and the service it
provides, it is among the leading companies in many of the markets where it
operates. Consequently, it is amenable to collaboration in special flagship
projects in these communities. • ENDESA undertakes to disclose its social
initiatives in a transparent and systematic fashion via our various
communication channels and in line with principles that are generally accepted
both in Spain and abroad. 01.2. ENDESA’S
SOCIAL-INITIATIVE PROGRAMS ENDESA’s social-initiative programs are a
fundamental element of its sustainability policy, as demonstrated by the
significant human and financial resources assigned to them. Social initiative
projects are carried out directly through the corporate hub or its regional
offices in Spain, through foundations established by Group companies in several
countries, and through direct action among Group companies. ENDESA’s social
action initiatives may be grouped into four categories: • Co-operation
initiatives, focused on covering basic individual or group needs in the markets
where the Group is present. • Educational initiatives, focused on basic
literacy, training and general education in local communities and groups. •
Cultural initiatives, focused on fostering local and national cultural identity,
supporting study and research into communities’ history, conservation of
local and national cultural heritage, etc. • Socio-environmental
initiatives, focused on fostering and promoting environment-related social
values, conservation, research and innovation, but excluding purely
environmental actions resulting from normal operations at our facilities.
Programs that are strictly focused on the environment, those meant to preserve
natural environments affected by normal operations at the Company’s
facilities, are not included in this category. These programs are described in
the Sustainability and Environment chapter of this report. Operations Review 167
endesa06 02. ENDESA’S INVESTMENT IN SOCIAL
INITIATIVES IN 2006 ENDESA spent a total of Euro 31 million on social action
initiatives in 2006. Of this total, Euro 22 million was invested in Spain: Euro
6.7 million via the Endesa Foundation and Euro 15.3 million through direct
Company initiatives. Of this latter amount, Euro 8.8 million was related to
actions taken directly via corporate headquarters and Euro 6.5 million was spent
by its Spanish operators, i.e. Fecsa Endesa (Catalonia), Sevillana Endesa
(Andalusia and Badajoz), Gesa Endesa (Balearic Islands), Unelco Endesa (Canary
Islands), Erz Endesa (Aragon), or by some of its largest electricity plants,
such as Compostilla, As Pontes, Andorra, Carboneras, Ascó,
Vandellós, etc. These investments represent a substantial increase from
those made in 2005, mainly as a result of support given to certain general
interest projects spanning several years, such as Expo Zaragoza 2008 and the
America’s Cup. In the first case, the initial payment made in 2006 accounts
for almost 50 percent of the investment committed for the event’s total
sponsorship and in the second case, it is a project that entails successive and
increasing payments, so that in 2006, the year prior to the final regattas, the
highest quantity was concentrated. Additionally, the 2006 investment includes
Euro 1.5 million for the renovation of Company residences, buildings which make
a positive contribution to the local infrastructure. At the same time, the
companies in Latin America, in which ENDESA has stakes, spent Euro 8.9 million
on social programs in 2006, 2.9 percent more than the Euro 8.7 million they
spent in 2005. The following is a summary of the most significant social
initiatives undertaken by ENDESA, its foundations and local companies in 2006.
ENDESA’s Sustainability Report 2006 contains detailed information about the
Company’s social programs. ENDESA’s Sustainability Report 2006
contains more detailed information on the social initiatives carried out by the
Company in that year. 03. INITIATIVES CARRIED OUT BYTHE ENDESA FOUNDATION
03.1. LIGHTING CULTURAL AND ARTISTIC HERITAGE SITES AND
RELATED ACTIVITIES. In order to achieve one of its main aims, in 2006, the
Endesa Foundation sponsored the illumination of the following monuments: the
Santa María de Valbuena monastery (Valladolid); the second floor of the
study area at the Pontificia university in Salamanca; the Gabinete Literario in
Las Palmas in the Canary Islands, the hermitage and two traditional storehouses
in Carnota (La Coruña); cloister of the Cathedral of Ciudad Rodrigo
(Salamanca); Government Palace of the Republic in Lima (Peru); Loarre Castle
(Huesca); two altarpieces at the Virgen del Puerto in Madrid; the La Seu Vella
Cathedral in Lérida; four facades and hall of the Pasos Perdidos room at
the Congress of the Republic of Peru; several monuments in the Merindad of
Aguilar de Campoo (Palencia); the patio of the Convent of Santa Clara in Palma
de Majorca; the hermitage of the Pilar and Castillete Minero of San Juan in
Andorra (Teruel); church in Calaceite (Teruel); temple of the village of
Híjar (Teruel) and church of Santa María de la Evangelizzazione in
Rome. In addition, the Endesa Foundation had previously signed agreements with
the Episcopal Conference of Colombia, Chile and Peru. In 2006, and stemming from
these agreements, the following lighting projects were carried out: • In
Colombia, the Sopó church, the San Pedro Cali Cathedral, the Santa Marta
Cathedral, the Inmaculada Cathedral in Armenia, the Tunja Cathedral and the
Zipaquirá Cathedral. • In Chile, the Parish Church of San
Agustín in Concepción, the Castrense Cathedral in Santiago, the
crypt of the Santiago Cathedral, the Los Ángeles Cathedral, the Parish
Church of Pucón in Villarrica and the Virgen de las Rosas temple in
Santiago. These agreements were due to expire on 31 December 2007, however, at
its March 2006 meeting, the governing board of the Endesa Foundation approved
the renewal of these agreements for a further five years. Finally, as part of
agreements signed with other institutions, the Endesa Foundation, in 2006,
sponsored lighting of the 168 Annual Report 2006 COMMITMENT TO SOCIETY
ENDESA’S INVESTMENT IN SOCIAL INITIATIVES IN 2006 (Thousand of Euro) Spain
22,029 ENDESA Foundation 6,722 Initiatives via corporate headquarters 8,822
Initiatives via local brand 6,485 Latin America* 8,951 Total 30,980 * Not
including investment in rural electrification, due to its unusual
characteristics.
Monastery of Montserrat in Barcelona, as well as the Citadel and Emblem in
the city of Agadir in Morocco. 03.2. INVOLVEMENT IN SOCIAL INITIATIVES IN
SPANISH COMMUNITIES The Endesa Foundation assists development of social and
cultural initiatives which are carried out in the Spanish communities in which
the Company has industrial activities. In 2006, it sponsored projects at the
following institutions: Andorra local authority (Teruel), final phase of work on
municipal swimming pool; Mequinenza local authority (Zaragoza), final phase of
work on municipal swimming pool; Provincial Government of Teruel,
Vórtices exhibition of works by the painter Xesús Vázquez,
Endesa art intern; Law Department study days at the University of Zaragoza, in
conjunction with the Santa María de Albarracín Foundation; summer
courses at the University of Teruel and concerts for the XXVIII Music Week in
the same city; Literary Encounters 2006, organised by the Santa María de
Albarracín Foundation, and environmental initiatives for upkeep and
maintenance at the San Mauricio Lake National Park (Lérida). In 2004, the
Foundation signed an agreement with the Aragon Local Government, the
Confederación Hidrográfica of the Ebro, several local authorities
in the Aragonese Pyrenees, Ibercaja and ENDESA to carry out the environmental
enhancement of the glacial lakes in the area. Actions taken in 2006 focused on
the hermitage and surrounding area of the Respomuso lake, on lakes in the
Panticosa area and on the Arrieles lake, where actions initially planned in the
agreement were completed. 03.3. INVOLVEMENT IN CULTURAL
DEVELOPMENT IN COUNTRIES WHERE ENDESA CONDUCTS BUSINESS The Endesa Foundation
dedicates a significant part of its efforts to cultural development in countries
in which the Company has a presence and the Foundation gives special attention
to fostering and preserving language. In 2006, the Foundation carried out the
following: PHD grants for Spanish teachers to study at the Centre for Brazilian
Studies at the University of Salamanca; spring concert and sponsorship of the
Andrés Bello Chair at the University of Salamanca in conjunction with the
Chilean Embassy; the Chilean Institute for Hispanic Culture’s magazine; VI
Iber-American Editors Training Course of the Iber-American Society for Friends
of the Book and Publishing; Spanish courses at the Cervantes Institute at the
University of Tangiers; Electrification of a school in the Quior-Guaparú
neighbourhood in Bolivia and two grants for Moroccan students at the Carlos III
University in Madrid. Additionally, the Foundation is involved in a number of
other cultural initiatives, which include the following : Endesa Cultural
Heritage Grants through an agreement with the Culture Ministry; editing of
Americanisms in the Royal Spanish Academy Dictionary through an agreement with
the Pro-Royal Spanish Academy Foundation; Endesa Grants for post-graduate study
in Theology and Canon Law at the Salamanca Pontifical University, and the
Masters degree in Hispanic Language at the Carolina Foundation.
03.4. CONSERVATION AND EXHIBITION OF ENDESA’S
HISTORICAL ARCHIVE AND RELATED ACTIVITIES The Endesa Foundation contributes
funds for the restoration, classification and exhibition of machinery,
equipment, parts, models, documents and photographs from dismantled facilities
and work centres belonging to ENDESA which form part of its cultural heritage.
Highlights of 2006 included: • In Andalusia, dismantling and collection of
a generator and other equipment from the Empalme Substation in Seville, as well
as electricity line projects at the companies Lojeña de Electricidad and
Eléctrica del Litoral, and various items from the warehouse at
Vélez Málaga. In addition, an exhibition was organised with
material from the Historical Collection in the context of the Technical Seminars
on Energy, organised in November in Badajoz by the Extremadura School of
Industrial Engineers. • In Aragon, start of the collection of documentation
and pieces for the exhibition, Aquaria, set for the Zaragoza Expo in 2008.
• In Catalonia, restoration of: various control instruments from the Clades
(Lérida) hydroelectric station and their later placement at the Maragall
station (Barcelona); three transformers destined for the same station; two
exciter covers from the thermal station at Badalona and a transformer destined
for the Museu de L’Aigua in Lerida, and of an electricity group composed of
a turbine, alternator and regulator. It also participated in the XIII
International TICCIH Conference in Terni (Italy) and the presentation of
installations at the Museu de l’Aigua in Lerida. • In the Balearic
Islands, collection of material from the sites and warehouses of Son Molines and
Station III, as well as recovery of film from the company’s offices,
including footage of construction of the thermal station at Alcudia I between
1956 and 1962. Additionally, the Company took part in the organisation of the II
Industrial Heritage conference, bringing equipment from the Historical
Collection to the fairs of Alcudia, Mahon and Ibiza, and sponsored the books
“A Century of Electricity in Inca. 1905-2005,”“First Industrial
Heritage Conference. Communications” and “Spirituality and Daily Life
at the Monastery of Santa Clara. City of Majorca, XIII-XV
Centuries.”Operations Review 169 endesa06
03.5. PRINCE OF ASTURIAS CHAIR IN SPANISH STUDIES
AT GEORGETOWN UNIVERSITY The Prince of Asturias Chair at Georgetown University
in the US was created in 1999 with the sponsorship of the Endesa Foundation.
Since that date, it has been part of the university’s Centre for European
Studies, in the Edmund H. Walsh School of Foreign Service. The Chair offers
classes in political science, administrative studies, Spanish history,
economics, sociology and humanities. In the 2006-2007 school year, the Chair is
held by Professor Xavier Coller, with courses relating to nationalisms in the
21st century from a comparative perspective; organisations and society in an age
of globalisation, and politics and regionalism in Spain from a comparative
European perspective. Meanwhile, a meeting of academic experts will be held to
analyse the Spanish transition to democracy and a project will continue on the
study of autonomous political elites in democratic Spain (1980-2005). 04. SOCIAL
INITIATIVESIMPLEMENTED DIRECTLY BY ENDESA IN SPAIN ENDESA directly performs a
number of social and cultural activities in Spain, via either its corporate
headquarters or regional organisations. 04.1. GENERAL
INTEREST SOCIAL INITIATIVES Among the general interest social initiatives
undertaken in 2006, efforts in social development stand out in the sponsorship
of the 32nd America’s Cup, based in the city of Valencia. The organisation
of this event is having a very positive impact on Valencia’s infrastructure
development, job creation and international image, and it also involves other
countries in the Mediterranean region in which ENDESA is present, as some of the
competition events have been held in France and Italy. Also in the city of
Valencia, last year the Company sponsored the visit of Pope Benedict XVI during
the 5th World Meeting of Families, Valencia 2006. ENDESA is also a Corporate
Partner of Expo Zaragoza 2008, a major international event, which will focus on
water and sustainable development and which will help boost the city’s
international profile. Additionally, it cooperated in the organisation and
development of the Seminar Soria 21 World Forum on Infrastructure and
Sustainable Development and continued assisting the Spanish Olympic Sports
Association in its activities in support of the Spanish Olympic team. Internally
in 2006, the Company put into service its project Endesa Solidarity to encourage
its employees in Spain to support a wide range of charitable activities. Another
social initiative is Endesa Energy School, a project to encourage technological
innovation and knowledge management, the aims and activities of which are
described in more detail in the Technology and Innovation section of this
report. Some of these activities have a stong link to our social initiatives.
Through the Endesa Energy School, the Company establishes agreements with major
universities and other centres of learning, in Spain, the rest of Europe and in
America, fostering grant programs, university chairs, etc., as well as with
Autonomous Community governments to promote research and development. Endesa
Energy School also sponsors the Company’s Emeritus Faculty (where
ENDESA’s technology experts who are retired or are about to retire assist
in training activities), and the Novare technological research prize, which
recognises both the external contribution of the international scientific
community and the internal performance of employees of ENDESA and its holdings.
In the area of culture, 2006 also saw ENDESA sponsor a number of conferences and
programs through its corporate centre, these included the XVII Internal Seminar
on Central Europe by the Association of European Journalists, or the First Job
Programme by the Madrid Press Association, and a number of publications
including the guidebook –“Spain, Route by Route”, “The Right
to Energy,” etc.–, and documentaries on sustainable development issues
– the program 21st Century Globalisation, and art exhibitions, Synthesis.
15 Years of Endesa Grants, held by the Arte Viva Europa Foundation. In the area
of the environment, in addition to the range of activities described in the
section on Sustainability and the Environment of this report, worth noting was a
sponsorship agreement with the Spanish senior scientific research body, CSIC,
for the restoration of natural spaces and resources in Spain’s mining
areas. 04.2. REGIONAL SPONSORSHIP INITIATIVES The
following are the main social and cultural patronage activities carried out in
2006 through ENDESA’s regional organisations in Spain. 170 Annual Report
2006
04.2.1. Sponsorship initiatives by ENDESA in
Catalonia In 2006 ENDESA continued working with a wide range of groups, both
public and private, in the social, institutional and industrial fabric of
Catalonia through activities driven by Fecsa Endesa, the brand name under which
the Company operates in this market. In the area of local cooperation to cover
basic social needs, the following are highlights: participation in a telethon
organised yearly by TV3 to raise funds for medical research; support for the
Casc Antic foundation (which assists the homeless) and the ARED foundation
(which helps female ex-convicts to re-enter the job market), financing of the
Solidarity Caravan and the African Foundation for Medicine and Research, and aid
to organisations, such as the Mina Cultural Center and the Raval Solidarity
Association, that work to solve problems in Barcelona’s depressed
neighbourhoods. In addition, in support of local institutions, Fecsa Endesa
continued its sponsorship for another year of Pirena, a dogsled competition held
in the Pyrenees; its work with the economics society, Círculo de
Economía, with the Foment de Treball, the Barcelona Centre Financer
Europeu and the Spanish Institute of Directors. In education, the company
continued financing the Victoriano Muñoz Chair at the Catalonia
Polytechnic University and maintained an agreement with the University of Girona
to develop study and research programs. In addition, at its Barcelona
headquarters, Fecsa Endesa has a permanent educational centre about the world of
electricity, Espai Fecsa Endesa, which was visited by over 6,000 students in
2006. It is also from here that the educational program, A World of Energy, is
run. More than 15,000 people took part in this educational programs in 2006.
Since it was founded in 1994, the total number of visitors to Espai Fecsa is
estimated at more than 300,000 people. Other related initiatives worth
highlighting are the publishing of the book “Electricity in
Catalonia,” radio spots in collaboration with Catalunya Radio and Cadena
Ser designed to raise awareness of the importance of sensible energy use,
participation in Energy Week activities, and the competition for secondary
school pupils, The Energy Route, both organised by the Catalonian Energy
Institute. As for fostering culture, in 2006 the company continued providing
funds to the Liceu Theatre Foundation, the Catalonia National Theatre, the
Ampurdan Chamber Orchestra and the Catalonia Philharmonic. It also sponsored
more local cultural events, such as the Catalán Book Week in several
towns. Finally, in the socio-environmental arena, the company continued
supporting the activities of the Catalonia Forest Group and the Vall de
Boí Foundation. 04.2.2. Social initiatives by
ENDESA in Andalusia and Badajoz ENDESA operates in the market in the south of
Spain, comprised of Andalusia and Badajoz, under the brand name Sevillana
Endesa. In the area of social initiatives, the help offered by Sevillana Endesa
in 2006 to a variety of charity organisations providing assistance to children
with cancer, autism and Down’s Syndrome, particularly stands out. In
education, the company continued to collaborate with various Andalusian
universities in developing such activities as summer courses at the University
of Almería, projects carried out with the Pablo Olavide University in
Seville and the publishing of the Global Regional Entrepreneurship Monitor
Report (GEM-REM) by the University of Cádiz. Among activities to foster
cultural development highlights were the 2006-2007 collaboration program with
the Seville Culture and Arts Institute (ICAS), and sponsorship of the
Mérida Classical Theatre Festival. The Sevillana Endesa Foundation’s
work in this area is especially noteworthy, as it is centred on financing
cultural projects and, in particular, enhancing the rich historic and artistic
heritage of southern Spain with an intense program of artistic spotlighting of
monuments. In 2006 the foundation carried out the artistic lighting of the
interior of the Church of Santa María la Blanca in Los Palacios and
Villafranca (Seville), the second phase of the interior of the Church of San
Juan Bautista in Écija (Seville), the chapel of Los Ángeles de la
Hermandad de los Negritos in Seville, the interior of the Jesús Obrero
Church in Seville, the exterior of the Palace of the Alpériz in Dos
Hermanas (Seville), the exterior of the Church of Santa María de
Alcaudete (Jaén), the exterior of the Hermitage of la Virgen de La
Peña de Puebla de Guzmán (Huelva), the interior of the Sanctuary
of Ntra. Sra. de las Montañas in Villamartín (Cádiz), the
exterior of the Casa Museo de los Ingleses in Punta Umbría (Huelva), the
exterior of the Inmaculada Concepción Church in Adra (Almería),
the Reales Atarazanas in Seville on the occasion of the San Telmo
Foundation’s 25th anniversary, and the second phase of the Church del
Salvador in Seville. In addition, the Sevillana Endesa Foundation cooperated on
the organisation of the Second Music Course for students at the Cortijo de
Frías (Cabra-Córdoba), with the Cuatro Cuerdas Foundation in
Madrid; the Second Seville Biannual Contemporary Art Fair, and the new edition
of the Sevillana Endesa Foundation Painting Prize, as part of the 55th Autumn
Art Exhibition organised by the Real Academia de Bellas Artes de Santa Isabel de
Hungría in Seville. Operations Review 171 endesa06
Finally, in the social environmental area, it sponsored, along with the
University of Extremadura, a study on the impact of electricity lines on the
conservation of storks. 04.2.3. ENDESA’s social initiative programs in the
Canary Islands ENDESA operates in the Canary Islands under the brand name Unelco
Endesa. Noteworthy amongst the initiatives undertaken with the local community
is the support the company traditionally gives to a range of charity
organisations in the Canary Islands, which assist underprivileged groups.
Examples in 2006 included support for the Nuevo Futuro association, a
Christmastime collection of food and gifts organised by the Casa de Galicia,
work with Yrichen and Adi Canarias, etc. Additionally, Unelco Endesa cotninued
to pursue its commitment to promote popular sports, especially those popular
with young people on the islands. It also sponsors a number of local sports
teams, including the major basketball teams in Gran Canaria and Tenerife, the
Tenerife Roller Hockey Club, and several Canary wrestling clubs. One very
important action in 2006, was the company’s involvement in the
reconstruction of the headquarters of the Tenerife Bishopric following a fire.
This is a listed building in La Laguna, whose historic centre has been
designated as a Unesco World Heritage Site. In education, highlights include the
sponsorship of grants for postgraduate students, provision of Innova grants
through the University Foundation of Las Palmas and support for programs at the
University of La Laguna, the UNED, the La Gomera Summer University and the
Environmental University of La Palma. It also contributed to the Environmental
Education Campaign in Gran Canaria and Tenerife schools, in which 8,000 primary
school students learned about the most efficient ways of using electric energy
in their homes to avoid harming the environment. Unelco Endesa sponsored
publication of the guidebook, La Palma and its villages. Among activities in the
area of culture, highlights include support for the 22nd Canary Islands Music
Festival, as well as the traditional support for long-standing island traditions
and cultural activities, such as the Carnivals, the festivals of the Virgen del
Pino, the World Press Photo exhibition in the Gabinete Literario in Las Palmas,
Encountersin Light and Colour”, the 10th Rapid Painting Contest in Las
Palmas de Gran Canaria, the Canary Islands’ 2nd Professional Business
Management and Marketing Conference, the Candelaria Town Festival, the Big
School Encyclopedia, the Canary phase of the Spanish Biology Olympics, the
Lyrical Dinners in Tenerife and the Wagnerian Music Programme, organised by the
Gabinete Literario of Las Palmas. Among other environmental initiatives, apart
from the abovementioned work with the Environmental University of La Palma,
Unelco Endesa cooperates yearly with the La Palma government on the Island
Environmental Fair. Additionally, it sponsored the Environment and
Sustainability Days organised by the Society of Economic Friends of Las Palmas.
04.2.4. ENDESA’s social initiative programs in the Balearic Islands Gesa
Endesa, brand name under which ENDESA operates in the Balearic Islands, assisted
Nazareth Foundation children, sponsored the Inca and Alcudia basketball clubs,
sponsored the Christmas festivals and San Sebastián Week and contributed
to the Majorcan expedition to the summit of Mt. Everest, whose success was
widely followed by the people of the islands. In education, it financed the 20th
edition of the Balearic Islands Ornithology Yearbook, and published a facsimile
of the first edition of the book, which had been sold out since it was first
published in 1986. Gesa Endesa also has a permanent exhibition centre on the
world of electricity at its corporate headquarters, which was visited by 1,700
students in 2006. In the area of culture, the Company continued sponsoring
monument lighting, this time centred on ceramic murals made by Miquel
Barceló for the Palma Cathedral and the church of Can Picafort, in the
town of Santa Margarita. Finally, the Company sponsored the annual exhibit of
the nativity crèche of the Clarisas Capuchinas convent, and the Summer
Concerts at the Bellver Castle. 04.2.5. ENDESA’s
social initiative programs in Aragon ENDESA operates in Aragon through its trade
name ERZ Endesa. Highlights for ERZ Endesa in 2006 included work on the Expo
Zaragoza fair in 2008, continued patronage of the Pyrenees Thematic Park
(Pirenarium) and of the foundations Santa María de Albarracín and
Zaragoza City of Knowledge. Additionally, it continued its cooperation agreement
with the Zaragoza city council. In addition, the Company carried out a range of
sponsorships with the main town halls of the three Aragonese provinces, as well
as an array of sports clubs, including local professional football team, Real
Zaragoza. 172 Annual Report 2006 COMMITMENT TO SOCIETY
In the field of education, ERZ Endesa worked with the University of
Zaragoza, the Menéndez Pelayo International University and the Royal
Institute for European Studies at Jaca. It also sponsored the Mequinenza Mining
Conference, among other seminars and conferences, and the UNESCO’s
Associated Schools Project Network. In October 2006, ERZ Endesa opened an
education centre at its company headquarters, which is aimed in particular at
informing schoolchildren and university students about electrity and how to use
it efficiently. It is estimated that over 4,000 students will visit in its first
whole year of functioning. The Company also continued its work with the
Aragonese government’s initiative The Energy Route. Among cultural events,
highlights include participation in the Aquaria Exhibition, and its presence at
the energy forum: Power Expo 2006. 05. SOCIAL INITIATIVES CARRIEDOUT IN 2006 BY
ENDESA’S LATIN AMERICAN COMPANIES ENDESA’s Latin American companies
are deeply committed to social initiatives, either directly or via Foundations
they have created for specific activities: Pehuén Foundation, Huinay
Foundation and Chilectra Activa Foundation in Chile, and Endesa Colombia
Foundation in Colombia. In general, the initiatives of ENDESA’s Latin
American companies centre on meeting the needs of disadvantaged groups or
communities in the areas where they operate, collaboration with social
institutions on projects providing assistance to families, children and the
disabled, training people on the safe and efficient use of electricity, and
participating in projects that foster the preservation of the cultural identity
of the regions or countries where they are present. This social initiative
involves a large number of individual projects which are described in detail in
the reports on sustainability and social responsibility issued by the respective
companies. The following is a summary of the most representative initiatives:
05.1. SOCIAL INITIATIVES IN CHILE 05.1.1. Enersis’
main activities Among the collaborative action taken to cover the basic needs of
the population, one of the highlights was the Christmas for Poor Children
initiative, where a Christmas party was thrown for more than 55,000, five to 12
years old from children’s homes. Enersis also provides regular help to the
Hogar de Cristo and the Miguel Kast Foundation, institutions that aid especially
needy groups in Chile, and with the Las Rosas Foundation, which for the past 38
years has assisted underprivileged elderly people. In the area of social
development, the company joined in a project to donate books to libraries,
delivering four thousand books to benefit communities located far from urban
centres. It also worked with the town of Vitacura, where a new library was
opened and where a variety of cultural activities were held. In education,
Enersis, Endesa Chile and Chilectra signed an agreement with the University of
Chile’s Department of Economic and Administration Sciences to provide three
grants for academic excellence to students and staff in the fields of
engineering, business, and auditing. Enersis also developed the Electricity
Information Centre (CIEL) website, which is designed to provide young people
with educational information about electricity, in line with Education Ministry
content guidelines. It likewise sponsored for the third straight year the
seminar on Corporate Social Responsibility organised by Acción RSE, which
this year addressed the theme of sustainable development in Chile, and was
attended by 600 university students. In the area of culture, Enersis continued
its program Lighting Monuments in the Southern Hemisphere, in conjunction with
the Endesa Foundation, Endesa Chile and Chilectra. Lighting projects in 2006
included: the Palacio de la Moneda Cultural Centre, the crypt of the Cathedral
of Santiago, the Church of San Agustín de Concepción, the
Valparaíso Naval Museum, the Cathedral of Los Ángeles, the
Cultural Centre and Cross of los Ángeles, the Santiago Evangelical
Cathedral, the Monastery of Santa Clara de Pucón, the Castrense Cathedral
and the Virgen de las Rosas in Santiago. In the social-environmental arena,
worthy of note was the funding for publication of the book “Los Senderos
del Huemul” (“The Huemul Trail” ), the first publication to focus
on this native deer. The book describes the 30-year work of a group of
researchers and conservationists working to prevent this species from
disappearing. 05.1.2. Endesa Chile’s main
activities The social initiatives undertaken by Endesa Chile centre on the
development of projects to help communities living near the country’s
generation plants in the country. The most significant social assistance
provided in 2006 include the contribution made to the construction of new
housing units in collaboration with various government organizations,
infrastructure improvements in the area of San Pedro, support for municipal
employment plans in the region Operations Review 173 endesa06
of Quillota, road maintenance in the upper Bio Bío, and the donation
of construction materials to community organisations in San Clemente. In the
field of education we highlight the “Energy for Education” program,
which is sponsored by the Chilean Ministry of Education. The pilot plan of this
program includes aid for seven schools near the same number of company power
stations. Other important activities in the educational field include aid to a
variety of Chilean universities such as the Pontificia Universidad
Católica and the Universidad de Chile, through scholarships, building
laboratories and other activities. In addition, each company power plant carries
out educational activities in its immediate surroundings including scholarships,
donations of IT equipments, grants to interns, contributions to a range of
academic activities, etc. Endesa Chile also provides funding for a number of
towns to hold cultural events (festivals, local celebations, cultural
gatherings, etc.), which helps to foster cultural and tourism development in
these areas. One particularly noteworthy cultural event held in 2006 was the
inauguration of the Plaza and Museo project in Villa Ralco, in the region of
Alto Bio Bío, organized by Endesa Chile, the Fundación
Pehuén and the local authorities. The object is to make this activity a
platform for protecting and divulging the Pehuenche community’s history,
culture and traditions. 05.1.3. The Pehuén Foundation’s main
activities The Pehuén Foundation was set up by Endesa Chile to promote
programmes to improve the quality of life of the pehuenche communities in the
Alto Bio Bío region through projects designed to foment their social and
economic development and protect their culture. To foster productive
development, in 2006 the Foundation promoted initiatives in the area of land
enclosure, product marketing, market garden preparation, construction of
livestock sheds, planting of wheat and oats, animal husbandry, establishment of
tourism infrastructure and the purchase of agricultural machinery. In the area
of community infrastructure, the main activities rolled out were opening roads,
building drinking water systems and collection water for irrigation. Activities
were also carried out in the school environment, such as research grants,
donation of school uniforms and assigning monitors to support preschool
education. Additionally, aid for one-off situations was provided, such as aid to
counter the affects of snowstorms, help for applying for social and housing
assistance, meeting the needs of social organisations, etc. Lastly, initiatives
for enhancing indigenous identity through maintaining cultural celebrations and
organising festivals and other collective events.
05.1.4. Chilectra’s main activities Among the
initiatives implemented by Chilectra to cover basic social needs, in 2006, and
for the fifth consecutive year, the Chilectra “Gánale a la
Droga” (“Beat drugs” cup was held. More than 5,000 children aged
between 12 and 15 took part and the Police department responsible for searching
for missing children in Chile collaborated by publishing photos of the missing
children on electricity bills. Additionally, the “multicanchas”
lighting program was continued (a program was initiated twelve years ago which
focuses on lighting sports areas in various neighbourhoods of the capital) and
the company sponsored the marathon held in the centre of Santiago to increase
awareness of screening for breast cancer. In the cultural arena, the company
sponsored for the fourth year running, the Santiago International Book Fair, one
of the country’s most important cultural events, which attracts more than
200,000 visitors, and recovered its photographic archives through the
publication of “Luces de Modernidad”, a five-volume publication
depicting the history of Chilean society. The company also rolled out
educational initiatives via its Chilectra Activa Foundation. Activities carried
out in 2006 included the “Volantín Seguro 2006” campaign,
rolled out jointly with the Chilean Safety Association (ACHS) to minimize the
risk of electrocution among children playing with kites. The group also made an
agreement with the Museo Interactivo Mirador to develop various projects,
including the creation of a theme room dedicated to electricity and energy,
training teachers in the same area, the release of content relating to the good
use of electricity and educational material on the same theme. 05.1.5. Main
activities of Synapsis in Chile For the second year in a row, Synapsis donated
computers to the Todo Chilenter Foundation. Since it was created, the foundation
has distributed more than 7,000 computers in Chile, benefiting more than 1,500
social organisations and schools that do not have easy access to new technology.
It also encouraged the Hogar de Cristo’s 1+1 campaign, which consists in
matching employee donations to provide basic resources to the children’s
nursery Jardín y Sala Cuna Los Patroncitos, located in the Central
Station commune, which helps to protect the most socially disadvantaged
families. 174 Annual Report 2006 COMMITMENT TO SOCIETY
Finally, the company’s employees began a Christmas Campaign, during
which they collected toys for more than 260 underprivileged children. The toys
were distributed through the Protectora de la Infancia Foundation and Acuarela e
Hijos de Nazaret Community Centres. 05.2. SOCIAL
INITIATIVES IN ARGENTINA 05.2.1. Edesur’s main activities Among activities
related to basic needs, Edesur in 2006 continued its program Colaboración
con Comedores Infantiles (Cooperation with Children’s Cafeterias), whose
goal is to contribute to feeding children who live in poor parts of the
company’s concession area. In addition, through an agreement with charity
group, Cáritas Argentina, the company continued its “round up the
change” campaign, through which its clients can donate the change left over
after they pay their bills in cash at the company’s commercial offices.
Edesur also has a program to assist the search for missing children through
publication of their photographs on electricity bills. Thanks to this
initiative, in 2006, 33 of the 45 missing children were found. The company
started a new initiative, Incucai “Donar es Vida” (Donating is Life),
an awareness campaign using an information sheet mailed to all of its
residential clients that provides information about the removal and
transplanting of organs and tissues. In the area of social development, the
company signed an agreement with the Ministry of Health and Environment to take
part in the Concurso Abandone y Gane (Give up and Win Contest) centred on
quitting smoking. The company also developed, in conjunction with the local
Buenos Aires Primary Education Department, the Programa de Pintura de Murales en
Subestaciones (Mural Painting in Substations Programme), which gives primary
school students the opportunity to learn to paint murals, as well as
contributing to the maintainance and improvement of the city’s urban
environment. In education, Edesur carried out three significant activities to
raise awareness of the efficient and careful use of electricity: El Viaje de la
Energía (The Energy Journey), which the Argentine Ministry of Education
deemed of National Education Interest, Edesur por los chicos (Edesur for Kids),
an educational campaign for preschool children, which has been declared to be of
Municipal Interest by the municipal governments of Buenos Aires Province and
which includes the Espacio de Juegos Edesur (Edesur Games Area), and an
institutional campaign for efficient use of energy and energy saving, as a
complement to the first two. In addition, since 2000 the company has been
developing the program Relationships with the Educational Community with the
goal of fostering links with educational institutions and to carry out training
activities and increase employment opportunities for students through paid
internships. Among cultural activities, the company developed the Edesur y la
Cultura program, through which it gives over part of its office space to a
variety of artistic works, as well as using this program for the integration of
disabled people. This activity was co-sponsored by Conadis (the National
Advisory Commission on the Integration of Disabled People).
05.3. SOCIAL INITIATIVES IN COLOMBIA 05.3.1. Emgesa and
Betania’s main activities Emgesa assists in covering basic social needs
through initiatives such as improvements in rural schools in San José and
El Paraíso, improvements in the laboratory of the Pablo Neruda school and
support for the construction of the San Antonio de Tequendama park. Likewise, it
supported the donation of educational materials to the Hogares de Bienestar and
invested in improvements in play areas and children’s cafeterias in the
town of Ubalá. Another highlight was the development of river transport
and rural electrification in the towns in the Guavio area. As for efforts to
contribute to social and cultural development, Betania supported the local
festivals in Bambuco and San Juanero, the fishermen’s project at the
Betania reservoir in the town of Hobo and the activities of a range of local
sports groups. Meanwhile, Emgesa contributed to the Christmas lights in towns in
its surrounding area and developed the Festival de la Luz Municipio (Festival of
Light) of El Colegio, the Festival Nacional Náutico del Guavio (Guavio
National Nautical Festival) in the town of Gachalá, the Semana Cultural y
Ambiental (Cultural and EnvironmentalWeek) in the town of Ubalá, among
other activities. In education, both companies encourage environmental awareness
through an educational program in 17 rural schools. In addition, Emgesa has a
program designed for students in grades 4 to 11 and Betania sponsors the Town
Environmental Leaders as Multiplying Agents for Green Markets for students and
municipal and environmental authorities in its concession area. Finally, both
companies provided training in Corporate Social Responsibility in their
respective areas to government functionaries, members of town councils and local
NGO leaders in six towns. 05.3.2. Codensa’s main
activities Codensa in 2006 continued working on expanding lighting in 270 parks
in Bogota, in coordination with the District Executive Unit for Public Services.
This initiative in 2006 saw the installation of 1,489 sodium lamps and 931
cement and metal lampposts. Operations Review 175 endesa06
The company sponsored a Christmas Gift Campaign via an in-house collection
drive to collect toys and other gifts for 1,400 underprivileged children in the
area of Cundinamarca. It also supported children’s and cultural
celebrations in 86 towns, which benefited nearly 10,000 children and adults. The
company started the project Tecnificación de Trapiches in the area of
Gualivá, through which panela (raw sugar) producers receive a technical
upgrade by substituting diesel motors with electric motors, benefiting 350
families. As part of the Caravana de la Seguridad Eléctrica (Electrical
Safety Caravan), 32 caravans were dispatched. Through this program, internal
installations of buildings were carried out, advising and correcting technical
anomalies and encouraging the safe and efficient use of electricity. Among
initiatives for social development, the company began a milk cooling tanks
project, which achieved technological upgrades through the legalisation and
electrification of networks in areas of difficult access where small milk
producers are located, to facilitate the connection of cooling tanks. The
project in 2006 directly benefited 200 people. It also contributed to activities
run by various associations such as the Formemos Foundation, the Colombian
Integrated Rehabilitation Centre, the Salamanca University Cultural Centre, the
Colombian Red Cross, the Integrarte Foundation, etc. In education, the company
continued its Prevention of Electrocution Campaign in the neighbourhoods of
cities and towns in Cundinamarca. In 2006, more than 31,000 people attended
educational talks on this issue. Also in education, the company launched the
program Días de Vuelo (Kite Flying Days), to get children to play safely
with kites, well away from power lines in order to avoid accidents. Kite flying
related electricity line incidents in summer 2006 had dropped by 40.8% from the
same period in 2005. The company gives special importance to its programs for
the sensible and efficient use of energy, which includes the socalled Caravans
for loyalty and recognition; and energy days for children. In 2006, about 30,000
people, both children and adults, attended these programs’ events.
Elsewhere, the Paseo de la Electricidad (Electricity Walk) was visited by more
than 11,000 people, mainly children between the ages of 7 and 12 years from
schools in Bogota and Cundinamarca. As for culture, through the Endesa Colombia
Foundation, the company continued rolling out its program for lighting churches
and monuments as part of an agreement signed by Codensa, Emgesa and the Endesa
Foundation with the Colombian Episcopal Conference. In the framework of this
agreement, in 2006 the company lit the Santa Marta Cathedral Basilica, the Cali
San Pedro Apóstol Catedral, the Cathedral of Divino Salvador in
Sopó and the Cathedral of Santiago Apóstol in Tunja, as well as
the Museum of Contemporary Art. 05.4. SOCIAL INITIATIVES
IN PERU 05.4.1. Edelnor’s main activities Through Edelnor cuida de tu salud
(Edelnor takes care of your health), the company provides less well off
customers with the possibility of receiving free medical visits, listening to
talks on nutrition or sexual health, etc., which it carries out with the support
of health professionals. From its creation in March 2005 up to December 2006,
this service had assisted more than 26,800 patients. Another relevant activity
in the area of cooperation are the socalled Aulas de Cómputo (Computer
Classrooms), which offer poorer members of society the opportunity to take free
computer courses in two classrooms located at company offices. More than 5,200
people have taken advantage of this program since it started in 2004. Edelnor in
2006 worked with the Bishop of El Callao to establish the Pachacutec Higher
Institute of Technology, by providing electricity from the start of construction
and outfitting workshops, laboratories and the library. The company continues to
show its commitment to the project by financing a portion of teachers’
salaries and offering its own facilities for internships. It also continued its
(Sports Field Lighting Programme) Programa de Iluminación de
Multicanchas. Ten sports areas were lighted in 2006, joining the 15 fields lit
in 2005. Another highlight was the program Hacer Luz (Turning the Lights On), an
initiative with two sub-programs. The first is known as Iluminando Nuestra Fe
(Illuminating Our Faith) and its goal is the artistic lighting of the
country’s biggest churches and cathedrals; the second is focused on civil
monuments. Between the two programs, a total of 17 monuments were lighted. Among
social-environmental activities, a highlight was the campaign Sembrando Vida
(Sowing the Seeds of Life), in which green zones were restored in the districts
of Magdalena, Pueblo Libre and San Miguel. The campaign included participation
by Company employees and their families, who spent one day a year sowing plant
seeds. 05.4.2. Edegel’s main activities Among its
social initiatives, Edegel developed the project Matemáticas para Todos
(Mathematics for All) via an agreement with the Instituto Apoyo. This consists
of writing and publishing mathematics books for students with lower IQs. The
project is complemented by a teacher’s guide, and workshops and videos. 176
Annual Report 2006 COMMITMENT TO SOCIETY
The company continued in 2006 its program Formación a Líderes
Comunales (Training Community Leaders), an initiative carried out in communities
near the hydroelectric stations of Callahuanca, Huinco and Matucana and
consisting of permanent training for adolescents at different educational
institutions, as well as for mothers who are members of social organisations, on
issues of risk prevention in emergencies, basic elements of electricity,
citizens’ duties and rights, health and first aid, productive courses for
income generation and environmental courses. In 2006 the company also drew up
The Contingency Plan for Communities Located in the Río Tulumayo Basin,
the main water source for the Chimay power station. Approximately 110 families
live in the communities located in this basin. In order to have a rapid response
plan in case of potenial emergency, the company has begun development of a
contingency plan, with the active participation of local authorities, including
communicating messages of prevention and advising residents on what to do in
case of emergency and the planning of natural disaster drills, among other
activities. In addition, the Sostenibilidad del Proyecto de Reubicación
de Pacaybamba (Sustainability of the Pacaybamba Relocation Project ) was carried
out. This was the final stage of the relocation of 20 families of this
community, who also lived near the Tulumayo River. After their relocation in
2005 to a safe area offered by Edegel, the families have formed a new community.
The company organised for the residents a variety of training seminars on basic
sanitation, maintenance of drinking water services and the sanitation system,
encouraging the possibility of joint management of this village’s services.
In addition, the educational infrastructure was improved and contributions were
made to start educational activities. This program received the Sustainable
Development Award of the National Society for Mining, Oil and Energy. Another
important project is Edegel Educates, which consists of training workshops for
teachers, with the goal of providing knowledge and skills to promote a healthy
lifestyle among schoolchildren. This initiative benefits 5,000 students from 28
educational institutions. The project is carried out through an agreement with
the Education Ministry and the U.N. Office on Drugs. Another highlight was the
project Improving Livestock in Yuracmayo. Its ultimate goal is to improve sheep
breeding in this community, for which local livestock breeders have been
provided with training. As part of its commitment to culture, Edegel published
books in the Monumental Amazónica (Amazon Monuments) collection through
an agreement with the Amazonia Centre for Theological Studies (CETA). Edegel
also has an agreement with the country’s Episcopal Conference for a program
for lighting churches and historic monuments. Along with other ENDESA companies
in Peru and the Endesa Foundation, this program in 2006 made it possible to
renew the lighting of the Congress and assistance was given to set up a lighting
system at the Andahuaylillas Church in Cuzco, one of the Inca
civilisation’s most important shrines, known as the Sistine Chapel of
America. In the environmental area, the company developed a forestation project
in the Chillón River, whose main goal is to create an ecological
“lung” in this area and protect the inhabitants from possible river
flooding, thanks to an agreement signed with the Agrarian Development Foundation
at the University of Molina. Finally, Edegel continued the program Fostering
Joint Responsibility for Environmental Conservation to raise awareness among the
population about caring for the natural environment and fostering forestation
efforts. 05.5. SOCIAL INITIATIVES IN BRAZIL 05.5.1.
Coelce’s main activities The company supports a wide number of traditional
festivals, local celebrations and cultural events. Among those it sponsored in
2006, highlights included the Fortaleza Dance Festival, Special Program 96 Years
of José de Alencar Theatre, Cinema Ceará Festival, Pacoti Cinema
and Video Festival, Brazilian University Audiovisual Festival,Music Fair 2006,
Summer Music, Life and Art Festival, Festa Junina 2006 Ceará Bienneal
Dance Fair, Cultural Meetings in Povo Jaguaribano, and the Traditional Brazilian
Music Show. It also sponsored the Cámara Eleazar de Carvalho orchestra
and a large number of photographic, audiovisual, editorial and musical projects.
As part of efforts to promote reading among underpriviliged children and
adolescents, the company distributed 1,800 books in six communities and
contributed to the Casa do Conto (The Story House), a project to raise awareness
of reading among children and adults. In addition, it carried out the Teia Da
Vida (The Web of Life), a social technology course using training in
self-awareness, interpersonal relations and creativity, and developed Grafitando
con Arte (Graffiti Art), a youth painting program which takes place in
substations and which in 2006 was centred on themes of sustainable development
of natural resources. Through its “Cinema in the Main Square” project,
Coelce aimed to bring the cinema to an audience that normally has difficulty
visiting conventional cinemas In the area of education, the company continued
rolling out its Coelce project in schools, which consists of training state
school teachers to teach their pupils about sensible energy use, accident
prevention and environmental conservation. Operations Review 177 endesa06
05.5.2. Ampla’s main activities Solar Heating
is a project Ampla started in 1998 to replace conventional water heating systems
with solar systems for charity organisations. Beneficiaries in 2006 included
Hogar Samaritano, Asociación Hospital de Porciúncula, daycare
centre Pastorinha de Fátima, Support Group for Minors and the Santa Casa
de Misericordia for AIDS patients in Sao Joao de Barra. Through Ampla Vision,
the company makes available to all of its clients with serious visual handicaps
a bill in Braille with the main details of their accounts. With the
Campaña de Donación de Cofrecitos AFR (Asociación
Fluminense de Rehabilitación), Ampla raised funds for the maintenance of
this organisation, which aids nearly 2,000 patients with physical and
neurological disabilities. Through the Desenvolver project, the company
collected donations from employees and suppliers, and from customers and donated
them to the local parish church and the Casa Amarela Foundation to provide
assistance to disadvantaged families. The company encourages the updating of
household electricity installations through the Energy Efficiency project, in
cases in which homeowners do not have enough money to bring their electricity
systems up to technical and safety standards. In 2006, 16,500 families benefited
from this program. Ampla also encourages its employees to do volunteer work
through the Compartir (Share) program. This program was initiated in December
2004 and in 2006 had three pillars: a Joint Volunteer Work Campaigns, to benefit
three daycare centres; a Donation Campaign, for the donation of clothing, and
Volunteer Father Christmases. The company’s Young Apprentice Electricians
initiative aims to provide opportunities for professional training to young
people from low income communities and First Job is an Ampla program offering
job opportunities to young people with few professional qualifications.
Meanwhile, through the Superación Project, Ampla sponsors educational and
cultural activities for families with an aim to raising awareness of efficient
energy use, and with its Safe Energy program, the company educates low income
customers on how to choose the most efficient and safest electricity materials
to use when wiring their homes. 178 Annual Report 2006 COMMITMENT TO SOCIETY
The company carried out the projects Guardians of Energy and Connected
Youth, which aim to teach children and young people about the importance of safe
and efficient electricity use, which they can then pass on to their communities.
The Ampla Lecture Workshop is a program which aims to foster citizen awareness
starting from reflections on identity, ethics, violence, petty crime, piracy,
environmental education an efficient energy use. Directly or indirectly, 250,000
students, 13,000 teachers and 518 schools have benefited from the program to
date. Lastly, in the cultural arena, it participated in the Macaé Biennal
Book Festival, the 1st Reading Room, in Niteroi, and it also had a stand at the
International Literary Festival in Paraty. 05.5.3.
Endesa Fortaleza’s main activities As regards inititiatives to cover basic
social needs, Endesa Fortaleza took part in an International Meeting in which
240 people from different organisations, institutions and companies worked on
building models and social projects to bring about a reduction in poverty in the
region in which the company operates. The company also donated more than 1.5
tons of food for the state of Ceará in the framework of its second
Internal Workplace Accident Prevention Week. Another in-house project in 2006
was the Volunteer Development Programme, which helped a variety of employee
teams participate in volunteer work, such as donation campaigns, work with
charity organisations and actions to benefit the community. The company has two
projects focused on children, Christmas and Education, for the donation of toys
to students at the Francisco Alves de Paiva school, and for the renovation of
the school’s electrical system, respectively. The company took part in
Saint Peter’s Day, an event organised by the community of fishermen in
Pecém to protect the area’s culture. Endesa Fortaleza donated
material for the renovation of the local parish church of Sao Luiz Gonzaga,
sponsored renovation of the Ceará Philharmonica Orchestra’s
headquarters, and contributed to the project Power Future 2006, an exhibition of
Brazil’s alternative energies. 05.5.4. Endesa
Cachoeira’s main activities In the area of assistance to cover basic needs,
the Saúde project stands out, through which renovations were carried out
on the Dental Surgery in Cachoeira Dorada, which looks after some 300 children
and young people a month. The company provided resources to train teachers from
the Novo Goiás Institute in Cachoeira, for the upkeep and daily operation
of the school, and for environmental education campaigns. Additionally, it
rolled out the Volunteer Development Programme for its employees, sponsored the
Summit for Youth and Family to raise awareness against drugs, in which more than
10,000 people took part. The company sponsors a range of socio-cultural projects
for the communities of Cachoeira Dorada de Goiás and Cachoeira Dorada de
Minas, and fosters educational initiatives related to the environment for its
employees and the community at large, focused mainly on reducing the
environmental impact of the use of products and the efficient use of
electricity. As for the socio-environmental arena, highlights included the
project to develop the Mata Atlántica National Park, which involved the
donation of land for the creation of this natural reserve. Other significant
actions in the same vein included the Reforestation Project and the Programme
for the Conservation and Recovery of Fish Life. 05.5.5.
Endesa CIEN’s main activities Endesa CIEN donated the old ABB building to
the town of Garruchos as the site for the cultural centre, handicrafts workshop,
industrial arts school and municipal libraryof its Social Assistance Centre. It
also donated bed linen to the hospital of Sao Luiz Gonzaga, benefiting 3,000
children, built the stands and locker rooms of the Garruchos Municipal Stadium,
and purchased sporting goods and equipment for the town’s youth. On a
cultural level, the company sponsored the 30th Annual Book Fair in the city of
Sao Luis Gonzaga, and collaborated in the childrens book fair.
05.5.6. Main activities of Synapsis in Brazil The
Company’s Brazilian subsidiary joined the job creation program of the
Ceará government, for which it received the Open Doors Seal from the
Department of Employment. This project helps people who face difficulties
entering the job market, such as 16 to 24 year olds, people over the age of 40,
and the disabled. Synapsis Brazil opened the Eusébio Centre for Social
Inclusion, located at company headquarters, which houses the Educational
Insertion project, which is comprised of classes led by company employees in
computers, service-sector training, etc. Operations Review 179 endesa06
180 Annual Report 2006
APPENDICESendesa06 Operations Review 181 182 ENDESA’S MAIN COMPANIES
188 ENDESA’S GENERATION FACILITIES IN SPAIN 190 ENDESA’S GENERATION
FACILITIES IN EUROPE AND NORTH AFRICA 192 ENDESA’S GENERATION FACILITIES IN
LATIN AMERICA 194 SIGNIFICANT EVENTSIN 2006 ANDJANUARY-APRIL 2007198 ENDESA
SINCE ITS CREATION
182 Annual Report 2006 APPENDICES ENDESA GENERACIÓN Corporation Date
of incorporation: 22 September, 1999 Registered office: Avenida de la Borbolla,
5. 41004 Seville Tax ID: A82434697 Endesa Generación was created as a
holding vehicle for ENDESA’s generating and mining activities in Spain
following the integration of all subsidiaries incorporated in Endesa Europa in
Portugal and Endesa Cogeneración y Renovables (ECyR) except Gas y
Electricidad Generación, S.A.U., and Unión Eléctrica de
Canarias Generación, S.A.U., which are 100%-owned by Endesa
Generación. Chairman-Senior Vice-President: Manuel Morán Casero
Board members: José María Plans Gómez, Jaime Reguart
Pelegrí Secretary non board member: Mariano Martín Rosado
ENDESA’S MAIN COMPANIES S PA I N A N D P O RT U G A L ENDESA RED
Corporation Date of incorporation: 22 September, 1999 Registered office: Avenida
del Paralelo, 51. 08004 Barcelona Tax ID: A82434663 The creation of Endesa Red
marked the culmination of the integration of ENDESA’s regional distribution
companies in Spain. The companies grouped under this umbrella include Endesa
Distribución Eléctrica, S.L., Endesa Operaciones y Servicios
Comerciales, S.L. and Endesa Gas, S.A. Endesa Distribución
Eléctrica manages ENDESA’s activities in the regulated electricity
transmission and distribution businesses, as well as power sales to customers
who receive their electricity at the rates set by the Spanish government. Endesa
Operaciones y Servicios Comerciales, S.L. provides commercial support to
ENDESA’s power companies, while Endesa Gas, S.A., groups together
ENDESA’s holdings in companies active on the regulated natural gas market.
This organisational structure places ENDESA in a better position to take
advantage of the close relationships existing between the electricity and gas
markets, both of which have been open to competition since 1 January 2003.
Chairman-Senior Vice-President: José Luis Marín López-Otero
Board members: José Antonio Martínez Fernández, José
María Rovira Vilanova Secretary non board member: Julio Molinario Valls
endesa06 ENDESA ENERGÍA Corporation Date of incorporation: 3
February, 1998 Registered office: Ribera del Loira, 60. 28042 Madrid Tax ID: B
81948077 Endesa Energía retails energy on the deregulated market,
responding to the requirements of the Spanish electricity sector
post-deregulation. The company supplies energy and value-added services to
customers who have opted to exercise their right to choose an energy supplier
and receive services on the deregulated market. Endesa Energía also
supplies energy on the deregulated markets of various other European countries.
Chairman: Javier Uriarte Monereo Board members: Francisco Arteaga
Alarcón, José Antonio Gutiérrez Pérez Secretary non
board member: Francisco Ruiz Risueño ENDESA SERVICIOS Limited Liability
Company Date of incorporation: 18 February, 1999 Registered office: Ribera del
Loira, 60. 28042 Madrid Tax ID: B 82265364 Endesa Servicios was created to bring
the support services provided by each of ENDESA’s holdings together in a
single company. The company’s core activities include the definition of
corporate procurement policies, management of global supplier contracts and the
contracts of IT and telecommunications system suppliers, asset management, and
the implementation of corporate strategy in respect of technological
development, innovation and knowledge management. Joint Senior Vice-Presidents:
Antonio Pareja Molina and Francisco Ramón Cabezas Navas Operations Review
183
184 Annual Report 2006 APPENDICES ENDESA EUROPA Limited Liability Company
Date of incorporation: 21 December, 2000 Registered office: Ribera del Loira,
60. 28042 Madrid Tax ID: B 82846791 Endesa Europa was created to exploit the
organic growth potential and development opportunities afforded by the European
markets by bringing together under one umbrella the administration and
management of ENDESA’s various interests in Europe and northern Africa. Now
that the group’s Portuguese assets have been transferred to Endesa
Generación in the framework of the creation of the Iberian Electricity
Market, these largely consist of Endesa Italia (Italy), Snet (France), Endesa
Trading and ENDESA’s assets in Poland and Morocco, to which assets in
Greece will added shortly. Chairman: Rafael Miranda Robredo Board member –
Executive Vice-President: Jesús Olmos Clavijo Board members: José
Serna Masiá Francisco Javier Ramos Gascón Francisco
Núñez Boluda José Luis Oller Ariño Emilio Zurutuza
Reigosa José M. Fernández Arche Alberto Recarte
García-Andrade Secretary non board member: Rafael Fauquié Bernal E
U R O P E
Operations Review 185 endesa06 L AT I N A M E R I C A ENDESA INTERNACIONAL
Corporation Date of incorporation: 26 January, 1998 Registered office: Ribera
del Loira, 60. 28042 Madrid Tax ID: A81932873 The purpose of Endesa
Internacional is to manage ENDESA’s Latin American market, by taking charge
of the management of a large number of companies, in which ENDESA’s capital
interests give it a position of control, the principal holdings being Enersis,
Endesa Chile and Chilectra (Chile), Edesur, Costanera, Dock Sud and El
Chocón (Argentina), Cien, Endesa Fortaleza, Cachoeira Dourada, Ampla and
Coelce (Brazil), Emgesa, Betania and Codensa (Colombia), Edegel and Edelnor
(Peru). Chairman: Rafael Miranda Robredo Board Member-Executive Vice-President:
Pedro Larrea Paguaga Board members: José Bohórquez Mora de
Figueroa Rafael Español Navarro José Fernández Olano Manuel
García Sánchez Rafael González-Gallarza Morales Roberto
Molero Gómez-Elegido Manuel Ríos Navarro Pablo Yrarrázabal
Valdés Secretary non board member: Alfonso Arias Cañete
ENDESA distributes electricity in the Spanish market through the following
organisational structure. Erz EndesaChairman * Amado Franco LahozGeneral Manager
** José Antonio Gutiérrez PérezFecsa Endesa Chairman
*Antón Costas ComesañaGeneral Manager **José María
Rovira VilanovaGesa Endesa Chairman *Bartolomé Reus BeltránGeneral
Manager **Jaime Reguart PelegríSevi l lana Endesa Chairman *Jaime Ybarra
LlosentGeneral Manager ** José Antonio Martínez
FernándezUnelco EndesaChairman and General Manager * **José
María Plans Gómez *** E N D E S A I N T H E S P A N I S H E L E C
T R I C I T Y M A R K E T ITALY Endesa Ital ia Chairman Jesús Olmos
Clavijo Board Member-Executive Vice-President Joaquín Galindo
Vélez FRANCE Snet**** Chairman André Sainjon Board
Member-Executive Vice-President Alberto Martín Rivals Endesa Polska
Chairwoman Celia Ordóñez Gómez General Manager Wojciech
Tabis E N D E S A ’ S C O M P A N I E S I N E U R O P E 186 Annual Report
2006 APPENDICES ARGENTINA EDESUR Chairman Rafael López Rueda General
Manager José María Hidalgo Martín-Mateos COSTANERA Chairman
Rafael Mateo Alcalá General Manager José Miguel Granged
Bruñen CHOCÓN Chairman Rafael Mateo Alcalá General Manager
Fernando Claudio Antognazza Moreno DOCK SUD Chairman Vito Camporeale S. (YPF)
General Manager Roberto Fagan Pecollio CEMSA Chairman José M.ª
Hidalgo Martín-Mateos General Manager Juan Carlos Blanco Couce CTM
Chairman José M.ª Hidalgo Martín-Mateos General Manager
Francisco Javier Bugallo Sánchez TESA Chairman José M.ª
Hidalgo Martín-Mateos General Manager Francisco Javier Bugallo
Sánchez E N D E S A I N L A T I N A M E R I C A * Head of ENDESA’s
advisory board in this region. ** ENDESA General Manager for this region. *** On
1 November 2006 he was appointed chairman following the resignation of Angel
Ferrera Martínez who held the post until that date. **** On December
2006, adopted the commercial name of Endesa France.
Operations Review 187 endesa06BRAZIL ENDESA BRASIL Chairman Mario Fernando
de Melo SantosGeneral ManagerMarcelo Andrés Llévenes Rebolledo
AMPLA Chairman Mario Fernando de Melo SantosGeneral ManagerMarcelo Andrés
Llévenes Rebolledo CACHOEIRA DOURADA Chairman and General
ManagerFrancisco Javier Bugallo Sánchez CIEN Chairman Marcelo
Andrés Llévenes RebolledoGeneral ManagerFrancisco Javier Bugallo
Sánchez ENDESA FORTALEZA Chairman Francisco Javier Bugallo
SánchezGeneral ManagerManuel Herrera Vargas COELCE Chairman Mario
Fernando de Melo SantosGeneral ManagerCristián Fierro Montes CHILE
ENERSIS ChairmanPablo Yrarrázabal ValdésGeneral ManagerIgnacio
Antoñanzas Alvear ENDESA CHILE ChairmanMario Valcarce DuránGeneral
ManagerRafael Mateo Alcalá CHILECTRA ChairmanJorge Rosenblut
RatinoffGeneral ManagerRafael López Rueda COLOMBIA CODENSA
ChairmanAndrés Regué GodallGeneral Manager Jose Alejandro
Inostroza Lopez BETANIA Chairman Jose Antonio Vargas Lleras General Manager
Carlos Alberto Luna Cabrera EMGESA ChairmanAndrés Regué
GodallGeneral ManagerLucio Rubio Díaz PERU EDELNOR ChairmanReynaldo Llosa
Barber(Banco de Crédito del Perú)General ManagerIgnacio Blanco
Fernández EDEGEL ChairmanRafael Mateo AlcaláGeneral
ManagerJosé Griso Ginés PIURA ChairmanIgnacio Blanco
FernándezGeneral ManagerManuel Vicente Cieza Paredes
88 Annual Report 2006 APPENDICES ENDESA’S GENERATION FACILITIES IN
SPAIN AT 31 DECEMBER 2006 Type of No. of Installed % Capacity corresponding
SPAIN Location Fuel Groups capacity (MW) ENDESA to ENDESA (MW) MAINLAND SYSTEM
THERMAL PLANTS Coal Compostilla Cubillos del Sil-Leon H-A 4 1,199.6 100.0
1,199.6 Anllares Anllares-Leon H-A 1 365.2 33.3 121.7 As Pontes As Pontes-La
Coruna BrL 4 1,468.5 100.0 1,468.5 Teruel Andorra-Teruel BL 3 1,101.4 100.0
1,101.4 Litoral Carboneras-Almeria IC 2 1,158.9 100.0 1,158.9 Los Barrios Los
Barrios-Cadiz IC 1 567.5 100.0 567.5 Total Coal 15 5,861.1 5,617.6 Fuel-Gas Foix
Cubelles-Barcelona F-GN 1 520.0 100.0 520.0 San Adrian 1 y 3 San
Adrian-Barcelona F-GN 2 700.0 100.0 700.0 Cristobal Colon Huelva F-GN 2 308.0
100.0 308.0 CCGT San Roque 2 San Roque-Cadiz CCGT 1 408.3 100.0 408.3 Besos 3
Besos-Barcelona CCGT 1 387.8 100.0 387.8 Tarragona 1 Tarragona CCGT 1 395.0
100.0 395.0 Colon Huelva CCGT 1 397.7 100.0 397.7 Total Fuel-Gas 9 3,116.8
3,116.8 TOTAL THERMAL 24 8,977.9 8,734.4 Nuclear Asco I Asco-Tarragona N 1
1,032.5 100.0 1,032.5 Asco II Asco-Tarragona N 1 1,027.2 85.0 873.0 Vandellos II
Vandellos-Tarragona N 1 1,087.1 72.0 782.7 Garona* St(a)M(a)Garona-Burgos N 1
466.0 50.0 233.0 Almaraz I Almaraz-Caceres N 1 981.6 36.0 353.4 Almaraz II
Almaraz-Caceres N 1 987.9 36.0 355.7 Trillo* Trillo-Guadalajara N 1 1,067.5 1.0
10.7 TOTAL NUCLEAR** 7 6,649.8 3,397.3** HYDROELECTRIC CONVENTIONAL
HYDROELECTRIC U, de Prod, Hidr, Noroeste H 31 727.6 100.0 727.6 U, de Prod,
Hidr, Ebro-Pirineos U, Territorial Pont de Suert H 51 709.2 100.0 709.2 U,
Territorial Zaragoza H 64 586.0 100.0 586.0 U, Territorial Lleida H 64 1,246.3
100.0 1,246.3 U, de Prod, Hidr, Sur U, Territorial Córdoba H 48 391.1
100.0 391.1 U, Territorial Antequera H 52 292.4 100.0 292.4 Pumping plants
Moralets H 3 221.4 100.0 221.4 Sallente y Montamara H 6 534.0 100.0 534.0 Ip y
Urdiceto H 3 84.0 100.0 84.0 Tajo Encantada y Guillena H 7 570.0 100.0 570.0
TOTAL HYDROELECTRIC* 5,362.0 5,362.0 TOTAL MAINLAND 20,989.7 17,493.7
Operations Review 189 endesa06 Type of No. of Installed % Capacity
corresponding Location Fuel Groups capacity (MW) ENDESA to ENDESA (MW) ON
MAINLAND SYSTEMS BALEARIC ISLANDS Coal Alcudia Majorca IC 4 510.0 100.0 510.0
Fuel-Gas Alcudia Majorca G 2 75.0 100.0 75.0 Son Reus Majorca G 11 612.0 100.0
612.0 Mahon Menorca F-G 6 168.0 100.0 168.0 Ibiza Ibiza F-G 18 238.0 100.0 238.0
Formentera Formentera G 1 14.0 100.0 14.0 Ca’s Tresorer Mallorca G 2 150.0
100.0 150.0 TOTAL BALEARIC ISLANDS 1,767.0 1,767.0 CANARY ISLANDS Fuel-Gas
Jinamar Gran Canaria F-G 13 415.6 100.0 415.6 Barranco de Tirajana Gran Canaria
F-G 9 612.1 100.0 612.1 Candelaria Tenerife F-G 10 288.2 100.0 288.2 Guia de
Isora Tenerife G 1 48.6 100.0 48.6 Granadilla Tenerife F-G 9 513.6 100.0 513.6
Arona Tenerife F-G 2 48.6 100.0 48.6 Punta Grande Lanzarote D-G 12 212.5 100.0
212.5 Las Salinas Fuerteventura D-G 12 186.6 100.0 186.6 El Palmar La Gomera D
10 22.8 100.0 22.8 Llanos Blancos El Hierro D 9 12.7 100.0 12.7 Los Guinchos La
Palma D-G 11 107.7 100.0 107.7 Hydroelectric La Palma H 1 0.8 100.0 0.8 TOTAL
CANARY ISLANDS 2,469.8 2,469.8 CEUTA Y MELILLA Ceuta Ceuta F-D 7 58.5 100.0 58.5
Melilla Melilla F-G 7 60.1 100.0 60.1 TOTAL CEUTA Y MELILLA 118.6 118.6 TOTAL
MAINLAND AND NON MAINLAND 4,355.5 4,355.5 TOTAL ENDESA PLANTS IN SPAIN 25,345.1
21,849.2 * Garoña and Trillo plants capacity are not consolidated under
IFRS. ** Does not include ENDESA’s capacity from Garoña and Trillo
plants, as these (*) are not consolidated under IFRS. Fuel: H-A (hard
coal-anthracite), BrL (brown lignite), BL (black lignite), IC (imported coal). F
(fuel-oil), G (gasoil), NG (natural gas), CCGT (combined cycle-gas turgine) D
(diesel), N (nuclear), H (hydroelectric). ENDESA’S GENERATION FACILITIES IN
PORTUGAL AT 31 DECEMBER 2006 ENDESA operates in the Portuguese generation market
through its stake in the following companies: • 38.9% of Tejo Energia,
ownder of the 600 MW Pego coal-fired power station. • 50% of Sociedade
Termica Portuguesa, owner of 53.6 MW of CCGT plants and 5.0 MW of wind farms.
• 100% of Finerge, owner of 127 MW of renewable energy and CCGT capacity.
190 Annual Report 2006 APPENDICES ENDESA’S GENERATION FACILITIES IN
EUROPE AND NORTH AFRICA (Does not include Spain & Portugal) Installed
capacity Power Station Country Type at 31/12/2006 (MW) Tavazzano Italy Thermal
1,840 Monfalcone Italy Thermal 976 Núcleo de Terni Italy Hydroelectric
530 Ostiglia Italy Thermal 1,530 Fiume Santo Italy Thermal 1,040 Núcleo
de Cotronei Italy Hydroelectric 369 Trapani Italy Thermal 170 Núcleo de
Catanzaro Italy Hydroelectric 115 Parco Eólico de Florinas Italy Wind 20
Parco Eólico de Vizzini Italy Wind 24 Parco Eólico de Iardino
Italy Wind 14 Centro Energía Teverola Italy Thermal 170 Centro
Energía Ferrara Italy Thermal 170 Emile Huchet 4 France Thermal 125 Emile
Huchet 5 France Thermal 343 Emile Huchet 6 France Thermal 618 Hornaing 3 France
Thermal 253 Provence 5 (Gardanne) France Thermal 618 Lucy 3 France Thermal 270
Soprolif (Gardanne) France Thermal 250 Bialystock* Poland Cogeneration 330
Altek* Turkey Hydroelectric 40 Altek* Turkey CCGT 80 Tahaddart Morocco CCGT 384
* As a result of ENDESA’s holding in Snet
Operations Review 191 endesa06
192 Annual Report 2006 APPENDICES ENDESA’S GENERATION FACILITIES IN
LATIN AMERICA Installed % CapacityCapacity Economic corresponding31/12/06 Share
to ENDESA Country (MW) Hydro Fuel / Gas Coal CCGT ENDESA (MW) Los Molles Chile
18.0 18.0 36.36 6.5 Rapel Chile 377.0 377.0 36.36 137.1 Sauzal Chile 76.8 76.8
36.36 27.9 Sauzalito Chile 12.0 12.0 36.36 4.4 Cipreses Chile 106.0 106.0 36.36
38.5 Isla Chile 68.0 68.0 36.36 24.7 Pehuenche Chile 566.0 566.0 33.69 190.7
Curillinque Chile 89.0 89.0 33.69 30.0 Loma Alta Chile 40.0 40.0 33.69 13.5
Abanico Chile 136.0 136.0 36.36 49.4 El Toro Chile 450.0 450.0 36.36 163.6
Antuco Chile 320.0 320.0 36.36 116.4 Pangue Chile 467.0 467.0 39.55 184.7 Ralco
Chile 690.0 690.0 36.36 250.9 Tarapaca tg Chile 24.0 24.0 36.36 8.7 Tarapaca
coal Chile 158.0 158.0 36.36 57.4 Atacama Chile 780.6 780.6 18.22 142.2 Tal Tal
Chile 244.9 244.9 36.36 89.0 Diego De Almagro Chile 46.8 46.8 36.36 17.0 Huasco
(gas turbine) Chile 64.2 64.2 36.36 23.4 Huasco (steam turbine) Chile 16.0 16.0
36.36 5.8 San Isidro Chile 379.0 379.0 36.36 137.8 Bocamina Chile 128.0 128.0
36.36 46.5 Total Chile 4,476.7 3,415.8 379.9 302.0 379.0 - 1,766.3 Costanera
(steam) Argentina 1138.1 1138.1 23.37 266.0 Costanera (combined cycle) Argentina
859.0 859.0 23.37 200.7 CBA Argentina 321.6 321.6 23.37 75.2 Dock Sud (combined
cycle) Argentina 797.5 797.5 39.99 318.9 Dock Sud (open cycle) Argentina 72.0
72.0 39.99 28.8 El Chocon Argentina 1,200.0 1,200.0 17.25 207.0 Arroyito
Argentina 120.0 120.0 17.25 20.7 Total Argentina 4,508.2 1,320.0 1,210.1 -
1,978.1 - 1,117.29
Operations Review 193 endesa06 Installed % CapacityCapacity Economic
corresponding31/12/06 Share to ENDESA Country (MW) Hydro Fuel / Gas Coal CCGT
ENDESA (MW) Cachoeira Dourada Brazil 658.0 658.0 60.95 401.1 Fortaleza Brazil
321.6 321.6 61.19 196.8 Total Brazil 979.6 658.0 - - 321.6 - 597.8 El Guavio
Colombia 1163.0 1163.0 36.75 427.4 Charquito-Limonar-Tinta-Tequendama Colombia
76.6 76.6 36.75 28.2 La Junca Colombia 19.5 19.5 36.75 7.2 Cadena Pagua (Guaca y
Paraiso) Colombia 601.2 601.2 36.75 220.9 Termozipa Colombia 235.5 235.5 36.75
86.5 Betania Colombia 540.9 540.9 36.36 196.7 Cartagena Colombia 142.0 142.0
36.75 Total Colombia 2,778.7 2,401.2 142.0 235.5 - 256.86 966.9 Ventanilla Peru
457.0 457.0 17.64 80.6 Piura (Malacas) Peru 146.0 146.0 48 70.1 Huinco Peru
247.3 247.3 17.64 43.6 Matucana Peru 128.6 128.6 17.64 22.7 Callahuanca Peru
75.1 75.1 17.64 13.2 Moyopampa Peru 64.7 64.7 17.64 11.4 Huampani Peru 30.2 30.2
17.64 5.3 Santa Rosa Peru 229.1 229.1 17.64 40.4 Yanango Peru 42.6 42.6 17.64
7.5 Chimay Peru 150.9 150.9 17.64 26.6 Edelnor Peru 2.3 2.3 38.32 0.9 Total Peru
1,573.8 741.7 832.1 - - 322.4 14,317.0 8,536.7 2,564.2 537.5 2,678.6 —
4,770.73 Atacama’s capacity not included (not consolidated in the Group).
2006 19 January ENDESA begins the purchase in China of greenhouse gas
emission rights as part of the Clean Development Mechanism (CDM) in the
framework of compliance with Kyoto Protocol commitments. 26 January The mine at
Andorra (Teruel) receives UNE-EN ISO 14001:2004 environmental standard
certification, making it the first open-pit mine in Spain to obtain this
certification. 2 February The Fiume Santo (Sardinia) station, owned by Endesa
Italy, receives EMAS environmental certification. 6 February ENDESA joins the
Europe-wide CO2 emission rights trading platform ECX, comprised of 59 companies.
7 February France’s Snet signs a contract with Auchan (Alcampo) to cover
the company’s electricity needs in the deregulated market in France. 10
February ENDESA acquires the coal-fired station Termocartagena (142 MW), in
Cartagena de Indias (Colombia). 17 February ENDESA and the Government of
Catalonia sign an agreement to foster R&D and technical training activities.
21 February German company E.ON launches a takeover bid for 100% of ENDESA. 25
February ENDESA holds its Ordinary General Shareholders’ Meeting. The
payment of a dividend of Euro 2.514 billion is approved, the highest in the
Company’s history. 15 March The first natural gas tanker from Algeria
unloads at the Sagunto regasification plant, in which ENDESA holds a stake. 17
March ENDESA purchases 100 percent of the Chile-based, Santa Marta
Consortium’s greenhouse gas emission rights. 22 March Snet signs a supply
contract with the French National Railway Company, the country’s third
largest electricity consumer. 24 March ENDESA receives final authorisation to
build and bring on stream the re-gasification terminal at Livorno (Italy). 4
April ENDESA puts Euro 1,000 million of real estate assets up for sale through
Bolonia Real Estate. 5 April The Cristóbal Colón combined-cycle
plant (capacity 400 MW), in Huelva, connects for the first time to the national
grid. 10 May ENDESA signs an agreement with Energía Cerámica, S.A.
to supply gas to the ceramic tile industry in Castellón. 194 Annual
Report 2006
APPENDICESSIGNIFICANT EVENTS IN 2006AND THE FIRST QUARTER OF 2007 11 May
ENDESA completes the sale of 49% of the Portuguese company, NQF Gas for Euro 59
million, generating a capital gain after taxes of Euro 21 million. 18 May ENDESA
awards Abengoa and Techint contracts for the construction of the Siepac network
(Central America) for $223 million. 22 May ENDESA signs a contract to buy
natural gas from Algerian company Sonatrach, importing it through the MedGaz
pipeline. 31 May Fitch raises its ratings on Endesa Chile and Enersis from BBB-
to BBB. 5 June ENDESA signs a “Club Deal” loan operation for 2,700
million euros. 15 June ENDESA begins selling electricity on the Italian retail
market, which has 5 million potential clients. 23 June ENDESA receives the first
dividend from the company Energie Electrique de Tahaddart. 29 June ENDESA and
DS2 announce the signing of an agreement to jointly develop the technology Power
Line Communications (PLC) on electricity networks. 6 July The International
Finance Corporation (IFC), a World Bank affiliate, takes a 2.7% stake in the
holding company, Endesa Brazil. 25 July ENDESA signs a deal with Grupo Neinver
to sell its real estate assets in the “Sector Levante” of Palma de
Mallorca for Euro 240 million. 28 July ENDESA buys the Iardino wind farm (14 MW)
in Italy from Gamesa. This is the first wind farm ENDESA has acquired from
Gamesa following an agreement signed by both companies. 17 August The merger
between Edegel and Etevensa (Perú) is completed. 25 August ENDESA
receives approval to build two combined cycle plants in France, with a total
capacity of 800 MW. 30 August Endesa Chile and electricity company
Colbún, of the Matte group, sign an agreement to jointly develop the
Aysén hydroelectric project in Chile. 6 September ENDESA is rated as the
leading electricity utility in sustainable development in Europe and the world
as a whole, by both the Dow Jones Sustainability World Index and the Dow Jones
Sustainability Stoxx Index. 13 September ENDESA acquires 58.35 per cent of
Centro Energia Teverola and Centro Energia Ferrara, each of which owns a
combined cycle plant with capacity of 150 MW. 26 September Acciona buys 10
percent of ENDESA. ENDESA’s first wind farm in Sicily opens. The site
contains 28 wind turbines with total capacity of 23.8 MW. 6 October ENDESA signs
an agreement for the purchase of 100 percent of the Montecute wind farm (42 MW),
in the Italian region of Basilicata, which is expected to start operating in
March 2007. 26 October IR Magazine names ENDESA the most-improved company in
investor relations among the 250 companies in the FT Global 250 index.
Operations Review 195 endesa06
2007 10 January Acciona informs the CNMV that it has increased its total
direct and indirect stake in ENDESA to 21.03 percent. 11 January ENDESA signs an
agreement with the authorities of the Italian region of Sardinia for the joint
development of energy projects. 26 January The acceptance period begins for
E.ON’s bid for 100% of ENDESA shares. 30 January Ergosud, S.p.A, a company
jointly-owned (50-50) by Endesa Europa and ASM Brescia, signs a financing
agreement for construction of the combined-cycle station at Scandale (Calabria)
for a maximum of Euros 500 million and a term of 15 years. 31 October The
Eólicas de Portugal consortium, in which ENDESA holds a 30% stake, is
awarded the tender to build and operate 1,200 MW in wind capacity in Portugal.
31 October Presentation of Endesa Polska, ENDESA’s business platform in
Poland. ENDESA announces a project to build a wind farm with installed capacity
of 10 MW in Ambón in Brittany (France). 9 November The second Etevensa
combined-cycle station is opened in Peru. Total capacity of both combined cycles
rises to 492 MW. Construction is 70% complete on the San Isidro II combinedcycle
power station (377 MW) and the Palmucho hydroelectric plant (32 MW), both in
Chile. 16 November The National Securities Market Commission (CNMV) authorises
the E.ON takeover bid for 100% of ENDESA. 24 November ENDESA agrees to purchase
two new wind farms in Italy as part of its agreement with Gamesa: Poggi Alti
(20MW), in Tuscany, and Marco Aurelio Severino (44 MW), in Calabria. These are
slated to come on stream in 2007. 29 November The Company signs an agreement
with Isofotón to supply photovoltaic panels for the Company’s
planned 100 MW solar installations. The deal also includes joint construction of
a polysilicate manufacturing plant in Andalusia. 11 December ENDESA is named
Power Company of the Year at the Eighth Annual Platts Global Energy Awards in
the US. Presentation in Paris of Endesa France, SNET’s new brand name. 13
December ENDESA and Hunosa sign an agreement to construct a combined-cycle plant
with capacity of 400 MW in Mieres (Asturias). 14 December The boards of Emgesa
and Betania approve the merger of the two companies, though final approval is
required at their shareholder meetings. Moody’s upgrades its ratings of
Enersis and Endesa Chile from Ba1 to Baa3, with a stable outlook. In the same
month Standard & Poor’s had moved its rating to BBB-, under review for
a possible upgrade and in May Fitch raised its rating to BBB with a stable
outlook. Therefore, both companies have now regained Investment Grade status at
the three rating agencies. 28 December A Presidential Decree is published
allowing a tariff change for Edesur in Argentina. 196 Annual Report 2006
APPENDICES
31 January ENDESA buys two new wind farms in Italy as part of its agreement
with Gamesa: Piano di Corda (64 MW) and Serra Pelata (58 MW), both in Calabria,
which are expected to start operating in June 2008. 1 February Gas Natural drops
its takeover bid for 100 percent of ENDESA. 5 February The tariff framework is
applied, implementing the tariff increase at Edesur in Argentina. 19 February
ENDESA and Elecnor create the company Consorcio Eólico Marino Cabo de
Trafalgar, with each holding a 50 percent stake, for the joint development of
marine wind farms in Spain. 20 February ENDESA signs the Joint Declaration by
the Global Round Table on Climate Change, along with 90 companies and
organisations worldwide. Ratings agency Fitch upgrades its local credit risk
rating for Argentine company Edesur from BBB to A-. 21 February Snet signs a
turnkey contract to build the Cernon wind farm, with capacity of 17.5 MW. 27
February Enel buys 9.993% of ENDESA. ENDESA exercises its pre-emptive right to
buy 5.5% of Costanera (Argentina). 8 March ENDESA exercises its pre-emptive
right to buy 17.2% of Chocón (Argentina). 12 March Enel hereby states
that the number of ENDESA shares it holds through equity swap contrates account
for 14.98% of the Company’s capital, putting its total direct and indirect
stake at 24.973%. 14 March Snet starts up its first wind farm at the Lehaucourt
plant. 28 March Endesa Europe signs a strategic alliance with Mytilineos
Holding, S.A., to work together on the Greek market through a joint venture in
which the former will have a stake of 50.01%. 10 April The E.ON bid is
unsuccessful as it obtained support from only 6.01% of shareholders and the
bidder did not waive the condition that its offer be accepted by at least 50.01%
of ENDESA’s capital. 11 April Enel and Acciona file with the CNMV for
authorisation to launch a joint bid for 100% of ENDESA’s capital. The
Bialystock plant in Poland pays its first dividend. 12 April ENDESA and
Iberdrola agree to carry out five joint power auctions on the wholesale market.
19 April ENDESA obtains environmental management certificates under ISO 14001
for all its hydroelectric plants in Spain. Operations Review 197 endesa06
198 Annual Report 2006 APPENDICES1944 ENDESA is created on 18 November.
1945/1957 The Compostilla I thermal plant in Ponferrada (León) is built
and comes on stream. 1961/1972 The first three units of the Compostilla II
thermal plant in Ponferrada (León) are built and begin production. 1964
The hydroelectric plant at Cornatel (León) comes on stream. 1972 Merger
with Hidrogalicia. Acquisition of the As Pontes (La Coruña) open pit coal
mine and the Andorra underground (Teruel) coal mines from Empresa Nacional Calvo
Sotelo. 1972/1979 The As Pontes (La Coruña) thermal plant is built and
comes on stream. 1976/1980 The Andorra (Teruel) thermal plant is built and
starts production. 1979/1984 The new groups of the Compostilla II thermal plants
are built and come on stream. 1980 The Ceuta and Melilla diesel groups come into
operation. 1980/1984 The first groups at the Litoral and Carboneras port thermal
plants (both in Almería) are built and come on stream. 1981 Mining begins
at the Corta Alloza open pit coal mine in Andorra (Teruel). 1983 The ENDESA
Group is created following the acquisition of the Spanish National Institute of
Industry’s (INI) holdings in Enher, Gesa, Unelco and Encasur. 1985 The
Electricity Asset Swap Agreement is signed with other companies in the sector
leading to a significant increase in the Company’s installed capacity. 1986
The Ascó II (Tarragona) nuclear power station starts production. Mining
begins at the Corta Barrabasa mine in Andorra (Teruel). 1987 The
Vandellós II nuclear power plant is connected to the national grid. 1988
Initial Public Offering of ENDESA shares, which reduces the INI’s holding
to 75.6%. ENDESA’s shares are traded for the first time on the New York
Stock Exchange. 1990 Completion of the Escatrón thermal plant (Teruel).
ENDESA SINCE ITS CREATIÓN
Operations Review 199 endesa061991 Acquisition of 87.6% of Electra de
Viesgo, 40% of Fecsa, 33.5% of Sevillana and 24.9% of Saltos del Nansa. 1992
Acquisition of 61.9% of Carboex. ENDESA increases its holdings in Fecsa and
Nansa to 44.9% and 37.5% respectively. Elcogas is incorporated to build the
first gasification plant integrated into a CCGT unit in Puertollano. ENDESA
acquires its first foreign holdings, acquiring stakes in two Argentine
companies. 1993 Acquisition of a 55% stake in Hidroeléctrica de
Cataluña. Acquisition of a shareholding in Tejo Energía
(Portugal), which owns the Pego thermal plant. 1994 Public Offering of ENDESA
shares which sees the INI’s ownership reduced to 66.89%. ENDESA takes a
stake in Compañía Peruana de Electricidad y de Distrilima at its
incorporation. Acquisition of 11.78% of Sociedad General de Aguas de Barcelona
(Agbar). 1995 Endesa takes a 9.7% holding in Edenor, the Argentine electricity
distributor, and a 7.2% holding in Airtel, Spain’s second largest mobile
operator. Enher acquires 100% of Hidroeléctrica de Cataluña. 1996
Endesa increases its stake in Fecsa to 75%. Increases its stake in Sevillana to
75%. Signs the Protocol for the new Spanish Electricity System Regulation. 1997
4x1-split of ENDESA’s shares, with the par value established at Ptas 200
(€1.20). A consortium in which ENDESA participates is awarded the second
telephony operating licence (Retevisión). Public Offering for an
additional 25% of ENDESA. ENDESA acquires 31.9% of the Latin American group
Enersis. 1998 Public Offering of an additional 33% of ENDESA’s shares.
ENDESA’s Corporate Bylaws are amended and a new Board of Directors
appointed. ENDESA makes a capital reduction of 8.19%. 1999 ENDESA completes its
corporate consolidation process by incorporating minority shareholders from its
Spanish electricity subsidiaries into the shareholder structure of ENDESA, S.A.
The merger is approved at the respective General Shareholders’ Meetings on
27 April. ENDESA acquires an additional 32% of Enersis and becomes the
controlling shareholder. ENDESA sells its stake in Airtel. 2000 The
telecommunications holding Auna is set up in which ENDESA holds an initial 27.8%
stake. ENDESA acquires Smartcom, a mobile telephony company in Chile.
200 Annual Report 2006 APPENDICES ENDESA shares are traded for the first
time on the Santiago de Chile Off-Shore Stock Exchange. 2001 ENDESA agrees to
sell its stake in Argentine distributor, Edenor. ENDESA acquires 30% of French
electricity generator, Snet. A consortium led by ENDESA, and in which it holds a
45% stake, is awarded the Italian generation company Elettrogen (now Endesa
Italia). Viesgo’s generation and distribution assets are awarded to the
Italian company, Enel, in a controlled tender. 2002 ENDESA acquires an
additional 5.7% of Endesa Italia, increasing its stake to 51%. ENDESA is
included in the Dow Jones Sustainability World Index (DJSI). ENDESA’s first
CCGT power plants come on stream: Besós, San Roque and Son Reus. The
company captures its first customers in Germany and Belgium and creates Sodesa,
a 50/50 joint venture with the Portuguese group Sonae, to sell energy in
Portugal. ENDESA’s Customer Ombudsman’s Office commences its
activities. 2003 Repowering of Endesa Italia’s thermal plants. ENDESA
brings on stream the San Reus II (Balearic Islands) and Gran Canaria (Tenerife)
CCGT plants; converts its Ostiglia (Italy) plant to the CCGT, and converts units
3 and 4 of its Fiume Santo (Italy) plant to coal. ENDESA sells its electricity
transmission network to Red Eléctrica de España, S.A. ENDESA sells
its 3.01% stake in Repsol YPF, 7% of Red Eléctrica de España, S.A
and 100% of Made, a company that manufactures wind generators and solar panels.
ENDESA and ASM Brescia present Ergon Energia, a new 50% joint venture to to sell
electricity in Italy. ENDESA’s Board of Directors modifies its Regulations
and approves the Internal Regulation on Conduct in the Securities Market. ENDESA
relocates the registered offices of Endesa Generación to Seville and
Endesa Red to Barcelona. The Fortaleza power plant in Brazil comes on stream.
2004 ENDESA increases its stake in Endesa Italia to 85%. ENDESA increases its
stake in French generator, Snet, to 65% and assumes the management of the
company. Group 5 of the Tavazzano (Italy) plant is converted to CCGT with 800 MW
installed capacity. Signs agreement with ASM Brescia to acquire 50% of Ergosud,
a company created to develop an 800 MW cogeneration project in Scandale
(Calabria). Agreements are signed to acquire 91 MW of wind power plant in
Sicily, and to incorporate over a period of three years, 200 MW of wind power
capacity into Endesa Italia’s generation assets. The Ralco hydro plant in
Chile comes on stream with 690 MW of installed capacity. Construction begins in
Ventanilla, Peru, of the country’s first CCGT plant, owned by Etevensa. The
400 MW Tahaddart plant in Morocco, the country’s first CCGT plant, in which
ENDESA owns 32%, is synchronised to the grid. ENDESA sells its 11.64% stake in
Aguas de Barcelona, as well as its Netco Redes shareholding and its subsidiaries
Senda Ambiental and Enditel.
Operations Review 201 endesa06 ENDESA becomes the first Spanish company to
submit a Clean Development Mechanism project to the Spanish Office for Climate
Change in accordance with the flexibility mechanisms created under the Kyoto
Protocol: Repowering of the Callahuanca hydro plant in Peru. 2005 ENDESA sells
its holding in Moroccan company, Lydec. ENDESA sells 5.33% of Endesa Italia to
ASM Brescia, lowering its stake in the company to 80%. ENDESA signs an agreement
with Italian company, Merloni, to sell electricity to the retail market.
Production begins at the first unit of the As Pontes power plant to be converted
to imported coal with installed capacity of 350 MW. ENDESA joins Nordpool, the
most active trading market for emissions rights in Europe. Endesa Chile acquires
25% of the San Isidro (Chile) power plant, giving it 100% ownership. Gas Natural
launches a hostile takeover bid for 100% of ENDESA’s capital. Inauguration
of the Gran Canaria CCGT power plant. ENDESA receives the first LNG shipment
from Qatar under the terms of a long-term agreement signed with Qatari company,
Rasgas. ENDESA joins Green Fuel to promote biodiesel power production in Spain.
Official opening of the Son Reus II CCGT power plant in Mallorca. ENDESA creates
Endesa Brasil, a holding company for all its Brazilian operating assets. Signing
of a Definitive Agreement with the Argentine Energy Secretary to manage and
operate projects to restructure the Wholesale Electricity Market (WEM). ENDESA
sells France Telecom a 27.7% stake in the telecommunications group Auna. ENDESA
sells its 40% stake in Cepm, the Dominican Republic based generation company.
ENDESA agrees with Deutsche Bank the sale of its remaining 5.01% stake in Auna.
PUBLISHED BY DIRECCION CORPORATIVA DE COMUNICACION DESIGN BY DIRECCION
CORPORATIVA DE COMUNICACION / ARTEMPUS PHOTOGRAPHS ENDESA FILES LAY OUT AND
SEPARATION CROMOTEX PRINTED BY T.F. ARTES GRAFICAS LEGAL DEPOSIT M-21551-2007
R I B E R A D E L L O I R A 6 0 2 8 0 4 2 M A D R I D | T E L 9 1 2 1 3 1 0 0 0 | w w w . e n d e s a . e s
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.