Acea Spa Financial Statements Acea Group Spa Consolidated Financial Statements

Acea SpA ﬁ nancial statements Acea Group SpA consolidated ﬁ nancial statements 2008

Acea SpA financial statements Acea Group SpA consolidated financial statements

2008

Acea SpA financial statements Acea Group SpA consolidated financial statements

Acea SpA

Registered office Piazzale Ostiense 2 – 00154 Rome

Share capital 1,098,898,884 euros, fully paid-up

Tax code, VAT number and Rome Companies’ Register no. 05394801004

Registered in Rome at REA no. 882486

Prepared by Planning and Finance

Editorial coordination External Relations and Communication

Graphic design, editing and copyediting Message

Photographs Acea archives Fabio Anghelone

Printed by Primaprint

Printed in April 2009 Contents

Management report on operations

The Acea Group 12 Other information 63 Acea SpA share price Management performance 63 Shareholdings of directors Medium/long-term incentive and statutory auditors 14 schemes 65

Corporate Governance 16 Executive Responsible for Financial Reporting 65 Powers of the Board of Directors, Third tariff cycle 66 the Chairman and Chief Executive Antitrust Authority investigation Officer of Acea SpA and the of the acquisition of Publiacqua 67 Executive Responsible for Financial Reporting 17 Events after 31 December 2008 68

Chairman’s statement 19 Risks and uncertainties 69

Acea Group financial highlights Regulatory risk 69 for 2008 23 Legislative risk 72 Strategic risk 73 Group operating review 23 Operational risk 75 Energy networks 23 Litigation risk 76 Electricity transmission 24 Service quality 25 Outlook 80 Energy services, public lighting and the Digital Meters Project 26 Shareholder resolutions 81 Energy generation and sales 30 Water services 36 Management of water services in Lazio and Campania 36 Management of water services in Tuscany and Umbria 42 Environment and energy (formerly Waste to energy) 43

Financial review 46 Results of operations 46 Financial position and cash flow 50

contents 7 Financial statements

Income statement 84 Acea Ato 2 SpA 185 Acea Distribuzione SpA 185 Balance sheet - Assets 85 Acea Reti e Servizi Energetici SpA 186 Balance sheet - Liabilities 86 Luce Napoli Scarl 186 LaboratoRI SpA 187 Cash flow statement 87 AceaElectrabel Elettricità SpA 187 Notes to the financial statements 88 AceaElectrabel Trading SpA 188 Basis of preparation for the financial AceaElectrabel SpA 188 statements for the year ended AceaElectrabel Produzione SpA 189 31 December 2008 88 Acea Ato 5 SpA 189 Accounting standards and policies 89 Ombrone SpA 190 Financial risk management 99 Sarnese Vesuviano Srl 190 Notes to the income statement 100 Ecogena SpA 191 Notes to the balance sheet 110 Ecomed Srl 191 Assets 110 Acque Blu Arno Basso SpA 192 Liabilities and shareholders’ equity 131 Acque Blu Fiorentine 192 Related party transactions 143 Acque SpA 193 Update on major disputes and litigation 145 Acque Industriali SpA 193 Additional disclosures on financial Acque Ingegneria SpA 194 instruments and risk management Acque Servizi SpA 194 policies 151 Roselectra SpA 195 Commitments and contingencies 158 Voghera Energia SpA 195

Annexes to the Notes 161 Gori SpA 196 1. Statement of changes Crea SpA 196 in shareholders’ equity 164 Crea Gestioni Srl 197 2. Analysis of net debt 166 Crea Partecipazioni Srl 197 3. Statement of movements Gesesa SpA 198 in investments 168 Lunigiana Acque SpA 198 4. List of significant investments in Voghera Energia Vendita SpA 199 subsidiaries, associates and other companies 170 Longano Eolica SpA 199 5. Related party transactions pursuant Elga Sud SpA 200 to CONSOB Resolution 15519 Elettria SpA 200 of 27 July 2006 174 Umbria Energy SpA 201 6. Non-recurring material transactions Aguazul Bogotà SA 201 pursuant to CONSOB Resolution 15519 of 27 July 2006 180 Acea Dominicana SA 202 7. Positions or transactions deriving Consorcio Acea Tradexco 202 from unusual and/or exceptional Tad Energia Ambiente SpA 203 transactions 181 S.A.O. Servizi Ambientali 8. Segment information (IAS 14) 182 Orvieto SpA 203 9. Highlights extracted from the financial TerniEn.A SpA 204 statements of subsidiaries and Ergo En.A Srl 204 associates for the year ended 31 December 2007 185 Eall SpA 205 Enercombustibili Srl 205

8 contents Acea Rieti Srl 206 Apice SpA 211 Publiacqua SpA 206 Consorcio Agua Azul SA 212 Publiacqua ingegneria Srl 207 Report of the Board of Statutory Publiutenti Srl 207 Auditors 213 Aquaser Srl 208 Umbra Acque SpA 208 Independent auditors’ report 252

Tirreno Power SpA 209 Attestation of the separated Eblacea SpA 209 financial statements pursuant Kyklos Srl 210 to art. 154 of Legislative Decree 58/98 254 Solemme SpA 210 Acea8cento SpA 211

Consolidated financial statements

Consolidated income statement 258 Update on major disputes and litigation 369 Consolidated balance sheet - Additional disclosures on financial Assets 259 instruments and risk management policies 377 Consolidated balance sheet - 390 Liabilities and shareholders’ Commitments and contingencies equity 260 Annexes 395 Consolidated cash flow statement 263 1. List of consolidated companies 396 2. Remuneration of Directors, Statement of changes in Statutory Auditors and shareholders’ equity 262 Key Managers 399

Notes to the financial statements 263 3. Information provided pursuant to CONSOB Ruling 6064293 400 Basis of preparation 263 Accounting standards and policies 264 List of significant investments at 31 December 2008 Consolidation policies and (Art. 120, Paragraph 4, procedures 276 legislative decree 58/98) 408 Financial risk management 279 Segment information 282 Independent auditors’ report 419 Notes to the consolidated income statement 294 Attestation of the consolidated financial statements pursuant Notes to the consolidated balance to art. 154 of Legislative 315 sheet Decree 58/98 421 Assets 315 Liabilities and shareholders’ equity 337 Corporate governance report - 27 March 2009 423 Acquisition of Solemme SpA 351 Acquisition of Kyklos Srl 352 Service concession arrangements 353 Related party transactions 364 contents 9

Management report on operations the aCea MANAGEMENT cORPORATE chAIRMAN’S fINANcIAl GROuP fINANcIAl OThER EvENTS RISKS AND OuTlOOK groUp GOvERNANcE STATEMENT hIGhlIGhTS OPERATING REvIEW INfORMATION AfTER uNcERTAINTIES REvIEW 31.12.2008

the aCea groUp

Acea SpA’s shareholder structure at 31 December 2008 is as follows:

5% 5% 10% comune di Roma

Mercato

Suez

51% Schroders Inv. ltd.

29% caltagirone

Th e above chart only shows equity investments of more than 2%, as confi rmed by CONSOB data

1 2 MANAGEMENT REPORT ON OPERATIONS At the same date, the Group structure comprises the following principal companies:

Acea Holding

Energia Acqua

100% Acea Reti e Servizi Energetici 96% Acea Ato 2 50% Acea Distribuzione 51% Ecogena 94% Acea Ato 5 Frosinone

50% Acea Distribuzione 100% Crea Gestioni

100% Acea8cento 85% Ombrone 40% Acquedotto del Fiora 59% Acea Electrabel 50% AE Produzione 69% Acque Blu Arno Basso 84% AE Trading 45% Acque 100% AE Elettricità 96% Sarnese 30% Eblacea 37% Gori 50% Tirreno Power 100% LaboratoRI 100% Tad Energia Ambiente 55% Acque Blu

MANAGEMENT REPORT ON OPERATIONS 13 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Management

Board of Directors

Chairman Giancarlo Cremonesi

Chief Executive Officer Andrea Mangoni

Directors Massimo Caputi Dino Piero Giarda Geminello Alvi 1 Jacques Hugè Marco Maria Bianconi Jean Louis Chaussade Paolo Bassi 1

Board of Statutory Auditors

Chairman Maurizio Lauri

Auditors Roberto Pertile Francesco Lopomo

Alternate Auditors Claudio Bianchi Claudio Valerio

Independent Auditors

Reconta Ernst & Young SpA

Executive Responsible for Financial Reporting

Roberta Neri 1 Appointed under Ordinance 284 of 24 October 2008 issued by the Comune di Roma

1 4 MANAGEMENT REPORT ON OPERATIONS Shareholdings of Directors and Statutory Auditors

Company invested in Shares held at Shares purchased Shares sold Shares held at 31 Dec 2007 31 Dec 2008

Directors 1) Fabiano Fabiani 1 - 0 0 0 0 2) Giancarlo Cremonesi 2 - 0 0 0 0 3) Andrea Mangoni Acea SpA 5,500 0 0 5,500 4) Jacques Huge’ - 0 0 0 0 5) Massimo Caputi - 0 0 0 0 6) Piero Giarda Acea SpA 8,000 0 0 8,000 7) Jean Louis Chaussade - 0 0 0 0 8) Marco Maria Bianconi - 0 0 0 0 9) Luigi Spaventa 1 - 0 0 0 0 10) Luisa Torchia 1 - 0 0 0 0 11) Geminello Alvi 2 - 0 0 0 0 12) Paolo Giorgio Bassi 2 - 0 0 0 0

Statutory Auditors 13) Maurizio Lauri - 0 0 0 0 14) Francesco Lo Pomo - 0 0 0 0 15) Roberto Pertile - 0 0 0 0 16) Claudio Valerio Acea SpA 500 0 0 500 17) Claudio Bianchi - 0 0 0 0

1 Directors who resigned on 22 October 2008 2 Directors elected on 29 October 2008

MANAGEMENT REPORT ON OPERATIONS 15 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Corporate governance

The contents of Acea SpA’s existing Corporate ing powers are attributed jointly to the Chairman Governance Model meet the requirements of the and CEO. The Board of Directors comprises nine Corporate Governance Code for Listed Compa- members, of whom seven are non-executive and nies (March 2006 edition), issued by the Corpo- independent in accordance with related assess- rate Governance Committee for listed companies ment criteria. under the aegis of Borsa Italiana SpA, except for a The Board of Statutory Auditors, which includes Board Nominations Committee, which the Board a member (with the functions of the Chairman of of Directors decided not to establish given Acea’s the Board of Statutory Auditors) nominated by special characteristics, and also due to the legis- minority shareholders under a list voting system, lation under which it was converted into a pub- oversees the correct governance of the Company, lic company and privatised. During its previous compliance with the law and the Articles of As- term of office the Board took advantage of the ex- sociation, and the adequacy of the organisational pressly granted authority to pass on responsibility structure. Statutory Auditors are appointed for a for updating the Corporate Governance Code, if term of three years and may be re-elected. necessary, to the new Board of Directors to be ap- The Company’s accounts are audited by a certi- pointed at the General Meeting on 11 May 2007. fied auditing firm in accordance with the relevant Only certain standards, introduced with the latest legal and regulatory requirements, above all Leg- version of the Code, have yet to be adopted: the islative Decree 58/98. requirements for independent directors, the tim- Acea SpA’s Board of Directors has elected a Re- ing for the submission of lists of candidates for muneration Committee and an Internal Audit Com- election as corporate officers and, finally, the es- mittee, given that management does not currently tablishment of a Board Nominations Committee. believe it necessary to set up a Nominations Commit- The Special General Meeting fully adopted the tee. General meetings of shareholders are conducted new legal requirements regarding submission of in accordance with specific Regulations for General minority lists by approving amendments to the Meetings. A Supervisory Board has also been set up articles of association. After necessary investiga- as required by Legislative Decree 231/2001. tions had been carried out, the remaining meas- All significant internal documents concerning ures were approved by the Board appointed at the the activities of corporate bodies are monitored on Special General Meeting, at a meeting held on 28 an ongoing basis to ensure that they are functional March 2008. and meet the Company’s organisational require- Specifically, having chosen to maintain the ments, and, in accordance with the applicable traditional governance structure from among the rules for each document, are updated and revised various possibilities now permitted by law, Acea in order to take account of changes in the relevant SpA has opted to be managed by a collegiate environment. body, the Board of Directors, whose members are Finally, the Company’s organisational structure appointed for a term of three years and may be has been enhanced by the introduction of a specif- re-elected. The Board elects a Chief Executive ic risk management function to oversee the risks Officer (CEO) from among its members, with associated with the Group’s core businesses. The responsibility for overseeing management of the aim of this initiative is to equip the Company with company and the Group and implementing the the most efficient tools available to reduce expo- related actions, whilst a series of decision-making sure and hedge risks, and to measure the value of and other powers are attributed to the Chairman assets, after taking account of the relevant risks, of the Board, who, in accordance with the Articles as required by the new International Accounting of Association, is elected at the same time as re- Standards (IAS) during preparation of financial newal of the Board. Finally, certain decision-mak- statements.

1 6 MANAGEMENT REPORT ON OPERATIONS POWERS OF THE BOARD OF DIRECTORS, THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF ACEA SPA AND THE EXECUTIVE RESPONSIBLE FOR FINANCIAL REPORTING

Board of Directors Chief Executive Officer The Board of Directors (the Board) is vested The Board of Directors has granted the Chief with all the broadest powers for the routine and Executive Officer (CEO) authority to manage the extraordinary management of the Company and Company, to sign on the Company’s behalf and has the authority to carry out all the actions con- to exercise all the powers included in his mandate sidered appropriate in order to achieve the busi- within the expenditure limit of 7.5 million euros ness purpose. The Board elects a Chief Executive for transactions in line with the approved budget, Officer from among its members, with responsi- except for certain higher limits for the release of bility for overseeing management of the Compa- guarantees in the interests of subsidiaries, based on ny and the Group and implementing the related their organisational characteristics. The CEO op- actions. erates on the basis of long-term plans and annual The Board also assesses the adequacy of the budgets approved by the Board of Directors, en- Company’s organisational, administrative and ac- suring and checking compliance with the manage- counting structure and, based on reports from the ment guidelines established in such documents. appointed bodies, assesses overall operating per- The CEO is also responsible for routine man- formance, as well as monitoring compliance with agement of the investments of Acea SpA and its administrative and accounting procedures and the subsidiaries and associates. The CEO also has adequacy of the powers and means granted to the general authority for all other actions and activi- Executive Responsible for Financial Reporting. ties not expressly attributed to the Board of Di- rectors, the Chairman or to the Chairman and Chairman of the Board of Directors CEO, acting jointly. The Chairman of the Board of Directors is the Company’s legal and corporate representa- Joint powers exercised by the tive, and has the power to sign on behalf of the Chairman and CEO Company. The Chairman’s role also includes the In the event of proven need or emergency, the power to represent Acea SpA in Italy and over- Chairman and CEO have joint authority to take seas. The Chairman calls and chairs Board meet- the actions normally attributed to the Board of ings and general meetings of shareholders. The Directors regarding contracts, acquisitions, com- Chairman’s role also includes supervision of the pany conversions, participation in tenders and the Group’s activities and checks on the implemen- release of sureties, when such situations do not tation of Board of Directors’ resolutions. The In- allow a meeting of the Board of Directors to be ternal Audit department reports to the Chairman, called. The Chairman and CEO must report to thereby ensuring that the system of internal con- the Board on the measures adopted at the earliest trols is independent of management. Finally, the possible meeting. The Board must verify that the Chairman is responsible for reviewing indicators need or emergency effectively existed. of actual and perceived quality, and environmental impact and corporate social responsibility issues as they relate to the Company’s activities and business processes.

MANAGEMENT REPORT ON OPERATIONS 17 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Executive Responsible for Financial The Executive has, from the interim report for Reporting the six months ended 30 June 2007, attested that On 13 November 2006, pursuant to article 154- the information contained in the Company’s stat- bis of the Consolidated Finance Act, introduced utory documents and communications, and those by Law 262/05 and subsequent amendments, the released to the market relating to the Company’s Board of Directors of Acea SpA revised the Arti- results of operations, financial position and cash cles of Association (article 22-ter) to include the flows, is in conformity with relevant documenta- position of Executive Responsible for Financial tion and accounting records, as required by art. Reporting, to be appointed by the Board of Di- 154 bis of the Consolidated Finance Act. rectors, after prior consultation with the Board of In accordance with section 3 of art. 154 bis of Statutory Auditors, and subject to specific profes- the Consolidated Finance Act, the Executive has sional requirements. made suitable arrangements for the preparation The decision to make the Board of Directors of the Company’s and the Group’s consolidated exclusively responsible for the appointment of the annual financial statements and interim reports. Executive is in compliance with specific provisions Furthermore, in compliance with paragraph 5 of of paragraph 4 of art. 154 bis of the Consolidated art. 154 bis of the Consolidated Act, the Execu- Finance Act. tive, together with the relevant governance bodies, The Executive Responsible for Financial Re- has attested, in the form required by CONSOB, to porting is chosen from among candidates who the propriety and effective application of those ar- have several years of experience in management rangements commencing with the financial state- roles covering the administration and control of ments for the year ended 31 December 2007. large companies. Pursuant to the relevant legisla- In compliance with the provisions of the Cor- tion, on 18 December 2006 the Board of Direc- porate Governance Code, the Executive ascertains, tors appointed Roberta Neri, Acea SpA’s Chief together with the Internal Audit Committee, (a) Financial Officer, as Executive Responsible for the propriety of the accounting policies adopted, Financial Reporting. The appointment was con- and, (b) their suitability for the preparation of firmed on 14 May 2007. consolidated financial statements.

1 8 MANAGEMENT REPORT ON OPERATIONS The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Chairman’s statement

2008 was a year that will be remembered for the growing crisis that, having first struck the financial markets, then dragged the entire world economy into a deep recession, the impact of which will continue to be felt in the coming years. The crisis is of such dimensions, in fact, that it has caused the world’s leaders to rethink the existing development model, which has been so highly dependent on finance as a driver of growth. The feeling is that we ought once again to focus on man’s ability to produce, innovate, plan and build the future, elements that have played an important role in this Company’s development over the years.

Given the seriousness of the economic downturn, the crisis has also led people to start questioning the dogma stating that all forms of public intervention or involvement in the market represent distortions to be avoided.

On the contrary, recent experience has shown that those areas of the economy, such as utilities, where there has always been a strong public presence, safeguarding and representing the interests of the community as a whole, have continued to play a key industrial role.

And it is this industrial role, which Acea has fulfilled over the last one hundred years, that will pull us out of the crisis, enabling companies such as yours to not only avoid the need for any form of government guarantee or support, but to also drive renewed growth and development, thereby reducing the impact of the recession on our country.

For these reasons, despite a period of general difficulty, as it approaches its centenary, Acea is showing signs of great vitality and of an ongoing ability to reinforce its position as an operator of energy and water networks, and to expand its market presence.

The Group’s operating results for 2008 reflect growth in all areas of business and ongoing attention to boosting operating efficiency. Consolidated revenue of 3,144 million euros is up 560.1 million euros (21.7%) on 2007. Consolidated EBITDA has risen 19.2% to 623.5 million euros, whilst the Group’s EBIT amounts to 385 million euros, marking an increase of 31.2% on the previous year. Consolidated net profit, after minority interests, amounts to 186.3 million euros, which is up 13.6% on the 164 million euros of 2008. The Group’s investments total 417.3 million euros for 2008, marking an increase of 37.4 million euros (9.8%) on 2007. The return on invested capital at 31 December 2008 is 12.5% (10.6% in 2007).

These results have been achieved without compromising the Company’s focus on and commitment to our local communities, above all the people who live in the city of Rome.

Our strong roots in the city, the need to rapidly respond to the public’s expectations and the priority goal of improving the quality of Acea’s customer management have led the Company to take a series of important steps during 2008, including above all the decision to bring its customer care operations in-house.

This will enable us to obtain the benefits of investing in what we believe to be the principal strategic driver of competitiveness – quality of service – in full accordance with the aim of supporting employment.

MANAGEMENT REPORT ON OPERATIONS 19 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Our support for the environment, on the other hand, has led Acea to make a growing commitment to investment in renewable energies, solar and wind power, waste to energy and energy saving. In this regard, we are firmly convinced that the Company can and must make a key contribution to making Rome a modern European capital, in which renewable sources of energy will play a central role. This is the only way to achieve a balanced form of development, successfully combining growth with the need to protect the environment and the quality of urban life.

Our awareness of the necessity to respond with renewed sensitivity to the demands of people and businesses, and to guarantee their security, has led us to renew our commitment to public lighting, focusing attention on areas of greatest need, and making a growing contribution to the maintenance and enhancement of places of particular historical and architectural importance.

In 2008 the Company added thousands of lighting points to the public lighting network serving the municipality of Rome and the city’s outlying districts, in addition to carrying out ongoing modernisation of the system.

We have invested significantly in upgrading our electricity distribution network, enabling us for the first time ever to reverse previous trends and take advantage of the system of rewards and penalties for service continuity. This means that the city of Rome will also benefit from a network that is increasingly capable of respond- ing to its needs, as evidenced by the effectiveness of the measures undertaken to cope with the truly disastrous impact of the extreme weather events that hit the city late in 2008.

In the water sector, the second half of 2008 witnessed major upheaval in the regulatory framework, induc- ing a leading operator at national level, such as Acea, to express the hope that whoever, for whatever reason, is called on to draw up a reform of the sector will reflect carefully on the approach to be adopted.

It is estimated that Italy’s water companies will have to invest something like 46 billion euros over the next 20 years, making it essential to safeguard the profitability of the sector, so as not to prejudice the companies’ ability to raise the necessary capital to fund such investment.

The importance of efficient and economically sustainable management of our water resources for the community’s development and growth, mean that careful and specific consideration must be given to the kind of regulatory system and market we want to see, putting the expertise and investment capacity of the water companies at centre stage.

In this connection, Acea has a key role to play, both in view of the number of people it serves in the four regions in which we operate (Lazio, Campania, Umbria and Tuscany, representing a total of 8 million end users), and in the light of our operational know-how, specifically acquired over one hundred years serving the city of Rome.

The above is proof of Acea’s daily commitment to improving the public’s quality of life and supporting development and growth, even during a period of recession, when there is a need for us to redouble our efforts.

2 0 MANAGEMENT REPORT ON OPERATIONS This series of initiatives have enabled us to report extremely positive results to the benefit of our shareholders, who have again in 2008 seen the Company achieve earnings growth.

I should like to take this opportunity to thank the previous Chairman, the CEO and the Board for their tremendous efforts.

Finally, I wish to express my gratitude to all our employees who day after day enable this great Company to respond, with care and attention, to the needs of our local communities. Thanks in part to their commitment, I am certain that we will overcome the difficulties currently faced by the nation, allowing us to come through stronger than before, and proud of the fact that we work in a Company that is a standard bearer for the city of Rome and a model for the rest of the country.

NOTE ON DIVIDENDS

The demerger reserve was established in 2000 with 662,362,540 euros, representing the gain recognised in the income statement for 1999 as a result of Acea SpA’s demerger of businesses to Acea Distribuzione SpA and Acea ato2 SpA.

This gain was recognised in full in the income statement for 1999, which reported revenue of 772,946,900 euros. The General Meeting of 29 April 2000 that approved the financial statements for 1999 also approved the allocation of the portion of net profit for the year corresponding to the gain to a specific equity reserve “….on the understanding that the reserve would be distributable in future years in correspondence with annual amortisation charged by the subsidiaries on the above gain, or in correspondence with any proceeds from sales to third parties” (taken from the note to “Other reserves” in Acea SpA’s financial statements for 2000).

In accordance with their rights regarding the appropriation of earnings, the shareholders thus placed a restriction on distribution of the reserve to pay dividends.

On first-time adoption of IAS/IFRS, Acea opted to apply the exemptions permitted by IFRS 1, in accordance with which business combinations prior to the date of transition (1 January 2005) were not subject to retrospective restatement, via re-determination of the fair value of the assets and liabilities at the time of their acquisition by Acea. As a result, the Company continued to account for its investments in subsidiaries and associates at historical cost after initial recognition.

Also on first-time adoption of IAS/IFRS, and each year thereafter, the investments in Acea Distribuzione SpA and Acea Ato2 SpA have been tested for impairment and no evidence of impairment, resulting in a related charge, has been found.

In the light of the above

- given that there is no legal requirement or accounting standard stipulating that the restriction on distribution of the reserve should be maintained, and

MANAGEMENT REPORT ON OPERATIONS 21 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

- in view of the fact that the carrying amount of the investments continues to be confirmed by the impairment tests carried out annually, and that therefore

- the value of the gain reflected in the demerger reserve is justified by the transferor’s beneficial interest in the cash flows generated by the demerged businesses,

we believe that it is possible to remove the restriction on the payment of dividends voted on by the Ordi- nary General Meeting of 29 April 2000. As a result, we plan to put forward a specific resolution to be voted on at the Annual General Meeting of 29 April.

The appropriation of net profit for the year proposed by the Board of Directors takes account of the removal of this restriction and, therefore, envisages the distribution of 90,510,082.50 euros (0.425 euros per share) via use of the demerger reserve. This amount consists of 29,055,249 euros which is distributable under the restriction of 2000 (see the schedule showing distributable and undistributable reserves in Note 18 in the notes to the financial statements), whilst the remaining portion of 61,454,833 euros is rendered distributable by removal of the restriction.

The Chairman of the Board of Directors

2 2 MANAGEMENT REPORT ON OPERATIONS The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

ACEA GROUP FINANCIAL HIGHLIGHTS FOR 2008

2008 2007 % increase/ (restated) (decrease) Consolidated revenue 3,155.3 2,576.1 +22.5% Ebitda 623.5 523.2 +19.2% EBIT 385.0 293.4 +31.2% Net profit/(loss) attributable to the Group 186.3 164.0 +13.6%

Amounts are shown in millions of euros

GROUP OPERATING REVIEW

Energy networks

For the first time since 1981, demand for elec- In this context, net domestic production rose tricity in Italy in 2008 1 was, if only slightly, down by 1.4%, whilst overseas imports registered a re- on the previous year, reporting a decline of 0.7%. duction of 12.1%. Except for thermoelectric and Domestic production met 88.3% of Italy’s require- geothermal production, all sources of domestic ments, whilst the remaining 11.7% was covered by production reported an increase on the previous imports. 71.4% of total production was from ther- year. The wind power segment registered a par- moelectric plants, 13.3 from hydroelectric sources ticularly significant rise (up 62.9%). and 3.6% was generated from geothermal and other renewable energy sources.

1 Source: Terna – December 2008, monthly report on the electricity system

MANAGEMENT REPORT ON OPERATIONS 23 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Demand for electricity * in Italy 1.1.2008 1.1.2007 % increase/ at 31.12.2008 31.12.2008 31.12.2007 (decrease) 2008-2007 GWh GWh % Gross production 317,894 313,888 1.3 (of which CIP 6 production – estimated) 48,372 53,764 -10.0 - Hydroelectric 45,511 38,481 18.3 - Thermoelectric 260,228 265,764 -2.1 - Geothermal 5,518 5,569 -0.9 - Wind power 6,637 4,074 62.9 Consumption for ancillary services 12,354 12,589 -1.9 Net production 305,540 301,299 1.4 - Imports 42,997 48,931 -12.1 - Exports 3,431 2,648 29.6 Balance of imports 39,566 46,283 -14.5 Consumption for pumping systems 7,464 7,654 -2.5 DEMAND FOR ELECTRICITY* 337,642 339,928 -0.7

* Demand for electricity = net production + balance of imports – consumption for pumping systems

Electricity transmission

The overall amount of electricity injected into amounted to 2,367 MW, which was recorded at Acea Distribuzione’s network (from the national 1.00pm on 2 July 2008. This is up 46 MW, or grid, generating plants linked directly to Acea 1.98%, on the peak of 2,321 MW for 2007, re- Distribuzione’s network and ENEL Distribuzi- corded at 1.00pm on 24 July 2007. one’s interconnected network) was up 2.26% in The following graph shows the trend for the 2008 compared with 2007 (at the end of the fi- monthly average difference in temperature data nancial year). records (TDRs) between 2008 and 2007. The graph Peak demand on Acea Distribuzione’s network also shows the TDR registered during 2008.

2 4 MANAGEMENT REPORT ON OPERATIONS TDR trend (2008 vs 2007) TDR 2008 2.50 30 2.00 1.50 25 1.00 20 0.50 0.00 15 -0.50 TDR -1.00 10

TDR trend (2008 vs 2007) -1.50

-2.00 5 -2.50 -3.00 0 January February March April May June * July August September October November December -0.79 -2.57 -1.13 -1.93 -0.07 -0.54 -0.01 0.48 0.31 0.98 1.82 1.12 9.01 8.67 11.08 14.35 18.72 22.47 24.80 25.35 20.51 17.44 12.54 8.38

* Eff ective temperatures

Th e graph shows that the TDR in the period perature measured in the previous year, was again January-June was substantially lower compared one of the hottest months of the year, causing an with the previous year (with peak diff erences of increase of 4.74% in the amount of electricity in- -2.57 °C in February and -1.93 °C in April). As jected into the network. a result, demand for electricity recorded peak in- Over the remaining months of 2008, the TDR creases of over 6 percentage points (+6.63%) in registered an upward trend, which culminated in February (this increase was also infl uenced by the November with a diff erence of +1.82 °C compared fact that there was an extra working day, given that with the TDR for 2007. Th is trend had an impact 2008 was a leap year) and almost 4 points (+3.78%) on demand for electricity, raising consumption in in April. August and September (+3.6% and +5.9%, respec- July, when the TDR was in line with the tem- tively) and reducing it in the other months.

SeRVice quAlity

On 24 December 2007 the Electricity and Gas Th e regulation of prolonged and extended out- Authority issued Resolution 333/07 regarding the ages (which were already regulated by the previous third regulatory period from 2008 until 2011. Resolution 172/07) includes the rules that dis- Resolution 333/07 introduces four diff erent tributors must observe regarding the registration types of regulation, amending the two pre-exist- and monitoring of electricity distribution service ing types and supplementing the current legisla- continuity data in the case of prolonged outages tion, as follows: aff ecting end customers. 1. Regulation of prolonged and extended out- Th e resolution provides for reimbursement of ages; LV and MV customers aff ected by outages, de- 2. Individual standards regarding the number of riving from any voltage level within the electric- outages for MV customers; ity network and for whatever reason, which last 3. Regulation of the total duration of outages longer than fi xed standard limits. without signifi cant advance warning; 4. Regulation of the average number of long and short outages.

MANAGEMENT REPORT ON OPERATIONS 25 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

In accordance with the established timing, of the total average number of prolonged and from 1 January 2008 to 30 June 2008 distribu- short outages, although the latter are not included tors must monitor prolonged and extended out- in calculating the duration. ages on an experimental basis, without incurring The parameters set particularly high levels of any charges. From 1 July 2008 to 31 December compensation for the number of outages, and the 2009 prolonged and extended outages must be targets are also very challenging. registered, but no payment of compensation to The Electricity and Gas Authority’s increas- end customers is envisaged. However, the data ingly strict service continuity regulations (as de- gathered will be used in calculating the amount of scribed above) have forced operators to review provisions allocated for exceptional events (held their investment and maintenance strategies. by the Equalisation Fund). Against this backdrop, Acea Distribuzione As of 1 January 2010, taking into account Acea has prepared a “road map” consisting of various Distribuzione’s intention to supply electronic me- coordinated actions, which in turn cover a large ters that record LV customer service outages, the number of activities. The project regards various regulations will be fully applied. In addition to the aspects of the structure and operation of the com- provisions allocated for exceptional events, cus- pany’s networks. tomers affected by prolonged and extended outages will automatically receive compensation. The regulation of prolonged and extended out- Energy services, public lighting ages came into effect from 1 July 2008, as required and the Digital Meters Project by Resolution 333/2007. In the Energy services sector, the activities of The regulator also made some changes to the Acea RSE SpA, which has been operational since existing regulations regarding individual standards 1 April 2005, focus on four main lines of action: for the number of outages for MV customers. energy saving, solar power, cogeneration and the As of 1 January 2008, any penalties will be cal- control of air quality (the “Caldaia Sicura” and culated on the basis of outages suffered by MV “Sanacaldaia” projects). customers regardless of their installed power (under the previous regulations the limit was 500 kW With regard to energy saving activities, in and then 100 kW, following the decision to pro- 2008 Acea Reti e Servizi Energetici SpA com- gressively lower the figure from 2006). pleted the distribution of high-efficiency light In addition, the standard regarding the number bulbs and water and energy saving kits. The latter of prolonged outages for MV customers, based on were developed in collaboration with a number area of concentration, has also been reduced. of the Group’s water companies operating in the Regarding the existing regulations regarding Tuscany and Umbria regions and with Asub SpA the total duration of outages without significant (Naples). advance warning, the Electricity and Gas Author- Acea Reti e Servizi Energetici SpA is in fact ity revised the limits for calculating compensation responsible for coordinating the Group’s network relating to inefficiency penalties, raising the cost management companies and for carrying out the of failing to meet the set targets. activities linked to compliance with the energy A new method of categorising breakdowns was saving regulations introduced by the ministerial also introduced, and had a significant impact on decrees of 20 July 2004. It also provides consult- the company’s IT systems. ing in the so-called Energy Services Company Finally, the Electricity and Gas Authority in- (ESCO) sector. troduced an incentive mechanism, based on penalties and rewards, including with respect to the Regarding the solar power sector, following average number of outages. the Ministry of Economic Development’s is- Specifically, the new regulations take account sue of procedures for accessing the new “Energy

2 6 MANAGEMENT REPORT ON OPERATIONS Account” (the Ministerial Decree of 19 Febru- Plants producing a total of 2,916 kWp have so ary 2007), solar power business activities were far been installed and connected to the electricity launched. grid (table). The design, construction, operation and maintenance of solar power plants continued during the period.

Solar power plants installed and connected to the electricity grid at 31 December 2008

Plants No. of plants power production (kWp) (kWh/year) Acea Distribuzione’s primary substations 30 662.0 830,788 ATO2’s water centres 3 1,319.2 1,648,406 Other (1) 2 934.4 1,469,601 TOTAL 36 2,915.6 3,948,796

(1) Other plants include Terni ENA and SAO Orvieto

Installation of Acea Distribuzione’s primary sub- The following projects were launched in 2008: stations was completed, as was construction of the 1) construction of an urban heating network in largest solar power plant in the municipality of Rome the Porta di Roma district of Rome’s Bufalotta (Monte Mario - ATO2, providing power of around area; 1 MWp) and of plants installed by SAO Orvieto 2) construction of an urban heating system using and Terni ENA (on behalf of third parties). trigeneration to serve the Saxa Rubra district Enercombustibili’s plant at Paliano (305 kWp) of Rome; is nearing completion. 3) construction of a cogeneration plant at the In addition, the company has entered into Canottieri Aniene sports centre and the Park agreements with Q8, ADR and Tecnopolo for Hotel ai Cappuccini in Gubbio. construction, in the coming years, of solar power An agreement with Sogei was entered into for plants providing total power of approximately 5 the executive design of a trigeneration plant to serve MWp. Talks are underway regarding the start-up the Data Processing and Remote Control Centre. of significant projects in the Puglia region. Agreements relating to construction of the fol- From the point of view of procurement, a lowing are being finalised: number of agreements were signed in 2008 with 1) 1) a trigeneration plant, an urban heating net- some of the world’s leading producers solar power work and related energy services for the Tor- modules for the supply of a total of around 20 rino North district of Rome; MW in 2009. 2) cogeneration plants with capacity of 90 kWe Turning to the cogeneration sector, in Septem- (with the related energy services) for: ber 2007 a joint venture, called Ecogena, was set a. the Italian Swimming Association centre in up between Acea SpA and ASTRIM SpA, aimed Ostia (Rome); at marketing and building cogeneration power b. the Italian Swimming Association centre in plants. the Pietralata district of Rome; Ecogena is 51% owned by Acea Reti e Servizi c. the Italian Swimming Association centre in Energetici SpA, with the remaining interest held the Marconi district of Rome; by ASTRIM SpA. d. the Villa Flaminia sports centre in Rome.

MANAGEMENT REPORT ON OPERATIONS 27 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

In 2008 activities in the air quality sector (“Sana- mitted to completing the works previously agreed caldaia” and “Caldaie Sicure”) continued to be car- with Department XII for 2008 on schedule. ried out following an extension of the previous con- The requested works were completed on time. tract until July 2009, granted by the Director of the In addition to the above, further programmes Comune di Roma’s Department XII. focused on the following principal areas: The following information is provided with re- • the replacement of 2.7 kV circuits (with LV gard to this sector: transformers) for 2,733 lighting points; • the “Caldaie Sicure” project, regarding the in- • network modernisation: 1,972 lighting points spection of individual heating plants of less were upgraded during the period, a process that than 35 kW, fell short of its budget targets. This in some cases included repairs to the power sup- reflects the failure to renew the related contract, ply network; which would have resulted in tariff increases. • plant repairs: this activity is directly linked to • the decline in revenues over the years is due to approval of the above long-term investment the following factors: programme and envisages the inspection, ex- - efforts to recover overdue payments (with traordinary maintenance and, if necessary, the subsequent billing) in early 2006; upgrading to Class II of lighting points man- - the reduction in tariffs applied from the sec- aged on behalf of the Comune di Roma; ond half of 2006; • plant maintenance: maintenance activities pri- - the change in the frequency of inspections marily took the form of planned, emergency and (under the regulations) from annual to bian- extraordinary maintenance; nual from the second half of 2006. • artistic maintenance: 2008 saw completion of The management ofpublic lighting is governed the extraordinary maintenance works carried by the new ten-year contract signed by Acea SpA out at the Parco degli Aranci, Tiberina island, and the Comune di Roma in 2007. Piazza del Campidoglio and various fountains, Acea SpA then subsequently agreed to contract the Duca d’Aosta bridge, the Quirinale, Villa out public lighting activities in the municipality of Caffarelli, Velabro, Piazza Venezia, Piazza del Rome to Acea Distribuzione. Viminale and below some of the city’s bridges. The programme of work carried out during 2008 Support was also provided for various street was heavily influenced by the Municipal Author- events (the Red Cross Event in Piazza del Po- ity’s approval, on 30 January 2008, of a document polo); calling for the upgrading of areas around railway • energy efficiency initiatives: 2008 witnessed tri- and underground stations and bus terminuses. The als of new technologies designed to improve the Comune di Roma had made such a policy, other- energy efficiency of public lighting systems. This wise known as the “Safety Pact”, a priority after involved the use of flow regulators and LED the tragic events at the Tor di Quinto station in technology for street lighting. These initiatives, November 2007, when a woman was attacked and which were also presented to the Joint Com- killed. mittee, have brought the city’s systems more The Municipal Authority’s decision committed into line with the requirements of Regional Law Department XII and, on its behalf, Acea to carry- 23/2000 regarding the reduction of light emis- ing out the initiatives envisaged in the Pact at 25 sions, in addition to the measures already imple- sites, defined in the document as being priority, by mented over many years with the adoption of 30 June 2008. cut-off devices; These activities, involving the installation of new • new works: a total of 3,469 lighting points were systems or the upgrading of existing ones, cover- installed in the municipality of Rome, with work ing a total of 580 lighting points, placed significant carried out for Department XII, other depart- pressure on the organisation and its operations dur- ments (Parks and Gardens, Suburbs, Area Plan- ing the first half of 2008, given that it was also com- ning) and boroughs;

2 8 MANAGEMENT REPORT ON OPERATIONS • districts: 13 new agreements with districts and Around 3,300 concentrators were installed in “Art. 11 zones” were executed, and include main- secondary substations during the period, bringing tenance contracts subject to the condition prec- the total number installed since the beginning of edent that the related works must be completed. the project to around 11,800. Moreover, following checks that began during On the commercial front, Acea is engaged in the year, new maintenance contracts have been a number of projects with ASM Voghera and the activated in place of previous contracts, where State Electricity company of San Marino. the obligations envisaged in the general terms of Furthermore, the metering system adopted by the agreement had not been complied with. Acea was selected by ASM Terni in 2008, after a Finally, as regards the Digital Meters Project, public tender that awarded the relevant contract work continued during 2008 on the large-scale in- to Ericsson and Landis+Gyr. Since 2005, these troduction of a remote-controlled system for the two companies, together with Bticino, have part- MV and LV networks and remote control of the nered Acea in the development and marketing digital meters launched by Acea in October 2005, of the metering system. In 2006 Acea appointed following approval by the Group’s management. Ericsson to take charge of remote meter reading The approved business plan envisages that operations, having transferred its ownership rights work will be completed by the end of 2009. The regarding the system. timescale for the project, unless changes are ne- ASM Terni led a group of utility companies cessitated by unforeseeable exceptional events, is and public entities located in central and northern as follows: Italy in the procurement of 120 thousand meters • 2009: installation of approximately 180,000 and the remote reading service. These include IRIS meters and 200 concentrators Gorizia, ASSM Tolentino, ASSEM San Severino • 2010: completion of the project, with the in- Marche, AMEA Paliano, Energie Affida and the stallation of around 210,000 meters and around municipalities of Ussita and Magliano di Tenna. 200 concentrators. Approximately 319,000 meters were installed At international level, during the period meet- during 2008, with 56,000 installed independently ings were stepped up with utility companies op- by local branches of the Networks Division. The erating throughout the world that have expressed total number of meters installed since start-up is great interest in Acea’s project. around 1,168,000.

MANAGEMENT REPORT ON OPERATIONS 29 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Energy generation and sales Montemartini plant as a generating unit that is essential to the security of the National Electricity AceaElectrabel Produzione operates in the elec- System. Pursuant to Electricity and Gas Authority tricity generation market under the terms of the Resolution 111/2006, as part of the National Elec- AceaElectrabel joint venture. tricity System Security Plan – Emergency Plan for the City of Rome, the plant’s TG1, TG2 and TG3 Hydroelectric production picked up significant- units are subject to dispatching orders from Terna, ly during the year, rising 49% from 242.5 GWh in save for brief periods of maintenance and black start 2007 to 361.2 GWh in 2008. This was primarily testing. The plant’s already limited output has thus due to the increased availability of water supplies, been reduced still further, having been cut by 51.6% following a period of reduced availability in 2005, from 18.6 GWh in 2007 to 9.0 GWh in 2008. 2006 and 2007, compared with the seasonal peaks 2008 was also the Leinì plant’s first full year of reported in 2004. The resulting drop in production commercial operation. This is the latest new dual- was caused by prolonged winter droughts that af- shaft, combined-cycle plant with net installed ca- fected the entire sector nationwide and a serious pacity of 385.3 MW. Internal capacity during 2008 breakdown that shut down the Salisano plant for was satisfactory as no significant incidents occurred almost five months during 2007. and output amounted to 1,601.1 GWh. This was There were no significant breakdowns at gener- achieved despite lengthy periods of operation at the ating plants during the year, except for the event technical minimum due to balancing orders from that rendered generating unit 1 (4 MW) at the Terna for dispatching purposes, which resulted in Salisano plant unavailable for over a month. The the repurchase of approximately 386.3 GWh of breakdown resulted in estimated lost output of electricity on the Dispatching Services Market. The approximately 4.5 GWh. The Sant’Angelo plant supply of heat for the urban heating network also boosted output by 63.6%, recording a 42.0 GWh began in October, with a total of 27 GWht of heat increase in electricity produced. produced. Thermoelectric production totalled 2,632.6 GWh in 2008, a 7.3% rise on the 2,452.4 GWh With regard to renewable electricity produc- registered in 2007. Production at the Voghera tion, the Company’s two wind farms (Longano and plant decreased by 48.4%. This was due to a serious Capracotta), which entered service in 2007, record- breakdown at the Voghera plant towards the end ed output of 37.7 GWh. of 2007. As a result, the plant only re-entered service in June 2008, after being shut down for eight Renewable electricity production was expanded months in order for large-scale and complex repairs in 2008, with the rollout of the new Monte della to take place, affecting a large part of the generat- Difesa wind farm. ing set. The new wind farm is located in Campania, oc- Due to the prolonged shutdown of the Vogh- cupying an area that takes in the municipalities of era plant, the volume of electricity produced (725.9 Postiglione, Serre and Sicignano degli Alburni in GWh in 2008) is significantly down on the 1,407.5 the Province of Salerno, and ha san installed capac- GWh of 2007 (a decline of 48.4%). ity of 28.9 MW. The plant consists of 34 850 kW Following its re-entry into service, during the wind generators organised in clusters over an area summer the Voghera plant had to be shut down on of around 3,000 hectares. The generators are con- many occasions and reduce its output to the tech- nected via an MV feeder cable to the 20/150 kV nical minimum due to extreme congestion on the electricity substation at Sicignano degli Alburni, northern branch of the 380 kV National Grid. This which acts as the connection interface between the led to the repurchase of 420.8 GWh of electricity wind farm and the National Grid along the 150 kV previously sold in just seven months of operation. Campagna-Contursi Terme HV transmission line. 2008 was also the first year of operation for the The commercial launch of Monte della Difesa

3 0 MANAGEMENT REPORT ON OPERATIONS took place on 20 October 2008. At the same time, (formerly Elettria), which operates in Tuscany, the Company was granted the right to produce was set up on 17 July 2006 under an agreement green certificates. between the Consiag Group and AceaElectrabel Elettricità SpA. The company is 51% owned by In the urban heating segment, in which the Consiag, whilst AceaElectrabel Elettricità SpA company operates via the Tor di Valle plant’s co- holds a 49% stake. generation unit, the company supplied 214 end • Elgasud SpA (49%). Elgasud, which operates in users located in the Torrino Sud and Mostacciano Puglia and Basilicata, was set up on 10 Novem- districts (located in the southern part of Rome) ber 2006 under an agreement between Amgas with 53.8 GWht of heat. The cogeneration unit at Bari, Amet Trani and AceaElectrabel Elettricità the Leinì plant also enabled the Company to sup- SpA. The company is 51% owned by Puglien- ply the municipality of Settimo Torinese with 27 ergy (of which 70% is held by Amgas Bari and GWh of heat. 30% by Amet Trani), whilst AceaElectrabel Elettricità SpA holds a 49% stake. Tirreno Power produced a total of 12,580 Gwh during the year, marking an increase of 1,052 Gwh During 2008 sales of electricity on the mar- compared with 2007. ket subject to additional safeguards amounted to 4,905 GWh, marking a reduction of 14.6% With regard to electricity sales, in 2008 Acea- compared with 2007. The number of customers is Electrabel Elettricità continued its expansion 1,484,260 (1,516,024 at 31 December 2007). The throughout Italy via synergies with established lo- decrease is linked to the opening up of the market cal players boasting a well-known brand, strong lo- following completion of the liberalisation process. cal roots and a well-established customer base. In contrast, free market electricity sales of These alliances enable local partners to benefit 9,970 GWh were recorded by AceaElectrabel Elet- from the size and reputation of AceaElectrabel tricità and 2,303 GWh by the retail joint ventures, Elettricità, as well as from its sourcing capacity. In representing a total of 12,273 GWh and a 12.4% turn, AceaElectrabel Elettricità is able to leverage increase on 2007. Sales were recorded at 48,489 local expertise and know how. withdrawal points on Acea Distribuzione’s network Moreover, thanks to these agreements, free mar- and at 21,993 points hooked up to the networks of ket customers may take advantage of the services of other distributors (mainly Enel Distribuzione) at a supplier able to offer complete, tailor-made and 31 December 2008. The number of customers to- profitable solutions. tals 30,695, with 29,667 served by AceaElectrabel Local presence breaks down as follows: Elettricità and the remainder by the retail joint • Umbria Energy SpA (50%). Umbria Energy, ventures. which operates in Umbria, was set up on 24 The number of end users switching from the September 2004 as a joint venture between regulated to the free market in 2008 amounts to ASM Terni SpA and AceaElectrabel Elettricità 50,585, representing an annual volume of 560 SpA. The company is jointly owned by the two GWh, with around 38% of users acquired by other shareholders. wholesalers, whilst the remaining 62% (equal to • Voghera Energia Vendita SpA (50%). Voghera 38% of total consumption) stayed with AceaElec- Energia Vendita, which operates in the prov- trabel Elettricità. The company also sold 142.6 inces of Pavia and Alessandria, was established million cubic metres of gas to final customers and on 17 March 2005 under an agreement between wholesalers, with supplies coming from AceaElec- ASM Voghera and AceaElectrabel Elettricità trabel Trading, including 28 million in the thermal SpA. The company is jointly owned by the two year 2008/2009, which began in October 2008. shareholders. AceaElectrabel Elettricità’s sales to customers • Estra Elettricità SpA (49%). Estra Elettricità included in the protected market amount to 230

MANAGEMENT REPORT ON OPERATIONS 31 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

GWh. The number of protected market customers behalf of AceaElectrabel Produzione SpA’s plants amounted to 739 at 30 April 2008, corresponding (down 363 GWh), reflecting the supply of the to 4,610 withdrawal points. entire amount produced via bilateral contracts (in 2007 the volume relating to bilateral contracts was Finally, with regard to trading activities, in 2008 lower). AceaElectrabel Trading reported a 36.08% in- The volume of natural gas sold rose in 2008, as crease in the volume of electricity traded, reflect- did the prices of the commodities to which pur- ing a higher volume of electricity sold to the free chase and sale contracts are indexed. The volume market (AceaElectrabel Elettricità) and the Italian sold amounts to 1,389 million cubic metres, reg- Power Exchange (IPEX), in connection with its istering an increase of 264 million cubic metres role as market operator and dispatching user for the (23.51%) compared with 2007. The volumes sold other Group companies, AceaElectrabel Produzi- to both AceaElectrabel Elettricità (up 65 million one SpA, Voghera Energia SpA and Roselectra cubic metres) and AceaElectrabel Produzione (up SpA, increased gas sales, and a rise in commodity 11 million cubic metres) rose, whilst the volumes prices. sold to wholesalers increased by 253 million cubic metres. The volume of electricity sold on the free market Green certificates amounting to 234 GWh (up in 2008 amounts to 16,862 GWh, marking growth 148 GWh) were sold in 2008. All the certificates of 1,433 GWh (up 9.29% on 2007), following an were sold to AceaElectrabel Produzione companies increase in the volumes sold to the related party, to meet their legal obligations for the 2007 year of AceaElectrabel Elettricità, amounting to 1,350 certification. GWh (up 11.79%), and to the Italian Power Ex- change (IPEX), totalling 505 GWh. Overseas sales On the electricity exchange front, day-ahead rose 41 GWh (60.57%). markets comprised around 57.5% of the turnover The company also sold 9 GWh to the related of the Italian Power Exchange (IPEX). Trading party, AceaElectrabel Elettricità, in relation to sup- volumes on the exchange rose 4.8% in 2008, com- plies provided to Solvay Chimica Italia. This excep- pared with the previous year. As a result liquidity tional event was not repeated as the company was in the electricity market, represented by the ratio directly supplied by the Roselectra plant, without between the amounts traded on the exchange and the electricity being registered in the company’s total amounts, rose to 69.0%, exceeding the already portfolio. high level reached in 2007 (67.1%). This compares with a 4.3% reduction in purchases under bilateral During 2008 a total of 538 GWh was sold in contracts that eligible customers enter into at the the various market sessions (the Day-Ahead Mar- beginning of the year. ket, the Adjustment Market and the Dispatching Services Market) on behalf of the joint venture’s generating companies (AceaElectrabel Produzi- one, Voghera Energia and Roselectra), marking a reduction of 1,077 GWh compared with 2007 (down 66.69%). The decrease in volumes sold is the result of lower quantities dispatched on behalf of Roselectra SpA (down 703 GWh), reflecting the fact that the plant sold its electricity under bilateral contracts, and of the lower quantities dispatched on

2 Producers and eligible customers are not only able to sell and buy electricity through the market organised by the Electricity Market Operator (EMO), but also by concluding contracts of sale outside the bidding system. In this case the planned injection and withdrawal of energy, as well as the price to be paid, are freely established by the parties.

3 2 MANAGEMENT REPORT ON OPERATIONS Liquidity on the Dam 69.0% 350 67.1% 70% 62.8% 59.6% 300 60%

250 120.2 133.3 108.7 104.3 50%

200 29.1% 40%

150 30% Liquidity

Millions of MWh 232.6 164.3 221.3 100 203.0 196.5 20%

50 10% 67.3 0 0% 2004 2005 2006 2007 2008 Exchange Off-Exchange Liquidity (dx scale)

Source: Italian Power Exchange – Monthly Trading Report – December 2008.

Th e average electricity purchase price (the Na- competition between operators. Compared with tional Single Price) for 2008 was 86.99 euros per the previous year, the average price diff erential be- MWh, having risen 22.5% on the previous year. tween the north and north-central areas has fallen Th e average purchase price on the IPEX was high- from 4 to 2 euros per MWh, whilst the diff eren- er than on other European exchanges although, tial between the north and south-central areas of compared with 2007, the price diff erential fell on the country has remained stable at approximately average by more than €10 per MWh. In terms of 5 euros per MWh. As in 2007, Sicily recorded the sale price, the lowest, amounting to 82.92 euros per highest sale price, amounting to 119.63 euros per MWh, was registered in the north, where the de- MWh. gree of market concentration has resulted in greater

national Single price

140 70% 114.38 108.73 60% 120 104.90

50% 100 87.80 56.99

76.35 74.75 70.99 40% 80 77.88

58.59 30% Liquidità ` /MWh 51.60 60.25 58.58 60 67.75 20% 44.33 40 38.78 54.12 48.06 10% 37.59 42.15 20 0% 2004 2005 2006 2007 2008 Total Peak Off-peak working days Holidays and weekends

Source: Italian Power Exchange – Monthly Trading Report – December 2008.

MANAGEMENT REPORT ON OPERATIONS 33 ThE AcEA MANAGEMENT cORPORATE chAIRMAN’S fINANcIAl groUp fINANcIAl OThER EvENTS RISKS AND OuTlOOK GROuP GOvERNANcE STATEMENT hIGhlIGhTS operating REvIEW INfORMATION AfTER uNcERTAINTIES revieW 31.12.2008

monthly prices on the principal european electricity exchanges*

Source: El-da * Average prices covering the hours of the days from Monday to Friday

IPEX: the Italian Power Exchange; NordPool: the Scandinavian Power APX: Amsterdam Power Exchange, the OMEl: compañía Operadora del Exchange (Norway, Sweden, Denmark, Dutch Power Exchange; Mercado Español de Electricidad, the finland); PowerNext: the french Power Exchange. Spanish Power Exchange; EEX: European Energy Exchange, the German Power Exchange;

2008 will be remembered as a year of excep- startling aspect, however, was the size and rapidity tional tensions on the oil market, in terms of both of the reversal of this trend when it came: following the record price levels reached, combined with a the increase from 97 dollars a barrel in January to signifi cant increase in price volatility, and the sharp 144 dollars in July, in just fi ve months the price of reversal seen later in the year. Compared with the oil fell back to 36 dollars a barrel. Th e impact of this increases registered in 2006 and 2007, the price of trend was only partly off set by the dollar/euro ex- Brent rose even more quickly in 2008, jumping 33% change rate, which rose 7% to an annual average of to an annual average of over 97 dollars a barrel, rep- 1.47 dollars to the euro (up 7%), thereby reducing resenting an increase of 79% on 2005. Th e growth the rise in the price of Brent in euros per barrel to in prices was accompanied by increased volatility, a more moderate 23%. Th e following graphs show which rose from the already signifi cant level of 16% market price trends. in 2007 to mo less than 30% in 2008. Th e most

3 4 MANAGEMENT REPORT ON OPERATIONS Dated brent price trend

Source: Platts

basket of fuels

high sulphur fuel oil low sulphur fuel oil crude Brent 0.2% diesel 0.1% diesel

Prices in $ per tonne

MANAGEMENT REPORT ON OPERATIONS 35 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Water services (known as the Galli Law) and the subsequent Regional Law, and in particular the Concession Management of water services in Agreement, required preparation of an Area Plan Lazio and Campania (establishing an investment plan and the average tariff for the Area). Acea Ato 2 SpA The average tariff established in the plan was Since 2007 the acquisition of contracts with designed to cover the costs incurred by the op- the municipalities involved has slowed. This has erator each year (operating costs, concession fees, been caused by local authorities, natural political depreciation and the return on invested capital). alternation and internal difficulties within the au- The provisions of the Standardised Method thorities themselves. Moreover, based on assess- made it necessary to review the average tariff for ments carried out, certain municipalities still have the Area. problems relating to the state of treatment plants To this end, the Technical Secretariat prepared and lack of authorisation for waste disposal. a study entitled “Comparison of guaranteed rev- During the first half of 2008 the company ac- enues and real revenues 2003-2008. The new Av- quired contracts to manage water services in the erage Tariff 2009-2032” municipalities of San Polo dei Cavalieri and Cer- Briefly, the study analysed the operator’s guar- veteri. anteed revenues based on the previously calculated During the second half of 2008 the company ac- average tariff, the new guaranteed revenues taking quired the consortium set up by the municipalities account of certain new elements (the real inflation of Trevi nel Lazio, Piglio (ATO 5) and Alti-piani di rate, investments effectively carried out, changes Arcinazzo to manage the water treatment plant. in project operating costs, the fees effectively paid, The mayors’ Conference for ATO 2 met on 5 etc.) and real revenues generated, thereby estab- December 2008 to vote on issues regarding the lishing how much more or less had been earned management of integrated water services. by the operator. Resolutions 5/08, 6/08 and 7/08 were of par- Based on the difference in revenues earned by ticular importance and regard: the operator, and taking account of other param- 1. 1. Approval of the new average tariff for ATO eters (the target inflation rate, investments carried 2 and tariff increases for the years 2009-2011 out and programmed, project operating costs and (Resolution 5/08); fees), the Secretariat calculated a new Average 2. Renegotiation of the Agreement covering hy- Tariff to come into effect from 2009 until 2032. draulic interference caused by the Peschiera- The percentage increases to be applied to tariff Capore aqueduct system between ATO 3 Rieti structures, as a result of the new guaranteed rev- and ATO 2 Rome (Resolution 7/08). enues, were also established. Based on the results obtained by the Technical Approval of the new average tariff for ATO 2 and Secretariat, the Mayors’ Conference of 5 Decem- tariff increases for the years 2009-2011 ber 2008 decided to adopt the following average The implementing provisions of Law 36/94 increases in the Average Tariff:

2009 2010 2011 % tariff increase 4.59% 2.99% 1.51%

The Secretariat’s study (which forms an integral In particular, every three years the Mayors’ Confer- part of Resolution 5/08) also highlighted the need to ence will be responsible for approving any revision of simplify the tariff reviews provided for in the Agree- the Average Tariff and, consequently, will approve any ment and to unify the tariff structure for ATO 2 (the changes in tariffs. In the intervening period, the Tech- single Area Tariff ). nical Secretariat will determine percentage increases

3 6 MANAGEMENT REPORT ON OPERATIONS to be applied to tariff structures to take account of dif- tariff does not exist, the existing tariff structure can ferences between real and guaranteed revenues. be maintained over a period of convergence with the The above study also highlighted the need to de- Average Tariff, which may be of up to three years and vise a method for bringing the tariffs applied in mu- six months, regardless of whether the initial tariff is nicipalities where concessions have yet to be awarded higher or lower than the Average Tariff. Convergence into line with the average Area tariff. should, in any event, be linear. The Conference decided that on the award of a Finally, the Mayors’ Conference approved the level concession for a municipality, the single Area Tar- of investment that the operator must carry out over iff for ATO 2 is to be adopted. Alternatively and at the three-year period 2009-2011: the explicit request of the Mayor, or where a single

2009 2010 2011 Total 113.31 103.20 102.92

Amounts are shown in millions of euros

These investments are to be carried out alongside those already planed by Lazio Regional Authority over the next three years, amounting to 80 million euros in total. Renegotiation of the Agreement covering hydraulic interference caused by the Peschiera-Capore aqueduct system between ATO 3 Rieti and ATO 2 Rome

Relations between different areas of operation – Centrale Lazio and Rome to ATO 3 Rieti. (ATOs) are governed by art.7 of Regional Law 6 In view of the fact that the integrated water of 22 January 1996. service tariff currently in force in ATO 2 includes This law gives Lazio Regional Authority re- this charge but does not establish the relevant sponsibility for issuing regulations governing the amounts, the Mayors’ Conference of 5 Decem- relations. ber authorised the President of Rome Provincial As a result, Lazio Regional Authority passed Authority, in his role as representative of ATO 2 Resolution 936 of 21 December 2006, which set Rome, to reach agreement with the Authority for out a draft Agreement governing management of ATO 3 Rieti on new procedures for paying annual hydraulic interference caused by the Peschiera- fees for previous years. Capore aqueduct system in ATO 2 Rome and ATO 3 Rieti. Fresh water This draft Agreement was subsequently Acea Ato2 SpA provides the full range of fresh amended, added to and signed by the Presidents water distribution services including collection of Rome Provincial Authority and Rieti Provincial and abstraction, as well as retail and wholesale dis- Authority and the Director of Public Works for tribution. the Comune di Roma. Water is abstracted from sources on the basis of One of the amendments establishes that the long-term concessions. Agreement governing management of hydraulic Ten water sources – including five springs interference should not name the holder of the (Peschiera, Capore, Acqua Marcia, Acquoria and Peschiera-Capore water abstraction concession, Salone), 4 well fields (Pantano Borghese, Finoc- putting off identification of the holder to a later chio, Torre Angela and Torre Spaccata) and the date. Lake Bracciano Aqueduct – supply approximately On the other hand, adoption of a draft agree- 3,000,000 people in Rome and Fiumicino, as well ment is an obligation deriving directly from the as 60 municipalities in the Lazio region, via four Galli Law and, above, this agreement fixes the sig- aqueducts and a hierarchical system of pressurised nificant charges (annual fees) to be paid by Ato 2 pipes.

MANAGEMENT REPORT ON OPERATIONS 37 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Three further sources of supply provide non- In early July the DN400-500 abstraction pipes drinking water used in the municipal sprinkler in Via Casal Boccone were taken out of service system. to enable work on urban infrastructure to be car- In addition, Acea ATO 2 SpA manages the ried out in the nearby area where new building Simbrivio aqueduct, which supplies water to 54 is taking place. Midway through the same month municipalities and 3 consortia, the Laurentino siphon VIII was taken out of service, without aqueduct (formerly CASMEZ Lazio Regional causing disruption to end users, to connect it to Authority), which supplies the municipalities of the new DN600 abstraction pipe linking the Tor- Pomezia, Ardea and the Campoleone area of the renova Water Centre to Via Tuscolana. municipality of Lanuvio, the Doganella aqueduct, Finally, due to accidental damage, in August it serving 8 municipalities in the Castelli Romani was necessary to take the DN800 Olgiata–Civi- area, and the distribution of water in 72 munici- tavecchia abstraction pipe out of service to enable palities in addition to Rome. repair work to take place. With regard to the Roman abstraction system, With regard to water quality, in 2008 Acea in February syphon IV on the Acqua Marcia aq- ATO2 requested Lazio Regional Authority for ueduct was taken out of service due to unexpected a derogation regarding non-compliance with a damage. Thanks to swift adoption of alternative number of standards established by Legislative arrangements, it was possible to limit disrup- Decree 31/01, having failed to comply with the tion to the service, which initially affected a wide regulations in the following municipalities: number of end users in central and eastern Rome. • Genzano (arsenic, fluoride and vanadium) on In March the DN1000 abstraction pipe near 15 May 2008; Via Cristoforo Colombo was taken out of serv- • Velletri (arsenic and fluoride) on 27 May 2008; ice to allow urbanisation work to be carried out • Ariccia (arsenic, fluoride and vanadium) on 18 in the EUR-Castellaccio district, as part of the November 2008; “Europarco” project, without interrupting supplies • Cerveteri (arsenic and fluoride) on 19 Novem- to end users thanks to activation of an emergency ber 2008; connection. At the end of March there was an ac- • Castelnuovo di Porto (arsenic and fluoride) on cidental failure of syphon I on the out-of-town 5 December 2008. section of the Acqua Marcia aqueduct. Due to unexpected damage, in mid-April it Following an increase in water consumption was necessary to take syphon VII on the Acqua due to a rise in temperatures and a reduction in Marcia aqueduct out of service. However, thanks the volume of water available from sources feed- to the web-like structure of the water network, ing the Doganella aqueduct and from other lo- disruption was limited. cal sources in the Colli Albani area, there was an The DN 1100 pipe on the Acqua Marcia aque- emergency situation in a number of municipalities duct, called siphon VIII, was taken out of service in ATO 2 from late June, including Monteporzio in May to allow construction of the “Graniti” train Catone, Montecompatri, San Cesareo, Zagarolo, depot serving the underground system’s new “C” Frascati, Colonna, Rocca Priora, Palestrina, Gen- line. zano di Roma, Albano Laziale, Castel Gandolfo, Mid-June saw the DN900 Torrenova–Casilino Velletri, Marino, Lariano, Grottaferrata and Arte- abstraction pipe taken out of service in order for na. Acea Ato2 took immediate steps to head off the “Alessandrino Station”, again serving the new the water crisis, implementing a range of measures “C” line, to be built. That same day two DN350 designed to reduce disruption, such as opening up feed pipes were taken out of service to allow con- emergency connections to the Simbrivio aqueduct struction of a car park in Piazza Cavour, form- and preparing, in agreement with the relevant ing part of the Comune di Roma’s Urban Parking bodies, a plan for supplying water on a rotational Plan. basis. In many cases recourse was made to tank-

3 8 MANAGEMENT REPORT ON OPERATIONS ers and temporary tanks of drinking water in the ured by the Ripetta hydrometric station, was 12.55 worst hit areas. The company adopted a specific metres (just below the level reached in February communication plan, which included temporarily 1976), which corresponds to a flow of approxi- increasing the number of customer care operators mately 1,670 cubic metres per second. available on 800130335. During the period of alert, Acea Ato 2 took In order to rapidly resolve the crisis, Acea Ato2, extraordinary steps to deploy its personnel and Lazio Regional Authority, the Extraordinary equipment in order to ensure that its plants and Commissioner for the Simbrivio water emer- systems remained fully functional, as a precaution- gency and the Technical Secretariat for ATO 2 ary measure intensifying checks on fresh water agreed on the need to adopt emergency measures, supplies, and offering full technical cooperation to be implemented via ordinances issued by the with the National Civil Protection’s Operating Extraordinary Commissioner. The plan involves Committee. immediate action and initiatives to be taken over the short term (in 3-6 months), with a view to Sewerage and waste water treatment optimising network functionality, renovating and The sewerage service comprises a sewage net- upgrading existing wells and bringing new wells work of 5,875 km (including approximately 1,885 into service. During the second half of 2008 all km of network serving municipalities outside immediate action was completed (including the Rome) and more than 300 km of collectors in the connection between the Mola Cavona–Santa Pal- municipality of Rome. omba pipeline and the Vernicino water network, Acea Ato2 SpA manages the waste water treat- and installation of pressure regulation valves on ment system and pumping stations that serve the municipal networks, etc.), whilst short-term ini- network and sewage collectors. Some of them are tiatives were also started and in part completed quite large, with a throughput of more than 10 (including construction of a new well at Castel- cubic meters per second, and in some cases they gandolfo, the connection between the Doganella also provide flood protection. and Simbrivio aqueducts, and restructuring of the In 2008 the main waste water treatment plants Lariano well field, etc.). handled 493.7 million cubic meters, an increase of The increase in consumption also resulted in a around 3.7% compared with the previous year. water emergency to the west of Rome, above all in Sludge production from all the company’s the municipalities of Tolfa, Allumiere and Santa plants totalled just over 125,000 tonnes, which Marinella, where serious shortages can only be was not substantially different from the figure for resolved once local aqueducts and service conces- the previous year. sions in the municipalities in the Western Area At 31 December 2008 Acea Ato2 SpA manag- have been acquired. This will enable integrated es a total of 436 sewage pumping stations, includ- management of services and implementation of ing 153 in the municipality of Rome, and a total major structural initiatives. of 176 waste water treatment plants, including 37 In December 2008, when the level of the river in the municipality of Rome. Tiber remained high between the 10 and 18 of Compared with 31 December 2007, both the the month, the company intensified management, number of waste water treatment plants and the maintenance and control activities for fresh water, number of sewage pumping stations has increased sewerage and treatment systems liable to interfer- by 2. ence from the main bodies of water. The rising level of the river was preceded by Research and development a lengthy period of rain affecting almost the en- In collaboration with LaboratoRI SpA, activi- tire Tiber basin, with maximum daily rainfall in ties continued to recover water leaks using district Rome reaching 100 mm a day (Acea’s Ostiense metering and via identification of leaks in pipes. rain gauge). The peak level in the capital, as meas- Additional searches were conducted during

MANAGEMENT REPORT ON OPERATIONS 39 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

2008. Step testing was planned and carried out technical specifications currently in force at the at Monterotondo Scalo, enabling the company to Territorial Information Service. Migration of the identify sections of the network with the biggest data for the other municipalities will take place leaks. Acoustic equipment was then used to locate once testing has been completed. sections of pipe with the biggest leaks and support Technical specifications for contracting out provided during the repair and restoration process. extensive monitoring of the water distribution The main characteristics of the distribution net- network in the municipalities in ATO 2 have also work serving Castel Madama were reconstructed been drawn up. and monitoring points identified. This involved Initiatives designed to reduce water loss along defining the altimetric heights using topographi- the abstraction network continued, including con- cal readings. Water pressure and flows were then trols of the accessibility of pipes and the function- monitored in order to create a profile of the net- ality of pumping equipment. work. Definition of the hydraulic balance, in order to identify the zones where step testing should be In 2008 Acea ATO2 SpA continued its pro- carried out, is close to completion. gramme of activities relating to water sources. This Several rounds of monitoring have been carried resulted in the identification of sites for new wells out in Grottaferrata, focusing above all on the dis- in the municipalities of Artena (a feasibility study trict served by the Villa Rasponi reservoir. subsequently came to a negative conclusion) and The main characteristics of the distribution Velletri (where two areas were identified to carry network serving Fiano Romano were reconstruct- out searches for water sources to replace private ed and monitoring points identified. A series of wells). readings and monitoring was conducted and the A project regarding the sewerage network is in altimetric heights were defined using topographi- progress, including: cal readings. Step testing of the entire network • graphic recording of overflow pipes, which il- was then carried out to identify sections with the lustrates the hydraulic function with sufficient biggest leaks and the localisation of leaks is un- engineering accuracy, supplemented with pho- derway on a section of the network. tographs; In addition to developing new versions of • determination of the amounts of water treated network maps, water flows in the municipality under dry weather conditions and the amounts of Riano were monitored following work on the of water treated and discharged into drains in network. wet weather; The pipeline network serving the municipal- • construction of a remote control system for ity of Santa Marinella was reconstructed and an overflows in Acea Ato2 SpA’s control rooms, initial assessment made by monitoring water flow which can show the state of the drainage net- and pressure. The results have led to identification work; of leaks along the network and it has been possible • the drawing up of “wet weather procedures” to plan and carry out a step testing-type procedure to be implemented by Acea Ato2 SpA’s vari- in the Santa Severa area. ous operating units subsequent to activation New versions of network maps were prepared of alarms linked to rain gauges distributed for the remaining municipalities (Albano, Ciampi- throughout the municipality of Rome and level no, Castelgandolfo and Ariccia) in preparation for sensors placed at overflow points along the the installation of monitoring points. sewerage network, as well as inside collectors; Special thematic maps have been produced for • construction of an environmental operating all municipalities and, above all, for the municipal- room, which in addition to measurements ities of Fiano Romano and Albano Laziale, whilst regarding the potable water network, is de- the migration of alphanumeric map data ATO 2’s signed to gather measurements from all the GIS system has been carried out, according to the remote control points installed and being in-

4 0 MANAGEMENT REPORT ON OPERATIONS stalled along the sewerage network, at waste ly 480,000. The number of end users is around water treatment plants, rain gauges and along 185,000. the drainage network. In this regard, data is As in 2007, particular attention was focused on now available from the four automated con- the fresh water and sewerage networks in 2008, trol points installed by Acea (one on the Tiber resulting in a significant volume of maintenance at Grottarossa and three along the Aniene at work carried out. Despite this, the networks in Sant’Agnese di Tivoli, Ponte Lucano and Pra- general continue to be in an extremely poor state of tolungo), providing real-time, automated read- repair, forcing the operator to carry out large-scale ings for the following chemical and physical routine and extraordinary maintenance works. parameters of the water in the various bodies Water treatment plants are in a similar state of water: Temperature, Conductibility, Dis- and the operator has begun systematic upgrading solved Oxygen, pH, Torpidity, Level, P-PO4, and re-design work. N-NH3, N-NO2, N-NO3, COD. Under contracts with Acea ATO 5 Servizi, an In the environmental field, Acea Ato2 SpA Acea Group company, routine and sample qual- has developed a project to map odours emitted by ity controls were carried out in 2008 pursuant to waste water treatment plants, with specific refer- Legislative Decree 31/2001. These focused on ence to the Rome South plant, aimed at calibrating water sources, reservoirs, drinking water networks and fine-tuning the reduction measures adopted. and waste water leaving treatment plants located Given that the Protection Plan adopted by in the area and managed by the company. Lazio Regional Authority has rated the condition A total of 2,005 samples of drinking water for of, amongst others, the No. 20 lower Aniene, No. human consumption were taken in 2008 (com- 14 lower Tiber and the No. 15 Tiber mouth res- pared with 1,933 in 2007) and 71,550 tests were ervoirs as “poor” or “very bad”, and taking into ac- carried out (compared with 41,139 in 2007). count that, pursuant to Legislative Decree 152/99 A total of 1,876 samples of waste water were and subsequent amendments and additions, these taken in 2008 (589 in 2007) and 23,647 tests were reservoirs should achieve a “satisfactory” rating carried out (7,014 in 2007). by 2008 and a “good” rating by 2016, Acea Ato2 Various campaigns designed to reduce leaks SpA has launched a study in collaboration with along the network were implemented in 2008. Rome’s “La Sapienza” University, in order to draw Leaks, which were identified following inspec- up measures to improve the quality of the Tiber tions using special equipment, were found around river, based on prior determination of its hydraulic the network and in abstraction pipes (which often characteristics and water quality. pass over mountainous and uneven terrain), and in municipal distribution networks. Checks on the congruity of all the end users Acea Ato 5 SpA entered into the information system (totalling The company manages integrated water servic- 186,000) were also carried out during the year. es in ATO 5 Southern Lazio-Frosinone, as identi- This activity focused above all on updating the fied in Regional Law 6 of 22 January 2006, under personal details of end users (over 30,000). The an agreement entered into with the Area Author- replacement of meters also went ahead, as did ity. The company is also responsible for all other requested transfers of contracts, the replacement related, resulting or associated activities. and checking of illegible and/or broken and/or Management of integrated water services in malfunctioning meters, and the communication the ATO 5 Frosinone area covers a total of 86 of meter readings by customers. municipalities (contracts for the municipalities The latter activity rose considerably follow- of Atina, Paliano and Cassino Centro Urbano, ing an awareness campaign aimed at customers solely in relation to fresh water services, have yet through the press, the operator’s website and no- to be acquired) and a population of approximate- tices included with bills.

MANAGEMENT REPORT ON OPERATIONS 41 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

At the same time the meter reading campaign the Area Plan, calling for inclusion of the munici- was stepped up, with at least one round of meter palities in the Chianti district in the ATO (com- readings in all of the 86 municipalities in which pleted in December 2007 once resolutions were the company operates. passed by the related municipal authorities) and This activity, which included reporting any a tariff review so as to maintain a high level of technical or administrative problems, enabled the investment in ATO 3, the vast programme of in- company to issue more accurate bills with respect frastructure replacement, renewal and extension to those calculated on the basis of historical data aimed at ensuring that all users enjoy an adequate provided by the previous operators. This informa- level of integrated water services is continuing. tion contained a great many gaps and/or inaccura- In September the Area Authority approved the cies, above all with regard to historical consump- Three-year Operating Plan (TOP) for the period tion and personal details. 2007-2011. This process was accompanied by the start-up As regards ATO 6 Ombrone, during 2008 the of customer checks, including the replacement or subsidiary, Aquedotto del Fiora SpA, launched first-time application of Acea ATO 5 SpA’s seal a series of initiatives designed to collect receiva- on meters, starting with end users the municipal- bles and to improve relations with users, via both ity of Alatri (approximately 10,000). changes in its internal organisation and the use of Trials of remote meters for large customers specialist companies. As part of this improvement (hotels, etc.) were launched in the municipality of programme, Aquedotto del Fiora SpA is also ne- Fiuggi. gotiating a loan to be put towards financing its Accurate checks on municipal authorities be- investment plan, which is expected to be finalised gan, partly via a large-scale census, which enabled during 2009. and will enable the operator to update its database The Acea Group maintains a presence in ATO for the purposes of both billing and technical op- 1 Northern Tuscany via its subsidiary, CREA, erations. which has interests in GEAL (the integrated water services operator in the town of Lucca), AZGA Management of water services in Nord and Lunigiana Acque. Tariffs for the entire Tuscany and Umbria range of integrated water services provided by As regards acquisitions in Tuscany, in 2008 ef- GEAL were increased in 2008 in order to keep forts continued to boost performance in line with pace with the real inflation rate between July 2002 the objectives set for ATO 2 Basso Valdarno. The and December 2007. The total increase of 11.87% subsidiary, Acque SpA, which is responsible for was applied in accordance with an agreement managing the area, has begun to use a 255 million entered into with the grantor of the concession, euro facility granted in October 2007 by a syndi- the Municipality of Lucca, the Area Authority cate of banks and earmarked to finance planned and the Authority for the Serchio Basin. GEAL investment of approximately 650 million euros. is also exposed to the risk deriving from the “tax At the end of 2008 actual drawdowns amounted moratorium” as a result of art. 24 of Law Decree to 135 million euros. In December 2008 the Area 185/2008, converted into Law 2/2009. The com- Authority carried out the second tariff review, pany’s exposure, in the event of having to pay which included an adjustment designed to recover back tax savings resulting from the moratorium, lost revenues in the three-year period 2005-2007. amounts to approximately 1,500,000 euros. In ATO 3 Medio Valdarno, steps were taken With regard to investments in the Umbria re- to improve and reorganise the subsidiary, Publi- gion, in December 2007 Acea was finally selected acqua SpA. Efforts were focused on collecting re- by the Area Authority for ATO 1 Perugia as the ceivables and changing the internal organisation private industrial shareholder to take a minor- so as to improve the quality of service and reduce ity interest in Umbra Acque SpA. A stake in the operating costs. Following approval of changes to company (40% of the shares) was acquired on 1

4 2 MANAGEMENT REPORT ON OPERATIONS January 2008. During the first year Umbra Acque the business as a whole. launched and completed a wide-ranging review In ATO 2 Terni the Group, via its subsidiary, of its organisational model, focusing primarily on ACEARieti, continues to manage Umbriadue the commercial department and credit recovery. scarl, which owns a minority shareholding in the The company thus achieved its aim of drastically integrated water services provider, SII scpa. improving its financial position and, subsequently,

Environment and energy

Tea Group availability of the raw material, enabled the plant A brief description of the activities carried out to achieve satisfactory results in technical, environ- by the main companies in the Group is provided mental and economic terms, in spite of the need to below. resolve various technical problems and operational difficulties. Terni En.A The plant’s performance did not always meet This company produces energy from renewable expectations during 2008, despite the fact that it sources, above all in the form of biomass-fuelled achieved total output of 78,507 Mwh and electric- waste to energy production, consisting of paper ity sales of 70,071 Mwh. mill pulp which, in addition to green certificates, The San Vittore del Lazio plant is of regional benefits from the incentives provided in the CIP6 importance in the treatment of urban solid waste measure. and plays a leading role in the production of energy The plant located in Terni ran regularly and from dried sludge produced during the treatment smoothly throughout 2008, enabling total proof urban waste water. duction of 81,154 Mwh and the sale of 72,979 On acquiring EALL Srl in the summer of 2006, Mwh of electricity. This result is in line with the Acea immediately embarked on the planning and best standards of performance for waste to energy design of new waste to energy lines which, thanks plants of a similar type. to the commitment of significant resources, has resulted in receipt of the following authorisations: In 2008 the Energy Services Operator awarded - Commissioner’s Decree 72 of 25 July 2007, the company green certificates for self-consump- issued by the Commissioner assigned respon- tion of electricity within the plant from 2006. sibility for the environmental emergency in the Lazio region: Integrated Environmental Eall Authorisation, pursuant to art. 5, paragraph EALL Srl produces electricity from renew- 12 of Legislative Decree 59/2005, to upgrade able sources and, above all, from Refuse Derived the existing smoke unit and construction of a Fuel (RDF), as defined by the Ministerial Decree new waste to energy line (line 2), bringing the of 5 February 1988 and the subsequent Legislative San Vittore del Lazio plant owned by EALL Decree 152/2006 (the Consolidated Environment Srl into line with Directive 96/61/EC on the Act). prevention and reduction of pollution; The tried and tested technology used ensures a - Commissioner’s Decree 2 of 13 March 2008, good level of performance and reduced and con- issued by the Commissioner assigned respon- trolled environmental impact. This, together with sibility for the environmental emergency in the

MANAGEMENT REPORT ON OPERATIONS 43 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

Lazio region: Integrated Environmental Au- disposal of municipal and assimilated waste in thorisation for expansion of the existing waste the municipalities of ATO 4 and special waste to energy and RDF plant in the municipality of deriving from treatment of the latter; San Vittore del Lazio (Frosinone). Substantial • closure of the waste to energy plant and the modification of the plant (line 3) and supple- waste sorter operated by ASM Terni (in Sep- ment to the Integrated Environmental Au- tember 2007 and January 2008, respectively) led thorisation issued by Commissioner’s Decree to a substantial increase in the volume of waste 72 of 25 July 2007; sent to the dump by the above company and a - Commissioner’s Decree 35 of 30 June 2008, is- different distribution of the types of waste trans- sued by the Commissioner assigned responsi- ferred; bility for the environmental emergency in the • in compliance with Provincial Authority Decree Lazio region: approval of the design for the 1031 of 28 July 2008, regarding the overall term connection to the National Grid and of chang- for re-modulation of urban waste flows between es to the design during construction of lines 2 the various areas of the Umbria region, the Mu- and 3. nicipality of Todi continued to transfer urban Briefly, the above decrees 72 and 2 have author- solid waste beyond the term of three years from ised construction of a second line (around 100,000 the start-up of such transfers (August 2008); tonnes a year) and a third line (approximately • use of the biogas produced by the dumps to gen- 100,000 tonnes a year), as well as the upgrading erate energy began. of the existing line (approximately 80,000-90,000 Work on building the first operational section tonnes a year), whilst decree 35 has authorised a of the eighth tier of the existing refuse dump was HV line for transmission of the electricity pro- completed in July, with testing successfully carried duced by the plant to the national Grid. out in the same month. In view of the waste emergency and with the aim of taking advantage of the opportunities of- Enercombustibili fered by incentives for the sale of electricity pro- This company manages an RDF production duced (CIP6), the company has held a European plant in Castellaccio di Paliano (FR). The plant tender resulting in award of the contract to carry is authorised to treat dry waste deriving from ur- out the related works. ban solid waste and special waste, producing an In 2008 the Energy Services Operator awarded annual total of up to 120,000 tonnes of RDF in the company green certificates for self-consump- accordance with the law. This is currently classified tion of electricity within the plant from 2006. as high-calorie. Enercombustibili srl’s operating performance SAO was influenced by the almost total lack of waste to SAO owns the waste dump located in the mu- energy plants capable of processing the fuel pro- nicipality of Orvieto and manages urban refuse duced at a low enough cost and in line with the and special waste. pace of the production cycle. The following events took place in 2008: The beginning of the year saw a rise in the mar- • in compliance with the Authorisation to operate ket price of the material processed by the plant the dump issued by Terni Provincial Authority (70-90 euros a tonne), on the one hand, and a lack with Act 30415 – 07/TR of 14 May 2007, the of demand, on the other. transfer of certain types of special waste from The option of transferring the RDF produced areas outside the ATO in which the company to cement factories also proved to be complex and operates began; difficult, due to lengthy authorisation procedures. • signature of an agreement between SAO and Against such a limited backdrop, the possibility ATO 4 on 13 August 2007, regulating the pub- of Enercombustibili finding a market for the RDF lic service relating to the sorting, treatment and produced were almost non-existent.

4 4 MANAGEMENT REPORT ON OPERATIONS As a result, the RDF produced was used en- in Tuscany near Grosseto, which processes the tirely to fuel EALL’s San Vittore plant. sludge transferred under the contracts with Ac- quedotto del Fiora and ASA. This has resulted in a reduction in transport costs. Other companies Ownership of the plants strengthens AQUAS- ER’s role as a leading operator in the sector, with Aquaser the aim of increasingly reducing its dependence This company manages ancillary services asso- on plants owned by third parties, in order to fur- ciated with the integrated water cycle, recycling ther improve the level of service already provided and disposing of biological sludge and waste from on a continuous basis to its customers and share- water treatment plants, the treatment of liquid holders. waste and refuse, and providing connected services. Ecomed It currently carries out the transport and re- The company (50:50 owned by Acea and AMA) cycling of sludge from treatment plants for ASA came out of liquidation on 29 January 2007 in or- SpA, the operator of integrated water services in der to set up the CO.E.MA Consortium. ATO 5 along the Tuscan coast, Acquedotto del Fiora SpA, the operator of integrated water serv- Apice ices in ATO 6 Ombrone, and Acea ATO2 SpA, A.PI.C.E. SpA, which was established on 7 the operator of integrated water services in ATO May 2008, is a joint venture between Acea SpA 2 Lazio. (50%) and Pirelli & C. Ambiente Renewable En- It also manages the Le Ferriere platform, lo- ergy SpA (50%). The company was set up to oper- cated in Piombino, for the treatment of domestic ate in the waste to energy sector and to carry out effluent transported by road. the related activities, consisting in the purchase, Recycling is carried out primarily via the sale, exchange, construction and operation of in- spreading of sludge for agricultural use at the dustrial plants in this sector. authorisation of third parties, and the transfer The company engaged in commercial develop- to composting plants, which are also operated by ment activities during 2008 in preparation for the third parties. potential construction of plants to produce high- In 2008 AQUASER completed the acquisition quality RDF and the sale of the resulting fuel. of two companies: (i) SOLEMME SpA, in which The company’s activities focused on the regions it holds a 100% interest; and (ii) KYKLOS Srl, in which the partner, Acea, operates and, above all, in which it holds a 51% interest. The two compa- on certain areas held to be priority in Campania, nies are located in the municipality of Montero- Lazio and Umbria. tondo Marittimo (Grosseto) and the municipality of Aprilia (Latina), and each operate composting plants and hold the related licences. The acquisition of these companies has given AQUASER access to plants enabling it to carry out a part of the recycling process itself, and to thus reduce movements in prices for waste treatment, which are highly volatile and subject to speculation. The location of the plants is also extremely important from a strategic viewpoint, with one in Lazio, which processes the sludge transferred under the contract with Acea ATO 2, and one

MANAGEMENT REPORT ON OPERATIONS 45 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

FINANCIAL REVIEW

RESULTS OF OPERATIONS The results for the period also reflect there- vised estimate of the liability for charges linked The consolidated results of operations are ana- to tariff subsidies, which has decreased by 12.1 lysed below with reference to indicators providing million euros. This has resulted in a positive im- a breakdown of the gross margin (representing the pact on the income statement of 4.5 million euros, difference between revenue and the cost of mate- representing the difference between the revision rials and overheads). The following indicators are of the above liability and the curtailment of 7.6 used: million euros resulting from changes to the regu- • the energy margin, representing the differ- lations governing staff termination benefits. ence between revenues from the generation, On a pro forma basis, enabling a like-for-like distribution and metering, trading and sale of comparison of amounts with those of the previous electricity and the variable costs attributable to year, gross operating profit for 2008 is 558.2 mil- these activities lion euros, representing an increase of 42 million • the gas margin, representing the difference be- euros (up 8%). tween revenues from the trading and sale of gas The change in the basis of consolidation has and the variable costs attributable to these ac- also resulted in a 12.4 million euro increase in staff tivities costs. On a like-for-like basis, staff costs amount • the water margin, representing the difference to 237 million euros, marking an increase of 11.8 between revenues from the provision of inte- million euros (5.3%) on 2007. grated water services and the costs of conces- The 84.6 million euro increase in the energy sion fees and of acquiring water margin, before consolidation adjustments and the • the industrial margin, representing the differ- fair value measurement of commodity contracts, ence between revenues and costs not included in reflects (i) a 79.8 million euro contribution from the activities that result in the above margins. generation, primarily due to the change in the The Acea Group’s results for 2008 represent a method of consolidating Tirreno Power (which substantial improvement on the previous year. contributes 65.4 million euros to the margin), Net profit attributable to the Group is up meaning that on a like-for-like basis the margin is 13.6%, whilst gross operating profit and operating up 14.4 million euros. This reflects the entry into profit are up 19.2% and 31.2%, respectively. These service of the Leinì plant and the Group’s wind results reflect (i) an increase in the energy and gas farms and the greater volume of electricity pro- margin (up 60.6 million euros) after the fair value duced, which offset the impact of having to shut measurement of commodity contracts, (ii) an im- down the Voghera plant throughout the first half provement in the water margin (up 59.8 million (the plant came back on stream on 13 June 2008) euros), (iii) an increase in the industrial margin and the reduced output of the Roselectra plant; (up 3.5 million euros), and (iv) a rise in staff costs (ii) an increase of 9.8 million euros in the margin after capitalised costs (up 24.3 million euros). from distribution and metering due, on the one The results for the period are influenced by hand, to estimated company-specific equalisation changes in the method of consolidating Tirreno pursuant to Electricity and Gas Authority Reso- Power and Umbra Acque, and consolidation of lution 348/07 and, on the other, to recognition, in the newly acquired Kyklos and Solemme. The 2007, of lower dispatching costs charged by Terna change in the basis of consolidation accounts for for 2004 and 2005; (iii) a 2.2 million euro reduc- 53.2 million euros of consolidated gross operating tion in the margin from trading, primarily as a profit, including 49.7 million euros attributable to result of greater procurement costs; and (iv) a 2.7 Tirreno Power and 4.7 million euros attributable million euro reduction in sales. to Umbra Acque. The increase in the water margin, before con-

4 6 MANAGEMENT REPORT ON OPERATIONS solidation adjustments (up 58.7 million euros) is ter industry workers (4.4 million euros) and the primarily due to: (i) a 34 million euro contribu- increase deriving from operational factors, which tion from operations in the Lazio and Campania have resulted in an increase of 15 million euros (an regions, attributable to all the companies included increase in the average headcount, a reduction in in this area of business; (ii) a 24.7 million euro overtime due to the adoption of new policies, and contribution from operations in Tuscany and the greater cost of incentive schemes and of staff Umbria, essentially due to the first-time consoli- benefits). dation of Umbra Acque (up 19.7 million euros), In relative terms, the impact of staff costs on and improvements recorded by operations in the the gross margin has decreased from 29.9% in Florence and Pisa areas. 2007 to 28.6% in 2008. The industrial margin reports a loss of 50.8 million euros, marking an improvement of 3.5 The contribution of the various areas of busi- million euros on 2007. This represents the net ef- ness to consolidated gross operating profit were as fect of recognising 8.3 million euros deriving from follows (before consolidation adjustments): cancellation of the fine imposed by the Antitrust - energy networks: 245.1 million euros (up 9 Authority and the revised estimated of connec- million euros, or 9.4 million euros if the effect tion fees collected by Acea Ato2, accounting for of the change in staff termination benefits and 16.4 million euros, offset by the fact the financial the impact in 2008 of the agreement regarding statements for 2007 included the gain on the sale tariff subsidies for staff are excluded from the of the property in Via Valleranello (19.2 million comparison); euros). The improvement in the industrial margin - energy generation and sales: 99.1 million eu- also reflects the improved performances of the ros (up 57.7 million euros or substantially un- companies that operate in the environment and changed without the effect of curtailment on energy segment, and the increase in costs deriving the figures for the two periods). The improve- from the change in the basis of consolidation. ment is primarily due to the change in the basis The quantity of electricity produced during of consolidation, without which the increase is 2008 was 17.4 TWh, representing an increase of 1.4 million euros; 274% on 2007. Electricity supplied to the regu- - environment and energy: 30.2 million euros lated and free markets via the Roman distribution (up 9.2 million euros). This reflects the greater network totalled 12 TWh, marking an increase of volume of waste processed by SAO, an increase 2.3% on the previous year. in the quantity of electricity produced by the Sales of electricity on the market subject to ad- Terni waste to energy plant, and sales of green ditional safeguards amounted to 4.9 TWh, mark- certificates awarded for previous years; ing a decrease of 14.7%, whilst the average number - water services (Italy and overseas): 252.9 mil- of customers was also down (2.1%) at 1,484,261. lion euros (up 40.1 million euros). This result Free and protected market sales of electricity derives from growth in the number of munici- amount to 12.3 TWh, representing a rise of 10.2% palities served, in volumes and in tariffs. The with respect to the previous year. At 31 December first-time consolidation of Umbra Acque con- 2008 the number of delivery points totals 70,482, tributes 4.7 million euros; compared with 57,905 at the end of 2007. - corporate: a loss of 5.1 million euros (an deterioration of 12.3 million euros). This result Staff costs including capitalised costs are up reflects recognition, in 2007, of the gain on the 30.7 million euros, which, after excluding changes sale of the property in Via Valleranello, par- in the basis of consolidation and eliminating the tially offset by recognition of income deriving impact of curtailment from the figure for both from cancellation of the fine imposed by the 2008 and 2007, falls to 20.3 million euros. This Antitrust Authority. reflects contract renewals for electricity and wa-

MANAGEMENT REPORT ON OPERATIONS 47 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

The principal operating results, compared with In analysing the operating result, it is important those of 2007, are summarised below. In the fol- to note that amortisation and depreciation (total- lowing schedule, column (b) shows the profits and ling 208.9 million euros) is up 33.1 million euros, losses attributable to Acea Luce reclassified, in with 13.6 million euros attributable to the change compliance with IFRS 5, to line 10, whilst col- in the basis of consolidation and 3.2 million euros umn (c) attributes these profits and losses to each to the generating plants, as a result of the entry into item. The above analysis is based on a comparison service of new plants both at the end of the previ- of columns (a) and (c). ous year and in 2008, above all the wind farms.

2008 2007 (restated) 2007 (restated) increase/ increase/ (a) (b) (c) (Decrease) (a-b) (Decrease) (a-c) Sales and service revenues 3,056,181 2,515,313 2,522,177 540,868 534,004 Other operating income 87,797 68,537 68,874 19,260 18,923 Consolidated net revenue 3,143,978 2,583,850 2,591,051 560,128 552,928 Staff costs 249,450 223,674 225,194 25,776 24,256 Cost of materials and overheads 2,268,457 1,830,628 1,835,698 437,830 432,759 Total operating costs 2,517,907 2,054,302 2,060,892 463,606 457,015 Net profit/(loss) from (2,617) (6,368) (6,368) 3,751 3,751 commodity risk management Gross operating profit 623,454 523,181 523,791 100,274 99,664 Amortisation, depreciation, 238,415 229,815 229,983 8,601 8,432 provisions and impairment charges Operating profit/(loss) 385,039 293,366 293,807 91,673 91,232 Finance (costs)/income (89,345) (73,316) (73,530) (16,029) (15,815) Ordinary finance (costs)/income (93,955) (73,316) (73,530) (20,639) (20,425) Exceptional finance (costs)/income 4,610 4,610 4,610 Profit/(loss) on investments (88) 40,128 40,128 (40,216) (40,216) Profit/(loss) before tax 295,606 260,178 260,406 35,428 35,200 Taxation 104,356 89,465 90,385 14,891 13,971 Net profit/(loss) from 191,250 170,713 170,021 20,537 21,229 continuing operations Net profit/(loss) from discontinued 598 (692) 0 1,290 598 operations Net profit/(loss) 191,848 170,021 170,021 21,828 21,828 for the year Net profit/(loss) attributable to 5,564 6,056 6,056 (493) (493) minority interests Net profit/(loss) 186,285 163,964 163,964 22,321 22,321 attributable to the Group

Amounts are shown in thousands of euros

4 8 MANAGEMENT REPORT ON OPERATIONS The remaining difference derives from increased The weighted average rate of interest payable on investment during the period. the Parent Company’s short-term borrowings is Provisions for liabilities are down 20.9 million 4.55%, compared with the 4.78% of the previous euros, essentially due to provisions made in the year. previous year for redundancy and early retirement schemes (8.8 million euros) and for the fine im- The significant reduction in the profit on in- posed by the Antitrust Authority (8.3 million eu- vestments compared with 2007, amounting to ros), and the reduction in liabilities deriving from 40.2 million euros, essentially reflects the change health insurance contributions, which resulted in in the method of consolidating Tirreno Power and the partial release of the provisions previously made Eblacea, and recognition, in 2007, of the earnout (4.6 million euros). Tirreno Power contributes 1.3 (19.7 million euros) paid by Electrabel to ACEA million euros to this item. under the Joint Venture Agreement, which requires Provisions for impairment of receivables, the partner to make additional payments on the amounting to 22.9 million euros, are down 3.8 achievement of certain degrees of market liberali- million euros on the previous year, above all due sation. to declines recorded by Acea Distribuzione, Acea- Electrabel Elettricità and Acea Ato2. The Group’stax expense is up 11.4 million euros and the tax rate for the period is 35.3%, substan- Compared with 31 December 2007, net finance tially in line with the figure for the end of 2007 costs are up 15.8 million euros (6 million euros on (34.7%). a like-for-like basis). The tax rate for the period is influenced by: (i) This primarily reflects the combined impact of (i) a 2.3 percentage point increase due to the reversal a 17.5 million euro increase in interest payable on of tax assets recognised in 2006 and 2007; (ii) a 1.3 medium/long-term borrowings due to the change percentage point reduction due to the decision to in the basis of consolidation and new lines of credit take advantage of an exemption provision; (iii) the obtained by Acea; (ii) a 3.8 million euro increase reversal of deferred tax assets on the Parent Com- in interest payable on short-term borrowings due pany’s tax losses (12.8 million euros), which can no to interest payable by AceaElectrabel Produzione longer be used, equal to 4.3 percentage points. and Roselectra to Electrabel on loans extended to The tax rate for the period is also influenced by fund construction of electricity generating plants; recognition of the residual tax benefit, not recog- and (iii) an increase in interest income on lines of nised in previous years, relating to deferred tax as- credit granted or on cash pooling transactions en- sets on temporary differences between the carrying tered into by the Parent Company with companies amounts accounted for in the financial statements accounted for under proportionate consolidation of subsidiaries, following transfers of business units, (up 4.4 million euros). and the corresponding amounts accounted for the consolidated financial statements (53.3 million The average rate of interest paid by Acea and euros). The related tax benefit recognised in 2007 the Group companies that participate in the cen- amounted to 24.8 million euros. Finally, tax expense tralised treasury management system on their me- for the period also includes the best estimate of the dium/long-term borrowings at 31 December 2008 eventual charge deriving from application of art. 24 is 5.089%. This indicator was calculated on the ba- of Law Decree 185/2008 (31 million euros). sis of the contractual conditions obtained during negotiation of each loan in the overall portfolio, taking account of all cash flows generated by the various instruments in the portfolio, and the overall outstanding debt (in nominal terms) and the interest rate payable at the valuation date.

MANAGEMENT REPORT ON OPERATIONS 49 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

FINANCIAL POSITION AND CASH FLOW

Acea Group - Balance sheet 31.12.2008 31.12.2007 increase/ (a) (restated) (b) (Decrease) (a) - (b) NET WORKING CAPITAL 45,494 152,232 (106,738) Current receivables 1,261,764 1,203,905 57,859 - due from end users and customers 1,056,048 1,019,833 36,215 - due from the Comune di Roma 174,870 159,433 15,437 Inventories 76,572 67,078 9,494 Other current assets 184,427 156,676 27,751 Current payables (1,055,798) (951,201) (104,597) - trade (885,872) (774,560) (111,313) - due to the Comune di Roma (149,652) (158,017) 8,365 Other current liabilities (421,470) (324,226) (97,245) NON-CURRENT ASSETS/(LIABILITIES) 3,032,259 2,604,741 427,518 Property, plant and equipment and intangible assets 3,334,717 2,888,130 446,587 Investments 31,711 99,579 (67,868) Other non-current assets 228,643 186,580 42,063 Staff termination benefits and other defined-benefit obligations (127,588) (137,912) 10,324 Provisions for liabilities and charges (161,503) (150,140) (11,363) Other non-current liabilities (273,721) (281,496) 7,776 INVESTED CAPITAL 3,077,753 2,756,972 320,781 NET DEBT (1,633,290) (1,322,540) (310,750) Medium/long-term loans and receivables 30,294 36,182 (5,888) Medium/long-term borrowings (1,708,037) (1,126,002) (582,035) Short-term loans and receivables 213,736 285,725 (71,989) Cash and cash equivalents 212,060 93,201 118,859 Short-term borrowings (381,344) (611,647) 230,303 Total shareholders’ equity (1,444,463) (1,434,432) (10,031) Balance of net debt and shareholders’ equity (3,077,753) (2,756,972) (320,781)

Amounts are shown in thousands of euros

The above balance sheet has been reclassified to shareholders’ equity and net debt, thereby showing show the components of invested capital and the the proportions of equity and debt used. corresponding funding. The amounts shown in the reclassified balance The net carrying amounts of non-current assets sheet are consistent with the amounts shown in the and net working capital, consisting of current receiv- IFRS balance sheet. ables, other receivables, inventories, current payables and the short-term portion of long-term debt, have The Acea Group’s balance sheet reports anin- been added together. crease in invested capital of 320.8 million euros The figure obtained for invested capital is then (11.64%) compared with 31 December 2007. This compared with the corresponding amounts for reflects the net effect of the reduction in net working

5 0 MANAGEMENT REPORT ON OPERATIONS capital and the increase in net fixed assets. euros (up 6.51%). The figures for the period are significantly influ- The following pro forma balance sheet at 31 enced by the change in the method of consolidat- December 2008 provides information on the coming Tirreno Power, Eblacea and Umbra Acque and ponents of invested capital and the corresponding the first-time consolidation of other companies. On funding applying a like-for-like method and basis of a like-for-like basis, the increase in invested capital consolidation: compared with 31 December 2007 is 179.4 million

Acea Group - Balance sheet 31.12.2008 31.12.2007 increase/ increase/ (a) (restated) (b) (Decrease) (a) - (b) (Decrease) % NET WORKING CAPITAL 55,049 152,232 (97,183) -63.84% Current receivables 1,230,249 1,203,905 26,344 2.19% - due from end users and customers 1,024,533 1,019,833 4,700 0.46% - due from the Comune di Roma 174,870 159,433 15,437 9.68% Inventories 67,391 67,078 314 0.47% Other current assets 173,861 156,676 17,185 10.97% Current payables (1,022,613) (951,201) (71,412) 7.51% - trade (852,910) (774,560) (78,350) 10.12% - due to the Comune di Roma (149,652) (158,017) 8,365 (5.29%) Other current liabilities (393,839) (324,226) (69,614) 21.47% NON-CURRENT ASSETS/(LIABILITIES) 2,881,370 2,604,741 276,629 10.62% Property, plant and equipment and intangible assets 3,065,426 2,888,130 177,297 6.14% Investments 122,109 99,579 22,530 22.63% Other non-current assets 223,025 186,580 36,445 19.53% Staff termination benefits and other defined-benefit obligations (121,209) (137,912) 16,702 (12.11%) Provisions for liabilities and charges (155,877) (150,140) (5,737) 3.82% Other non-current liabilities (252,104) (281,496) 29,392 (10.44%) INVESTED CAPITAL 2,936,419 2,756,972 179,446 6.51% NET DEBT (1,478,940) (1,322,540) (156,399) 11.83% Medium/long-term loans and receivables 21,292 36,182 (14,890) (41.15%) Medium/long-term borrowings (1,556,931) (1,126,002) (430,929) 38.27% Short-term loans and receivables 215,094 285,725 (70,631) (24.72%) Cash and cash equivalents 209,386 93,201 116,185 124.66% Short-term borrowings (367,781) (611,647) 243,866 (39.87%) Total shareholders’ equity (1,457,479) (1,434,432) (23,047) 1.61% Balance of net debt and shareholders’ equity (2,936,419) (2,756,972) (179,446) 6.51%

Amounts are shown in thousands of euros

MANAGEMENT REPORT ON OPERATIONS 51 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

The analysis of changes is based on a compari- value of the plans reported by the companies son of amounts at 31 December 2008 (including involved in the change in the basis of consoli- changes during the period) with those at the end dation (totalling 5.5 million euros) and, on the of the previous financial year. other, the effect of recalculating tariff subsidies Net non-current assets and liabilities have risen for employees and pensioners; 427.5 million euros (16.41%) compared with the • a 10.3 million euro increase in provisions for li- previous year due to: abilities and charges (a reduction of 5.7 million • a 446.6 million euro increase in property, plant euros on a like-for-like basis) reflects provisions and equipment and intangible assets: this in- less uses for the period. The reduction is due to crease essentially includes 222.2 million euros, payment of the provisions made at 31 Decem- representing the value of Tirreno Power’s assets, ber 2007 in relation to the fine imposed by the 31.9 million euros regarding Umbra Acque’s Antitrust Authority (down 8.3 million euros), assets, and 13.1 million euros attributable to and the use of provisions made in relation to the newly consolidated Kyklos and Solemme. Voinoi, which was withdrawn from liquidation On a like-for-like basis with respect to 31 De- and its accumulated losses consequently covered cember 2007, the increase is thus 179.5 million (down 6.9 million euros), the significant reduc- euros and represents the balance of investment tion in the risk relating to health insurance con- of 201.1 million euros (as the following table tributions, following approval of the regulations shows), depreciation and amortisation for the adopted with article 20 of Law Decree 1112 of period (208.9 million euros) and disposals; 25 June 2008 (down 4.6 million euros). In terms • a decrease of 67.8 million euros in investments of composition, provisions essentially include: due to (i) the consolidation of Eblacea and Tir- (i) 21 million euros deriving from an estimate reno Power (down 61.9 million euros based on of legal risks (disputes, litigation, etc.); (ii) 32 the value of the investment measured using the million euros relating to liabilities linked to in- equity method at 31 December 2007); (ii) the vestments and/or former investments (including consolidation of Umbra Acque (down 6.5 mil- liabilities relating to IPSE); (iii) 38 million euros lion euros); and (iii) the agreement between for potential liabilities and charges relating to Acea and WRC PLC regarding the exchange, staff, including the disputes over contributions; without consideration, of Acea’s investment in (iv) 3.5 million euros for regulatory risks, with WRC Plc for the latter’s investment in Labora- particular reference to energy; (v) 15 million tori. In return for the transfer of its 4.9% inter- euros essentially to cover land reclamation costs est in WRC plc, Acea received shares equal to for the Orvieto waste dump operated by SAO; 5% of WRC plc’s investment in Laboratori; (vi) 6.2 million euros to cover the total amount • an increase in other non-current assets (up 42 of loans that Gori will be required to repay to million euros or 36.4 million euros on a like- municipalities under the related area plan; (vii) for-like basis), primarily due to net deferred 4.5 million euros to cover liabilities relating to tax assets (down 7.9 million euros), but above Crea Group companies; (viii) 6.8 million euros all to 53.3 million euros the residual tax ben- for charges arising from the redundancy scheme efit, not recognised in previous years, relating for the period 2007-2008; and (ix) 2.8 million to deferred tax assets on temporary differences euros for charges relating essentially to the obli- between the carrying amounts accounted for in gation to dismantle electricity generating plants. the financial statements of subsidiaries, follow- In addition, Acea has made provisions of 31 mil- ing transfers of business units, and the corre- lion euros to cover the best estimate of the even- sponding amounts accounted for the consoli- tual charge deriving from application of art. 24 dated financial statements; of Law Decree 185/2008. These provisions have • a reduction in defined benefit plans (down 10.3 been allocated to current taxes in the income million euros) reflects, on the one hand, the statement.

5 2 MANAGEMENT REPORT ON OPERATIONS Acea SpA’s Board of Directors believes, based Investments during the period amount to 417.3 on a present assessment of the likely outcomes of million euros (390.6 million euros on a like-for- such disputes and the provisions recorded in the like basis) and, compared with 31 December 2007, financial statements, that the disposition of such are up 37.5 million euros (10.8 million euros on a matters will not have a material adverse effect on like-for-like basis). the financial statements of the Group. The pro- The change essentially reflects an increase in visions represent the best estimate based on the investment in the water sector: Gori (up 12 mil- available information; lion euros) and Publiacqua (up 1.7 million euros), • the reduction in other non-current liabilities offset by declines recorded by Acque SpA (down contributes 7.8 million euros (up 29.4 million 2.3 million euros) and Acea Ato 5 (down 3.3 mil- euros on a like-for-like basis) to the increase lion euros). Umbra Acque accounts for 5.5 million in net invested capital; this movement largely euros. Acea RSE contributes 11.6 million euros to reflects the revised estimate of connection fees the increase as a result of its investments in solar (down 16.3 million euros). During the year the power plants. carrying amount of the liabilities recognised by The decrease in the generation and sales seg- Acea Ato2 in respect of income deriving from ment (5.2 million euros) reflects reductions in in- connection fees was adjusted. In the case of vestment by Roselectra (down 3.8 million euros) Acea Ato2, the adjustment was rendered nec- and AceaElectrabel Produzione (down 21.4 mil- essary as, under the apparent terms of the Con- lion euros) following completion of the Roselectra cession Agreement, the fees represent payment and Leini plants. These reductions were partially due from end users in return for carrying out offset by increased investment in the Monte della activities enabling them to access the service. At Difesa wind farm. The above reductions were also the time of the tariff review in December 2008, partly offset by increased investments by Acea- the Area Authority’s interpretation of the fees Electrabel Elettricità (up 1.8 million euros) and was revisited, clarifying the fact that they may by the investments carried out by Tirreno Power be likened to grants related to assets. Until the (up 16.9million euros). previous year the fees collected had been pro- The following table shows investment during gressively recognised in the income statement 2008, compared with 2007. over the concession term. However, in the light of the above clarification, from 2008 they are progressively recognised in the income statement over the life of the asset to which they refer, if they relate to an asset, and recognised in full as income if they relate to expenses for the period. The decrease in deferred tax liabilities (down 5.8 million euros) also contributes to the movement.

MANAGEMENT REPORT ON OPERATIONS 53 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

2008 2007 increase/(Decrease) Energy networks Acea Distribuzione 122.9 123.3 - 0.4 Acea SpA - I.P. 9.7 10.5 - 0.8 Acea Luce 0.1 - 0.1 Arse 11.6 11.6 Ecogena 0.4 0.4 Total energy networks 144.6 133.9 10.7 Generation and sales Acea Electrabel Produzione - existing plants (29.71%) 10.8 32.2 - 21.4 Voghera (29.71%) 0.2 - 0.2 Roselectra (29.71%) 0.9 4.7 - 3.8 Longano (15.15%) - - - Tirreno Power (15%) 16.9 - 16.9 AceaElectrabel (59.41%) 3.1 0.2 2.9 AceaElectrabel Elettricità (59.41%) 3.5 1.7 1.8 AceaElectrabel Trading (50%) 0.1 1.9 - 1.8 Total generation and sales 35.5 40.7 - 5.2 Environment and TAD Group 12.4 6.4 6.0 energy Acquaser 0.8 - 0.8 Kyklos 3.9 - 3.9 Solemme 0.4 - 0.4 Total environment and energy 17.5 6.4 11.1 Lazio / Campania Acea Ato 2 107.1 105.1 2.0 ATO 5 Frosinone 10.5 13.8 - 3.3 Gori (37.05%) 28.7 16.7 12.0 minor 0.3 0.5 - 0.2 Total water services in Lazio/Campania 146.6 136.1 10.5 Tuscany / Umbria Acque (45%) 26.0 28.3 - 2.3 Publiacqua (40%) 20.0 18.7 1.3 Ato 1 Perugia (40%) 5.5 - 5.5 minor 0.3 1.3 - 1.0 Total water services in Tuscany / Umbria 51.8 48.3 3.5 LaboratoRi 0.8 0.8 - Overseas 0.3 1.6 - 1.3 Corporate 18.8 12.0 6.8 Acea800 1.4 - 1.4 TOTAL ACEA GROUP 417.3 379.8 37.5

Amounts are shown in millions of euros

5 4 MANAGEMENT REPORT ON OPERATIONS The reduction in net working capital (down 106.7 ity and paid by Acea last February. Acea appealed the million euros or 97.2 million euros on a like-for-like Authority’s decision before Lazio Regional Admin- basis) compared with 2007 thus reduces net invested istrative Court, with a hearing on the merits of the capital by the same amount. The reduction is the re- case held on 7 May 2008. The court found in Acea’s sult of increases in trade payables (up 111.3 million favour, quashing all aspects of the Authority’s rul- euros or 71.4 million euros on a like-for-like basis) ing (and thus the alleged existence of an agreement) and other current liabilities (up 97.2 million euros or and, as a result, the fine. In contrast, the balance also 69.6 million euros on a like-for-like basis). The posi- reflects (iv) an increase in amounts payable to Acea tive impact of the increase in liabilities on working Distribuzione by AceaElectrabel Elettricità (up 2.7 capital is partially offset by increases in current re- million euros) and (v) 29.9 million euros resulting ceivables (up 56.6 million euros or 25.1 million euros from the collection and factoring of amounts due for on a like-for-like basis), inventories (up 9.5 million general equalisation for the period 2005-2007. euros, or substantially in line with the end of 2007 With regard to general equalisation, based on on a like-for-like basis), and other current assets (up Electricity and Gas Authority rulings 62/2008 and 29.2 million euros or 18.6 million euros on a like- 183/2008, 31.9 million euros was collected during for-like basis). the period out of provisionally recognised amounts The composition of current receivables reflects: (i) for 2005, 2006 and 2007, whilst in December 80% of a 36 million euro increase (3.55%) in receivables due the amount accrued at 30 September 2008, totalling from end users and customers (4.7 million euros or 5.7 million euros, was factored. 2.19% on a like-for-like basis) and (ii) an increase In terms of company-specific equalisation, on the in receivables due from the Comune di Roma (15.4 other hand, a total of 20.9 million euros was col- million euros or 9.68%). lected during the year, whilst in December 80% of Inventories are up 9.5 million euros or 14.15%, the amount accrued at 30 September 2008, totalling reflecting, on the one hand, (i) the inventories of the 19.3 million euros, was factored. newly consolidated Tirreno Power (up 8.6 million euros) and Umbra Acqua (up 0.5 million euros) and The increase (up 104.6 million euros) in current (ii) increased inventories of materials for use by Acea payables reflects: RSE in the installation of solar power plants (up 3.7 (i) a 111.3 million euro increase in trade paya- million euros); and, on the other, the reduction in bles, as shown in the following breakdown stocks held by Acea Distribuzione (down 3.3 mil- by business segment and comparison with lion euros). 31 December 2007: Other current assets are up 27.7 million euros or - Energy networks: trade payables total 17.71% (up 17.2 million euros or 10.97% on a like- 192.1 million euros, representing an infor-like basis). The increase reflects (i) 27.2 million crease of 35.3 million euros due above all euros deriving from the recognition of tax credits as to increases in amounts payable by Acea a result of an increase in the Parent Company’s cur- Distribuzione (up 27.3 million euros) and rent tax expense and an increase in VAT credits for Acea RSE (up 8 million euros); which rebates have not been claimed; (ii) 16.7 mil- - Energy generation and sales - Genera- lion euros regarding the fair value measurement of tion: trade payables amount to 50.7 mil- commodity contracts. For the purposes of compari- lion euros, marking an increase of 29.3 son with 2008, the figure for 2007 has been restated million euros. The increase reflects Tir- based on measurement of the CIP 6 contract, as a reno Power’s contribution of 30.1 million physical contract, resulting in a reduction in share- euros, meaning that, on a like-for-like holders’ equity at 1 January 2008, and on recognition basis, this item is down 0.7 million euros, of liabilities for derivatives in 2007 (less CIP6); (iii) essentially reflecting the completion of 8.3 million euros deriving from Acea’s recognition of Roselectra’s generating plants and their return of the fine imposed by the Antitrust Author- entry into service;

MANAGEMENT REPORT ON OPERATIONS 55 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

- Energy generation and sales - Sales: this passage of time and is shown after the offsets segment reports payables of 317.5 mil- carried out during the first half, totalling 37.9 lion euros, which is 16.1 million euros up. million euros; The increase is essentially linked to two (iii) an increase in other current liabilities (up factors: the first relates to AceaElectrabel 97.2 million euros, or 69.6 million euros Trading, whose payables are down 5.6 on a like-for-like basis). The movement re- million euros; the second regards Acea flects (a) 3.9 million euros in taxation for Electrabel Elettricità, whose payables the period; (b) 59.8 million euros deriving have risen 16.5 million euros; from the fair value measurement of com- - Water services in Lazio - Campania: modity contracts relating to AceaElectrabel trade payables of 201.3 million euros Trading’s power and gas portfolio. From 1 are up 14.5 million euros. This increase October 2008 commodity contracts relating primarily regards Gori (up 13.4 million to AceaElectrabel Trading’s power portfolio euros) and Crea Gestioni (up 4.2 mil- have been designated as hedges, whilst com- lion euros), partially offset by Acea Ato2 modity contracts regarding fuel continue to (down 5.5 million euros); be marked to market; (c) an increase of 3.6 - Water services in Toscana - Umbria: trade million euros in amounts due to the Equali- payables of 52 million euros are down 0.8 sation Fund; (d) a 2.7 million euro increase million euros. Umbra Acque contributes in amounts due to municipalities in ATO 5 8 million euros to this item, which is thus as concession fees, and an 9.2 million euro down 11 million euros on a like-for-like increase in amounts payable to municipali- basis, reflecting the performances of Pub- ties from Publiacqua; and (e) finally, the liacqua and Crea (after the spin-off oper- change in the basis of consolidation, which ating activities were transferred to Crea accounts for 11.5 million euros. Gestioni); - Overseas water services: trade payables Receivables due from end users and customers of 1 million euros are down 0.8 million are up 36 million euros compared with the end of euros; the previous year (up 4.7 million euros on a like- - Environment and energy: this area of for-like basis). A breakdown by segment is pro- business has trade payables of 31.1 mil- vided below. lion euros, marking an increase of 15.8 The performance of receivables due from end million euros, substantially attributable to users reflects a number of opposing factors, with Aquaser (up 6.9 million euros) and Eall the increase in receivables reported by the Group’s and SAO (up 4.2 million euros and 3.4 water companies being offset by reductions in the million euros, respectively); energy networks and generation and sales seg- - Acea: 37.8 million euros (up 4.9 million ments. In particular (i) the generation and sales euros); segment, which essentially includes AceaElec- (ii) a reduction in amounts payable to the trabel Elettricità and its subsidiaries, reports a re- Comune di Roma (down 8.4 million euros): duction of 30.9 million euros and (ii) the energy the decrease is essentially due to electricity networks segment a reduction of 21 million euros; surtax (up 1.6 million euros) and concession whilst (iii) water companies operating in Lazio fees (down 11.8 million euros): the surtax and Campania report an increase of 47.3 million represents the accumulated amount for the euros, and (iv) those operating in Tuscany and period from November 2007 to December Umbria an increase of 5.6 million euros. 2008, after taking account of 19.9 million eu- The increase in amounts due from other cus- ros paid via offsets during the year, whilst the tomers (including disputed receivables) derives amount for concession fees increases with the from increases across all segments, except for Tus-

5 6 MANAGEMENT REPORT ON OPERATIONS cany and Umbria. In particular: there was (i) an gions (up 10.4 million euros), influenced by Acea increase in receivables reported by energy genera- Ato2’s acquisition of amounts due from the Mu- tion and sales (up 23 million euros), entirely at- nicipality of Fiumicino to Acea Luce (4.1 million tributable to the consolidation of Tirreno Power; euros). and (ii) an increase in amounts reported by the At 31 December 2008 the ratio of receivables water companies in the Lazio and Campania re- to revenues is as follows:

31.12.2008 31.12.2007 increase/ E000 (decrease) Energy Receivables 263,390 315,334 (51,944) Revenues 1,358,093 1,214,374 143,719 Receivables/Revenues 19.39% 25.97% -6.57%

Water Receivables 472,444 421,350 51,094 Revenues 624,103 558,513 65,590 Receivables/Revenues 75.7% 75.44% 0.3%

Group total Receivables 375,834 315,334 420,500 Revenues 1,982,196 1,214,374 767,822 Receivables/Revenues 37.1% 25.97% 11.2%

Amounts are shown in thousands of euros

In order to reduce the costs linked to collec- and private customers, totalling 14.5 million eu- tion times for receivables, the Group continued to ros. These bills were issued by AceaElectrabel carry out the without-recourse factoring of receiv- Elettricità, Acea Ato2 and Acea Distribuzione. ables, primarily with regard to amounts due from The fees paid to the factoring company totalled public sector entities. 3.4 million euros, corresponding to approximately Within the context of the framework agree- 3.2%. ments for revolving without-recourse factoring executed in 2006 and 2007 and spot contracts ex- Net debt is up 310.8 million euros from the ecuted in December, during the period the Group 1,322.5 million euros reported at the end of 2007 factored past-due bills issued to public entities, to the 1,633.3 million euros reported at 31 De- totalling 92.3 million euros (the Group’s shares), cember 2008.

MANAGEMENT REPORT ON OPERATIONS 57 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

An analysis of net debt is shown below:

31.12.2008 31.12.2007 increase/ (decrease) Non-current financial assets/(liabilities) 26,009 22,318 3,690 Intercompany non-current financial assets/(liabilities) 4,286 13,864 (9,578) Non-current borrowings and financial liabilities (1,708,037) (1,126,002) (582,035) Net medium-/long-term debt (1,677,743) (1,089,820) (587,923) Cash and cash equivalents and securities 212,176 93,201 118,975 Short-term bank borrowings (199,675) (492,719) 293,044 Current financial assets/(liabilities) (42,920) 3,047 (45,967) Intercompany current financial assets/(liabilities) 85,793 156,860 (71,067) Financial assets/(liabilities) deriving from measurement of derivative instruments (10,921) 6,891 (17,812) Net short-term debt 44,453 (232,721) 277,173 Total net debt (1,633,290) (1,322,540) (310,750)

Amounts are shown in thousands of euros

Net debt at the end of the period reflects addi- basis, therefore, net debt is up 156.4 million euros tional net debt resulting from the proportionate on 31 December 2007 to 1,478.9 million euros. consolidation of Tirreno Power, Eblacea, Umbra A pro forma analysis of net debt, excluding Acqua, Kyklos and Solemme, which together ac- the newly consolidated companies, is provided count for 154 million euros. On a like-for-like below:

31.12.2008 31.12.2007 increase/ (decrease) Non-current financial assets/(liabilities) 17,006 22,318 (5,312) Intercompany non-current financial assets/(liabilities) 4,286 13,864 (9,578) Non-current borrowings and financial liabilities (1,556,931) (1,126,002) (430,929) Net medium-/long-term debt (1,535,639) (1,089,820) (445,819) Cash and cash equivalents and securities 209,502 93,201 116,300 Short-term bank borrowings (190,058) (492,719) 302,661 Current financial assets/(liabilities) (41,100) 3,047 (44,146) Intercompany current financial assets/(liabilities) 86,904 156,860 (69,956) Financial assets/(liabilities) deriving from measurement of derivative instruments (8,549) 6,891 (15,440) Net short-term debt 56,699 (232,721) 289,420 Total net debt (1,478,940) (1,322,540) (156,399)

Amounts are shown in thousands of euros

5 8 MANAGEMENT REPORT ON OPERATIONS At the end of the first three months of each ly operational. The term to maturity of the line year, without taking extraordinary transactions of credit made available to finance construction into account, net debt is traditionally higher than of the Monte della Difesa wind farm has also at the end of the previous year. been extended to 27 June 2009 and increased to up to 50 million euros (Acea’s share is 14,8 As provided in the analysis of invested capital, million euros); in order ensure a like-for-like basis for compari- • the increase of 582 million euros in non-cur- son the following analysis of net debt also shows rent payables and liabilities reflects an amount amounts on a like-for-like basis with respect to 31 of 151.5 million euros reported by the compa- December 2007. nies consolidated for the first time under proportionate consolidation. On a like-for-like An analysis of net debt, in terms of the figure basis the increase is 430.9 million euros, due to: for the medium/long-term component, shows (i) increased payments (reflecting the length of that: time involved) on bonds in issue (up 14.7 mil- • the balance of “Non-current financial assets/(li- lion euros); (ii) the disbursement of a new loans abilities)” amounts to 26 million euros (up 3.69 to Acea, including 100 million euros obtained million euros on 31 December 2007), whilst from Cassa Depositi e Prestiti, 150 million eu- on a like-for-like basis the figure is 17 million ros obtained to finance investment in the water euros (down 5.312 million euros). The increase business, and a further 200 million euros ob- essentially regards VAT rebates applied for by tained from Cassa Depositi e Prestiti; (iii) fur- Tirreno Power and Umbria Acque (9 million ther drawdowns by Acque on the loan granted euros and 2.54 million euros, respectively). On a in 2006 (up 9 million euros); partially offset by like-for-like basis the decrease of 5.312 million (iv) a reduction of 28.4 million euros as a result euros is a result of reclassifications to current of repayments of principal falling due. The bal- assets of the receivables guaranteed by Enertad ance is made up by the borrowings of Umbria at the time of acquisition of the TAD Energia Acque, totalling 11.3 million euros, Kyklos and ed Ambiente Group and of the amount payable Solemme, amounting to 3.813 million euros, to Acea Ato5 SpA by the Area Authority; and Tirreno Power, totalling 136 million euros. • “Intercompany non-current financial assets/ This latter agreement with a syndicate of banks (liabilities)” are down from 13.9 million euros is divided into a Term Facility in two tranches, at 31 December 2007 to 4.3 million euros at of which Tirreno Power has made use of only 31 December 2008, marking a reduction of 9.6 the first. The loan is to be repaid in the form of million euros (also on a like-for-like basis). The a bullet repayment on maturity (30 June 2014) reduction during the period reflects reclassi- and is subject to interest at a rate equal to Euri- fication to current assets of the lines of credit bor plus a spread of 40 basis points (in the sev- granted to AceaElectrabel Produzione and re- enth year the spread becomes 45 basis points), payment at the end of June of the shareholder and a Revolving Facility for general corporate loan granted by Acea to Eblacea. With regard purposes with repayment on 30 June 2014 and to the loans granted to AceaElectrabel Produz- interest equal to Euribor plus a spread of 30 ione, whilst awaiting medium/long-term re- basis points. The agreement provides for an financing of these loans, Acea and Electrabel Interest Cover Ratio (EBITDA over finance have granted the generating companies a 1-year costs) and a Leverage Cover Ratio (net debt extension (30 June 2009) of the maturity date over EBITDA). for the loans disbursed and the lines of credit granted. The new maturity date coincides with the date on which the new lines of credit made available by the sponsors are expected to be ful-

MANAGEMENT REPORT ON OPERATIONS 59 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

The conditions applicable to the loan of 100 the year and increase its long-term exposure in million euros from Cassa Depositi e Prestiti pro- order to meet its borrowing requirements and vide for repayment on maturity on 21 December those of its subsidiaries. The balance of 5.9 mil- 2021, with interest equal to six-month Euribor lion euros regards the short-term borrowings plus a spread currently equal to 0.4% per annum of Umbra Acque; and repayments to be made six-monthly. The • the balance of current financial assets and li- agreement provides for an entry fee of 100 thou- abilities has resulted in an increase in net debt sand euros and a commitment fee equal to 30% of of 46 million euros, amounting to 44.1 million the spread per annum. The spread may vary based euros on a like-for-like basis. This reflects op- on any changes to the ratings assigned to Acea. posing factors: on the one hand (i) collection of The principal is to be repaid in six-monthly in- the receivable posted in the consolidated finan- stalments equal to 1/24 of the total amount from cial statements for 2007 regarding the sale of 30 June 2010. The maturity date is 21 December the property on Via di Valleranello (52.5 mil- 2021. Interest rate risk associated with the loan lion euros); (ii) increased borrowing by Acea- has been hedged via an Interest Rate Swap, with Electrabel Produzione (up 19.4 million euros) the aim of converting the underlying loan from to fund construction of the Monte della Difesa floating to fixed rate. The swap is in line with wind farm; and, on the other, (iii) repayment the repayment schedule and the dates for pay- of a portion of the loan to Roselectra from ment of interest on the loan. Based on IAS 39, the shareholder, Electrabel (5.2 million euros), the Company has tested the effectiveness of the (iv) collection of the earnout due to the Parent hedge using Hedge Accounting under the Cash Company under the contract of sale for build- Flow Hedge model, which measures the degree to ing land on Via Laurentina (6 million euros); which exposure to floating cash flows is hedged. (v) a reduction in amounts payable to factoring Based on this method, after determining the fair companies in order to return amounts collected value of the effective portion of the hedge, this on factored invoices (down 2.3 million euros); value is recognised in equity, whilst the ineffective (vi) receivables of 3.2 million euros due from portion is recognised in the income statement. Mediofactoring as the accrued amount payable for the period under the Framework Agree- Information regarding the terms and condi- ment of 30 June 2006; and (vii) the recognition tions applicable to other medium/long-term bor- of receivables due from the National Grid Op- rowings is provided in the notes to the consoli- erator, totalling 5.1 million euros; dated financial statements. • the balance of net intercompany financial assets and liabilities increases net debt by 71.1 mil- Short-term debt has been reduced by 277.2 lion euros with respect to the end of the previ- million euros and breaks down as follows: ous year. This change is essentially due to an • cash and cash equivalents and securities have increase in loans and receivables deriving from increased by 119 million euros compared with centralised treasury management transactions 31 December 2007; on a like-for-like basis the with companies accounted for under propor- figure is 116 million euros, due essentially to tionate consolidation, and a reduction in divi- the Parent Company (up 66 million euros on dends due from Eblacea; 31 December 2007) and the environment and • the net balance of financial assets and liabilities energy business (13 million euros); resulting from the measurement of derivative • short-term bank borrowings have decreased by financial instruments amounts to a debt of 10.9 293 million euros, or 302.7 million euros on a million euros (8.5 million euros on a like-for- like-for-like basis. 276.7 million euros of the like basis), marking a deterioration of 17.8 mil- reduction is linked to the Parent Company’s lion euros (15.4 million euros on a like-for-like decision to reduce bank borrowings during basis) compared with the previous year. These

6 0 MANAGEMENT REPORT ON OPERATIONS instruments have essentially been entered into In particular this regards: (i) the cash collateral to hedge the exposure of certain long-term (32.3 million euros) issued to cover the commit- floating rate loans to interest rate risk, whilst ments of Atlanet SpA and its minority sharehold- the negative performance reflects the fall in ers in respect of Ipse 2000 SpA; (ii) the current market interest rates. The negative fair values of account balance of 1.4 million euros accounted these instruments regard Acea (6.8 million eu- for in the financial statements of Voghera Ener- ros), Tirreno Power (2.4 million euros), Acque gia, which, pursuant to the loan agreement en- (1.4 million euros) and Voghera Energia (0.3 tered into, is not available as they are to be used to million euros). service the borrowing received; and (iii) the current account balance of 0.8 accounted for in the For the purposes of ensuring a more appropri- financial statements of Longano Eolica. ate accounting treatment, a number of items allo- In order to ensure a consistent basis for com- cated to cash and equivalents at 31 December 2007 parison, the amounts for 2007 have been reported have been reclassified to loans and receivables. on a pro forma basis.

MANAGEMENT REPORT ON OPERATIONS 61 ThE AcEA MANAGEMENT cORPORATE chAIRMAN’S fINANcIAl GROuP fINANcIAl other EvENTS RISKS AND OuTlOOK GROuP GOvERNANcE STATEMENT hIGhlIGhTS OPERATING REvIEW inFormation AfTER uNcERTAINTIES REvIEW 31.12.2008

other inFormation

AceA SPA SHARe PRice PeRFoRMAnce

2008 was a year dominated by the fi nancial Th e Italian Stock Exchange’s principal index- crisis. Th e sell-off on international stock markets es recorded the following performances: Mibtel was only briefl y interrupted by announcements of down 48.66%, Midex down 52.39% and the S&P/ central bank intervention and the victory of the MIB down 49.53%. Democratic candidate, Barack Obama, in the US presidential elections. Acea’s share price stood at 9.635 euros at 31 Th e decline in shares prices aff ected all sec- December 2008 (capitalisation: 2,051.9 mil- tors of, anticipating the coming recession that has lion euros), marking a fall of 32.29% compared since hit the world’s largest economies. with 31 December 2007. Over the year the share Th e economic crisis, which has had an impact price registered a peak of 14.55 euros on 9 Janu- on all the major economies, has required large- ary, whilst recording a low of 8.907 euros on 10 scale government intervention: the US Congress October. Average daily traded volumes during the approved a bailout plan for the country’s banks, an period amounted to 409,756 (395,115 in 2007). approach followed by the governments of major During the last month of 2008 trading volumes European countries (including Italy), which took declined signifi cantly to 195,399, compared with steps to shore up their national fi nancial systems. 450,477 during the last month of 2007.

17.00 16.00 15.00 14.00 Acea 13.00 12.00 11.00 10.00 % 9.00 8.00 7.00 6.00 5.00 4.00 3.00 12.2007 02.2008 04.2008 06.2008 08.2008 10.2008 12.2008

6 2 MANAGEMENT REPORT ON OPERATIONS Th e following graph shows re-based fi gures for Acea SpA’s share price compared with stock market indices and other comparable Italian blue chips.

16.00 15.00 14.00 13.00 Acea 12.00 11.00

% 10.00 9.00 Mibtel Midex 8.00 7.00 6.00 5.00 12.2007 02.2008 04.2008 06.2008 08.2008 10.2008 12.2008

(re-based on the basis of Acea fi gures)

Acea % change at 31.12.2008 Mibtel (compared with 31.12.2007) Midex acea -32.29% Mibtel -48.66% Midex -52.39%

MANAGEMENT REPORT ON OPERATIONS 63 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

17.00 16.00 15.00 14.00 13.00 12.00 11.00

% 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 12.2007 02.2008 04.2008 06.2008 08.2008 10.2008 12.2008

(re-based on the basis of Acea figures)

Acea Company % change at 31.12.2008 A2A (compared with 31.12.2007) Hera Acea -32.29% Iride A2A -59.50% Enìa Hera -50.37% Ascopiave Iride -63.46% Acegas Enìa -67.11% Enel Ascopiave -11.68% Snam Rete Gas Terna Acegas -26.12% Enel -44.41% Snam Rete Gas -9.38% Terna -15.34% Average excluding Acea, Snam Rete Gas and Terna -46.09%

130 analyst reports and/or notes on Acea SpA were published during 2008 and over 80 meetings were arranged with Italian and international investors.

6 4 MANAGEMENT REPORT ON OPERATIONS Medium/long-term Executive Responsible incentive plans for financial reporting

Acea SpA’s Remuneration Committee and Law 262 of 28 December 2005, and subsequent Board of Directors passed resolutions on 18 June amendments, introduced new measures to protect 2007 and 23 July 2007, respectively, approving the savings and regulate financial markets. establishment of a long-term incentive plan for The savings reform provided for mandatory ap- the Acea Group’s executives and senior manage- pointment of an Executive Responsible for Finan- ment. cial Reporting, vested with important duties re- The new plan aims to: lating to monitoring of the accounts (new article a. provide incentives for management to achieve 154-bis of the Consolidated Finance Act). operating and financial targets at Group level In particular, paragraph 5 of art. 154-bis of for the benefit of shareholders, thereby bring- the Consolidated Finance Act, introduced under ing management’s objectives into line with Law 262/2005, requires the appointed directors those of the Group’s shareholders; and and the Executive Responsible for Financial Re- b. boost management loyalty. porting to declare that the administrative and ac- The new plan takes the form of consecutive counting procedures are adequate and have been three-year cycles, starting from 1 January 2007. duly applied, via a specific report to be appended The plan envisages a cash payment to be cal- to statutory, interim and consolidated financial culated as a percentage of the Gross Annual Re- statements. muneration (GAR) of beneficiaries (the CEO In application of this legislation, Acea SpA and Acea SpA’s senior executives) and based on made the necessary amendments to the Articles the achievement of pre-established operating and of Association, and introduced the position of Ex- financial targets. The amount of the benefits will ecutive Responsible for Financial Reporting, en- be (i) based on the GAR at 31 December of each trusting the appointment of this executive to the year of the relevant cycle; (ii) cumulative over the Board of Directors, after prior consultation with three years of each cycle; and (iii) eventually paid the Board of Statutory Auditors. only at the end of the third year of each cycle. In order to enable release of the declarations Receipt of the benefits is dependent on the required by paragraphs 2 and 5 of art. 154-bis of achievement of performance targets to be estab- the Consolidated Finance Act, in 2007 Acea also lished each year by the Remuneration Commit- launched and completed a specific project aimed tee, and is subject to beneficiaries meeting certain at defining operating procedures for assessing the conditions. internal control system that oversees the prepara- The first cycle envisages payment of a bonus for tion of financial statements. The resulting model each indicator based on achievement of the per- was fully implemented during 2008. This project formance target set. involved the heads of the various departments The indicators are: in Acea SpA and the major consolidated Group • net profit, companies, selected in terms of quantitative and • ROIC, qualitative criteria, for the purposes of Law 262. • the creation of shareholder value, evaluated This resulted in the drawing up of administrative via a comparison of Acea’s performance with a and accounting procedures pursuant to paragraph basket of utilities stocks. 3 of art. 154-bis of the Consolidated Finance Act, via a process of identification, management and monitoring of the principal risks entailed in the preparation of financial statements. Furthermore, the project included preparation of apposite guidelines for implementing an inter-

MANAGEMENT REPORT ON OPERATIONS 65 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

nal control model in compliance with Law 262, tional tariff, which envisages the need to define which was approved, together with the “Regula- tariff parameters based on the average nature of tions regarding the Executive Responsible for Fi- end users and the geographical area served. nancial Reporting pursuant to Law 262/2005”, by In reality, the costs effectively incurred by indi- the Board of Directors of Acea SpA at a meeting vidual companies in order to provide the service held on 20 February 2008. are influenced by the specific characteristics of the During 2007 Acea SpA completed the proc- customers served and by external factors beyond ess of defining the principal risks relating to the the company’s control. preparation of financial statements, in order to It is therefore necessary to safeguard the eco- comply with the provisions of Law 262/2005, as nomic efficiency and profitability of companies via amended by Legislative Decree 303/06 and Leg- adoption of compensatory measures to cover the islative Decree 195/07, and drew up the adminis- higher costs incurred with respect to the tariffs. trative and accounting procedures that include key The company-specific equalisation mechanism controls for mitigating such risks. The establish- takes account of the difference between the spe- ment, maintenance and assessment of the Inter- cific costs incurred by a company and the national nal Control System that oversees the preparation average, where this difference is not covered by the of financial statements is a dynamic process that general mechanism. takes into account and keeps abreast of legisla- To this end, the Authority is required to carry tive developments and changes to the Group’s or- out an assessment at the request of each individual ganisation and structure. Updating of the process, company, with the aim of identifying external fac- which was carried out in 2008, takes account of all tors beyond the company’s control that give rise such developments. to costs that are higher than those reflected in the tariffs, and that are not compensated for by the general equalisation mechanism. Third tariff cycle With regard to connection fees and fixed 2008 represents the first year of application of charges, in the document “Economic conditions the tariff structure defined by the Electricity and for delivery of the connection service”, attached Gas Authority (the Authority) in the “Integrated to Resolution 348/2007 as Annex B, the Author- text of the directives […] regarding the transmis- ity has: sion, distribution and metering of electricity for • established the procedural and economic con- the regulatory period 2008-2011”, contained in ditions for delivery, to final customers, of the Annex A of Resolution 348/2007. service connecting consumers to LV electric- The previous tariff structure (for the regulatory ity networks with the obligation of connecting period 2004-2007) provided for contemporane- third parties; ous introduction of two equalisation mechanisms, • defined additional economic conditions with one “general” and the other “company-specific”, respect to those established in Resolution designed to recognise the specific conditions un- 281/2005; der which Italy’s various distribution companies • determined the procedural and economic con- operate. ditions for delivery of the network connection The mechanisms are partly based on analysis service to distribution companies with the ob- of parametric costs (general equalisation, which ligation of connecting third parties; is mandatory), and partly on company-specific • established the procedural and economic con- analyses carried out by the Authority (company- ditions for delivery of specific services (the specific equalisation, which is optional). transfer of equipment requested by users, con- The general equalisation mechanism is the tract transfers, transfers of supply, disconnec- result of the restriction created by the single na- tions, etc…).

6 6 MANAGEMENT REPORT ON OPERATIONS Antitrust Authority services sector, which is managed by a public- investigation of the acquisition private partnership in which the private part- of Publiacqua ner is selected via a tender process; • ruled that the parties should take actions to On 8 June 2006 Acea was informed that Italy’s avoid repetition of the sanctioned behaviour, Antitrust Authority was about to start an investi- with the Authority to be notified of the nature gation of an alleged violation of article 81 of the of such actions within 90 days, and also amend Treaty of Rome (anti-competitive agreements) the rules governing the partnership regarding in relation to the acquisition, in partnership with the part deemed to be in violation of competi- Suez, of a 40% stake in Publiacqua, which man- tion regulations; ages water services in the Florence area. • ordered Acea and Suez to pay fines of 8.3 mil- On 8 June 2006 Acea submitted the documen- lion euros and 3 million euros, respectively (the tation relating to the transaction. difference in the amounts derives from their The investigation saw a number of key develop- respective turnovers in the relevant sector in ments during the first half of 2007, with several Italy). Company representatives giving evidence during hearings held at the Authority’s offices and depo- Acea appealed the Authority’s decision before sition of defence briefs (prepared with the assist- Lazio Regional Administrative Court, with the ance of the consultants hired by the Company). hearing on the merits of the case held in April: The most important event took place during the on 7 May 2008 the court announced the related second half of July, when the report containing the sentence, finding in Acea’s favour and cancelling results of the investigation was passed to the Anti- all the rulings and the fine imposed. Details of the trust Authority Board for its final decision. sentence, upholding all the appellant’s arguments, On 28 November 2007 Acea was notified of were published at the end of June. the Antitrust Authority’s ruling, in which it: The fine was paid in February 2008 and, in view • deemed that a horizontal agreement existed of the above sentence, Acea has filed a claim for between Acea and Suez in the integrated water the return of the sum paid.

MANAGEMENT REPORT ON OPERATIONS 67 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

EVENTS AFTER 31 DECEMBER 2008

During the meeting of Acea SpA’s Board of iff for integrated water services exceeded the limit Directors’ on 3 March 2009, the Chief Executive established by the Ministerial Decree of 1 August Officer, Andrea Mangoni, resigned from his posi- 1996, being over 5% for each year and, on the tion with effect from 31 March of this year. The other, cited “the principle of the non-retroactivity resignation was accepted by the Board. of administrative actions designed to guarantee certainty in legal relations, and the legal principle pro- The Company’s Chief Financial Officer and hibiting unilateral changes with retroactive effect to Executive Responsible for Financial Reporting, legal relations between private parties” . Roberta Neri, also resigned during the meeting, as Despite this, the Mayors’ Conference for ATO did Massimiliano Salvi, Head of the Energy Net- 5 issued Resolution 3 of 27 January 2009, opting works division, both with effect from 31 March “not to suspend, or cancel, Resolution 4 of 27 February of this year. 2007 passed by the Mayors’ Conference; not to appeal The Electricity and Gas Authority’s Annual to the Regional Administrative Court against COV- Report, presented in March 2009, has, for the first IRI Resolution 7; and to immediately launch proce- time in Acea’s history, not imposed a fine on the dures aimed at complying with all the requirements Company with regard to non-compliance with set out by COVIRI in Resolution 7/2008”. the standards for service continuity in 2008. The Authority has, in fact, awarded Acea a prize in The Company believes COVIRI Resolution recognition of its record in terms of the number 7/2008 to be entirely illegitimate, leading it to file and duration of outages. The prize will be certified appeal against the above ruling before the Lazio by the Authority during the current year. Regional Administrative Court. In the water services segment, Acea ATO 5 In the Company’s opinion, the argument put SpA has had to deal with a number of issues since forward by COVIRI in the above ruling – accord- the beginning of 2009 as a result of the resolution ing to which Resolution 4/2007 passed by the passed by Italy’s Supervisory Committee for the Mayors’ Conference raised the average real tariff Use of Water Resources (COVIRI), which, follow- by more than the limit established by art. 5 of the ing the tariff review of 2007 that involved ATO 5 Ministerial Decree of 1 August 1996 – to be il- – Southern Lazio and FROSINONE, contests the legitimate as it is in evident contrast with: decisions taken by the Area Authority. • firstly, art. 117 of Legislative Decree 267/2000 In this regard, it should be recalled that Reso- and subsequent amendments and additions, lution 4, passed by the Mayors’ Conference held which provides that tariffs for local public on 27 February 2007, recognised the higher costs services must “ensure a fair return on investment incurred by the operator (Acea Ato5 SpA) since and the related operations” and establishes the taking over management of integrated water serv- following criteria for calculating tariffs, which ices compared with projections set out in the Area should take account of: “a) the need for revenues Plan. As a result, the Resolution proceeded “to ap- to cover the related costs, in such a way as to ensure prove revised tariffs with effect from 2006”. that costs are fully covered, including charges for The following Decision 1/2008 issued by the technical and financial depreciation; b) the need for Chairman of the ATO 5 Authority proceeded “to a balanced debt-to-equity ratio; c) the cost of oper- modify the tariffs for 2006 to enable the operator to ating the infrastructure, bearing in mind invest- recoup the shortfall via increases in the amounts billed ments and service quality; d) the need to provide to its customers”. an adequate return on invested capital, in line As noted above, the above decisions have been with prevailing market conditions”; contested by COVIRI, which, on the one hand, • secondly, art. 154 of Legislative Decree observed that the increase in the average real tar- 152/2006, in accordance with which the tariff

6 8 MANAGEMENT REPORT ON OPERATIONS The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

“constitutes the price for integrated water services at any time intervene in the event of significant and is fixed taking account of the quality of water differences between projections in the financial resources and of the service provided, the necessary plan and the actual figures regarding: a) the infrastructure and upgrading work, the cost of op- achievement of the levels of service envisaged erating the infrastructure, an adequate return on in the plan, following the related investments, invested capital and the operating costs for protect- assessing changes to the limits for price “K” or ed areas, in addition to a portion of the operating any penalties, and rebates due in accordance costs incurred by the Area Authority, in such a way with the terms of the concession arrangement, as to guarantee full coverage of investment and op- especially with regard to the “depreciation” and erating costs according to the cost recovery principle “return on capital” components of the tariff; b) …”; the match between revenues deriving from ap- • thirdly, the Ministerial Decree of 1 August plication of the tariff structure and revenues ex- 1996, with specific reference to extraordinary pected on the basis of the average tariff estab- changes to the tariff, above all with regard to lished in concession arrangement, in order to the provisions of the last paragraph of art. 4, in make the resulting changes; c) the correspond- accordance with which “The average real tariff ence of operating costs with structural changes may be revised as a result of: legislation or regu- in operations and distribution and the resulting lations that modify requirements regarding the changes to the reductions provided for by art. quality of the product and service, subject to prior 6”. approval by the Area Authority; periodic checks on the services provided; changes to the normalised The above considerations lead us to believe that method established by the Supervisory Committee COVIRI’s resolution is illegitimate and, conse- for the Use of Water Resources” – and art. 8, para- quently, that the tariff fixed by Resolution 4/2007, graph 2, according to which “The Area Author- as passed by the Mayors’ Conference for ATO 5, ity may, aside from the three-year tariff review, is valid.

RISKS AND UNCERTAINTIES

In addition to the disclosures contained in this cember 2008, to which reference should be made. document, information on the principal risks and At the date of preparation of these financial uncertainties to which the Group is exposed, in- statements, we do not expect the Acea Group to cluding the disclosures required by Legislative be exposed to further risks and uncertainties that Decree 195/2007, which has amended paragraph may have a significant impact on its results of 5 of art. 154-bis (Executive Responsible for Fi- operations or financial position, other than those nancial Reporting) of Legislative Decree 58 of 24 mentioned in this document. February 1998, taking account of the CONSOB consultation document of 7 July 2008, is provided in the notes to the financial statements for the Regulatory risk year ended 31 December 2008 of the individual Acea Group companies. Each of the joint venture companies operat- Moreover, further information on foreign ex- ing in the generation and sales segment has es- change risk, market risk, liquidity risk and inter- tablished a Regulatory and Government Affairs est rate risk is provided in the section “Additional department, which, together with the correspond- disclosures on financial instruments and risk man- ing department in AceaElectrabel SpA, monitors agement policies” in the notes to the consolidated regulatory developments. This involves providing financial statements for the year ended 31De- support both with regard to compliance and in the

MANAGEMENT REPORT ON OPERATIONS 69 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

consistent application of regulations in corporate amount for the equalisation of the cost of market- procedures and within the electricity and gas busi- ing transport services, on the other hand, results nesses, in order to reconcile regulatory compliance from development (time/costs) of the project for with the interests of the joint venture. adapting an operator’s information systems, un- Management of regulatory risk takes the fol- dertaken in order to guarantee the required sepa- lowing form: ration of network and sales functions (the Volta 1. the management of relations of a technical and Programme). institutional nature; Finally, the consultation process is still under- 2. technical and regulatory support in respect of way relating to the general equalisation mecha- activities subject to regulation and control; nism for measurement of the loss differential, as 3. reporting on and monitoring regulatory com- defined above. This makes it impossible to effec- pliance. tively quantify the amount concerned. Another area of uncertainty created by the ex- During the third regulatory period for the en- isting tariff regulations regards measurement of ergy networks segment, the Electricity and Gas the fees for reactive energy withdrawal with low Authority has introduced various new regulations power-factor operation from the National Grid. In governing tariffs, which continue to give rise to a this case, the general regulation does not take ac- number of areas of uncertainty. count of the peculiarities of the operator’s electric- With respect to the analytical formulation re- ity network that interfaces with the Grid, resulting garding company-specific equalisation, further in inappropriate application of the regulation itself examination has enabled the Group to clarify cer- and, therefore, the potential for undue costs. tain essential aspects of application. In this case, therefore, it has been possible to The current regulations that define the tar- limit – to a certain extent – uncertainty surround- iff component designed to reimburse Acea RSE ing the update, provided for by the new regula- SpA for the costs incurred in obtaining energy ef- tions, of the amount – already determined for the ficiency certificates (white certificates) is based on previous regulatory period – of the Group’s total an annually updated formula. allowed costs for distribution activities. This results in uncertainty over the value of the There is also a degree of uncertainty regarding amount to be received and, as a result, over the sale the general equalisation mechanisms, introduced price for white certificates for the years after 2009. during the current regulatory period, for the costs It is important to note that at present the com- incurred in the development of electronic meter- pany has no plans to carry out further energy saving systems, in the marketing of transport services ing projects, having ensured that the obligations and in measuring the difference between the ef- for distributors have been met. This means that ficiency of the operator’s technical and commer- the average cost of obtaining white certificates cial processes (as it affects network losses) and the will be frozen, thereby reducing the risk. standard tariff component designed to cover such losses (the loss differential). Constitutional Court sentence With regard to the equalisation of the costs in- 335/2008 curred for electronic metering systems, the limited Constitutional Court sentence 335, deposited reliability of projections of the economic impact on 10 October 2008, declared art.14, paragraph 1 are linked to the weight assigned, in the related of Law 36/94 (Measures regarding water resources) analytical formulation, to the creation of specific to be unconstitutional, both in its original form, and system parameters, developed by the Authority as amended by art. 28 of Law 179/02 (Measures re- and, therefore, not retroactively available to indi- garding the environment) and art. 155, paragraph 1 vidual operators. of Legislative Decree 152/2006 (the Consolidated Uncertainty regarding estimates of the annual Environment Act).

7 0 MANAGEMENT REPORT ON OPERATIONS This legislation established that the tariff com- provided for in the respective Area Plan, and ponent regarding public sewerage and waste water the state of progress in implementing the plan, treatment services is to be paid by end users even in addition to the related forms of publication, if there are no treatment plants or such plants are including within water bills. temporarily inactive. The operator was required to pay the income resulting from the tariff formula With regard to the above sentence, the May- drawn up pursuant to article 154, to a restricted ors’ and Presidents’ Conference for ATO2 Central fund in the Area Authority’s name, in order to fi- Lazio-Rome, meeting in Rome on 5 December nance the work on sewerage networks and treat- 2008, established the following: ment plants envisaged in area plans. • Acea ATO2 must conclude the process of iden- In implementation of the Constitutional Court tifying which end users are not connected to sentence, Law Decree 208/2008, converted into treatment plants (this process has already been Law 13/2009, containing “Extraordinary measures completed for the municipality of Rome and regarding water resources and environmental pro- will be completed in the other municipalities in tection”, introduced a number of provisions govern- ATO 2 that receive integrated water services), ing integrated water services. These establish that: so as to enable it to determine how much it has • the operator must reimburse the tariff compo- collected since the start-up of integrated water nent covering the water treatment service when services in each municipality and for each of not due, either in a lump sum or in instalments, the above end users; within five years from 1 October 2009; • Acea ATO2 must cease billing the tariff com- • in cases where there are no treatment plants or ponent for the end users so far identified as not such plants are temporarily inactive, the costs being connected to a treatment plant; incurred in the design, construction and com- • removal of the tariff component covering the pletion of water treatment plants and in car- water treatment service will result in a gen- rying out the related investments, as expressly eral increase in the tariffs applied to all end identified and programmed in the area plans, users (including the recovery of accumulated are to be deducted from the rebate; such costs amounts already paid by end users in previous are to be calculated from the start-up of the years), in order to eliminate the gap between tender procedures for the design or completion guaranteed and real revenues (leaving the op- of the infrastructure necessary in order to pro- erator’s revenues unchanged). vide the treatment service, provided that such procedures are implemented in accordance The eventual rebate of the tariff component, with the established schedule; subject to identification of the end users who ef- • the rebate must be calculated by the operator’s fectively have a right to such a rebate (a process Area Authority within 120 days of the date the that Acea Ato2 has yet to complete, as noted in legislation comes into force; the resolution on this point passed by the Mayors’ • within two months of the law coming into Conference), must be offset deducting the charges force, at the proposal of the Supervisory Com- indicated in article 8 sexies. mittee for the Use of Water Resources, the In terms of an initial estimate of the amount to Minister of the Environment and Land and be reimbursed by Acea Ato2, the resolution of 5 Sea Protection is to issue decrees establishing December 2008, regarding this point, refers to new the criteria and parameters for implementing investments in sewerage and water treatment works the rebate. The decrees must also establish the incurred by Acea Ato2 in the period 2003-2007 minimum information that individual opera- (totalling 122.9 million euros, including 53.1 mil- tors must periodically send to end users regard- lion euros for water treatment), which is compared ing the plan for the construction, completion, with an annual estimate of the tariff component upgrading and rollout of the treatment plants billed to end users connected to the sewer network

MANAGEMENT REPORT ON OPERATIONS 71 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

alone, amounting to 6.4 million euros. Based on the Legislative risk available information and whilst awaiting completion of the identification of end users by Acea Ato2, Regulation of local public services it is reasonable to assume that, as matters stand, the Art.. 23-bis of Law Decree 112/08, converted Group will not incur any charges in this regard. If, into Law 133/08, governs the award of contracts however, a liability should arise as a result of the for and the management of local public services process to be undertaken by the Area Authority in of economic importance, in application of EU accordance with article 8 sexies, the resulting charg- legislation and in order to open the sector up to es would be covered by tariff revisions, for which greater competition, and guarantee freedom of es- the Mayors’ Conference has already given a com- tablishment and the freedom to provide services mitment in the resolution of 5 December 2008. for all economic entities interested in managing local public services. The legislation also aims to In terms of the other water concessions (ATO guarantee all users the right to universal and ac- 5 Frosinone, GORI, Publiacqua, Acquedotto del cessible local public services and an essential level Fiora and Acque), with regard to the provisions of service quality. of art. 8 sexies of Law 13/09, the companies have Paragraph 8 of the above article provides that carried out an independent estimate of the even- integrated water services concessions awarded un- tual charge resulting from reimbursement of the der procedures other than by public tender must tariff component covering water treatment previ- be terminated by no later than 31 December 2010, ously billed to end users, based on the method of without the need for a specific resolution by the calculation introduced by the above article 8 sexies. grantor unless, due to peculiar economic, social, Whilst awaiting completion of the process to be environmental and geomorphologic circumstances undertaken by the Area Authority, the outcome of in a particular area, recourse to the market would which is not at this time foreseeable, we believe that not be effective or practical. the maximum amount repayable, estimated on the Moreover, paragraph 10 of the article provides basis of the tariff applied to end users connected to that, within 180 days of the entry into force of the sewerage network, but not served by treatment the law, it will be necessary to enact regulations plants or served by plants that are temporarily inac- governing the various aspects of the provision of tive, will be significantly reduced or amount to zero. local public services, after consulting the Unified This can be reasonably deduced from a comparison Conference and the relevant Parliamentary com- of the amounts billed by each operator, in their area mittees, in addition to requesting the opinion of of operation, for water treatment to end users not the Council of State, (given that the new law deals served by treatment plants (approximately 32 mil- with regulatory affairs). lion euros) and the much higher value of the invest- Art. 23-bis, paragraph 10 of Law Decree ments carried out in relation to the design and con- 112/08 defines the regulations to be enacted as struction or completion of treatment plants, as well deregulation, as defined by art. 17, paragraph 2 of as the cost of the investments already launched in Law 400/88 and, thus, any legislation not expressly implementation of regional programmes and above referred to in the new regulations as having been all area plans. abolished will continue to be fully effective. Art. 14 of the draft regulations, relating to art. 113 of Legislative Decree 267/00, only refers to paragraphs 5, 5-bis, 6, 7, 8, 9 8 (excluding the first sentence), 11, 14 and 15-quater as being among the provisions to be abolished and not, therefore, to paragraph 15-bis, which, amongst other things, excludes early termination, as envisaged in the same paragraph, of concessions awarded from 1

7 2 MANAGEMENT REPORT ON OPERATIONS October 2003 to listed companies and direct sub- In the light of this, and taking account of the sidiaries of such companies at that date. difficulties involved in locating and constructing new waste dumps in the Umbria region, particularly in terms of their environmental impact, it is Strategic risk likely that future industrial planning procedures, which will of necessity form the basis of any future The activities of the companies in the envi- tenders for waste management services within the ronment and energy (formerly waste to energy) Area, will take account of the existing private sec- segment may be divided into two principal areas, tor offering. This will, above all, include the plant which are, however, highly interconnected. owned by SAO, particularly in the light of poten- The first, in which SAO SpA operates, regards tial expansion and improvement of the plant sited the management of local public services cover- in Orvieto. ing the treatment, disposal and recycling of urban solid waste and special waste deriving from the Impact of regional and area treatment of the former. planning on the Group’s activities The second, which primarily relates to EALL Both the urban waste management activities Srl and TERNI EN.A. SpA, consists in the recy- carried out by SAO, and, although to a lesser ex- cling of special waste, principally for use in elec- tent, the industrial activities carried out by the tricity production. In the case of EALL Srl, the waste to energy companies, are affected by regional main, if not only, source of fuel is RDF produced and local waste management planning processes. by SAF SpA, a company resulting from the con- Achievement of business objectives largely de- version of the Consortium set up by the munici- pends on the compatibility of the objectives with palities that produce the urban waste in the area the above processes. A further element of risk in served by the company. this context regards the need for periodic revision In addition to its principal activity, SAO also and renewal of the administrative authorisations manages urban waste and the disposal of special that are essential for carrying out waste manage- industrial waste. ment activities. In particular, in SAO’s case, the process of re- Process of liberalisation of the local vising the regional waste management plan for public services market Umbria is underway. The new plan, in its final The process of liberalisation of the local public form, may not adequately recognise the strategic services market, which recently took shape in the role played by SAO and its plants in managing form of art. 23 bis of Law 133/2008, could, over urban waste in the Umbria region. The plan may the medium term, weaken SAO SpA’s market also place limits on the management of industrial position as a result of the entry of new competi- waste, even if recent case law regarding this mat- tors interested in integrated urban waste manage- ter, including at constitutional level, has confirmed ment. the illegitimacy of limits on the free circulation of In this regard, it should be noted that SAO special waste. owns – and does not simply manage – the dump In order to mitigate its exposure to this risk, and related treatment plant located in Orvieto the company has submitted representations to and that, in August 2007, the company entered the Umbria Regional Authority, with the aim of into an agreement with the Area Authority that ensuring adequate recognition of its role in rela- will remain in effect until the dump is full. The tion to its business objectives, as part of the public agreement governs all aspects of the urban waste consultation launched by the Authority, pursu- treatment and disposal service in the Area of Op- ant to existing legislation regarding government eration, as well as special waste deriving from the transparency. treatment of the above urban waste. With regard to the Lazio region, during the

MANAGEMENT REPORT ON OPERATIONS 73 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

second half of 2008 the waste management emer- governed by specific agreements with the Elec- gency was declared at an end and ordinary proce- tricity Services Operator. These envisage the sale dures for the management of waste were restored. of the electricity produced, after deducting self- In this regard, despite the fact that the role of consumption, under the CIP 6/92 regime until EALL’s activities - both existing (operation of the June 2010 and May 2010, respectively, The incen- waste to energy plant at San Vittore del Lazio) tive regime based on so-called “green certificates” and those under development (the upgrading and is applied to self-consumption. These CIP 6/92 extension of the above plant and the gasification agreements are not affected by the above changes plant project for Albano) - has been adequately to legislation and will continue to apply until the recognised in the waste management plans drawn current arrangements expire. up so far, it is possible that the changed scenario Following expiry of the above CIP 6/92 regime, may, however, have a negative impact in terms of the availability of incentives for both existing the timeliness of government action. plants (at Terni and San Vittore del Lazio) and fu- Finally, there is natural risk linked to changes ture developments (the upgrading of the San Vit- in policy regarding issues linked to the Group’s tore del Lazio plant and the Albano Laziale plant) activities, as a result of different political parties will depend on the above-mentioned changes in taking power in the local communities in which legislation and, among other things, a government it operates. In this regard, local elections in the review of the assumptions on which the current Umbria region and in parts of the Lazio region are policy is based. due to be held in 2009. The uncertainty deriving from the above legislative developments, which are not always systematic in nature, and the above policy review un- Incentives for renewable electricity doubtedly represent an element of risk, which the production companies involved have responded to by making Legislation governing incentives for renewable analytic and documented representations to the electricity production has tended, in implementa- relevant authorities. tion of EC Directive 2001/77, to increasingly re- strict the availability of incentives to those relating to the biodegradable fraction of waste. Operational risk Current legislation may be summarised as follows: With regard to the generation and sales seg- • in general, incentives apply to the biodegrad- ment, the management of market risk is the re- able fraction of waste; sponsibility of AceaElectrabel SpA’s Risk Control • plants connected with the waste emergency unit, which continuously monitors and measures declared prior to January 2007, when Law the exposure of costs and revenues to movements 296/2006 came into effect, may, under a specif- in the market prices of raw materials and the ele- ic derogation to be decided on by the Ministry ments that influence such prices. Monitoring and for Economic Development, be granted access measurement are carried out taking account of, to the above forms of incentive, without dis- among the various parameters, production pro- tinguishing between the organic and inorganic grammes, projected fuel consumption, purchase factions of waste; and sale contracts for electricity, gas and other • in the case of plants that use RDF produced fuels, hedging instruments adopted and the con- entirely from urban waste, the incentives are sumption programmes of final customers. applied, whilst awaiting the adoption of spe- Risk is managed through specific hedging cific regulations, to 51% of total output. transactions entered into, within pre-established Electricity production currently carried out limits, in order to stabilise the margins of individ- at the San Vittore del Lazio and Terni plants is ual operating companies and the AceaElectrabel

7 4 MANAGEMENT REPORT ON OPERATIONS Group as a whole. forms part of the Quality and Safety department. With regard to AceaElectrabel Produzione During 2008 this unit conducted approximately SpA, the main operational risks linked to its ac- 1,000 inspections of the majority of the contract tivities regard material damage (damage to assets, work being carried out on plant and equipment on the shortcomings of suppliers, negligence), dam- behalf of Acea Distribuzione SpA in the munici- age due to lost output or human resources and pality of Rome. The results of these inspections, damage deriving from external systems and events. which are processed electronically and have been To mitigate these operational risks, the company subject to statistical analysis, give rise to rankings has, since it began operating, entered into a series that will be used in awarding contracts under a of insurance policies covering Property Damage, vendor rating system, developed in collaboration Business Interruption and Third Party Liability. with the University of Tor Vergata. This system In carrying out its activities, AceaElectrabel ranks contractors according to their reputations, Trading is exposed to risks deriving from the scored on the basis of their ability to meet the prices of the raw materials it buys and sells. Quality and Safety standards for contract work. To mitigate this risk, and thus safeguard its margins by reducing the volatility caused by sud- For the companies that operate in the envi- den and negative market trends, it is implement- ronment and energy (formerly waste to energy) ing and organising risk management functions segment any interruption to the waste to energy and risk reporting procedures governed by a spe- activities carried out at the Terni and San Vittore cific Risk Policy Manual. plants or to the waste management activities of Its hedging strategies and their execution are SAO and Enercombustibli, deriving from the fact carried out in accordance with the above proce- that they are linked to the production of electricity dures. under the CIP 6/92 regime and to the provision Further information is provided in the notes in of public services, could have negative repercus- the section “Additional disclosures on financial in- sions. struments and risk management policies”. Any impact would be reflected in both the companies’ operating results (any lost output of With regard to the energy networks segment, electricity produced under the CIP 6/92 regime is the Electricity and Gas Authority’s increasingly not easily made up) and in terms of their commit- strict service continuity regulations (indicators of ments to public and private waste management trends regarding the duration and number of out- customers. In this context, an unscheduled plant ages, in addition to other quality standards) results shutdown puts the companies’ ability to achieve in a potential risk linked to the identification and their business objectives at real risk. selection (prioritisation) of investments in the dis- The waste to energy plants, but also, though tribution network. to a lesser extent, the waste treatment plants, are Against this backdrop, in addition to existing highly complex from a technical point of view, control systems, Acea Distribuzione has prepared requiring the companies to employ qualified and a “road map” consisting of various coordinated ac- highly skilled personnel. The need to maintain the tions, which in turn cover a large number of ac- plants’ technical performance levels and to prevent tivities. This “road map” has formed the basis for personnel with specific expertise (who are difficult revision of the Investment Plan for 2008 and for to recruit) leaving the companies represent real preparation of the investment plan for 2009. risks. Moreover, the potential risk linked to the qual- The companies in this segment have mitigated ity of the works carried out under investment plans these risks by implementing specific maintenance has led to implementation of further operational, and management programmes and protocols, technical and quality control systems, including drawn up partly on the basis of their experience in the creation of the Works Inspection Unit, which managing the plants involved.

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Moreover, the plants and the related activities lution of 21 December 2006. After postponement are designed to handle certain types of waste. The of its approval in 2007, the draft was modified on 8 failure of incoming material to meet the necessary February 2008 by the Presidents of Rome Provin- specifications could lead to concrete operational cial Authority and Rieti Provincial Authority and problems, such as to compromise the operational the Director of Public Works for the Comune di continuity of the plants and give rise to risks of a Roma. The above changes regarded support for the legal nature. procedures necessary for Rieti Provincial Author- For this reason, the companies in this segment ity to withdraw its contestation of the renewal of have adopted specific procedures for monitor- Acea’s concession, essential if the agreement gov- ing and controlling incoming materials via spot erning management of hydraulic interference is to checks and the analysis of samples pursuant to the come into force. Despite this, it has yet to be de- legislation in force. cided who has title to the abstraction concession. This means that even the signature of the proposed draft agreement would not at present fully Litigation risk mitigate Acea Ato 2’s risk of losing the abstraction concession. Moreover, a careful reading of the Access to the Peschiera water unchanged articles in the draft agreement reveals sources other charges to be incurred by the operator, such The Comune di Roma has held a concession to as accumulated annual fees to be paid to the Area abstract water from the Peschiera–Capore sources Authority for ATO 3. Such fees, if accounted located in the area of ATO 3 Rieti since 1926, a for in water tariffs, would result in a significant concession that was due to expire in 1996. In 1963 increase. For this reason, the average probabil- the Comune di Roma’s Acea Azienda Municipal- ity that the existing draft Agreement is accepted izzata was granted title to the concession for the would have a material impact on the conditions Peschiera sources and, over the years, abstracted under which the operator provides water services, increasing volumes of water until the amount without, at the same time, guaranteeing automatic reached a total of 14.7 cubic metres per second. renewal of the concession. Action regarding new On 28 September 1995 the company applied for a procedures for payment of accumulated fees for renewal of the abstraction concession. The related previous years, implemented in cooperation with process is still ongoing, as the renewal of Acea’s all interested parties, could reduce this risk, and concession has been contested by Rieti Provincial appropriately re-distribute the advantages of the Authority. In the meantime, Acea Azienda Mu- transaction. nicipalizzata was converted into Acea SpA, which spun off its water business to Acea Ato 2, which TAD Group was assigned sole responsibility for integrated wa- The disputes involving companies in the envi- ter services. At 31 December 2004, Acea Ato 2 ronment and energy (formerly waste to energy) entered into agreements with certain municipali- segment can be divided into three types: ties and consortia in ATO 3, given that construc- • normal commercial (customers and suppliers), tion of the right-hand branch of the Peschiera aq- labour and tax disputes that any business might ueduct also enabled municipalities in the Province encounter; of Rieti to access the water. This development also • disputes over authorisations, deriving from ac- resulted in a reduction of the total flow of water tions brought, normally before administrative obtained from the concession, which declined courts, by persons or entities affected by the from an average of 14.7 cubic metres a second to activities of the companies in this segment; 13. A draft Agreement governing management of • administrative disputes deriving from the ap- hydraulic interference caused by the Peschiera- plication of environmental regulations and the Capore aqueduct system was adopted by the reso- related sanctions.

7 6 MANAGEMENT REPORT ON OPERATIONS With regard to the San Vittore del Lazio waste pany’s appeal at first instance. to energy plant owned by EALL Srl, a number A company has brought an action with a view of administrative actions brought by third par- to obtaining payment, from EALL Srl, of the ties are pending before Lazio Regional Admin- sum of 233,932.90 euros, plus expenses, for serv- istrative Court. The plaintiffs have contested the ices provided and the related costs. EALL Srl has Master Plan for waste management, insofar as appealed the injunction granted by the Court of it applies to waste to energy plants, approved by Terni at the request of the plaintiff and notified to Lazio Regional Authority in January 2002 and by EALL Srl in September 2007. Passing sentence the provincial directive issued by Frosinone Pro- on 27 October 2008, the Court of Terni revoked vincial Authority in April 2002, which authorised the injunction, declaring that it did not have juris- construction and operation of the plant owned by diction and referring the case to arbitration. EALL. The requests for preliminary injunctions In April 2008 a number of companies brought filed by the plaintiffs have been thrown out by an action before Lazio Regional Administrative Lazio Regional Administrative Court, and, where Court, requesting cancellation of the provisional appeals were filed, by the Council of State. In 2007 and final award of a contract by the company, cit- the Commissioner assigned responsibility for the ing both the Parent Company and the temporary environmental emergency in the Lazio region is- consortium of companies awarded the contract. sued a specific Integrated Environmental Author- The contract regarded the executive design and isation, pursuant to Legislative Decree 59/2005, subsequent upgrade and repowering of the exist- covering the activities carried out by the waste to ing waste to energy and RDF plant in San Vittore energy plant, and its upgrade and repowering. The del Lazio. The appellants also brought a claim for Authorisation was subsequently extended in the damages, quantified by them, pursuant to art. 35 first half of 2008. of Legislative Decree 80/1998 and art. 7 of Law An action brought before the Court of Cassino 205/2000, at 10% of the minimum tender price, in against EALL Srl, by a company acting on behalf addition to tender costs, revaluation, interest and of a consortium of municipalities, is still pend- legal costs. ing. The action regards an alleged breach of contract by EALL and the related claim for damages An appeal brought by third parties before Um- amounting to 9,916,800.00 euros. During 2005, bria Regional Administrative Court, requesting the consortium, which had in the meantime been cancellation of certain administrative measures, is- converted into a joint-stock company, brought an sued in relation to the Terni waste to energy plant, action supporting the claims put forward by the located in the Maratta Bassa district, and the re- original plaintiff. lated local authority directive, is still pending. The In January 2007 EALL Srl, like several other decisions appealed regard approval for a relatively companies in the sector, filed appeal before Lom- insubstantial modification of the design for the bardy Administrative Court, requesting cancella- plant, which has already been given the go-ahead tion of Electricity and Gas Authority Resolution following the related Environmental Impact As- 249/06, regarding adjustment for 2007 of the av- sessment (EIA). The validity of the EIA has been erage price of conventional fuel in the avoided fuel confirmed by Umbria Regional Administrative cost component pursuant to Title II.2 of Inter- Court and the Council of State. ministerial Economic Planning Committee (CIP) An appeal brought by Terni En.A. SpA before Provision 6 of 29 April 1992. EALL’s appeal was Umbria Regional Administrative Court, against upheld by sentence 5362/2007. the resolution passed by Terni Provincial Council However, Council of State sentence 36/2008 in December 2003, is still pending. The resolution of 22 January 2008 upheld the resulting appeal approved, pursuant to art. 20 of Legislative De- brought by the Authority, effectively quashing the cree 22/97, the identification of areas not suitable above sentence 5362/2007 and rejecting the com- for the location of a waste treatment and recy-

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cling plant, introducing a complex procedure also ally granting a loan, pursuant to Law 488, to Terni to be applied to plants, such as the one owned by En.A. SpA. The loan has already been returned in Terni En.A. SpA, already approved and located. execution of the above revocation. After a transitional period, the resolution places In January 2007 Terna En.A, like several other certain limits on plants that, despite having been companies in the sector, filed appeal before Lom- duly authorised, are located and operate in areas bardy Administrative Court, requesting cancella- adjudged, “with hindsight” and in certain respects, tion of Electricity and Gas Authority Resolution not to be suitable. In January 2007 Terni En.A. put 249/06, regarding adjustment for 2007 of the av- forward further arguments in its favour, appealing erage price of conventional fuel in the avoided fuel the provincial directive issued by Terni Provincial cost component pursuant to Title II.2 of Inter- Authority in November 2006, regarding ordinary ministerial Economic Planning Committee (CIP) authorisation of operation of the Terni waste to Provision 6 of 29 April 1992. EALL’s appeal was energy plant. This directive was only appealed with upheld by sentence 5361/2007. regard to the duration of the authorisation, which However, Council of State sentence 36/2008 is shorter than generally provided for in the related of 22 January 2008 upheld the resulting appeal legislation, based on an application of the provi- brought by the Authority, effectively quashing the sions of the above resolution passed by Terni Pro- above sentence 5361/2007 and rejecting the com- vincial Council. Additional arguments supporting pany’s appeal at first instance. the company’s case were submitted in November In February 2009 Terni EN.A. SpA received 2007, in order to obtain cancellation, and prior notice of assessment 65 from the Ministry of the suspension, of the decision to dismiss the applica- Environment and Land and Sea Protection, al- tion for renewal of the ordinary authorisation. In leging, pursuant to art. 14 of Law 689 of 24 No- the meantime, the Provincial Authority gave the vember 1981, that the company has violated the go-ahead for the plant to continue operating, in combined provisions of articles 15, paragraph 5, accordance with the resolution passed by the Pro- and 20, paragraph 6 of Legislative Decree 216 of vincial Council in January 2008. As a result, Terni 4 April 2006, and subsequent amendments and En.A withdrew its request for suspensive relief. A additions, with reference to 2007. Pursuant to art. date for the hearing on the merits of the appeal 20, paragraph 6.2 of Legislative Decree 216 of 4 has yet to be set. Umbria Regional Authority, with April 2006 and subsequent amendments and ad- Directive 11879 of 19 December 2008, issued the ditions, this violation is punishable with a fine of related Integrated Environmental Authorisation, between 2,500.00 and 50,000.00 euros. pursuant to Legislative Decree 59/2005. This is Pursuant to art. 14 of Law 689 of 24 November valid for 8 years and covers the activities of the 1981, the fine is payable in the reduced amount of above waste to energy plant in Terni. 5,000.00 euros. The action brought by a company against Terni The company has submitted its defence pursu- En.A. SpA in April 2006, regarding alleged breach ant to art. 18 of Law 689 of 24 November 1981 of a contract governing the transfer of fuel to the and articles 9 and 10 of Law 241/90, contesting Terni waste to energy plant, is still pending. The the alleged violation and requesting a hearing. The plaintiff has filed a claim for damages of approxi- hearing is scheduled for 18 March 2009. mately 800,000 euros. Terni En.A SpA contests In February 2009 Terni EN.A. SpA also re- the arguments put forward by the plaintiff. The ceived notice of assessment 66 from the Ministry case is currently at the preliminary stage. of the Environment and Land and Sea Protection, The appeal brought against the Ministry of alleging, pursuant to art. 14 of Law 689 of 24 No- Productive Activities, requesting cancellation of vember 1981, that the company has partially vio- the Ministerial Decree of 30 May 2005 (DM B3/ lated the combined provisions of articles 15, para- RC/9/142127), is still pending. This decree re- graph 7, and 20, paragraph 7 of Legislative Decree voked decree 100714 of 10 July 2001 provision- 216 of 4 April 2006, and subsequent amendments

7 8 MANAGEMENT REPORT ON OPERATIONS and additions, with reference to 2007. Pursuant to art. 20, paragraph 6.2 of Legisla- tive Decree 216 of 4 April 2006 and subsequent amendments and additions, this violation is punishable with a fine of 3,085,560.00 euros. Pursuant to art. 16 of Law 689 of 24 November 1981, the fine is payable in the reduced amount 1,028,520.00 euros. The company has submitted its defence pursuant to art. 18 of Law 689 of 24 November 1981 and articles 9 and 10 of Law 241/90, contesting the alleged violation and requesting a hearing. The hearing is scheduled for 18 March 2009.

MANAGEMENT REPORT ON OPERATIONS 79 The Acea management Corporate CHAIRMAN’S financial GROUP FINANCIAL OTHER EVENTS RISKS AND outlook Group governance STATEMENT Highlights OPERATING REVIEW INFORMATION AFTER UNCERTAINTIES REVIEW 31.12.2008

OUTLOOK

The result for the year ended 31 December around the country, upgrading new and existing 2008, which is ahead of expectations, has ena- plants in line with the increasingly competitive bled us to fully achieve the targets set out in the operating environment. Group’s business plan. Regarding the retail electricity market, the Regarding management of the energy networks Company’s efforts will be increasingly focused on segment, in view of recent and planned regulatory customer management and developing the port- developments, the Group intends to focus its at- folio in response to changes in the market which, tention on investments, processes and organisa- following liberalisation of the residential market tional matters. from 1 July 2007, require operators to provide a The volume of investments forms part of an ap- higher level of service to customers. proach that, for the first time in the history of Acea The expected upturn in sales over the com- Distribuzione, will result in the Group not having ing year will enable us to consolidate our market to pay any overall penalty in relation to service shares, enabling us to strike a balance between continuity in 2008. The Electricity and Gas Au- retail energy requirements and overall available thority has, in fact, awarded the company a prize supply. in recognition of its record in terms of the number and duration of outages. As usual, the prize will be The Group will continue to enter into bilateral certified by the Authority during 2009. contracts with joint venture companies and other In particular, reorganisation needs to take place operators in 2009. in order to separate distribution and metering ac- As in 2008, in order to reduce the risk asso- tivities in line with the unbundling imposed by ciated with the indexation of electricity purchase the Electricity and Gas Authority. and sale prices, the Group intends to hedge its ex- The programme aimed at completing the in- posure through the use of derivative instruments stallation of digital meters by 2010 is proceeding issued by major European operators. as planned. During 2009 the Group will proceed with the Finally, we intend to continue to develop sales development and construction of solar power of natural gas, partly through the acquisition of plants, a process that will primarily involve Acea new residential customers, with the aim of acquir- RSE. ing storage capacity that, in the near future, could have a key strategic role. In electricity generation, development of wind farm projects will continue in accordance with In the water services segment, 2008 saw a scal- planned objectives aimed at, on the one hand, ing down of the acquisitions programme regard- achieving a modest increase in the amount of ing operators in the areas already acquired (except electricity generated from renewable sources for Gori SpA, the operator of the Sarnese Vesu- (primarily deriving from existing hydroelectric viano area, which is in the process of completing plants) whilst, on the other, meeting demand for the transfer of activities from the municipalities green certificates from the generation segment as that belong to the ATO pursuant to the conces- a whole. sion agreement). In addition, following the opening up of the 2009 will see Acea Ato2 involved in acquiring electricity market, it is crucial that the Group raise the concessions for the municipalities of Formel- its standards of service and improve and diversify lo, Morlupo, Trevi nel Lazio (sewerage and water its energy infrastructure. The objective for 2009 is treatment alone) and Sant’Angelo Romano, and to develop and diversify our production capacity completing the acquisition of the Co.R.Ec.Alt.

8 0 MANAGEMENT REPORT ON OPERATIONS Consortium, the Acquedotto del Peschiera Con- investment programmes. sortium and the municipalities of Valmontone Current initiatives are aimed at: a) developing and Vallepietra. existing waste to energy capacity; b) improving The Group is committed to consolidating its profitability; c) adding new waste to energy capac- leadership position in Italy, with a market share ity; and d) extending disposal activities to include of more than 14.5 % of the total population, via waste water treatment sludge. a process of cost cutting and optimisation of in- During their first year of operation, Kyklos and vestments, including assessment of the viability Solemme will continue to build on the progress of amalgamating the operations of neighbouring made so far, ensuring that their respective plants concessions. are fully operational. A pilot project for the gasification of waste water treatment sludge will be run In the waste to energy segment the related during 2009. This project has been presented to companies will focus particular attention on their Tuscany Regional Authority by Aquaser.

SHAREHOLDER RESOLUTIONS

Dear Shareholders,

In inviting you to approve the financial statements hereby submitted to you, we propose to appropriate net profit for the year ended December 31, 2008, amounting to €48,320,568.95, as follows:

- - 2,416,028.45 euros, equal to 5% of net profit, to the legal reserve; - 45,787,453.50 euros to shareholders in the form of a dividend amounting to 0.215 euros per share; - 117,087.01 euros to the extraordinary reserve.

We also propose to release and distribute:

(i) dividends totalling 3,620,403.30 euros from the extraordinary reserve formed from earnings for 2007, amounting to a dividend of 0.017 euros per share; (ii) dividends totalling 90,510,082.35 euros from the demerger reserve formed from earnings during the period of the tax moratorium, amounting to a dividend of 0.425 euros per share.

The total dividend thus totals 0.657 euros per share, amounting to a total of 139,917,939.30 euros. We propose to pay the dividends from 21 May 2008.

At the date of approval of the financial statements, treasury shares total 416,993.

Acea SpA The Board of Directors

MANAGEMENT REPORT ON OPERATIONS 81

Financial statements for the year ended 31 December 2008 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Income statement

Note 2008 2007 Increase/ (Decrease) 1 sales and service revenues 155,516 154,085 1,431 2 other operating income 18,545 29,485 (10,940) net revenue 174,061 183,570 (9,510) 3 staff costs 37,290 35,807 1,483 4 cost of materials and overheads 133,275 133,487 (212) operating costs 170,566 169,294 1,272 Gross operating profit 3,495 14,277 (10,781)

5 amortisation, depreciation, provisions and impairment charges 15,158 24,037 (8,878) Risultato operativo (11.663) (9.760) (1.903)

6 Finance (costs)/income 128,448 132,233 (3,785) Ordinary finance (costs)/income 123,838 132,233 (8,395) Exceptional finance (costs)/income 4,610 0 4,610 7 Profit/(loss) on investments (4,394) 20,367 (24,761) Profit/(loss) before tax 112,390 142,840 (30,450) 8 taxation 64,070 30,258 33,812 net profit/(loss) from continuing operations 48,321 112,583 (64,262)

Net profit/(loss) from discontinued operations 0 0 0

net profit/(loss) 48,321 112,583 (64,262)

Amounts are shown in thousands of euros

8 4 Financial statements Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Balance sheet - Assets

Note 2008 2007 Increase/ (Decrease) 9 Property, plant and equipment 117,063 107,674 9,389 10 investment property 3,487 2,196 1,291 Goodwill 0 0 0 Concessions 0 0 0 11 other intangible assets 9,612 7,513 2,099 12 investments in subsidiaries and associates 1,650,261 1,616,680 33,581 13 other investments 6,054 7,142 (1,087) 14 Deferred tax assets 10,999 9,781 1,218 15 Financial assets 58,012 97,928 (39,916) 16 other non-current assets 810 949 (139) non-current assets 1,856,298 1,849,862 6,436 non-current assets held for sale 0 0 0

Inventories 0 0 0 Trade receivables 56,592 47,828 8,765 Intercompany trade receivables 150,511 114,693 35,818 Other current assets 13,878 5,113 8,766 Cash and cash equivalents 153,424 59,764 93,660 Current financial assets 38,746 86,196 (47,450) Intercompany current financial assets 751,259 700,964 50,296 Current tax assets 16,351 4,921 11,429 Deferred tax assets 0 19,041 (19,041) 17 current assets 1,180,761 1,038,520 142,242

total assets 3,037,059 2,888,382 148,678

Amounts are shown in thousands of euros

Financial statements 85 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Balance sheet - Liabilities and shareholders’ equity

Note 2008 2007 Increase/ (Decrease) Shareholders’ equity share capital 1,098,899 1,098,899 0 legal reserve 64,812 59,183 5,629 reserve for treasury shares 0 0 0 other reserves 306,111 335,272 (29,161) retained earnings (accumulated losses) 259 0 259 net profit/(loss) for the period 48,321 112,583 (64,262) 18 Shareholders’ equity 1,518,402 1,605,937 (87,535)

19 staff termination benefits and other defined-benefit obligations 28,835 32,960 (4,125) 20 Provisions for liabilities and charges 79,962 65,891 14,071 21 Borrowings and financial liabilities 991,847 549,698 442,149 22 other liabilities 10,218 11,909 (1,690) 23 Deferred tax liabilities 1,476 8,142 (6,666) Non-current liabilities 1,112,338 668,599 443,739 non-current liabilities held for sale 0 0 0

Trade payables 137,834 119,928 17,906 Other current liabilities 37,938 44,389 (6,451) Borrowings and other financial liabilities 219,647 419,618 (199,970) Tax liabilities 10,901 29,912 (19,011) 24 Current liabilities 406,320 613,846 (207,526)

Total liabilities and shareholders’ equity 3,037,059 2,888,382 148,678

Amounts are shown in thousands of euros

8 6 Financial statements income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Cash flow statement

2008 2007 Increase/ (Decrease) Cash and cash equivalents at beginning of period 59,763 57,222 2,541

Cash flows from operating activities Profit before tax and net finance costs (49,127) (19,651) (29,477) Amortisation and depreciation 15,089 12,231 2,858 Revaluations/Impairment charges 0 21,470 (21,470) Movement in provisions for liabilities (16,929) 8,225 (25,154) Net movement in staff termination benefits (4,125) 466 (4,591) Realised gains 6,520 19,731 (13,211) Income taxes paid (45,762) (73,641) 27,879 Cash generated by operations before movements in working capital (94,335) (31,168) (63,166)

Increase in current receivables (13,179) 4,593 (17,773) Increase /(Decrease) in current liabilities 32,266 (36,187) 68,452 Increase/(Decrease) in inventories 0 18,921 (18,921) Movement in other operating assets/liabilities (36,051) 14,747 (50,799) Movement in working capital (16,965) 2,075 (19,040) Cash flow from operating activities (111,300) (29,093) (82,206)

Cash flows from investing activities Purchase/Sale of property, plant and equipment and intangible assets (29,777) 10,304 (40,082) Investments (33,581) (12,016) (21,565) Purchase/Sale of investments in subsidiaries 0 0 0 Proceeds/Payments deriving from other investments 38,998 (209,719) 248,717 Dividends received 125,591 109,080 16,511 Interest received 57,656 73,771 (16,115) Total 158,887 (28,579) 187,466

Cash flows from financing activities Decrease in long-term borrowings (15,103) (7,557) (7,546) Increase in medium- to long-term borrowings 450,000 40,000 410,000 Decrease/Increase in other short-term borrowings (204,886) 193,165 (398,051) Interest paid (52,157) (50,618) (1,539) Total 177,853 174,990 4,403

Dividends paid (131,780) (114,776) (70,702)

Net increase/(decrease) in cash and cash equivalents 93,660 2,541 91,119

Cash and cash equivalents at end of period Decrease/Increase in other short-term borrowings 153,423 59,763 93,660

Amounts are shown in thousands of euros

Financial statements 87 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Notes to the financial statements

Basis of preparation for the financial statements for the year ended 31 December 2008

General information Use of estimates Acea SpA’s financial statements for the year In application of IFRS, preparation of the fi- ended 31 December 2008 were approved by the nancial statements for the year ended 31 Decem- Board of Directors on 27 March 2009. Acea SpA ber 2008 required management to make estimates is an Italian-registered company whose shares are and assumptions that affect the reported amounts traded on the Milan stock exchange. of assets and liabilities and the disclosure of contingent assets and liabilities at the balance sheet Compliance with IFRS date. The actual amounts may differ from such The financial statements have been prepared estimates. Estimates are used in order to make under the IFRS effective at the balance sheet date, provisions for credit risk, obsolescent inventories, including the IFRS recently adopted by the In- impairment charges incurred on assets, employee ternational Accounting Standards Board (IASB), benefits, taxes and other provisions. The original International Accounting Standards (IAS) and estimates and assumptions are periodically re- the interpretations of the International Financial viewed and the impact of any change recognised Reporting Interpretations Committee (IFRIC) in the income statement. and of the Standing Interpretations Committee (SIC). Acea SpA has adopted International Financial Reporting Standards (IFRS) as of 2006, with the date of transition to IFRS established as 1 January 2005. The last financial statements prepared under Italian GAAP relate to 31 December 2005.

Basis of presentation The financial statements for the year ended 31 December 2008 consist of the balance sheet, income statement, cash flow statement and statement of changes in shareholders’ equity, all of which have been prepared under IAS 1. They also include notes prepared under the IAS/IFRS currently in effect. The income statement is classified on the basis of the nature of expenses, whilst the cash flow statement is presented using the indirect method.

The financial statements for the year ended 31 December 2008 have been prepared in euros and all amounts have been rounded off to the nearest thousand euros, unless otherwise indicated.

8 8 Financial statements Accounting standards and policies

The most significant accounting standards and The functional currency used by the Latin policies are described below. American subsidiaries is the US dollar. At the balance sheet date the assets and liabilities of these companies are translated into Acea SpA’s pres- Non-current assets held for sale entation currency at closing rates, whilst income Non-current assets (and assets included in and expenses are translated at average rates for the disposal groups) classified as held for sale are ac- period or at the rates ruling at the date of the re- counted for at the lower of their previous carrying lated transactions. Exchange differences, resulting amount and their fair value less costs to sell. from the use of different rates to translate income Non-current assets (and assets included in dis- and expenses as opposed to assets and liabilities, posal groups) are classified as held for sale when are taken directly to shareholders’ equity and rec- their carrying amount is expected to be recovered ognised as a separate component of equity. On through a sale transaction rather than through disposal of a foreign economic activity, the cumu- their continued use. This condition is only met lative exchange differences deferred in a separate when the sale is highly probable, the asset (or asset component of shareholders’ equity are recognised included in a disposal group) is available for im- in the income statement. mediate sale in its present condition and management is committed to the sale, which is expected Revenue recognition to take place within twelve months of the classifi- Revenue is recognised when the amount of cation of this item. revenue can be reliably measured and it is probable that the economic benefits associated with Foreign currencies the transaction will flow to Acea SpA. Depending Acea SpA and its European subsidiaries have on the type of transaction, revenue is recognised adopted the euro as their functional and presen- on the basis of the following specific criteria. tation currency. Foreign currency transactions are initially recognised at the spot rate on the date of Sale of goods the transaction. Foreign currency monetary assets Revenue is recognised when the significant and liabilities are translated into the functional risks and rewards of ownership of the goods have currency at closing rates. Exchange differences been transferred to the buyer. are recognised in the consolidated income statement, with the exception of differences deriving Rendering of services from foreign currency loans forming part of a Revenue is recognised with reference to the net investment in a foreign entity. Such exchange stage of completion of the transaction based differences are taken directly to shareholders’ eq- on the same criteria used for contract work in uity until disposal of the net investment, at which progress. When the amount of the revenue cannot time any differences are recognised as income or be reliably determined, revenue is recognised only expenses in the income statement. The tax effect to the extent of the expenses recognised that are and tax credits attributable to exchange differenc- recoverable. es deriving from this type of loan are also taken directly to shareholders’ equity. Foreign currency Interest income non-monetary items accounted for at historical Interest income is recognised on a time propor- cost are translated at the transaction date rate. tion basis that takes account of the effective yield Non-monetary items accounted for at fair value on the asset (the rate of interest required to dis- are translated at the rate ruling at the date the count the stream of future cash receipts expected value was determined. over the life of the asset to equate to the initial

Financial statements 89 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

carrying amount of the asset). Interest is account- Borrowing costs ed for as an increase in the value of the financial Borrowing costs that are directly attributable assets recorded in the accounts. to the acquisition, construction or production of a qualifying asset (an asset that necessarily takes a Dividend income substantial period of time to get ready for its in- Dividend income is recognised when the share- tended use or sale) are capitalised as part of the holder’s right to receive payment is established. cost of the asset until it is ready for use or sale. Income on the temporary investment of the bor- Grants rowings is deducted from the capitalised borrow- Grants related to assets received from both ing costs. public and private entities are accounted for at fair All other borrowing costs are recognised as an value when there is reasonable assurance that they expense in the period in which they are incurred. will be received and that the conditions attaching to them will be complied with. Employee benefits Grants related to specific assets are recognised Post-employment employee benefits in the form as non-current liabilities and progressively recog- of defined benefit plans (such as staff termination nised in the income statement on a straight-line benefits, bonuses, tariff subsidies) or other long- basis over the useful life of the asset to which they term benefits are recognised in the period the re- refer. lated right accrues. Such funds and benefits are not Grants related to income (disbursed in order financed. to provide an enterprise with immediate financial The cost of the benefits involved in the various aid or as compensation for expenses and losses in- plans is determined separately for each plan based curred in a previous period) are recognised in the on the actuarial valuation method, using the pro- income statement in full once the conditions for jected unit credit method to carry out actuarial recognition have been complied with. valuations at the balance sheet date. Actuarial gains and losses are recognised as in- Construction contracts come or expense if the net cumulative unrecognised Construction contracts are accounted for on actuarial gains and losses for each plan at the end of the basis of the percentage of completion method, the previous reporting period exceeded the greater attributing revenue and profits on the contract to of 10% of the present value of the defined benefit the individual reporting periods in proportion to obligation or 10% of the fair value of any plan as- the stage of contract completion. Any positive or sets at that date (the so-called corridor method). negative difference between contract revenue and Such gains and losses are recognised on the basis any prepayments received is recognised in assets of the expected average remaining working lives of or liabilities. the employees participating in the plan. In addition to contract fees, contract revenue includes variations, price changes and the pay- Share-based payment transactions ment of incentives to the extent that it is probable (stock options) that they will form part of actual revenue and that The Company is required to recognise the they can be reliably determined. Expected losses goods or services received in a share-based pay- are recognised regardless of the stage of contract ment transaction at the date the goods or services completion. are consumed. The Company is required to recognise a corresponding increase in shareholders’ equity if the goods or services are received on the basis of a share-based payment transaction settled by the issuance of equity, or as a liability if the goods or services are acquired on the basis of a payment

9 0 Financial statements transaction settled by the issuance of cash. Lease payments under operating leases are rec- Acea SpA has opted to apply IFRS 2 on a pro- ognised as an expense in the income statement on spective basis from 1 January 2005. a straight-line basis over the lease term. The ben- With effect from 2000, Acea SpA introduced efits received or to be received as an incentive for annual stock option plans, with the aim of equip- entering into operating leases are also recognised ping the Company with a means of boosting on a straight-line basis over the lease term. management incentives and loyalty. Income taxes Leases Income taxes for the period represent the ag- Leases are classified as finance leases when the gregate amount of current (under the tax consoli- terms of the contract substantially transfer all the dation arrangement) and deferred taxes. risks and benefits of ownership of an asset to the lessee. All other leases are operating leases. Current taxes are based on the taxable profit (tax loss) for the period. Taxable profit (tax loss) The Company as lessor differs from the accounting profit or loss as it ex- Assets held under a finance lease are presented cludes positive and negative components that will as receivables at an amount equal to Acea SpA’s be taxable or deductible in other periods and also net investment in the leased asset. Finance income excludes items that will never be taxable or de- is recognised on the basis of a pattern reflecting ductible. Current tax liabilities are calculated us- a constant periodic rate of return on Acea SpA’s ing the tax rates enacted or substantively enacted residual net investment. at the balance sheet date, and taking account of tax instruments permitted by tax legislation (the Lease income from operating leases is recog- domestic tax consolidation arrangement, tax nised on a straight-line basis over the lease term. transparency). Initial direct costs incurred in respect of negotiating and securing the operating lease are added Deferred taxes are the taxes expected to be paid to the carrying amount of the leased assets and or recovered on temporary differences between recognised on a straight-line basis over the lease the carrying amounts of assets and liabilities in term. the balance sheet and the corresponding tax bases, accounted for using the liability method. Deferred The Company as lessee tax liabilities are generally recognised on all tax- Assets held under a finance lease are recognised able temporary differences, whilst deferred tax as- as assets belonging to Acea SpA and accounted sets are recognised to the extent that it is probable for at amounts equal to fair value at the inception that future taxable profit will be available against of the lease or, if lower, at the present value of the which the temporary difference can be utilised. minimum lease payments. The underlying liability to the lessor is included in the balance sheet as The carrying amount of deferred tax assets is an obligation to pay future lease payments. Lease reviewed at each balance sheet date and reduced payments are apportioned between the capital ele- to the extent that, based on the plans approved ment and the interest element, in such a way as to by the Board of Directors, it is no longer probable produce a constant periodic rate of interest on the that sufficient future taxable profit will be avail- remaining balance of the liability. able against which all or part of the assets can be Finance costs, whether certain or estimated, recovered. are recognised on an accruals basis unless they are directly attributable to the acquisition, construc- Deferred taxes are determined using tax rates tion or production of an asset, which justifies their that are expected to apply to the period in which capitalisation. the asset is realised or the liability settled. Deferred

Financial statements 91 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

taxes are taken directly to the income statement, and removing the asset and cleaning up the site with the exception of those relating to items taken at which the asset was located, if covered by the directly to shareholders’ equity, in which case the provisions of IAS 37. Each component of an as- related deferred taxes are also taken to equity. set with a cost that is significant in relation to the total cost of the item, and having a different useful Property, plant and equipment life, is depreciated separately. Property, plant and equipment is stated at cost, Land, whether free of constructions or annexed including any directly attributable costs of making to civil and industrial buildings, is not depreciated the asset ready for its intended use, less accumu- as it has an unlimited useful life. lated depreciation and any accumulated impair- Depreciation is calculated on a straight-line ment charges. basis over the expected useful life of the asset, ap- The cost includes the costs of dismantling plying the following rates:

Item E economic and technical rate of depreciation min. max. Plant and machinery used in operations 1.25% 6.67% Other plant and machinery 4% Industrial and commercial equipment used in operations 2.5% 6.67% Other industrial and commercial equipment 6.67% Sundry assets used in operations 12.50% Other sundry assets 6.67% 19% Motor vehicles used in operations 8.33% Other motor vehicles 16.67%

Plant and machinery in the course of construc- Gains and losses deriving from the disposal or tion for use in operations, or for purposes yet to be retirement of an asset are determined as the dif- determined, is stated at cost, less any impairment ference between the estimated net disposal pro- charges. The cost includes any professional fees ceeds and the carrying amount of the asset and and, in the case of certain assets, interest expense are recognised as income or expense in the income capitalised in accordance with the Company’s ac- statement. counting policies. Depreciation of such assets, in line with all the other assets, begins when they are Under IAS 16, property, plant and equipment ready for use. includes leasehold improvements to publicly In the case of certain complex assets subject to owned assets granted free of charge for the exclu- performance tests, which may be of a prolonged sive use of Acea SpA by the Comune di Roma, on nature, readiness for use is recognised on comple- the basis of a special service contract, and used in tion of the related tests. operating the public lighting service.

An asset held under a finance lease is depreciated over its expected useful life, in line with assets that are owned, or, if lower, over the lease term.

9 2 Financial statements Investment property and the carrying amount of the asset and are rec- Investment property, represented by property ognised as income or expense in the income state- held to earn rentals or for capital appreciation or ment. both, is stated at cost, including any negotiating Research and development costs costs less accumulated depreciation and any impairment charges. Research and development costs are recognised Depreciation is calculated on a straight-line as an expense during the period in which they are basis over the expected useful life of the asset. The incurred. Development costs incurred in relation rates applied range from a minimum of 1.67% to to a specific project are capitalised when there is a maximum of 11.11%. reasonable assurance that they will be recovered in future periods. After initial recognition, such costs Investment property is eliminated from the ac- are carried at cost, which may be reduced by any counts when sold or when the property is unus- accumulated amortisation or accumulated impair- able over the long-term and its sale is not expected ment charges. to provide future economic benefits. Each capitalised development cost is amortised Sale and lease-back transactions are account- throughout the period in which the related project ed for based on the substance of the transaction. is expected to generate future economic benefits. Reference should therefore be made to the policy The carrying amount of development costs is adopted for leases. subject to an annual impairment review when the asset is not yet in use, or more frequently when Any gain or loss deriving from the elimination an indicator during the period raises doubts about of an investment property is recognised as income whether or not the carrying amount is recover- or expense in the income statement in the period able. in which the elimination takes place. Brands and patents These assets are initially recognised at cost and Intangible assets amortised on a straight-line basis over the useful life of the asset. Intangible assets acquired separately or deriving from a business combination A summary of the useful lives of intangible as- Intangible assets acquired separately are capi- sets is as follows: talised at cost, whilst those deriving from a busi- • development costs are amortised on a straight- ness combination are capitalised at fair value at line basis over a period of five years based on the date of acquisition. After initial recognition, the expected residual useful life of the asset; an intangible asset is carried at cost. The useful life • intellectual property is amortised over an esti- of an intangible asset may be defined as finite or mated useful life of three years. indefinite. Intangible assets are tested for impairment an- Impairment of assets nually. The tests are conducted in respect of each intangible asset or, if necessary, in respect of each At each balance sheet date, the Company re- cash-generating unit. views the value of its tangible and intangible as- The useful life of an asset is reviewed annually sets to assess whether there is any indication that and, where applicable, any adjustments are made an asset may be impaired. If any indication exists, on a prospective basis. the Company estimates the recoverable amount Gains and losses deriving from the disposal of of the asset in order to determine the impairment an intangible asset are determined as the differ- charge. ence between the estimated net disposal proceeds When it is not possible to estimate the recov-

Financial statements 93 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

erable amount of the individual asset, Acea SpA corresponds to the value estimated by independ- estimates the recoverable amount of the cash- ent experts in accordance with art. 2343 of the generating unit to which the asset belongs. Italian Civil Code. Intangible assets with indefinite useful lives, Any excess of the cost of the acquisition over including goodwill, are tested for impairment an- the Company’s interest in the fair value of the nually and each time there is any indication that investee company’s shareholders’ equity at the an asset may be impaired, in order to determine date of the acquisition is recognised as goodwill. the impairment charge. Goodwill is included in the carrying amount of The recoverable amount is the higher of an as- the investment and subject to impairment reviews. set’s fair value less costs to sell and value in use. In Any resulting impairment charges are not reversed calculating value in use, future cash flow estimates if the circumstances that led to the impairment no are discounted using a pre-tax rate that reflects longer exist. current market assessments of the time value of The portion of an impairment that exceeds the money and the risks specific to the business. value of shareholders’ equity is posted to provi- If the recoverable amount of an asset (or cash- sions for liabilities and charges, despite the ex- generating unit) is estimated to be less than its istence of receivables due and until the claim on carrying amount, the carrying amount is reduced such receivables is formally waived. The cost of to its recoverable amount. An impairment charge liquidating investments is taken into account in is immediately recognised as an expense in the in- the measurement of the investments themselves, come statement, unless the asset is represented by regardless of any provisions posted in the financial land or buildings, other than investment property, statements of the related companies. carried at a revalued amount, in which case the Investments in other companies, held as non- impairment charge is treated as a revaluation de- current assets and not for trading, are accounted crease. for at fair value if determinable. In this case fair When an impairment no longer exists, the value gains and losses are recognised directly in carrying amount of the asset (or cash-generating shareholders’ equity until the investment is sold, unit), with the exception of goodwill, is increased when all the accumulated gains and losses are rec- to its new estimated recoverable amount. The re- ognised in the income statement for the period. versal must not exceed the carrying amount that Investments in other companies for which the would have been determined (net of amortisa- fair value is not known are accounted for at cost tion or depreciation) had no impairment charge and written down in the event of anything other been recognised for the asset in prior periods. The than a temporary impairment. Dividend income reversal of an impairment charge is recognised is recognised in the income statement when the immediately as income in the income statement, right to receive payment is established and when unless the asset is carried at a revalued amount, in deriving from distributions of profits subsequent which case the reversal is treated as a revaluation to acquisition of the investment. Should dividend increase. income derive from the distribution of reserves Where an impairment charge is recognised in formed prior to acquisition of the investment, the the income statement, it is included among amor- amount received is accounted for as a reduction of tisation, depreciation and impairment charges. the cost of the investment.

Investments Treasury shares Investments in subsidiaries and associates are The cost of purchasing treasury shares is ac- recognised in the balance sheet at cost, after tak- counted for as a reduction of shareholders’ equity. ing account of any impairment of the value of The effects of any subsequent transactions in- individual investments. The purchase or subscrip- volving the shares are also recognised directly in tion cost, in the case of investments transferred, shareholders’ equity.

9 4 Financial statements Inventories Inventories are valued at the lower of cost and Financial assets other than those held to matu- net realisable value. The cost comprises all materi- rity are classified as held for trading or as available als and, where applicable, direct labour, production for sale, and are stated at fair value at the end of overheads and all other costs incurred in bringing each period. the inventories to their present location and con- When financial assets are held for trading, dition. The cost is calculated using the weighted gains and losses deriving from changes in fair average cost formula. The net realisable value is value are recognised in the income statement for the estimated selling price less the estimated costs the period. In the case of financial assets available of completion and the estimated costs necessary for sale, gains and losses deriving from changes in in order to make the sale. fair value are recognised directly in a separate item Impairment charges incurred on inventories, of shareholders’ equity until they are sold or im- given their nature, are either recognised in the paired. At this time, the total gains and losses pre- form of specific provisions, consisting of a reduc- viously recognised in equity are recycled through tion in assets, or, on an item by item basis, as an the income statement for the period. The total loss expense in the income statement in the period the must equal the difference between the acquisition impairment charge occurs. cost and current fair value.

Financial instruments The fair value of financial instruments traded Financial assets and liabilities are recognised at in active markets is based on quoted market pric- the time Acea SpA becomes party to the contract es (bid prices) at the balance sheet date. The fair terms applicable to the instrument. value of financial instruments that are not traded in an active market is determined on the basis of Trade receivables and other assets quoted market prices for substantially similar in- Trade receivables, which have normal commer- struments, or calculated on the basis of estimated cial terms, are recognised at face value less estimated discounted cash flows generated by the net assets provisions for the impairment of receivables. underlying the investment. The estimate of uncollectible amounts is made Purchases and sales of financial assets, which when collection of the full amount is no longer imply delivery within a timescale generally defined probable. by the regulations and practice of the market in Trade receivables refer to the invoice amount which the exchange takes place, are recognised at that at the balance sheet date has yet to be col- the trade date, which is the date Acea SpA com- lected, and to the accrued portion of revenue for mits to either purchase or sell the asset. the period represented by invoices to be issued subsequently. Non-derivative financial assets with fixed or determinable payments that are not quoted in an Financial assets active market are initially stated at fair value. Financial assets are recognised and derecog- After initial recognition, they are carried at nised at the trade date and initially recognised at amortised cost using the effective interest meth- cost, including any directly attributable acquisi- od. The amortised cost of a financial asset means tion costs. the amount recognised initially, less principal At each future balance sheet date, the financial repayments and plus or minus accumulated am- assets Acea SpA has a positive intention and abil- ortisation using the effective interest method of ity to hold to maturity (held-to-maturity finan- the difference between the initial amount and the cial assets) are recognised at amortised cost using maturity amount, after any reductions. The effec- the effective interest method, less any impairment tive interest method is a method of calculating the charges applied to reflect impairments. amortised cost of a financial asset (or group of fi-

Financial statements 95 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

nancial assets) and allocating the interest income In the case of cash flow hedges that do not or expense over the relevant period. The effective result in recognition of an asset or a liability, the interest rate is the rate that exactly discounts es- amounts recognised directly in shareholders’ eq- timated future cash payments or receipts over the uity are included in the income statement in the expected life, or contractual term if shorter, of the same period in which the hedged contract com- financial asset to the net carrying amount of the mitment or forecast transaction is ultimately rec- financial asset. ognised in the income statement. In the case of financial assets stated at amortised cost, the income statement and balance sheet are In the case of fair value hedges, the hedged adjusted to take account of the difference between item is adjusted for changes in fair value attrib- the payment or receipt calculated on the basis of utable to the hedged risk and the resulting gain the effective interest rate and the coupon interest or loss recognised in the income statement. Gains to be collected/paid, recognised on the basis of the and losses deriving from measurement of the de- nominal rate of the instrument. rivative instrument are also recognised in the income statement. Cash and cash equivalents Cash and cash equivalents include cash at bank Changes in the fair value of derivative instru- and in hand, demand deposits and highly liquid ments that do not qualify for hedge accounting short-term investments, which are readily con- are recognised in the income statement for the vertible into cash and are subject to an insignifi- period in which they occur, with the exception of cant risk of changes in value. derivative instruments whose fair value is not reasonably determinable. Borrowings Borrowings are stated at amortised cost. Bor- Hedge accounting is discontinued when the rowing costs (transaction costs) and any issue pre- hedging instrument expires or is sold, terminated miums or discounts are recognised as direct ad- or exercised, or when the instrument no longer justments to the nominal value of the borrowing. meets hedge accounting criteria. At this time, ac- Net finance costs are consequently re-determined cumulated gains and losses on the hedging instru- using the effective rate method. ment recognised directly in shareholders’ equity are retained in equity until the forecast transac- Derivative financial instruments tion effectively occurs. If the forecast transaction Derivative financial instruments are initially is no longer expected to occur, the accumulated recognised at cost and then re-measured to fair gains and losses recognised directly in sharehold- value at subsequent balance sheet dates. ers’ equity are immediately taken to the income statement for the period. Changes in the fair value of derivative financial instruments that are designated and effective as Embedded derivatives are treated as stand- cash flow hedges of forecast transactions are rec- alone derivatives, when the economic risks and ognised directly in shareholders’ equity, whilst the characteristics of the embedded derivative are not ineffective portion is immediately recognised in closely related to those of the host contract and the income statement. If the hedged contract com- when the host contract is not measured at fair mitment or forecast transaction results in recogni- value with changes in fair value recognised in the tion of an asset or a liability, the gains and losses income statement. on the instrument previously recognised directly in shareholders’ equity are transferred from equity and included in the initial measurement of the cost or carrying amount of the asset or liability.

9 6 Financial statements Trade payables Accounting standards, revisions and interpretations not yet applicable Trade payables, which have normal commercial and not adopted in advance by the terms, are stated at face value. Company Derecognition of financial instruments IFRS 8 Financial assets are derecognised when Acea SpA has transferred all the related risks and the IFRS 8 – Operating Segments, which was en- right to receive cash flows from the investments. dorsed by the European Commission in 2007, will A financial liability (or portion of a financial come into effect from 1 January 2009. Application liability) is derecognised when, and only when, it of this standard is not expected to have a signifi- is extinguished, i.e. When the obligation specified cant impact on the Company. in the contract is either discharged, cancelled or IFRIC 13 – Customer Loyalty Programmes expires. If a previously issued debt instrument is repur- IFRIC 13 was issued in June 2007 and is due chased, the debt is extinguished, even if Acea SpA to come into effect on or after 1 July 2008. This intends to resell it in the near future. The differ- interpretation requires award credits granted to ence between the carrying amount and the amount customers under loyalty programmes to be ac- paid is recognised in the income statement. counted for as a separately identifiable component of the sales transactions in which they are granted. A portion of the fair value of the consideration re- Provisions for liabilities and ceived must thus be allocated to the award credits charges and amortised over the period in which the cred- Provisions for liabilities and charges are made its/points are redeemed. The Company does not when Acea SpA has a present (legal or construc- expect this interpretation to have any impact on tive) obligation as a result of a past event, it is more its financial statements as it does not currently run likely than not that an outflow of resources will be customer loyalty programmes. required to settle the obligation and the related IFRIC 14, IAS 19 – The Limit on a Defined Benefit amount has been reliably estimated. Asset, Minimum funding Requirements and their In- Provisions are measured on the basis of man- teraction agement’s best estimate of the expenditure required to settle the present obligation at the IFRIC 14 was issued in July 2007 and is due balance sheet date, and are discounted when the to come into effect on or after 1 January 2008. effect is significant. The interpretation provides indications on how to determine the limit on a defined benefit asset that may be recognised under IAS 19 – Employee Benefits. The Company does not expect this interpretation to have any impact on its financial position or operating results. IAS 1 - Presentation of financial statements The revised version of IAS 1 – Presentation of financial statements was endorsed in September 2007 and will come into effect after 1 January 2009. The standard separates changes in equity into owner and non-owner changes. The statement of changes in equity shall only include owner changes in equity, whilst all non-owner changes

Financial statements 97 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

are to be presented on one line. Moreover, the Amendments to IAS 32 and IAS 1 – Puttable Finan- standard introduces the “statement of comprehen- cial Instruments sive income”: this statement shall contain all items The amendments to IAS 32 and IAS 1 were of income and expense recognised in a period in endorsed in February and will come into effect in the income statement and, in addition, all other the first annual period after 1 January 2009. The income and expense items recognised. The “state- amendment to IAS 32 requires that certain putta- ment of comprehensive income” may be presented ble financial instruments and obligations arising as a single statement or as two related statements. on liquidation are classified as equity instruments The Company is still in the processing of deciding if certain conditions are met. The amendment to whether to prepare one or two statements. IAS 1 requires an entity to disclose certain details of put options classified as equity instruments. The IAS 23 – Borrowing Costs Company does not expect these amendments to A revised version of IAS 23 – Borrowing have an impact on its financial statements. Costs was issued in March 2007 and will come into effect on or after 1 January 2009. The revised IFRIC 12 – Service Concession Arrangements standard requires the capitalisation of borrowing This interpretation was published in the Offi- costs when such costs are directly attributable to cial Gazette of the European Union on 26 March a qualifying asset. A qualifying asset is an asset 2008. Companies are required to apply the new that necessarily takes a substantial period of time interpretation from the beginning of the first an- to get ready for its intended use or sale. Under the nual period starting after the date the regulation standard’s transitional provisions, the Company comes into effect. This interpretation applies to will apply IAS 23 prospectively. Borrowing costs operators who provide services under concession will thus form part of the cost of qualifying as- and establishes how to account for the obligations sets from a date after 1 January 2009. No change assumed and the rights granted under a conces- will be made to borrowing costs incurred until this sion arrangement. Acea has begun to analyse the date and accounted for in the income statement. scope of application and the resulting impact on its results of operations, financial position and IFRS 2 – Share-based payments – Vesting condi- cash flows. tions and cancellations This revised version of IFRS 2 – Share-based Amendments to IAS 1 and IAS 27 Cost of an In- payments was published in January 2008 and will vestment in a Subsidiary, Jointly Controlled Entity or come into effect in the first annual period after Associate 1 January 2009. The standard restricts the defini- These amendments were approved in May 2008 tion of “vesting conditions” to a condition that in- and will come into effect on 1 January 2009, al- cludes an explicit or implicit obligation to provide though advance application is permitted. a service. Every other condition is a “non-vesting The following improvements issued by IASB condition” and must therefore be taken into ac- were endorsed by the EU on 23 January 2009 and count in determining the fair value of the equity published on 24 January 2009 in EC Regulation instrument granted. If the equity instruments do 70/2009: IFRS 1, IFRS 5, IFRS 3, IAS 1, IAS 16, not vest due to failure to satisfy a “non-vesting IAS 20, IAS 27, IAS 28, IAS 29, IAS 36, IAS 39 condition” within the control of the entity or the and IAS 40. counterparty, the failure must be accounted for as a cancellation. The Company has not entered into In addition to the above documents, which share-based payment transactions and does not, have already been endorsed at the date of approval therefore, expect this standard to have any impact of these financial statements, the EU has yet to on its financial statements. approve the following interpretations issued by IFRIC:

9 8 Financial statements IFRIC 15 – Agreements for the Construction of Real Financial risk management Estate This information is provided in the section IFRIC 15, published in July 2008, aims to “Additional disclosures on financial instruments clarify the method of accounting for revenue and and risk management policies”. associated expenses by entities that undertake the construction of real estate directly or through sub-contractors. The interpretation is expected to come into effect from 1 January 2009, whilst its endorsement is now expected for the second quarter of 2009. IFRIC 16 – Hedges of a Net Investment in a Foreign Operation IFRIC 16, published in July 2008, applies to entities that hedge the foreign exchange exposure arising from net investments in foreign operations and intend to apply hedge accounting in accordance with IAS 39. The interpretation is expected to come into effect from 1 October 2008, whilst its endorsement is now expected for the second quarter of 2009. IFRIC 17 – Distributions of Non-cash Assets to Owners IFRIC 17 was issued in January 2009 in order to clarify how an entity should measure distributions of non-cash assets when paying dividends to shareholders. The interpretation is expected to come into effect from 1 July 2009. IFRIC 18 – Transfers of Assets from Customers IFRIC 18 was issued in January 2009. It provides additional guidance on accounting for transfers of assets from customers and clarifies the IFRS requirements for agreements in which an entity receives from a customer an item of property, plant or equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services.

Financial statements 99 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Notes to the income statement AceaElectrabel Produzione (2,838 thousand In order to ensure a better understanding of euros), Marco Polo (1,961 thousand euros), changes between the end of the previous year and Laboratori (2,042 thousand euros), AceaElec- the end of 2008, a number of items in the consoli- trabel Trading (591 thousand euros), Crea Spa dated financial statements for the year ended 31 (285 thousand euros), Luce Napoli (500 thou- December 2007 have been reclassified. sand euros), Acea Luce (224 thousand euros), Acea RSE (807 thousand euros), Acea Ato5 (915 thousand euros), Acea 8cento (604 thou- 1. Sales and service revenues sand euros), AE Holding (338thousand euros) Revenues for 2008 amount to 155,516 thou- and TAD Group subsidiaries (1,547thousand sand euros, (154,085 thousand euros in 2007) rep- euros). This item also includes 1,082 thousand resenting an increase of 1,431 thousand euros on euros in revenues from activities carried out for the previous year. the overseas companies; • revenues from services and work carried out The balance consists of: for third parties, totalling 81,172 thousand • revenues from the supply of administrative, fi- euros (75,573 thousand euros in 2007). This nancial, legal and technical services to subsidi- item refers primarily to the management and aries and associates, totalling 74,343 thousand construction of public lighting systems for the euros (78,511 thousand euros in 2007). These Comune di Roma (68,158 thousand euros), revenues primarily regard the subsidiaries, amounts paid by the Municipality of Naples Acea Distribuzione (24,756 thousand euros), (12,517 thousand euros) for management of Acea Ato2 (22,069 thousand euros), Acea- public lighting in the municipality, and other Electrabel Elettricità (11,912 thousand euros), income of 414 thousand euros.

2. Other operating income Other operating income amounts to 18,545 thousand euros, representing a reduction of 10,940 thousand euros compared with 2007 (29,485 thousand euros). A breakdown is as follows:

2008 2007 Increase/ (Decrease) Property income 1,963 1,911 52 Income from end users 0 0 0 Gains on asset disposals 1,910 19,731 (17,821) Contingent assets and other revenues 9,757 3,004 6,753 Damages, fines and compensation 730 799 (69) Recharged cost of governance bodies 1,767 1,525 242 Other 23 (23) Seconded staff 2,418 2,491 (73) Total 18,545 29,485 (10,940)

Amounts are shown in thousands of euros

100 Financial statements Property income, which is substantially in line Contingent assets and other revenues report with 2007, primarily relates to rent paid by the con- an increase of 6,753 thousand euros compared with tractor who has taken over the Group’s stock man- the previous year, primarily due to recognition of a agement on the storage space used. This item also contingent asset amounting to 8,300 thousand eu- includes the rent paid by Laboratori for use of the ros, following cancellation of the fine imposed by Grottarossa laboratory. the Antitrust Authority in relation to the acquisi- Gains on asset disposals essentially regard tion of Publiacqua, and accounted for the financial the sale of civil properties during the year. The re- statements for 2007. duction compared with the previous year (down This item primarily includes contingent assets 17,821 thousand euros) reflects a number of con- deriving from increased estimates of income for trasting factors: on the one hand, recognition of previous years and/or excess provisions for estimat- a gain on the sale of the garage in Piazzale dei ed costs for previous years. Partigiani (1,685 thousand euros) to Beni Stabili Income from seconded staff amounts to 2,418 Gestioni SpA in December 2008; on the other, thousand euros (compared with 2,491 thousand the recognition in 2007 of the net gain on the sale euros in 2007) and relates to recovery of the costs of the property in Via Valleranello. At the time of Acea SpA personnel seconded to other units and of the sale of the garage Acea entered into a lease companies. agreement with the purchaser. The lease term ex- The recharged cost of governance bodies pires in 2015 and the agreed rental is 139 thou- amounts to 1,766 thousand euros and regards fees sand euros, to be paid in quarterly instalments payable to managers of Acea SpA as members of from March 2009. subsidiaries’ boards of directors.

3. Staff costs Staff costs amount to 37,290 thousand euros for 2008, representing an increase of 1,483 thousand euros compared with 2007. The following table provides a breakdown of the item.

2008 2007 Increase/ (Decrease) Wages and salaries 26,190 24,452 1,738 Capitalised costs (160) (347) 188 Total 26,030 24,105 1,926 Social security contributions 8,729 7,819 910 Staff termination benefits 1,564 2,973 (1,410) Other 968 911 57 Total 37,290 35,807 1,483

Amounts are shown in thousands of euros

The increase reflects: The scheme has a three-year term (2007–2009) and envisages a cash payment to be calculated • renewal of the labour contract; as a percentage of the Gross Annual Remu- • the estimated charge deriving from the long- neration of beneficiaries, based on the achieve- term incentive scheme for Acea’s senior man- ment of pre-established operating and financial agement, amounting to 962 thousand euros. targets at the end of the period.

Financial statements 101 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

The following table shows the average number of staff by category, compared with the same period of the previous year. The figure for the end of 2008 is also shown.

Average number of employees employees 2008 2007 Increase (Decrease) at 31.12.2008 Senior managers 63 52 11 70 Middle managers 89 87 3 92 White-collar staff 348 345 3 350 Blue-collar staff 10 11 (1) 9 Total 511 495 15 521

4. Cost of materials and overheads The cost of materials and overheads amounts to 133,275 thousand euros and is substantially in line with the figure for the previous year.

2008 2007 Increase/ (Decrease) Materials 1,011 1,383 (371) Services 117,375 116,127 1,248 Contract work 1,071 904 167 Lease expense 11,466 8,426 3,040 Taxes and duties 1,061 1,266 (205) Other operating costs 1,291 5,381 (4,089) Total 133,275 133,487 (212)

Amounts are shown in thousands of euros

Materials This amount (1,011 euros) represents the cost of materials used during the year. A breakdown is as follows.

2008 2007 Increase/ (Decrease) Materials 1,011 1,289 (277) Change in inventories 0 94 (94) Total 1,011 1,383 (371) Capitalised costs 0 0 0 Total 1,011 1,383 (371)

Amounts are shown in thousands of euros

Services and contract work This item totals 118,445 thousand euros, marking an increase of 1,414 thousand euros on the previous year (117,030 thousand euros in 2007) and refers to:

102 Financial statements • service costs of 117,375 thousand euros, com- sand euros in 2007); pared with 116,127 thousand euros in 2007. • telecommunications, postage and printing: The increase primarily reflects the increase in 3,063 thousand euros (7,757 thousand euros in charges paid to Acea Distribuzione deriving 2007); from management and maintenance of public • maintenance of electronic equipment: 1,556 lighting activities following the transfer of the thousand euros (1,054 thousand euros in 2007); related division; • administrative, IT and engineering: 3,180 thou- • maintenance work and contracts amounting to sand euros (2,391 thousand euros in 2007); 1,071 thousand euros (904 thousand euros in • communication costs: 3,687 thousand euros 2007). (3,987 thousand euros in 2007); • travel expenses: 490 thousand euros (449 thou- The main components of services costs are as follows: sand euros in 2007); • consultants’ fees: 8,555 thousand euros (5,480 • intercompany services, totalling 86,800 thou- thousand euros in 2007); sand euros (79,889 thousand euros in 2007), • cleaning, transport and porterage: 52 thousand regarding the purchase of electricity and wa- euros (23 thousand euros in 2007); ter (25,900 thousand euros), electricity used in • freelance workers: 1,146 thousand euros (1,398 the supply of public lighting services, and other thousand euros in 2007); services provided by Group companies (50,062 • services for personnel: 2,966 thousand euros thousand euros). The following table shows a (2,297 thousand euros in 2007); breakdown of the type of services rendered by • insurance: 2,397 thousand euros (6,490 thou- Group companies:

2008 2007 Increase/ (Decrease) Acea Distribuzione Cost of the public lighting contract in the municipality of Rome 43,011 40,030 2,981 Acea Luce Cost of public lighting service in the municipality of Naples (routine and extraordinary maintenance) 2,430 2,911 (481) Luce Napoli Cost of managing public lighting service in the municipality of Naples 4,474 4,442 32 LaboratoRi Sundry services 24 34 (10) AceaElectrabel Elettricità Electricity 24,495 19,401 5,095 Ato2 Water consumption 1,229 878 351 Marco Polo Service contract 11,014 12,177 (1,163) AET Sundry services 1 0 1 TAD Sundry services 11 0 11 Acea8cento Sundry services 84 0 84 Sienergia Sundry services 0 16 (16) Arpe Sundry services 27 0 27 Total 86,800 79,889 6,805

Amounts are shown in thousands of euros Financial statements 103 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

• the cost of corporate officers of 1,381 thousand Other operating costs (Taxes and duties – General euros (1,242 thousand euros in 2007); costs – Tariff subsidies for former employees) • the cost of seconded staff (153 thousand euros); Such costs amount to 2,352 thousand euros for • bank charges of 1,697 thousand euros (1,689 2008, marking a reduction of 4,209 thousand euros thousand euros in 2007). on 2007. This primarily reflects the impact (2,168 Pursuant to article 149-duodecies of the CON- thousand euros) of tariff subsidies for former em- SOB Regulations for Issuers, the fees accruing to ployees. During the year the Company reached a the Independent Auditors, Ernest & Young, for settlement with pensioners who have a right to auditing Acea’s accounts amount to 110 thousand such benefits, resulting in a positive impact on the euros. income statement. This item also includes “Con- tingent liabilities and exceptional write-downs of Lease expense assets”, which include adjustments to estimates This item totals 11,466 thousand euros for made in previous years (1,278 thousand euros). 2008 (8,426 thousand euros in 2007) and prima- Taxes and duties include municipal property rily refers to rent on the Company’s headquarters tax and charges for the occupation of public space (3,555 thousand euros), rent on the office premises (213 thousand euros), and refuse collection tax in Via Marco Polo (718 thousand euros), rent for and other taxes (848 thousand euros). General the Data Processing and Remote Control Cen- costs include contributions paid to industry or- tre (1,326 thousand euros), rent on the property ganisations (528 thousand euros), the CONSOB in Via Valleranello (2,378 thousand euros), and (149 thousand euros), payments to charity (364 to municipal taxes (2,146 thousand euros) for thousand euros) and other mandatory charges plants, which are subsequently recharged to Acea- (299 thousand euros). Electrabel Produzione SpA and Acea Ato 2. The amount also includes other expenses, such as motor vehicle hire charges (544 thousand euros) and software licences (511 thousand euros).

5. Amortisation, depreciation, impairment charges and provisions

2008 2007 Increase/ (Decrease) Amortisation of intangible assets 6,451 4,538 1,914 Depreciation of property, plant and equipment 8,637 7,693 944 Provisions for the impairment of receivables 0 1,103 (1,103) Provisions for liabilities 70 10,702 (10,633) Total 15,158 24,036 (8,878)

Amounts are shown in thousands of euros

Amortisation of intangible assets amounts to 6,451 Depreciation of property, plant and equipment thousand euros (4,538 thousand euros for 2007) and amounts to 8,637 thousand euros (7,693 thousand refers to amortisation of assets with indefinite useful euros for 2007) and is calculated by systematically lives. The difference compared with the previous year applying economic and technical rates, which are reflects the decrease in the useful life of the assets at- the same as those used by the experts when ap- tributable to NSIU software and the entry into service praising the assets transferred as part of the de- of certain assets. merger, in order to allocate the value of the assets

104 Financial statements over their estimated residual useful lives. This item - Acea Ato2 (45,745 thousand euros); includes depreciation of public lighting assets. - Acea Distribuzione (38,355 thousand euros); - Laboratori (2,764 thousand euros); Provisions for liabilities total 70 thousand eu- - Overseas companies (1,128 thousand euros); ros (10,702 thousand euros in 2007) and primarily - Eblacea (14,672 thousand euros); regard: - Acque Blu Fiorentine (1,920 thousand euros). • 2,322 thousand euros for legal liabilities; • recognition of the earnout payable to Acea by • 307 thousand euros relating to staff, above all Milano 90 on the sale of land in Via Lauren- liabilities regarding contributions; tina. In view of the Comune di Roma’s reversal • 1,350 thousand euros for the cost of managing of its decision, on which the timing of the de- investments, including provisions for charg- velopment plan for the area had been based, es linked to the liquidation of the subsidiary, and given the willingness of the buyer to pro- Atlanet. ceed with the development on its own, Acea agreed to withdrawn from the project in return This item benefited from the significant reduc- for payment of an earnout of 5,000 thousand tion in liabilities deriving from health insurance euros by the buyer. The amount recognised in contributions, based on the new estimate of the the financial statements is reported less con- contribution of 9% and 14%. The change with re- sultants’ fees incurred in relation to the devel- spect to the previous year also reflects recognition opment project (4,610 thousand euros). in the financial statements for 2007 of provisions for the fine imposed by the Antitrust Authority Interest expense of 59,344 thousand euros is up (8,300 thousand euros). 8,726 thousand euros. This reflects: • interest on bonds in issue, totalling 14,861 Further information is provided in the section thousand euros, which is in line with the previ- “Update on major disputes and litigation”. ous year (14,794 thousand euros in 2007); • 21,764 thousand euros in interest and charges on medium/long-term borrowings, with the 6. Finance (costs)/income increase compared with 2007 reflecting the rise in the interest rate applicable to the loan Finance income/(costs) of 200 million euros and the greater volume of Net finance income amounts to 128,448 thou- borrowings reported by Acea during 2008; sand euros, marking a reduction of 3,785 thou- • 637 thousand euros in interest deriving from sand euros on 2007). cash pooling and payable to subsidiaries; Finance income amounts to 187,792 thousand • 18,081 thousand euros in interest on short- euros, (up 4,941 thousand euros on the previous term borrowings. year) and regards: • interest on loans to subsidiaries (17,123 thousand euros), above all to the generating companies and companies in the environment and energy segment; • interest on intercompany current accounts (32,473 thousand euros); • interest on bank deposits (3,149 thousand euros); • dividends paid by subsidiaries and associates (125,591 thousand euros), referring to: - Acea RSE (19,131 thousand euros);

Financial statements 105 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

2008 (A) 2007 (B) Increase/ (Decrease) (A-B) Finance costs 59,344 50,618 8,726 Charges on interest rate swaps 2,312 0 2,312 Interest on bonds in issue 14,861 14,794 67 Interest on medium- to long-term borrowings 21,764 10,348 11,416 Interest on short-term borrowings 18,081 17,947 134 Interest on intercompany running accounts 637 5,203 (4,567) Interest paid to end users 0 0 0 Interest costs less actuarial gains 1,263 1,404 (141) Factoring fees 0 808 (808) Other 427 114 313

Finance income 183,182 182,852 331 Income on interest rate swaps 2,649 0 2,649 Interest on loans to subsidiaries and associates 17,123 14,984 2,139 Interest on EIB/Banca di Roma loan 1,775 1,798 (23) Interest on loans and receivables 0 Interest on repurchase agreements 0 45 (45) Bank interest 3,149 2,065 1,083 Interest on other receivables 415 65 350 Interest on intercompany running accounts 32,473 11,094 21,380 Dividends 125,591 152,754 (27,163) Revaluations of staff termination benefits 4 8 (4) Other 3 38 (35)

Ordinary finance (costs)/income 123,838 132,233 (8,395)

Gains on the disposal of properties not used in operations 4,610 0 4,610 Exceptional finance (costs)/income 4,610 0 4,610

Total 128,448 132,233 (3,785)

Amounts are shown in thousands of euros

106 Financial statements 7. Profit/(loss) on investments The loss of 4,394 thousand euros (compared with a profit of 20,367 thousand euros in 2007) primarily regards:

2008 2007 Increase/ (Decrease) Losses on investments 6,340 905 5,435 Impairments of investments 6,340 4 6,337 JV agreement with Electrabel – price adjustment 0 902 (902)

Profits on investments 1,946 21,272 (19,326) JV agreement with Electrabel 0 19,632 (19,632) Gain on the sale of investments 354 48 307 Gain on the transfer of the public lighting business 1,591 1,591 0 Total (4,394) 20,367 (24,761)

Amounts are shown in thousands of euros

Profits (1,946 thousand euros in 2008) break Current taxes down as follows: At 31 December 2008 current taxes amount to • 1,591 thousand euros representing the accrued 99,767 thousand euros (80,336 thousand euros at portion of the gain on the transfer of the public 31 December 2007) and refer to: lighting business to Acea Distribuzione, based 1. 66,248 thousand euros for consolidated IRES on the term of the service contract with the expense, representing the sum of the taxable Comune di Roma (ten years); income and tax losses reported by companies • a 333 thousand euro gain on the sale of Acea included in the tax consolidation arrangement Luce in October. (79,571 thousand euros at 31 December 2007). The decrease compared with the previous year Losses (6,340 thousand euros in 2008) include: is due to both the reduction in the consolidated • the amount paid to cover the losses made by tax rate from 33% to 27.5% and the greater AceaRieti and the impairment of this invest- amount of tax losses transferred by certain par- ment (841 thousand euros); ticipating companies. In addition, following • the impairment of the investment in Luce Na- the partial spin-off Crea SpA and the estab- poli (8 thousand euros), reflecting the fact that lishment of two beneficiary companies (Crea the company was placed into liquidation on 31 Gestioni Srl and Crea Partecipazioni Srl), both November 2008; of which are also wholly owned subsidiaries of • the impairment of the investment in Sigesa Acea SpA, the number of participants in the (3,968 thousand euros); tax consolidation arrangement stands at 22; • the impairment of the investment in Acea8- 2. 2,398 thousand euros in IRAP due from Acea cento (1,422 thousand euros). SpA, compared with 765 thousand euros for 2007. The increase with respect to the previous year reflects the taxation, in 2008, of the gain 8. Taxation on the sale of the property in Via Valleranello; This item amounts to 64,070 thousand euros 3. 120 thousand euros in substitute tax paid in (30,258 thousand euros in 2007). The total ex- order to exempt a portion of the Company’s pense is the sum of the following components. depreciable assets for which, in previous years,

Financial statements 107 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

the Company took advantage of the possibility the offset of Acea SpA’s taxable income against to deduct greater amounts from taxable income accumulated tax losses; and 12,773 thousand eu- compared with the related statutory deprecia- ros representing the derecognition of deferred tax tion. assets on tax losses that may not longer be used. 4. 31,000 thousand euros regarding the best esti- Deferred tax liabilities of 6,666 thousand euros mate of the eventual charge deriving from im- consist of provisions for a gain taxable in 2008 plementation art. 24 of Law Decree 185/2008, (6,483 thousand euros), reversal of deferred tax li- converted into Law 2 of 28 January 2009. abilities as a result of the exemption from taxation of tax-related depreciation (325 thousand euros) From 2007 Acea is subject to the changes in- and provisions for taxation of dividends recog- troduced by Law Decree 262 of 2 October 2006, nised but yet to be collected (142 thousand euros). converted into Law 286 of 24 November 2006, Net provisions for the period amount to 13,022 which a ban on offsetting shareholders’ tax losses thousand euros. against the investee company’s income attributed under tax transparency. As a result, Acea Tax expense and income SpA’s taxable income is represented by its share Net tax income amounts to 48,719 thousand of the taxable income of Acea Distribuzione SpA, euros, which represents the balance of tax expense amounting to 55,095 thousand euros. due from the Parent Company to companies included in the tax consolidation in return for the Deferred taxes transfer of tax losses (4,766 thousand euros) and Deferred tax assets of 19,688 thousand euros tax income represented by taxable income trans- represent the sum of provisions (695 thousand ferred to the tax consolidation (53,485 thousand euros) made solely with regard to provisions for euros). liabilities and IFRS provisions for defined-benefit In accordance with the Group’s general tax plans, and uses (20,383 thousand euros) which in- consolidation rules, the value of the gain deriving clude: 1,027 thousand euros due to the reduction from the transfer of tax losses is determined by by a fifth of impairments incurred on investments applying the current IRES rate at the time to the in 2002; 2,846 thousand euros regarding return of total tax losses transferred. the fine imposed by the Antitrust Authority; 513 thousand euros relating to the use of provisions The following table provides a reconciliation of for liabilities; 3,578 thousand euros resulting from the expected and effective tax charges:

2008 2007 E000 % E000 % Profit before tax from continuing operations 112,390 142,840 Expected tax charge at 27.5% (33% in 2007) of profit before tax 30,907 27.5% 47,137 33.0% Permanent differences (12,805) (11.4%) (17,644) (12.4%) Estimate pursuant to art. 24 of Law Decree 185/2008 and reversal of deferred tax assets on tax losses 43,774 38.9% 0,00 0.0% IRES for the year including deferred taxation 61,876 55.1% 29,493 20.6% Substitute tax -204 -0.2% 0 0.0% IRAP 2,398 2.1% 765 0.5% Taxation on continuing operations 64,070 57.0% 30,258 21.2%

Amounts are shown in thousands of euros

108 Financial statements Earnings per share

Earnings per share determined in accordance with IAS 33 is shown below:

2008 2007 Net profit attributable to Acea SpA (E000) 48,321 112,583 Net profit attributable to ordinary equity holders of Acea SpA (E000) (A) 48,321 112,583

Weighted average number of ordinary shares in issue for the purposes of determining earnings per share - basic (B) 212,964,900 212,964,900 - diluted (C) 212,964,900 212,964,900

Earnings/(loss) per share (€) - basic (A/B) 0.2269 0.5286 - diluted (A/C) 0.2269 0.5286

Amounts are shown in thousands of euros

Financial statements 109 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Notes to the balance sheet

In order to ensure a better understanding of changes between the end of 2007 and 31 December 2008, current deferred tax assets recognised in the financial statements for the year ended 31 December 2007 have been reclassified to non-current assets.

Assets

9. Property, plant and equipment

2008 2007 Increase/ (Decrease) Land and buildings 24,224 23,682 541 Plant and machinery 77,139 65,810 11,328 Industrial and commercial equipment 4,955 4,163 791 Other assets 9,842 8,317 1,525 Assets in the course of construction and prepayments 903 5,701 (4,798) Total property, plant and equipment 117,063 107,674 9,389

Amounts are shown in thousands of euros

Property, plant and equipment, net of accumu- Plant and machinery lated depreciation, amounts to 117,063 thousand This item, amounting to 77,139 thousand eu- euros, compared with 107,674 thousand euros at ros, regards leasehold improvements to publicly 31 December 2007, representing a net increase of owned assets granted exclusively for the use of 9,389 thousand euros. Acea SpA by the Comune di Roma, based on a The most significant movements in 2008 are specific service contract, and used in the provision described below. of public lighting, in addition to extraordinary maintenance carried out on non-proprietary as- Land and buildings sets. The movement regards: At 31 December 2008 this item amounts to • increases due to new investments in public 24,224 thousand euros, representing a decrease lighting assets (9,305 thousand euros); of 541 thousand euros compared with the previ- • extraordinary maintenance of buildings leased ous year (23,682 thousand euros). This reflects the by Acea, such as its headquarters (7,442 thou- combined effect of: sand euros); • disposals during the year (491 thousand euros), • depreciation for the period (5,423 thousand primarily regarding the sale of a garage lo- euros). cated in Piazzale dei Partigiani to Beni Stabili Gestioni SpA. The agreed sale price was 2,205 thousand euros (in addition to VAT as required by law). At the time of the sale Acea entered into a lease agreement with the purchaser; • depreciation for the period of 527 thousand euros; • reclassifications from assets in the course of construction to assets in service.

110 Financial statements Industrial and commercial equipment Assets in the course of construction This item, totalling 4,955 thousand euros, has This item totals 903 thousand euros (5,701 increased by a net 791 thousand euros due to: thousand euros at 31 December 2007), marking a • new investments in public lighting assets (357 net reduction of 4,798 thousand euros compared thousand euros); with 2007. This primarily reflects the entry into • reclassifications from assets in the course of con- service of assets (5,935 thousand euros). Addi- struction (1,040 thousand euros); tions during the period of 1,146 thousand euros • depreciation for the period (563 thousand euros). regard investments in sludge drying equipment for the Rome South plant. Other This item, totalling 9,842 thousand euros Accumulated depreciation amounts to 55,431 (8,317 thousand euros at 31 December 2007) thousand euros and covers 32.3% of the value of has increased by 1,525 thousand euros, reflect- plant in operation at 31 December 2008. ing investments (1,903 thousand euros) in new electronic office equipment and reclassifications The following table shows the rates of depre- from assets in the course of construction (1,803 ciation applied in 2007, which as specified in the thousand euros), less depreciation for the period accounting policies, correspond to the economic (2,071 thousand euros) and disposals (123 thou- and technical rates. sand euros).

Economic/technical rate min. max. Land and buildings used in operations 1.67% 2% Other land and buildings 1.67% Plant and machinery used in operations 1.25% 6.67% Other plant and machinery 4% Industrial and commercial equipment used in operations 2.5% 6.67% Other industrial and commercial equipment 6.67% Other assets used in operations 12.50% Other assets 6.67% 19% Motor vehicles used in operations 8.33% Other motor vehicles 16.67%

An analysis of movements during the year is provided in the following table.

Financial statements 111 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Property, plant and equipment 2007 movements during the period 2008 Cost Accum. Carrying Additions Reclass. Disposals Deprec. Cost Accum. carrying Deprec. amount Deprec. amount Land and buildings 28,240 (4,558) 23,682 0 1,559 (491) (527) 29,309 (5,085) 24,224 Plant and machinery 73,993 (8,183) 65,810 16,721 31 0 (5,423) 90,745 (13,606) 77,139 Industrial and commercial equipment 15,960 (11,797) 4,163 328 1,040 (14) (563) 17,314 (12,360) 4,955 Other assets 24,990 (16,673) 8,317 1,903 1,816 (123) (2,071) 28,587 (18,744) 9,842 Assets in the course of construction and prepayments 5,701 0 5,701 1,146 (5,935) (8) 0 903 0 903

Total property, plant and equipment 148,886 (41,212) 107,674 20,097 (1,488) (636) (8,584) 166,859 (49,796) 117,063

Amounts are shown in thousands of euros

10. Investment property

Investment property amounts to 3,487 thousand euros (2,196 thousand euros at 31 December 2007) and primarily includes land and buildings not used in operations and held for rental. The following table shows movements during the period:

2007 additions Depreciation Disposals Reclass. 2008

Land and buildings 2,196 0 (53) 0 1,344 3,487 Total 2,196 0 (53) 0 1,344 3,487

Amounts are shown in thousands of euros

The increase compared with the previous year derives from the allocation to this item of land in Valle Galeria, which in 2007 was classified in assets in the course of construction.

11. Intangible assets

2008 2007 Increase/ (Decrease) Industrial patents and intellectual property rights 5,050 2,727 2,323 Concessions, licences, trade marks and similar rights 0 0 0 Intangible assets in progress and prepayments 2,654 4,081 (1,427) Other 1,909 705 1,204 Total intangible assets 9,612 7,513 2,099

Amounts are shown in thousands of euros

112 Financial statements Property, plant and equipment 2007 movements during the period 2008 Cost Accum. Carrying Additions Reclass. Disposals Deprec. Cost Accum. carrying Deprec. amount Deprec. amount Land and buildings 28,240 (4,558) 23,682 0 1,559 (491) (527) 29,309 (5,085) 24,224 Plant and machinery 73,993 (8,183) 65,810 16,721 31 0 (5,423) 90,745 (13,606) 77,139 Industrial and commercial equipment 15,960 (11,797) 4,163 328 1,040 (14) (563) 17,314 (12,360) 4,955 Other assets 24,990 (16,673) 8,317 1,903 1,816 (123) (2,071) 28,587 (18,744) 9,842 Assets in the course of construction and prepayments 5,701 0 5,701 1,146 (5,935) (8) 0 903 0 903

Total property, plant and equipment 148,886 (41,212) 107,674 20,097 (1,488) (636) (8,584) 166,859 (49,796) 117,063

Amounts are shown in thousands of euros

At 31 December 2008 intangible assets to- Intangible assets in progress and prepayments tal 9,612 thousand euros (compared with 7,513 This item amounts to 2,654 thousand euros at thousand euros at 31 December 2007), after am- 31 December 2008, compared with 4,081 thou- ortisation for the period totalling 6,451 thousand sand euros at 31 December 2007, and regards new euros. Intangible assets mainly refer to the follow- information technology projects to be completed. ing items: Other At 31 December 2008 this item amounts to Industrial patents 1,909 thousand euros (at 31 December 2007 the This item amounts to 5,050 thousand euros at figure was 706 thousand euros), and essentially re- 31 December 2008 (compared with 2,727 thou- gards both extraordinary maintenance (so-called sand euros at 31 December 2007) and primarily “evolutive maintenance”) of the NSIU system consists of SAP ERP, Tagetik and Piteco soft- and costs incurred for development of the TESS ware (amortised in three years). project (software). The increase compared with The increase of 2,323 thousand euros, com- 2007 (3,296 thousand euros) primarily reflects in- pared with 2007, reflects the reclassification to creased investment in the NSIU system. this item of assets included in intangible assets in An analysis of movements during the year is progress in 2007. provided in the following table.

Financial statements 113 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Other intangible assets 2007 Movements during the period 2008

Carrying amount additions Reclass. Disposals Amort. carrying amount Industrial patents and intellectual property rights 2,727 2,680 4,002 0 (4,359) 5,050 Other intangible assets 705 3,296 0 0 (2,092) 1,909 Intangible assets in progress 4,081 2,390 (3,817) 0 0 2,654 Total other intangible assets 7,513 8,366 185 0 (6,451) 9,612

Amounts are shown in thousands of euros

12. Investments in subsidiaries and associates At 31 December 2008 the item “Investments in subsidiaries and associates” amounts to 1,650,261 thousand euros (1,616,680 thousand euros at 31 December 2007).

2008 2007 Increase/ (Decrease) Investments in subsidiaries 1,646,709 1,578,412 68,297 Investments in associates 3,552 38,268 (34,716) Total investments 1,650,261 1,616,680 33,581

Amounts are shown in thousands of euros

owns 100% of Laboratori. Investments in subsidiaries • Aquaser Srl: the value of this investment has At 31 December 2008 such investments to- increased by 2,235 thousand euros following a tal 1,646,709 thousand euros, compared with capital increase of 3,000 thousand euros. Acea 1,578,412 thousand euros at the end of the previ- initially paid in its share of the increase, based ous year, showing an increase of 33,262 thousand on its 57% interest in Aquaser. The Company euros. subsequently exercised its pre-emption rights The most important transactions during the on the unexercised shares issued under the year are described below: capital increase, raising its interest to 74.21%. • Dyna Green: the increase in the investment Additions: reflects Acea’s participation in this company’s • Laboratori SpA: this investment rose by 919 capital increase; Acea’s share amounts to 60 thousand euros following signature by Acea, thousand euros. WRC Plc and Dutybound Limited of the • Acea8cento: in June 2008 a meeting of the “Share Swap Agreement”. This agreement gov- shareholders of the former VoiNoi SpA de- erns the exchange, without consideration, of cided to take the company out of liquidation Acea’s investment in WRC Plc for the latter’s and change its name to Acea8cento SpA. The investment in Laboratori. This entailed Acea’s company is to provide customer care for the transfer to Dutybound Ltd (on behalf of WRC Group’s largest electricity, gas and water dis- plc) of 45,000 WRC Plc shares and its acquisi- tributors and retailers. In order to bring the tion of investments amounting to 5% of Labo- carrying amount of the investment into line ratori. As a result of this purchase, Acea now with the subsidiary’s shareholders’ equity, the

114 Financial statements investment was written down at the end of the Reductions: year. • Sigesa SpA: following the company’s liquida- • Ombrone: the increase compared with the pre- tion, the investment was derecognised. The liq- vious year (up 996 thousand euros) reflects the uidation resulted in recognition of the invest- acquisition of investments from minority share- ment in Hydreco Scarl, which has been written holders. As a result of these transactions Acea down in full. now holds 84.6% of the company’s shares. • Acea Luce: this company was sold to Ma- • Sarnese Vesuviano: this investment has in- nutencoop on 1 October 2008. The agreed sale creased by 13,756 thousand euros. This follows price was 3,000 thousand euros. contributions for future capital increases, giv- • Acque Blu Fiorentine: the reduction of 842 ing Acea the right to take up its share of the thousand euros reflects the combined effect of rights issued as a result of the capital increase contrasting events: on the one hand, the pur- carried out by Gori SpA (10,535 thousand chase of 75,667 shares from the Toscano Co- euros) and to temporarily borrow the shares operative consortium for 310 thousand euros; in Gori owned by the Special Entity, ASM di on the other, the direct collection of dividends Pomigliano d’Arco (3,221 thousand euros). from Acque Blu Fiorentine’s subsidiary, Publi- acqua. Collection of the dividends is based on an Acquisitions: agreement granting Acea (as the lead company • Crea Spa: this acquisition results from the liq- for the consortium that took part in the tender uidation of Sigesa SpA on 15 February 2008, process) and ABF’s other shareholders the right which led to Acea taking over the investment in to restore the pre-existing percentage interests Crea SpA, accounted for in the financial state- in equity, which were compromised by the fail- ments at an amount of 18,300 thousand euros. ure of the public sector shareholders to take part During the period this amount underwent fur- in a capital increase carried out by Publiacqua. ther changes as a result of the spin-off of Crea This resulted in a reduction in the value of the SpA. This transaction led to the establishment investment of 1,143 thousand euros. of two new companies: Crea gestioni and Crea • AceaRieti: the reduction of 200 thousand eu- partecipazioni. As a result of this, Acea reports ros in the value of the investment brings the a change in the composition of the investments carrying amount of the interest into line with accounted for in its financial statements, with the subsidiary’s operating performance. During the recognition of two new investments: Crea the year Acea proceeded to cover the losses in- Gestioni (10,925 thousand euros) and Crea curred in the first half of 2008 and in the previ- Partecipazioni (4,004 thousand euros). ous year. The loss was partly made up by using • Acea Gori Servizi: this consortium was es- existing share capital (200 thousand euros) and tablished by Acea and Gori to manage Engi- partly by the injection of fresh capital by Acea neering and Laboratori services. The carrying SpA. This also resulted in the full write down in amount of the investment is 14 thousand eu- the investment (down 200 thousand euros) and ros. the company’s recapitalisation, amounting to • Apice: this is a joint venture between Acea and 100 thousand euros. In order to bring the car- Pirelli Renewable Energy, aimed at recycling rying amount of the investment into line with civil and industrial waste to produce energy. Acea the subsidiary’s shareholders’ equity, the invest- owns 50% of the venture. The carrying amount ment was written down at 31 December 2008. of the investment is 150 thousand euros. The net impact is an impairment charge of 200 • Acque Blu: Acea’s investment amounts to 84 thousand euros. thousand euros. The company is the product of a joint venture between Suez Environnement (45%) and Acea SpA (55%).

Financial statements 115 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Impairments: • Luce Napoli: this investment was written The following table shows a breakdown and down in full when it was placed into liquida- movements during the year: tion on 31 November 2008.

Investments Historical cost Reclassifications Impair./Reval. Disposals net carrying in subsidiaries amount Amount at 31 Dec 2007 2,547,629 1,172 (27,498) (942,891) 1,578,412 Movements in 2008: 0 - movements in share capital 18,705 (2,203) 16,503 - acquisitions 18,573 18,573 - disposals 0 - reclassifications 35,034 35,034 - impairments (1,812) (1,812) Total movements 2008 37,278 35,034 (1,812) (2,203) 68,297

Amount at 31 Dec 2008 2,584,907 36,207 (29,311) (945,094) 1,646,709

Amounts are shown in thousands of euros

Investments in associates which has strengthened joint control, and of the At 31 December 2008 this item amounts to investment in Umbria Distribuzione Gas to as- 3,552 thousand euros, compared with 38,269 sociates. The carrying amount of this investment thousand euros at 31 December 2007, marking increased during the year following Acea’s partici- a decrease of 34,716 thousand euros. This is due pation in the company’s capital increase. to the combined effect of reclassification of the investment in Eblacea to subsidiaries, following The following table shows a breakdown and changes to the relevant shareholders’ agreement, movements during the year.

Investments Historical cost Reclassifications Impairment Disposals net carrying in associates amount Amount at 31 Dec 2007 80.480 37.544 (78.643) (1.112) 38.269 Movements in 2008: 0 - movements in share capital 0 - acquisitions 150 (34.866) (34.716) - disposals 0 - impairments 0 Total movements 2008 150 (34.866) 0 0 (34.716)

Amount at 31 Dec 2008 80.630 2.677 (78.643) (1.112) 3.552

Amounts are shown in thousands of euros

116 Financial statements 13. Other investments

At 31 December 2008 this item amounts to 6,054 thousand euros (7,142 thousand euros at 31 De- cember 2007) and consists of investments that do not qualify as investments in subsidiaries, associates or joint ventures. These investments are accounted for at fair value.

Historical cost Revaluations Impairments Reclass. movements net carrying amount Amounts at 31 Dec 2007 7,246 0 (108) 0 4 7,142 Movements in 2008: Assets held for sale 0 0 0 0 0 0 Movements in share capital 0 0 0 (168) 0 (168 Acquisitions 0 0 0 0 0 0 Disposals (919) 0 0 0 0 (919) Contributions 0 0 0 0 0 0 Fair value measurement 0 0 0 0 0 0 Impairments 0 0 0 0 0 0 Total movements in 2008 (919) 0 0 (168) 0 (1,087)

Amounts at 31 Dec 2008 6,326 0 (108) (168) 4 6,054

Amounts are shown in thousands of euros

The movement reflects reclassification of the investment in Umbria Distribuzione Gas SpA and the transfer of the investment in WRC Plc, as described in Note 12 above.

Financial statements 117 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

14. Non-current deferred tax assets

At 31 December 2008 deferred tax assets with a matching entry in shareholders’ equity. amount to 10,999 thousand euros (20,680 thou- Uses for the period reflect 16,352 thousand euros sand euros at 31 December 2007). deriving from the reversal of deferred tax assets on This item breaks down as follows: 927 thou- tax losses, given that the term for recovering the sand euros thousand euros from taxed provisions losses had expired. for liabilities (3,287 thousand euros at 31 Decem- The recoverability of deferred tax assets is re- ber 2007); 226 thousand euros from impairments viewed on the basis of Acea SpA’s business plans of receivables and investments (1,253 at 31 De- and a reasonable estimate of the period in which cember 2007); and 660 thousand euros for other the related difference is expected to reverse. provisions. Following the fair value measurement The following table shows movements in both of hedging derivative instrument deferred tax as- non-current and current deferred tax assets. sets of 1,865 thousand euros have been recognised

Movements during the period 2007 Uses movements Provisions for 2008 Ires/Irap recognised in equity Ires/Irap Deferred tax assets Tax losses 16,352 (16,352) 0 0 0 Directors’ fees 0 0 0 57 57 Provisions for liabilities and charges 3,287 (2,999) 0 639 927 Impairment of investments 0 0 0 0 0 Impairment of receivables 1,253 (1,027) 0 0 226 Depreciation and amortisation 0 0 0 0 0 Amortisation of goodwill 0 0 0 0 0 Defined benefit and defined-contribution plans 7,215 0 0 0 7,215 Other 715 (5) 1,864 0 2,574 Total 28,822 (20,383) 1864 695 10,999

Deferred tax liabilities Deferred tax on reversal of tax-related entries 1,268 (325) 0 0 943 Deferred tax on dividends 0 0 0 142 142 Depreciation and amortisation 0 0 0 0 0 Defined benefit and defined-contribution plans 391 0 0 0 391 Other 6,483 (6,483) 0 0 0 Total 8,142 (6,807) 0 142 1,476

Net total 20,680 (13,576) 1,864 553 9,523

Amounts are shown in thousands of euros

118 Financial statements 15. Non-current financial assets

At 31 December 2008 non-current financial assets amount to 58,012 thousand euros (97,928 thousand euros at 31 December 2007) and break down as follows:

2008 2007 Increase/ (Decrease) Loans and receivables due from subsidiaries 57,757 92,923 (35,167) Loans and receivables due from associates 0 4,760 (4,760) Other loans and receivables 256 245 11

Non-current financial assets 58,012 97,928 (39,916)

Amounts are shown in thousands of euros

The item comprises existing medium/long-term receivables referring to the following items:

Movements during the period 2007 Increases Reclassifications capitalised Repayments 2008 interest Loans and receivables due from subsidiaries: Loans to Acea Distribuzione SpA 18,321 (3,331) 14,990 Loans to Acea Ato2 SpA 7,669 (1,394) 6,275 Loans to AceaElectrabel Produzione 7,390 (1,231) 6,159 Non-interest bearing loan to Acea Ato 5 SpA 30,213 30,213 Receivable due from Terni Ena for Project Financing 8,083 (2,852) (5,231) 0 Receivable due from Eall for Project Financing 17,976 (12,271) (5,705) 0 Loan to AE Produzione 3,271 (3,271) 0 Line of credit to Eall for “Construction” 119 119 Loan to Eblacea SpA to finance acquisitions 4,760 (4,760) 0 Total 92,923 119 (16,320) 0 (18,966) 57,757

Loans and receivables due from associates: Loan to Eblacea SpA to finance repowering 0 Loan to Eblacea SpA to finance acquisitions 4,760 (4,760) 0 Total 4,760 (4,760) 0 0 0

Total 97,683 (21,080) 0 (18,966) 57,757

Amounts are shown in thousands of euros

Financial statements 119 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Loans and receivables due from subsidiaries In 2007 this item also included amounts due to At 31 December 2008 these items total 27,424 the Parent Company from EALL and Terni Ena thousand euros and refer to the principal not yet in relation to early repayment of project financ- due at the end of he reporting period on loans ing obtained from banks. The initial amount of transferred, wholly or in part, to the demerged this intercompany loan totalled 31.4 million euros companies. This was done as they were linked to (10.5 million euros for Terni Ena, maturing on 30 allocation constraints. These portions of loans This June 2009, and 20.9 million for Eall, maturing on amount has decreased with respect to the previous 31 December 2010). During the period EALL year (down 5,957 thousand euros) as a result of and Terni Ena repaid 5,705 thousand euros and the scheduled repayments made. 5,231 thousand euros, respectively. The terms applicable to this receivable coincide with the cost of the loans transferred, with par- The difference compared with 31 December ticular reference to a portion of the EIB loan and 2007 reflects, on the one hand, the amount due a portion of the EIB loan handled by the Banca from EALL (up 119 thousand euros) and, on the di Roma. other, classification in current assets of the loan to AceaElectrabel Produzione to finance the Monte Loans to subsidiaries della Difesa wind farm, in addition to the above These loans amount to 30,333 thousand euros lines of credit to Eall and Terni Ena. (59,543 thousand euros at 31 December 2007) Loans to associates and regard: • 30,213 thousand euros granted to the sub- At 31 December 2007 this item included the sidiary, Acea Ato 5 SpA. This amount includes loan to Eblacea SpA, totalling 4,760 thousand eu- 14,275 thousand euros disbursed by Acea SpA ros, which was repaid in 2008. The interest rate was under the “Shareholder loan” agreement of 27 Euribor for the period plus a spread of 1.10%. June 2003, which involves a thirty-year, non- Other receivables interest bearing irrevocable facility of 82,633 thousand euros to be disbursed in tranches over These items amount to 256 thousand euros the first twelve years; (245 thousand euros at 31 December 2007). They • 119 thousand euros relating to a line of credit include claims for rebates of VAT paid on vehicle for “Construction” granted to the subsidiary, purchases (99 thousand euros) and amounts due Eall. The total amount of this line is 130 mil- from Frama (125 thousand euros) following the lion euros and it will be used to finance invest- payment to Acea Ato5 of amounts payable by this ments in the upgrading of the San Vittore del company. Repayment of this receivable will take Lazio plant and the construction of two new place via Acea’s collection of dividends. waste to energy lines at the plant. The amount drawn down so far regards payment for urban infrastructure in the municipality of San Vit- tore. Disbursement of the line of credit will depend on the state of progress of the works and repayments will be made from 30 June 2010. The cost of the loan is equal to 6-month Euri- bor plus a spread of 200 basis points.

120 Financial statements 16. Other non-current assets

At 31 December 2008 this item amounts to 810 thousand euros (949 thousand euros at 31 December 2007) and breaks down as follows:

2008 2007 Increase/ (Decrease) Amounts due from others 810 949 (139) Accrued income 0 0 0 Other non-current assets 810 949 (139)

Amounts are shown in thousands of euros

Amounts due from the State utilised to pay the capital gains tax on revalua- Amounts due from the State total 82 thousand tions of staff termination benefits. The receivables euros and relate to withholding tax paid by Acea in question are subject to revaluations at the end SpA, at a rate of 3.89%, on staff termination ben- of every year and any revaluations are recorded as efits. finance income. Such receivables were used to pay withholding Deposits tax on staff termination benefits and on advances granted from 1 January 2000, as allowed by recent These amount to 715 thousand euros and pri- legislation. Moreover, in 2002 such amounts were marily regard long-term deposits.

17. Current assets

At 31 December 2008 current assets total 1,180,761 thousand euros (1,038,520 thousand euros at 31 December 2005) and break down as follows.

2008 2007 Increase/ (Decrease) Raw, ancillary and consumable materials 398 398 0 Provisions for obsolete materials (398) (398) 0 Total inventories 0 0 0

Amounts are shown in thousands of euros

Inventories are unchanged with respect to 2007, take account of the technical obsolescence of the when Acea transferred stocks to its subsidiaries materials and the bring the value of inventories as part of the plan to decentralise stock manage- into line with market prices, if lower. Provisions ment. The remaining amount regards inventories for obsolescence of 398 thousand euros have re- of equipment. The value has been written down to duced this item to zero.

Financial statements 121 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Trade receivables Trade receivables amount to 56,592 thousand euros (47,828 thousand euros at 31 December 2007) and break down as follows:

2008 2007 Increase/ (Decrease) End users for bills issued 0 0 0 End users for bills to be issued 0 0 0 Total receivables due from end users 0 0 0

Other customers 27,683 20,029 7,654 Disputed receivables 20,555 19,445 1,111 Receivables due from the Municipality of Fiumicino 8,354 8,354 0 Total receivables 56,592 47,828 8,765

Amounts are shown in thousands of euros

It should be noted that all receivables fall due Such receivables include 20,555 thousand eu- within 12 months. ros due from the Vatican City which, as being a sovereign state, deems the fees charged for fresh Receivables due from other customers and waste water services to be inapplicable. Fol- At 31 December 2008 these receivables amount lowing publication of the implementation decree to 27,683 thousand euros (20,029 thousand euros provided for by article 3, paragraph 13 of the Fi- at 31 December 2007), after provisions for the im- nance Act for 2004, the receivables posted in the pairment of receivables of 4,771 thousand euros. accounts relate the period prior to 1998 and are They are due from customers other than end users matched by a corresponding debt payable to the related to accrued amounts due from private and Comune di Roma as the provider of waste water public parties in return for services other than the and sewerage services through to 31 December supply of electricity and water. This item includes 1997. It should be noted that the Company is not bills to be issued amounting to 5,946 thousand obliged to settle the debt payable to the Comune euros. This item includes 6,481 thousand euros re- di Roma before collection of the receivables due garding the receivables acquired with the same of from the Vatican City. Acea Luce. The balance essentially consists of the The Company has begun legal proceedings in following categories of customer: order to collect other disputed receivables of 6,440 • Private customers: 7,852 thousand euros; thousand euros, which include amounts due from • The State: 4,148 thousand euros; consortia set up by government bodies and mu- • Municipalities: 17,889 thousand euros. This nicipalities and municipalities in financial difficulty. relates to amounts due from the Municipality These receivables have been fully written down. of Naples (11,799 thousand euros) and other amounts due from municipalities acquired Receivables due from the Municipality of Fiumicino from Acea Luce (6,088 thousand euros). These receivables total 8,354 thousand euros and are unchanged with respect to 31 December Disputed receivables 2007. Disputed receivables amount to 26,996 thou- During 2007 the Acea Group and representa- sand euros at 31 December 2008, before impair- tives from the Municipality of Fiumicino contin- ments. ued the process of recognising the Group’s receiv-

122 Financial statements ables and payables in relation to the Municipality. ber 2008 (14,890 thousand euros at 31 December At 31 December 2008 the amount due to Acea 2007). The provisions cover credit risk pertaining totals 8,354 thousand euros. to end users and other customers. The amounts due to Acea SpA and its sub- The provisions are based on analytical valua- sidiaries (approximately 4 million euros) will be tions, supplemented by valuations based on his- recovered by offsetting them against payables as torical analyses of end users and customers broken they accrue, above all in relation to the concession down according to the default period, the type of fee payable by Acea ATO 2. action undertaken to recover the amount due and the status of the receivable concerned (ordinary, Provisions for the impairment of receivables disputed, etc.). Provisions for the impairment of receivables The provisions did not undergo any movements amount to 14,964 thousand euros at 31 Decem- during the year.

Intercompany trade receivables These receivables amount to 150,511 thousand euros (114,693 thousand euros at 31 December 2007) and break down as follows.

2008 2007 Increase/ (Decrease) Receivables due from the parent 89,427 84,630 4,796 Receivables due from subsidiaries 57,934 27,755 30,179 Receivables due from associates 3,149 2,307 842 Total intercompany trade receivables 150,511 114,693 35,818

Amounts are shown in thousands of euros

Amounts due from the parent total 89,427 Acea Group’s relations with the Comune di Roma thousand euros at 31 December 2008 and relate regarding both receivables and payables, including entirely to the Comune di Roma (84,630 thou- those of a financial nature described in the specific sand euros at 31 December 2007). section of this document (Note 24). The following table presents an analysis of the

2008 2007 Increase/ (Decrease) Receivables 89,427 84,630 4,796 Payables 33,607 33,613 (6) Balance 55,820 51,017 4,803

Amounts are shown in thousands of euros

Financial statements 123 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

The following table provides a breakdown of amounts due from the Comune di Roma by type of service and broken down further by amounts billed and those to be billed.

Amounts due from the Comune di Roma 2008 2007 Increase/ (Decrease) Utilities 3,289 3,289 0 Contract work 14,541 10,065 4,476 Services 13,212 48,635 (35,422) Other 999 840 160 Total services billed 32,041 62,828 (30,787) Grants due 75 75 0 Surtaxes 0 0 0 Total services requested 32,116 62,903 (30,787) Total services billed 55,828 20,245 35,583 New regulations for street cables 1,482 1,482 0 Total 89,427 84,630 4,796

Amounts are shown in thousands of euros

The table below provides a breakdown of amounts due to the Comune di Roma by type of relation.

Amounts due to the Comune di Roma 2008 2007 Increase/ (Decrease) Sewerage and water treatment fees 8,409 8,409 0 Vatican City disputed fees 20,516 20,516 0 Electricity surtax 0 0 0 Other 1,455 1,461 (6) New regulations for street cables 1,015 1,015 0 Charges for the occupation of public space 0 0 0 Rental on the Company’s headquarters 0 0 0 Concession fees 0 0 0 Total trade payables 31,395 31,401 (6) Financial liabilities (including dividends) 2,213 2,213 0 Total 33,607 33,613 (6)

Amounts are shown in thousands of euros

124 Financial statements Receivables decreased during 2008, primarily It should be noted that an agreement governs due to the collection of amounts due under the reciprocal creditor and debtor relations with refer- public lighting contract, with 38,563 thousand ence to the terms and conditions of payment. The euros of receivables for bills issued in 2007 and agreement came into effect on May 1, 2001 and is 27,623 thousand euros for bills issued in 2008 valid for three years, subject to tacit renewal for a collected via offsets against payables (the latter further three-year period. The process of renew- amount substantially regards the period January- ing the agreement is currently underway: the draft June 2008). submitted to the Comune di Roma has met with In addition to payment for the public lighting agreement from the various technical depart- service, the main items collected included 4,102 ments. thousand euros for the construction of public lighting systems, most of which was billed prior During the period administrative offsets with to 2008. regard to amounts due from the Comune di Roma Receivables for bills issued mostly refer to the totalling 70,281 thousand euros were carried out. public lighting contract and work on new public Further information on related party transac- lighting systems. The former amount to 12,305 tions, including entities owned by the Comune thousand euros and primarily regard receivables di Roma, is provided in the final section of this dating back to before the new ten-year contract, document. which was renewed on 13 February 2007 with effect from 1 June 2005. The latter total 12,241 thousand euros, of which over half was billed in Trade receivables due from subsidiaries and 2008. associates The new contract is substantially similar to the These receivables amount to 61,084 thousand former arrangement, envisaging a lump-sum pay- euros (up 31,021 thousand euros on 31 December ment for day-to-day management, routine and ex- 2007) and break down as follows. traordinary maintenance, the supply of electricity and the implementation of a pre-established investment plan, whilst the installation of new plant Receivables due from subsidiaries and equipment is to be commissioned and paid for Such receivables amount to 57,934 thousand separately. The most important difference com- euros at 31 December 2008, compared with 27,755 pared with the previous contract regard: the dura- thousand euros at 31 December 2007. They consist tion of 10 years from 1 June 2005; the inclusion of the following items. of a significant investment plan in the contract; a different method of calculating payments for new plant and equipment, now based on agreed prices; and a different and more detailed definition of penalties to be paid in relation to service quality. The annual fee is to be billed monthly with payment due at 60 days, whilst specific bills are to be issued for the installation of new plant and equipment on completion of the related works.

Payables are substantially in line with the previous period. Dividends payable by Acea for 2007, totalling 67,339 thousand euros, were offset during 2008.

Financial statements 125 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

2008 2007 Increase/(Decrease) Abab 69 31 38 Acea Ato 2 11,714 5,259 6,455 Acea Ato 5 3,740 2,242 1,498 Acea Distribuzione 16,775 10,010 6,765 Acea Dominicana 0 170 (170) Acea Luce 0 465 (465) AceaEelectrabel Produzione 1,526 1,665 (139) AceaElectrabel 223 161 62 AceaElectrabel Elettricità 10,282 2,586 7,696 AceaElectrabel Trading 1,973 202 1,771 Acque 106 309 (202) Acque servizi 14 24 (10) Acque Ingegneria 3 0 3 Acque Industriali 3 0 3 Acque Blu Fiorentine 71 43 28 Agua Azul Bogotà 441 0 441 Armenian Utility 0 0 0 Arse 1,815 603 1,212 Consorcio Agua Azul 17 30 (14) Crea 14 1,629 (1,615) Eall 924 0 924 Ecomed 16 (13) 30 Enercombustibili 125 0 125 Gesesa 379 133 246 Gori 275 243 32 LaboratoRI 479 (427) 906 Luce Napoli 466 353 113 Lunigiana 171 22 149 Ombrone 164 43 121 Publiacqua 253 36 217 Publiacqua Ingegneria 48 25 23 S.A.O. 227 9 218 Sarnese Vesuviano 971 856 115 Sigesa 0 131 (131) Tad 607 324 283 Ergo Ena 52 9 42 Sorepla 5 10 (5) Ecoenergie 22 9 13 Recupera 14 9 5 Aquaser 24 10 14 Ameatad 17 9 8 Terni En,A 180 0 180 Voghera Energia 126 126 0 Umbria Energy 8 0 8 Kyklos 13 0 13 Solemme 5 0 5 VoiNoi in liquidazione 0 272 (272) Coema 2 0 2 Acea Gori Servizi 0 0 0 Ecogena 203 0 203 Acea8cento 647 0 647 Umbra Acque 322 0 322 Eblacea 0 138 (138) Crea Gestioni 2,403 0 2,403 Total 57,934 27,755 30,179

Amounts are shown in thousands of euros

126 Financial statements Trade receivables primarily relate to the supply Receivables due from associates of services, sales of materials and interest accrued These receivables total 3,149 thousand euros at on the intercompany current account resulting from 31 December 2008 (2,307 thousand euros at 31 the balance of intercompany accounts relating to the December 2007) and primarily refer to amounts centralised treasury management service provided by due from Tirana Acque (255 thousand euros), the Acea SpA. The companies pay interest on the Agua de San Pedro (1,224 thousand euros), Marco intercompany current account on a quarterly basis, Polo (712 thousand euros) and Acquedotto del applying the interest rate deriving from the arithme- Fiora (264 thousand euros) for contract work and tic mean of daily three-month Euribor rates over the services rendered. quarter plus a spread of 0.20%. The following table provides a breakdown.

2008 2007 Increase/ (Decrease) Tirana Acque 255 255 0 Agua de San Pedro 1,224 1,060 165 Acquedotto del Fiora 264 33 231 Amea 2 7 (5) Arkesia 2 6 (5) Marco Polo 712 743 (31) Geal 18 3 15 Si(e)nergia 129 138 (9) Azga Nord 203 34 170 Jonica 11 0 11 Sogea 248 0 248 Umbriadue 83 30 53 Total 3,149 2,307 842

Amounts are shown in thousands of euros

Other current receivables and assets These amount to 13,878 thousand euros (5,113 thousand euros at 31 December 2007), representing an increase of 8,766 thousand euros. They consist of:

2008 2007 Increase/ (Decrease) Receivables due from social security institutions 507 415 92 Receivables due from Equalisation Fund 127 127 0 Sundry receivables 1,086 94 992 Receivables due from Tesima SpA 46 46 0 Receivables due from the Antitrust Authority 8,300 0 8,300 Accrued income and prepayments 3,812 4,430 (618) Total 13,878 5,113 8,766

Amounts are shown in thousands of euros

Financial statements 127 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

The following should be noted: tre, the branch office and the property in Via • 8,300 thousand euros, regarding return of the Valleranello (1,667 thousand euros) and main- fine imposed by the Antitrust Authority, which tenance fees (258 thousand euros). Acea paid last February. • Sundry receivables substantially regard amounts • 3,812 thousand euros, referring primarily to due from Equitalia Gerit and deriving from the prepaid expenses for rent paid for the long- seizure of the assets of public bodies pursuant term use of public land (667 thousand euros), to art. 48-bis of Presidential Decree 602 of 29 the lease of the Company’s headquarters, the September 1973. Data Processing and Remote Control Cen-

Current financial assets Current financial assets amount to 38,746 thousand euros (86,196 thousand euros at 31 December 2007) and include:

2008 2007 Increase/ (Decrease) Receivables due from Agag De Centroamerica 302 401 (100) Receivables due from Acqua Italia 96 96 0 Receivables due from Interpark 30 700 (671) Receivables due from Milano 90 6,000 0 6,000 Receivables due from 7 NOVE 12 Roma Srl 0 52,500 (52,500) Amounts due for loans to be disbursed 0 1,094 (1,094) Other 3 43 (40) Mediocredito Centrale current account 32,315 30,822 1,493 Receivables due from Abruzzo Regional Authority 0 540 (540) Total 38,746 86,196 47,450

Amounts are shown in thousands of euros

The item includes: 3-month Euribor less 3 basis points per an- • receivables due from Agac de Centro America num. For the purposes of ensuring a more ap- (302 thousand euros) following the sale of the propriate accounting treatment, the amount for investment in Agac Y Otros; this amount was 2008 has been reclassified from cash and cash reduced during the year following payments re- equivalents and the amount for 2007 reported ceived in May and September; on a pro forma basis. • receivables of 6,000 thousand euros due from Milano 90 regarding development of the land The reduction compared with the previous year in Via Laurentina; reflects (i) collection in March of the amount re- • 32,315 thousand euros (30,822 thousand euros corded in the financial statements for 2007 deriv- at 31 December 2007) regarding the term de- ing from the sale of the property in Via di Valler- posit paid in since December 2002, in compli- anello (52.5 million euros); (ii) collection of 540 ance with the cash collateral issued to cover the thousand euros due from the Abruzzo Regional commitments of Atlanet SpA and its minor- Authority for the removal of water granted to ity shareholders in respect of Ipse 2000 SpA. Acea for use in the production of hydroelectric The term deposit is subject to a lien issued to power at its plants in the Abruzzo region (these Mediocredito Centrale and accrues interest at receivables date back to the period 1974-1991).

128 Financial statements Intercompany current financial assets The item totals 751,259 thousand euros (700,964 thousand euros at 31 December 2007) and breaks down as follows.

Receivables due from subsidiaries At 31 December 2008 these receivables amount to 749,596 thousand euros (691,193 thousand euros at 31 December 2007) and break down as follows:

2008 2007 Increase/ (Decrease) Loans due from subsidiaries 289,700 256,645 33,055 Intercompany current account receivables/payables 428,947 347,534 81,414 Other receivables due from subsidiaries 9,331 66,182 (56,851) Amounts due from subsidiaries for short-term portion of EIB loans 5,957 5,933 24 Amounts due from subsidiaries as IRES under the tax consolidation arrangement 11,574 9,291 2,283 Current accrued finance income 4,087 5,608 (1,521) Total 749,596 691,193 58,404

Amounts are shown in thousands of euros The item includes: to (i) Roselectra SpA (60,914 thousand euros), • amounts due as a result of centralised treasury (ii) AceaElectrabel Produzione for the Leinì management transactions (428,947 thousand power plant (78,067 thousand euros) and the euros), including 150,195 thousand euros due Monte della Difesa wind farm (12,908 thou- from Acea Distribuzione SpA, 242,520 thousand euros), (iii) Voghera Energia SpA (1,844 sand euros due from Acea Ato 2 SpA, 27,224 thousand euros), (iv) TAD Energia Ambiente thousand euros due from Acea RSE SpA, (51,289 thousand euros), (vi) SAO SpA (12,996 4,618 thousand euros due from AceaElectrabel thousand euros), (vii) EALL srl (12,326 thou- SpA and 3,503 thousand euros due from Sar- sand euros), (viii) TERNI ENA (12,243 thou- nese Vesuviano. sand euros), (ix) ERGO ENA (5,320 thousand Acea SpA charges interest on the above re- euros), and (x) Acea Rieti (5,789 thousand eu- ceivables at a rate based on the average daily ros). 3-month Euribor rate plus a spread of 0.20%. Acea receives interest on these loans equal to Interest is calculated on the stock of receivables Euribor for the period plus a spread of 1.5% for each quarter of the year. per annum. Moreover, the agreement provides • amounts due from AceaElectrabel Produzione for a non-use fee of 0.45% per year of the un- SpA (1,231 thousand euros), from Acea Dis- used amount, to be paid quarterly in arrears. tribuzione SpA (3,331 thousand euros) and • amounts due from subsidiaries as dividends from Acea Ato 2 SpA (1,394 thousand euros) (7,779 thousand euros), including 1,877 thou- as the short-term portion of EIB loans trans- sand euros in dividends due from Aque Blu ferred to the Company. The conditions applied Arno Basso; 1,920 thousand euros due from are the same as those applied to Acea SpA by Acque Blu Fiorentine; 1,656 thousand euros the lenders. due from Publiacqua; and 1,486 thousand eu- • amounts generated on interest-bearing loans ros due from Eblacea; (289,700 thousand euros), principally granted • amounts due as IRES under the tax consoli-

Financial statements 129 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

dation arrangement (11,574 thousand euros), Current tax assets regarding amounts due to Acea SpA from its Current tax assets total 16,351 thousand euros subsidiaries who take part in the tax consoli- (4,921 thousand euros at 31 December 2007). The dation. These amounts regard IRES transferred amount consists of IRES credits (10,591 thou- from the individual companies less any advance sand euros) and VAT credits at Group level (4,805 payments made in 2008. The amount due break thousand euros). down as follows: Acea Ato5 (3,082 thousand euros), SAO (2,009 thousand euros), Terni Ena (3,495 thousand euros), Eall (1,209 thousand Cash and cash equivalents euros), Acea Ato2 (626 thousand euros), and Cash and cash equivalents total 153,424 thou- Sarnese Vesuviano (151 thousand euros); sand euros (59,764 thousand euros at 31 December • the sum of 4,087 thousand euros relates to ac- 2007). This item represents the year-end balance crued interest yet to be paid on the above loans of bank and post office current accounts held with from Acea SpA to its subsidiaries. various institutions, including the Italian Postal Service. Receivables due from associates At 31 December 2008 these receivables amount to 1,663 thousand euros (9,770 thousand euros at 31 December 2007) and regard receivables due from the associate, Azga Nord, acquired as a result of the liquidation of Sigesa SpA. This amount is subject to interest equal to 3-month Euribor plus a spread of spread of 3 basis points. The reduction compared with 2007 reflects the classification of amounts due from Eblacea in receivables due from subsidiaries.

130 Financial statements Notes to the consolidated balance sheet

Liabilities and shareholders’ equity

18. Shareholders’ equity At 31 December 2008 shareholders’ equity amounts to 1,518,402 thousand euros (1,605,937 thousand euros at 31 December 2007). Changes in shareholders’ equity are shown in the following statement:

2008 2007 Increase/ (Decrease) Share capital 1,098,899 1,098,899 0 Legal reserve 64,812 59,183 5,629 Reserve for treasury shares 0 0 0 Other reserves 306,111 335,272 (29,161) Retained earnings/(accumulated losses) 259 0 259 Net profit/(loss) for the period 48,321 112,583 (64,262) Total 1,518,402 1,605,937 (87,535)

Amounts are shown in thousands of euros

Share capital Reserve for treasury shares The share capital totals 1,098,899 thousand At 31 December 2008 this item amounts to euros, represented by 212,964,900 ordinary shares 3,853 thousand euros. with a par value of 5.16 euros each, as shown in Pursuant to art. 2428 of the Italian Civil Code, the Shareholders’ Register. The share capital is the treasury shares purchased at 31 December 2008 subscribed and paid-up in the following manner: consist of 416,993 shares with a par value of 5.16 • Comune di Roma: 108,611,150 ordinary euros each, representing 0.196% of total shares out- shares with a total par value of 560,433 thou- standing. sand euros; The balance of the reserve offsets the value of • Free float: 103,936,757 ordinary shares with a the treasury shares accounted for as a reduction of total par value of 536,314 thousand euros; shareholders’ equity in compliance with IAS 32. • Treasury shares: 416,993 ordinary shares with a total par value of 2,152 thousand euros. Extraordinary reserve The amount of 3,666 thousand euros derives Legal reserve from the appropriation of a portion of net profit This reserve reflects the allocation of 5% of the for 2007. net income of the previous year, in accordance with article 2430 of the Italian Civil Code. At 31 December 2008 this item amounts to 64,812 thousand euros (59,183 thousand euros at 31 December 2007) and has increased by 5,629 thousand euros compared with the previous year following the allocation of 5% of net profit for 2007, as required by the Italian Civil Code.

Financial statements 131 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Demerger reserve At 31 December 2008 this reserve amounts to The aid represented by unpaid taxes during the 310,534 thousand euros. Compared with the end tax moratorium recovered by the tax authorities of the previous year, this reserve has decreased by pursuant to Legislative Decree 10/2007, converted 28,750 thousand euros as a result of the payment into Law 47 of 6 April 2007, also form a minimal of dividends. part of distributable reserves. In this regard, tax This reserve consists of (i) the gain recog- liabilities includes provisions to cover the best es- nised in the income statement for 1999 deriving timate of the eventual charge that Acea may incur from the transfers of assets carried out by Acea as a result of application of art. 24 of Law Decree SpA to Acea Distribuzione and Acea Ato2, (ii) 185/2008. the after-tax gain on the transfer of the “customer Cash flow hedge reserve services” division to VoiNoi (in liquidation), totalling 14,216 thousand euros. This latter component This reserve amounts to 4,916 thousand euros was used in full to cover losses deriving from the and derives from the interest rate swap hedging Company’s first-time adoption of IFRS. the loan of 100 million euros obtained by Acea. The first gain, which contributed in its entire- The amount accounted for in the financial state- ty to the operating result for 1999, was entirely ments derives from application of IAS 39 and covered by the same tax exemption applicable to assessment of the effectiveness of the hedging other revenue components recorded in the finan- instrument in accordance with Hedge Account- cial statements for the year ended 31 December ing. Under this method, the effective portion of 1999. The General Meeting of 29 April 2000, held the cash flow hedge is recognised in shareholders’ to approve the 1999 financial statements, also re- equity, whilst the ineffective portion is recognised solved to allocate the relevant portion of net profit in the income statement. The test of effectiveness for the year to a specific equity reserve. This was conducted during the year revealed that the above done on the understanding that the reserve would hedge is 99.81% effective, resulting in an impact be distributable in future years in correspondence on shareholders’ equity alone. with annual amortisation charged by the subsidiaries on the above gain, or in correspondence with any proceeds from sales to third parties. At 31 December 2008 this reserve is available in full to cover losses and increase capital, and the amount of 29,055 thousand euros is available for distribution to shareholders. The amount relating to goodwill attributed to AceaElectrabel Elettricità on its spin off from Acea Distribuzione (whose value has been recognised by Electrabel in the price established in the JV agreement governing all the transactions involved in the creation of the AceaElectrabel Group) was used in previous years to pay dividends and/or cover losses (including those deriving from the Company’s first-time adoption of IFRS).

132 Financial statements The following table shows distributable and undistributable reserves.

Nature/description Amount Potential available summary of uses during use portion previous three years to cover losses other purposes Capital reserves Revenue reserves: Legal reserve 64,812,206 B 64,812,206 IAS cash flow hedge reserve (4,915,788) (4,915,788) Purchased goodwill attributable to Umbra Acque (3,173,150) (3,173,150) Available reserve for treasury shares 0 a, B, C 0 Reserve for treasury shares in portfolio 3,853,456 to guarantee treasury shares 3,853,456 Extraordinary reserve 3,665,574 a, B, C 3,665,574 Demerger reserve: 310,534,841 a, B 310,534,841 of which available/distributable 29,055,249 a, B, C 29,055,249 Taxed demerger reserve 0 a, B, C 0 Retained earnings 258,536 a, B, C 258,536

Total 375,035,674 375,035,674

Undistributable portion 342,314,851 Remaining distributable portion 32,720,823

* Key A = to increase capital B = to cover losses C = to pay dividends Amounts are shown in thousands of euros

Pursuant to article 109 of Presidential Decree These defined-benefit obligations are measured 917/86 equity reserves, including the legal re- using the actuarial valuation method. This method serve, are sufficient to cover the costs generated by is based on the projected unit credit method, which tax-related entries and the effects on the current measures the Company’s liability at the balance year of the reversal of tax-related entries, which sheet date on the basis of the average present value amount to 4,439 thousand euros. of estimated future cash outflows, using interest rates that have terms to maturity approximating to the terms of the related liabilities. 19. Staff termination benefits and As a result of the union agreement of 18 De- other defined-benefit obligations cember 2008, tariff subsidies are now accounted for At 31 December 2008 such items total 28,835 as a defined-contribution plan. thousand euros (32,960 thousand euros at 31 De- The difference resulting from the new calcula- cember 2007) and represent termination and other tion, based on the difference between the actuarial benefits payable to employees on retirement or ter- calculation carried out at 31 December 2007 and mination of employment. the figure accounted for at the end of 2008 has

Financial statements 133 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

been treated as a “curtailment” and thus recognised to reaching a settlement. This resulted in recogni- in the income statement. tion of the reduction in the related liability in the Moreover, during the year the Company en- income statement. tered into negotiations with pensioners who have The following table shows the change in actu- a right to benefit from tariff subsidies, with a view arial liabilities during the year.

2008 2007 Increase/ (Decrease) Termination benefits - Staff termination benefits 7,872 6,828 1,044 - Monthly bonuses 635 625 10 - Long-term incentive plans (LTIPs) 1,926 919 1,007 Total 10,434 8,372 2,061

Post-employment benefits - Tariff subsidies 18,402 24,587 (6,186) Total 28,835 32,960 (4,125)

Amounts are shown in thousands of euros

The decrease of 4,125 thousand euros over the As required by paragraph 78 of IAS 19, the two comparative periods derives from staff leaving interest rate used to calculate the present value the Company, the transfer of staff to a number of of the obligation is based on returns, at the end subsidiaries (Acea ATO2, Acea8cento, AceaElec- of the reporting period, on the securities of ma- trabel Holding, Acea Distribuzione and Marco jor companies listed on the same financial market Polo), the effect of the tariff subsidies for staff and as Acea SpA, and on the return on government release of provisions for tariff subsidies for pen- bonds in circulation at the same date that have sioners. terms to maturity approximating to the residual Moreover, during 2008 the charge deriving term of the related liability. In order to ensure from the long-term incentive scheme for Acea’s consistency of valuation and comply with the pro- senior management was estimated. The scheme visions of IAS 19, the same basis has been used for envisages a cash payment to be calculated as a the various types of plan. percentage of Gross Annual Remuneration, based The critical assumptions applied in the actuar- on the achievement of pre-established operating ial valuation of liabilities for defined-benefit plans and financial targets at the end of the period. The are as follows. scheme has a three-year term (2007–2009).

2008 2007 Discount rate 4.75% 4.85% Rate of staff cost increase 3.50% 3.00%

134 Financial statements 20. Provisions for liabilities and In calculating the entity of the provisions, ac- charges count is taken both of the estimated costs that These provisions amount to 79,962 thou- may derive from litigation or other disputes aris- sand euros at 31 December 2008, compared with ing during the year and an update of estimates of 65,891 thousand euros at 31 December 2007. the potential liabilities deriving from the litiga- Movements in the provisions represent the tion involving the Company in previous years. balance of uses and provisions made during the The following table shows a breakdown of pro- period. visions and movements during 2008.

2007 change in basis uses Reclass. Provisions Provisions for 2008 of calculation investments Provisions for liabilities 24,597 0 (11,247) 0 29,719 0 43,069 Sundry provisions 41,294 1,997 (8,571) 0 1,351 822 36,892 Total provisions 65,891 1,997 (19,818) 0 31,070 822 79,962

Amounts are shown in thousands of euros

At the end of 2008 provisions for liabilities and 1,696 thousand euros and 302 thousand euros, charges include: (i) 5.6 million euros deriving from respectively, will be used to cover any liabilities an estimate of legal risks (disputes, litigation, etc.), deriving from items transferred to the Com- (ii) 33.1 million euros deriving from risks linked pany. to investments, (iii) 6.5 million euros for potential • provisions, amounting to 31,070 thousand eu- liabilities and charges relating to staff, including ros, refer to: the dispute over contributions. - 2,323 thousand euros for legal risks; - provisions of 1,350 thousand euros regard- The principal movements are as follows: ing the liability linked to the cash collateral • uses, amounting to 19,818 thousand euros, pri- for IPSE 2000 and potential charges relat- marily include: ing to the former Voinoi, deriving from the - 1,743 thousand euros of provisions made by transfer of liabilities on this company’s with- Acea SpA for early retirement and redun- drawal from liquidation; dancy charges; - 307 thousand euros in staff-related provisions; - 123 thousand euros of provisions for litiga- - 31,000 thousand euros regarding the best tion; estimate of the eventual charge deriving - 6,912 thousand euros for charges relating to from implementation art. 24 of Law Decree the withdrawal of Voinoi (now Acea8cento) 185/2008. These provisions have been allo- from liquidation; cated to the income statement as current tax - 8,300 thousand euros used, in February, to liabilities. pay the fine imposed by the Antitrust Au- thority in November 2007. Following Acea’s Compared with 2007, provisions for potential successful appeal against the fine, Lazio Re- liabilities and charges relating to staff are influ- gional Administrative Court quashed the enced by: (i) the significant reduction in the risk Authority’s ruling and cancelled the fine. relating to health insurance contributions, fol- • the change in the basis of calculation regards lowing approval of the regulations adopted with the liquidation of Sigesa SpA and the sale of article 20 of Law Decree 1112 of 25 June 2008; Luce SpA, as a result of which Acea has ac- based on a prudential interpretation of the above counted for the subsidiaries’ provisions in its changes to regulations, provisions of 2,308 thou- financial statements. The resulting amounts of sand euros, made in previous years to take account

Financial statements 135 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

of the above risk, have been reversed; and (ii) the 21. Non-current borrowings and new estimate of the contribution of 9% and 14%, financial liabilities which led to the release of 1,079 thousand euros to the income statement. The provisions also cover Non-current borrowings and financial liabili- liabilities deriving from the investments in Acea- ties total 991,847 thousand euros (549,698 thou- Rieti (139 thousand euros) and Acea8cento (638 sand euros at 31 December 2007) and break down thousand euros). as follows:

2008 2007 Increase/ (Decrease) Bonds 305,294 305,058 236 Medium/long-term bank borrowings 686,553 244,640 441,913 Total 991,847 549,698 442,149

Amounts are shown in thousands of euros

Bonds Medium/long-term bank borrowings These bonds are issued by Acea SpA and Such borrowings total 686,553 thousand euros amount to 305,294 thousand euros (305,058 (244,640 thousand euros at 31 December 2007) thousand euros at 31 December 2007). The above and represent principal outstanding at 31 Decem- amount includes interest accrued over the period ber 2008 and falling due after 12 months. August-December 2008 (interest is paid annually in July). The principal loans are described below: Acea SpA’s bonds were issued on the inter- • an unsecured loan of 200,000 thousand euros. national Eurobond market on 23 July 2004. The Disbursement of 159,763 thousand euros took bonds have a term to maturity of ten years and place on 11 September 2006. The remaining yield a nominal fixed rate of 4.875%. Redemption portion was disbursed on 27 June 2007. The will take the form of a lump-sum payment at par loan is subject to interest equal to 6-month value, unless the bonds are called prior to maturity. Euribor plus a spread of 15 basis points (from The terms and conditions include standard inter- the sixth year the spread becomes 17.5 basis national Eurobond market conditions regarding points), with interest due every six months and Negative Pledge and Events of Default, includ- bullet repayment of the principal on maturity ing a Cross Default provision should the financial (3 August 2013). The spread may vary based debt of the Company or its principal subsidiaries, on any changes to the ratings assigned to Acea. totalling more than 15 million euros, become im- The loan is not subject to covenants and the mediately repayable. agreement contains standard Negative Pledge and Acceleration Events clauses; • an unsecured loan of an original amount of 77,469 thousand euros and a residual value of 35,506 thousand euros; the interest rate is equal to 3-month Euribor less 15 basis points and the term to maturity is 15 years (a grace period of 3 years);

136 Financial statements • an unsecured loan of an original amount of ber 2021. The bank applies a floating rate of 51,646 thousand euros and a residual value of interest, with repayments to be made every six 8,370 thousand euros; the loan is subject to a months from 30 June 2010. Interest rate risk fixed rate of interest of 4.45% and has a term associated with the loan has been hedged via to maturity of 15 years (a grace period of 3 an Interest Rate Swap, with the aim of convert- years); ing the underlying loan from floating to fixed • an unsecured loan of a residual amount of rate. The swap matches the underlying repay- 2,295 thousand euros (the original amount was ment schedule. Based on IAS 39, the Com- 25,143 thousand euros) handled by Banca di pany has tested the effectiveness of the hedge Roma; the loan is subject to a fixed rate of in- using Hedge Accounting under the Cash Flow terest of 5.48% and has a term to maturity of Hedge model. The test revealed that the hedge 15 years; is 99.81% effective, meaning that there was no • a loan of 150 million euros agreed on 25 Au- ineffective portion to take to the income state- gust 2008; the loan ahs a term to maturity of ment. 15 years and is subject to an interest rate of 3-month Euribor plus a spread of 7.8 basis The following table shows a breakdown of me- points; dium- to long-term bank borrowings by type of • a loan of 200 million euros drawn down on 10 interest rate and term to maturity. The table also October 2008 and maturing in March 2016. includes short-term portions falling due within 31 The interest rate applied by the bank is equal December 2007 and classified as current liabilities to 3-month Euribor plus a spread of 50 basis (Note 24). points; • a loan of 100 million euros drawn down on 31 March 2008 and maturing on 21 Decem-

Bank borrowings Total residual within Between 31 Dec 2010 after debt 31 Dec 2009 and 31 Dec 2013 31 Dec 2013 fixed rate 9,318 1,407 6,294 1,617 floating rate 689,718 11,309 266,404 412,238 Total 699,036 12,716 272,698 413,855

Amounts are shown in thousands of euros

Information on financial instruments is provided in the section “Additional disclosures on financial instruments and risk management policies”.

Financial statements 137 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

22. Other non-current liabilities 23. Deferred tax liabilities At 31 December 2008 such liabilities total At 31 December 2008 provisions for deferred 10,218 thousand euros (11,908 thousand euros at tax liabilities total 1,476 thousand euros (8,142 31 December 2007) and refer to deferment of the thousand euros at 31 December 2007). These pro- gain generated by the business combination of an visions above all regard the difference between entity under common control in 2005, following economic and technical rates of depreciation and the transfer of the public lighting business to Acea tax-related rates (943 thousand euros), and provi- Distribuzione. The amount accounted for at 31 sions for deferred tax liabilities on dividends yet to December 2008 is shown less the accrued portion be collected (142 thousand euros). (1,591 thousand euros) calculated on the basis of the term of the service contract with the Comune di Roma (ten years).

24. Current liabilities At 31 December 2008 current liabilities total 406,320 thousand euros (613,846 thousand euros at 31 December 2007) and break down as follows:

2008 2007 Increase/ (Decrease) Borrowings and other financial liabilities 219,647 419,618 (199,970) Trade payables 137,834 119,928 17,906 Tax liabilities 10,901 29,912 (19,011) Other current liabilities 37,938 44,389 (6,451) Total 406,320 613,846 (207,526)

Amounts are shown in thousands of euros

Borrowings and financial liabilities Current borrowings and financial liabilities of 219,647 thousand euros break down as follows:

2008 2007 Increase/ (Decrease) Short-term bank lines of credit 100,266 379,542 (279,276) Bank borrowings 12,559 10,347 2,212 Financial liabilities due to the Comune di Roma 2,213 2,213 0 Financial liabilities due to subsidiaries and associates 96,720 26,390 70,330 Financial liabilities due to third parties 7,890 1,127 6,763 Total 219,647 419,618 (199,970)

Amounts are shown in thousands of euros

Short-term bank lines of credit At 31 December 2008 short-term bank lines debt. of credit total 100,266 thousand euros (379,542 Accrued interest expense at 31 December 2008 thousand euros at 31 December 2007), represent- amounts to 18,081 thousand euros. ing a reduction of 279,276 thousand euros as a These lines of credit are not committed and are result of the decrease in Acea SpA’s short-term unsecured.

138 Financial statements Bank borrowings For further information on the composition and Current bank borrowings total 12,559 thou- movements during the year, reference should be sand euros and regard the short-term portion of made to the corresponding note on receivables. bank borrowings falling due within 12 months. Financial liabilities due to subsidiaries and Further details are provided in Note 21. associates Financial liabilities due to the parent company This item amounts to 96,720 thousand euros (Comune di Roma) at 31 December 2008, compared with 26,390 At 31 December 2008 this items totals 2,213 thousand euros at 31 December 2007, and breaks thousand euros, unchanged compared to the previ- down as follows: ous year.

2008 2007 Increase/ (Decrease) Intercompany current account payables 76,817 9,633 67,184 Amounts due to subsidiaries as IRES under the tax consolidation arrangement 13,993 6,626 7,367 VAT credit due to subsidiaries 339 3,598 (3,259) Unpaid called-up share capital of subsidiaries 0 4 (4) Short-term loan repayable to subsidiaries 5,571 6,530 (958) Total 96,720 26,390 70,330

Amounts are shown in thousands of euros

These items regard: (i) the balance of the inter- reflects the rise in amounts due to subsidiaries company current account jointly held by Acea under the cash pooling system, above all Acea- SpA and a number of subsidiaries, totalling 76,817 Electrabel Produzione (41,507 thousand euros) thousand euros, and used to settle financial trans- and AceaElectrabel Elettricità (32,029 thousand actions on behalf of or authorised by the subsidi- euros). aries. Acea SpA pays interest calculated on a quarterly basis, applying the interest rate deriving from Amounts due to third parties the arithmetic mean of daily three-month Euri- These items total 7,890 thousand euros (1,127 bor rates over the quarter less a spread of 0.20%; thousand euros at 31 December 2007) and include (ii) the balance deriving from the participation of 6,780 thousand euros deriving from the fair value a number of companies in the tax consolidation measurement of the Interest Rate Swap (fixed- arrangement, totalling 13,993 thousand euros (in- floating) entered into to synthetically convert the cluding 5,490 thousand euros due to AEE, 3,342 underlying floating rate debt to fixed rate debt. thousand euros due to AET, 1,670 thousand euros The balance is made up of 513 thousand euros due to Acea RSE and 2,001 thousand euros due payable to the Company’s partners in Acque Blu to TAD Group companies); (iii) the balance due Fiorentine, as a result of dividends from Publiac- to Acea ATO 5 for the VAT credit accrued dur- qua collected on their behalf. ing 2008, totalling 338 thousand euros, and transferred to the Group’s VAT payment scheme; and (iv) the loan repayable to Crea Gestioni and Crea Partecipazioni. These loans were repayable to Crea SpA prior to the spin-off, before being allocated to the two beneficiary companies. The increase compared with the previous year Financial statements 139 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Trade payables Trade payables total 137,834 thousand euros (119,928 thousand euros at 31 December 2007) and break down as follows: 2008 2007 Increase/ (Decrease) Due to third-party suppliers 37,594 32,573 5,022 Due to the Comune di Roma 31,395 31,401 (6) Due to subsidiaries and associates 68,845 55,954 12,890 Total 137,834 119,928 17,906

Amounts are shown in thousands of euros

Trade payables due to third-party suppliers At 31 December 2008 this item totals 37,594 thousand euros (32,573 thousand euros at 31 Decem- ber 2007) and breaks down as follows:

2008 2007 Increase/ (Decrease) Bills received 11,121 13,048 (1,927) Bills to be received 26,473 19,525 6,949 Total 37,594 32,573 5,022

Amounts are shown in thousands of euros

The sum of 1,460 thousand euros derives from the transfer of payables from the former subsidiary, Acea Luce.

Trade payables due to the parent, the Comune di Roma These payables total 31,395 thousand euros (31,401 thousand euros at 31 December 2007). Details were provided in Note 17 on trade receivables.

140 Financial statements Trade payables due to subsidiaries and associates These payables total 68,845 thousand euros (55,954 at 31 December 2007). This item essentially consists of:

2008 2007 Increase/ (Decrease) Amounts due to Acea Distribuzione 51,474 40,089 11,384 Amounts due to LaboratoRI 156 235 (79) Amounts due to Ecomed srl 15 15 0 Amounts due to Acea8cento 94 0 94 Amounts due to Utilitas 0 0 0 Amounts due to AceaElectrabel SpA 36 291 (255) Amounts due to Cartesia 0 0 0 Amounts due to AE Produzione 149 372 (223) Amounts due to AE Elettricità 5,484 6,504 (1,020) Amounts due to ATO2 146 89 58 Amounts due to Acea Luce 0 528 (528) Amounts due to Arse 0 0 0 Amounts due to ATO5 108 99 8 Amounts due to AE TRADING 0 384 (384) Amounts due to CREA 0 164 (164) Amounts due to LUCE NAPOLI 77 1,206 (1,129) Amounts due to Acea ricerca perdite 27 0 27 Amounts due to Acea Ato 5 servizi 0 0 0 Amounts due to CREA GESTIONI 164 0 164 Amounts due to Tad 23 0 23 Amounts due to Apice 2 0 2 Amounts due to Lunigiana 0 0 0 Amounts due to Ecogena 7 0 7 Amounts due to Marco Polo 10,866 5,962 4,904 Amounts due to Si(e)nergia 16 16 0 Intercompany payables for electricity and water 0 0 0 Total 68,845 55,954 12,890

Amounts are shown in thousands of euros

These essentially refer to: (i) bills to be received thousand euros; (iii) 146 thousand euros due to from AceaElectrabel Elettricità SpA regarding Acea Ato2 SpA for interest expense generated on electricity purchased and transport costs, total- the intercompany current account; (iv) amounts ling 5,484 thousand euros; (ii) the cost of energy payable to Crea Gestioni (164 thousand euros) dispatched and other minor services provided by and Marco Polo (10,866 thousand euros). Acea Distribuzione SpA, amounting to 51,474

Financial statements 141 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Tax liabilities Tax liabilities total 10,901 thousand euros to the absence of a charge for IRES and the re- (29,912 thousand euros at 31 December 2007), duction in deferred VAT. having decreased by 19,011 thousand euros compared with the previous year. The reduction is due This item breaks down as follows.

2008 2007 Increase/ (Decrease) Deferred VAT 7,456 13,622 (6,166) Withholding taxes 1,767 1,204 563 IRES/IRAP 1,594 15,086 (13,493) Other 84 0 84 Total 10,901 29,912 (19,011)

Amounts are shown in thousands of euros

Other current liabilities Other current liabilities amount to 37,938 thousand euros (44,389 thousand euros at 31 December 2007) and consist of: 2008 2007 Increase/ (Decrease) Social security contributions 2,179 1,751 428 Amounts due to the Municipality of Fiumicino 17 17 0 Other 35,742 42,621 (6,879) Total 37,938 44,389 (6,451)

Amounts are shown in thousands of euros

Social security contributions • amounts collected from end users in the proc- Social security contributions total 2,179 thou- ess of being allocated or reimbursed, totalling sand euros and refers principally to payables that 28,477 thousand euros. This item also includes Acea SpA owes and has not yet paid to social se- amounts collected in the name of and on be- curity institutions relating to monthly salaries for half of certain municipalities in ATO 2 (331 December 2008. thousand euros) for which Acea SpA provided billing and credit management services until 31 Other December 2002. At 31 December 2008 other current liabilities amount to 35,742 thousand euros (42,621 thou- The financial statements do not report paya- sand euros at 31 December 2007). bles falling due after five years, other than those This item essentially regards: already mentioned in the note to “Medium/long- • amounts due to staff (5,832 thousand euros) term bank borrowings”. as accrued vacation pay, bonuses, additional monthly pay, etc.;

142 Financial statements Related party transactions Since 2001, an agreement between the Parent Company, Acea SpA, and the Comune di Roma Parent: Comune di Roma regulates the terms and conditions applicable to The parent, Comune di Roma, holds acon- reciprocal receivables and payables. The three- trolling interest via its 51% holding in the Parent year agreement (tacitly renewable for a further Company, Acea SpA. three years on expiry), which came into effect on Trading relations between Acea SpA and the 1 May 2001 concerns all reciprocal trading rela- Comune di Roma include the provision of main- tions between the Acea Group and the Comune tenance and upgrading of public lighting by the di Roma. Parent Company to the Comune governed by a Regarding service contracts, the Comune di service contract, renewed on 13 February 2007. Roma’s terms of payment establish that payment The new contract is substantially similar to the shall take place within sixty days of receipt of an former arrangement, envisaging a lump-sum pay- invoice, and in the case of late payment the par- ment for day-to-day management, routine and ex- ties have agreed to apply the current bank rate at traordinary maintenance, the supply of electricity the time. and the implementation of a pre-established in- For sales of electricity and water to the Comune vestment plan, whilst the installation of new plant di Roma (solely with reference to regulated market and equipment is to be commissioned and paid for users), it is stipulated that the Comune di Roma separately. The most important difference com- shall make an advance payment of 90% within 40 pared with the previous contract regard: the dura- days of receiving a summarised list of the invoic- tion of 10 years from 1 June 2005; the inclusion es issued by Group companies. The Comune di of a significant investment plan in the contract; a Roma must settle the remaining balance by June different method of calculating payments for new of the following year. In the case of late payment plant and equipment, now based on agreed prices; for electricity or water, interest shall be paid under and a different and more detailed definition of the terms of the current provisions issued by the penalties to be paid in relation to service quality. Electricity and Gas Authority. The annual fee is to be billed monthly with The process of renewing the agreement is payment due at 60 days, whilst specific bills are currently underway: the draft submitted to the to be issued for the installation of new plant and Comune di Roma has met with agreement from equipment. the various technical departments. An exclusive contract grants a thirty-year concession, free of charge, for the provision of routine For further information regarding relations be- and extraordinary maintenance services for plants tween Acea SpA and the Comune di Roma, refer- within the municipality of Rome. ence should be made to the notes to receivables and payables in the notes to Acea SpA’s financial As a local authority, the Comune di Roma has statements. the power to regulate the local taxes and duties to The following table shows details of revenues be paid by the Group, which in no case is the sole and costs deriving from the most significant fi- payer of any of these taxes and duties within the nancial relations between Acea SpA and the municipality of Rome. Comune di Roma in 2008.

Revenues Costs 2008 2007 2008 2007 Public lighting service contract 60,357 57,170 0 0 Headquarters rental 0 0 0 0

Amounts are shown in thousands of euros

Financial statements 143 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Entities owned by the Comune di zione SpA’s refinancing of its loan from Cassa Depositi Roma e Prestiti. Moreover, as part of its commitments in the Master Agreement executed with Electrabel, Acea Acea does not currently engage in trading relations has issued corporate and bank guarantees on behalf of with other companies, special agencies and bodies AceaElectrabel Trading and AceaElectrabel Elettricità owned by the Comune di Roma. (in line with the Company’s interests in the two companies). Further information is provided in “Commit- ments and contingencies”. Subsidiaries The above relations also include the dividends paid by subsidiaries, and receivables and payables deriving Financial relations from tax consolidation. Within the Group, Acea SpA acts as a centralised In addition, Acea and Electrabel finance the Ros- treasurer for certain subsidiaries, in particular, those that electra and Leinì thermoelectric plant construction were demerged. projects and the Monte della Difesa wind farm. Fur- Current account relations between the Parent Com- ther information is provided in the notes to the relevant pany and subsidiaries are conducted on an arm’s length balance sheet items. basis. In particular, subsidiaries are subject to a borrow- Trading relations ing rate calculated on a quarterly basis by applying the rate of interest deriving from the arithmetical average The Parent Company, Acea SpA, provides ad- of daily three-month Euribor rates plus a spread of ministrative, financial, legal, logistical, manage- 0.20%. ment and technical services to subsidiaries and It should be pointed out that Acea SpA also acts associated companies in order to optimise the use as guarantor for Group companies. In particular, the of existing resources and know-how in an eco- Company has issued a corporate guarantee covering nomically advantageous manner. These services the principal and interest deriving from Acea Distribu- are governed by annual service contracts.

Principal associates

Revenues costs Receivables Payables 2008 2007 2008 2007 2008 2007 2008 2007 Marco Polo 2,184 2,248 11,014 12,202 767 743 10,866 2,356

Marco Polo SpA operates facility management nies is conducted on an arm’s length basis. Marco services following the transfer of the relevant di- Polo SpA is provided with administrative services vision under a nine-year lease from Acea SpA, from Acea SpA under an annual service contract. which previously carried out this activity. This supply of such services is conducted on an The supply of services to Acea Group compa- arm’s length basis.

Acea Spa and principal electrabel ments. This sum was generated by the achievement group companies of a certain degree of market liberalisation (as set As a result of the joint venture between Acea out in the JV Agreement) and the monetary re- SpA and Electrabel, Acea recognises receivables valuation of receivables accounted for on the basis and payables in its balance sheet essentially deriv- of the Agreement in previous years. ing from price adjustments. In its financial state- At the balance sheet date Acea and Electrabel ments for the year ended 31 December 2007 Acea have settled all reciprocal receivables and paya- recognised 19.6 million euros in profits on invest- bles.

144 Financial statements Update on major disputes and Health insurance contributions litigation The Court of Rome has accepted the request submitted by Acea SpA, nullifying the Compa- Social security issues ny’s obligation to pay such contributions to Inps. Inps has appealed this judgment and the relevant Inpdap contributions hearing has been scheduled for the first quarter of Acea currently employs staff registered with 2008 with regard to Acea. both Inpdap and Inps pension funds. Certain The case concerns certain health insurance con- contribution rates applied by the two entities dif- tributions levied at a rate of 2.22% on the salaries fer greatly: these include those for family benefit of blue collar workers. Acea SpA argues that the payments, for which Inpdap applies a rate of that obligation of Inps to pay certain disability bene- is 3.72% higher than that applied by Inps. fits, which is the reason underlying the employer’s In response to the failure to pass legislation obligation to pay the contribution involved in this bringing the pension and social security contribu- dispute, is expressly excluded by art. 6, section 2 tions into line, Acea decided that from Novem- of Law 138 of January 11, 1943 in cases where ber 2002 it would pay such contributions at the the payment of this benefit is assured by the em- more favourable rate. The underlying legal basis ployer or other bodies to an extent either equal to is rather unclear: Inps circular no. 103 of 16 June or greater than what is established by collective 2002 reiterated that, whilst awaiting clarification labour agreements. from the Ministry of Economy and Finance and Other favourable judgments regarding this the Ministry of Labour, the rate of 6.20% was to matter have been handed down, including the be considered provisional. In terms of legal action, successful action brought by AEM Milano SpA in the Company’s appeal through the administrative first and second instance. In June 2004, however, courts was turned down during the second half of the Supreme Court contradicted the two earlier 2006. Acea subsequently appealed and is currently Supreme Court judgments in favour of companies awaiting a date for the relevant hearing. in the sector, based on the principle that article 6 A similar problem regards contributions for of Law 138/1943 does not exclude the employer’s maternity benefits, where the difference in the obligation to pay the contributions even when the cost to companies, based on taxable pay, is 0.57 employer has a contractual obligation to pay the percentage points higher for staff covered by Inp- benefits concerned. dap compared with those covered by Inps. Also in In January 2006 the Appeal Court in Brescia, this case, Acea has applied the lower contribution having been asked by the Supreme Court to rule rate from October 2003. The appeal filed by Acea on the merits of certain issues raised by AEM Mi- has been turned down and the Company has filed lano SpA, passed sentence. The judgment touched a further appeal to be heard in 2009. on a number of aspects: (i) the claim of unconsti- Following a series of unfavourable outcomes, a tutionality was turned down; this request involved Court of First Instance (in Brescia) has upheld the a reference to the Constitutional Court with wid- position taken by a former municipalised utility, er significance compared with the request made recognising the company’s right to pay the above by another former municipalized utility, whose contributions at the reduced rate and declaring claim of unconstitutionality had been upheld, (ii) the tax demands issued by Inps to have no basis in the right of companies who pay health insurance law. The court’s opinion appears to be substantially contributions to claim the amounts paid to their in line with the arguments adopted in the appeals employees from Inps was recognised. This judg- submitted by Acea. ment is radically different from the one issued by the Supreme Court with regard to AEM Milano SpA. The Courts of Milan, Bolzano and Bologna

Financial statements 145 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

have requested the Constitutional Court to rule Changes to collective contracts on renewal and, on the constitutionality of the regulations appli- above all, as a result of the adoption of individual cable to the matters in question. industry-specific contracts, lead the Company to In February 2008 a Constitutional Court hear- believe that it is liable to pay the above contri- ing examined the matter. The resulting sentence butions once the Ministry of Labour’s suspension upholds all the arguments put forward by Inps expired. in terms of existence of the obligation to pay the Acea SpA appealed. The judge of first instance contributions even when the employer has a con- has ruled that he does not have jurisdiction in tractual obligation to pay the benefits concerned. such matters and has referred the appeals to the The same sentence, however, grants Inps the right relevant administrative bodies. On 3 August 2004 to act on individual cases via ad hoc administrative appeals were thus deposited with the relevant Ad- measures. ministrative Committee at Inps (Comitato Am- Article 20 of Law Decree 112 of 25 June 2008 ministratore della Gestione Prestazioni Tempora- has substantially resolved this issue. The first para- nee ai Lavoratori Dipendenti). The hearing of 30 graph of the article provides an interpretation of November 2006 resulted in favourable outcomes paragraph 2 of article 6 of Law 138/1943: em- for all three of the above companies. ployers are not obliged to pay health insurance The Council of State has issued a consultative contributions where they have, by law or under opinion regarding contributions for social welfare the provisions of a collective labour agreement, schemes, stating that the mandatory payment of paid sick pay, thus exonerating Inps from the pay- social welfare and redundancy contributions by ment of the related benefits. privatised public utilities cannot be applied retro- Article 20 also establishes the obligation of actively. According to Inps, former municipalized state-owned companies, public entities, privatised utilities that are not wholly owned by the relevant municipal entities and public-private partnerships Municipality are liable for the above contribu- to pay these contributions from 1 January 2009. tions from the year in which full ownership by the Municipality came to an end. This interpretation, Contributions for social welfare schemes which Inps has continued to maintain, was re- In lieu of the eagerly awaited reform, substan- peated in Circular no. 63 of May 2005. The Coun- tial changes to the regulations governing social cil of State, however, is not in agreement with this welfare schemes were announced by Inps in circu- view, finding that the mandatory payment of the lar no. 96 of 22 May 2002. On the basis of Minis- contributions does not have retroactive effect, and try guidelines, the circular declared an end to the arriving at the logical conclusion that obligation suspension introduced by the then Ministry of to pay the contributions coincides with the issue Labour in March 2000. Inps thus maintains that of the above circular. former municipalized utilities that are not wholly In a note dated 10 July 2007, Inps issued its fi- owned by the relevant Municipality are liable for nally ruling regarding the issue of obligatory con- social welfare and redundancy contributions from tributions for redundancy provisions in relation to the year in which full ownership by the Munici- Enel and companies in the Enel Group. The rul- pality came to an end. In line with other member ing specifies that the new obligations, which came companies of Confservizi, the Company holds into force with the instruction of April 2006, can- that such a claim is unfounded due to the fact that not be backdated. collective labour agreements at the time contained On 5 February 2008 the Welfare Department the so-called “stability clause”, which excluded of the Ministry of Labour requested Inps (the Ital- employers from access to the aid covered by the ian National Social Security Institute) to extend contributions in question. Moreover, during the application of social security contribution obliga- period of suspension, Inps took no steps regarding tions, deriving from the judgment handed down the failure to make payment of the contributions. by the Council of State in Ruling 65 of 2006, to

146 Financial statements former municipalised utilities that have been con- interest, from the beneficiaries. However, this de- verted into joint-stock companies with public and cision does not rule out the possibility of consid- private shareholders. Essentially this means that ering aid to individual companies, whether par- the principle of non-retroactivity previously as- tial or complete, as compatible with the common serted by the above ruling has been extended to market, depending on the specific circumstances. the former municipalised utilities, thus ensuring Thus, there is the possibility that, in certain equal treatment for all market operators. cases, it may not be necessary to seek restitution of the aid, given that the Commission’s decision gives the Italian State some, if limited, discretion Tax issues regarding the method of implementing the obligation to recover the aid. Generally, Acea SpA, Tax moratorium backed by an authoritative legal opinion, believes The situation relating to the dispute arising as a that there are grounds for excluding the direct ap- result of the final decision reached by the Europe- plication of the Commission’s decision given that an Commission in June 2002, in which it declared the contents of the decision have not been trans- that Acea SpA had benefited from illegal and posed into Italian law. incompatible state aid, has remained unchanged. On 15 May 2005 Law 62 (“Community Law Indeed, the appeal lodged against such decision 2004”) of 18 April 2005 came into force. Article by the Italian state to the European Court of first 27 of this law contains provisions regarding the instance at the end of August 2002 is still pend- recovery of any reduced or unpaid taxes relating to ing. On 6 January 2003 the European Commis- the period covered by the tax moratorium. sion rejected the appeal submitted by Acea SpA Moreover, on 14 June 2005, the Official Ga- on the grounds that the appellant lacked the right zette published a ruling issued by the Director of of action. Acea SpA submitted its response to this the Italian tax authorities containing guidelines rejection on 15 March 2003. On 5 August 2004 for application of the provisions of the above ar- Section V of the European Court of first instance ticle 27. put off a judgment on the merits of Acea SpA’s Despite the fact that the joint decree to be appeal, combining any decision in this regard with drawn up by the Interior Ministry, the Ministry the judgment on the merits of the Commission’s for the Economy and the Ministry for Commu- decision that the Company has benefited from il- nity Affairs, as envisaged by paragraph 6 of the legal and incompatible state aid. above article 27, containing guidelines for a correct The judgment on the Commission’s decision re- assessment of cases qualifying for non-application garding state aid will therefore be combined with of the recovery of the above taxes, has yet to be an examination of the merits and the Court will enacted, on 11 July 2005 Acea SpA submitted tax thus be obliged to hear the motives for Acea SpA’s declarations for the tax years potentially covered appeal. Acea SpA’s lawyers have prepared a docu- by the tax relief. Paragraph 5 of article 27 allows ment detailing the Company’s defence, which was the tax authorities 6 months from the deadline for deposited at the Court on 18 March 2005. submission of the tax declarations to notify assess- It should be borne in mind that the Commis- ments of unpaid taxes. This term expired on 11 sion considered as state aid, incompatible with the January 2006. common market, both the three-year exemption Paragraph 132 of article 1 of the 2006 Finance from corporate income taxes and the loans at be- Act (Law 266/2005), which was approved on 23 low market rates from Cassa Depositi e Prestiti December 2005, has radically amended the above between 1994 and 1998. article 27 of Law 62/2005. The Commission thus requested the Italian The new regulations have significantly changed State, to which the decision is directed, to take the the procedure for recovering what are now termed necessary action to recover the sums involved, plus “aid equivalent to taxes not paid as a result of a tax

Financial statements 147 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

moratorium”. the tax moratorium. These requirements have The role of the Interior Ministry is highly sig- already been complied with in accordance nificant with regard to both the issue of regula- with the previous form of article 27. Clarifica- tions and the compulsory recovery of any sums tion regarding the obligation to re-submit the corresponding to the illegal aid. tax declarations submitted on 11 July 2005 is The discretionary nature of application of the awaited; regulations governing recovery has, however, been 5. the Interior Ministry has 6 months from the confirmed, with the procedure continuing to ex- date of issue of the above guidelines to notify clusively regard joint-stock companies under ma- any assessments containing the calculation of jority public ownership, established pursuant to the illegal aid and related interest due; Law 42 of 8 June 1990. 6. any assessment must, in addition to the infor- Whilst waiting for the European Court of Jus- mation required by law, also indicate the rea- tice to issue its judgments regarding the various sons for applying the regulations in question to appeals pending, based on existing regulations, the the entity receiving the assessment. following laws and regulations apply: At the end of 2006 the above procedure had 1. the issue by the Interior Ministry, in consulta- not in any way been implemented. tion with the Ministry for the Economy and the Ministry for Community Affairs, of regu- After 31 December 2006, Law Decree 10/2007 lations pursuant to paragraph 2 of article 17 was published in the Official Gazette dated 15 of Law 400/1988, containing guidelines for a February 2007. Article 1 of this decree – which was correct assessment of cases qualifying for non- converted into law on 6 April 2007 (Law 46) – en- application of the recovery of the above taxes visages yet another change (the third since April and for calculation of the illegal aid. No term 2005) to the procedure for recovering the aid. has been set for adoption of such regulations, This recent legislation envisages that recovery on which the entire procedure depends; of the aid, represented by unpaid taxes and the 2. the above decree must be drawn up taking ac- related interest, should be carried out by the tax count of specific criteria that guarantee, among authorities, which are required (i) to calculate the other things, compliance with constitutional taxes based on the information sent to local au- principles, with the statutory rights of taxpay- thorities and the tax declarations submitted by the ers, with the right of equal access to alterna- companies that benefited from the aid pursuant to tive tax regimes that could have been applied the legislation in force prior to the changes intro- by the tax paying entity had the tax relief not duced by paragraph 132 of article 1 of Law 266 of been available, and the right of equal access 23 December 2005, and (ii) to issue a specific no- to tax regimes ordinarily applicable to taxpay- tice within 90 days of the date of entry into force ers in general. In addition, the decree must take of the decree (15 May 2007) containing, for each account of the form of repayment of the aid al- relevant tax year, the payment demand for the ready implemented via return of the lower taxes sums due, making a definitive entry in the delin- paid to the public sector; quent tax list should payment not be made within 3. the issue by the Interior Ministry, within 30 thirty days of the notice date. days of the entry into effect of the above decree, The decree expressly prohibits any term of pay- of guidelines governing implementation of the ment extensions or administrative suspensions. In measures contained in the amended article 27; contrast, the payment demands may be appealed 4. within 60 days of entry into effect of the above before the tax commissions and the demands sus- decree, local authorities are to identify the en- pended on a cautionary basis only under clearly tities that have potentially benefited from the defined circumstances and subject to verification aid, and the entities concerned are to submit of the seriousness and irreparability of the preju- tax declarations for the tax years covered by dice suffered by the appellant.

148 Financial statements Based on the above legislation, on 13 April judgement regarding the appeals filed by the Ital- 2007 the tax authorities issued payment demands ian state and the companies involved is immi- pursuant to article 1 of the decree, with a view to nent. recovering the aid represented by unpaid taxes for the years 1998 and 1999. These taxes amounted With regard to subsidised loans, on 22 Au- to 6,362 thousand euros, on which interest of gust 2006 the following Interministerial Decree, 3,022 thousand euros was also due. Acea paid the dated 21 July 2006, was published in the Official amounts due within the related terms. Gazette: “Determination of the guidelines and Acea has appealed the payment demands be- procedures for a correct assessment of individual fore the Rome Tax Commission. The date for the cases qualifying for non-application of the re- hearing at first instance has yet to be announced. covery of state aid, required by European Com- mission decision 2003/193/CE of 5 June 2002”. Law Decree 185/2008 was published in the Article 27, paragraph 11, included in the recitals, Official Gazette on 29 November 2008. Article 24 make express reference to the fact that the De- of this decree – which was subsequently converted cree solely regards companies who obtained loans into Law 2/2009 – establishes that, in order to from Cassa Depositi e Prestiti during the period fully implement the European Commission’s De- of the moratorium. As Acea SpA did not benefit cision 2003/193/EC, recovery should be carried from such loans, the Company is not covered by out by the tax authorities pursuant to article 1, the provisions of the Decree. paragraph 1 of Law Decree 10/2007, according to the standards and ordinary procedures applied in the assessment and collection of income taxes. Re- VAT covery is to take place within 120 days of the entry On the basis of Ministry of Finance guidelines, into force of the Law Decree (28 March 2009) via the aziende speciali incorporated under the terms a notice of assessment that should take account of articles 22 and 23 of Law 142 of 8 June 1990, of any amounts already paid to the tax authorities contrary to previous indications from the same pursuant to article 1, paragraph 2 of Law Decree ministry, should have applied VAT to transactions 10/2007. Any term of payment extensions or ad- with their local Municipality during the period ministrative or legal suspensions are prohibited, of the tax moratorium. According to such an in- and any amounts paid to the tax authorities on terpretation, with acquisition of legal status the the basis of the provisions of Law 289/2002 and above-mentioned aziende speciali, even though subsequent amendments and additions (which subject to a tax moratorium, were bound to fulfil introduced a tax amnesty) bear no relevance to their VAT obligations. Furthermore, on the basis the recovery. Based on the information currently of the arguments in the Ministry’s guidelines, the available, the Company has made provisions of 31 aziende speciali could have acquired the status of million euros to cover the amount it may eventu- legal entities as they fulfilled the initial acts de- ally be obliged to pay. signed to achieve such status. Recent sentences have not upheld the arguments put forward by The appeals filed by the Italian state andthe the Ministry of Finance with regard to VAT. The companies involved before the European Court of Directors of Acea SpA, backed by an authorita- Justice have yet to heard. Should the appeals be tive opinion on tax matters, do not consider that successful (and the tax moratorium no longer be Acea SpA will be obliged to assume ope legis the considered state aid) the Italian state would have tax commitments of the former Azienda Speciale to return the amounts collected and the provisions which, as recognized by the Comune di Roma, of the above article 24 would no longer be effec- remain the responsibility of the conferee (the tive. Comune di Roma). Publication of the European Court of Justice’s

Financial statements 149 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Other information Other matters

In September 2007 the tax authorities launched Casmez dispute an investigation of the tax loss deriving from the Acea SpA brought a successful action against sale of Atlanet pursuant to article 1, paragraph 4 the Ministry of Infrastructure and Transport and of Law Decree 209/2002. Abruzzo Regional Authority with aim of obtain- The scope of the audit was widened to include ing damages for the removal of water granted to the corporate restructuring that took place in Acea for use in the production of hydroelectric 2004. This is based on application of article 36, power at its plants in the Abruzzo region. On 8 paragraph 11 of Law Decree 223/2006, which May 2006 the Superior Water Court issued sen- amended the legislation governing the use of ac- tence 51/2006 awarding damages of approximate- cumulated tax losses under the tax transparency ly 18 million euros. Approximately 9 million euros regime, and introducing the application of anti- was collected in 2006, with the remainder received evasion measures to transactions carried out prior in September 2007. to the above amendment. The audit was completed in February 2009, Antitrust Authority investigation of the acquisition with recognition of the tax losses deriving from of Publiacqua the sale of Atlanet and notice of an alleged irreg- On 8 June 2006 Acea was informed that Italy’s ularity pursuant to article 37-bis of Presidential Antitrust Authority was about to start an investi- Decree 600/1973 sent to the Tax Office for the gation of an alleged violation of article 81 of the Lazio region. Treaty of Rome (anti-competitive agreements) Acea carried out the above restructuring for in relation to the acquisition, in partnership with valid business reasons and without any intention Suez, of a 40% stake in Publiacqua, which man- to evade taxes. Moreover, at the time of the related ages water services in the Florence area. transactions Acea obtained an authoritative expert On the same date Acea submitted the docu- opinion that covers this aspect. mentation relating to the transaction. The investigation saw a number of key develop- In December 2007 Acea was also informed of ments during the first half of 2007, with several an audit relating to consolidation adjustments re- Company representatives giving evidence during garding dividends applied in the 2006 tax return hearings held at the Authority’s offices and depo- (for the 2005 tax year). The audit ended with the sition of defence briefs (prepared with the assist- issue of an official report that substantially renders ance of the consultants hired by the Company). the above adjustments subject to taxation (4,430 The most important event took place during the thousand euros, on which taxation of 1,462 thou- second half of July, when the report containing the sand euros is payable). results of the investigation was passed to the Anti- Acea has submitted its defence within the terms trust Authority Board for its final decision. established in the Taxpayers’ Charter, substantially On 28 November 2007 Acea was notified of arguing that the tax authorities’ findings are based the Antitrust Authority’s ruling, in which it: on violation of a regulation that was not applica- • deemed that a horizontal agreement existed ble to dividends (a regulation that was, moreover, between Acea and Suez in the integrated water enacted in November 2005 with effect backdated services sector, which is managed by a public- to 1 January 2005) before being subsequently re- private partnership in which the private part- interpreted by the tax authorities in circular 160/E ner is selected via a tender process; of 9 July 2007, after the deadline for filing the tax • ruled that the parties should take actions to return. avoid repetition of the sanctioned behaviour, with the Authority to be notified of the nature of such actions within 90 days, and also amend

150 Financial statements the rules governing the partnership regarding hearing on the merits of the case held in April: the part deemed to be in violation of competi- on 7 May 2008 the court announced the related tion regulations; sentence, finding in Acea’s favour and cancelling • ordered Acea and Suez to pay fines of 8.3 mil- all the rulings and the fine imposed. Details of the lion euros and 3 million euros, respectively (the sentence, upholding all the appellant’s arguments, difference in the amounts derives from their were published at the end of June. respective turnovers in the relevant sector in The fine was paid in February 2008 and, in view Italy). of the above sentence, Acea has filed a claim for Acea appealed the Authority’s decision before the return of the sum paid. Lazio Regional Administrative Court, with the

Additional disclosures on financial instruments and risk management policies

Classes of financial instrument The following table shows the breakdown of financial assets and liabilities required by IFRS 7 based on the categories defined by IAS 39.

Financial instruments loans and available-for-sale carrying note held for trading receivables financial amount at fair value instruments Non-current assets 0 58,012 6,054 64,067 Other investments 6,054 6,054 13 Financial assets due from the parent, subsidiaries and associates 57,757 57,757 15 Other financial assets 256 256 15

Current assets 0 1,150,532 0 1,150,532

Trade receivables due from customers 56,592 56,592 17 Trade receivables due from related parties 150,511 150,511 17 Financial assets due from the parent, subsidiaries and associates 751,259 751,259 17 Financial assets due from third parties 38,746 38,746 17 Cash and cash equivalents 153,424 153,424 17

Total financial assets 0 1,208,545 6,054 1,214,599

Amounts are shown in thousands of euros

Financial statements 151 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Financial instruments liabilities at carrying note held for trading amortised cost amount

Non-current liabilities 0 991,847 991,847 Bonds 305,294 305,294 21 Bank borrowings (non-current portion) 686,553 686,553 21 Financial liabilities due to related parties 0 0 21

Current liabilities 0 357,481 357,477

Bank borrowings 112,825 112,825 24 Financial liabilities due to the parent, subsidiaries and associates 98,933 98,933 24 Financial liabilities due to factoring companies 5 0 24 Financial liabilities due to third parties 7,885 7,885 24 Trade payables due to suppliers 37,594 37,594 24 Trade payables due to the parent, subsidiaries and associates 100,240 100,240 24

Total financial liabilities 0 1,349,328 1,349,324

Amounts are shown in thousands of euros

Fair value of financial assets and liabilities The fair value of financial instruments that are The fair value of trade receivables and payables not traded in an active market is determined using falling due within twelve months is not calculat- valuation models and techniques that make maxi- ed as their carrying amount approximates to fair mum use of market inputs or using the price sup- value. plied by a range of independent counterparties. In addition, fair value is not calculated when The fair value of medium/long-term financial the fair value of financial assets and liabilities can- assets and liabilities is calculated on the basis of not be objectively determined. the risk-free and the adjusted risk-free interest rate curves.

152 Financial statements Type of financial risks and related hedging policies The first line of 100 million euros expires on 21 Foreign exchange risk December 2021, with the principal to be repaid in Acea is not particularly exposed to this type of six-monthly instalments equal to 1/24 of the total risk, which is concentrated in the translation of amount. Interest on the loan is based on a floating the financial statements of its overseas subsidiar- rate equal to 3-month Euribor until 31 Decem- ies. ber 2008, subsequently rising to 6-month Euribor plus an agreed spread. The Company has entered into a swap agreement to convert the underlying Liquidity risk loan from floating to fixed rate. Acea SpA’s liquidity risk management policy is based on ensuring the availability of significant The second line has the purpose of financing bank lines of credit. Such facilities exceed the av- Acea Ato2’s investments for the period 2007– erage requirement necessary to fund planned ex- 2012 and amounts to 200 million euros. A total of penditure and enable the Company to minimise 150 million euros has been drawn down so far. The the risk of extraordinary outflows. In order to min- remaining portion may be drawn down within 31 imise liquidity risk, Acea has adopted a centralised July 2011 and Acea can choose to pay a fixed or treasury management system, which includes the floating rate of interest. Each disbursement may most important Group companies, and provides be repaid at Acea’s discretion (i) in a lump sum financial assistance to the companies (subsidiaries in a period to be included between the third and and associates) not covered by a treasury manage- tenth year from the date disbursement, or (ii) ment contract. based on a repayment schedule that provides for The Company’s available lines of credit amount six-monthly instalments, of which the first must to approximately 931.6 million euros. These short- be paid no later than the fifth year and the last in a term lines of credit are uncommitted and unse- period included between the fourth and fifteenth cured. year from the date disbursement. In addition, Acea has also obtained: (i) a medium/long-term committed line of credit of 100 The third line, agreed in March 2008 and million euros agreed in December 2007 and amounting to 200 million euros, has the follow- drawn down in March 2008; (ii) a medium/long- ing characteristics: (i) an interest rate equal to term committed line of credit of 200 million euros 6-month Euribor plus a spread; (ii) a term to ma- agreed in July and of which 150 million has been turity of eight years; and (iii) a bullet repayment at drawn down; and (iii) a medium/long-term com- the maturity date (26 March 2016). mitted line of credit of 200 million euros agreed in March 2008 and fully drawn down in the last The following table shows the Company’s fi- quarter of the year. nancial obligations by term to maturity.

Within 12 months within 5 years after 5 years Bonds 14,625 373,125 Medium/long-term borrowings 12,716 272,698 413,855 Amounts due to third-party suppliers 32,573

Amounts are shown in thousands of euros

Financial statements 153 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Interest rate risk Acea’s approach to managing interest rate risk, ment and balance sheet, giving preference to which takes account of the structure of assets and instruments that qualify for hedge accounting. the stability of the Group’s cash flows, essentially During the year Acea swapped the interest aims to hedge borrowing costs and stabilise cash rate on the loan agreed on 27 December 2007 for flows, in such a way as to safeguard margins and a fixed rate. The swap was executed on 24 April ensure the certainty of cash flows deriving from 2008 and was effective 31 March 2008 (the draw- ordinary activities. down date for the underlying loan) and expires on The approach to managing interest rate risk is, 21 December 2021. The negative fair value of this therefore, prudent and the methods used tend to instrument is 6.8 million euros, which has been be static in nature. recognised in a separate component of sharehold- A static (as opposed to a dynamic) approach ers’ equity. means adopting a type of interest rate risk man- As part of the plan to optimise management of agement that does not require daily activity in the the Acea Group’s financial resources (also with a markets, but periodic analysis and control of posi- view to reducing borrowing costs), at the end of tions based on specific needs. This type of man- the first half of 2007 Terna Ena and EALL ter- agement therefore involves daily activity in the minated their project financing contracts and the markets, not for trading purposes but in order to related interest rate hedges. EALL and Terni Ena hedge the identified exposure over the medium/ proceeded to repay the remaining Base Facility, long term. which at 30 June 2007 amounted to 21,721 thou- Acea has thus opted to minimise interest rate sand euros and 11,903 thousand euros, respec- risk by choosing a mix of borrowings heavily tively, and the remaining Working Capital Facil- weighted towards fixed rate instruments. ity, which amounted to 1,300 thousand euros and As previously noted, fixed rate debt protects a 2,400 thousand euros, respectively. The companies borrower from cash flow risk in that it stabilises also terminated the hedging derivatives linked financial outflows, whilst heightening exposure to to the project financing, incurring an unwinding fair value risk in terms of changes in the market costs of 624 thousand euros for Eall’s three deriva- value of the debt. tive instruments and 11 thousand euros for Terni Acea is finalising an interest rate risk manage- Ena’s one. ment policy that substantially aims to both con- Acea made the necessary financial resources trol this risk and optimise borrowing costs, taking available to the two companies to terminate the account of stakeholder interests and the nature of borrowings (after taking account of the compa- the Group’s activities, and based on the prudence nies’ cash at the date of repayment) via the execu- principle and best market practices. The objectives tion of loan agreements as follows: of this policy are as follows: 1. medium-term lines of credit of 20.9 million • to identify the optimum mix of fixed and float- euros for Eall and 10.5 million euros for Terni ing rate debt; Ena to finance termination of the project fi- • to pursue a potential optimisation of the nancing and the derivatives. These loans were Group’s borrowing costs within the risk limits disbursed at the end of June and mature on 30 established by governance bodies and in ac- June 2009 in the case of Terni Ena and on 31 cordance with the specific nature of the busi- December 2010 in Eall’s case. The loans are to ness; be repaid in six-monthly instalments with the • to manage derivatives transactions, should the first due on 31 December 2007. The interest Group opt to make use of such instruments, rate applied is equal to six-month Euribor plus in accordance with the approved policies and a spread of 75 bps per annum; strategies, and taking account (in advance) of 2. revolving lines of credit of 1.375 million euros the impact of transactions on the income state- for Eall and 2.5 million euros for Terni Ena to

154 Financial statements meet working capital requirements. These lines December 2010 and will be disbursed in response of credit were made available at the end of June to specific requests from the company being fi- and may be drawn down at the request of the nanced. beneficiaries. Interest is charged on a quarterly EALL is paying Acea an interest rate of basis (the first interest period ends on 30 Sep- 6-month Euribor plus a spread of 200 basis tember 2007) at a rate equal to average daily points. Repayment will take place in six-monthly “three-month Euribor” plus a spread of 20 bps instalments from 30 June 2011 and will end on 31 per annum. Amounts drawn on these lines of December 2015. credit are to be repaid at the end of each interest period. The following table shows the fair value of the Acea has also made necessary financial resourc- above borrowings by type of borrowing and inter- es available to EALL in order to fund investment est rate at 31 December 2008. in the upgrading of its existing plant and in the construction of two new waste to energy lines. The fair value of medium/long-term debt is This is in the form of a medium-term facility of calculated on the basis of the risk-free and the 130 million euros executed in June 2008. The sum risk-adjusted interest rate curves. is available for the period 31 December 2008 – 31

Amortised Risk-free Increase/ Risk-adjusted Increase/ cost FV (Decrease) FV (Decrease) (A) (B) (A) - (B) (C) (A) – (C)

Bonds 305,294 323,228 (17,934) 299,375 5,918

Fixed rate 9,318 9,790 (472) 9,360 (42)

Floating rate 689,718 657,154 32,564 655,503 34,214

Total 1,004,330 990,172 14,157 964,239 40,091

Amounts are shown in thousands of euros

Financial statements 155 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

The medium/long-term term loans from Acea Credit risk to Terni Ena and EALL have the following fair values, again calculated on the basis of the risk- Acea holds the concession to provide public free and the risk-adjusted interest rate curves lighting services in the municipalities of Rome • Amortised cost: 18,986 thousand euros and Naples. • Risk-free fair value: 19,252 thousand euros Acea manages amounts billed and to be billed • Risk-adjusted fair value: 19,263 thousand euros. to the Comune di Roma via administrative offsets of reciprocal receivables and payables at Group The fair value of the loans to subsidiaries de- level. riving from the transfer of EIB loans to Acea is The following table summarises the different identical to the fair value of the liability due to types of receivable described in Note 16 – Trade the lender. receivables.

Sensitivity analysis has been carried out on medium/long-term financial liabilities using stress testing, thus applying a constant spread over the term structure of the risk-free interest rate curve (for the Euro area at 31 December 2008). The following table shows overall movements in terms of the fair value of liabilities based on parallel shifts (positive and negative) between –1.5% and +1.5%. The impact on future cash flows has not been taken into account, as the instruments analysed are almost entirely fixed-rate indexed and are only marginally affected by interest rate movements.

Constant movements in spread applied Present Value -1.50% 102.4 -1.00% 66.5 -0.50% 32.4 -0.25% 16.0 0.00% 0.0 0.25% (15.6) 0.50% (30.8) 1.00% (60.2) 1.50% (88.2)

Amounts are shown in millions of euros

156 Financial statements Balance at Balance sheet Total Due Past due 0 - 30 30 - 90 90 - 180 over 180 negotiated Impairments 31 Dec 2008 item receivables for > days days days days due date Non-current assets Trade receivables ------Gross receivable ------Provisions for impairment of receivables ------Other receivables 9.f ------Gross receivable ------Provisions for impairment of receivables ------

Current assets Trade receivables 10.b ------End users for bills issued ------End users for bills to be issued - - - Provisions for impairment of receivables ------

Other receivables 10.c 56,592 47,577 9,015 3,300 1,233 1,145 3,336 - Gross receivable 71,420 47,577 23,979 3,781 3,155 1,761 15,281 - Provisions for impairment of receivables (14,964) (14,964) (481) (1,922) (617) (11,945) - -

Total 56,592 47,577 9,015 3,300 1,233 1,145 3,336 - -

Amounts are shown in thousands of euros

Financial statements 157 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Commitments and contingencies patronage received, amounting to 203 thousand euros. At 31 December 2008 commitments and con- Those issued include: tingencies total 1,176,117 thousand euros, com- • 464,101 thousand euros in favour of Acea Dis- pared with 1,017,901 thousand euros at 31 De- tribuzione SpA and in the interests of Cassa cember 2007. Depositi e Prestiti as security for the new loan A description of the items that underwent sig- granted; nificant movements in 2008 is given below. • 21,292 thousand euros in favour of AceaElec- trabel Elettricità SpA and in the interests of Terna SpA as a back-to-back guarantee for the Liens and sureties issued and received dispatching of electricity; A net positive balance of 39,911 thousand • 207,656 thousand euros in favour of Acea- euros was reported between liens and sureties is- Electrabel Trading SpA and in the interests of sued (90,880 thousand euros) and those received banks as back-to-back bank guarantees relating (50,969 thousand euros). to hedging derivatives; These are guarantees granted by Acea SpA to • 1,188 thousand euros in favour of AceaElec- third parties and regard sureties provided in order trabel Elettricità SpA and in the interests of to bid for contracts in Italy and overseas. the National Grid Operator; For example, Acea SpA has issued bank sureties • 2,675 thousand euros in favour of Banca di for water contracts bids, totalling 3,425 thousand Roma and in the interests of Ato5 – Frosinone euros, including a surety of 683 thousand euros SpA, as a back-to-back guarantee for the de- in relation to the selection process for a partner finitive deposit of 2,844 thousand euros issued for Pubbliacqua in the Municipality of Florence by the bank in favour of the Agency for ATO and 5,165 thousand euros regarding a tender in 5 (southern Lazio – Frosinone), and guaran- the Campania region. The latter was issued to the teeing fulfilment of the obligations specified in Agency for ATO Sarnese Vesuviano in order to the concession agreement. take part in the tender process to select a partner Third-party assets held under concession to take an interest in GORI SpA. Sureties issued also include those issued to Sid- Such assets amount to 86,076 thousand euros ra SpA, totalling 6,830 thousand euros, in relation at 31 December 2008 and are unchanged with re- to a contract to carry out a “Project to repair water spect to the end of the previous year. They refer to leaks in the Catania distribution network”. public lighting assets. This item also includes Acea SpA’s share of Liens granted to banks guarantees for AceaElectrabel Trading SpA (51,820 thousand euros), AceaElectrabel Elettric- Such liens amount to 32,315 thousand euros ità SpA (5,295 thousand euros), AceaElectrabel and regard the cash collateral established in or- Produzione SpA (1,679 thousand euros) and der to guarantee the undertakings given by the AceaElectrabel SpA (188 thousand euros). strategic shareholders of IPSE 2000 SpA. As of Liens and sureties received from third parties December 2002, payments have been made into regard guarantees received from third parties in the relevant term deposit. The lien was granted relation to contract work and/or supplies provid- to MCC SpA and the deposits accrue interest at ed, or for bids called. 3-month Euribor less 3 basis points per annum. As the required cash collateral has already been Letters of patronage issued and received paid in, the interest that accrues on the term ac- A net positive balance of 855,392 thousand count is available to the Group. euros is the result of letters of patronage issued, totalling 855,595 thousand euros, and letters of

158 Financial statements Other information 2. back-to-back guarantees in favour of banks se- Acea - Electrabel partnership curing the use of bank guarantee commitments The Joint Venture Agreement between Acea pertaining to the shareholders, with the aim of SpA and Electrabel Italia SpA establishes that, issuing bank sureties on behalf of the operating should certain circumstances arise that render companies. the regular conduct of meetings of the boards of The shareholders have the right to assess each directors or the shareholders of AceaElectrabel transaction put forward by the operating companies SpA, AceaElectrabel Produzione SpA and Acea- with a view to the issue of a guarantee commitment. Electrabel Trading SpA impossible: The MA establishes that Electrabel, acting on • Acea SpA has a call option on all the shares of behalf of Acea SpA, will act as Agent for the is- AceaElectrabel SpA and AceaElectrabel Trad- sue of the guarantees described in point 1, to be ing SpA held by Electrabel; issued on behalf of AET in favour of the related • AceaElectrabel SpA has a put option on its counterparties. Similarly, the MA establishes that shares in AceaElectrabel Produzione SpA, Acea SpA, acting on behalf of Electrabel, will act which it has the right to sell to Electrabel; as Agent for the issue of the guarantees described • Electrabel has a call option on all the shares of in point 1, to be issued on behalf of AEE in fa- AceaElectrabel Produzione SpA held by Acea- vour of the related counterparties. The Agent is to Electrabel SpA and, subordinated to the exer- fully guarantee the counterparties of the operat- cise of this option, a further call option on all ing companies, but will benefit from a back-to- the shares of AceaElectrabel Trading SpA held back guarantee provided by the other shareholder by AceaElectrabel SpA, and a put option on all in proportion to their percentage interest in the its shares in AceaElectrabel SpA, which it has operating company. the right to sell to Acea SpA The MA establishes a ceiling of 76.9 million Should the options right be exercised, the price euros for AET and 26.6 million euros for AEE. of the shares to be purchased and sold is to be With reference to point 2, the MA requires the determined by an arbitrator, to be appointed by two shareholders to provide back-to-back guaran- mutual agreement of the parties. tees in proportion to their percentage interests in AET and AEE, and in accordance with the ceil- Tirreno Power SpA ings pre-established and announced to the agent Based on its interest in Eblacea SpA, Acea SpA bank (113.3 million euros for AET and 40.9 mil- has given a commitment that Eblacea SpA will pay lion euros for AEE). The agent bank has extended Tirreno Power SpA the equity necessary in order appropriate guarantee facilities to the two share- to meet future disbursements based on the line of holders. credit granted to fund the repowering project. The shareholders are to be paid the following fees by the operating companies in return for their Master Agreement between Acea SpA and commitments: Electrabel • in the case of corporate guarantees, a fee of Acea SpA and Electrabel are in the process of 0.20% per year or fraction of the year of valid- drawing up a Master Agreement (MA) governing ity of the guarantee; the issue of guarantee commitments on behalf of • in the case of back-to-back guarantees in fa- AceaElectrabel Trading SpA (AET) and Acea- vour of banks, a fee of 0.40% per year or frac- Electrabel Elettricità SpA (AEE). tion of the year of validity of the guarantee. In The guarantee commitments that the share- any event, it is established that the fee may not holders may issue consist of: be less than the fee charged by the bank grant- 1. corporate guarantees issued on behalf of oper- ing the surety plus 0.15%. ating companies in favour of the related coun- The MA is valid until 31 December 2008 and is terparties; automatically renewable for a further 12 months.

Financial statements 159 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Property leases Acea carries out some of its administrative • the lease term is 9 years, automatically renewa- functions at premises that it leases from third ble at the first expiry date for a further 9 years; parties. In this respect it should be noted that: (i) • the annual rental is 3,450 thousand euros until rentals paid during the period amount to 8,006 30 June 2009; from 1 July 2009 and until 30 thousand euros; (ii) commitments for the period June 2021 the annual rental will be 5,650 thou- from 2009 to 2013 total 44,821 thousand euros; sand euros and from 1 July 2021 until expiry and (iii) commitments beyond 2013 amount to the annual rental will be 6,750 thousand euros; 73,762 thousand euros.. The average lease term is • Acea SpA has undertaken to carry out all nec- nine years. essary maintenance work. In May 2006 Acea SpA and the Comune di Roma agreed a new lease agreement for the Com- In December 2006 the Comune di Roma sold pany’s headquarters. This new agreement entirely the lease agreement to Beni Stabili along with the replaces the previous agreement signed in 1999. property in Via Ostiense. The agreement establishes that:

160 Financial statements Financial statements 161

Annexes TO THe nOTes

Annex 1 Statement of changes in shareholders’ equity

Annex 2 Analysis of net debt

Annex 3 Statement of movements in investments

Annex 4 List of signiﬁ cant investments in subsidiaries, associates and other companies

Annex 5 Related party transactions pursuant to CONSOB Resolution 15519 of 27 July 2006

Annex 6 Non-recurring material transactions pursuant to CONSOB Resolution 15519 of 27 July 2006

Annex 7 Positions or transactions deriving from unusual and/or exceptional transactions

Annex 8 Segment information (IAS 14)

Annex 9 Highlights extracted from the ﬁ nancial statements of subsidiaries and associates for the year ended 31 December 2008 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Annex 1: Statement of changes in shareholders’ equity

Share Legal extraordinary Reserve for Treasury shares Demerger Reserve Cash flow Retained earnings net profit/ Total capital reserve reserve treasury shares in portfolio reserve for hedge (accumulated (loss) shareholders’ investments reserve losses) for the period equity Balances at 31 December 2007 1,098,899 59,183 0 3,853 (3,853) 339,285 (4,013) 0 0 112,583 1,605,937

Appropriation of result for 2007 5,629 3,666 259 (112,583) (103,029)

Cash flow hedge reserve (4,916) (4,916)

Dividends paid (28,750) (28,750)

Goodwill on investments acquired from subsidiary 840 840

Tax reserve 0

Net profit for the period 48,321 48,321

Balances at 31 December 2008 1,098,899 64,812 3,666 3,853 (3,853) 310,535 (3,173) (4,916) 259 48,321 1,518,402

Amounts are shown in thousands of euros

164 Financial statements Share Legal extraordinary Reserve for Treasury shares Demerger Reserve Cash flow Retained earnings net profit/ Total capital reserve reserve treasury shares in portfolio reserve for hedge (accumulated (loss) shareholders’ investments reserve losses) for the period equity Balances at 31 December 2007 1,098,899 59,183 0 3,853 (3,853) 339,285 (4,013) 0 0 112,583 1,605,937

Appropriation of result for 2007 5,629 3,666 259 (112,583) (103,029)

Cash flow hedge reserve (4,916) (4,916)

Dividends paid (28,750) (28,750)

Goodwill on investments acquired from subsidiary 840 840

Tax reserve 0

Net profit for the period 48,321 48,321

Balances at 31 December 2008 1,098,899 64,812 3,666 3,853 (3,853) 310,535 (3,173) (4,916) 259 48,321 1,518,402

Amounts are shown in thousands of euros

Financial statements 165 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Annex 2: Analysis of net debt at 31 December 2008

2008 .2007 Increase/(Decrease) Non-current financial assets/(liabilities) 256 265 (9)

Intercompany non-current financial assets/(liabilities) 57,757 97,683 (39,926) 0 Non-current borrowings and financial liabilities (991,847) (549,698) (442,149)

Net medium/long-term debt (933,834) (451,750) (482,084)

Cash and cash equivalents and securities 153,424 59,763 93,661 0 Short-term bank borrowings (112,825) (389,889) 277,064 0 Current financial assets/(liabilities) 37,636 85,500 (47,864) 0 Intercompany current financial assets/(liabilities) 652,327 672,499 (20,172)

Financial assets/(liabilities) deriving from valuation of derivative instruments (6,780) 0 (6,780)

Net short-term debt 723,782 427,873 295,909

Total net debt (210,052) (23,877) (186,175)

Amounts are shown in thousands of euros

166 Financial statements Annex 2: Analysis of net debt at 31 December 2008

2008 .2007 Increase/(Decrease) Non-current financial assets/(liabilities) 256 265 (9)

Intercompany non-current financial assets/(liabilities) 57,757 97,683 (39,926) 0 Non-current borrowings and financial liabilities (991,847) (549,698) (442,149)

Net medium/long-term debt (933,834) (451,750) (482,084)

Financial assets/(liabilities) deriving from valuation of derivative instruments (6,780) 0 (6,780)

Net short-term debt 723,782 427,873 295,909

Total net debt (210,052) (23,877) (186,175)

Amounts are shown in thousands of euros

Financial statements 167 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Annex 3: Statement of movements in investments at 31 December 2008

Movements in 2008 31 Dec 2007 Acquisitions Disposals Reclass. Additions/ Impair./ 31 Dec 2008 Reductions Losses Subsidiaries Acea Distribuzione SpA 344,152 344,152 Acea Ato 2 SpA 585,442 585,442 ACQUA ITALIA SpA 0 0 Acea Trasmissione SpA 0 0 Acea8Cento ( ex VoiNoi) 0 739 (739) 0 Consorcio Agua Azul SA 5,454 5,454 Utilitas Srl in liquidazione 0 0 LaboratoRI SpA 3,104 919 4,024 Zetema Srl 0 0 Cartesia SpA in liquidazione 0 0 Acea Luce SpA 150 (150) 0 Ecomed Srl 47,77 48 AceaElectrabel SpA 160,984 160,984 Acea & CO Armenian Utility Scrl 0 0 E,CO,INT Srl 0 0 Acea Ato 5 SpA 15,014 15,014 Montenero Energia Srl 0 0 Aguazul Bogotà SA 660 660 Consorcio Acea-Tradexo 43 43 Acea Dominicana SA 348 348 Acque Blu Arno Basso SpA 13,132 13,132 Ombrone SpA 15,926 996 16,922 Luce Napoli Scrl 8 (8) 0 Dyna Green Srl 220 60 280 Arse SpA 354,295 354,295 Sigesa SpA 2,053 (2,053) 0 Omnia Srl 200 (200) 0 Acque Blu Fiorentine SpA 40,539 (842) 39,697 Tad Energia e Ambiente SpA 22,136 22,136 Umbra Acque 6,851 6,851 Aquaser Srl 164 2235 2,399 Elektron Sigma 0 18 (18) 0 Idreco Scarl 0 6 (6) 0 Crea SpA 0 3,371 3,371 Crea Gestioni 0 10,925 10,925 Crea Partecipazioni 0 4,004 4,004 Acea Gori Servizi 0 14 14 Acque Blu 0 84 84 Apice 0 150 150 EblAcea SpA 0 35,034 35,034 Sarnese Vesuviano Srl 7,491 13,756 21,247 Total subsidiaries 1,578,412 18,573 (2,203) 35,034 17,864 (971) 1,646,709

168 Financial statements Movements in 2008 31 Dec 2007 Acquisitions Disposals Reclass. Additions/ Impair./ 31 Dec 2008 Reductions Losses Associates Acque Potabili SpA 0 0 Aguas de S, Pedro Honduras SA 2,940 2,940 Agac y Otros 0 0 Tirana Acque Scarl 0 0 Port Utilities SpA 0 0 0 Umbria distribuzione Gas 0 168 150 318 Marco Polo SpA 294 294 EblAcea SpA 35,034 (35,034) 0 Total associates 38,268 0 0 (34,866) 150 0 3,552

Other companies Amga SpA 0 0 Polo Tecnologico SpA 2,542 2,542 WRc Plc 2,554 (919) 1,634 Centro Agroalimentare Roma SpA 1,040 1,040 CSM SpA 838 838 Umbria Distribuzione Gas 168 (168) 0 TeSiMa SpA in liquidazione 0 0 Total other companies 7,142 0 (919) (168) 0 0 6,054

Amounts are shown in thousands of euros

Financial statements 169 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

ANNEX 4: List of significant investments

Company Registered office share capital equity at Shareholders’ equity net profit/(loss) net profit/(loss) Value Difference % 31 Dec 2008 attributable to Acea for period attributable to Acea of investment (A) (B) (A - B) Subsidiaries Acea Distribuzione SpA piazzale Ostiense, 2 - Rome 345,000 50.00 713,066 356,533 83,268 41,634 344,152 12,381 Acea Ato 2 SpA piazzale Ostiense, 2 - Rome 362,834 96.46 675,950 652,022 48,971 47,237 585,442 66,580 Acea Luce SpA*** via delle Testuggini, 98/100 - Rome 300 50.00 0 0 (159) (79) 0 0 Acea Electrabel SpA piazzale Ostiense, 2 - Rome 153,500 59.41 294,615 175,031 (2,137) (1,270) 160,984 14,047 Cartesia SpA in liquidazione* viale Europa, 190 - Rome 100 50.00 111 56 379 190 0 56 Ecomed Srl via di Grotta Perfetta, 302 - Rome 50 50,00 65 33 (37) (19) 48 (15) Utilitas Srl in liquidazione* piazzale Ostiense, 2 - Rome 10 100.00 10 10 0 0 0 10 Acea & Co. Armenian Utility Scrl* piazzale Ostiense, 2 - Rome 10 55.00 140 77 48 26 0 77 Acea8cento piazzale Ostiense, 2 - Rome 100.00 (683) (683) 839 839 0 (683) Consorcio Agua Azul SA Los Pinos, 399 - Lima 27, Perù 18,844 25.50 19,385 4,943 1,004 256 5,454 (511) LaboratoRI SpA via Vitorchiano, Grottarossa - Rome 2,444 100.00 6,814 6,814 3,063 3,063 4,024 2,790 Acea ATO5 SpA via Monti Lepini, 220 -Frosinone 10,330 93.58 14,319 13,399 306 287 15,014 (1,614) Aguazul Bogotà SA Bogotà- Colombia 1,483 51.00 2,380 1,214 494 252 660 553 Consorcio Acea-Tradexco* Santo Domingo - Domimican Rep. 82 50.00 79 39 1 0 43 (3) Acea Dominicana SA. Santo Domingo - Domimican Rep. 299 99.99 1,536 1,536 705 705 348 1,187 Acque Blu Arno Basso SpA piazzale Ostiense, 2 - Rome 8,000 69.00 19,192 13,242 (95) (66) 13,132 110 Ombrone SpA piazzale Ostiense, 2 - Rome 6,500 79.58 19,237 15,309 (154) (123) 16,922 (1,614) Arse SpA piazzale Ostiense, 2 - Rome 300,120 100.00 385,020 385,020 26,612 26,612 354,295 30,725 Dyna Green Srl* viale Bianca Maria,24-Milan 30 33.33 100 33 0 0 280 (247) Sigesa SpA in liquidazione piazzale Ostiense, 2 - Rome 0 0.00 0 0 0 0 0 0 AceaRieti srl via Alessandro Comotti, 11-Rieti 200 100.00 (124) (124) (643) (643) 0 (124) Aquaser Srl via dei Sarti, 15 - Volterra 50 57.00 957 546 501 286 2,399 (1,853) Acque Blu Fiorentine SpA piazzale Ostiense, 2 - Rome 15,153 68.50 60,257 41,276 (243) (167) 39,697 1,579 Umbra Acque via Benucci ,162 - Ponte San Giovanni (PG) 15,550 40.00 15,096 6,038 (877) (351) 6,851 (813) Tad Energia Ambiente SpA via Giordano Bruno, 7- Terni 2,225 100.00 5,211 5,211 2,632 2,632 22,136 (16,925) Luce Napoli Scarl in liquidazione piazzale Ostiense, 2 - Rome 10 70.00 10 7 0 0 0 7 Acque Blu 10 55.00 10 6 0 84 (79) Crea SpA piazzale Ostiense, 2 - Rome 2,679 100.00 2,894 2,894 129 129 3,371 (478) Crea Gestioni piazzale Ostiense, 2 - Rome 100 100.00 9,087 9,087 129 129 10,925 (1,838) Crea Partecipazioni piazzale Ostiense, 2 - Rome 100 100.00 3,266 3,266 (16) (16) 4,004 (737) Apice piazzale Ostiense, 2 - Rome 200 51.00 201 103 1 1 150 (47) Acea Gori Servizi 10 35.00 10 3 (0) (0) 14 (11) Eblacea SpA via Orazio, 31 Rome 44,460 30.00 117,941 35,382 389 117 35,034 348 Sarnese Vesuviano Srl piazzale Ostiense, 2 Rome 6,735 95.79 20,515 19,652 783 750 21,247 (1,595) Total 1 1,297,419 2,386,666 1,747,973 165,894 122,412 1,646,709 101,264

Amounts are shown in thousands of euros

170 Financial statements Company Registered office share capital equity at Shareholders’ equity net profit/(loss) net profit/(loss) Value Difference % 31 Dec 2008 attributable to Acea for period attributable to Acea of investment (A) (B) (A - B) Subsidiaries Acea Distribuzione SpA piazzale Ostiense, 2 - Rome 345,000 50.00 713,066 356,533 83,268 41,634 344,152 12,381 Acea Ato 2 SpA piazzale Ostiense, 2 - Rome 362,834 96.46 675,950 652,022 48,971 47,237 585,442 66,580 Acea Luce SpA*** via delle Testuggini, 98/100 - Rome 300 50.00 0 0 (159) (79) 0 0 Acea Electrabel SpA piazzale Ostiense, 2 - Rome 153,500 59.41 294,615 175,031 (2,137) (1,270) 160,984 14,047 Cartesia SpA in liquidazione* viale Europa, 190 - Rome 100 50.00 111 56 379 190 0 56 Ecomed Srl via di Grotta Perfetta, 302 - Rome 50 50,00 65 33 (37) (19) 48 (15) Utilitas Srl in liquidazione* piazzale Ostiense, 2 - Rome 10 100.00 10 10 0 0 0 10 Acea & Co. Armenian Utility Scrl* piazzale Ostiense, 2 - Rome 10 55.00 140 77 48 26 0 77 Acea8cento piazzale Ostiense, 2 - Rome 100.00 (683) (683) 839 839 0 (683) Consorcio Agua Azul SA Los Pinos, 399 - Lima 27, Perù 18,844 25.50 19,385 4,943 1,004 256 5,454 (511) LaboratoRI SpA via Vitorchiano, Grottarossa - Rome 2,444 100.00 6,814 6,814 3,063 3,063 4,024 2,790 Acea ATO5 SpA via Monti Lepini, 220 -Frosinone 10,330 93.58 14,319 13,399 306 287 15,014 (1,614) Aguazul Bogotà SA Bogotà- Colombia 1,483 51.00 2,380 1,214 494 252 660 553 Consorcio Acea-Tradexco* Santo Domingo - Domimican Rep. 82 50.00 79 39 1 0 43 (3) Acea Dominicana SA. Santo Domingo - Domimican Rep. 299 99.99 1,536 1,536 705 705 348 1,187 Acque Blu Arno Basso SpA piazzale Ostiense, 2 - Rome 8,000 69.00 19,192 13,242 (95) (66) 13,132 110 Ombrone SpA piazzale Ostiense, 2 - Rome 6,500 79.58 19,237 15,309 (154) (123) 16,922 (1,614) Arse SpA piazzale Ostiense, 2 - Rome 300,120 100.00 385,020 385,020 26,612 26,612 354,295 30,725 Dyna Green Srl* viale Bianca Maria,24-Milan 30 33.33 100 33 0 0 280 (247) Sigesa SpA in liquidazione piazzale Ostiense, 2 - Rome 0 0.00 0 0 0 0 0 0 AceaRieti srl via Alessandro Comotti, 11-Rieti 200 100.00 (124) (124) (643) (643) 0 (124) Aquaser Srl via dei Sarti, 15 - Volterra 50 57.00 957 546 501 286 2,399 (1,853) Acque Blu Fiorentine SpA piazzale Ostiense, 2 - Rome 15,153 68.50 60,257 41,276 (243) (167) 39,697 1,579 Umbra Acque via Benucci ,162 - Ponte San Giovanni (PG) 15,550 40.00 15,096 6,038 (877) (351) 6,851 (813) Tad Energia Ambiente SpA via Giordano Bruno, 7- Terni 2,225 100.00 5,211 5,211 2,632 2,632 22,136 (16,925) Luce Napoli Scarl in liquidazione piazzale Ostiense, 2 - Rome 10 70.00 10 7 0 0 0 7 Acque Blu 10 55.00 10 6 0 84 (79) Crea SpA piazzale Ostiense, 2 - Rome 2,679 100.00 2,894 2,894 129 129 3,371 (478) Crea Gestioni piazzale Ostiense, 2 - Rome 100 100.00 9,087 9,087 129 129 10,925 (1,838) Crea Partecipazioni piazzale Ostiense, 2 - Rome 100 100.00 3,266 3,266 (16) (16) 4,004 (737) Apice piazzale Ostiense, 2 - Rome 200 51.00 201 103 1 1 150 (47) Acea Gori Servizi 10 35.00 10 3 (0) (0) 14 (11) Eblacea SpA via Orazio, 31 Rome 44,460 30.00 117,941 35,382 389 117 35,034 348 Sarnese Vesuviano Srl piazzale Ostiense, 2 Rome 6,735 95.79 20,515 19,652 783 750 21,247 (1,595) Total 1 1,297,419 2,386,666 1,747,973 165,894 122,412 1,646,709 101,264

Amounts are shown in thousands of euros

Financial statements 171 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

ANNEX 4: List of significant investments

Company Registered office share capital equity at Shareholders’ equity net profit/(loss) net profit/(loss) Value Difference % 31 Dec 2008 attributable to Acea for period attributable to Acea of investment (A) (B) (A - B) Associates Aguas de San Pedro SA* San Pedro Sula - Honduras 7,058 31.00 7,837 2,429 608 188 2,940 (510) Tirana Acque Scrl* via Santi Giacomo e Filippo, 7 - Genoa 95 40.00 116 46 38 15 0 46 Port Utilities SpA* via Molo Vespucci , Civitavecchia 500 42.00 486 204 57 24 0 204 Umbria Distribuzione Gas** via Capponi, 100 - Terni 2,120 15.00 0 0 318 (4) Marco Polo SpA* viale Marco Polo, 31 Rome 894 33.00 894 295 0 0 294 1 Total 2 10,667 9,333 2,975 703 228 3,552 (263)

Other companies TeSiMa SpA (in liquidation)* via Ostiense, 106 - Rome 103 19.20 (419) (80) (522) (100) 0 (80) Italpower SpA (in liquidation)* corso di Porta Vittoria, 4 - Milan 100 10.00 100 10 0 0 0 10 Società per il Polo Tecnologico Industriale Romano SpA* via de’ Burrò, 147 - Rome 61,974 4.10 61,450 2,519 294 12 2,542 (23) Centro Agroalimentare Roma SpA* via Crescenzio, 42 - Rome 43,656 2.38 33,641 801 (500) (12) 1,040 (239) WRc Plc* Frankland Road Blagrove Swindon England 1,296 12.50 7,542 943 (13) (2) 1,634 (692) Parco Tecnologico Ambientale Romano Srl (in liquidation)* via de’ Burrò, 147 - Rome 103 15.00 72 11 22 3 0 11 Ambiente e Territorio SpA* corso del Mezzogiorno, 10 - Foggia 263 10.46 417 44 (167) (17) 0 44 Centro Sviluppo Materiali SpA* via di Castel Romano, 100 - Rome 520 10.00 14,147 1,415 43 4 838 577 Total 3 108,015 116,950 5,662 (843) (112) 6,054 (393)

Amounts are shown in thousands of euros * data at 31 December 2005 ** data unavailable *** sold on 1 October 2008

172 Financial statements Company Registered office share capital equity at Shareholders’ equity net profit/(loss) net profit/(loss) Value Difference % 31 Dec 2008 attributable to Acea for period attributable to Acea of investment (A) (B) (A - B) Associates Aguas de San Pedro SA* San Pedro Sula - Honduras 7,058 31.00 7,837 2,429 608 188 2,940 (510) Tirana Acque Scrl* via Santi Giacomo e Filippo, 7 - Genoa 95 40.00 116 46 38 15 0 46 Port Utilities SpA* via Molo Vespucci , Civitavecchia 500 42.00 486 204 57 24 0 204 Umbria Distribuzione Gas** via Capponi, 100 - Terni 2,120 15.00 0 0 318 (4) Marco Polo SpA* viale Marco Polo, 31 Rome 894 33.00 894 295 0 0 294 1 Total 2 10,667 9,333 2,975 703 228 3,552 (263)

Amounts are shown in thousands of euros * data at 31 December 2005 ** data unavailable *** sold on 1 October 2008

Financial statements 173 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Annex 5: Related party transactions pursuant to CONSOB Resolution 15519 of 27 July 2006

31 Dec 2008 Related % 31 Dec 2007 Related % Increase/ parties impact parties impact (Decrease) Sales and service revenues 155,516 74,955 48% 154,085 141,070 92% 1,431 Other operating income 18,545 4,216 23% 29,485 3,718 13% (10,940) Net revenue 174,061 183,570 (9,510)

Staff costs 37,290 35,807 0 1,483 Cost of materials and overheads 133,275 88,516 66% 133,487 79,146 (212) Operating costs 170,566 169,294 1,272

Gross operating profit 3,495 14,277 (10,781)

Amortisation, depreciation, provisions and impairment charges 15,158 24,037 (8,878)

Operating profit/(loss) (11,663) -9,760 (1,903)

Finance (costs)/income 128,448 176,326 137% 132,233 175,427 133% (3,785) Ordinary finance (costs)/income 123,838 176,326 132,233 175,427 -8,395 Exceptional finance (costs)/income 4,610 0 4,610 Profit/(loss) on investments (4,394) 20,367 686 3% (24,761)

Profit/(loss) before tax 112,390 142,840 (30,450)

Taxation 64,070 30,258 33,812 Net profit/(loss) from continuing operations 48,321 112,583 (64,262)

Net profit/(loss) from discontinued operations 0 0 0

Net profit/(loss) 48,321 112,583 (64,262)

Amounts are shown in thousands of euros

174 Financial statements Assets 31 Dec 2008 Related % 31 Dec 2007 Related % Increase/ parties impact parties impact (Decrease) Property, plant and equipment 117,063 107,674 0.70% 9,389 Investment property 3,487 2,196 1,291 Goodwill 0 0 0 Concessions 0 0 0 Other intangible assets 9,612 7,513 2,099 Investments in subsidiaries and associates 1,650,261 1,616,680 -0.70% 33,581 Other investments 6,054 7,142 (1,087) Deferred tax assets 10,999 9,781 1,218 Financial assets 58,012 57,757 99.6% 97,928 97,683 100.00% (39,916) Other non-current assets 810 949 (139) Non-current assets 1,856,298 1,849,862 6,436 Non-current assets held for sale 0 0 0

Inventories 0 0 0 Trade receivables 56,592 47,828 8,765 Intercompany trade receivables 150,511 150,511 100% 114,693 114,693 100.00% 35,818 Other current assets 13,878 5,113 8,766 Cash and cash equivalents 153,424 59,764 93,660 Current financial assets 38,746 86,196 9,771 25.80% (47,450) Intercompany current financial assets 751,259 751,259 100% 700,964 691,193 100.00% 50,296 Current tax assets 16,351 4,921 11,429 Deferred tax assets 0 19,041 (19,041) Current assets 1,180,761 1,038,520 142,242 Current assets held for sale 0 0 0

Total assets 3.037.059 959.526 2.888.382 913.340 148.678

Amounts are shown in thousands of euros

Financial statements 175 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Liabilities and shareholders’ equity 31 Dec 2008 Related % 31 Dec 2007 Related % Increase/ parties impact parties impact (Decrease) Shareholders’ equity share capital 1,098,899 1,098,899 0 legal reserve 64,812 59,183 5,629 reserve for treasury shares 0 0 0 other reserves 306,111 335,272 (29,161) retained earnings (accumulated losses) 259 0 259 net profit/(loss) for the period 48,321 112,583 (64,262) Shareholders’ equity 1,518,402 0 1,605,937 0 (87,535)

Staff termination benefits and other defined-benefit obligations 28,835 32,960 (4,125) Provisions for liabilities and charges 79,962 65,891 14,071 Borrowings and financial liabilities 991,847 549,698 442,149 Other liabilities 10,218 11,909 11,909 100.00% (1,690) Deferred tax liabilities 1,476 8,142 (6,666) Non-current liabilities 1.112.338 0 668.599 11.909 443.739 Non-current liabilities held for sale 0 0 0

Trade payables 137,834 100,240 73% 119,928 87,355 58.20% 17,906 Other current liabilities 37,938 44,389 (6,451) Borrowings and other financial liabilities 219,647 98,933 45% 419,618 28,602 39.30% (199,970) Tax liabilities 10,901 29,912 (19,011) Current liabilities 406.320 199.172 613.846 115.958 (207.526) Current liabilities held for sale 0 0 0

Total liabilities and shareholders’ equity 3,037,059 199,172 2,888,382 127,866 148,678

Amounts are shown in thousands of euros

176 Financial statements Analysis of net debt showing related party transactions

31 Dec 2008 Related 31 Dec 2007 Related Increase/ parties parties (Decrease) Non-current financial assets/(liabilities) 256 265 (9) Intercompany non-current financial assets/(liabilities) 57,757 57,757 97,683 97,683 (39,926) Non-current borrowings and financial liabilities (991,847) (549,698) (442,149) Net medium/long-term debt (933,834) 57,757 (451,750) 97,683 (482,084) Cash and cash equivalents and securities 153,424 59,763 93,661 Short-term bank borrowings (112,825) (389,889) 277,064 Current financial assets/(liabilities) 37,637 85,500 (47,863) Intercompany current financial assets/(liabilities) 652,327 652,327 672,499 672,499 (20,172) Financial assets/(liabilities) deriving from valuation of derivative instruments (6,780) 0 0 Net short-term debt 723,782 652,327 427,873 672,499 302,689

Total net debt (210,052) 710,083 (23,877) 770,182 (179,395)

Amounts are shown in thousands of euros

Financial statements 177 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Cash flow statement showing related party transactions

2008 Related parties % impact 2007 Related parties % impact Increase/ (Decrease) Cash and cash equivalents at beginning of period 59,763 57,222 2,541 Cash flows from operating activities Profit before tax and net finance costs (80,127) (19,651) (60,477) Amortisation and depreciation 15,089 12,231 2,858 Revaluations/Impairment charges 0 21,470 (21,470) Movement in provisions for liabilities 14,071 8,225 5,846 Net movement in staff termination benefits (4,125) 466 (4,591) Realised gains 6,520 19,731 (13,211) Income taxes paid (45,762) (73,641) 27,879 Cash generated by operations before movements in working capital (94,335) (31,168) (63,166) Increase in current receivables (13,179) 35,818 4,593 39,287 855.32% (17,773) Increase /(Decrease) in current liabilities 32,266 12,884 (36,187) (7,688) 21.25% 68,452 Increase/(Decrease) in inventories 0 18,921 (18,921) Movement in other operating assets/liabilities (36,051) 14,747 (1,427) (50,799) Movement in working capital (16,965) 2,075 (19,040) Cash flow from operating activities (111,300) (29,093) (82,206)

Cash flows from investing activities Purchase/Sale of property, plant and equipment and intangible assets (29,777) 10,304 (40,082) Investments (33,581) (12,016) (21,565) Purchase/Sale of investments in subsidiaries 0 0 0 Proceeds/Payments deriving from other investments 38,998 88,169 226% (209,719) (240,715) 114.78% 248,717 Dividends received 125,591 (68,030) -54% 109,080 109,080 100% 16,511 Interest received 57,656 23,496 41% 73,771 39,823 53.98% (16,115) Total 158,887 (28,579) 187,466

Cash flows from financing activities Minority interests in capital increases by subsidiaries (15,103) (7,557) (7,546) Decrease in long-term borrowings 450,000 40,000 410,000 Decrease/Increase in other short-term borrowings (204,886) 70,330 -34% 193,165 (29,023) 15.02% (398,051) Interest paid (52,157) (4,567) 9% (50,618) 5,203 -10.28% (1,539) Total 177,853 174,990 4,403

Dividends paid (131,780) (114,776) (70,702) Changes in shareholders’ equity after net profit (0) 0 Net increase/(decrease) in cash and cash equivalents 93,660 2,541 91,119 Cash and cash equivalents at end of period 153,423 59,763 93,660

Amounts are shown in thousands of euros

178 Financial statements 2008 Related parties % impact 2007 Related parties % impact Increase/ (Decrease) Cash and cash equivalents at beginning of period 59,763 57,222 2,541 Cash flows from operating activities Profit before tax and net finance costs (80,127) (19,651) (60,477) Amortisation and depreciation 15,089 12,231 2,858 Revaluations/Impairment charges 0 21,470 (21,470) Movement in provisions for liabilities 14,071 8,225 5,846 Net movement in staff termination benefits (4,125) 466 (4,591) Realised gains 6,520 19,731 (13,211) Income taxes paid (45,762) (73,641) 27,879 Cash generated by operations before movements in working capital (94,335) (31,168) (63,166) Increase in current receivables (13,179) 35,818 4,593 39,287 855.32% (17,773) Increase /(Decrease) in current liabilities 32,266 12,884 (36,187) (7,688) 21.25% 68,452 Increase/(Decrease) in inventories 0 18,921 (18,921) Movement in other operating assets/liabilities (36,051) 14,747 (1,427) (50,799) Movement in working capital (16,965) 2,075 (19,040) Cash flow from operating activities (111,300) (29,093) (82,206)

Cash flows from investing activities Purchase/Sale of property, plant and equipment and intangible assets (29,777) 10,304 (40,082) Investments (33,581) (12,016) (21,565) Purchase/Sale of investments in subsidiaries 0 0 0 Proceeds/Payments deriving from other investments 38,998 88,169 226% (209,719) (240,715) 114.78% 248,717 Dividends received 125,591 (68,030) -54% 109,080 109,080 100% 16,511 Interest received 57,656 23,496 41% 73,771 39,823 53.98% (16,115) Total 158,887 (28,579) 187,466

Amounts are shown in thousands of euros

Financial statements 179 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Annex 6: Non-recurring material transactions pursuant to CONSOB Resolution 15519 of 27 July 2006

2008 2007 Increase/ (Decrease) Sales and service revenues 155,516 154,085 1,431 Other operating income 16,860 10,203 6,657 NON-RECURRING other operating income 1,685 19,282 (17,597) Net revenue 174,061 183,570 (9,509)

Staff costs 37,290 35,807 1,483 Cost of materials and overheads 133,275 133,487 (211) Operating costs 170,566 169,294 1,272 Gross operating profit 3,495 14,277 (10,781)

Amortisation, depreciation, provisions and impairment charges 15,158 24,037 (8,879) Operating profit/(loss) (11,663) (9,760) (1,903)

Finance (costs)/income 128,448 132,233 (3,785) Ordinary finance (costs)/income 123,838 132,233 (8,395) Exceptional finance (costs)/income 4610 0 4,610 Profit/(loss) on investments (4,394) 20,367 (24,761)

Profit/(loss) before tax 112,390 142,840 (30,450)

Taxation 64,070 30,258 33,812 Net profit/(loss) from continuing operations 48,321 112,583 (64,262)

Net profit/(loss) from discontinued operations 0 0 0 Net profit/(loss) 48,321 112,583 (64,262)

Amounts are shown in thousands of euros

31 Dec 2008 Shareholders’ Net profit/ Net debt equity (loss) E000 Amount % Amount % Amount % Carrying amounts (A): 1,518,402 48,321 (210) Earnout for Via Laurentina 4,588 0,3 4,588 9,5 6,000 28,56 Total (B) 4,588 4,588 6,000 Gross notional carrying amounts (A-B) 1,513,814 43,733 (6,210)

Amounts are shown in thousands of euros

180 Financial statements Annex 7: Positions or transactions deriving from unusual and/or exceptional transactions

Pursuant to the CONSOB Ruling of 28 July 2006, we hereby declare that during 2007 Acea SpA did not enter into any exceptional and/or unusual transactions as defined by the above Ruling.

Financial statements 181 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Annex 8: Segment information (IAS 14)

Public lighting Corporate Total continuing Discontinuing Total operations operations

Investments 9,700 18,800 28,500 28,500 Segment assets 0 Property, plant and equipment 67,082,820 53,466,684 120,549,504 0 120,549,504 Intangible assets 0 9,611,959 9,611,959 0 9,611,959 Non-current financial assets 0 1,650,260,801 1,650,260,801 0 1,650,260,801 Other non-current trading assets 810,268 Other non-current financial assets 75,065,496 Raw materials 0 0 0 0 0 Trade receivables 20,183,027 36,409,427 56,592,454 0 56,592,454 Trade receivables due from parent 80,459,470 8,967,429 89,426,900 89,426,900 Receivables due from subsidiaries / associates 451,745 60,631,885 61,083,630 0 61,083,630 Other non-current trading assets 30,229,064 Other non-current financial assets 790,005,379 Bank deposits 153,423,993

Total assets 3,037,059,450

182 Financial statements Public lighting Corporate Total continuing Discontinuing Total operations operations

Segment liabilities Trade payables 6200 37,588,111 37,594,311 0 37,594,311 Trade payables due to parent 1,454,774 29,940,012 31,394,787 31,394,787 Trade payables due to subsidiaries and associates 53,836,908 15,008,071 68,844,980 68,844,980 Other current trading liabilities 48,838,715 Other current financial liabilities 219,647,338 Defined-benefit obligations 0 28,835,096 28,835,096 0 28,835,096 Other provisions 0 79,961,565 79,961,565 79,961,565 Provisions for deferred taxes 1,475,926 Other non-current trading liabilities 10,218,363 Other non-current financial liabilities 991,846,698 Shareholders’ equity 1,518,401,671

Total liabilities and shareholders’ equity 3,037,059,450

Financial statements 183 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

Public lighting Corporate Total continuing Assets held Total operations for sale

Segment revenue 81,413,987 13,506,804 94,920,791 0 94,920,791 Intersegment revenue 9,743 79,130,367 79,140,110 0 79,140,110 Staff costs 0 37,290,426 37,290,426 0 37,290,426 Cost of materials and overheads 72,871,060 60,404,057 133,275,117 0 133,275,117 Gross operating profit/(loss) 8,552,670 (5,057,312) 3,495,358 0 3,495,358 Amortisation, depreciation and provisions for the impairment of receivables 4,274,416 10,884,071 15,158,487 0 15,158,487 Impairment charges/Reversal of impairment charges on non-current assets 0 0 0 0 Operating profit/(loss) 4,278,253 (15,941,383) (11,663,129) 0 (11,663,130) Finance (costs)/income 128,447,995 Profit/(loss) on investments accounted for using equity method (4,394,452) Profit/(loss) from discontinued operations 0 Profit/(loss) before tax 112,390,413 Taxation 64,069,844

Net profit/(loss) 48,320,569

184 Financial statements Annex 9: Highlights extracted from the financial statements of subsidiaries and associates for the year ended 31 December 2008

E Acea Ato 2 SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 427,545 410,963 Registered office Gross margin 230,433 224,780 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) 154,178 153,421 Share capital Operating profit/(loss) 92,382 84,212 Euro 362,834,320.00 Profit/(loss) from ordinary Interest activities 84,825 80,643 96.46% Profit/(loss) before tax 75,362 85,273 Net profit/(loss) for the period 48,971 49,928 Current assets 351,385 334,104 Non-current assets 1,007,777 957,194 Current liabilities 587,803 504,639 Medium/Long-term liabilities and provisions 95,409 112,256 Shareholders’ equity 675,950 674,402 Net funds/(debt) (262) (194)

Memorandum accounts 1,046,116 1,042,740

E Acea Distribuzione SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 437,172 421,177 Registered office Gross margin 295,448 287,325 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) 224,335 216,288 Share capital Operating profit/(loss) 112,325 103,876 Euro 345,000,000.00 Profit/(loss) from ordinary Interest activities 80,967 72,252 100% Profit/(loss) before tax 80,849 76,102 Net profit/(loss) for the period 83,268 76,710 Current assets 287,085 274,867 Non-current assets 1,424,245 1,407,941 Current liabilities 514,134 466,572 Medium/Long-term liabilities and provisions 484,131 509,729 Shareholders’ equity 713,066 706,507 Net funds/(debt) (589) (605,750)

Memorandum accounts 56,813 45,703

Financial statements 185 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Acea Reti e Servizi Energetici SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 28,005 12,864 Registered office Gross margin 7,927 5,514 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) 6,197 4,093 Share capital Operating profit/(loss) 5,864 4,079 Euro 300,120,000.00 Profit/(loss) from ordinary Interest activities 45,937 41,827 100% Profit/(loss) before tax 45,961 41,837 Net profit/(loss) for the period 27,051 20,235 Current assets 76,865 96,086 Non-current assets 356,037 344,881 Current liabilities 46,916 62,982 Medium/Long-term liabilities and provisions 528 441 Shareholders’ equity 385,459 377,539 Net funds/(debt) 16,018 21,312

Memorandum accounts 170 6

E Luce Napoli Scarl 000 31 Dec 2008 31 Dec 2007 Total revenue 6,529 6,401 Registered office Gross margin 1,666 1,558 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) 214 138 Share capital Operating profit/(loss) 214 138 Euro 10,000.00 Profit/(loss) from ordinary Interest activities 216 140 80% Profit/(loss) before tax 213 140 Net profit/(loss) for the period 55 140 Current assets 3,732 6,165 Non-current assets 0 0 Current liabilities 4,520 7,070 Medium/Long-term liabilities and provisions 0 69 Shareholders’ equity 10 10 Net funds/(debt) 15 (354)

Memorandum accounts 0 0

186 Financial statements E LaboratoRI SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 20,157 19,339 Registered office Gross margin 14,156 13,256 via Vitorchiano, 165 Loc. Grottarossa - 00189 Rome Gross operating profit/(loss) 6,546 6,198 Operating profit/(loss) 5,726 5,528 Share capital Profit/(loss) from ordinary Euro 2,444,000.00 activities 5,870 5,663 Interest Profit/(loss) before tax 5,917 5,621 95% Net profit/(loss) for the period 3,723 3,063 Current assets 12,068 14,686 Non-current assets 2,272 1,943 Current liabilities 3,593 4,888 Medium/Long-term liabilities and provisions 4,727 4,718 Shareholders’ equity 7,628 6,814 Net funds/(debt) 162 3,167

Memorandum accounts 575 575

E AceaElectrabel Elettricità SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 2,367 2,054,427 Registered office Gross margin 44,840 52,770 via Areonautica - 00100 Rome Gross operating profit/(loss) 32,974 40,374 Share capital Operating profit/(loss) 2,266 7,141 Euro 45,000.00 Profit/(loss) from ordinary Interest activities (4,099) 15,445 59.41% Profit/(loss) before tax (4,911) 15,315 Net profit/(loss) for the period (2,411) 4,396 Current assets 642,825 655,640 Non-current assets 52,858 58,568 Current liabilities 542,088 555,054 Medium/Long-term liabilities and provisions 40,393 43,564 Shareholders’ equity 113,194 115,605 Net funds/(debt) 44,887 (74,505)

Memorandum accounts 23,936 70,068

Financial statements 187 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E AceaElectrabel Trading SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 2,271,162 1,667,624 Registered office Gross margin (4,699) 8,157 via Aeronautica - 00100 Rome Gross operating profit/(loss) (6,301) 6,858 Share capital Operating profit/(loss) (6,480) 6,089 Euro 1,000,000.00 Profit/(loss) from ordinary Interest activities (8,622) 5,956 50% Profit/(loss) before tax (8,598) 5,671 Net profit/(loss) for the period (6,033) 4,148 Current assets 317,878 321,955 Non-current assets 5,172 5,241 Current liabilities 294,439 291,048 Medium/Long-term liabilities and provisions 20,406 21,911 Shareholders’ equity 8,204 14,236 Net funds/(debt) 3,099 (4,490)

Memorandum accounts 191,297 152,684

E AceaElectrabel SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 7,609 5,225 Registered office Gross margin 462 (512) via Aeronautica - 00100 Rome Gross operating profit/(loss) (2,473) (1,066) Share capital Operating profit/(loss) (2,931) (1,496) Euro 150,750,000.00 Profit/(loss) from ordinary Interest activities (2,890) (1,204) 59.41% Profit/(loss) before tax (2,890) (1,204) Net profit/(loss) for the period (2,137) (855) Current assets 7,678 7,965 Non-current assets 299,550 294,561 Current liabilities 12,053 5,491 Medium/Long-term liabilities and provisions 491 283 Shareholders’ equity 294,615 296,752 Net funds/(debt) (3,840) 4,963

Memorandum accounts 425 425

188 Financial statements E AceaElectrabel Produzione SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 411,945 285,745 Registered office Gross margin 85,827 38,938 via Aeronautica, 7 - 00100 Rome Gross operating profit/(loss) 76,634 30,222 Share capital Operating profit/(loss) 42,019 6,359 Euro 97,100,000.00 Profit/(loss) from ordinary Interest activities 24,474 3,315 29.71% Profit/(loss) before tax 24,521 3,644 Net profit/(loss) for the period 12,395 2,485 Current assets 180,677 108,384 Non-current assets 613,701 586,069 Current liabilities 454,384 368,005 Medium/Long-term liabilities and provisions 13,700 12,548 Shareholders’ equity 326,294 313,900 Net funds/(debt) (292,486) (262,393)

Memorandum accounts 5,698 4,951

E Acea Ato 5 SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 49,656 43,465 Registered office Gross margin 16,638 11,157 via Monti Lepini, 220 - 03100 Frosinone Gross operating profit/(loss) 7,356 3,807 Share capital Operating profit/(loss) 4,137 1,748 Euro 10,330,000.00 Profit/(loss) from ordinary Interest activities 3,930 1,217 94.08% Profit/(loss) before tax 4,053 1,584 Net profit/(loss) for the period 1,659 306 Current assets 93,239 86,684 Non-current assets 37,663 31,518 Current liabilities 78,131 71,736 Medium/Long-term liabilities and provisions 36,794 32,147 Shareholders’ equity 15,978 14,319 Net funds/(debt) (24) (23)

Memorandum accounts 2,844 2,844

Financial statements 189 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Ombrone SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 0 0 Registered office Gross margin (218) (214) Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) (218) (214) Share capital Operating profit/(loss) (219) (216) Euro 6,500,000.00 Profit/(loss) from ordinary Interest activities (219) (211) 79.57% Profit/(loss) before tax (214) (198) Net profit/(loss) for the period (154) (99) Current assets 259 228 Non-current assets 19,319 19,321 Current liabilities 342 158 Medium/Long-term liabilities and provisions 0 0 Shareholders’ equity 19,235 19,391 Net funds/(debt) 244 174

Memorandum accounts 0 0

E Sarnese Vesuviano Srl 000 31 Dec 2008 31 Dec 2007 Total revenue 1,079 0 Registered office Gross margin 1,003 (59) Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) 1,003 (59) Share capital Operating profit/(loss) 1,003 (118) Euro 6,735,053.48 Profit/(loss) from ordinary Interest activities 817 394 90% Profit/(loss) before tax 974 394 Net profit/(loss) for the period 783 211 Current assets 1,873 728 Non-current assets 23,340 10,110 Current liabilities 4,698 4,862 Medium/Long-term liabilities and provisions 0 0 Shareholders’ equity 20,515 5,976 Net funds/(debt) (3,686) (3,982)

Memorandum accounts 0 0

190 Financial statements E Ecogena SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 66 0 Registered office Gross margin (550) (52) Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) (691) (65) Share capital Operating profit/(loss) (692) (65) Euro 1,000,000.00 Profit/(loss) from ordinary Interest activities (684) (65) 51.00% Profit/(loss) before tax (684) (65) Net profit/(loss) for the period (504) (65) Current assets 1,158 991 Non-current assets 746 9 Current liabilities 1,472 64 Medium/Long-term liabilities and provisions 1 1 Shareholders’ equity 431 935 Net funds/(debt) 546 990

Memorandum accounts 0 0

E Ecomed Srl 000 31 Dec 2008 31 Dec 2007 Total revenue 0 0 Registered office Gross margin (33) 11 via di Grotta Perfetta, 302 - Rome Gross operating profit/(loss) (33) (11) Share capital Operating profit/(loss) (33) (11) Euro 50,094.00 Profit/(loss) from ordinary Interest activities (37) (11) 50% Profit/(loss) before tax (37) (11) Net profit/(loss) for the period (37) (11) Current assets 169 170 Non-current assets 7 7 Current liabilities 111 80 Medium/Long-term liabilities and provisions 0 0 Shareholders’ equity 65 96 Net funds/(debt) 11 85

Memorandum accounts 0 0

Financial statements 191 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Acque Blu Arno Basso SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 18 0 Registered office Gross margin (187) (199) Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) (187) (199) Share capital Operating profit/(loss) (189) (201) Euro 8,000,000.00 Profit/(loss) from ordinary Interest activities (92) 1,671 69% Profit/(loss) before tax (92) 1,671 Net profit/(loss) for the period (83) 1,728 Current assets 3,749 2,556 Non-current assets 18,353 18,355 Current liabilities 2,894 114 Medium/Long-term liabilities and provisions 17 0 Shareholders’ equity 19,192 20,798 Net funds/(debt) 1,010 (2,488)

Memorandum accounts 0 0

E Acque Blu Fiorentine 000 31 Dec 2008 31 Dec 2007 Total revenue 0 0 Registered office Gross margin (201) (227) Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) (201) (227) Share capital Operating profit/(loss) (201) (233) Euro 15,143,000.00 Profit/(loss) from ordinary Interest activities (171) 785 68.50% Profit/(loss) before tax (260) 785 Net profit/(loss) for the period (243) 918 Current assets 3,125 1,110 Non-current assets 60,135 60,141 Current liabilities 2,973 133 Medium/Long-term liabilities and provisions 0 0 Shareholders’ equity 60,257 61,118 Net funds/(debt) 315 1,110

Memorandum accounts 0 0

192 Financial statements E Acque SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 104,015 96,792 Registered office Gross margin 53,306 47,543 via Bellatalla, 1 - 56121 Ospedaletto (Pisa) Gross operating profit/(loss) 40,559 36,187 Share capital Operating profit/(loss) 19,452 17,963 Euro 9,953,116.00 Profit/(loss) from ordinary Interest activities 18,009 14,094 45% Profit/(loss) before tax 15,556 12,846 Net profit/(loss) for the period 9,797 4,706 Current assets 90,073 86,379 Non-current assets 237,867 188,265 Current liabilities 90,014 71,457 Medium/Long-term liabilities and provisions 194,293 166,563 Shareholders’ equity 43,633 36,623 Net funds/(debt) (130,871) (114,275)

Memorandum accounts 0 0

E Acque Industriali SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 9,204 9,992 Registered office Gross margin 4,152 4,077 via Bellatalla, 1 - 56121 Ospedaletto (Pisa) Gross operating profit/(loss) 1,547 1,717 Share capital Operating profit/(loss) 1,218 1,366 Euro 100,000.00 Profit/(loss) from ordinary Interest activities 1,362 1,308 45% Profit/(loss) before tax 1,271 1,316 Net profit/(loss) for the period 791 728 Current assets 4,537 4,493 Non-current assets 1,156 1,156 Current liabilities 2,717 3,196 Medium/Long-term liabilities and provisions 1,133 1,101 Shareholders’ equity 1,844 1,353 Net funds/(debt) (501) (810)

Memorandum accounts 1,950 1,950

Financial statements 193 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Acque Ingegneria SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 18,516 18,665 Registered office Gross margin 7,076 6,395 via Bellatalla, 1 - 56121 Ospedaletto (Pisa) Gross operating profit/(loss) 4,519 3,950 Share capital Operating profit/(loss) 4,340 3,789 Euro 50,000.00 Profit/(loss) from ordinary Interest activities 3,758 3,722 45% Profit/(loss) before tax (1,298) 3,745 Net profit/(loss) for the period 2,530 2,188 Current assets 17,251 21,585 Non-current assets 1,976 1,205 Current liabilities 6,824 20,135 Medium/Long-term liabilities and provisions 8,765 408 Shareholders’ equity 3,638 2,248 Net funds/(debt) (9,113) (3,257)

Memorandum accounts 0 0

E Acque Servizi SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 16,333 19,013 Registered office Gross margin 7,465 6,086 via Bellatalla, 1 - 56121 Ospedaletto (Pisa) Gross operating profit/(loss) 3,271 2,703 Share capital Operating profit/(loss) 2,630 2,362 Euro 400,000.00 Profit/(loss) from ordinary Interest activities 2,712 2,370 45% Profit/(loss) before tax 2,660 2,344 Net profit/(loss) for the period 1,756 1,372 Current assets 7,206 6,568 Non-current assets 3,048 2,098 Current liabilities 7,288 6,525 Medium/Long-term liabilities and provisions 149 79 Shareholders’ equity 2,817 2,061 Net funds/(debt) (1,995) 98

Memorandum accounts 0 0

194 Financial statements E Roselectra SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 204,537 173,878 Registered office Gross margin 24,643 24,032 via Orazio, 31 - 00193 Rome Gross operating profit/(loss) 24,643 23,991 Share capital Operating profit/(loss) 10,655 10,028 Euro 200,000.00 Profit/(loss) from ordinary Interest activities (2,075) (2,663) 29.71% Profit/(loss) before tax (1,834) (2,698) Net profit/(loss) for the period (2,021) (5,108) Current assets 48,945 43,558 Non-current assets 220,058 229,349 Current liabilities 176,865 196,542 Medium/Long-term liabilities and provisions 62,282 69,487 Shareholders’ equity 29,857 6,877 Net funds/(debt) (165,799) (202,050)

Memorandum accounts 0 0

E Voghera Energia SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 31,758 26,706 Registered office Gross margin 21,355 18,407 via Pozzoni, 2 - 27058 Voghera (Pavia) Gross operating profit/(loss) 19,963 17,110 Share capital Operating profit/(loss) 5,446 2,606 Euro 46,700,000.00 Profit/(loss) from ordinary Interest activities (2,944) (5,910) 29.71% Profit/(loss) before tax (2,960) (5,890) Net profit/(loss) for the period (3,703) (5,053) Current assets 45,570 42,685 Non-current assets 197,248 208,865 Current liabilities 18,047 24,955 Medium/Long-term liabilities and provisions 181,747 179,869 Shareholders’ equity 43,024 46,727 Net funds/(debt) (149,390) (158,557)

Memorandum accounts 0 0

Financial statements 195 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Gori SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 139,771 111 Registered office Gross margin 68,530 53 via Dante,1 - 80058 Torre Annunziata (Napoli) Gross operating profit/(loss) 39,083 27 Share capital Operating profit/(loss) 28,001 17 Euro 12,996,270.00 Profit/(loss) from ordinary Interest activities 21,643 15 26.92% Profit/(loss) before tax 21,185 15 Net profit/(loss) for the period 13,390 8 Current assets 231,820 169 Non-current assets (170,322) 113 Current liabilities 249,895 178 Medium/Long-term liabilities and provisions 90,344 63 Shareholders’ equity 5,914 40 Net funds/(debt) (56,593) (37)

Memorandum accounts 0 0

E Crea SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 4,258 3,209 Registered office Gross margin 1,341 761 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) (61) (366) Share capital Operating profit/(loss) (344) (723) Euro 13,520,000.00 Profit/(loss) from ordinary Interest activities (209) (292) 100% Profit/(loss) before tax 174 3,617 Net profit/(loss) for the period 129 3,627 Current assets 1,670 24,286 Non-current assets 3,116 5,942 Current liabilities 1,877 10,384 Medium/Long-term liabilities and provisions 16 4,840 Shareholders’ equity 2,894 15,004 Net funds/(debt) (942) 11,044

Memorandum accounts 0 0

196 Financial statements E Crea Gestioni 000 31 Dec 2008 Total revenue 799 Registered office Gross margin 348 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) 99 Share capital Operating profit/(loss) 52 Euro 100,000.00 Profit/(loss) from ordinary Interest activities 97 100% Profit/(loss) before tax 228 Net profit/(loss) for the period 228 Current assets 20,753 Non-current assets 1,920 Current liabilities 9,011 Medium/Long-term liabilities and provisions 4,544 Shareholders’ equity 9,087 Net funds/(debt) 11,352

Memorandum accounts 0

E Crea Partecipazioni 000 31 Dec 2008 Total revenue 15 Registered office Gross margin 7 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) (26) Share capital Operating profit/(loss) (27) Euro 100,000.00 Profit/(loss) from ordinary Interest activities (27) 100% Profit/(loss) before tax (19) Net profit/(loss) for the period (19) Current assets 3,114 Non-current assets 363 Current liabilities 189 Medium/Long-term liabilities and provisions 23 Shareholders’ equity 3,266 Net funds/(debt) 2,851

Memorandum accounts 0

Financial statements 197 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Gesesa SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 6,456 6,037 Registered office Gross margin 2,379 9,949 Zona Industriale località Pezzapiana - 82100 Benevento Gross operating profit/(loss) 595 385 Share capital Operating profit/(loss) 214 66 Euro 519,340.75 Profit/(loss) from ordinary Interest activities 179 121 59.67% Profit/(loss) before tax 228 (8) Net profit/(loss) for the period 1 (198) Current assets 6,580 6,735 Non-current assets 2,007 1,734 Current liabilities 5,788 5,613 Medium/Long-term liabilities and provisions 1,340 1,403 Shareholders’ equity 1,459 1,453 Net funds/(debt) (268) (325)

Memorandum accounts 0 0

E Lunigiana Acque SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 2,089 1,962 Registered office Gross margin 862 799 via Nazionale Massa Carrara, 173/175 Gross operating profit/(loss) 375 315 Share capital Operating profit/(loss) 220 165 Euro 750,000.00 Profit/(loss) from ordinary Interest activities 102 44 100% Profit/(loss) before tax 94 47 Net profit/(loss) for the period 17 4 Current assets 2,399 2,314 Non-current assets 1,962 1,874 Current liabilities 2,039 1,894 Medium/Long-term liabilities and provisions (1,612) 1,609 Shareholders’ equity 711 685 Net funds/(debt) (1,760) (1,711)

Memorandum accounts 0 0

198 Financial statements E Voghera Energia Vendita SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 87,827 82,151 Registered office Gross margin 437 1,211 Largo Toscanini, 5 - Voghera (PV) Gross operating profit/(loss) 275 1,211 Share capital Operating profit/(loss) 173 1,109 Euro 250,000.00 Profit/(loss) from ordinary Interest activities 278 1,106 29.71% Profit/(loss) before tax 278 1,106 Net profit/(loss) for the period 161 660 Current assets 21,751 25,172 Non-current assets 722 293 Current liabilities 21,942 24,542 Medium/Long-term liabilities and provisions 73 0 Shareholders’ equity 457 923 Net funds/(debt) (5,082) (3,947)

Memorandum accounts 0 0

E Longano Eolica SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 7,689 3,637 Registered office Gross margin 6,300 3,022 Via Mazzola, 66 - Rome Gross operating profit/(loss) 6,300 3,022 Share capital Operating profit/(loss) 4,706 2,498 Euro 2,100,000.00 Profit/(loss) from ordinary Interest activities 3,391 1,893 15.15% Profit/(loss) before tax 3,463 1,876 Net profit/(loss) for the period 2,250 1,082 Current assets 8,053 7,973 Non-current assets 23,366 24,967 Current liabilities 1,928 3,935 Medium/Long-term liabilities and provisions 22,010 22,868 Shareholders’ equity 7,481 6,136 Net funds/(debt) (16,572) (21,433)

Memorandum accounts 0 0

Financial statements 199 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Elga Sud SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 8,925 523 Registered office Gross margin 107 (121) Via Monte Grappa, 6 - Trani Gross operating profit/(loss) 15 (160) Share capital Operating profit/(loss) (24) (167) Euro 250,000.00 Profit/(loss) from ordinary Interest activities (68) (165) 29.11% Profit/(loss) before tax (68) (165) Net profit/(loss) for the period (43) (117) Current assets 3,268 682 Non-current assets 322 50 Current liabilities 3,377 598 Medium/Long-term liabilities and provisions 6 2 Shareholders’ equity 207 133 Net funds/(debt) (490) (4)

Memorandum accounts 0 0

E Elettria SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 108,860 79,708 Registered office Gross margin 1,976 919 Via Panziera, 16 - Prato Gross operating profit/(loss) 1,843 919 Share capital Operating profit/(loss) 1,180 702 Euro 250,000.00 Profit/(loss) from ordinary Interest activities 862 683 29.11% Profit/(loss) before tax 841 683 Net profit/(loss) for the period 841 683 Current assets 51,198 23,669 Non-current assets 170 12 Current liabilities 50,003 22,609 Medium/Long-term liabilities and provisions 1 138 Shareholders’ equity 1,364 933 Net funds/(debt) (12,821) 167

Memorandum accounts 0 0

200 Financial statements E Umbria Energy SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 79,380 78,383 Registered office Gross margin 276 854 Via Capponi, 100 - Terni Gross operating profit/(loss) (106) 559 Share capital Operating profit/(loss) (135) 453 Euro 250,000.00 Profit/(loss) from ordinary Interest activities 535 648 29.71% Profit/(loss) before tax 247 647 Net profit/(loss) for the period 145 364 Current assets 23,179 25,355 Non-current assets 1,754 87 Current liabilities 21,384 24,777 Medium/Long-term liabilities and provisions 1,464 36 Shareholders’ equity 2,084 630 Net funds/(debt) (2,271) (4,962)

Memorandum accounts 0 0

E Aguazul Bogotà SA 000 31 Dec 2008 31 Dec 2007 Total revenue 2,190 11,083 Registered office Gross margin 1,767 5,293 Bogotà - Colombia Gross operating profit/(loss) 1,612 1,828 Share capital Operating profit/(loss) 1,138 1,350 Euro 1,420,046.00 Profit/(loss) from ordinary Interest activities 561 1,236 51% Profit/(loss) before tax 563 1,265 Net profit/(loss) for the period 252 963 Current assets 259 5,006 Non-current assets 19,319 1,820 Current liabilities 342 3,295 Medium/Long-term liabilities and provisions 0 915 Shareholders’ equity 19,237 2,616 Net funds/(debt) 8 2,583

Memorandum accounts 0 0

Financial statements 201 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Acea Dominicana SA 000 31 Dec 2008 31 Dec 2007 Total revenue 2,226 2,184 Registered office Gross margin 1,553 1,494 Santo Domingo - Repubblica Dominicana Gross operating profit/(loss) 967 929 Share capital Operating profit/(loss) 793 639 Euro 343,269.00 Profit/(loss) from ordinary Interest activities 820 641 100% Profit/(loss) before tax 810 643 Net profit/(loss) for the period 705 605 Current assets 1,633 1,242 Non-current assets 240 273 Current liabilities 226 226 Medium/Long-term liabilities and provisions 128 105 Shareholders’ equity 1,536 1,183 Net funds/(debt) 259 383

Memorandum accounts 0 0

E Consorcio Acea Tradexco 000 31 Dec 2008 Total revenue 12 Registered office Gross margin 9 Santo Domingo - Repubblica Dominicana Gross operating profit/(loss) 9 Share capital Operating profit/(loss) 2 Euro 94,399,000.00 Profit/(loss) from ordinary Interest activities 2 100% Profit/(loss) before tax 2 Net profit/(loss) for the period 1 Current assets 68 Non-current assets 12 Current liabilities 2 Medium/Long-term liabilities and provisions 0 Shareholders’ equity 79 Net funds/(debt) 2

Memorandum accounts 0

202 Financial statements E Tad Energia Ambiente SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 2,089 3,957 Registered office Gross margin 1,136 2,616 Via Giordano Bruno, 7 - 05100 Terni Gross operating profit/(loss) (879) 638 Share capital Operating profit/(loss) (1,401) (357) Euro 2,224,992.00 Profit/(loss) from ordinary Interest activities 3,142 1,560 100% Profit/(loss) before tax 1,738 970 Net profit/(loss) for the period 2,632 811 Current assets 20,335 12,861 Non-current assets 41,422 40,022 Current liabilities 49,714 49,870 Medium/Long-term liabilities and provisions 1,819 843 Shareholders’ equity 5,211 2,169 Net funds/(debt) (31,869) (37,664)

Memorandum accounts 5,275 0

E S.A.O. Servizi Ambientali Orvieto SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 14,071 9,262 Registered office Gross margin 7,562 3,682 Piazza del Commercio, 21 - 05019 Orvieto Gross operating profit/(loss) 5,704 2,156 Share capital Operating profit/(loss) 4,481 823 Euro 7,524,400.00 Profit/(loss) from ordinary Interest activities 4,185 337 100% Profit/(loss) before tax 4,204 309 Net profit/(loss) for the period 3,423 202 Current assets 25,164 13,615 Non-current assets 13,350 13,714 Current liabilities 29,109 20,863 Medium/Long-term liabilities and provisions 954 1,479 Shareholders’ equity 8,451 4,987 Net funds/(debt) (4,063) (5,906)

Memorandum accounts 0 0

Financial statements 203 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E TerniEn.A SpA 000 31 Dec 2008 31 Dec 2007 Total revenue 23,938 21,036 Registered office Gross margin 13,125 11,104 Via Giordano Bruno, 6 - 05100 Terni Gross operating profit/(loss) 11,573 9,702 Share capital Operating profit/(loss) 7,347 5,792 Euro 6,546,492.00 Profit/(loss) from ordinary Interest activities 6,651 4,859 98% Profit/(loss) before tax 6,663 4,259 Net profit/(loss) for the period 4,481 2,532 Current assets 16,366 9,339 Non-current assets 29,578 28,793 Current liabilities 33,952 25,405 Medium/Long-term liabilities and provisions 233 3,043 Shareholders’ equity 11,760 9,684 Net funds/(debt) (16,732) (18,219)

Memorandum accounts 0 0

E Ergo En.A Srl 000 31 Dec 2008 31 Dec 2007 Total revenue 216 304 Registered office Gross margin 57 186 Via Giordano Bruno, 7 - 05100 Terni Gross operating profit/(loss) 57 186 Share capital Operating profit/(loss) 20 152 Euro 50,000.00 Profit/(loss) from ordinary Interest activities (294) (142) 70% Profit/(loss) before tax (294) (150) Net profit/(loss) for the period (294) (157) Current assets 1,045 917 Non-current assets 5,647 5,684 Current liabilities 6,937 6,709 Medium/Long-term liabilities and provisions 0 0 Shareholders’ equity (244) (107) Net funds/(debt) (5,963) (6,344)

Memorandum accounts 0 0

204 Financial statements E Eall S.p.A. 000 31 Dec 2008 31 Dec 2007 Total revenue 19,454 18,250 Registered office Gross margin 11,181 10,663 Via Giordano Bruno, 7 - 05100 Terni Gross operating profit/(loss) 9,493 9,094 Share capital Operating profit/(loss) 4,415 3,622 Euro 5,164,000.00 Profit/(loss) from ordinary Interest activities 3,071 2,118 100% Profit/(loss) before tax 4,086 1,878 Net profit/(loss) for the period 2,671 968 Current assets 13,045 9,819 Non-current assets 33,192 33,453 Current liabilities 37,307 23,823 Medium/Long-term liabilities and provisions 464 12,736 Shareholders’ equity 8,465 6,713 Net funds/(debt) (24,903) (30,065)

Memorandum accounts 0 0

E Enercombustibili Srl 000 31 Dec 2008 31 Dec 2007 Total revenue 4,882 5,393 Registered office Gross margin (239) (1,198) via Casilina Km 57,200 - 03018 Paliano Località Castellaccio Gross operating profit/(loss) (889) (1,803) Operating profit/(loss) (1,493) (2,387) Share capital Profit/(loss) from ordinary Euro 45,000.00 activities (1,446) (2,496) Interest Profit/(loss) before tax (1,540) (2,475) 100% Net profit/(loss) for the period (1,202) (1,813) Current assets 7,795 5,050 Non-current assets 2,477 2,514 Current liabilities 8,502 7,584 Medium/Long-term liabilities and provisions 251 259 Shareholders’ equity 1,519 (279) Net funds/(debt) 3,462 (69)

Memorandum accounts 0 0

Financial statements 205 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Acea Rieti 000 31 Dec 2008 Total revenue 3,011 Registered office Gross margin 1,479 Via A. Camotti 11 - Rieti Gross operating profit/(loss) 438 Share capital Operating profit/(loss) 285 Euro 200,000.00 Profit/(loss) from ordinary Interest activities 25 100% Profit/(loss) before tax (559) Net profit/(loss) for the period (643) Current assets 9,916 Non-current assets 1,000 Current liabilities 10,729 Medium/Long-term liabilities and provisions 311 Shareholders’ equity (124) Net funds/(debt) (838)

Memorandum accounts 0

E Publiacqua SpA 000 31 Dec 2008 Total revenue 165,178 Registered office Gross margin 79,896 Via Villamagna, - 50100 Firenze Gross operating profit/(loss) 55,219 Share capital Operating profit/(loss) 20,144 Euro 150,280,000.00 Profit/(loss) from ordinary Interest activities 13,874 40% Profit/(loss) before tax 13,874 Net profit/(loss) for the period 7,317 Current assets 166,747 Non-current assets 322,364 Current liabilities 179,051 Medium/Long-term liabilities and provisions 153,019 Shareholders’ equity 157,040 Net funds/(debt) (97,617)

Memorandum accounts 0

206 Financial statements E Publiacqua ingegneria Srl 000 31 Dec 2008 31 Dec 2007 Total revenue 9,708 9,543 Registered office Gross margin 2,506 2,676 Via Villamagna, - 50100 Firenze Gross operating profit/(loss) 2,500 2,674 Share capital Operating profit/(loss) 2,500 2,667 Euro 50,000.00 Profit/(loss) from ordinary Interest activities 2,095 2,656 40% Profit/(loss) before tax 2,113 2,633 Net profit/(loss) for the period 1,324 1,530 Current assets 12,102 11,571 Non-current assets 612 21 Current liabilities 3,961 8,742 Passività a medio-lungo 6,097 1,200 termine e fondi diversi Shareholders’ equity 2,656 1,650 Net funds/(debt) (7,337) (1,165)

Memorandum accounts 0 0

E Publiutenti Srl 000 31 Dec 2008 31 Dec 2007 Total revenue 88 98 Registered office Gross margin (42) (29) Via Villamagna, - 50100 Firenze Gross operating profit/(loss) (96) (78) Share capital Operating profit/(loss) (96) (80) Euro 100,000.00 Profit/(loss) from ordinary Interest activities (88) (72) 40% Profit/(loss) before tax (88) (73) Net profit/(loss) for the period (60) (73) Current assets 355 701 Non-current assets 1 2 Current liabilities 309 669 Medium/Long-term liabilities and provisions 9 7 Shareholders’ equity 38 27 Net funds/(debt) 237 219

Memorandum accounts 0 0

Financial statements 207 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Aquaser Srl 000 31 Dec 2008 31 Dec 2007 Total revenue 15,565 4,651 Registered office Gross margin 1,897 911 Via dei Sarti,15 - 56048 Volterra (Pisa) Gross operating profit/(loss) 1,830 873 Share capital Operating profit/(loss) 1,531 786 Euro 50,000.00 Profit/(loss) from ordinary Interest activities 1,641 817 100% Profit/(loss) before tax 1,595 812 Net profit/(loss) for the period 935 501 Current assets 13,364 4,344 Non-current assets 4,317 288 Current liabilities 12,632 3,644 Medium/Long-term liabilities and provisions 155 31 Shareholders’ equity 4,895 957 Net funds/(debt) (1,199) (555)

Memorandum accounts 0 0

E Umbra Acque 000 31 Dec 2008 Total revenue 55,774 Registered office Gross margin 22,852 Via G. Bennucci, 162 (Perugia) Gross operating profit/(loss) 11,339 Share capital Operating profit/(loss) 5,073 Euro 15,549,889.00 Profit/(loss) from ordinary Interest activities (234) 40% Profit/(loss) before tax 115 Net profit/(loss) for the period (877) Current assets 35,148 Non-current assets 78,995 Current liabilities 61,201 Medium/Long-term liabilities and provisions 37,847 Shareholders’ equity 15,096 Net funds/(debt) (40,317)

Memorandum accounts 0

208 Financial statements E Tirreno Power 000 31 Dec 2008 31 Dec 2007 Total revenue 1,508,901 Registered office Gross margin 379,173 via Barberini, 47 - 00187 Rome Gross operating profit/(loss) 331,850 Share capital Operating profit/(loss) 249,757 Euro 91,930,000.00 Profit/(loss) from ordinary Interest activities 197,439 15% Profit/(loss) before tax 197,439 Net profit/(loss) for the period 100,526 Current assets 277,321 Non-current assets 1,522,259 Current liabilities 297,155 Medium/Long-term liabilities and provisions 1,104,174 Shareholders’ equity 398,251 Net funds/(debt) (870,732)

Memorandum accounts 0

E Eblacea 000 31 Dec 2008 31 Dec 2007 Total revenue 0 Registered office Gross margin (102) Via Orazio, 31 - 00193 Rome Gross operating profit/(loss) (102) Share capital Operating profit/(loss) (105) Euro 44,260.00 Profit/(loss) from ordinary Interest activities 572 30% Profit/(loss) before tax 573 Net profit/(loss) for the period 389 Current assets 27,913 Non-current assets 121,790 Current liabilities 31,762 Medium/Long-term liabilities and provisions 0 Shareholders’ equity 117,941 Net funds/(debt) (1,349)

Memorandum accounts 0

Financial statements 209 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Kyklos 000 31 Dec 2008 Total revenue 527 Registered office Gross margin 368 Via Ferriere - Nettuno km 15 Aprilia (Latina) Gross operating profit/(loss) 209 Share capital Operating profit/(loss) 103 Euro 500,000.00 Profit/(loss) from ordinary Interest activities (248) 51% Profit/(loss) before tax (80) Net profit/(loss) for the period (129) Current assets 779 Non-current assets 3.936 Current liabilities 4.208 Medium/Long-term liabilities and provisions 90 Shareholders’ equity 417 Net funds/(debt) (402)

Memorandum accounts 0

E Solemme 000 31 Dec 2008 Total revenue 190 Registered office Gross margin (29) Località Carboni - Monterotondo Marittimo (Grosseto) Gross operating profit/(loss) (150) Share capital Operating profit/(loss) (499) Euro 761,400.00 Profit/(loss) from ordinary Interest activities (706) 100% Profit/(loss) before tax (708) Net profit/(loss) for the period (738) Current assets 572 Non-current assets 9,335 Current liabilities 3,541 Medium/Long-term liabilities and provisions 3,982 Shareholders’ equity 2,384 Net funds/(debt) (6,878)

Memorandum accounts 0

210 Financial statements E Acea8cento 000 31 Dec 2008 Total revenue 3,506 Registered office Gross margin 2,653 Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) 1,428 Share capital Operating profit/(loss) 1,152 Euro 120,000.00 Profit/(loss) from ordinary Interest activities 987 100% Profit/(loss) before tax 987 Net profit/(loss) for the period 865 Current assets 1,347 Non-current assets 1,278 Current liabilities 3,031 Medium/Long-term liabilities and provisions 278 Shareholders’ equity (683) Net funds/(debt) (301)

Memorandum accounts 0

E Apice 000 31 Dec 2008 Total revenue 0 Registered office Gross margin (0) Piazzale Ostiense, 2 - 00154 Rome Gross operating profit/(loss) (0) Share capital Operating profit/(loss) (0) Euro 200,000.00 Profit/(loss) from ordinary Interest activities 1 50% Profit/(loss) before tax 1 Net profit/(loss) for the period 1 Current assets 194 Non-current assets 7 Current liabilities 0 Medium/Long-term liabilities and provisions 0 Shareholders’ equity 201 Net funds/(debt)

Memorandum accounts 0

Financial statements 211 Income Balance sheet - Balance sheet - Cash flow Notes to the financial Annexes statement ASSETS Liabilities statement statements

E Consorcio Agua Azul SA 000 31 Dec 2008 31 Dec 2007 Total revenue 8,589 8,573 Registered office Gross margin 6,928 7,057 Los Pinos, 399 - 27 Lima - Perù Gross operating profit/(loss) 6,323 6,525 Share capital Operating profit/(loss) 4,461 4,644 Euro 18,844,302.00 Profit/(loss) from ordinary Interest activities 2,199 3,872 25.50% Profit/(loss) before tax 2,209 3,872 Net profit/(loss) for the period 987 2,254 Current assets 3,602 4,566 Non-current assets 32,355 33,821 Current liabilities 953 1,489 Medium/Long-term liabilities and provisions 15,567 15,891 Shareholders’ equity 19,043 21,007 Net funds/(debt) (13,346) (13,351)

Memorandum accounts 0 0

212 Financial statements Acea SpA

REPORT OF THE BOARD OF STATUTORY AUDITORS TO THE ORDINARY GENERAL MEETING OF SHAREHOLDERS PURSUANT TO ART. 153 OF LEGISLATIVE DECREE 58/98 AND ART. 2429 OF THE ITALIAN CIVIL CODE

Dear Shareholders,

Article 153 of Legislative Decree 58 of 24 February 1998 requires the Board of Statutory Auditors to report to the Annual General Meeting of shareholders called to approve the financial statements for the year. The report must contain details of the audit procedures carried out and of any omissions and/or censurable events discovered, and gives the Board the option of making proposals regarding the financial statements and their approval and regarding aspects for which they are responsible.

This report meets the requirements of the above legislation and of article 2429, paragraph 2 of the Italian Civil Code.

During the year ended 31 December 2008, the Board of Statutory Audi- tors has carried out the audit procedures required by law (and, in particular, by art. 149 of Legislative Decree 58 of 24 February 1998), and by the principles for Statutory Auditors recommended by the Italian Accounting Profession.

On the basis of the activities carried out, and taking account of CONSOB rulings regarding the controls and procedures to be carried out by boards of statutory auditors, we inform you that: Board of Statutory Auditors

The Board of Statutory Auditors consists of three effective members, Mr. Maurizio Lauri (Chairman), Mr. Roberto Pertile (Effective Auditor) and Mr. Francesco Lopomo (Effective Auditor), and two alternate members, Mr. Claudio Bianchi and Mr. Claudio Valerio.

The Chairman of the Board of Statutory Auditors and one alternate auditor have been elected by minority shareholders.

The Board of Statutory Auditors held 17 meetings in the course of their audit activities during 2008. We also attended all Board of Directors’ meetings, whilst the Chairman of the Board of Statutory Auditors also attended meetings of the Internal Audit Committee. When the nature of the matters to be discussed so required, meetings were organized jointly with the In- ternal Audit Committee.

Corporate governance

In compliance with article 149, letter 1c bis) of Legislative Decree 58 of 24 February 1998, we note that the Company has brought its corporate governance model substantially into line with the recommendations contained in Borsa Italiana SpA’s Corporate Governance Code for Listed Companies (dated 14 March 2006).

The has fulfilled the obligation to inform the market of its degree of compliance with the Corporate Governance Code, pursuant to article 89-bis of the CONSOB’s Regulations for Issuers, in the Corporate Governance Report. As noted in the Corporate Governance Report, the Board of Directors has not deemed it necessary to set up a Nominations Committee or to elect a Lead Independent Director.

No Director or Statutory Auditor may hold more than five positions in listed companies, including their positions in Acea SpA, in order to ensure adequate availability to carry out their duties.

Each Board Committee, and the Board of Directors itself, has voted in favour of their respective size, composition and functions.

The independent Directors have also passed a separate resolution, confirming their independent approval of the functions of the Board of Direc- tors and the management independence of Directors.

The Annual Corporate Governance Report has been prepared in accordance with the instructions in the Regulations for Markets organised and managed by Borsa Italiana SpA, and taking account of the entry into effect of articles 124 bis (and related regulations), 149, paragraph 1.c bis and 123 bis of the Consolidated Finance Act. Reference should be made to the Report for further information in this regard.

Acea SpA’s Articles of Association have been amended to bring them into line with the provisions of Law 262 of 28 December 2005, as added to by Legislative Decree 303 of 29 December 2006, the Regulations for Issuers adopted by the CONSOB in Resolution 15915 of 3 May 2007, and Borsa Italiana SpA’s Corporate Governance Code for Listed Companies (dated 14 March 2006). However, articles 15 and 22 continue to provide for the direct appointment, pursuant to art. 2449 of the Italian Civil Code, of Directors and Statutory Auditors by the Comune di Roma. As a result of the judgement handed down by the First Section of the European Court of Justice, cases 463/04 and 464/04, which found article 2449 of the Italian Civil Code to be incompatible with article 56 of the Treaty, article 13 of the Law dated 25 Febru- ary 2008, published in volume 56 of the Official Gazette, dated 6 March 2008 - ordinary supplement 54, has amended the provisions of 2449 of the Italian Civil Code. The new legislation has replaced the previous article, bringing it into line with the provisions of articles 147 ter and 148 of Legislative Decree 58/98 (the Consolidated Finance Act), and established a transition period of eight months from the date of entry into effect of the legislation, during which time the Articles of Association must be amended. Given that this deadline has passed without Acea SpA’s Articles of As- sociation being brought into line with the new legislation, the articles that do not comply with the new legislation have automatically lapsed.

At its meeting of 31 March 2009, Acea SpA’s Board of Directors approved a proposed amendment to the Articles of Association, drawn up on the assumption that the shareholder structure will continue in its present form, with the Comune di Roma owning 51% of the Company. This amendment has been submitted for your approval during the Extraordinary General Meeting.

Given the above, the Board of Statutory Auditors recommends that shareholders approve the amendment to the Articles of Association in the form proposed by the Board of Directors.

The above appears to be particularly important in view of the third item on the Agenda for the Annual General Meeting: “election of a member of the Board of Directors”. Following Andrea Mangoni’s resignation as a Director and as the Com- pany’s Chief Executive Officer on 27 March 2009, and given the fact that the clause in the Articles of Association, governing the replacement of Directors appointed by the Comune di Roma should their appointment be terminated during the Board’s term of office, was no longer effective, the Board of Directors applied the general rule provided for by article 2386 of the Italian Civil Code. As a result, having obtained an appropriate legal opinion regarding the legitimacy of replacing Andrea Mangoni by co- option pursuant to article 2386 of the Italian Civil Code, at the proposal of the Comune di Roma, the Board of Directors proceeded to co-opt Marco Staderini, subsequently electing him to serve as Chief Executive Officer.

By law, the co-opted Director remains in office until the next General Meet- ing of shareholders. This means that it is necessary to hold an Extraordi- nary General Meeting to approve the proposed amendment to the Articles of Association, in order to avoid the significant uncertainty that would be created should the shareholders have to elect a new Director without previously adopting such an amendment, and replacing the provisions that are no longer valid with new provisions that comply with the applicable legislation.

The Company’s share capital consists exclusively of fully redeemed ordinary shares, with voting rights at both Ordinary and Extraordinary General Meetings.

The Board of Statutory Auditors is not aware of any shareholder agreements regarding the Company’s shares.

The Company has adopted Regulations for the Internal Management and External Disclosure of Documents and Company Information, which govern the establishment of a list of persons having access to privileged information and the related procedure. Directors are subject to a confidentiality obligation governing all corporate information, above all that of a privileged nature.

As a result, the Board of Statutory Auditors believes that the intentions and opinions of senior managers, management in general, individual Di- rectors, the majority of Directors or the Board of Directors should be made public only following appropriate discussion at Board level and in accordance with the law.

The Company has also adopted a Code of Conduct for Internal Dealing, which has been updated in response to Law 262 of 2005.

On initial application of the above regulations (Law 262/2005, as amended by Legislative Decree 303/2006), the Company appointed Ms. Roberta Neri, Acea’s CFO, to serve as the Executive Responsible for Financial Reporting (hereinafter “ER”).

Ms. Neri resigned from her position with effect from 31 March 2009. As a temporary measure, the Board of Directors, pursuant to and for the purposes of article 3.7 of the Regulations governing the ER approved by Acea SpA’s Board of Directors, appointed a non-executive Director, Paolo Bassi, to serve in the role.

The Board of Statutory Auditors recommends that the Board of Directors, in order to adopt a permanent solution, should appoint an ER who meets the requirements of article 22 ter of the Articles of Association (several years of experience in management roles covering the administration and control of large companies). Relations with the generality of shareholders and institutional investors are managed by a specific department headed by an Investor Relations Manager.

The Company has adopted a Code of Ethics (establishing the Ethics Com- mittee), a Code of Ethics for Tenders and a Values Charter, with the aim of standardising behaviours based on transparency and fairness in relations with all stakeholders.

Following Prof. Luisa Torchia’s resignation as Chairperson of the Ethics Committee in November 2008, the Board of Statutory Auditors recommends that the Board of Directors proceed to appoint a replacement as soon as possible, thus enabling the Committee to function normally.

The Company has approved a Health and Safety Work Management Sys- tem for the Acea Group, with the aim of equipping itself with a means of ensuring compliance with the large number of regulations and laws governing this matter and reinforcing management’s commitment to prevention and protection.

Finally, in this regard, it should be noted that article 30 of Legislative Decree 81/2008 states that adoption of a Health and Safety Work Man- agement System meets the requirements for the effective exemption of legal entities from administrative liability, pursuant to Legislative Decree 231/2001.

The System consists of a Safety Manual describing the methods and criteria used in creating, managing and revising the system, enabling the identification, definition, implementation and control of all the activities that influence occupational health and safety, and the procedures for managing the system, devised in synergy with the Quality System at Par- ent Company level. In addition to these procedures, the System requires operational instructions to be drawn up and approved by each Group company within the context of its specific needs. The System envisages the annual establishment of improvement targets, a staff training and information programme, and an audit and monitoring plan to be carried out by the Parent Company in respect of the various Group companies. The latter plan is particularly significant in enabling management to effectively check that the System is being implemented in the operating companies. As a result, the Board of Statutory Auditors recommends prompt and full implementation during 2009 (together with the definition of specific operational instructions for each Group company).

In implementing the recommendations (article 9.C.1) of Borsa Italiana SpA’s Corporate Governance Code for Listed Companies (the 2006 edition), and the provisions of articles 2391 and 2391 bis of the Italian Civil Code, the Company has adopted regulations governing related party transactions carried out by Acea SpA. The regulations set out the procedures for approving and executing such transactions, with the aim of guaranteeing compliance with the principles of substantial and procedural correctness and decision-making transparency.

Before being submitted to the Board of Directors for approval, related party transactions with a value of over 7.5 million euros must be referred to the Internal Audit Committee, whose members are all independent Di- rectors, for its opinion. At its meeting of 17 September 2008, the Commit- tee approved Regulations for Drawing up the Opinion required by article 1.2 of the Procedure for Related Party Transactions. Pursuant to article 4 of the Procedure, the Internal Audit Committee may request a fairness opinion from an independent expert with proven experience in the utilities sector. Board of Directors

The Board of Directors, which plays a central role in the Company’s organization, is responsible for the Company’s strategic and organizational management and for establishing the Group’s corporate structure. It is also responsible for verifying the existence of the necessary controls to monitor the performances of the Company and the Group.

The Board examines and approves the Group’s long-term business plans, its annual budget, the quarterly and half-year interim reports and the Par- ent Company and consolidated annual financial statements, in addition to all transactions having a significant effect on the financial position, results of operations and cash flows, including exceptional or unusual related party transactions or those involving a conflict of interest. All significant transactions (understood to mean those with a value in excess of 7.5 million euros) and all acquisitions or disposals of investments, if carried out directly by the Parent Company, or previously assessed and authorized, if the responsibility of Group companies, are examined and approved by the Board of Directors.

The Board of Directors has sole powers with regard to the matters referred to in art. 1.C.1 of the Corporate Governance Code.

The Board of Directors’ responsibilities and functions are governed by specific regulations, which are also designed to ensure the orderly and efficient conduct of Board meetings, guaranteeing the right of each Direc- tor to request clarification regarding the matters under discussion, and to express his or her opinion and make proposals.

The Board of Directors elected by the General Meeting of 11 May 2007 has nine members, four of whom are elected by minority shareholders through the submission of voting lists (updated pursuant to Law 262/2005). With the exception of the Chairman of the Board of Directors and the Chief Executive Officer, all other Board members are non-executive (in that they do not have executive powers and/or management roles within the Company) and independent. Independence is assessed in the light of a definition, adopted by specific Board of Directors’ resolution, that summarises and standardises the con- cepts set out in Legislative Decree 58/98 and the Corporate Governance Code.

Based on the current composition of the Board of Directors, the non-executive Directors – who in Acea also all qualify as independent – play a majority role in the decision-making process.

The Board of Directors have passed a specific resolution attesting to the adequacy of the Board’s composition and its procedures.

During 2008, the Board of Directors held a total of 11 meetings (the Arti- cles of Association require the Board of Directors to meet at least quarterly), which were all attended by the Board of Statutory Auditors, with the aim, among others, of verifying that the resolutions passed were adequately supported by appropriate documentation describing the analyses and controls carried out by management, if necessary with the aid of external consultants.

In this regard, the Board of Statutory Auditors notes the need to carefully apply the rules set out in the Regulations for the Board of Directors of Acea SpA, which require decisions to be normally taken on the basis of a summary of the relevant information, which should be sufficient in relation to the matters in hand and produced by the relevant departments of the Company. In this sense, the timely distribution of this information (which, as provided for in the above Regulations, should take place when the related Agenda for the Board of Directors’ meeting is sent to Directors three days before the date of the meeting) is essential in enabling Directors to exercise their rights and their duty to act with due care and diligence in the Company’s interests.

The activities of the Board of Directors are coordinated by its Chairman, who calls Board meetings and oversees their conduct.

In the Board of Statutory Auditors’ opinion, the Chairman must ensure that the Directors receive the necessary documentation and information produced by the relevant departments, so that the Board of Directors is in a position to take fully informed decisions on the matters brought to its attention.

At its meeting of 21 October 2008, the Board of Directors accepted the resignation of the then Chairman, Fabiano Fabiani, following the withdrawal of confidence in the Chairman by the majority shareholder. In response to the early termination of the mandate, the Board decided to execute the contract between the Company and the Chairman, which was due to expire at the same time as the natural expiry of the term of office of the Board of Directors, timed to coincide with General Meeting called to approve the financial statements for the year ended 31 December 2009.

On the same date, the Board of Statutory Auditors was informed of the resignation of the Director, Luigi Spaventa. This was followed on 22 Octo- ber 2008 by the resignation of the Director, Luisa Torchia.

On 28 October 2008 Acea SpA’s Board of Directors replaced the above Directors, all appointed directly by the Comune di Roma during the Gen- eral Meeting of 11 May 2007, pursuant to and for the purposes of article 15, paragraph 1 of the Articles of Association, which implements the provisions of article 2449 of the Italian Civil Code.

The Board of Directors thus acknowledged that, by Ordinance 284 issued by the Mayor of Rome on 24 October 2008, the Mayor had directly appointed Giancarlo Cremonesi, Geminello Alvi and Paolo Bassi as Direc- tors of the Company in place of the above Directors who had resigned. The new Directors were appointed subject to the Mayor of Rome verifying their compliance with the relevant requirements and their possession of the necessary professional experience and expertise to take up their positions. The new Directors were to remain in office until the expiry of the terms of office of the other members of the Board of Directors.

In view of the decision of the majority shareholder, the Comune di Roma, to nominate Giancarlo Cremonesi as Chairman of the Board, at the same meeting the Board of Directors elected Giancarlo Cremonesi as Chairman of the Company’s Board of Directors.

The new Chairman was assigned the authorities and powers assigned to the previous Chairman by Board of Directors’ resolution 2 of 14 May 2007.

At the meeting of 10 November 2008, the Chairman of the Board of Direc- tors was granted the same remuneration as granted to his predecessor.

A legal opinion on the juridical nature of the Board of Directors’ resolution of 29 October 2008, which resulted in Giancarlo Cremonesi, Geminello Alvi and Paolo Bassi being voted on to the Board of Directors, was sought by the Board of Directors in order to establish whether the decision qualified as a resolution pursuant to article of the Italian Civil Code or as a co- option pursuant to article 2386 of the Italian Civil Code. Pursuant to this opinion, the resolution passed by Acea SpA’s Board of Directors, after the entry into effect of article 13, paragraph 2 of Law 34 of 25 February 2008, but prior to the term established by the new legislation for transposition of the changes in the law within the Articles of Association (the term expired on 21 November 2008), represents a mere acknowledgement of the appointment carried out by the shareholder, the Comune di Roma, under the special powers attributed to it pursuant to article 2449 of the Italian Civil Code and article 15 of Acea SpA’s Articles of Association.

The above opinion notes that an examination of the related legislation reveals, without any possibility of doubt, that any provisions of the Articles of Association in contrast with the legislation remained in effect until expiry of the period of eight months from the entry into effect of the law. Therefore, in the absence of an amendment to the Articles of Association designed to remove the clauses that do not comply with the new legislation, until 21 November 2008 the Board of Directors should have acted in accordance with the entire provisions of the Articles of Association in force and in effect at that time. As such, the Board of Directors should have replaced the three Directors previously appointed by the Comune di Roma under the special powers attributed to it pursuant to article 2449 of the Italian Civil Code, acknowledging the direct appointment by the Comune di Roma pursuant to article 15, paragraph 3 of the Articles of Association.

At the meeting of 3 March 2009, the Director and Chief Executive Officer, Andrea Mangoni, who was also a manager of the Company, informed the Board of Directors that the majority shareholder had told him that it had withdrawn its confidence in him. Mr. Mangoni thus informed the Board that he was willing, together with the CFO, Roberta Neri, and the Head of the Energy Networks division, Massimiliano Salvi, to leave the Company with effect from 31 March 2009, subject to approval and formalisation of the settlement agreements necessary in order for them to resign. The Board of Directors thus decided to enter into a settlement agreement, as a result of which Mr. Mangoni, Ms. Neri and Mr. Salvi submitted their resignations with effect from 31 March 2009.

The terms of the settlement agreements were drawn up in accordance with the rules set out in the Board of Directors’ resolution of 22 April 2003, which defines the Company’s policy regarding the termination of employment contracts with managers, as certified before the Board of Directors by the Human Resources Director.

The usual indemnity clauses protecting the managers were included in the agreements, expressly excluding instances of fraud or serious negligence. For this reason you have been requested at the Annual General Meeting to approve the withdrawal, pursuant to articles 2393, 2393 bis and 2395 of the Italian Civil Code, of the action for liability against the resigning Director.

At the Board of Directors’ meeting of 3 March 2009, having taken note of the Chief Executive Officer’s statement recorded in the minutes of the meeting, and of the Board of Directors’ decision to approve a settlement agreement with the CEO, the Board of Statutory Auditors examined the documents presented during the meeting (the Company policy referred to in the Board of Directors’ resolution of 22 April 2003, the indemnities to be granted to the manager in accordance with the Company policy, as drawn up and signed by the Human Resources Director, and the private settlement agreement). As a result, we issued our opinion having verified the substantial fairness of the amounts involved in respect of the above Company policy.

At the meeting of 27 March 2009, having noted the need to replace the Di- rector and Chief Executive Officer, Andrea Mangoni, following his resignation, and in view of the lapse (from 21 November 2008) of the clause in the Articles of Association, governing the replacement of Directors appointed by the Comune di Roma should their appointment be terminated during the Board’s term of office, and noting that the Comune di Roma had proposed the candidacy of Marco Staderini, the Board of Directors approved the co-option of Marco Staderini as a member of the Board of Directors, pursuant to article 2386 of the Italian Civil Code, in place of the resigning Mr. Mangoni. The Board of Directors also noted that the co-opted Director would remain in office until the next General Meeting.

For this reason you have been requested to approve the appointment of a member of the Board of Directors, subject to prior amendment of article 15 (Section IV Management) of the Articles of Association. This resolution is also necessary in order to avoid the significant uncertainty that would be created should the shareholders have to elect the new Director without previously adopting such an amendment to the Articles of Association.

The Board of Directors obtained a legal opinion confirming the legitimacy of replacing Mr. Mangoni by co-option, pursuant to article 2386 of the Ital- ian Civil Code.

Given that: the term fixed by article 13 of Law 34/2008 for amendment of the Articles of Association in compliance with the changes introduced by article 2449 of the Italian Civil Code expired on 21 November 2008; the clauses in the Articles of Association providing for the direct appointment of certain Directors have lapsed; article 2386 of the Italian Civil Code in general establishes the Board of Directors’ right/duty to replace Directors whose appointment is terminated during the Board’s term of office by co-option; the Board of Directors have obtained a legal opinion confirming the legitimacy of the Board of Directors’ action in replacing Mr. Mangoni by co- option, pursuant to article 2386 of the Italian Civil Code; the above legal opinion states that, for the purposes of application of article 2386 of the Italian Civil Code, the Directors previously appointed directly by the Comune di Roma must be considered as elected by General Meeting; having noted the statement made by the Chairman to the Board of Direc- tors’ meeting, informing the Board that the Comune di Roma had proposed the candidacy of Marco Staderini; in order to guarantee management continuity, the Board of Statutory Auditors approved the Board of Directors’ resolution, requesting the Board of Directors to promptly take the steps necessary to ensure that at the first available General Meeting the shareholders could vote on the amendments to the Articles of Association replacing the expired provisions with rules designed to resolve the current state of significant uncertainty regarding the appointment of Directors.

On 8 April 2009 the Chairman of the Board of Statutory Auditors received a fax from Acea SpA’s Company Secretariat, containing a copy of Prof. Dino Piero Giarda’s letter of resignation from his position as a Director of Acea SpA. The letter of resignation, sent by fax to Acea SpA, was dated 2 April 2009 and the resignation was with immediate effect.

In the light of the above resignation, the Board of Statutory Auditors notes that the above legal opinion regarding the feasibility of co-opting, pursuant to article 2386 of the Italian Civil Code, Marco Staderini in place of the resigning Director, Andrea Mangoni, also applies to the eventual resignation of a second Director.

The above opinion concludes that, given that the direct appointment of Messrs. Cremonesi, Alvi and Bassi as Directors was not classified as a co-option, the resignations of up to two Directors would not remove the majority of the Directors elected by the General Meeting which would, pursuant to article 2386 of the Italian Civil Code, would result in the lapse of the entire Board of Directors. The opinion states that the Directors previously appointed directly must, for the purposes of application of article 2386 of the Italian Civil Code, be considered as elected by General Meet- ing. Pursuant to the above legal opinion obtained by the Board of Direc- tors, the attribution to a shareholder of the right to directly appoint Direc- tors replaces the power of the General Meeting as an ordinary system of electing Directors and, therefore, article 2386 of the Italian Civil Code is applicable in such cases, where the limit on co-option, designed to avoid instances in which the Board of Directors may, at any time, become self- referential and deprive the General Meeting of its authority, does not apply.

Following the resignation of Prof. Giarda, the Board of Statutory Auditors requests the Board of Directors to promptly take the steps necessary in order to rapidly replace the resigning Director.

Internal Audit Committee

The members of the Internal Audit Committee initially elected were the Directors, Luisa Torchia, coordinator, Dino Piero Giarda and Marco Bian- coni.

Following the resignation of Prof. Torchia, the Board of Directors’ meeting of 10 November 2008 elected the Director, Paolo Giorgio Bassi, as a member and as coordinator of the Internal Audit Committee.

Following Prof. Giarda’s resignation from the Internal Audit Committee on 5 March 2009, the Board of Directors’ meeting of 27 March 2009 elected the Director, Jean Louis Chaussade, as a member the Internal Audit Com- mittee. The Committee met 9 times in 2008. The Board of Statutory Auditors was represented at all the meetings by its Chairman and, when the nature of the matters to be discussed so required, by all its members.

As mentioned in the Internal Audit Committee’s report to the Company’s Board of Directors, dated 24 March 2009, during the above meetings the Internal Audit Committee focused primarily (among the various matters dealt with by the Committee) on the projects launched by the Company’s management with the aim of analysing, assessing and improving the internal control system to bring it into line best practices (the “risk management” project and the “management of the internal control system” project), on the procedure for related party transactions, on the results of the self-assessment of business risks coordinated by the Risk Control unit, on examination and assessment of the results of the audits carried out by the Internal Audit department in 2008, on examination and assessment of the audit plan prepared by the Independent Auditors, Reconta Ernst & Young SpA, and on examination and assessment of the results of the audit of the separate and consolidated financial statements for the year ended 31 December 2008 carried out by the Independent Auditors.

In its six-monthly reports to the Board of Directors on the activities carried out during 2008, the Internal Audit Committee did not refer to any anomalies that might be considered to indicate serious shortcomings in the internal control system.

Remuneration Committee

The members of the Remuneration Committee initially elected were the Directors, Dino Piero Giarda, coordinator, Luigi Spaventa and Massimo Caputi. Following the resignations of Prof. Spaventa and Prof. Giarda, the Board of Directors’ meeting of 10 November 2008 elected the Director, Geminel- lo Alvi, as a member and as coordinator of the Remuneration Committee and the Director, Jean Louis Chaussade, as a member.

At the meeting of 3 March 2009, the Director, Geminello Alvi, resigned as coordinator of the Committee and the Board of Directors elected Massimo Caputi to take his place.

The Remuneration Committee met twice during 2008.

Significant events during the financial year

The documents prepared by the Directors provides full information about the main events during the year.

In the electricity segment, the Group ahs increased the volume of electricity sold, electricity prices have been adjusted as a result of the new tariff cycle for 2008–2011, the Leinì plant and a number of wind farms have entered service, the Voghera plant recorded a fall in output (the plant was shut down throughout the first half of 2008 following a breakdown in November 2007), and continuation of the rollout of digital meters, which is expected to be completed by the end of 2009.

In the water segment, the Group increased the volume of water billed to end users and the acquisition of contracts to manage integrated water services in ATO 2 – Lazio continued. In the environment and energy sector, the process of increasing the installed capacity at the Group’s plants from the current 20 MW to 80 MW began.

In terms of the financial position, net debt has risen as a result ofthe change in the basis of consolidation and increased investment. In this situation (growth in net debt, to be viewed within the context of increases in invested capital and shareholders’ equity, and an increase in medium/ long-term borrowing to fund investments), the main issue is the volume of working capital, which requires short-term financing. This has decreased at 31 December 2008, compared with the previous year, thanks to an improvement in the collection of amounts due from water and electricity customers. However, management must make the further reduction of working capital a short-term priority, also in view of the potential impact of the financial crisis, with the resulting trend towards late payment, above all by industrial customers. It is, therefore, necessary to recover any remaining overdue receivables from water and electricity customers, improve collection times by optimising the billing cycle, continue with the revolving without-recourse factoring of receivables and rationalise payment terms with suppliers by renegotiating contracts and/or entering into factoring transactions.

The difficult economic and financial environment in which the Company currently operates requires management to keep a firm grip on any critical areas, in order to ensure achievement of the targets set out in the business plan. The main focus of attention should be on electricity price trends; the level of investment needed in the distribution network; the impact of new regulations on the mechanism for calculating the price of the energy produced; the challenges thrown up by the liberalisation of the electricity market, with the related problems surrounding the formulation of a dual electricity and gas offering; and the need to contain staff and external costs, requiring a further improvement in operating efficiency. From this point of view, the Board of Statutory Auditors applauds Acea Distribuzione’s decision to introduce its innovative Vendor Rating mechanism to assess suppliers. Such a mechanism could, in our opinion, be successfully applied throughout the Group.

Finally, the Company is reviewing the terms of its joint venture partnership with the Suez Gaz de France group.

Information contained in the Directors’ Management Report on Operations

The Directors’ Management Report on Operations, to which reference should be made for information regarding the principal initiatives undertaken during the year, and the Notes provide analysis of the Group’s activities, organization and structure.

Analytical information regarding the corporate structure of the Group is supplied, including: Group companies, share capital, shareholders’ equity, the number of shares held by Acea SpA, and the percentage interest.

Information is also provided about the Group’s markets and activities during 2008, with particular reference to the impact of market regulation. The report contains an analysis of the operating performance as a whole and in the various sectors in which the Company operates through its subsidiaries. Particular attention is given to costs, revenues and investments.

Information on intercompany and related party transactions has also been provided, in addition to a description of the principal risks and uncertainties to which the Company is exposed. Transactions having a significant effect on the financial position, results of operations and cash flows

Through our direct observations, meetings with the Company’s management and with the Independent Auditors, we verified compliance with the law and the Articles of Association, with regard to the aspects relevant to our responsibilities, checking that the principles of good governance were adhered to by the Company’s Directors.

We paid particular attention to monitoring movements in working capital, with specific reference to outstanding receivables due from third parties, end users, related parties and public sector entities.

In this regard, the Board of Statutory Auditors placed particular attention on an examination of the guidelines for Group companies with regard to receivables management, approved in July 2008. The document establishes guidelines for managing trade receivables within the Acea Group, with the aim of reducing the risk of delayed payment or insolvency on the part of customers, thereby minimising credit collection costs or partial/ total losses on Group companies’ receivables.

As a result of the exchange of information with the Independent Auditors, the Board of Statutory Auditors noted the value of provisions for doubt- ful debts, which are based on analytical and historical assessments of amounts due, carried out in relation to the type and age of receivables. These assessments are agreed on by the Directors and the Independent Auditors.

The Board of Statutory Auditors notes the value of provisions for liabilities designed to cover the potential liabilities described in detail in the Man- agement Report on Operations and the notes. In this regard, the financial statements submitted for your examination provide detailed information on the well-known issue of state aid granted to municipalised utilities (the so-called tax moratorium), following the publication of Law Decree 185/2008 on 29 November 2008 (later converted into Law 2/2009). Article 24 of this decree establishes that, in order to fully implement the European Commission’s Decision 2003/193/EC, there should be a further recovery of state aid to be carried out by the tax authorities, based on criteria that have yet to be defined. In response, based on the information currently available, the Company has made prudential provisions of 31 million euros to cover the potential liability outstanding, whilst recognising the residual tax benefit of 53.3 million euros. These are deferred tax assets on temporary differences between the carrying amounts accounted for in the financial statements of subsidiaries, following transfers of business units, and the corresponding amounts accounted for in the consolidated financial statements. As a result, the tax benefit accounted for in 2007 as a reduction in impairments has been reclassified to taxation in the income statement.

Information is also provided about Constitutional Court sentence 335/2008, which found that it was illegal to bill the tariff component for waste water treatment to end users connected to sewerage networks without treatment plants or where such plants are temporarily inactive. The sentence therefore declared the provisions referred to in the Consolidated Environ- ment Act, establishing that the tariff component for waste water treatment is to be paid by end users even if there is no direct link between the payment of this component and effective provision of the service for which the payment is due, to be unconstitutional.

The Constitutional Court sentence has been implemented by article 8 sexies of Law 13/2009. The financial statements describe the reasons for which the Company has not recognised any liabilities as a result of the sentence, given the uncertainty surrounding the current regulatory situation.

We participated in Board of Directors’ meetings, obtaining information and data regarding transactions, having a significant effect on the financial position, results of operations and cash flows, carried out by the Company and its subsidiaries.

Given the lack of definitive parameters to apply in order to identify transactions with a significant impact on the results of operations, we made reference to the corporate governance guidelines adopted by the Company.

The above transactions were carried out in conformity with the law and the Articles of Association. They do not appear to have been imprudent or risky, nor to give rise to a potential conflict of interest, or such as to contrast with resolutions passed by General Meetings or to compromise the integrity of the Company’s net worth.

Exceptional or unusual transactions

The Management Report on Operations and the information obtained during Board of Directors’ meetings or received from the Directors, the Com- pany’s management, the statutory auditors of subsidiaries, the Internal Audit Manager and the Independent Auditors did not reveal the existence of exceptional or unusual transactions, including intercompany and related party transactions. Intercompany and related party transactions

Adequate information regarding inter-company and related party transactions is provided in the Notes and the Directors’ Management Report on Operations, to which reference should be made for information regarding the nature of the transactions and their impact on the results of operations, above all transactions involving the parent, the Comune di Roma and entities owned by the Comune di Roma.

As noted above, with regard to related party transactions, the Board of Directors has adopted a Procedure for Related Party Transactions, on the basis of which material transactions, before being approved by the Board of Directors, are submitted to the Internal Audit Committee for their opinion. This Committee, in turn, may request a further third-party opinion, whilst the Board of Directors have been explicitly granted the option of requesting a fairness opinion from an independent expert.

Independent Auditors’ Reports on the separate and consolidated financial statements

The Board of Statutory Auditors informs the General Meeting that, on 10 April 2009, the Independent Auditors, Reconta Ernst & Young SpA, issued their audit reports pursuant to article 156 of Legislative Decree 58/98 on the separate and consolidated financial statements for the year ended 31 December 2008, both prepared under IFRS.

We have not audited the consolidated financial statements, in that article 41 of Legislative Decree 127/1991 states that “controls are the responsibility of the bodies or entities assigned legal responsibility for the audit of the parent company’s financial statements”. The Independent Auditors’ report states that, in their opinion, the financial statements of Acea SpA for the year ended 31 December 2008 comply with the International Financial Reporting Standards adopted by the Eu- ropean Union, and with the measures enacted in implementation of art. 9 of Legislative Decree 38/2005. It states that the financial statements have been properly prepared and give a true and fair view of Acea SpA’s financial position, results of operations, changes in shareholders’ equity and cash flows for the year then ended.

Exchange of information with the Independent Auditors

The Independent Auditors, with whom we met periodically in order to exchange material data and information, have informed us that, in carrying out their engagement to audit the financial statements, no actions or events of an irregular nature or requiring notification came to light. This was also confirmed by the quarterly audits carried out.

The Board of Statutory Auditors analyzed the contents of the work pro- gram prepared by the Independent Auditors, verifying the adequacy of the planned checks and controls in relation to the size and organizational complexity of Acea SpA’s businesses.

As a result of their assessment of business processes and identification of the related risks and controls associated with the various processes, the Independent Auditors declared that no critical aspects had emerged regarding the internal control system with reference to the preparation of accounting documents.

However, the Independent Auditors have called management’s attention to the need to improve the management and governance procedures relating to electricity and gas trading, including the information systems used. In addition, the Company obtained an opinion confirming, in the light of the related regulations and the terms of the concession agreements for integrated water services, the need to account for, in accordance with IFRS, the accrued shortfall in revenues with respect to the projections contained in area plans, as a result of lower actual consumption. This relates to the general condition established by the Galli Law, guaranteeing integrated water service operators that their costs should be covered.

Finally, after a wide-ranging review of hedging strategies for transactions involving the purchase and sale of electricity and gas, resulting in the rig- orous formal application of the qualitative and documentary requirements of IAS 39, it was possible to adopt a hedge accounting system for hedging transactions for the power sector.

As part of this general review of the method of accounting for commodity contracts, the Company modified the method of accounting for the CIP6 contract for difference entered into with the Energy Services Operator (ESO). Recognition of the related differentials on the CfD in 2009 will be through the income statement, matching the underlying electricity purchases to which they refer. As a result, the consolidated financial statements for the year ended 31 December 2007 were restated.

Fees paid to the Independent Auditors and additional engagements assigned to them or to persons that have ongoing relations with them

The Company’s management has expressly declared, as confirmed by the Independent Auditors, that in addition to auditing the Parent Company financial statements, the consolidated financial statements and, forthe purposes of their audit of such consolidated financial statements, the financial statements of a number of subsidiaries, as well as carrying out a review of the six-month report, checking that the accounting records are properly kept and that operating events are correctly reported in the accounts, and controls relating to completion of the Company’s tax return, during 2008 the Independent Auditors, Reconta Ernst & Young SpA, were appointed to carry out due diligence activities in respect of Acea Luce SpA in return for a fee of 17,500.00 euros (in addition to 5% to cover expenses).

Adequacy of the Company’s management structure and administrative and accounting system

On the basis of the information obtained from departmental heads, we believe that the administrative and accounting system is adequate and reliable, and capable of presenting a fair view of operating events. This was confirmed by the Independent Auditors during the periodic exchange of information with us.

The Board of Statutory Auditors notes that the Company has, with the Board of Directors’ resolution of 20 February 2008, adopted a “262 Con- trol Model”, which establishes the rules and methods to be followed by the Acea Group in establishing and maintaining administrative and accounting procedures, the components of the internal control system that oversee the preparation of the financial statements, and in the assessment of their effective application.

The model was subsequently brought into line with Legislative Decree 195/2007, which transposed Directive 2004/109/EC – the “Transparency Directive – into Italian law. The aim of this Directive was to standardise the transparency obligations of publicly listed companies in Europe. Legislative Decree 195/2007 amended paragraph 5 of art. 154-bis of the Consolidated Finance Act (the Executive Responsible for Financial Re- porting), in order to bring the content of the attestation issued by the relevant corporate officers and the ER into line with the provisions of articles 4.2.c and 5.2.c of the so-called Transparency Directive.

The new form of the attestation state that the relevant corporate officers and the ER must also attest that: the report on operations contains a reliable analysis of operating trends and results, in addition to the state of affairs of the issuer and consolidated companies, together with a description of the principal risks and uncertainties to which the they are exposed; the documents have been prepared under the applicable international accounting standards endorsed by the European Union pursuant to EC Regulation 1606/2002.

Reference should be made to the Management Report on Operations for the year ended 31 December 2008 for a description of the principal risks and uncertainties to which the Company’s results of operations and the financial position are exposed. Via Acea’s Risk Control unit, the ER analysed the consistency of the information in the Management Report on Operations with the analysis carried out by the above unit.

The activities carried out by the ER also included identification of the balance sheet items held to be most significant and their association with the processes that contribute to their formation. The subsequent process- level analysis permitted assessment of the design and functionality of the controls forming part of the processes and sub-processes on which the Company’s financial reporting is based. After mapping the processes, control objectives and the related risks were defined for the operational activities involved in each sub-process, based on industry best practices. This resulted in a plan setting out the corrective actions necessary in order to bridge the observed gap with respect to the related best practices.

Despite identifying a number of areas for improvement in the internal control system for financial reporting, at the end of the assessment process the ER issued a final unqualified opinion on the adequacy and effective application of the administrative and accounting procedures adopted in preparation of the separate and consolidated financial statements for the year ended 31 December 2008.

The Board of Statutory Auditors agrees with the need to improve certain aspects of the internal control system for financial reporting. We therefore recommend early completion of the Group’s accounting standards manual (which has yet to be completed) and completion of the information systems enabling documented checks of the complete registration of invoices received and of the provisions made in each reporting period (above all those relating to staff costs).

At organisational level, it is necessary to complete the full separation of incompatible roles with reference to the processes considered key for the purposes of Law 262, and adopt a consistent, complete and widespread procedure for updating the Group’s system of powers and authorities.

Finally, Acea SpA should aim to have a single model for mapping processes and for the integrated management of its documents system (procedures, annexes, etc.), in order to eliminate all duplication of documents relating to the same business processes mapped for different purposes (Law, 262, Legislative Decree 231, the Quality System, operating needs, etc.). It should be possible to implement a process leading to a single “taxono- my” of processes, providing for the various assessments required by the individual regulations to be included in the description of activities.

Adequacy of the guidelines established for subsidiaries

The guidelines established for subsidiaries, given their type and size, are, in our opinion and within the scope of our responsibilities, adequate in view of the existing intercompany services provided.

At the date of this Report, in response to specific requests, we have not received notification from the statutory auditors of subsidiaries, associates or other Group companies of observations to be included in this Report.

Adequacy of the Company’s organizational structure

Having received comprehensive information from the Chief Executive Of- ficer on the organisational structure of the Company and its subsidiaries, the Board of Directors passed a specific resolution adjudging the structure to be adequate, in view of the nature of the Company’s businesses and those of the Group it controls and the related opinions expressed by the Internal Audit Committee.

In the light of the above judgement regarding the adequacy of the organisational structure, the recent resignations of the Chief Financial Officer and the Head of the Energy Networks division call for, in the our opinion, their prompt replacement with managers whose experience and expertise are in line with the size and complexity of the Group’s businesses. Adequacy of the Company’s internal control system

Through identification, measurement, management and monitoring of the principal business risks, the internal control system has the role of overseeing safeguards of the Company’s assets, the efficiency and effectiveness of operations, the reliability of financial information and legal and regulatory compliance.

The Company has assigned the Chief Executive Officer responsibility for designing, implementing and managing the internal control system.

The Company has assigned responsibility for the Internal Control System to the head of the Internal Audit department, whose role involves (i) preparing an annual work plan to be approved by the Internal Audit Commit- tee, and which is where necessary revised during the year in response to indications from the Company’s management; (ii) execution of specific audits in line with the plan, which are then converted into reports, containing details of any critical areas identified during the audits and of the corrective action plans previously agreed with management, the Internal Audit Committee and the Board of Statutory Auditors.

The Internal Audit department works closely with the Risk Control unit, which has responsibility for identifying, describing and measuring the principal business risks, supporting management in the identification of any critical areas in the preparation of action plans designed to keep risk at an acceptable level.

During 2008, the Supervisory Board, established under Legislative De- cree 231/2001, carried out its review of the Organisational Model, designed to bring it into line with organisational and regulatory changes. The Board also reviewed implementation of the Organisational Model by subsidiaries, provided guidance and coordination for the supervisory boards of subsidiaries, gathered and assessed the minimum disclosures required by the Model, and carried out detailed investigations of certain areas and transactions of potential significance with regard to Legislative Decree 231/2001. The Supervisory Board reported every six months to the Board of Directors on the outcome of the activities carried out.

Updating of the Organisational and Management Model introduced in accordance with Legislative Decree 231 was begun in 2008 and completed in February 2009. This brought the Model into line with the latest legislative developments, whilst at the same time carrying out a risk assessment aimed at identifying the areas at risk of criminal action, and defining general and specific control standards for each of the sensitive processes identified.

This resulted in the preparation of an updated organisational model that takes account of new risks/crimes (so-called “IT crime” and “crimes connected with occupational health and safety”). The new model was approved by Acea SpA’s Board of Directors at its meeting of 17 February 2009.

The framework used as the basis for this process of continuous improvement of the internal control system is the Internal Control COSO Frame- work.

The head of the Internal Audit department presented his report in March 2009. This includes an analysis of the individual elements of the internal control system, showing that the key tools required to ensure compliance, effectiveness, efficiency and reliability are substantially present and operational, but that they are in need of improvements to their design/ functionality, which is not yet sufficiently complete and robust to respond to the impact of changes in external or internal conditions affecting the Company’s activities.

In this regard, the “management of the internal control system” and the “risk management models” projects are nearing completion.

The aim of these projects is to arrive at an integrated approach to management and assessment of the internal control system, with the objective of (i) optimising the mechanisms involved and inter-relations between the various entities with responsibility for control, and between them and the units or departments being controlled, and (ii) developing the various control models into a group of integrated models, applied consistently throughout the Group and in line with best practices.

The first project should enable the Company to develop a framework of roles, objectives and activities for the various persons and entities responsible for corporate governance, with the aim of guaranteeing full compliance with the provisions of the Corporate Governance Code adopted by the Company and the related legislation.

The second project focuses on improving controls and the system of identifying, monitoring and managing business risks and the related control system (including with regard to the related information system).

In this regard, the risk management project has completed its analysis of the various existing control models, identifying a number of gaps with respect to the relevant legislation or best practices. In the Board of Statu- tory Auditors’ opinion, the resulting corrective action plan represents an essential element of the plan to put in place an internal control system that is adequate in relation to the size and complexity of the Group’s businesses. According to the head of the Internal Audit department, the need to complete the formalisation of business process management procedures and instructions is of equal importance. These should clearly assign responsibility for carrying out the specific activities that make up the processes, so as to make it easier to identify potential changes, thus improving the effectiveness and/or efficiency of the processes, or an individual’s failure to comply with the rules.

The aim of the above is to arrive at an integrated system for managing risk assessment, drawing up control procedures, assessing controls and reporting: a system designed to guarantee visibility and limited access for the persons responsible for the various risk management models, whilst at the same time providing an outline and complete view of the entire internal control system for corporate bodies and the departments that oversee the system.

The Acea Group’s complexity also requires the Parent Company to define the scope of and the procedures involved in its management and control of Group companies (if appropriate broken down into clusters of companies). At the same time, it needs to establish, at least in subsidiaries and, where possible, in companies in which Acea SpA appoints the management, adequate means of controlling the prompt implementation of the guidelines issued by the Parent Company.

In this regard, the Board of Statutory Auditors agrees with the views of the Internal Audit Committee regarding the need to strengthen the Internal Audit department, in order to ensure more structured management of the monitoring of the internal control systems of Acea SpA Group companies.

Thus, whilst not yet fully complete, the Internal Control System appears, however, to be moving towards a form that is increasingly in line with legislative requirements and the needs of the Group.

Reports pursuant to article 2408 of the Italian Civil Code

No formal petitions were presented, pursuant to art. 2408 of the Italian Civil Code, during 2008.

Complaints received by the Board of Statutory Auditors

No complaints were received by the Board of Statutory Auditors during 2008.

Omissions, censurable events or irregularities revealed during audit procedures

The audit procedures carried out by the Board of Statutory Auditors did not reveal any aspects, omissions or irregularities in the management and/or administration of the Company to be included in this Report.

Opinions issued by the Board of Statutory Auditors during the year

We issued an appropriate opinion on the remuneration to be paid to the Chairman of the Board of Directors, Giancarlo Cremonesi, un opinion on the indemnity for the resigning Andrea Mangoni, and an opinion on the co-option of Marco Staderini to replace him. Proposals to the General Meeting

We do not believe it necessary to exercise our right to make proposals to the General Meeting, pursuant to art. 153, paragraph 2 of Legislative Decree 58/98.

Distribution of dividends

The Directors have published their proposal regarding the distribution of dividends.

The Directors have explained that the demerger reserve was established in 2000 with 662,362,540 euros. The General Meeting of 29 April 2000 that approved the financial statements for 1999 also approved the allocation of the portion of net profit for the year corresponding to the gain to a specific equity reserve “….on the understanding that the reserve would be distributable in future years in correspondence with annual amortisation charged by the subsidiaries on the above gain, or in correspondence with any proceeds from sales to third parties”.

In accordance with their rights regarding the appropriation of earnings, the shareholders thus placed a restriction on distribution of the reserve to pay dividends.

On first-time adoption of IAS/IFRS, Acea opted to apply the exemptions permitted by IFRS 1, in accordance with which business combinations prior to the date of transition (1 January 2005) were not subject to retrospective restatement. Also on first-time adoption of IAS/IFRS, and each year thereafter, the investments in Acea Distribuzione SpA and Acea Ato2 SpA have been tested for impairment and no evidence of impairment, resulting in a related charge, has been found.

In the light of the above, and in view of the legal opinion obtained, given that there is no legal requirement or accounting standard stipulating that the restriction on distribution of the reserve should be maintained, and in view of the fact that the carrying amount of the investments continues to be confirmed by the impairment tests carried out annually, and that therefore the value of the gain reflected in the demerger reserve is justified by the transferor’s beneficial interest in the cash flows generated by thede- merged businesses, the Directors believe that it is possible to remove the restriction on the payment of dividends voted on by the Ordinary General Meeting of 29 April 2000.

The appropriation of net profit for the year proposed by the Board of Direc- tors takes account of the removal of this restriction and, therefore, envisages the distribution of 90,510,082.50 euros (0.425 euros per share) via use of the demerger reserve.

This amount consists of 29,055,249 euros which is distributable under the restriction of 2000 (see the schedule showing distributable and undistributable reserves in Note 18 in the notes to the financial statements), whilst the remaining portion of 61,454,833 euros is rendered distributable by removal of the restriction, which you have been asked to vote on. Conclusions

On the basis of the above, and within the scope of our responsibilities, we are not aware of any obstacle to the approval of the Parent Company’s financial statements for the year ended 31 December 2008 and ofthe Board of Directors’ proposals contained therein.

Rome, Italy 14 April 2009

THE BOARD OF STATUTORY AUDITORS

Mr. Maurizio Lauri

Mr. Francesco Lopomo

Prof. Roberto Pertile

Attestation of the separated financial statements pursuant to art. 154 of Legislative Decree 58/98

1. We, the undersigned, Andrea Mangoni, as Chief Executive Officer, and Roberta Neri, as the executive responsible for Acea SpA’s financial reporting, having taken account of the provisions of art. 154-bis, paragraphs 3 and 4 of Legislative Decree 58 of 24 February 1998, attest to:

∑ the adequacy with regard to the nature of the company and ∑ the effective application of the administrative and accounting procedures adopted in preparation of the separate financial statements for the year ended 31 December 2008.

2. No significant aspects have emerged in this regard.

3. We also attest that:

3.1 the separate financial statements:

a) have been prepared under the applicable international accounting standards endorsed by the European Union pursuant to EC Regulation 1606/2002 passed by the European Parliament and the Council of Europe on 19 July 2002, and in accordance with the measures introduced in application of art. 9 of Legislative Decree 38/2005;

b) are consistent with the underlying accounting books and records;

c) give a true and fair view of the financial position and results of operations of Acea SpA;

3.2 the report on operations contains a reliable analysis of operating trends and results, in addition to the issuer’s state of affairs, together with a description of the principal risks and uncertainties to which it is exposed.

27 March 2009

Andrea Mangoni Roberta Neri Chief Executive Officer Executive responsible for financial reporting

Consolidated fi nancial statements for the year ended 31 december 2008 Consolidated Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes income statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Consolidated income statement

Note 2008 2007 increase/ (restated) (Decrease) 1 sales and service revenues 3,056,181 2,515,313 540,868 2 other operating income 87,797 68,537 19,260 Consolidated net revenue 3,143,978 2,583,850 560,128 3 staff costs 249,450 223,674 25,776 4 Cost of materials and overheads 2,268,457 1,830,628 437,830 total operating costs 2,517,907 2,054,302 463,606 5 net profit/(loss) from commodity risk management (2,617) (6,368) 3,751 Gross operating profit 623,454 523,181 100,274

6 amortisation, depreciation, provisions and impairment charges 238,415 229,815 8,601 operating profit/(loss) 385,039 293,366 91,673

7 finance (costs)/income (89,345) (73,316) (16,029) Ordinary finance (costs)/income (93,955) (73,316) (20,639) Exceptional finance (costs)/income 4,610 4,610 8 Profit/(loss) on investments (88) 40,128 (40,216) Profit/(loss) before tax 295,606 260,178 35,428

9 taxation 104,356 89,465 14,891 net profit/(loss) from continuing operations 191,250 170,713 20,537

10 net profit/(loss) from discontinued operations 598 (692) 1,290 net profit/(loss) for the year 191,848 170,021 21,828

Net profit/(loss) attributable to minority interests 5,564 6,056 (493)

net profit/(loss) attributable to the Group 186,285 163,964 22,321

11 earnings/(loss) per share (€) basic 0.8719 0.7732 0.0988 diluted 0.8719 0.7732 0.0988

Amounts are shown in thousands of euros

258 Consolidated financial statements Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Consolidated balance sheet - Assets

Note 2008 2007 increase/ (restated) (Decrease) 12 Property, plant and equipment 2,907,710 2,538,077 369,634 13 investment property 3,487 2,196 1,291 14 goodwill 77,186 22,335 54,851 15 Concessions 289,957 293,709 (3,752) 16 other intangible assets 56,377 31,814 24,564 17 investments in subsidiaries and associates 25,556 92,597 (67,041) 18 other investments 6,155 6,982 (827) 19 deferred tax assets 214,835 169,059 45,775 20 financial assets 30,294 36,182 (5,888) 21 other assets 13,808 17,521 (3,713) non-current assets 3,625,365 3,210,471 414,894 22 non-current assets held for sale 0 Inventories 76,572 67,078 9,494 Trade receivables 1,261,764 1,203,905 57,859 Other current assets 111,601 111,051 550 Cash and cash equivalents 212,060 93,201 118,859 Current financial assets 213,736 285,725 (71,989) Current tax assets 72,826 45,578 27,248 23 Current assets 1,948,559 1,806,537 142,022

total assets 5,573,924 5,017,009 556,914

Amounts are shown in thousands of euros

Consolidated financial statements 259 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Consolidated balance sheet - Liabilities and shareholders’ equity

Note 2008 2007 increase/ (restated) (Decrease) Shareholders’ equity share capital 1,098,899 1,098,899 0 legal reserve 98,762 85,699 13,063 other reserves (179,104) (97,173) (81,931) retained earnings/(accumulated losses) 172,342 117,015 55,326 net profit/(loss) for the year 186,285 163,964 22,321 total shareholders’ equity attributable to the Group 1,377,184 1,368,404 8,779 Minority interests 67,279 66,028 1,251 24 total shareholders’ equity 1,444,463 1,434,432 10,031

25 staff termination benefits and other defined-benefit obligations 127,588 137,912 (10,324) 26 Provisions for liabilities and charges 161,503 150,140 11,363 27 borrowings and financial liabilities 1,708,037 1,126,002 582,035 28 other liabilities 187,522 189,515 (1,993) 29 deferred tax liabilities 86,198 91,982 (5,783) non-current liabilities 2,270,848 1,695,550 575,299 22 non-current liabilities held for sale 0

Trade payables 1,055,798 951,201 104,597 Other current liabilities 356,817 263,422 93,395 Borrowings 381,344 611,647 (230,303) Tax liabilities 64,653 60,756 3,897 30 Current liabilities 1,858,612 1,887,026 (28,414)

total liabilities and shareholders’ equity 5,573,924 5,017,009 556,914

Amounts are shown in thousands of euros

260 Consolidated financial statements Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Cash Flow Statement

2008 2007 increase/ (restated) (Decrease) Cash and cash equivalents at beginning of year 93,201 90,203 2,998

Cash flows from operating activities Profit before tax and net finance costs 386,145 363,490 22,655 Amortisation and depreciation 208,963 175,832 33,131 Revaluations/Impairment charges 22,347 (38,223) 60,570 Movement in provisions for liabilities 4,247 7,527 (3,279) Net movement in staff termination benefits (18,907) (15,411) (3,495) Realised gains 6,520 (19,732) 26,252 Income taxes paid (55,332) (107,018) 51,686 Cash generated by operations before movements in working capital 553,984 366,464 187,520

Increase in current receivables 4,298 (52,076) 56,374 Increase /(Decrease) in current liabilities 86,963 (144,910) 231,873 Increase/(Decrease) in inventories (3,847) (13,923) 10,076 Movement in other operating assets/liabilities (120,533) 218,029 (338,562) Movement in working capital (33,118) 7,121 (40,239) Cash flow from operating activities 520,866 373,585 147,281

Cash flows from investing activities Purchase/Sale of property, plant and equipment (358,937) (350,096) (8,841) Purchase/Sale of intangible assets (42,198) (9,940) (32,257) Investments (3,434) 11,255 (14,688) Purchase/Sale of investments in subsidiaries 0 (2,792) 2,792 Proceeds/Payments deriving from other investments 92,055 11,771 80,284 Dividends received 366 366 0 Interest received 28,194 16,637 11,557 Total (283,954) (322,800) 38,846

Cash flows from financing activities Minority interests in capital increases by subsidiaries (4,903) (4,903) Decrease in long-term borrowings (50,646) (168,298) 117,653 Increase in medium- to long-term borrowings 466,774 61,188 405,586 Decrease/Increase in other short-term borrowings (279,949) 268,149 (548,098) Interest paid (115,871) (91,809) (24,062) Total 15,405 69,230 (53,825)

Dividends paid (133,457) (117,016) (16,441)

Net increase/(decrease) in cash and cash equivalents 118,860 2,999 115,861

Cash and cash equivalents at end of year 212,061 93,202 118,859

Amounts are shown in thousands of euros Consolidated financial statements 261 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Statement of changes in shareholders’ equity

Share legal other net profit total minority total capital reserve reserves for the year interests shareholders’ equity Shareholders’ equity at 31 Dec 2006 (restated) 1,098,899 76,982 (6,649) 143,573 1,312,804 62,211 1,375,015

Dividends paid (114,776) (114,776) (2,240) (117,016) Other reserves /Retained earnings 8,717 5,235 (14,161) (209) 0 (209) Reserve for associates accounted for using equity method 14,636 (14,636) 0 0 Cash flow hedge reserve 6,995 6,995 6,995 Change in basis of consolidation (374) (374) 0 (374) Net profit for 2007 (restated) 163,964 163,964 6,056 170,020 Shareholders’ equity at 31 Dec 2007 (restated) 1,098,899 85,699 19,842 163,964 1,368,405 66,027 1,434,432

Dividends paid (131,780) (131,780) (1,677) (133,457) Other reserves /Retained earnings 13,063 19,121 (32,184) 1 (2,451) (2,450) Cash flow hedge reserve (41,768) (41,768) (41,768) Consolidation/Currency translation reserve (3,958) (3,958) (184) (4,142) Net profit for 2008 186,285 186,285 5,564 191,848

Shareholders’ equity at 31 Dec 2008 1,098,899 98,762 (6,762) 186,285 1,377,185 67,278 1,444,463

Amounts are shown in thousands of euros

262 Consolidated financial statements Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Notes to the financial statements

Basis of preparation

General information Alternative performance indicators The Acea Group’s consolidated financial state- In line with recommendation CESR/05-178b, ments for the year ended 31 December 2008 were the content and meaning of non-GAAP measures approved by the Board of Directors on 27 March of performance and other alternative performance 2009. The Parent Company, Acea SpA, is an Ital- indicators used in these financial statements are ian joint-stock company, with its registered office described below: in Rome, at Piazzale Ostiense 2, and whose shares 1. gross operating profit is used by the Acea are traded on the Milan Stock Exchange. Group as an indicator of operating perform- The Acea Group’s principal areas of activity are ance and is calculated by adding “Amortisa- described in the Management Report on Opera- tion, depreciation, provisions and impairment tions. charges” to the operating result; 2. net debt indicates the state of the Acea Group’s Compliance with IAS/IFRS financial structure and is obtained by adding The consolidated financial statements have non-current borrowings and financial liabili- been prepared under the IFRS effective at the ties, less non-current financial assets (loans and end of the reporting period, and as approved by receivables and sundry investments), to cur- the International Accounting Standards Board rent borrowings and other current liabilities, (IASB) and adopted by the European Union. less current financial assets and cash and cash The standards consist of International Financial equivalents; Reporting Standards (IFRS), International Ac- 3. net invested capital is the sum of “Current counting Standards (IAS) and the interpretations assets”, “Non-current assets” and assets and li- of the International Financial Reporting Interpre- abilities held for sale, less “Current liabilities” tations Committee (IFRIC) and of the Standing and “Non-current liabilities”, excluding items Interpretations Committee (SIC), collectively re- taken into account in calculating net debt. ferred to as “IFRS”.. Use of estimates Basis of presentation In application of IFRS, preparation of the con- The consolidated financial statements consists solidated financial statements required manage- of the balance sheet, income statement, cash flow ment to make estimates and assumptions that statement and statement of changes in sharehold- affect the reported amounts of assets and liabili- ers’ equity, all of which have been prepared under ties and the disclosure of contingent assets and IAS 1. The Report also includes notes prepared liabilities at the end of the reporting period. The under the IAS/IFRS currently in effect. actual amounts may differ from such estimates. The income statement is classified on the ba- Estimates are used in order to make provisions for sis of the nature of expenses, whilst the cash flow credit risk, obsolescent inventories, impairment statement is presented using the indirect method. charges incurred on assets, employee benefits, The consolidated financial statements have taxes and other provisions. The original estimates been prepared in euros and all amounts have been and assumptions are periodically reviewed and the rounded off to the nearest thousand euros, unless impact of any change recognised in the income otherwise indicated. statement.

Consolidated financial statements 263 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Accounting standards and policies

The most significant accounting standards and Non-current assets held for sale policies are described below. and discontinued operations Non-current assets (and assets included in Business combinations disposal groups) classified as held for sale are ac- Acquisitions of subsidiaries are accounted for counted for at the lower of their previous carrying under the purchase method. The cost of the acqui- amount and their fair value less costs to sell. sition is determined as the sum of the fair value, Non-current assets (and assets included in dis- at the date of exchange, of the assets given, the posal groups) are classified as held for sale when liabilities incurred or acquired, and the financial their carrying amount is expected to be recovered instruments issued by the Group in exchange for through a sale transaction rather than through control of the acquired company, plus any costs their continued use. This condition is only met directly attributable to the acquisition. when the sale is highly probable, the asset (or asset The identifiable assets, liabilities and contin- included in a disposal group) is available for im- gent liabilities of the acquired company that meet mediate sale in its present condition and manage- the conditions for recognition under IFRS 3 are ment is committed to the sale, which is expected accounted for at fair value at the date of acquisi- to take place within twelve months of the classifi- tion, with the exception of non-current assets (or cation of this item. disposal groups), which are classified as held for In the case of discontinued operations, the sale under IFRS 5 and accounted for at fair value post-tax gain or loss on disposal and the match- less costs to sell. ing comparative amounts for the previous year are Goodwill arising on acquisition is recognised shown separately in a specific item in the income as an asset and initially valued at cost, represented statement. by the excess of the cost of the acquisition over the Group’s interest in the fair value of the iden- Goodwill tifiable assets, liabilities and contingent liabilities Goodwill deriving from the acquisition of a acquired. This goodwill is not amortised, but is subsidiary or a jointly controlled entity represents tested for impairment. If, on the other hand, the the excess of the cost of the acquisition over the Group’s interest in the fair value of the identifiable Group’s interest in the fair value of the identifi- assets, liabilities and contingent liabilities exceeds able assets, liabilities and contingent liabilities of the cost of the acquisition, the relevant amounts the subsidiary or jointly controlled entity at the are re-determined. If the Group’s interest in the date of the acquisition. Goodwill is recognised as resulting fair value of the identifiable assets, liabil- an asset and is subject to an annual impairment ities and contingent liabilities still exceeds the cost review. Any impairment charges are immediately of the acquisition, the difference is immediately recognised in the income statement and are not recognised in the income statement. subsequently reversed. Minority interests in the acquired company Goodwill emerging at the date of acquisition is are initially valued on the basis of the minorities’ allocated to each of the cash-generating units ex- proportion of the fair value of recognised assets, pected to benefit from the synergies deriving from liabilities and contingent liabilities. the acquisition. Impairment charges are identified via tests that assess the capacity of each unit to generate cash sufficient to recover the portion of goodwill allocated to it. Should the recoverable amount of the cash-generating unit be less than the allocated carrying amount, an impairment charge is recognised.

264 Consolidated financial statements On the sale of a subsidiary or jointly controlled Revenue recognition entity, any unamortised goodwill attributable to it Revenue is recognised when the amount of is included in the calculation of the gain or loss revenue can be reliably measured and it is proba- on disposal. ble that the economic benefits associated with the transaction will flow to the Group. Depending on Foreign currencies the type of transaction, revenue is recognised on Acea SpA and its European subsidiaries have the basis of the following specific criteria. adopted the euro as their functional and presentation currency. Foreign currency transactions are Sale of goods initially recognised at the spot rate on the date of Revenue is recognised when the significant the transaction. Foreign currency monetary assets risks and rewards of ownership of the goods have and liabilities are translated into the functional been transferred to the buyer, the revenue can be currency at the exchange rate at the end of the reliably measured and collectibility is probable. reporting period. Exchange differences are recognised in the consolidated income statement, with Rendering of services the exception of differences deriving from foreign Revenue is recognised with reference to the currency loans forming part of a net investment stage of completion of the transaction based in a foreign entity. Such exchange differences are on the same criteria used for contract work in taken directly to shareholders’ equity until dispos- progress. When the amount of the revenue cannot al of the net investment, at which time any differ- be reliably determined, revenue is recognised only ences are recognised as income or expenses in the to the extent of the expenses recognised that are income statement. The tax effect and tax credits recoverable. attributable to exchange differences deriving from this type of loan are also taken directly to share- In particular, revenue from the sale and trans- holders’ equity. Foreign currency non-monetary port of electricity is recognised at the time the items accounted for at historical cost are trans- service is provided, even when yet to be billed, and lated at the exchange rate at the transaction date. includes an estimate of the quantities supplied to Non-monetary items accounted for at fair value customers between their last meter reading and are translated at the rate ruling at the date the the end of the period. Revenue is calculated on the value was determined. basis of the related laws, provisions contained in The functional currency used by the Group’s Electricity and Gas Authority resolutions in effect Latin American companies is the US dollar. At during the period and existing provisions regard- the end of the reporting period the assets and li- ing equalisation. abilities of these companies are translated into the Parent Company’s presentation currency at clos- Revenue from integrated water services is ing rates, whilst income and expenses are trans- recognised on the basis of the quantities supplied lated at average rates for the period or at the rates during the period, even if such quantities have not ruling at the date of the related transactions. Ex- yet been measured on the basis of meter readings change differences, resulting from the use of dif- or billed by the end of the period, and applying the ferent rates to translate income and expenses as tariffs in force, including any approved increases opposed to assets and liabilities, are taken directly for the Area of Operation (ATO) concerned. to shareholders’ equity and recognised as a sepa- Any differences between revenue billed and the rate component of equity. On disposal of a for- amount guaranteed by the corresponding Area eign economic activity, the cumulative exchange Plan, in compliance with art. 11, paragraph 2.b of differences deferred in a separate component of the Galli Law, or art. 151, paragraph 2.c of Leg- shareholders’ equity are recognised in the income islative Decree 152/2006, are also recognised in statement. revenue for the period. The water company’s fail-

Consolidated financial statements 265 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

ure to account for the so-called regulatory assets any prepayments received is recognised in assets deriving from tariff adjustments would distort the or liabilities. effect on the financial statements. In addition to contract fees, contract revenue includes variations, price changes and the pay- Finance income ment of incentives to the extent that it is probable Interest income is recognised on a time propor- that they will form part of actual revenue and that tion basis that takes account of the effective yield they can be reliably determined. Expected losses on the asset (the rate of interest required to dis- are recognised regardless of the stage of contract count the stream of future cash receipts expected completion. over the life of the asset to equate to the initial carrying amount of the asset). Interest is account- Borrowing costs ed for as an increase in the value of the financial Borrowing costs that are directly attributable to the assets recorded in the accounts. acquisition, construction or production of a qualifying asset (an asset that necessarily takes a substantial period Dividend income of time to get ready for its intended use or sale) are capi- Dividend income is recognised when the share- talised as part of the cost of the asset until it is ready for holder’s right to receive payment is established. use or sale. Income on the temporary investment of the Dividend income is classified as a component borrowings is deducted from the capitalised borrowing of finance income in the income statement. costs. All other borrowing costs are recognised as an expense in the period in which they are incurred. Grants Grants related to assets received from both Employee benefits public and private entities are accounted for at fair Post-employment employee benefits in the value when there is reasonable assurance that they form of defined benefit plans (such as staff termi- will be received and that the conditions attaching nation benefits, bonuses, tariff subsidies) or other to them will be complied with. long-term benefits are recognised in the period Water connection grants are recognised as the related right accrues. Such funds and benefits non-current liabilities and taken to the income are not financed. statement over the life of the asset to which they The cost of the benefits involved in the vari- refer if they relate to an investment, or recognised ous plans is determined separately for each plan in full as income if matched by costs incurred dur- based on the actuarial valuation method, using the ing the period. projected unit credit method to carry out actuarial Grants related to income (disbursed in order valuations at the end of the reporting period. to provide an enterprise with immediate financial Actuarial gains and losses are recognised as in- aid or as compensation for expenses and losses income or expense if the net cumulative unrecog- curred in a previous period) are recognised in the nised actuarial gains and losses for each plan at income statement in full once the conditions for the end of the previous reporting period exceeded recognition have been complied with. the greater of 10% of the present value of the defined benefit obligation or 10% of the fair value of Construction contracts any plan assets at that date (the so-called corridor Construction contracts are accounted for on method). Such gains and losses are recognised on the basis of the percentage of completion method, the basis of the expected average remaining work- attributing revenue and profits on the contract to ing lives of the employees participating in the the individual reporting periods in proportion to plan. the stage of contract completion. Any positive or negative difference between contract revenue and

266 Consolidated financial statements Share-based payment transactions Current taxes are based on the taxable profit (stock options) (tax loss) for the period. Taxable profit (tax loss) The Group is required to recognise the goods differs from the accounting profit or loss as it ex- or services received in a share-based payment cludes positive and negative components that will transaction at the date the goods or services are be taxable or deductible in other periods and also consumed. The Group is required to recognise a excludes items that will never be taxable or de- corresponding increase in shareholders’ equity if ductible. Current tax liabilities are calculated us- the goods or services are received on the basis of ing the tax rates enacted or substantively enacted a share-based payment transaction settled by the at the end of the reporting period, and taking ac- issuance of equity, or as a liability if the goods or count of tax instruments permitted by tax legisla- services are acquired on the basis of a payment tion (the domestic tax consolidation regime, tax transaction settled by the issuance of cash. tranSpArency).

Leases Deferred taxes are the taxes expected to be paid Leases are classified as finance leases when the or recovered on temporary differences between terms of the contract substantially transfer all the the carrying amounts of assets and liabilities in risks and benefits of ownership of an asset to the the balance sheet and the corresponding tax bases, lessee. All other leases are operating leases. accounted for using the liability method. Deferred tax liabilities are generally recognised on all tax- The Group as lessee able temporary differences, whilst deferred tax as- Assets held under a finance lease are recognised sets are recognised to the extent that it is probable as assets belonging to the Group and accounted that future taxable profit will be available against for at amounts equal to fair value at the inception which the temporary difference can be utilised. of the lease or, if lower, at the present value of the Deferred tax assets and liabilities are not recog- minimum lease payments. The underlying liability nised if the temporary differences derive from to the lessor is included in the balance sheet as goodwill or the initial recognition of an asset or li- an obligation to pay future lease payments. Lease ability in a transaction, other than a business com- payments are apportioned between the capital ele- bination, that at the time of the transaction affects ment and the interest element, in such a way as to neither accounting nor taxable profit or loss. produce a constant periodic rate of interest on the remaining balance of the liability. Deferred tax liabilities are recognised on tax- Finance costs, whether certain or estimated, able temporary differences arising on investments are recognised on an accruals basis unless they are in subsidiaries, associates and jointly controlled directly attributable to the acquisition, construc- entities, unless the timing of the reversal of the tion or production of an asset, which justifies their temporary difference is controlled by the Group capitalisation. and it is probable that the temporary difference Lease payments under operating leases are rec- will not reverse in the foreseeable future. ognised as an expense in the income statement on a straight-line basis over the lease term. The ben- The carrying amount of deferred tax assets is efits received or to be received as an incentive for reviewed at the end of each reporting period and entering into operating leases are also recognised reduced to the extent that, based on the plans ap- on a straight-line basis over the lease term. proved by the Parent Company’s Board of Direc- tors, it is no longer probable that sufficient future Income taxes taxable profit will be available against which all or Income taxes for the period represent the ag- part of the assets can be recovered. gregate amount of current and deferred taxes.

Consolidated financial statements 267 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Deferred taxes are determined using tax rates With regard to hydroelectric plants, a Consti- that are expected to apply to the period in which tutional Court sentence has substantially repealed the asset is realised or the liability settled. Deferred the regulations that amended article 12 of the taxes are taken directly to the income statement, Bersani decree, introduced along with the 2006 with the exception of those relating to items taken Finance Act (sections 483, 485-488 and 492 of directly to shareholders’ equity, in which case the article 1), in respect of the part that extended hy- related deferred taxes are also taken to equity. droelectric concession terms by a further ten years (from 2010 in the Bersani decree to 2020), subject Property, plant and equipment to the execution of appropriate expansion works, Property, plant and equipment is stated at his- and the part requiring existing concessionaires to torical cost, including any directly attributable pay a so-called additional one-off fee (for the en- costs of making the asset ready for its intended tire concession term) at a rate of 3,600 euros per use, less accumulated depreciation and any accu- MW of installed nominal power. This has resulted mulated impairment charges. in a reduction in the depreciation period to 2010 The cost includes the costs of dismantling and 2013, which follows on from the reduction and removing the asset and cleaning up the site applied in the consolidated financial statements at which the asset was located, if covered by the for the year ended 31 December 2006, in response provisions of IAS 37. The matching liability is ac- to approval of the 2006 Finance Act, which – in counted for in provisions for liabilities and charg- addition to the above – repealed the Bersani regu- es. Each component of an asset with a cost that is lation regarding the right of preference granted to significant in relation to the total cost of the item, existing concessionaires. and having a different useful life, is depreciated separately. Plant and machinery in the course of construc- Land, whether free of constructions or annexed tion for use in operations, or for purposes yet to be to civil and industrial buildings, is not depreciated determined, is stated at cost, less any impairment as it has an unlimited useful life. charges. The cost includes any professional fees Depreciation is calculated on a straight-line and, in the case of certain assets, interest expense basis over the expected useful life of the asset, ap- capitalised in accordance with the Group’s ac- plying the following rates: counting policies. Depreciation of such assets, in line with all the other assets, begins when they are Plant and machinery used in operations 1.25% - 6.67% ready for use. In the case of certain complex assets Other plant and machinery 4% subject to performance tests, which may be of a Industrial and commercial equipment prolonged nature, readiness for use is recognised used in operations 2.5% - 6.67% on completion of the related tests. Other industrial and commercial equipment 6.67% Sundry assets used in operations 12.5% An asset held under a finance lease is depreci- Other sundry assets 6.67% - 19.00% ated over its expected useful life, in line with assets that are owned, or, if lower, over the lease term. Motor vehicles used in operations 8.33% Other motor vehicles 16.67% Gains and losses deriving from the disposal or retirement of an asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised as income or expense in the income statement.

268 Consolidated financial statements Under IAS 16, property, plant and equipment Investment property includes leasehold improvements to publicly Investment property, represented by property owned assets granted free of charge for the ex- held to earn rentals or for capital appreciation or clusive use of Acea SpA by the Comune di Roma, both, is stated at cost, including any negotiating on the basis of a special service contract, and used costs less accumulated depreciation and any im- in operating the public lighting service. Property, pairment charges. plant and equipment also includes leasehold im- Depreciation is calculated on a straight-line provements, which may not be accounted for as basis over the expected useful life of the asset. The separate accounting items, carried out by Acea rates applied range from a minimum of 1.67% to Ato2 SpA on publicly owned assets held under a maximum of 11.11%. concession and used in the provision of integrated water services. Investment property is eliminated from the accounts when sold or when the property is unus- Pursuant to art. 8 of the Supplementary Agree- able over the long-term and its sale is not expected ment to the concession of publicly owned prop- to provide future economic benefits. erty, the assets belonging to the water services di- Sale and lease-back transactions are account- vision owned by Acea Ato2 SpA will, on expiry of ed for based on the substance of the transaction. the concession and based on the assumption that Reference should therefore be made to the policy the agreement will not be renewed, be handed adopted for leases. over to the Comune di Roma at a price equivalent to the cost of construction, less technical depre- Any gain or loss deriving from the elimination ciation over the concession term. The cost will be of an investment property is recognised as income linked to the annual ISTAT index for the cost of or expense in the income statement in the period construction of public works. There is currently no in which the elimination takes place. foreseeable risk of losses on expiry of the concession. From 1 January 2003 the Agreement assigning Intangible assets the contract for integrated water services in ATO 2 – Central Lazio, signed on 6 August 2002, came Intangible assets acquired separately or deriving into effect. from a business combination Pursuant to art. 35 of the above Agreement, Intangible assets acquired separately are capi- on expiry or early termination of the Agreement, talised at cost, whilst those deriving from a busi- Acea Ato2 SpA will be paid an indemnity equal ness combination are capitalised at fair value at to the value of the assets yet to be depreciated. the date of acquisition. After initial recognition, This applies to networks or portions thereof, plant an intangible asset is carried at cost. The useful life and the related assets constructed in accordance of an intangible asset may be defined as finite or with investment programs. indefinite. Intangible assets are tested for impairment annually. The tests are conducted in respect of each intangible asset or, if necessary, in respect of each cash-generating unit. Amortisation is calculated on a straight-line basis over the expected useful life of the asset, which is reviewed annually and any resulting changes, if possible, applied prospectively. Amortisation begins when the intangible asset is ready for use. Gains and losses deriving from the disposal of

Consolidated financial statements 269 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

an intangible asset are determined as the differ- basis over the residual term of each concession. ence between the estimated net disposal proceeds A summary of the useful lives of intangible as- and the carrying amount of the asset and are rec- sets is as follows: ognised as income or expense in the income state- • intellectual property is amortised over an esti- ment. mated useful life of three years. Brands and patents These assets are initially recognised at cost and Impairment of assets amortised on a straight-line basis over the useful At each end of the reporting period, the Group life of the asset. reviews the value of its property, plant and equipment and intangible assets to assess whether there is any indication that an asset may be impaired. Concessions If any indication exists, the Group estimates the This item includes the value of the thirty-year recoverable amount of the asset in order to deter- right of Concession granted by the Comune di mine the impairment charge. Roma, regarding the use of fresh and waste water When it is not possible to estimate the recov- assets, formerly conferred to Acea SpA and sub- erable amount of the individual asset, the Group sequently transferred, as of 31 December 1999, to estimates the recoverable amount of the cash- the spun-off company, Acea Ato 2 SpA, and relat- generating unit to which the asset belongs. ing to publicly owned assets belonging to the cat- Intangible assets with indefinite useful lives, egory of so-called “incidental public property” for including goodwill, are tested for impairment an- fresh and waste water services. This right is am- nually and each time there is any indication that ortised over the residual concession term (thirty an asset may be impaired, in order to determine years from 1998). The residual amortisation pe- the impairment charge. riod is in line with the average term of contracts The test consists of a comparison of the carry- awarded by public tender. ing amount of the asset and its estimated recover- This item also includes: able amount. • the net value at 1 January 2004 of the goodwill The recoverable amount is the higher of an as- deriving from the transfer of sewerage services set’s fair value less costs to sell and value in use. In to Acea Ato2 SpA by the Comune di Roma calculating value in use, future cash flow estimates with effect from September 1, 2002; are discounted using a pre-tax rate that reflects • the net value at 1 January 2004 of goodwill current market assessments of the time value of deriving from the acquisition of the Acque di money and the risks specific to the business. Pisa Group by the subsidiary, ABAB; • the net value at 1 January 2005 of goodwill de- If the recoverable amount of an asset (or cash- riving from the acquisition of G.O.R.I. SpA by generating unit) is estimated to be less than its the subsidiary, Sarnese Vesuviano; carrying amount, the carrying amount is reduced • the goodwill, attributable to this item, deriving to its recoverable amount. An impairment charge from the acquisition of Publiacqua by Acque is immediately recognised as an expense in the in- Blu Fiorentine; come statement, unless the asset is represented by • the goodwill, attributable to this item, deriving land or buildings, other than investment property, from the acquisition of the TAD Group, with carried at a revalued amount, in which case the particular reference to SAO, the company that impairment charge is treated as a revaluation de- manages the waste dump in Orvieto; crease. • the goodwill, attributable to this item, deriving from Acea SpA’s acquisition of Acea Ato5. When an impairment no longer exists, the Concessions are amortised on a straight-line carrying amount of the asset (or cash-generating

270 Consolidated financial statements unit), with the exception of goodwill, is increased trends. Allowances or certificates assigned free of to its new estimated recoverable amount. The re- charge are accounted for at a zero value. Market versal must not exceed the carrying amount that value is established on the basis of any spot or would have been determined (net of amortisa- forward sales contracts already signed at the end tion or depreciation) had no impairment charge of the reporting period; otherwise, on the basis of been recognised for the asset in prior periods. The market prices. reversal of an impairment charge is recognised immediately as income in the income statement, unless the asset is carried at a revalued amount, in Inventories which case the reversal is treated as a revaluation Inventories are valued at the lower of cost and increase. net realisable value. The cost comprises all materials and, where applicable, direct labour, production Where an impairment charge is recognised in overheads and all other costs incurred in bringing the income statement, it is included among amor- the inventories to their present location and con- tisation, depreciation and impairment charges. dition. The cost is calculated using the weighted average cost formula. The net realisable value is the estimated selling price less the estimated costs Emission allowances and green of completion and the estimated costs necessary certificates in order to make the sale. Different accounting policies are applied to al- Impairment charges incurred on inventories, lowances or certificates held for own use in the given their nature, are either recognised in the “Industrial Portfolio”, and those held for trading form of specific provisions, consisting of a reduc- purposes in the “Trading Portfolio”. tion in assets, or, on an item by item basis, as an Surplus allowances or certificates held for own expense in the income statement in the period the use, which are in excess of the company’s require- impairment charge occurs. ment in relation to the obligations accruing at the end of the year, are accounted for at cost in other intangible assets. Allowances or certificates as- Financial instruments signed free of charge are accounted for at a zero Financial assets and liabilities are recognised at value. Given that these are assets for instant use, the time the Group becomes party to the contract they are not amortised but are tested for impair- terms applicable to the instrument. ment. The recoverable amount is the higher of the asset’s value in use and its market value. If, on the Trade receivables and other assets other hand, there is a deficit, because the require- Trade receivables, which have normal commer- ment exceeds the allowances or certificates in cial terms, are recognised at face value less estimated portfolio at the end of the reporting period, provi- provisions for the impairment of receivables. sions are made in the financial statements for the The estimate of uncollectible amounts is made charge needed to meet the residual obligation; this when collection of the full amount is no longer is estimated on the basis of any spot or forward probable. purchase contracts already signed at the end of the Trade receivables refer to the invoice amount reporting period; otherwise, on the basis of mar- that at the end of the reporting period has yet to ket prices. be collected, and to the accrued portion of revenue for the period represented by invoices to be issued Allowances or certificates held for trading in subsequently. the “Trading Portfolio” are accounted for in inventories and measured at the lower of purchase cost and estimated realisable value, based on market

Consolidated financial statements 271 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Financial assets active market are initially stated at fair value. Financial assets are recognised and derecog- After initial recognition, they are carried at nised at the trade date and initially recognised at amortised cost using the effective interest meth- cost, including any directly attributable acquisi- od. The amortised cost of a financial asset means tion costs. the amount recognised initially, less principal At each future end of the reporting period, the repayments and plus or minus accumulated am- financial assets the Group has a positive intention ortisation using the effective interest method of and ability to hold to maturity (held-to-maturity the difference between the initial amount and the financial assets) are recognised at amortised cost maturity amount, after any reductions. The effec- using the effective interest method, less any im- tive interest method is a method of calculating the pairment charges applied to reflect impairments. amortised cost of a financial asset (or group of financial assets) and allocating the interest income Financial assets other than those held to matu- or expense over the relevant period. The effective rity are classified as held for trading or as available interest rate is the rate that exactly discounts es- for sale, and are stated at fair value at the end of timated future cash payments or receipts over the each period. expected life, or contractual term if shorter, of the When financial assets are held for trading, financial asset to the net carrying amount of the gains and losses deriving from changes in fair financial asset. value are recognised in the income statement for In the case of financial assets stated at amortised the period. In the case of financial assets that are cost, the income statement and balance sheet are available for sale, gains and losses deriving from adjusted to take account of the difference between changes in fair value are recognised directly in a the payment or receipt calculated on the basis of separate item of shareholders’ equity until they are the effective interest rate and the coupon interest sold or impaired. At this time, the total gains and to be collected/paid, recognised on the basis of the losses previously recognised in equity are recycled nominal rate of the instrument. through the income statement for the period. The Cash and cash equivalents total loss must equal the difference between the acquisition cost and current fair value. Cash and cash equivalents include cash at bank and in hand, demand deposits and highly liquid The fair value of financial instruments traded short-term investments, which are readily con- in active markets is based on quoted market prices vertible into cash and are subject to an insignifi- (bid prices) at the end of the reporting period. cant risk of changes in value. The fair value of financial instruments that are Financial liabilities not traded in an active market is determined on the basis of quoted market prices for substantially Financial liabilities are stated at amortised cost. similar instruments, or calculated on the basis of Borrowing costs (transaction costs) and any issue estimated discounted cash flows generated by the premiums or discounts are recognised as direct ad- net assets underlying the investment. justments to the nominal value of the borrowing. Purchases and sales of financial assets, which Net finance costs are consequently re-determined imply delivery within a timescale generally defined using the effective rate method. by the regulations and practice of the market in which the exchange takes place, are recognised at the trade date, which is the date the Group com- mits to either purchase or sell the asset.

Non-derivative financial assets with fixed or determinable payments that are not quoted in an

272 Consolidated financial statements Derivative financial instruments Hedge accounting is discontinued when the Derivative financial instruments are initially hedging instrument expires or is sold, terminated recognised at cost and then re-measured to fair or exercised, or when the instrument no longer value at subsequent end of the reporting periods. meets hedge accounting criteria. At this time, ac- They are designated as hedging instruments when cumulated gains and losses on the hedging instru- the hedging relationship is formally documented ment recognised directly in shareholders’ equity at its inception and the periodically verified effec- are retained in equity until the forecast transac- tiveness of the hedge is expected to be high. tion effectively occurs. If the forecast transaction Fair value hedges are recognised at fair value is no longer expected to occur, the accumulated and any gains or losses recognised in the income gains and losses recognised directly in sharehold- statement. Any gains or losses resulting from the ers’ equity are immediately taken to the income fair value measurement of the hedged asset or statement for the period. liability are similarly recognised in the income Trade payables statement. In the case of cash flow hedges, the portion Trade payables, which have normal commercial of any fair value gains or losses on the hedging terms, are stated at face value.. instrument that is determined to be an effective Derecognition of financial instruments hedge is recognised in shareholders’ equity, whilst the ineffective portion is recognised directly in the Financial assets are derecognised when the income statement. Group has transferred all the related risks and the If the hedged contract commitment or forecast right to receive cash flows from the investments. transaction results in recognition of an asset or a A financial liability (or portion of a financial liability, the gains and losses on the instrument liability) is derecognised when, and only when, it previously recognised directly in shareholders’ is extinguished, i.e. When the obligation specified equity are transferred from equity and included in the contract is either discharged, cancelled or in the initial measurement of the cost or carrying expires. amount of the asset or liability. If a previously issued debt instrument is re- In the case of cash flow hedges that do not purchased, the debt is extinguished, even if the result in recognition of an asset or a liability, the Group intends to resell it in the near future. The amounts recognised directly in shareholders’ eq- difference between the carrying amount and the uity are included in the income statement in the amount paid is recognised in the income state- same period in which the hedged contract com- ment. mitment or forecast transaction is ultimately recognised in the income statement. In the case of fair value hedges, the hedged item is adjusted for changes in fair value attributable to the hedged risk and the resulting gain or loss recognised in the income statement. Gains and losses deriving from measurement of the derivative instrument are also recognised in the income statement. Changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognised in the income statement for the period in which they occur, with the exception of derivative instruments whose fair value is not reasonably determinable.

Consolidated financial statements 273 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Provisions for liabilities and IFRIC 14, IAS 19 – The Limit on a Defined Benefit charges Asset, Minimum funding Requirements and their Provisions for liabilities and charges are made Interaction when the Group has a present (legal or construc- IFRIC 14 was issued in July 2007 and is due tive) obligation as a result of a past event, it is more to come into effect on or after 1 January 2008. likely than not that an outflow of resources will be The interpretation provides indications on how required to settle the obligation and the related to determine the limit on a defined benefit asset amount has been reliably estimated. that may be recognised under IAS 19 – Employee Provisions are measured on the basis of man- Benefits. The Company does not expect this in- agement’s best estimate of the expenditure re- terpretation to have any impact on the Group’s quired to settle the present obligation at the end financial position or operating results. of the reporting period, and are discounted when the effect is significant. When the liability regards IAS 1 - Presentation of financial statements the cost of dismantling and/or repairing an item The revised version of IAS 1 – Presentation of of property, plant and equipment, the initial provi- financial statements was endorsed in September sions are accounted for as a contra entry in respect 2007 and will come into effect after 1 January of the asset to which they refer. The provisions are 2009. The standard separates changes in equity released to the income statement through depre- into owner and non-owner changes. The state- ciation of the item of property, plant and equipment of changes in equity shall only include own- ment to which the charge refers. er changes in equity, whilst all non-owner changes are to be presented on one line. Moreover, the standard introduces the “statement of comprehen- Accounting standards, revisions and sive income”: this statement shall contain all items interpretations not yet applicable and of income and expense recognised in a period in not adopted in advance by the Group the income statement and, in addition, all other income and expense items recognised. The “state- IFRS 8 ment of comprehensive income” may be presented IFRS 8 – Operating Segments, which was en- as a single statement or as two related statements. dorsed by the European Commission in 2007, will The Company is still in the processing of deciding come into effect from 1 January 2009. Application whether to prepare one or two statements. of this standard is not expected to have a significant impact on the Group. IAS 23 – Borrowing Costs A revised version of IAS 23 – Borrowing IFRIC 13 – Customer Loyalty Programmes Costs was issued in March 2007 and will come IFRIC 13 was issued in June 2007 and is due into effect on or after 1 January 2009. The revised to come into effect on or after 1 July 2008. This standard requires the capitalisation of borrowing interpretation requires award credits granted to costs when such costs are directly attributable to customers under loyalty programmes to be ac- a qualifying asset. A qualifying asset is an asset counted for as a separately identifiable component that necessarily takes a substantial period of time of the sales transactions in which they are granted. to get ready for its intended use or sale. Under A portion of the fair value of the consideration re- the standard’s transitional provisions, the Group ceived must thus be allocated to the award credits will apply IAS 23 prospectively. Borrowing costs and amortised over the period in which the cred- will thus form part of the cost of qualifying as- its/points are redeemed. The Company does not sets from a date after 1 January 2009. No change expect this interpretation to have any impact on will be made to borrowing costs incurred until this its financial statements as it does not currently run date and accounted for in the income statement. customer loyalty programmes.

274 Consolidated financial statements IFRS 2 – Share-based payments – Vesting conditions IFRIC 12 – Service Concession Arrangements and cancellations This interpretation was published in the Offi- This revised version of IFRS 2 – Share-based cial Gazette of the European Union on 26 March payments was published in January 2008 and will 2008. Companies are required to apply the new come into effect in the first annual period after interpretation from the beginning of the first an- 1 January 2009. The standard restricts the defini- nual period starting after the date the regulation tion of “vesting conditions” to a condition that in- comes into effect. This interpretation applies to cludes an explicit or implicit obligation to provide operators who provide services under concession a service. Every other condition is a “non-vesting and establishes how to account for the obligations condition” and must therefore be taken into ac- assumed and the rights granted under a conces- count in determining the fair value of the equity sion arrangement. The Acea Group has begun to instrument granted. If the equity instruments do analyse the scope of application and the resulting not vest due to failure to satisfy a “non-vesting impact on the Group’s results of operations, finan- condition” within the control of the entity or the cial position and cash flows. counterparty, the failure must be accounted for as a cancellation. The Company has not entered into Amendments to IAS 1 and IAS 27 Cost of an share-based payment transactions and does not, Investment in a Subsidiary, Jointly Controlled Entity or therefore, expect this standard to have any impact Associate on its financial statements. These amendments were approved in May 2008 and will come into effect on 1 January 2009, Amendments to IAS 32 and IAS 1 – Puttable although advance application is permitted. Financial Instruments The amendments to IAS 32 and IAS 1 were The following improvements issued by IASB endorsed in February and will come into effect in were endorsed by the EU on 23 January 2009 and the first annual period after 1 January 2009. The published on 24 January 2009 in EC Regulation amendment to IAS 32 requires that certain putta- 70/2009: IFRS 1, IFRS 5, IFRS 3, IAS 1, IAS 16, ble financial instruments and obligations arising on IAS 20, IAS 27, IAS 28, IAS 29, IAS 36, IAS 39 liquidation are classified as equity instruments if and IAS 40. certain conditions are met. The amendment to IAS 1 requires an entity to disclose certain details of put In addition to the above documents, which options classified as equity instruments. The Group have already been endorsed at the date of approval does not expect these amendments to have an im- of these financial statements, the EU has yet to pact on its financial statements. approve the following interpretations issued by IFRIC:

IFRIC 15 – Agreements for the Construction of Real Estate IFRIC 15, published in July 2008, aims to clarify the method of accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through sub-contractors. The interpretation is expected to come into effect from 1 January 2009, whilst its endorsement is now expected for the second quarter of 2009.

Consolidated financial statements 275 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

IFRIC 16 – Hedges of a Net Investment in a Foreign IFRIC 18 – Transfers of Assets from Customers Operation IFRIC 18 was issued in January 2009. It pro- IFRIC 16, published in July 2008, applies to vides additional guidance on accounting for trans- entities that hedge the foreign exchange exposure fers of assets from customers and clarifies the arising from net investments in foreign operations IFRS requirements for agreements in which an and intend to apply hedge accounting in accord- entity receives from a customer an item of prop- ance with IAS 39. The interpretation is expected erty, plant or equipment that the entity must then to come into effect from 1 October 2008, whilst use either to connect the customer to a network or its endorsement is now expected for the second to provide the customer with ongoing access to a quarter of 2009. supply of goods or services. IFRIC 17 – Distributions of Non-cash Assets to Owners IFRIC 17 was issued in January 2009 in order to clarify how an entity should measure distributions of non-cash assets when paying dividends to shareholders. The interpretation is expected to come into effect from 1 July 2009.

Consolidation policies and procedures

Consolidation policies when strategic financial and operating policy decisions regarding the activity require the unani- Subsidiaries mous agreement of the parties who share control. The basis of consolidation includes the Par- The consolidated financial statements include ent Company, Acea SpA, and the companies over the Group’s share of the income and expenses which it directly or indirectly exercises control via of jointly controlled entities, accounted for un- a majority of the voting rights. der proportionate consolidation. The application Subsidiaries are consolidated from the date of proportionate consolidation thus means that on which control is effectively transferred to the the consolidated financial statements include the Group and are deconsolidated from the date on Group’s share of all the jointly controlled entities’ which control is transferred out of the Group. assets, liabilities, income and expenses, classified Where there is loss of control of a consolidated according to their nature. When a Group compa- company, the consolidated financial statements ny operates directly via joint venture agreements, include the results for the part of the reporting the liabilities and costs incurred directly in respect period during which the Acea Group has control. of the jointly controlled activities are recognised on an accruals basis. The share of profits deriv- Joint ventures ing from the sale or use of resources produced by A joint venture is a contractual arrangement the joint venture, net of the related share of the whereby the Group and other parties undertake expenses, is recognised when it is likely that the an economic activity that is subject to joint con- economic benefits deriving from the transaction trol. This is the contractually agreed sharing of will be received by the Group and their value can control over an economic activity and only exists be reliably measured.

276 Consolidated financial statements Where joint venture agreements involve the es- associate, unless the unrealised losses provide evi- tablishment of a separate entity, the Group’s share dence of an impairment of the asset transferred. of the jointly controlled entities’ assets, liabilities, income and expenses is combined with the similar items in its consolidated financial statements on Consolidation procedures a line-by-line basis. Unrealised profits and losses on transactions between the Group and a jointly General procedure controlled entity are eliminated to the extent of The financial statements of the Group’s subsidi- the Group’s interest in the jointly controlled en- aries, associates and joint ventures are prepared for tity, unless the unrealised losses provide evidence the same accounting period and using the same ac- of an impairment of the asset transferred. counting standards as those adopted by the Parent Company. Consolidation adjustments are made to Associates bring into line any dissimilar accounting policies An associate is a company over which the that may exist. Group exercises significant influence, via its All intercompany balances and transactions, in- power to participate in the financial and oper- cluding any unrealised profits on intra-group trans- ating policy decisions of the associate which is, actions, are eliminated in full. Unrealised losses are however, neither a subsidiary nor a joint venture. eliminated unless costs cannot be subsequently re- The consolidated financial statements include the covered. Group’s share of the income and expenses of as- The carrying amount of investments in subsidi- sociates, accounted for using the equity method, aries is eliminated against the corresponding share unless they are classified as held for sale, from the of the shareholders’ equity of each subsidiary, in- date it begins to exert significant influence until cluding any adjustments to reflect fair values at the the date it ceases to exert such influence. acquisition date. The excess of the cost of acquisi- When the Group’s share of an associate’s losses tion over the fair value of the Group’s share of the exceeds the carrying amount of its investment, identifiable net assets acquired is recorded as good- the interest is reduced to zero and any additional will, for the purposes of IFRS 3. losses are provided for, and a liability is recog- Minority interests in the net assets of consoli- nised, only to the extent that the Group has in- dated subsidiaries are shown separately with re- curred legal or constructive obligations or made spect to shareholders’ equity attributable to the payments on behalf of the associate. Any excess of Group. Minority interests are determined on the the cost of the acquisition over the Group’s inter- basis of the minorities’ proportion of the fair value est in the fair value of the associate’s identifiable of assets and liabilities at the date of acquisition assets, liabilities and contingent liabilities at the and of any changes in shareholders’ equity after date of the acquisition is recognised as goodwill. this date. Losses attributable to minority interests Goodwill is included in the carrying amount of in excess of the related share of shareholders’ equity the investment and subject to impairment re- are subsequently attributed to shareholders’ equity views. Any excess of the Group’s interest in the attributable to the Group, unless the minority has fair value of the associate’s identifiable assets, li- a binding obligation and is able to invest further in abilities and contingent liabilities at the date of the company to cover the losses. the acquisition over the cost of the acquisition is recognised as negative goodwill and recognised in the income statement in the period of acquisition. Unrealised profits and losses on transactions between the Group and an associate are eliminated to the extent of the Group’s interest in the

Consolidated financial statements 277 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Consolidation procedure for assets A) Changes in the basis of consolidation and liabilities held for sale (IFRS5) During the period the basis of consolidation Non-current assets and liabilities classified as has not undergone changes compared to the held for sale, in accordance with the provisions of end of the previous financial year. Above all, the IFRS 5. changes regard the different method of consolidating Eblacea, its investment in Tirreno Power Consolidation of foreign operations and Umbra Acque, which are now consolidated All the assets and liabilities of foreign opera- using the proportionate as opposed to the equity tions denominated in a currency other than the method. euro are translated using the exchange rates at the In the first two cases, this change reflects altera- end of the reporting period. tions to the shareholder agreements governing the Income and expenses are translated using aver- joint venture in Eblacea, which have strengthened age exchange rates for the period. Any translation joint control over the company. differences are recognised in a separate compo- In Umbra Acque’s case, the difference reflects nent of shareholders’ equity until the investment changes in governance resulting from the acquisi- is sold. tion of a further stake following the selection of On initial application of IFRS, accumulated an industrial partner at the end of 2007. The Ordi- translation differences deriving from the consoli- nary General Meeting of the shareholders of Um- dation of foreign operations were reduced to zero. bra Acque, called to re-elect the Board of Direc- The reserve accounted for in the consolidated fi- tors, four members of which are to be nominated nancial statements only includes gains or losses by Acea, was held on 20 February 2008. The pro- generated from 1 January 2004. portionate consolidation of Umbra Acque from Foreign currency transactions are initially rec- 1 January 2008 is based on the same percentage ognised at the spot rate on the date of the trans- interest held since the beginning of the year. action. Foreign currency assets and liabilities are translated at the exchange rate at the end of the On 20 July 2008 a meeting of the shareholders reporting period. Translation differences and of VoiNoi SpA decided to take the company out those arising on disposal of the operation are rec- of liquidation and change its name to Acea8cento ognised as finance income or costs in the income SpA. The company is to provide customer care for statement. the Group’s largest electricity, gas and water distributors and retailers. Acea8cento has thus been consolidated in these financial statements. Basis of consolidation

The Acea Group’s consolidated financial state- As part of its strategy of expanding the Group’s ments for the year ended 31 December 2008 in- environment and energy businesses, at the end clude the financial statements of the Parent Com- of July Acea’s subsidiary, Aquaser, acquired 51% pany, Acea SpA, and the financial statements of its of Kyklos Srl and 100% of Solemme SpA. Both Italian and foreign subsidiaries, over which it di- companies own composting plants, the first lo- rectly or indirectly exercises control via a majority cated in the municipality of Aprilia (in the prov- of the voting rights at ordinary general meetings, ince of Latina) and the second in the municipality giving it the power to govern the financial and of Monterotondo Marittimo (in the province of operating policies and obtain the related benefits. Grosseto). In accordance with governance rules, Entities that the Parent Company jointly controls both companies have been consolidated on a line- with other parties are accounted for under propor- by-line basis from the date control was obtained. tionate consolidation. On 28 October 2008 the partial spin-off of The Group’s basis of consolidation is divided CREA SpA, via the establishment of new com- into three areas: panies, was completed.

278 Consolidated financial statements This entailed the spin-off of a part of CREA’s 1. Energy Molise, 50% owned by AceaElec- equity to the newly established CREA PARTE- trabel Elettricità SpA and in liquidation; CIPAZIONI Srl and CREA GESTIONI Srl, 2. Energy Lazio, 49% owned by AceaElec- both of which have share capital of 100 thousand trabel SpA and in liquidation; euros and are wholly owned by the Parent Com- 3. Consorzio Italiano Gestione Energia, 50% pany, ACEA SpA. owned by AceaElectrabel Energia SpA and The transaction was designed to rationalise and in liquidation; optimise management of the operations and ad- 4. Umbria Distribuzione Gas SpA, 15% ministration of the different activities carried out owned by Acea; by the spun-off company, CREA SpA. Above all, 5. Luce Napoli, 70% owned by Acea, this the spin-off aims to rationalise management of company was placed in liquidation in No- the original company’s investments by splitting vember; the company into two entities along the lines of 6. Ecoenergie Srl, 64.8% owned by TAD En- its different areas of business. ergia e Ambiente and 25.2% by Enercom- The partial spin-off of CREA SpA, which was bustibili; implemented on the basis of the financial state- 7. Enerdepurazioni Scarl (in liquidation), ments for the year ended 31 December 2007, re- 99% owned by Enercombustibili and 1% by sulted in the transfer to CREA Partecipazioni Srl TAD Energia e Ambiente; of investments in the Lazio, Campania and Um- 8. Recupera Srl, 90% owned by Enercombus- bria regions and to Crea Gestioni Srl of the oper- tibili; ations management of integrated water services. 9. Tirana Acque Scarl (in liquidation), 40% owned by Acea; In compliance with the joint venture agree- 10. Umbriadue Servizi Scarl, 34% owned by ment between Suez Environnement (45%) and AceaRieti. Acea SpA (55%), a sub-holding, named Acque Blu, was established on 19 December 2008. IFRS 5 changes On 1 October 2008 Acea SpA and Acea RSE B) Unconsolidated investments completed the sale of 100% of Acea Luce to Ma- During application of the above methods of nutencoop. The agreed sale price is 3 million eu- consolidation and of the equity method, the fol- ros. lowing subsidiaries and associates, which are ac- As required by IFRS 5, discontinued opera- counted for at cost, were excluded. Application of tions in the income statement include the amount this simplified method was possible as the follow- of the post-tax loss, to which the gain realised on ing companies are either dormant (for the most the sale has been added. part in liquidation) and/or insignificant, both in- dividually or on an aggregate basis, taking account of both qualitative and quantitative factors:

financial Risk management

This information is provided in the section “Additional disclosures on financial instruments and risk management policies”.

Consolidated financial statements 279 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Financial highlights of companies accounted for under proportionate consolidation

Acea acea acea acea acque acque acque acque Publiutenti Publiacqua Publiacqua Gori Voghera umbria elettria elga Sud ecogena overseas tirreno eblacea umbra apice ecomed electrabel electrabel electrabel electrabel ingegneria Industriali servizi ingegneria Vendite energy Power acque Produzione trading elettricità Group

Income statement Total net revenues 4,521 31,834 1,146,864 1,406,213 46,879 8,367 4,186 7,390 35 3,883 66,071 51,982 26,093 23,673 31,702 2,598 34 2,190 226,335 0 22,443 0 0 Total operating costs 5,983 109,344 1,152,632 1,386,476 29,304 6,369 3,449 5,893 74 2,891 43,765 37,227 26,012 23,618 31,196 2,594 386 644 176,558 95 17,787 4 17 Gross operating profit/(loss) (1,462) (77,510) (5,768) 19,737 17,574 1,999 737 1,496 (39) 993 22,306 14,755 82 54 507 4 (352) 1,547 49,778 (95) 4,656 (4) (17) Gross operating profit margin (%) (0) (0) (0) 0 0 0 0 0 (0) 0 0 0 0 0 0 0 (0) 0 0 0 0 0 (0) Amortisation, depreciation and impairment charges (272) (18,944) (89) (18,179) (9,498) (80) (148) (287) 0 0 (14,030) (4,106) (30) (0) (175) (11) (0) (461) (12,314) (1) (2,507) 0 0 Operating profit/(loss) (1,734) (96,455) (5,858) 1,559 8,076 1,919 589 1,209 (39) 993 8,276 10,649 51 54 332 (7) (353) 1,086 37,464 (96) 2,149 (4) (17) Net profit/(loss) for the year (1,268) (109,204) (4,982) (1,365) 4,195 1,136 356 792 (24) 530 2,881 4,923 48 52 227 (12) (257) 202 15,079 117 (307) (3) (19)

Balance sheet Net invested capital 177,761 257,887 (25,852) 40,232 79,309 5,718 1,034 1,944 (80) 3,997 102,191 44,084 1,645 1,301 4,112 203 (58) 8,311 194,381 35,787 22,526 2 29 Current assets 4,545 27,037 175,591 340,535 38,601 7,381 1,906 3,243 47 4,761 64,883 85,009 6,392 6,652 14,904 951 220 243 40,273 7,280 13,869 2 43 Current liabilities (4,453) (24,320) (217,754) (321,584) (37,749) (2,314) (1,145) (2,382) (124) (1,008) (47,564) (70,584) (4,939) (5,445) (10,822) (840) (750) (133) (42,067) (8,030) (16,952) 0 (17) Net current assets/(liabilities) 92 2,717 (42,162) 18,952 852 5,067 761 861 (76) 3,753 17,319 14,425 1,453 1,208 4,082 111 (530) 111 (1,794) (750) (3,083) 2 26

Non-current assets 177,970 264,993 20,752 45,877 104,367 887 522 1,371 0 245 128,866 62,950 213 529 30 94 473 8,202 225,834 36,537 29,061 0 3 Non-current liabilities (301) (9,823) (4,442) (24,596) (25,909) (235) (249) (287) (4) (1) (43,994) (33,291) (22) (435) (0) (2) (1) (2) (29,659) 0 (3,452) 0 0 Net non-current assets/ (liabilities) 177,669 255,170 16,310 21,280 78,457 651 272 1,083 (3) 244 84,871 29,659 192 94 30 92 472 8,201 196,175 36,537 25,609 0 3

Shareholders’ equity (175,028) 4,851 25,972 (66,899) (19,026) (1,617) (803) (1,047) (15) (1,062) (63,144) (23,116) (135) (627) (380) (60) (220) (4,808) (63,771) (35,382) (6,399) (97) (33) Net funds/(debt) (2,733) (140,669) (120) 26,667 (60,283) (4,101) (230) (898) 95 (2,935) (39,047) (20,968) (1,510) (675) (3,732) (143) 278 (3,403) (130,610) (405) (16,127) 96 4 Current financial assets 11 11,174 0 27,177 4,616 382 136 0 95 80 1,816 880 70 234 0 0 278 675 1,326 1,094 190 96 42 Current financial liabilities (2,744) (115,825) (120) (521) (4,219) (757) (83) (898) 0 (576) (24,056) (22,002) (1,579) (909) (3,734) (143) 0 (110) (2,506) (1,499) (7,528) 0 (38) Net current financial assets/ (liabilities) (2,733) (104,651) (120) 26,656 397 (375) 53 (898) 95 (496) (22,241) (21,122) (1,510) (675) (3,734) (143) 278 565 (1,181) (405) (7,338) 96 4

Non-current financial assets 0 15,191 0 12 0 0 0 0 0 0 80 154 0 0 2 0 0 0 6,538 0 2,537 0 0 Non-current financial liabilities 0 (51,209) 0 0 (60,680) (3,726) (283) 0 0 (2,438) (16,886) 0 0 0 0 0 0 (3,968) (135,967) 0 (11,326) 0 0 Net non-current financial assets/ (liabilities) 0 (36,018) 0 12 (60,680) (3,726) (283) 0 0 (2,438) (16,806) 154 0 0 2 0 0 (3,968) (129,429) 0 (8,789) 0 0

Amounts are shown in thousands of euros

280 Consolidated financial statements Acea acea acea acea acque acque acque acque Publiutenti Publiacqua Publiacqua Gori Voghera umbria elettria elga Sud ecogena overseas tirreno eblacea umbra apice ecomed electrabel electrabel electrabel electrabel ingegneria Industriali servizi ingegneria Vendite energy Power acque Produzione trading elettricità Group

Amounts are shown in thousands of euros

Consolidated financial statements 281 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Segment information

The following information is provided to fa- Acea Distribuzione, Acea RSE and Esogena cilitate understanding of the segment information • analysis and research services are included in below: the “Engineering and laboratory services” seg- • the “Energy generation and sales” segment ment, which includes Laboratori SpA includes the companies in the AceaElectrabel • waste to energy is included in the “Environ- Group, Eblacea and Tirreno Power ment and energy” segment, which includes the • distribution and public lighting are included in TAD Group companies, Aquaser, Kyklos and the “Energy networks” segment, which includes Solemme.

Balance sheet 2007 (restated)

Generation distribution sales Public italian overseas analysis Corporate environment total continuing Total Consolidation Group lighting water services water services and research and Energy operations adjustments total Investment 37,000 123,300 3,800 10,600 184,400 1,600 800 12,000 6,400 379,900 379,900 0 379,900 Segment assets Property, plant and equipment 265,774 1,307,895 1,237 74,685 707,735 1,875 1,734 45,018 99,248 2,505,200 2,505,200 35,073 2,540,273 Intangible assets 4,863 103,767 36,569 11,598 521,788 8,735 106 7,465 523 695,415 695,415 (347,558) 347,857 Non-current financial assets accounted for using equity method 61,510 21,227 9,860 92,597 92,597 92,597 Non-current financial assets 0 0 0 0 0 0 0 6,954 28 6,982 6,982 0 6,982 Other non-current trading assets 186,580 Other non-current financial assets 36,182 Inventories 1,680 30,404 12,651 5,578 15,646 586 0 (0) 2,874 69,419 69,419 (2,341) 67,078 Trade receivables due from third parties 23,158 82,472 408,756 34,025 485,232 1,879 9,363 24,964 22,584 1,092,433 1,092,433 (72,600) 1,019,833 Trade receivables due from parent 130 2,362 16,419 116,532 60,209 0 735 8,906 43 205,335 205,335 (45,902) 159,433 Trade receivables due from subsidiaries and associates 0 0 15,544 339 3,350 1 65 29,586 83 48,969 48,969 (24,330) 24,639 Other non-current trading assets 156,629 Other non-current financial assets 285,725 Cash and cash equivalents 93,201 Total assets 5,017,008

Segment liabilities Trade payables due to third parties 29,085 137,645 347,344 28,124 252,889 1,857 1,973 32,560 15,393 846,870 846,870 (72,311) 774,560 Trade payables due to parent 551 11,274 8,781 3,285 128,901 0 73 29,170 352 182,387 182,387 (24,370) 158,017 Trade payables due to subsidiaries and associates 0 2,668 32 45,117 5,848 73 23 10,843 0 64,605 64,605 (45,979) 18,625 Other current trading liabilities 324,178 Other current financial liabilities 611,647 Defined-benefit obligations 1,075 42,043 2,793 5,802 48,617 265 2,853 32,960 1,504 137,912 137,912 0 137,912 Other provisions 1,454 19,270 2,792 2,867 39,423 10 2,150 65,891 16,583 150,440 150,440 (300) 150,140 Provisions for deferred taxes 91,982 Other non-current trading liabilities 189,515 Other non-current financial liabilities 1,126,002 Shareholders’ equity 1,434,432 Total liabilities and shareholders’ equity 5,017,008

Amounts are shown in thousands of euros

282 Consolidated financial statements Generation distribution sales Public italian overseas analysis Corporate environment total continuing Total Consolidation Group lighting water services water services and research and Energy operations adjustments total Investment 37,000 123,300 3,800 10,600 184,400 1,600 800 12,000 6,400 379,900 379,900 0 379,900 Segment assets Property, plant and equipment 265,774 1,307,895 1,237 74,685 707,735 1,875 1,734 45,018 99,248 2,505,200 2,505,200 35,073 2,540,273 Intangible assets 4,863 103,767 36,569 11,598 521,788 8,735 106 7,465 523 695,415 695,415 (347,558) 347,857 Non-current financial assets accounted for using equity method 61,510 21,227 9,860 92,597 92,597 92,597 Non-current financial assets 0 0 0 0 0 0 0 6,954 28 6,982 6,982 0 6,982 Other non-current trading assets 186,580 Other non-current financial assets 36,182 Inventories 1,680 30,404 12,651 5,578 15,646 586 0 (0) 2,874 69,419 69,419 (2,341) 67,078 Trade receivables due from third parties 23,158 82,472 408,756 34,025 485,232 1,879 9,363 24,964 22,584 1,092,433 1,092,433 (72,600) 1,019,833 Trade receivables due from parent 130 2,362 16,419 116,532 60,209 0 735 8,906 43 205,335 205,335 (45,902) 159,433 Trade receivables due from subsidiaries and associates 0 0 15,544 339 3,350 1 65 29,586 83 48,969 48,969 (24,330) 24,639 Other non-current trading assets 156,629 Other non-current financial assets 285,725 Cash and cash equivalents 93,201 Total assets 5,017,008

Amounts are shown in thousands of euros

Consolidated financial statements 283 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Income statement 2007 (restated)

Generation distribution sales Public italian overseas analysis Environment Corporate Continuing Group Consolidation Consolidated lighting water services water services and research and Energy operations total adjustments total Segment revenue 16,007 94,240 1,475,809 77,923 614,490 15,517 880 58,240 33,493 2,386,599 2,386,599 (14,032) 2,372,568

Inter-segment revenue 118,660 284,164 147,329 205 1,403 0 18,465 27 75,456 645,708 645,708 (430,504) 215,204

Staff costs 2,904 53,415 8,280 10,186 104,612 4,165 6,658 7,136 35,807 233,164 233,164 (9,490) 223,674

Cost of materials and overheads 109,981 109,872 1,595,211 46,970 309,540 6,901 6,127 30,203 65,922 2,280,726 2,280,726 (439,809) 1,840,917

Gross operating profit/(loss) 21,783 215,117 19,647 20,972 201,741 4,451 6,559 20,928 7,221 518,418 518,418 4,762 523,181

Amortisation, depreciation, provisions and impairment of receivables 15,642 97,464 20,510 7,294 85,896 1,248 670 13,089 45,091 286,905 286,905 (57,090) 229,815

Operating profit/(loss) 6,141 117,653 (863) 13,678 115,845 3,203 5,889 7,839 (37,870) 231,513 231,513 61,853 293,366

Finance (costs)/income (73,316)

Profit/(loss) on investments accounted for using equity method 20,258 0 0 102 0 19,768 40,128 40,128 40,128

Profit/(loss) from discontinued operations (692)

Profit/(loss) before tax 26,399 117,653 (863) 13,678 115,947 3,203 5,889 7,839 (18,102) 271,641 271,641 61,853 259,486

Taxation 89,465

Net profit/(loss) 170,021

Amounts are shown in thousands of euros

284 Consolidated financial statements Generation distribution sales Public italian overseas analysis Environment Corporate Continuing Group Consolidation Consolidated lighting water services water services and research and Energy operations total adjustments total Segment revenue 16,007 94,240 1,475,809 77,923 614,490 15,517 880 58,240 33,493 2,386,599 2,386,599 (14,032) 2,372,568

Inter-segment revenue 118,660 284,164 147,329 205 1,403 0 18,465 27 75,456 645,708 645,708 (430,504) 215,204

Staff costs 2,904 53,415 8,280 10,186 104,612 4,165 6,658 7,136 35,807 233,164 233,164 (9,490) 223,674

Cost of materials and overheads 109,981 109,872 1,595,211 46,970 309,540 6,901 6,127 30,203 65,922 2,280,726 2,280,726 (439,809) 1,840,917

Gross operating profit/(loss) 21,783 215,117 19,647 20,972 201,741 4,451 6,559 20,928 7,221 518,418 518,418 4,762 523,181

Amortisation, depreciation, provisions and impairment of receivables 15,642 97,464 20,510 7,294 85,896 1,248 670 13,089 45,091 286,905 286,905 (57,090) 229,815

Operating profit/(loss) 6,141 117,653 (863) 13,678 115,845 3,203 5,889 7,839 (37,870) 231,513 231,513 61,853 293,366

Finance (costs)/income (73,316)

Profit/(loss) on investments accounted for using equity method 20,258 0 0 102 0 19,768 40,128 40,128 40,128

Profit/(loss) from discontinued operations (692)

Profit/(loss) before tax 26,399 117,653 (863) 13,678 115,947 3,203 5,889 7,839 (18,102) 271,641 271,641 61,853 259,486

Taxation 89,465

Net profit/(loss) 170,021

Amounts are shown in thousands of euros

Consolidated financial statements 285 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Balance sheet at 31 December 2008

Generation distribution sales Public italian overseas analysis Corporate environment total continuing assets held total Consolidated Group lighting water services water services and research and Energy operations for sale adjustments total Investment 28,810 134,900 8,100 9,700 198,400 300 800 18,800 17,500 417,310 0 417,310 0 417,310

Segment assets Property, plant and equipment 424,226 1,353,263 1,335 67,588 872,259 1,811 2,080 53,467 104,833 2,880,862 0 2,880,862 30,335 2,911,197 Intangible assets 59,974 105,543 37,304 9,946 500,274 8,272 101 9,612 9,177 740,203 0 740,203 (316,683) 423,520 Non-current financial assets accounted for using equity method 0 0 0 0 0 0 0 0 25,556 Non-current financial assets 6,154 Other non-current trading assets 228,643 Other non-current financial assets 30,294 Inventories 10,299 32,586 13,854 3,779 18,493 338 0 (0) 2,957 82,306 0 82,306 (5,735) 76,572 Trade receivables due from third parties 52,845 79,313 381,042 20,183 532,652 2,931 13,802 35,972 37,682 1,156,422 0 1,156,422 (100,374) 1,056,048 Trade receivables due from parent 216 6,199 25,254 78,342 60,137 0 184 8,967 1,449 180,748 0 180,748 (5,878) 174,870 Trade receivables due from subsidiaries and associates 0 1 19,730 2,988 3,747 68 28 55,339 814 82,716 0 82,716 (51,870) 30,846

Other non-current trading assets 184,427 Other non-current financial assets 213,736 Cash and cash equivalents 212,060

Total assets 547,561 1,576,905 478,520 182,827 1,987,561 13,420 16,195 163,357 156,912 5,123,257 0 5,123,257 (450,204) 5,573,924

Amounts are shown in thousands of euros

286 Consolidated financial statements Generation distribution sales Public italian overseas analysis Corporate environment total continuing assets held total Consolidated Group lighting water services water services and research and Energy operations for sale adjustments total Investment 28,810 134,900 8,100 9,700 198,400 300 800 18,800 17,500 417,310 0 417,310 0 417,310

Other non-current trading assets 184,427 Other non-current financial assets 213,736 Cash and cash equivalents 212,060

Total assets 547,561 1,576,905 478,520 182,827 1,987,561 13,420 16,195 163,357 156,912 5,123,257 0 5,123,257 (450,204) 5,573,924

Amounts are shown in thousands of euros

Consolidated financial statements 287 Consolidated income Consolidated balance Consolidated balance Cash Flow Statement of changes Notes to the Annexes statement sheet - Assets sheet - Liabilities Statement in shareholders’ equity financial statements

Balance sheet at 31 December 2008

Segment liabilities

Trade payables due to third parties 56,949 154,841 364,642 43,793 289,431 1,005 2,408 37,572 33,711 984,353 0 984,353 (98,209) 886,143

Trade payables due to parent 927 14,646 16,575 8,287 124,313 390 477 29,940 2,344 197,898 0 197,898 (48,518) 149,381

Trade payables due to subsidiaries and associates 0 2,665 541 2,363 3,972 75 149 15,014 15 24,795 0 24,795 (4,520) 20,274

Other current trading liabilities 421,470 Other current financial liabilities 381,344

Staff termination benefits and other defined-benefit obligations 4,799 40,722 3,550 0 45,605 315 2,509 28,835 1,253 127,588 0 127,588 0 127,588

Other provisions 7,998 16,283 2,086 1,817 36,014 0 2,263 79,962 15,794 162,215 0 162,215 (712) 161,503

Provisions for deferred taxes 86,198 Other non-current trading liabilities 187,522 Other non-current financial liabilities 1,708,037 Shareholders’ equity 1,444,463

Total liabilities and shareholders’ equity 70,674 229,156 387,393 56,260 499,335 1,784 7,806 191,323 53,116 1,496,849 0 1,496,849 (151,959) 5,573,924

Amounts are shown in thousands of euros

288 Consolidated financial statements Generation distribution sales Public italian overseas analysis Corporate environment total continuing assets held total Consolidated Group lighting water services water services and research and Energy operations for sale adjustments total