Annual Report 2009 2009 Annual Report NOTICE This Document Has Been Prepared by IBERDROLA S.A

1 mm grosor cartón1 mm grosor 15 mm de camisa + 15 mm de camisa + 1 mm grosor cartón Annual Report 2009 Annual Report 2009 10x10 mm 15 mm de camisa + 1 mm grosor cartón 15 mm de camisa + 1 mm grosor cartón NOTICE This document has been prepared by IBERDROLA S.A. for use by shareholders, investors, analysts and the media with respect to information corresponding to fiscal year 2009 and at the General Shareholders’ Meeting of IBERDROLA, S.A., which has been called for March 26 and 27, 2010. The Company does not assume any responsibility for this document if it is used for a purpose other than as indicated above. IBERDROLA, S.A. also assumes no obligation to update or revise this document. FORWARD-LOOKING STATEMENTS This document contains forward-looking information and statements regarding IBERDROLA, S.A., including information extracted from the 2008-2010 Strategic Plan that was approved by the Board of Directors of Iberdrola, S.A. on October 23, 2007. The relevant documents in connection therewith were submitted to the National Securities Market Commission (Comisión Nacional del Mercado de Valores) (CNMV) on October 24, 2007, on which date they were also provided to the financial community and the media. The 2008-2010 Strategic Plan may be viewed on the Company’s website: www.iberdrola.com. Forward-looking statements are statements that are not historical facts. These statements include financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, products and services, and statements regarding future performance. Forward-looking statements are generally identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates” and similar expressions. The projections and estimates are based on numerous subjective judgements and estimates, which may or may not be correct. Although the management of Iberdrola, S.A. believes that the expectations contained in such statements are reasonable, investors in and holders of Iberdrola, S.A. shares are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of Iberdrola, S.A., that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the public documents sent by Iberdrola, S.A. to the National Securities Market Commission. Therefore, this document may not be considered an implicit or explicit guarantee regarding the accuracy or integrity of such projections and estimates, or of the future of Iberdrola, S.A. Prior results should not be taken as an indication of future results. Except as required by applicable law, Iberdrola, S.A. does not undertake any obligation to update any forward-looking information or statements. Annual Report 2009 2 2009 ANNUAL REPORT IBERDROLA 3 contents >> 2 2009 ANNUAL REPORT IBERDROLA 3 1 2 3 4 THE GROUP: MANAGEMENT: THE BUSINESSES: THE FUTURE: A DECADE OF FINANCIAL CLEAN SAFE AND GROWTH SOUNDNESS ENERGY AND SUSTAINABLE AND STRENGTH INTERNATIONAL ENERGY Letter from the EXPANSION Chairman Operational Sustainability: P4 highlights Presence of the Human Resources P12 IBERDROLA Group in P30 10 years of sustained the world growth of IBERDROLA R&D Share performance P16 P6 P14 P31 Spain and Portugal Corporate Economic and The environment Deregulated Business governance financial data Quality P18 P10 P15 P32 Spain Distribution Customers Business Suppliers P20 Shareholders The media IBERDROLA Governments Renovables Regulatory authorities P22 Society P33 ScottishPower P24 IBERDROLA USA P26 IBERDROLA Latin America P27 IBERDROLA Ingeniería y Construcción P28 Regulation P29 4 2009 ANNUAL REPORT IBERDROLA 5 THE Group INCREASES its operating results IN 2009 I AM PLEASED TO ADDRESS ALL OF YOU in order to submit IBERDROLA’s Annual Report for Fiscal Year 2009, a year in which, despite the complex international economic environment, our Group increased its operating results and recurring Net Profits, thanks to our commitment to clean energy and international diversification. Within a context of weak energy demand, IBERDROLA has increased its Gross Operating Profit production has grown 1% to 143,000 GWh, basically (EBITDA) by 6.3%, to 6,815 million euros, which once again due to the increase in wind energy generation (26% over bears witness to the soundness of the Company’s business the prior year), which already accounts for 15% of the model, in which the regulated businesses and renewable Group’s total generation. The main driver of this growth energy account for two thirds of its total activities. The was the significant activity at wind farms in the United Group’s Net Profit was 2,824 million euros, while Recurring States and Spain. Net Profit rose by 7.2% to 2,602 million euros. At year-end, the Group’s total installed capacity In Fiscal Year 2009, IBERDROLA also intensified efforts stood at approximately 44,000 MW worldwide, following to maintain its financial strength and improve leverage, the addition of 1,500 MW of new capacity provided which, coupled with operating cash flow (which grew 11.2% primarily by wind power technology. to 4,873 million euros) has enabled IBERDROLA to improve its financial ratios and maintain its A rating. Energy distributed to IBERDROLA’s more than 28 million customers increased by almost 12% to 205,000 All the foregoing allows IBERDROLA to propose GWh, with a significant improvement in service quality in for approval at the General Shareholders’ Meeting total all geographic regions. shareholder compensation of 0.332 euro per share to 4 2009 ANNUAL REPORT IBERDROLA 5 be charged to Fiscal Year 2009, thus maintaining the value for all our shareholders, thanks to the growth in same level of compensation as the prior year. This figure dividends (which have increased by a factor of 2.5) and includes an interim dividend of 0.143 euro (already the performance of its shares (the price of which has paid in December), a supplemental payment of 0.184 doubled in the 2000-2009 period). euro (which can be in bonus shares or in cash, at the shareholder’s option, in accordance with the proposed This transformation has gone hand in hand with resolution submitted at the General Shareholders’ an express commitment to develop a sound corporate Meeting for such purpose), as well as a bonus of 0.005 culture based on good governance, transparency, euro per share for attending the General Shareholders’ corporate ethics and social responsibility, which values Meeting. are reflected in a stable, independent and responsible business model that is linked to our corporate purpose The 2000-2009 period was a decade of profitable and the assurance of the common interests of the growth for IBERDROLA, during which our Group shareholders. underwent a far-reaching transformation based on four essential pillars: focus on its recurring core business In the years to come, IBERDROLA’s outstanding (energy generation and supply as well as expansion global workforce will continue to work to address and management of the grid); world leadership in new challenges in the energy industry. Our Company the development of clean energy, with the company has the required experience and capacity to lead the becoming the leading wind power producer worldwide; technological change that is currently taking place and increased operating efficiency; and improvement of the to capitalize on the opportunities arising in the new Group’s financial strength. social and regulatory environments, which will allow us to respond to a society that demands ever cleaner and During this decade, IBERDROLA transformed from more efficient energy. a local company into a global Group. The contribution of international activities and renewable energy gradually The trust of thousands of shareholders who support has led to IBERDROLA becoming us and for whom we work on a daily basis encourages us “IBERDROLA’s far-reaching a benchmark at the international on the path of constant improvement that we have set transformation during the past level due to its diversification for ourselves, which is our best guide and a reflection of 10 years has created value for all and its commitment to clean the unflagging commitment to excellence that we have our shareholders” energy. This path to growth made to our customers, employees and suppliers and and diversification has allowed to the societies, countries and communities we serve IBERDROLA to become one of the world leaders in its around the world. industry, with a significant presence in the principal markets. In these 10 years, IBERDROLA has multiplied its assets by a factor of five and more than tripled its Net Profit and its Gross Operating Profit (EBITDA). Ignacio S. Galán Most importantly, this deep transformation has created Chairman of IBERDROLA 6 2009 ANNUAL REPORT IBERDROLA 7 2000-2009: The decade of IBERDROLA’s transformation IBERDROLA IS NOW ONE OF THE LEADING ENERGY COMPANIES WORLDWIDE, WITH 43,700 MW OF INSTALLED CAPACITY On January 8, 2010, it was since 2000 all contributed to such award. companies worldwide and the world leader announced in London that IBERDROLA Such pillars are: foresight, a strong wager in wind power. It did so in one of the most and its partner, Vattenfall, were awarded on clean energy, international expansion, deregulated markets with the highest growth the construction of one the largest marine financial soundness and commitment to potential, and in which it did not even have a wind farms in the world, with a capacity innovation and technological development to presence only three years ago. A few months of 7,200 MW, capable of supplying clean address and play a leading role in responding before, the consortium of which IBERDROLA energy to almost five million households.

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