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Annual Report 2009 2009 Annual Report NOTICE This document has been prepared by 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 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 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. to the energy challenges of the 21st century. is a member had acquired the Sellafield site, Participation in this ambitious project reflects also in the United Kingdom, for the possible IBERDROLA’s radical transformation over the In fact, IBERDROLA participated in the installation of a nuclear plant with a capacity last decade, as the main strategic pillars that bidding after having become firmly of 3,600 MW, on which construction could have changed the Company’s profile and size established as one of the five largest energy begin in 2015. 6 2009 annual report iberdrola 7

The magnitude of the objectives for investment IBERDROLA’s active presence in A successful strategy in new electricity generation capacity being both countries, the growth of In 2000, IBERDROLA’s wind and undertaken in the United Kingdom, of which the Spanish and Latin American mini-hydroelectric capacity was IBERDROLA’s projects are part, coupled with markets, and its leadership in the only 1,000 MW, the traditional the launching in the United States of the development of the clean generation business in Spain contributed largest investment program in renewable technologies that are becoming part 99% of its net income, and it energy in its history, are examples of the of the new international energy model, ranked 19th among leading electricity relentless move towards a new international bear witness to the wisdom companies and 7th on the Spanish energy model that focuses on renewable of IBERDROLA’s decisions and to its Stock Exchange, with assets energy and low-carbon technology to achieve ability to strategically anticipate of 18,000 million euros and a safe, competitive and sustainable growth. industry trends. capitalization of 12,000 million. 8 2009 annual report iberdrola 9

“IBERDROLA has a sound and profitable plan that creates value

In late 2009, IBERDROLA cemented friendly mergers with ScottishPower A forward-looking plan its position as the leading Spanish (Scotland) and Energy East (United States), IBERDROLA has laid the groundwork for its energy company and the largest wind on the one hand, and the international future growth and is ready to play a leading power company worldwide, with growth of IBERDROLA Renovables (in which role in the new international energy scenario, installed capacity of over 10,700 MW. all the Company’s wind-energy assets were which involves confronting the challenge of The contribution of the international concentrated and which carried out the ensuring a safe, competitive and sustainable businesses to the Group’s results had largest IPO ever in Spain), on the other. supply, and in which clean technologies risen to 65% and, after a 5-fold increase will be a decisive factor in the fight against in the value of its assets and a year-end Decisive for the success of the Company’s climate change and reducing dependence on capitalization of 35,000 million euros, international growth was IBERDROLA fossil fuels. it was among the five largest electricity Ingeniería y Construcción, one of the companies in the world and the fourth- largest energy engineering companies in In the medium term, IBERDROLA’s main largest on the Spanish Stock Exchange. the world, active in conventional, nuclear projects will focus on the growth of wind This exponential growth in IBERDROLA’s and renewable energy generation and power, primarily in the United States and principal indicators is the result of the networks in 25 countries. the United Kingdom; on the construction of strategic turn made by the Company in hydroelectric plants in Spain, Portugal and 2001, to which it allocated investments Following a decade of uninterrupted Brazil; and on the potential development of 62,000 million euros in two clearly growth, IBERDROLA is now a leading of carbon capture and storage projects separate stages. multinational energy company, with and construction of nuclear plants. The an installed capacity of 43,600 MW, 28 Company will also continue to wager The 2001-2006 Strategic Plan redirected million customers, and a workforce of on new technologies and innovation by IBERDROLA’s activities towards organic close to 33,000 employees committed to developing intelligent networks that will growth focusing on its core business, a plan that creates value and wealth in all make it possible to enhance service quality primarily by building combined-cycle of the regions in which it has a presence: and boost efficiency, and will participate in plants in Spain, Mexico and Brazil and by 35,000 indirect jobs, 27,000 million euros the development and implementation of developing wind farms, mostly in Spain. in purchases and 100 million euros per recharging networks for electric vehicles. By the end of that period, IBERDROLA had year in R&D investments. This growth doubled its installed capacity and profits and has also allowed the company to offer In short, IBERDROLA has a plan that is was poised to embark on the next stage of its our shareholders high returns and an sound, forward-looking, profitable and growth strategy: the international leap. increasing stock price, which has doubled value-creating, underpinned by a sustainable between 2000 and 2009, an increase growth strategy, its management capacity, Strong international expansion far in excess of benchmark indices and and its financial and technological potential, In 2007, IBERDROLA began a process equal to those of the largest European allowing it to successfully address the of strong expansion into new markets, electric companies and the leading Ibex 35 challenges of an energy environment that is deploying a two-pronged strategy: the companies. being fully transformed. 8 2009 annual report iberdrola 9

and that is supported by a strategy of sustainable growth ”

2000-2009 installed capacity (MW) 2000-2009 net production (GWh) 2000-2009 renewable capacity (MW)

Installed capacity increases almost The Group’s total production increases Installed wind power capacity three-fold in 10 years almost three-fold in 10 years increases by a factor of 11 45,000 145,000 15,000 43,667 142,776

30,000 95,000 10,000 10,752 x2.7 x2.8 x11 51,171 15,000 16,062 45,000 5,000

1,000 0 0 0 2000 2009 2000 2009 2000 2009

2000-2009 distributed power (GWh) 2000-2009 customers (millions) sales (millions of euros)

Distributed power increases The number of customers stands at 28 Sales increase more than three-fold in 10 years million, 84.6% more than in 2000 three-fold in 10 years 215,000 30 30,000 28 204,826 24,559 160,000 20 20,000

x3 15.1 +84.6% x3.2 105,000 10 10,000 69,912 7,616 50,000 0 0 2000 2009 2000 2009 2000 2009

Ebitda (millions of euros) net profit (millions of euros) total assets (millions of euros)

The renewables and international businesses Net profit increases more Total assets increase more drive EBITDA, which grows 219% than three-fold in 10 years than four-fold in 10 years 9,000 3,000 90,000 2,824 87,367 6,815 6,000 2,000 x3.2 x3.3 50,000 x4 2,000 2,134 1,000 852 20,615 0 0 10,000 2000 2009 2000 2009 2000 2009 10 2009 annual report iberdrola 11

A good corporate governance model according to best international practices ETHICAL AND RESPONSIBLE CONDUCT IS A HALLMARK OF IBERDROLA’S ACTIVITIES

The shareholders acting at board of directors (1) General Shareholders’ Meeting constitute the Company’s highest Position on the Board Director Status governance body. The Board of Directors Chairman and CEO Mr. José Ignacio Sánchez Galán Executive consists of 15 Directors. Pursuant to Article 32 of the By-Laws, the management of Vice-chairman Mr. Juan Luis Arregui Ciarsolo Independent the Company is entrusted to a Board of Vice-chairman Mr. Víctor de Urrutia Vallejo Independent Directors, to the Chairman thereof, to the Executive Committee, and to the Chief Director Mr. José Orbegozo Arroyo Independent Executive Officer, if any. Mr. Lucas María de Oriol López- Director Independent The Board of Directors has two other Montenegro Committees: Director Mr. Ricardo Álvarez Isasi Independent • The Audit and Compliance Committee Director Mr. José Ignacio Berroeta Echevarría Independent • The Nominating and Compensation Committee Director Mr. Julio de Miguel Aynat Independent The latter two Committees are advisory Director Mr. Sebastián Battaner Arias Independent bodies made up of independent Directors. Director Mr. Xabier de Irala Estévez Proprietary (2)

The activities of the Board of Directors focus Director Mr. Íñigo Víctor de Oriol Ibarra External on the governance of the Group and on mapping out general strategy, policies and Director Ms. Inés Macho Stadler Independent guidelines, as well as on the supervision Director Mr. Braulio Medel Cámara Independent and review of particularly important (3) matters. The Management Team, directly Director Mr. José Luis Olivas Martínez Proprietary or through the relevant committees, Director Ms. Samantha Barber Independent is charged with the organization of the Group and with the coordination, Secretary Mr. Julián Martínez-Simancas Sánchez dissemination and implementation Legal Counsel Mr. Federico San Sebastián Flechoso of general strategies and guidelines. (1) As of December 31, 2009. Management of the various business areas (2) The Director Mr. Xabier de Irala Estévez was appointed at the proposal of Bilbao Bizkaia Kutxa (BBK). is decentralized and entrusted to each (3) The Director Mr. José Luis Olivas Martínez was appointed at the proposal of Caja de Ahorros de Valencia, Castellón y Alicante, Bancaja (Bancaja). parent company, which generally has its own governance and control bodies. 10 2009 annual report iberdrola 11

Policies that may be viewed on the corporate website: The Board of Directors has approved various Corporate Governance,

policies orporate Risk and Social

C Responsibility policies as part of the Company’s Corporate Governance System. They are all available at www.iberdrola.com.

Good governance principles and recommendations: IBERDROLA has included in its internal regulations the most widely internationally recognized good governance principles and recommendations and, in particular, those set forth in the unified Good Governance Code approved by the National Securities Market Commission (CNMV). IBERDROLA is committed to continually updating and improving its corporate governance policies, regulations and practices.

Future headquarters of IBERDROLA, in Bilbao. 12 2009 annual report iberdrola 13

Operational data IBERDROLA’s output reaches 143,000 GWh

2008-2009 installed capacity (MW) 2009 installed capacity (MW)

IBERDROLA has an 3% 1% installed capacity of 45,000 8% 43,667 MW 43,667 43,327 11% 30% 30,000

15,000 22% 25% 0 Combined-cycle Renewable Hydro-electric Thermal 2008 2009 Nuclear Co-generation Fuel-oil

2008-2009 net output (GWh) 2009 output by region (%)

Over 50% of output 1% is generated outside Dry Lake wind farm (Arizona, USA). 145,000 of Spain 27% 141,268 142,776 The Group’s 95,000 46% international expansion and its commitment 45,000 8% to clean and sustainable energy 0 18% are reflected in its 2008 2009 Spain United Kingdom USA Latin America Rest of the world operational figures

Electricity In Spain, output reaches Over 43,600 MW production rises 1.1% 65,316 million kWh (-3.4% of installed capacity IBERDROLA increases net electricity compared to 2008) with a In 2009, IBERDROLA reaches an installed production by 1.1% in 2009, substantial contribution from capacity of 43,667 MW, compared to thanks to its commitment to renewable energy (+12.9%) and the 43,327 MW as of the end of 2008. internationalization and clean energy, large hydro-electric facilities It continues to diversify and expand which offsets lower output from (+5.4%), which exceed its generation facilities worldwide traditional plants during the year, prior-year figures. Nuclear plants during 2009, most notably abroad, and reaching 142,776 million kWh, of which produce 22,830 million kWh and particularly in the United States, where it 54.3% is generated at electricity plants gas combined cycles produce already has 4,525 MW. Installed capacity abroad (77,460 million kWh). 18,122 million kWh, both down 7.8%. stands at 6,818 MW in the United Kingdom, o nal highlights 2009 o perati 12 2009 annual report iberdrola 13

2009 renewable energy 2008-2009 renewable capacity (MW) 2008-2009 renewable energy output (GWh) project portfolio (%)

Renewable installed capacity exceeds The Renewable 10,750 MW in 2009 energy portfolio 15,000 30,000 stands at 62,000 MW, 23% 23% of which 40% is located in the United States 10,000 10,752 20,000 21,490 9,302 16,998 5,000 10,000 14%

40% 0 0

2008 2009 2008 2009 Spain United Kingdom USA Rest of the world

2008-2009 distributed energy (GWh) 2008-2009 customers (millones) 2009 customers by region (%)

63.2% of customers, in the international 250,000 30 35% business 28 27.6 37% 200,000 204,826 20 183,236 150,000 10

10% 100,000 0 18%

2008 2009 2008 2009 Spain United Kingdom USA Latin America

5,536 MW in Latin America, and 1,083 MW change. In 2009, by technology, 65.3% of energy is emission-free in the rest of the world. Spain ended the wind power accounts for 24.6% In Spain, 65.3% of IBERDROLA’s electricity year with a capacity of 25,705 MW. of total capacity; hydro-electric for production is emission-free, with a

22.5%, nuclear for 7.7%, combined cycle 6% reduction in grams of CO2 per kWh More clean for 30.2%, thermal for 10.7%, generated (from 170 to 160 grams). energy capacity co-generation for 2.7% and fuel-oil for The Group‘s atmospheric emissions The Group’s commitment to growth 1.6%. This trend will continue in the during the period stand at 279 grams

in the basic energy business through coming years, as more renewable of CO2 per kWh, 2.4% less than in 2008. plants that are respectful of the energy facilities and hydro-electric Thanks to the commitment to cleaner environment makes IBERDROLA a plants come online that are capable of technology, almost 40% of output

leader in the fight against climate covering demand peaks. is free of CO2 emissions. 14 2009 annual report iberdrola 15

Economic and financial data

IBERDROLA’s stock market performance in fiscal year 2009

35%

25%

15%

5%

-5%

-15%

-25%

IBERDROLA +2% -35% Eurostoxx utilities -0.8% jan-09 feb-09 mar-09 apr-09 may-09 jun-09 jul-09 aug-09 sep-09 oct-09 nov-09 dec-09

Compensation per share (euros)

2009 2008 Interim dividend (January) 0.143 0.143 Option to receive the compensation corresponding to the supplemental dividend 0.184* 0.184 in cash or in shares (July) Attendance bonus 0.005 0.005 Total 0.332 0.332 * In the event that the shareholders at the 2010 General Shareholders’ Meeting approve the increase in share capital by means of a scrip issue provided for in item 6 of the Agenda for such Meeting, a new shareholder compensation mechanism would be adopted whereby an option will be available to receive an amount equal to the supplemental dividend payment for fiscal year 2009, either in cash or in shares. IBERDROLA, S.A. undertakes to acquire the rights (stemming from the respective capital increase) at a guaranteed fixed price of at least 0.184 euros.

Peñascal wind farm (Texas, USA). 14 2009 annual report iberdrola 15

Consolidated income statement (millions of euros)

2009 2008 Variación % Gross margin 10,788 10,001 7.9% Net operating expenses -3,590 -3,269 9.8% Ebitda 6,815 6,412 6.3% Operating income/EBIT 4,509 4,262 5.8% Financial income (expense) – -1,109 -1,026 8.1% Non-recurring (gross) 225.3 555.2 -59.4% Net profit 2,824 2,861 -1.3% Recurring net profit 2,602 2,427 +7.2%

Ebitda (millions of euros) Net profit (millions of euros)

9,000 3,000 6,815 EBITDA grows 2,861 2,824 Net profit is 6,412 +6.3% 6.3% to 6,815 2,602 2,824 million euros, up 6,000 million euros 2,000 2,427 7.2% in recurring terms

+7.2% 3,000 1,000

Recurring 0 0 Non-recurring 2008 2009 2008 2009

Operating cash flow (millions of euros) Shareholders’ equity (millions of euros)

5,000 30,000 4,873 29,030 4,383 +11.2% Operating cash flow 25,708 +12.9% Shareholders’ is up 11.2% equity stands at 20,000 29,030 million euros 3,000 10,000

1,000 0 2008 2009 2008 2009 16 2009 annual report iberdrola 17

The IBERDROLA Group, present in close to 40 countries

Germany

Hungary

the netherlands

belgium

united Kingdom

Canada Switzerland

united States France

Guatemala Mexico portugal

Spain

Venezuela italy

bolivia austria

brazil algeria

Chile albania

16 2009 annual report iberdrola 17

Slovakia latvia ukraine turkey

poland lithuania Sweden

bulgaria

russia

Qatar China

uae

tunisia Greece

Kenya

egypt deregulated business romania distribution renewables engineering office Gas storage 18 2009 annual report iberdrola 19

Spain and Portugal Deregulated Business: a flexible and diversified generation team FULL DEREGULATION OF THE ENERGY MARKET IN JULY 2009, A GREAT OPPORTUNITY FOR IBERDROLA

On July 1, 2009, the Spanish The Deregulated Business is responsible of construction and operation of power plants, and it sells energy in deregulated electricity market was fully deregulated. markets. In Spain, with the push towards market deregulation in 2009, the percentage of production sold in advance has Comprehensive rates thus disappeared risen from 57% in 2008 to 61% in 2009, and is expected to reach 95% in 2010. This provides greater price stability, both for customers and for suppliers. and the Last Resort Rate (Tarifa de Último Recurso) (TUR) came into force. Installed capacity (MW) Energy produced (GWh) IBERDROLA is making a strong effort (Ordinary system) (Ordinary system) within this context to meet the energy Cogeneration Cogeneration 2% (375 MW) Thermal 4% (2,239 GWh) needs of all customers. To that end, it has Thermal combined cycle Hydroelectric combined cycle 33% (18,122 GWh) 17% launched several initiatives in line with a 29% (5,893 MW) (9,633 GWh) commercial strategy focused on profitable growth while adjusting to market trends. The solutions offered are price- competitive, energy-efficient and within the parameters of excellence in service.

Thermal fuel/ gas This new approach has made it possible 4% (710 MW) Nuclear Thermal 42% to reach a volume of more than 30,000 Thermal coal fuel/gas (22,830 GWh) 6% (1,253 MW) Hydroelectric 0.062% contracts a week. Thus, the number of 43% (8,847 MW) (34 GWh) Thermal Nuclear coal contracts on the deregulated market 16% (3,344 MW) 4% (2,059 GWh) in Spain has doubled to more than two Total: 20,422 MW Total: 54,917 GWh million. It should be noted that over Hydroelectric Nuclear Thermal coal Thermal fuel/gas Thermal combined cycle Cogeneration one-third of electricity and gas contracts have an associated value-added product or service. Electric power supplied by the Gas supply was 66,647 GWh in 2009, wholesale electricity and gas markets. Deregulated Business in 2009 totaled 13% less than in 2008 due to shrinking It also carries on retail business abroad, 41,405 GWh, almost triple the 2008 domestic and international demand. Due which has grown from 83 GWh in 2008 figure. to sales initiatives, the customer portfolio to 1,335 GWh in 2009. The Group has in the household segment increased by a presence in the electricity markets of The gas market almost 50% to 278,217 contracts. 12 countries: Spain, France, Germany, The Spain and Portugal Deregulated Italy, The Netherlands, Belgium, Austria, Business manages a flexible and International markets Portugal, Switzerland, the United competitive portfolio of gas supply At the international level, IBERDROLA Kingdom, Greece and Poland. It also contracts to meet its customers’ demand. is one of the main players in European actively participates in the natural gas 18 2009 annual report iberdrola 19

HYDROELECTRIC GENERATION: >> Construction continues at the La Muela II plant, which is set to come on-stream in 2012. Investment in this project in 2009 totaled 66 million euros. >> At the Sil plants, 30.5 million euros have been 2009 MILESTONES allocated to the San Esteban II (176 MW) civil works project and to the preparations and fist contracts for San Pedro II and Santa Cristina. >> In 2008, an agreement was signed with the Portuguese Government for the construction of the Támega river hydroelectric complex, a 1,400 million euro investment in four plants, with an aggregate capacity of 1,135 MW. In 2009, geotechnical studies were conducted, the facilities were identified, the Environmental Impact Assessment was filed and implementation thereof commenced.

THERMAL GENERATION: >> The desulphurization plant at Construction of the La Muela II hydroelectric plant in Cortes de Pallás (Valencia). the Lada Thermal Facility, which has been in operation since markets in France, Germany, Austria and Germany, where it supplies 33 GWh a year August 2009, reduces sulfur Portugal, as well as in the international of Certified Green Energy to its customers oxide emissions by 97%. Liquefied Natural Gas (LNG) market. NUCLEAR EMISSIONS: In 2009, IBERDROLA cemented its In France, the Group’s presence will >> In 2009, IBERDROLA invested commercial position in Portugal, with a grow in 2010 thanks to the agreement over 200 million euros in keeping market share of 16% (more than 2,500 signed with large industrial customers its nuclear plants at the forefront GWh/year). The strong wager on this to supply 110 GWh. This reflects the with the latest technology market goes hand in hand with sizeable Group’s strategy of being dual suppliers and ensuring the highest level investments in clean generation. The of electricity and gas in the French of safety and reliability in company also distributes electricity in industrial market. operations. 20 2009 annual report iberdrola 21

Electricity Distribution Spain: increased reliability of the grid and better quality of supply

This subsidiary of IBERDROLA to improve the quality of electricity historical level for this indicator in Spain covers 32 provinces and serves supply, in 2009 the Installed at IBERDROLA and an improvement almost 17 million people. Capacity Equivalent Interrupt Time of almost 15% over the 2008 (ICEIT) indicator, which measures level, confirming the positive trend Over 10 million points of supply the equivalent interrupt time of installed begun in 2001 (with a 44% reduction 2009 ended with over 10 million points capacity, stood at 1.38 hours, the best since then). of electricity supply in Spain (up almost 1% from the prior year) to which over 98,000 million kWh of electric power were distributed (5.1% less than in 2008). Worth noting is the drop of almost 13% in electric power supplied to the industrial sector, while increasing 1% in the household sector and decreasing 0.6% in the services sector. The share in electric power distributed was approximately 39.6% of the total for mainland Spain.

Greater network reliability In 2009, IBERDROLA Distribución Eléctrica S.A. invested 546 million La Vall D`Uixó Substation (Castellón) euros in Spain to expand, enhance the safety and reliability and reduce the Installed Capacity Equivalent environmental impact of its facilities. Interrupt Time (ICEIT) (Hours/year) Distributed power (GWh) 22 new sub-stations were commissioned 3 100,000 during the fiscal year and 78 others 98,162 were enlarged, which increased installed 2.49 2 75,000 capacity by 3,242 MVA. 2,976 km. of new 69,912 lines and 3,160 new transformer centers 1.38 1 50,000 were also added to the grid.

0 25,000 Improved quality of supply 2000 2009 2000 2009 As a result of IBERDROLA’s commitment 20 2009 annual report iberdrola 21

Oropesa del Mar Transformer Substation (Castellón). 22 2009 annual report iberdrola 23

IBERDROLA Renovables: world leader in wind energy* Boasting the largest project portfolio in the industry, with over 58,400 MW **

With a presence in more largest growth drivers of the IBERDROLA than 20 countries, the largest volume Group, which owns 80% of its share of renewable assets (21,537 million capital. euros), the largest project portfolio in the industry (58,416 MW **), assets in The company has a sound foundation operation in 12 markets (Spain, United for continued sustainable growth: States, United Kingdom, Greece, France, regulations are increasingly favorable Poland, Portugal, Mexico, Germany, Brazil, both in the United States (the main Italy and Hungary), and with excellent growth market for IBERDROLA growth potential, IBERDROLA Renovables Renovables) and in Europe, and efforts has become firmly established as the continue to boost efficiency, both in world leader in wind energy* and the costs and in investments, in order to largest renewable energy company in continue to leading the industry. 2009. The company’s production using The growth of IBERDROLA Renovables in renewable technology prevented the 2009 is basically due to increased capacity atmospheric emissions of approximately

and production. Installed capacity grew 10 million tons of CO2 per year, to 10,752 MW, up 16% from 2008. equal to the household electricity Of the new facilities, 409 MW are located consumption of approximately 21 in Spain (28%) and 72% outside of Spain million Spaniards (close to 50% (714 MW in the United States, 137 MW in of the entire population) as of the the United Kingdom and 191 MW in the end of fiscal year 2009. rest of the world). Electric power output increased by 26% in 2009, to 21,490 International consolidation million kWh. All of this was positively IBERDROLA Renovables strengthened its reflected in the main economic and international business in 2009: financial indicators as of the end of fiscal year 2009. • United States: In 2009, the company had the highest increase in wind power Sustainable growth operating capacity, with 1,311MW. Whitelee wind farm, the largest in Europe IBERDROLA Renovables is one of the IBERDROLA is also the second-largest (Scotland, United Kingdom). 22 2009 annual report iberdrola 23

operator in the United States, with OFFSHORE WIND close to 3,600 MW in renewable ENERGY operating capacity and a presence in >> In early 2010, 23 states. IBERDROLA Renovables, through its ScottishPower In 2009 within the framework Renewables subsidiary and Vattenfall, of the Economic Stimulus Act, was awarded 7,200 MW the company received 577 million of potential offshore dollars in renewable energy grants capacity in a third TECHNOLOGIES OTHER offered by the Treasury Department round of bidding in cash to companies investing held by the British in the country. Government through the Crown Estate. • United Kingdom: the company is the leader in wind power in the In addition, several United Kingdom, with 802 MW. offshore wind energy In Scotland, the company opened developments are in progress in the largest European wind farm, Germany, France Whitelee, with 322 MW, and it and Spain. received authorization in 2009 for a second expansion to SOLAR 593 MW. Construction has also THERMOELECTRIC commenced on one of the largest ENERGY >> IBERDROLA Renovables wind farms in Scotland, Arecleoch, opens its first Thermosolar with 120 MW. Plant in Puertollano, with a capacity of 50 MW. • Mexico: the Company’s first wind farm in Mexico, La Ventosa (80 MW), BiOmass was placed into service. >> The first forest biomass plant in • Other countries: IBERDROLA Spain was opened Renovables and the European Bank at Corduente (Guadalajara), with a for Reconstruction and Development capacity of 2 MW. (EBRD) agreed in January 2010 to jointly develop wind projects in Poland and Hungary, which will * Source: Bloomberg New Energy Finance. ** Includes 10,000 MW of current estimates enable the company to cement its of the project portfolio, owned by Gamesa position at the head of the wind Energía, covered by the strategic agreement Whitelee wind farm, the largest in Europe between IBERDROLA Renovables and Gamesa (Scotland, United Kingdom). industry in that region. Energía. 24 2009 annual report iberdrola 25

ScottishPower, growth driver of the Group Following its merger with MAIN SCOTTISHPOWER PLANTS IN THE UNITED KINGDOM IBERDROLA, ScottishPower has become an unquestionable pillar of growth Power plant Technology Capacity (MW) for the group, providing a significant Longannet Thermal coal-fired 2,304 contribution to IBERDROLA’s results and balance in the production mix. Cockenzie Thermal coal-fired 1,152 Rye House Combined cycle 715 The Generation Business Damhead Creek Combined cycle 800 ScottishPower has an installed capacity of 6,036 MW, with a highly flexible production Brighton Combined cycle 400 mix that includes coal-fired, combined cycle Cruachan Hydroelectric pumping 440 and hydroelectric plants. Most worthy of note in the fiscal year was the following: Galloway Scheme Hydroelectric 106 Lanark Scheme Hydroelectric 17 • Availability of installed capacity Other Cogeneration 102 increased markedly in 2009, to 77% (compared to 64.5% in 2008). Such Total 6,036 improvement, coupled with the flexibility of the production mix, has strengthened the production optimization strategy, which decisively Storage (CCS) project promoted by the • Output at coal-fired plants rose 3% to contributes to the increase in profits. United Kingdom. 11,178 GWh, owing to increased availability. • In combined cycles, production • Development of the Flue Gas • Investment opportunities to increase dropped by 5%, from 12,600 to Desulphurization project continued at installed capacity continued to be 12,071 GWh. the Longannet plant. ScottishPower seized; specifically, many projects • Hydroelectric production fell 24%, is still considering the possibility of are under study, such as a plan to from 1,153 to 878 GWh. extending the lives of the Longannet increase capacity at the Damhead Creek • Cogeneration slipped from 699 to and Cockenzie plants or of renovating combined cycle plant. 427 GWh. them, in order to achieve greater efficiency and lower emissions. As far as production is concerned, 24,500 The Networks Business GWh were generated in 2009 and the The Networks business manages • ScottishPower is one of the two company’s share in production stood at ScottishPower’s electricity transmission companies (of an initial list of four) 7.6%, a level similar to 2008. Information and distribution activities. The company that opted for the Carbon Capture and by technology is as follows: owns an extensive network of over

24 2009 annual report iberdrola 25 gy Supply 23,132 GWh of electricity were supplied in 2009, 4% less than in 2008, due to the decrease in average consumption in the household market.

Customer service Retail supply of ene r supply Retail As of December 31, 2009, ScottishPower had 3.2 million electricity customers and 2 million gas customers. As in the past, the goal was to offer ongoing initiatives focusing on industry leadership in customer service.

Special rates Longannet thermal plant (Scotland, United Kingdom). Measures continued to be designed to 116,000 km; over 70,000 km. are In 2009, ScottishPower’s Networks benefit the groups underground cables and 46,000 km. business supplied electricity most sensitive to the are overhead lines. This also includes to 3.2 million customers in the cost of energy, such the distribution network to end United Kingdom, with a distributed as the new social tariff users in its two authorized areas, energy volume of 36,503 GWh. launched on January 1. and high voltage transmission ScottishPower also supplied gas Gas sales in Scotland. to 2 million customers. Gas sales totaled 33,892 GWh, 8% less than in 2008, In Great Britain, a single operator, The number of interruptions and also due to the decrease National Grid, manages the global minutes without supply dropped last in consumption per unit transmission system, which includes year, by 19% and 16%, respectively. Such in the household market. the generation and demand balance improvement was primarily due to the Scottish Power ended 2009 in Scotland, but ScottishPower retains implementation of new work practices with two million gas customers. ownership of the lines and the resulting and to the installation of automatic responsibility. remote controllers within the grids. 26 2009 annual report iberdrola 27

IBERDROLA USA, the United States platform Iberdrola USA sales totaled 4,200 million dollars in 2009 IBERDROLA USA focuses on the distribution and supply of energy and operates in New York, Connecticut, Massachusetts, Maine

s O perator and New Hampshire, in the northeastern United States. The following companies operate under the parent:

Gas and electricity distribution companies >> N ew York State Electric&Gas (NYSEG) >> R ochester Gas&Electric (RG&E)

Electricity distributor >> Central Maine Power

Gas distributors >> Berkshire Gas >> Southern Connecticut Gas >> Connecticut Natural Gas NYSEG’s Mill C hydroelectric plant (New York, US). >> Maine Natural Gas

The merger of Energy East Gas and electricity The leading natural gas companies (now IBERDROLA USA) allowed IBERDROLA USA owns a substantial of IBERDROLA USA, Berkshire Gas, IBERDROLA to secure a strong position electricity infrastructure in New York Southern Connecticut Gas, Connecticut in the energy transmission and and Maine, through NYSEG, RG&E and Natural Gas, Maine Natural Gas, NYSEG distribution business in the United States, Central Maine Power, with 13,282 km. and RG&E, serve over 934,000 customers as well as to consolidate its expansion in of transmission lines and 102,819 km. of through more than 289,700 km. of the Atlantic area. As of the end of 2009, distribution lines. This has enabled it to transmission lines and 39,900 km. of its assets totaled close to 14,000 million reach 1,843,000 customers in 2009, with distribution lines. The total volume dollars (approximately 9,800 million a total consumption of 36,783 GWh (0.6% of gas supplied in 2009 was 53.020 GWh, euros). more than in 2008). down 0.8% from 2008. 26 2009 annual report iberdrola 27

Mexico and Brazil, the Group’s drivers in Latin America An area with attractive opportunities for growth

Latin America, in which IBERDROLA Mexico: market leader, with 5,000 MW northeastern Brazil, with the has had a presence for more than 10 years, With more than 5,000 MW of installed largest number of customers in is one of the Company’s core areas due to its capacity, IBERDROLA is the leading private the country (30 million customers current contribution as well as expectations for electricity producer, and the second-largest and 8.8 million supply points). future growth, as it is one of the most dynamic generator in Mexico after the state-owned In 2009, 273 MW of hydroelectric regions in the world. In addition, there are Comisión Federal de Electricidad. capacity came online, and projects more than 9.7 million supply points, almost for an additional 712 MW are now as many as in Spain. Production has risen Brazil being developed, with entry into 2.5% to 38,160 GWh, accounting for 26.7% of IBERDROLA has a 39% interest in commercial operation between IBERDROLA’s total output. Neoenergia, the largest distributor in 2010 and 2013.

distributed energy (GWh)

35,000 33,919 32,879

25,000

+3.16% 15,000

0 2008 2009

energy generated (GWh)

40,000 37,290 38,160

20,000

+2.5% 10,000

0 2008 2009 Altamira combined cycle plant (Tamaulipas, Mexico). 28 2009 annual report iberdrola 29

IBERDROLA Ingeniería cements its position as the world leader in the energy engineering sector The leading wind-farm constructor in Spain, Mexico and Poland

Excellence, following the implementation of the plants in Riga (Latvia) and Fujairah (United management system in accordance with the ISO Arab Emirates); the replacement of steam 9001 standard for all of the Company’s activities. generators at the Angra (Brazil) nuclear power plant; the construction of a 400 kV electric line Projects in more than 30 countries between Huelva and Seville; the Puertollano IBERDROLA Ingeniería y Construcción is present thermo-solar plant and the Corduente biomass in more than 30 countries, developing projects plant; and the electrification of the AVE in Europe, America, Africa and Asia. It has high-speed railway from Madrid to Valladolid. more than 2,400 employees, and subsidiaries At present, 84% of its portfolio accounts for or branches in 24 countries: Mexico, Brazil, projects for clients outside of the Group, as Venezuela, United States, United Kingdom, compared to 79% at the end of 2008; and 87% Germany, Latvia, Poland, Russia, Slovakia, of such projects are being carried out abroad Bulgaria, Greece, Qatar, Kenya, Tunisia, Dubai, (six points higher than 2008). Fujairah, Albania, Egypt, Hungary, Italy, Romania, Algeria and Lithuania. In the area of R&D Riga combined cycle plant (Latvia). In 2009, IBERDROLA Ingeniería commenced Especially noteworthy in 2009 was the award 20 new R&D projects. They cover developments

In 2009, IBERDROLA Ingeniería y to the Company of projects in Lithuania in CO2 capture, advanced nuclear technologies, Construcción solidified its position as one of (440 MW combined cycle plant), Mexico marine energy and thermo-solar facilities, the leading energy engineering companies in (modernization of distribution networks in optimization of electrical grid management, and the world in the areas of generation, networks, Veracruz and Chiapas) and Bulgaria (radioactive improved efficiency in global, environmental and renewable and nuclear energy. It has thus waste treatment plant). In the Renewable and operational management. Special mention strengthened its role as the Group’s technology Energy area, it was awarded the 100 MW must be made of the commencement of hub and has expanded its activities to new Margonin (Poland) wind farm and the the Cenit Ocean Líder project headed by customers and markets. 103 MW La Venta III wind farm in Oaxaca IBERDROLA Ingeniería, which is the most (Mexico). IBERDROLA Ingeniería is already a extensive world research into ocean energy; Added to this is the company’s progress on leader in the construction of wind farms in the Direct Steam Generation (DSG) project; its road to excellence, which has earned it the these countries, as it is in Spain. In Chillarón and Prometeo in the area of thermo-solar Príncipe Felipe Award for Corporate Excellence, (Cuenca) it will construct a photovoltaic plant technologies. Another 19 companies and the most prestigious in Spain, in the Industrial with a nominal capacity of 1.5 MW. 25 research centers from Spain participate Quality and Innovation category. Excellence in Cenit Ocean Líder in order to integrate in management was also recognized in IBERDROLA Ingeniería completed significant marine current, tide and marine wind energy 2009 with the 300+ EFQM Seal of European projects in 2009, including the combined cycle over the next three years. 28 2009 annual report iberdrola 29

Regulation evolves towards an energy policy based on sustainability, safety and competitiveness Strong boost to energy regulations by the European Union in 2009

competitiveness and the placement of greater emphasis on the creation of single European gas and electricity markets. In order to ensure the adequacy of supply, legislative action has also been undertaken in order to improve energy efficiency by end-users (thereby decreasing reliance on other countries for energy), and to establish preventive and emergency plans to face gas supply issues.

Spanish regulations Further steps have been taken in Spain towards the complete deregulation of supply. Starting on July 1, 2009, all electricity consumers freely choose their supply from the various distribution companies. However, residential consumers of up to 10 kW of contracted capacity have the option to contract for Whitelee wind farm in Glasgow (Scotland, United Kingdom). what is known as Last Resort Supply (Suministro de Último Recurso), at prices The main initiatives in The application of this legislation fixed by the Government. This is one energy regulation undertaken in the encourages a continuance on the more step forward along the lengthy European Union in 2009, which led to the road towards a low-carbon economy deregulation process commenced over a publication of two significant legislative favoring the development of generation decade ago. advances, constitute a decisive step technologies that not only release fewer towards the achievement of sustainable, gas emissions but that are also local in Another important regulatory initiative safe and competitive energy. The first nature. has been undertaken in order to first set of legislation is aimed at promoting limit, and later eliminate, the tariff the development of renewable energy The purpose of the second set of deficit in the electricity industry, with the and at 20% reduction in greenhouse gas legislation is to continue movement possibility of subsequent assignment to emissions. of the energy industry towards more financial companies. 30 2009 annual report iberdrola 31

Human resources: commitment to high-quality employment, training and professional development More than a million hours of training were provided in 2009

In 2009, IBERDROLA’s workforce was organizational and technological needs of IBERDROLA’s commitment to made up of 32,424 people, spread throughout their jobs, and to boosting their expectations the defense of human rights is one of the foundations upon almost 40 countries. for promotion and professional development, which the organization has while assuring all employees of the enjoyment defined the ethics applicable The policies approved by IBERDROLA’s Board of equal opportunity. In 2009, more than to the Company’s activities. of Directors - the Code of Conduct, the current a million hours of training were provided H u m an rights In order to further strengthen Strategic Plan (available at www.iberdrola. within the Group, and 94.1% of the workforce such foundations, the Board com) and the collective bargaining agreements attended a training event (with an average of of Directors has approved the of Group companies and affiliates - set out 38.76 hours per person). Corporate Social Responsibility the general principles guiding the Company’s Policy, which may be viewed at www.iberdrola.com. activities and operate as a framework for IBERDROLA is committed to ensuring that the establishment of objectives regarding its actions and those of its professionals In addition, IBERDROLA’s employment policy and guarantees, the prevent any discrimination for reasons general contracting conditions relationship with the employees, occupational of race, color, gender, language, religion, include clauses that promote safety and health, training, and the principles political opinion, national or social origin, good practices aimed at the that safeguard diversity and equal opportunity social status, ethnic origin, disability, respect for human rights. in access to employment and to professional health, marital status, pregnancy, sexual development. Training is considered key orientation, or other condition. Moreover, Furthermore, IBERDROLA’s Code of Professional Conduct to achieving effectiveness and efficiency in IBERDROLA has renewed various governs the conduct of all of the performance of work by the employees, certificates, such as the Family-Responsible the Company’s professionals to facilitating their adjustment to the Company Certificate. and, specifically, conduct relating to the defense of employees in 2009 (No.) Training in 2009 (Hours) human rights. The Company’s practices Spain 11,143 Spain 566,006 are aligned with the Global United Kingdom 8,670 United Kingdom 232,004 Compact, the OECD Guidelines USA 5,787 USA 154,861 for Multinational Companies Latin America 2,815 and the International Labor IBERDROLA Renovables Group 1,996 Latin America 174,573 Organization’s Tripartite Other countries 553 IBERDROLA Renovables Group 69,431 Declaration of Principles Social boundary 30,964 Other countries 3,141 concerning Multinational Other 1,460 Total 1,200,016 Enterprises and their Social Total 32,424 Policy. 30 2009 annual report iberdrola 31

R&D, a strategic pillar for excellence

Supports leadership and ensures Iberdrola’s competitiveness and future growth

IBERDROLA has become through emission reductions and new, one of the leading companies in R&D more efficient generation plants. A management, thanks to the successful leading project in this area is the Carbon implementation of a common strategy for Capture & Storage (CCS) project at the all areas, collaboration with its technology Longannet (Scotland) coal power plant,

suppliers, and the promotion of a culture which is the first CO2 capture unit in of innovation among its employees. R&D operation in the United Kingdom. activities enable IBERDROLA to rise to • Intelligent networks: various new challenges and opportunities in an initiatives have placed the Group among increasingly globalized market. the most innovative companies in Europe (Fenix, Openmeter, Address and Active Some R&D activities were particularly Demand Management (ADM) projects) noteworthy in 2009 with respect to future and in the United States, where the strategic areas at the international level: Obama Administration has provided • Renewable energy: in the area the Company with 96 million dollars in of offshore wind farms, the Emerge grants. project, a pioneering initiative headed • Energy storage: based on he by IBERDROLA Renovables in Spain, Compressed Air Energy Storage (CAES) Electric vehicles recharging point at the offices of IBERDROLA in Madrid. seeks to develop floating technology for technology. Among other benefits, this wind turbines in deep water. Of note in system will encourage the integration of the field of marine energy (waves and renewable energy into the grid. currents) is the Cenit Ocean Lider project, 5th-largest Spanish company led by IBERDROLA Ingeniería. in terms R&D investment R&D efforts (million euros) • Electric vehicles: IBERDROLA has and the largest R&D investor in promoted the development of electric the electricity industry in Spain, 120 vehicles through various initiatives, according to the European Commission’s R&D Scoreboard. including the Cenit Verde project, which 90 90.5 involves definition of a car model, 73 +23% The world’s most innovative research on batteries and electrical 60 electric company, traction systems, and studies analyzing for R & D R ecognitions according to the Boston the most appropriate locations for 30 Consulting Group. recharging infrastructure. 2009 OGECÓN Award • Clean generation technologies: 0 for Knowledge Management. designed to improve operating conditions 2008 2009 and reduce environmental impact, 32 2009 annual report iberdrola 33

Environment: more efficient technologies and fewer emissions

In 2009 the Group increased its intensity of its CO2 emissions will thereby • Customer awareness in connection with renewable energy production, displacing be reduced below the recommendations of efficient and responsible energy consumption. emission-producing technologies, and international agencies and treaties. In order

thereby reducing the rate of emissions per to reduce SO2 emissions, the 2006 investment In 2009, more facilities and business

GWh to 279 kg CO2/MWh. The production plan was completed with the implementation areas were certified under Environmental structure resulting from IBERDROLA’s past of the desulfurization plant at the Lada Management Systems; the EMAS certification

decisions and recently-adopted strategy allows thermal power plant, which will reduce SO2 was secured for the Arcos combined cycle it to remain among the largest European emissions by more than 90%. plant, while the Tarragona combined cycle

companies with the lowest rate of CO2 co-generation plant and the Tamazunchale emissions per GWh produced. IBERDROLA’s In December, IBERDROLA’s Board of Directors (Mexico) combined cycle plant were certified in strategy is focused on abating the intensity of approved its Climate Change Policy, pursuant accordance with the ISO 14001:2004 standard. GHG emissions, and it will therefore continue to which it undertakes to support: The standard has also been implemented with generation based on renewable sources at IBERDROLA Renovables in the United and will introduce more efficient and less • International treaties. Kingdom, which will be certified in 2010. carbon-intensive technologies (Best Available • Efficient technologies (in terms of GHG). Production under certified environmental Technologies, BATs) at existing facilities. The • An efficient internal use of energy. management systems has increased to 88.3%. Quality: IBERDROLA implements the highest standards The IBERDROLA Group continues to supporting the organization of the Excellence lines and TCs, the monitoring of the reading strive for excellence in management. In 2009, in Management Annual Congress and the process at SP’s Commercial Division, and the it achieved the highest international quality creation of an excellence model for its small- certification of the main business areas of SP standards, which earned it the Príncipe Felipe and medium-size suppliers. Networks business in accordance with the Award for Corporate Excellence. In addition, PAS55 specification. IBERDROLA Ingeniería obtained the Industrial In addition, the scope has been expanded Quality and Innovation Award, positioning under the existing ISO 9001 certificates (at Finally, IBERDROLA uses the Excellence Awards itself as the leading engineering company in the Strategy Division, at ScottishPower’s Risk to the Best Suppliers of the Year to encourage the electricity industry in Spain and the second Division, at the Commercial Division and at the use of the most stringent standards in worldwide in terms of export revenues. the Spain and Portugal Deregulated Business), the areas of quality, environment, prevention, and significant improvement projects have innovation and CSR, acknowledging the work Moreover, the IBERDROLA Group has been carried out, such as the implementation and efforts of its suppliers. During 2009, the contributed to the strengthening of the within the Networks business of a quality award was given to suppliers from the United quality associations where it has a presence, system for the operation and maintenance of Kingdom, the United States, Mexico and Spain. 32 2009 annual report iberdrola 33

IBERDROLA’s relationships with stakeholders* IBERDROLA maintains pathways for dialogue and communication with its stakeholders, responding to their needs and expectations

> Customers. In Spain, IBERDROLA has responsible supply chain governed by the adapted its structure to the framework principles adopted by the United Nations establishing the Last Resort Rate (Tarifa Global Compact. IBERDROLA’s purchasing de Último Recurso) and has implemented terms and conditions include contractual programs such as subsidized rates (bono social) clauses whereby the parties are bound for improved access to electricity by certain to act responsibly in the areas of safety, groups. In the United Kingdom, ScottishPower occupational risk prevention, respect for the has joined the Energy Retail Association Safety environment, and human rights. Net, whereby companies pledge to avoid the > Media. IBERDROLA handles its relations disconnection of electricity consumers known Presentation of the Excellence Awards with the media based on the transparency to the 2009 Supplier of the Year. to be vulnerable and guarantee universal of information, continuous availability to access to electricity. At IBERDROLA USA, there like energy, a strong investment in basic respond to the needs of the press, and a are programs to help low-income customers or infrastructure, and its cooperation with rigorous treatment of all news relating to underprivileged groups with their electricity projects undertaken by various civil society the Company, by means of press releases, and gas bills. Latin American companies have organizations. IBERDROLA’s commitment the communication of significant events, similar programs in place. to the communities in which it operates is meetings with the media and the Multimedia > Shareholders. IBERDROLA’s objectives achieved through community activities carried Channel on the Company’s website. are to achieve continuous improvement in out in collaboration with governmental > Government Authorities and its financial results, with a high shareholder bodies and social organizations and furthered Regulatory Entities. The Group works to return, the fight against climate change, by Fundación IBERDROLA (the IBERDROLA cooperate with government authorities and its contribution to society, within the Foundation). In 2009, the Company in order to facilitate energy planning, by framework of sustainable development. contributed 84 million euros to community achieving a balance between available It has a comprehensive risk system that and rural electrification programs, accounting resources and the quality and reliability of provides shareholders with the highest level for 2.3% of IBERDROLA’s pre-tax profits. electricity supply. The Group has two lines of assurances in terms of financial return and > Suppliers. IBERDROLA leads the industrial of approach towards regulatory entities: environmental and social impact. IBERDROLA sector in purchasing capacity, wealth one seeks the establishment of effective maintains a direct, personal, ongoing and creation and economic impetus in its areas regulations favoring a competitive market, transparent relationship with its shareholders of operation. Purchases from local suppliers and the other is aimed at providing all of the and the financial community, facilitated have reached 93%. The respect for and information requested by such entities. through the Office of the Shareholder and the promotion of human rights also extends to Investor Relations Office. the relationship with suppliers; the Supplier * IBERDROLA`s stakeholder concept also includes > Society. IBERDROLA’s contribution Hiring and Relations Policy approved by the the Company’s relationship with its human to society is based on its own corporate Board of Directors sets forth the Company’s resources and natural environment, based on the policies and with the results described activities: the supply of an essential product commitment to the establishment of a in the preceding pages. Edition: IBERDROLA Design and Layout: MRM WORLDWIDE S.A. Photography: IBERDROLA and Gettyimages Photoset: Rastercolor Printing: C.P. Gráficos S.L. Legal Deposit: M-12025-2010