2009

Annual Report Terna S.p.A. and the Terna Group Terna manages electricity transmission in Italy and guarantees its safety, quality and affordability over time. It develops market activities and new business opportunities with experience and competence. It creates value for shareholders with a strong commitment towards professional excellence and with a responsible attitude towards the community while fully respecting the environment it works in. 2009

Annual Report Terna S.p.A. and the Terna Group

Transmitting safety energy future report represents recognised aninternationally businesstool. The corporateidentityisbasedonashared CodeofEthicswhilethesustainability andupgradingtheItalianelectricitygrid. in theimportanttaskofmodernising Technological innovationandhigh-techengineeringprojects drivetheCompany solutions shared by both PublicAuthoritiesandterritorialbodies. Assessment (SEA)procedure, inorder toidentify, forthenewlines,bestpossible infrastructures. Since2002,theCompanyadoptedStrategicEnvironmental Terna supportsourcountry’sgrowth through thesustainabledevelopment ofelectricity aimed atpreventing criminalinfiltrationsincontractsforgriddevelopment. of understandingwassignedwiththeGeneralHeadquartersCustomsGuards Furthermore, forgreater protection andtransparency incontracts,amemorandum that placesItalyasaforerunner inprotecting ourcountry’sstrategicinfrastructures. of theCarabinieriforgrid’ssafety, thefirstagreement signedforaprivatecompany of understandingwiththeMinistryInteriorandGeneralHeadquarters situations inreal time.Forthispurpose,in2009,theCompanysignedamemorandum and builtbyTerna, theCompanyiscapableofpreventing, facingandmanagingcritical Through theSOC,SecurityOperationsCentre, a high-techdepartmentplanned of nearly317billionkWhthatourcountryuseseachyear. 24 hoursaday, 365days ayear. TheNationalControl Centermanagestheflow strategic choices.TheCompanyhasthetaskofensuringelectricitytransmissioninItaly Guaranteeing thenationalelectricitysystem’ssafetyisatbasisofTerna’s that allowexchangingandregulating electricitywithothercountries. Terna’s gridisjoinedtothenetwork ofEuropean gridsby18interconnection lines of theelectricitytransmissionservice,inlinewithEuropean bestpractices. The Companycoversthenationalelectricitydemandandguaranteeshighestquality it isthefirstindependentoperatorinEurope andtheseventhinworld. the high-voltageandvery-high-voltagegrid.Withover60,000kmofelectricitylines, Terna isresponsible inItalyfortransmittinganddispatchingelectricityalong A usefulgridfor theCountry.

Transmitting research results know-how economy andthecivilsocietythrough synergy between thebusinessworldandculture. which wasconfirmedasapoleofattractionandcooperation between art, for contemporaryartwasalsoorganised withtheparticipationofover3,500artists photographycontestCreativInTerna,to theinternal in2009theTerna Prize02 and updatedinformationontheelectricitysector. Terna transmitsculture: inaddition on nationalelectricityguaranteeingthecountryandItalian statisticssystemaproper has favored widespread professional growth. Terna periodicallypublishesstatistics hours offormaltrainingin2009,Campus,thelogowhichidentifies allcorporatetraining, Terna transmitselectricity, butalsoknow-how, knowledgeandculture. Withover 160,000 such asthemaintenanceof380,000Volt lines. involved indevelopment,nearly1,200specialisedtechnicianscarryoutcomplexactivities thanks toprofessionals trainedatTerna, auniqueschool inItaly. Inadditionto360engineers is supportedbyawholeworldofresearch, butaboveall,byexceptionalknow-how, Over 150millioneuros ayearare investedinhigh-technology. Building infrastructures Terna hasplannedinvestmentsfor6.9billioneuros inits2010/2019DevelopmentPlan. the onlyonesinFTSEMibtocloseyearwitharecord high. return, creating valueforshareholders andstakeholders.Terna’s shares were The Companyended2009asthebestEuropean utilityintermsoftotalshareholder investments forinfrastructure developmentinItaly. the premium saleoftheentire shareholding inTerna Participaçõesandincreased such asthediscountedacquisitionofEnel’shigh-voltageelectricitylines, For Terna, 2009wasthebest year intermsofeconomicresults andobjectivesreached, A usefulgridfor theCountry. 6 Annual Report 2009 Contents Directors’ Report Terna andthefinancialmarkets A sustainablebusinessmodel umr fterslto fteodnr hrhles etn 11 The Italiangrid’sdevelopment The Terna Group Terna’s management Corporate bodies Summary oftheresolution oftheordinary shareholders’ meeting Call oftheordinary shareholders’ meeting Letter toShareholders Chairman’s message infcn o-eurn vnsadoeain,ayia ruuultascin 86 40 54 63 Italy’s regulatory framework ANNEX Outlook Subsequent Events Other information Significant non-recurring events andoperations,atypicalorunusualtransactions Related partytransactions Grid Code Human Resources andOrganisation Research anddevelopment Information Technology Terna andphotovoltaicpower Dispatching andtrade Energy overview National Transmission Grid Corporate socialresponsibility Company security Risks anduncertaintiestowhichTerna and the Group are exposed Performance bygeographicsegmentandbusiness Group performanceandfinancialposition Terna S.p.A.performanceandfinancialposition Significant events Highlights eeal ore,tasitn la nry21 PerformanceofTerna S.p.A.shares Renewablesources, transmittingcleanenergy “Electricity bridges” Stepsindevelopment Thesysteminnumbers ThenewHeadOffice inRome Assetgrowth inItaly Shareholders recognitionExternal People Corporate SocialResponsibility yoso h uue nte xml ftcnlgclinvto n eeomn 21 17 Pylons oftheFuture: anotherexample oftechnologicalinnovationanddevelopment The SEAcoordination tool Focusing ontheenvironment History Terna’s NationalControl Centre andtheelectricitysystem’ssafety Strategic developmentopportunities The Company, Group aninternational Powers 29 25 23 23 22 22 21 21 20 20 19 19 19 17 17 17 16 16 16 16 14 12 12 10 90 89 87 86 85 85 83 82 81 80 75 74 70 68 64 50 34 32 9 8 Consolidated financialstatements Financial statements oe otecnoiae iaca ttmns197 Notes totheconsolidatedfinancialstatements 111 Consolidated financialstatementsatDecember31,2009 Notes totheseparatefinancialstatements Separate financialstatementsatDecember31,2009 .Ntst h osldtdicm ttmn 222 267 198 233 192 256 Glossary 264 191 190 189 2009 CorporateGovernance Report oftheauditors Reports no. 11971datedMay14,1999andsubsequentamendments andadditions Certification oftheconsolidatedfinancialstatementpursuant toart.81 Information provided pursuanttoart.149 Subsequentevents L. Notestothestatementofcashflows I. Significantnon-recurring eventsandoperations,atypicalorunusualtransactions H. Relatedpartytransactions G. Businesscombinations F. Commitmentsandcontingenciesarisingfrom off-balance sheetitems E. Notestotheconsolidatedstatementoffinancialposition D. Notestotheconsolidatedincomestatement C. Operatingsegments B. Accountingpoliciesandmeasurement criteria A. 170 Consolidated statementofcashflows Statement ofchangesinconsolidatedequity 167 Consolidated statementoffinancialpositionliabilities 139 112 Consolidated statementoffinancialpositionassets Consolidated statementofcomprehensive income Consolidated incomestatement 159 107 106 164 105 Report oftheauditors Report bytheboard ofstatutoryauditorstoTerna S.p.A.’sshareholders meeting Reports no. 11971datedMay14,1999andsubsequentamendmentsadditions Certification ofthefinancialstatementpursuanttoart.81 Information provided pursuanttoart.149 L. Subsequentevents I. Notestothestatementofcashflows H. Significantnon-recurring eventsandoperations,atypicalorunusualtransactions G. Relatedpartytransactions F. Businesscombinations E. Commitmentsandcontingenciesarisingfrom off-balance sheetitems D. Notestotheseparatestatementoffinancialposition C. Notestotheseparateincomestatement B. Operatingsegments A. Accountingpoliciesandmeasurement criteria Statement ofcashflows Statement ofchangesinequity Terna S.p.A.statementoffinancialpositionliabilities Terna S.p.A.statementoffinancialpositionassets Terna S.p.A.statementofcomprehensive income Terna S.p.A.incomestatement

duodecies duodecies fteCNO sur euain266 IssuersRegulation of theCONSOB 166 IssuersRegulation of theCONSOB ter fCNO Regulation of CONSOB ter fCNO Regulation of CONSOB 187 275 183 103 318 270 269 265 264 260 257 220 194 188 178 169 164 164 160 160 129 129 109 108 104 99

7 Contents 8 Annual Report 2009 Chairman’s message community. Thisisourway of wantingtobeamongthefirstgridoperatorsinworld. coherently pursuingsince2005.Thisisourwayofcreating valueforshareholders, forstakeholdersand for theentire and basedonvalues.Terna hasundertakenaresponsible commitmenttowards ourcountrywhichtheCompanyhasbeen technological progress. 2009economicresults standtowitnessthevalidityofourmanagementapproach thatisintegrated Terna haschosentobeacompanyofthefuture thatlooksaheadbyblendingfunctionality, sustainability, safetyand at facilitatinginformationexchangeandconsolidatingour corporateidentity. of corporateidentity. We enrichedourtrainingprogramme communicationbyimplementing initiativesaimed andinternal in Romerepresents office amodern complex thatisoperational,sustainableandtechnologicalalsohavingastrong value The Company’sstrategicchoiceofsustainabilityisexpressed alsotowards stakeholders.ThenewHeadOffice itsinternal Italian contemporaryartandculture in collaborationwiththeMinistryforCulturalHeritageandActivities. Through theTerna Prizewhichsuccessfullyreached itssecondedition,weconsolidatedagreat project aimedatpromoting contest “PylonsoftheFuture” forcreating newpylonscapableofblendingtechnology, designandenvironmental culture. most harmonious“installation”ofinfrastructures throughout theterritory. Forthisreason, wealsolaunchedtheinternational Norman Foster, theambitionisalsothatofcontributing todefininganewindustrialaestheticsbasedonthevalueof the territory. AsinthecaseofTuscany whichwasthefirst location intheworldtoinstallpylonsdesignedbyarchit thegrid.ForTernaRegional Authoritiesformodernising developmentdoesnotonlymeanaddinginfrastructures throughout In 2009manykilometersofnewpowerlineswere completedand18memorandumsofunderstandingwere signedwith the great challengeofresponsibility, ofcreating valueandculture andinrelations withthecommunity. relationship basedontrustwithallourstakeholdersnot onlyinourprincipalactivity, electricitytransmission,butalsoin community. UnderlyingthisintegrationistheCompany’stoppriorityobjective:building andmaintainingovertimea and industrialgrowth process, butalsoasignofpossibleintegrationamongdevelopment,environment, territoryand The nationalelectricitygridthatTerna owns,developsandmanagesrepresents anactualdriverofourcountry’seconomic investments toincreased relations basedontrustwithourstakeholders. the 2009financialstatementsconfirmourrole asaninfrastructuralcompanyfocusedondevelopment:from higher Dear Terna Shareholders andStakeholders, LUIGI ROTH The Chairman ect Letter toShareholders exceeded At theconsolidatedlevel,revenues increased by13.8%andstoodat statements registered adouble-digitgrowth inallitsprincipalindicators. Even netofthisextraordinary transaction,themainfigures oftheTerna Group are verypositive.The2009 financial invested intothegrid’sdevelopmentandintegratedindividendspolicy. same time,withthesaleofTerna ParticipaçõesinBrazil,wegeneratedcapitalgainsforover the mostimportantacquisitiontransactionevercarriedoutinItaly2009,over18,000kmofHVlinesfrom Enel.Atthe Today, Terna isthefirstindependentEuropean playerandtheseventhinworldamongGrid Operators,alsothanksto potential consequencesofthecrisisanditsrelative risks,obtaining results thatreversed thetrend ineveryfield. We demonstratedourcapabilityintakingtheproper actionandinourforecasting abilities,particularlyinanticipatingthe despite anunfavourablemacro-economic situationandreduced energy consumption. terms ofdevelopment,gridgrowth, improved safety, recognition international andsustainability. Allthiswasattained 2009 wasTerna’s bestyearintermsofresults. Ayearthatnotonlyachievedoutstandingfinancialreturns, butalsoin professional andtechnologicalexpertiseofallTerna’s team. of efficiency andofeconomic,environmental andsocialresponsibility aboveallthankstothecommitmentand and fortheentire country. We keptthesepromises, alsoduringayearof economicturmoil,withsignificantresults interms Since theverybeginning,wealwaysmaintainedthatTerna’s strategicobjectivewas to create valueforallshareholders the Companywillalsobefocusedondevelopingphotovoltaic project furtherimproving theGroup’s value. 2009 wasalsoafundamentalyearintermsofbuildingplants andsystems.2010willbetheyearofbuildingsites for totalshareholder return in2009aswellthelastthree years. were theonlyonesofFTSEMibto close2009withanall-timehigh.TheCompanywasalsothebestEuropean utility year. Withregard totheshare’s trend, crisis,Terna’s despitetheinternational shares were appreciated bythemarketsand These results allowedustopropose adistributionofdividendspershare increased by20%compared totheprevious without theeffect ofthesaleBraziliansubsidiary)andinvestmentsexceeded Ladies andGentlemenShareholders, FLAVIO CATTANEO The CEO € 1 billionincreasing by18%,theGroup’s netincomereached € 1 billionand361million,thegross operatingmargin € 771 millionincreasing by135%(by17.8% € 900 million,increasing by17.7%. € 400 million,thatwillbere-

9 Chairman’s message and Letter to Shareholders 10 Annual Report 2009 Call oftheordinary shareholders’ meeting Rome REAno.922416 Rome RegisterofCompanies,Tax IDandVAT no.05779661007 Share capital Terna S.p.A.–Registered office inRome–Viale EgidioGalbani,70 This noticecallingtheordinary shareholders’ meetingwaspublishedintheGazzettaUfficiale dellaRepubblicaItaliana,Parte Luigi Roth The ChairmanoftheBoard ofDirectors These documentswillalsobepublishedontheCompany’swebsite: and attheregistered office ofBorsaItalianaS.p.A.nolaterthanApril14,2010.Copieswillbeavailableforshareholders. to besubmittedtheshareholders forapproval, willbemadeavailabletothepublicatCompany’sregistered office The reports bytheDirectors ontheitemsincludedinAgenda,asrequired byapplicablelaw, aswellthedocuments 2. 1. Agenda calling) at11:00a.m.inRometheTerna Auditorium,PiazzaGiuseppeFrua,2,todiscussandresolve thefollowing The Ordinary Meetingoftheshareholders ofTerna S.p.A.iscalledforApril29(atfirstcalling)and April30,2010(second This noticecanalsobefoundontheCompany’swebsite: 06/88345112 -faxno.06/88345203. A serviceproviding assistancefortheshareholders’ meeting isavailableatthefollowingnumbers:telephoneno. the datessetforfirstandsecondcallingsofmeeting. The offices incharge ofidentifyingpersonsandverifyingtheirrighttoattendthemeetingwillbeopenfrom 9:00a.m.on may usethemodelproxy includedatthebottomofnotice submittedbytheauthorisedintermediary. Secretariat inaccordance withtheprocedure andbythedeadlinestatedinaboveparagraph.Suchrepresentatives of thebylawsmaysenddocumentationestablishingtheirpowerrepresentation toTerna S.p.A.’sCorporate meeting asthelegalorvoluntaryrepresentatives ofshareholders andotherholdersofthevotingrightspursuanttoart.11 In addition,inorder tofacilitatetheprocess ofverifyingpowersrepresentation, thosewishingtoattendtheshareholders to 06/83138218,atleasttwodayspriorthedatesetforshareholders’ meetingatfirstcalling. Secretariat bymail(Terna S.p.A.–Segreteria Societaria–Viale EgidioGalbani,70–00156Rome),withacopyorbyfax shareholders andotherholdersofvotingrightsmay sendthesupportingdocumentationtoTerna S.p.A.’sCorporate In order tofacilitatetheprocess ofdeterminingwhethertheyhavetherighttoattendshareholders’ meeting, has takenplacemayparticipate. to thedatesetformeetingatfirstcallingandwhohavenotwithdrawntheirshares before theshareholders’ meeting website: applicable lawshallbeentitledtoattendtheshareholders’ meeting. Art.10.1ofthebylaws(availableonCompany’s All oftheshareholders forwhomtheCompanyhasreceived timelynoticefrom anauthorisedintermediarypursuantto par valueof The Company’sshare capital,pursuanttoart.5.1ofthe bylaws,isrepresented by2,000,908,800ordinary shares witha required forpublicationofthenoticeshareholders’ meetingatleast10dayspriortothedatesetforMeeting. the Directors haveprepared. Ifitemsare addedtotheAgenda,arevised Agendawillbepublishedinthesamemanner requirement, theshareholders’ meetingshallresolve onthebasisofaproposal bytheDirectors oraproject orareport notice, indicatingitemstheywouldlikeaddedtotheAgenda.Additionscannotbemadeformattersonwhich,bystatutory represent atleast1/40thoftheshare capitalwithvotingrightsmaysendarequest, within5daysofpublicationthis Pursuant toart.126 31, 2009; and theindependentauditors.Relatedresolutions. Presentation oftheconsolidatedfinancialstatementsatDecember Allocation ofnetprofit fortheyear. Approval ofthefinancialstatementsatDecember31,2009.ReportsBoard ofDirectors, theBoard ofAuditors www.terna.it € 440,199,936 (atApril30,2009)fullypaid-in € 0.22 each.Eachshare entitlestheshareholder toonevotepursuantart.6.1ofthebylaws. bis ) establishesthatonlythoseshareholders whohavedeposited theirshares atleasttwodaysprior of LegislativeDecree no.58/98(ConsolidatedLawonFinancial Intermediation),shareholders who www.terna.it www.terna.it . . II,onMarch 25,2010,no.36. ’ • • • • in PiazzaGiuseppeFrua2,Rome.Intheordinary meetingit: Terna S.p.A.’sshareholders’ meetingmetonsecondcallApril30,2010fortheordinary sessionatTerna’s Auditorium Summary oftheresolutions oftheordinary shareholders’ meeting resolved toallocateTerna S.p.A.’s2009netincomeequalto approved Terna S.p.A.’sfinancialstatementasofDecember31,2009; the finalnumberofshares toberemunerated, theamountofincomedistributedandbalancebrought forward. with theGroup’s netincomeequalto - - - resolved toassignthetaskBoard ofDirectors –andonitsbehalftoCEOverifyinduetime,relation to examined thedataofTerna Group’s consolidatedfinancialstatementsalsoasofDecember31,2009,thatclosed balance for2009; ordinary shares thatwillactuallybeincirculation asofthedatesetfordetachmentcouponrelative tothefinal of couponno.12onJune21,2010.Thetotalamountdeterminedmayvarybasedthepossiblegreater numberof shares (asofMarch 19,2010)tobepaid–gross ofanytaxwithholdings–onJune24,2010with“detachmentdate” forward; € € € 409,870,862.92, oradifferent amountthatremains followingany andfurtherprevious allocations,asbalancebrought 240,109,056.0 asafinaldividendtobedistributedintheamountof 140,063,616.0 tocovertheinterimdividendpaidonNovember26,2009; € 771.0 million; € 790,043,534.92 asfollows: € 0.12 foreachoneofthe2,000,908,800ordinary 11 Call of ordinary shareholders’ meeting and Summary of the resolutions of the ordinary shareholders’ meeting 12 Annual Report 2009 Ernesto Calaprice Ernesto Secretary oftheBoard ofDirectors Vittorio Rispoli Michele Polo Salvatore Machì Claudio Machetti Matteo DelFante Paolo DalPino Cristiano Cannarsa Directors Flavio Cattaneo CEO Luigi Roth Corporate bodies the Board ofDirectors. with theexceptionofthosethatare otherwiseassignedbylaworthebylawsthataforesaid resolution reserves for its behalf,andinadditionisvestedbyaBoard resolution ofApril28,2008withallpowersformanagingtheCompany, The ChiefExecutiveOfficer isalsovestedbythebylawswith thepowerstorepresent theCompanylegallyandtosignon Chief ExecutiveOfficer of additionalnon-executivepowers. resolutions are carriedout.PursuanttoaBoard resolution ofApril28,2008,theChairmanhasbeenvested withanumber over shareholders’ meetings,convenesandpresides overtheBoard ofDirectors, andascertainsthattheBoard’s The Chairmanisvestedbythebylawswithpowerstorepresent theCompanylegallyandtosignonitsbehalf,presides Chairman oftheBoard ofDirectors corporate purpose,withthesoleexceptionofthoseactionsthatare reserved totheshareholders bylawandthebylaws. Company, andspecificallyhasthepowertocarryoutallactionsitdeemsadvisableimplementattain The Board isvestedbythebylawswithbroadest powersfortheordinary andextraordinary managementofthe Board ofDirectors Powers Chairman Board ofDirectors Mario Paolillo Stefania Bettoni auditors Alternate Lorenzo Pozza Marcello Cosconati Standing auditors Luca Aurelio Guarna Chairman KPMG S.p.A. Independent auditors Board ofStatutoryAuditors

14 Annual Report 2009 Terna’s management De Francisci Regulatory Director Affairs Luigi Director Affairs Institutional Conti Stefano Director Development Business Saponaro Giuseppe Communication Resources and Relations and Organisation Giovanni Director External External Buttitta Director Cesare Ranieri Human Manager Investor Relations Colacchia Elisabetta Giuseppe Company Security Director Lasco Finance, Control, International International Todeschini n M&A and Director Fabio Director Operations Italian Armani Gianni Cattaneo Executive Officer Flavio Chief Maintenance Umberto Colonna Director Facility Director Administration Di Bacco Luciano Legal Department Secretary and Passeggio Corporate Filomena Director Chairman Roth Luigi Manager Audit Internal De Luca Fulvio Director and Engineering Grid Development Di Bartolomeo Evaristo Director Procurement Fiocco Alessandro Manager Planning Investment Zanuzzi Pier Francesco Manager Real Time Sabelli Carlo Director Operation and Energy Dispatching Del Pizzo Francesco 15 Terna’s management 16 Annual Report 2009 Asset growth inItaly The Terna Group The newHeadOffice inRome • that were adoptedandforthegreat attention toenergy savingandbiodiversity. safety andcreativity focusingon corporateidentity. andavant-garde Amodern Head Office bothforthesystemsolutions also intermoflocations.Asustainable andtechnologicproject thathasbeenableto blend highstandards offunctionality, In 2009Terna moved toitsnewHeadOffice inRomeandbeganthe reorganisation oftheCompany’snationalproperty • • • The electricitygridisformedby: Milano andAEMTorino. Presently, Terna ownsover98%oftheItalianelectricitygrid(datainkmdoublecircuit lines): voltage electricitylines.From 2005to2008Terna hadalready acquired nearly5,000kmofassetsfrom Acea,Edison,AEM the endofyear, theCompanyalsosignedanagreement withA2Afortheacquisitionofanadditional290kmhigh- In 2009Terna strengthened itsposition in Italyandgloballybyacquiringover18,000kmofelectricitylinesfrom Enel.At on theother, creating valueforshareholders focusingonresults. mission toitsbest:ononehand,ensuringageneralinterest andindependentservicesuchaselectricitytransmission 56% approximately isdividedamonginstitutionaland retail investors.Theseshareholders guaranteetheCompany’s with 5.1%,PictetFundEurope S.A.with4.9%, BlackRockInc.with2%andAssicurazioniGenerali2%.Theremaining Italian investorswhile36%belongstoforeign institutionalinvestors. TheCompany’sprincipalshareholders includeEnel TRN.MI). Themajorshareholder isCassaDepositiePrestiti with29.99%ofshares. 64%oftheshare capitalisownedby Terna hasbeenlistedintheItalianStockExchangesince2004(tickerBloomberg: TRNIM;tickerThomsonReuters: objective ofguaranteeingthesafetyinterconnected electricitysystems. transmission incontinentalEurope. 42electricityoperatorsfrom 34European countriesbelongtoENTSO-Ewiththemain Terna belongstotheENTSO-E,oneofmostimportantsectorassociationsinworldthatcoordinates electricity joining technologicalexpertiseandknow-howforimproving itsefficiency. demand andsupply. Furthermore, Terna isresponsible fortheelectricitygrid’splanning,maintenanceanddevelopment, and managingthenationalelectricityflows365daysayear, 24hoursaday, guaranteeingthebalancebetweenelectricity Grid, firstinEurope amongindependentgridoperatorsandseventhintheworld.Itisresponsible forsafelytransmitting Flavio Cattaneo.Withover60,000kmofpowerlines,Terna isthemainownerofhigh-voltageNationalTransmission Terna isaleadinggridoperatorforthetransmissionofelectricity, chaired byChairmanLuigiRoth,andheaded byCEO The Company, Group aninternational VHV transformers(very-high-voltage)thatwithdrawelectricity from powerplants; • 1NationalControl Centre • 3remote operationcentres • 8territorialoperationalareas • 18interconnection lineswithforeign countries • 383transformingandswitchingstations • 62,503kmofelectricitylines transforming stationsforsupplyingelectricitytothedistribution companiesthatprovide electricitytoendusers. VHV andHV(high-voltage)linesthattransferenergy; interconnection linesthatallowtheelectricityexchangewithforeign countries; 150kVlines:39,208km • • 220kVlines:12,083km • 380kVlines:11,212km < History The systeminnumbers Terna’s NationalControl Centre andtheelectricitysystem’ssafety Strategic developmentopportunities its investments. Belowisabriefsummaryof Terna’s mostrecent history. Chairman andCEO,markedthe beginningofanewapproach towards thedevelopment oftheItalianelectricitygridand abroad. Theappointmentofthe Company’snewBoard ofDirectors withLuigiRothandFlavio Cattaneo, respectively as included theprivatisationof gridownershipandtheestablishmentofmanydifferent market competitorsinItalyand Transmission Gridbecameeffective headed byTerna, aspartoftheliberalisationprocess oftheelectricity marketthat the nationalenergy scenario.On November 1,2005theunificationofownershipand management oftheNational Terna –ReteElettricaNazionaleS.p.A.hasbeenanessential industrialreality foryears,amongtheleadingplayersof MVA OFTRANSFORMINGCAPACITY 121,501 MWTHEHISTORICALRECORD OFTHECOUNTRY’S PEAKPOWERDEMANDONDECEMBER18,2007 56,822 METERS THE 1,600 REC MWTHETRANSFERCAPACITY OFTHEMOSTPOWERFULLINES 1,000 KMTHELENGTHOFSA.PE.I. SUBMARINECABLEBETWEENSARDINIAANDTHEMAINLAND 435 TRANSFORMINGANDSWITCHINGSTATIONS 383 BILLIONOFKWHREQUIREDINITALY IN2009 317.6 KMTHELENGTHOFLONGEST380KVOVERHEADLINE,MATERA-SANTA SOFIA 218 INTERCONNECTIONLINESWITHOTHERCOUNTRIES 18 KMTHELENGTHOFSHORTEST 380KVLINE,OSTIGLIA-OSTIGLIA C.LE,INLOMBARDY 0.4 respecting contractobligationsandensuringsafetyininfrastructures. level intermsofprevention, informationexchangeandcollaboration oncontractingcompanies,supplyingservices, signed withtheGeneralHeadquartersofCustomsGuards whichwasamongthemostinnovativeonesatEuropean company thatplacesItalyasaforerunner inthecountry’sstrategic sectorprotection. Astrategicagreement wasalso Understanding withtheMinistryofInteriorforGrid and managingcriticalsituationsinreal time.Forthis purpose,theCompanysignedin2009aMemorandumof Through theSOC,SecurityOperations Centre, Terna’s hightechcentre, theCompanyiscapableofpreventing, facing day, 365daysayearfornearly317billionkWhyear. from othercountriesandtosafelymanagetheenergy flows.Themonitoringactivityiscarriedoutnon-stop,24hoursa monitoring andmanagementsystemsallowTerna tocontrol, instantbyinstant,theelectricityproduced inItalyorimported central control room carriesoutadetailedcontrol ofthecountry’sentire electricitytransmissiongrid.Sophisticated Terna’s NationalControl Centre istheheartofnationalelectricitysystemandlocatedinoutskirtsRome.The interconnections intheAdriaticsea,firstofwhichinterconnection withtheMontenegro, 415kmlong. opportunities created bythepresence ofprivateinvestorsinelectricitytransmissionandtosupportsubmarine cable Europe.activities: firstofall,theBalkancountriesandEastern IntheBalkancountries,Terna isready tograspany share capital,Terna hasfocusedoninitiativeslocatedinareas thatrepresent thenaturalexpansionofitspresent fieldof growth objectives.Followingthesalein2009ofitsshareholding intheBrazilianTerna Participações, equalto66%ofthe Furthermore, Terna developmentopportunitiesthrough assessesinternational strategicinitiativesinlinewiththeGroup’s expertise, particularlyfocusingonthequalityofservicesoffered andontheeconomicfinancialefficiency. Abroad, theTerna Group carriesoutconsultingactivityforgridoperators,providing itsknow-howandtechnological ORD-BREAKING DEPTHOFTHESA.PE.I.SUBMARINECABLE, THEDEEPESTINWORLD safety whichrepresents thefirstagreement signedwithaprivate of electricitymanagedin2009 billion kWh 317 17 The Terna Group May 31, 1999 the Terna Company was established within the Enel Group in compliance with Legislative Decree no. 79/99 (“Bersani Decree”) that, as part of the liberalisation process of the Italian electricity sector, authorised the separation between the ownership and the management of the National Transmission Grid. Terna’s activities concern the operation and maintenance of the National Transmission Grid’s plants and systems belonging to the Enel Group and their development according to the guidelines issued by the GRTN (Gestore della rete di trasmissione nazionale- National Transmission Grid Operator).

June 23, 2004 Terna was listed in the Italian Electronic Stock Exchange.

March 31, 2005 Enel transferred to institutional investors 13.86% of Terna’s share capital that it owned.

September 15, 2005 Enel transferred 29.99% of Terna’s share capital to Cassa Depositi e Prestiti and the Company took on its present shareholding structure.

November 1, 2005 the unification of ownership and management of the transmission grid became effective headed by Terna.

November 2, 2005 the shareholders’ meeting appointed the new Board of Directors for the 2005-2007 three year period; Luigi Roth as Chairman and Flavio Cattaneo as CEO, reconfirmed for a second three-year term on April 28, 2008.

From 2005 to 2009 Terna acquired over 5,000 km of grid from Acea, Edison, AEM Milano, AEM Torino, A2A and 18,000 km from Enel consequently owning more than 60,000 km of power lines, over 98% of the national electricity grid. In 2009, moreover, Terna sold its shareholding in Terna Participações, equal to 66% of the capital.

The Italian grid’s development

In 2009, Terna further accelerated grid development: 55 projects, +22% compared to 2008 and 637 km of power lines built with a record 700% increase compared to the previous year. With respect to the €270 million invested in 2004, in 2009 Terna reached €900 million of investments for maintaining and developing the NTG, registering a growth of 230%. Building infrastructures strengthens the electricity grid and also represents the country’s development engine: 300 building sites are presently open which employ nearly 5,000 people. This figure will soon double, once the projects envisaged in the 2010-2014 strategic plan will be implemented.

Steps in development

Terna completed the first pole of the SA.PE.I. interconnection cable between Sardinia and the mainland; it opened building sites for the cable segment of the Sorgente-Rizziconi (Sicily-Calabria) line; it obtained authorisation for the 380 kV line between Lodi and Pavia (Chignolo Po-Maleo), for which the building site was opened; it requested authorisation for two new cross-border interconnections with France and Montenegro. Other projects completed in 2009 include: the Tavarnuzze-Casellina electricity line in Tuscany with 9 innovative pylons designed by the architect Norman Foster, a new 14 km long power line; works in Val d’Ossola (Piedmont), approximately 100 km and the removal of nearly 190 km whose demolition will be completed by mid-2010; upgrading the Bussolengo- Verona (Veneto) area, 24 km of buried cables and 45 km of obsolete lines that are being demolished. The other major projects in progress are: the second SA.PE.I. cable; the Santa Barbara-Casellina electricity line in Tuscany; the Ittiri-Codrongianus electricity line in Sardinia; projects in Piedmont for increasing the import capacity from France; the completion of upgrading the Valtellina, Valcamonica and Val d’Ossola grid; 12 sub-stations, 8 of which for collecting energy production from renewable sources in Southern Italy.

2009 “Electricity bridges”

In 2009 Terna has focused intensively on four interconnections to make Italy the Mediterranean “electricity hub”. The two interconnections with France and Montenegro, for which the Company has already initiated authorisation procedures will

Annual Report add 2,000 MW of transfer capacity to Italy’s import possibility.

18 The SEAcoordination tool Focusing ontheenvironment for restructuring the220kVlineinNaples(January 28). between PiedmontandLombardy (May27);andlastly with Campania’sRegionalAuthoritiesandtheProvince ofNaples Piedmont’s RegionalAuthoritiesforthe“feasibilityrange”of380kVTrino (Vercelli)-Lacchiarella (Milan)powerline development; withPiedmont’sRegionalAuthoritiesandtheCityofTurin forupgradingTurin’s 220kVgrid(June12);with Authorities (November3)andwithValle d’Aosta’sRegionalAuthorities(July10)fortheelectricitygrid’ssustainable grid betweenRomeandTerni (December21);withLazio’sRegionalAuthorities (December17),withLiguria’sRegional Bodies: withthemunicipalitiesofFianoRomano,Capena,MontopoliSabinaandNazzano,forrestructuring theelectricity In 2009,inparticular, thefollowingmemorandumsofunderstandingwere signedwithRegionalAuthoritiesandLocal Autonomous Province ofTrento. Campania, Basilicata,Umbria,Tuscany, Marche, Sardinia, Abruzzo,Puglia, Molise,Valle d’Aosta,Liguria,Lazio andthe a voluntarybasis.Uptonow, 18SEAagreements were signedwith Piedmont,Calabria,Emilia-Romagna,Lombardy, Sicily, a newtool:theSEA–StrategicEnvironmental Assessment –thatTerna hasbeenthefirsttoapplyinItalysince2002on the ongoingsearch foraproper balancebetweenelectricityneedsandmeetingtheinterests ofthecommunityandwith levels,weregovernment reached thankstoTerna’s approach basedoncoordination withRegionalandLocalBodies,in The variouspositiveresults obtainedinplanningsustainable development,thatwere recognised alsoatthehighest 2014 strategicplanincludestheremoval ofatleast800kmoldlinesthathasalready beenplanned. lines are expectedtoberemoved andatotalarea equaltotheAspromonte parkwillbefreed. Inthisrespect, the2010- power lines,represents themostsignificantcontributiontoenvironmental respect. Inthenext10 years,1,200kmofold obvious positiveeffects intermsofenvironmental impact.Theremoval ofpartsthelines,madepossible bybuildingnew systems allowupgradingmeasures thatincludetheremoval ofobsoletepartsthegrid(pylons, lines,supports)with Developing thegriddoesnotonlymeanbuildingnewlinesinadditiontoalready existingones.Thenewplantsand savings, whenfullyoperating,for The completionofthesetwointerconnections willsignificantlycontributetoreducing systemcostsandwillproduce km segmentbelowsealevelintheTyrrhenian seathatsurrounds theStraitofMessina. 1,600 metersofdepth.TheSorgente-Rizziconi powerlinewillbe thelongestACsubmarinecableinworldwitha38 with 435kmthatconnectLatinatoFiumeSanto(Sassari),andthedeepestsubmarinepowerlineinworld,reaching electricity system.TheSA.PE.I.willbecompletedwithin2010;itisthelongest“electricitybridge”inMediterranean, renewable sources thatare Italy. concentratedinSouthern Boththeseprojects represent worldrecords fortheItalian solving thepresent electricitymarketcongestionandallowingtotransferlarge quantitiesofelectricityproduced from The othertwointerconnections are already underconstructionandwillconnectSardinia andSicilywiththemainland for thesystemover diversifying thefuelmix,reducing Italy’sreliance onalimitednumberofenergy supplying“systems”andreducing costs Cross-border interconnections willguarantee:increasing electricitysystem, safetyforthenationalandinternational € 250 millionayear. € 125 millionontheelectricitybillsofallItalianusers. 19 The Terna Group Pylons of the Future: another example of technological innovation and development

Terna demonstrated its commitment toward the grid’s sustainable development also through planning new pylons in order to create supports and possibilities that would further reduce any environmental impact. In addition to the pylons designed by the architect Norman Foster already installed in Tuscany, tubular or single-pole pylons having a compact structure were also chosen in order to guarantee the lowest possible impact among all the choices for overhead power lines. The use of tubular supports has been widely used for some time for HV lines – 41 supports, for example, were installed in restructuring the 132 kV electricity grid in Val d’Ossola Sud – and they are also being developed in the VHV sector: as of today, tubular supports have been installed on these lines: Laino-Rizziconi in the Pollino Park, on the San Fiorano-Robbia line in the Adamello Park, and over 200 will be installed on the future Sorgente-Rizziconi line, connecting Sicily and Calabria, Trino-Lacchiarella line, connecting Piedmont and Lombardy, and Chignolo Po-Maleo line in Lombardy. At the end of 2009, the winners of the international contest “Pylons of the Future” were awarded, a contest that was created by Terna for planning and designing new pylons capable of blending innovation, technology, design and environmental culture also combining the highest service quality and enhancing the landscape. The first prize of the contest was awarded to the Rosental Group based on the project by the architect Hugh Dutton. The second prize went to the Frigerio Group and the third to Giugiaro Architettura.

A sustainable business model

Renewable sources, transmitting clean energy

The connection to the electricity grid of renewable source production plants is a top priority in the planning and development of the National Transmission Grid. In the next 5 years, Terna expects to connect another 6,000 MW of new wind power, for a total of nearly 10,260 MW installed in Italy mainly in the South and in the islands, with a significant reduction of CO2 emissions into the atmosphere.

Geographical location of existing wind power plants and wind power plants that will be built within 2014/2015: • Sicily 2,400 MW • Sardinia 1,300 MW • Puglia 2,500 MW • Abruzzo 350 MW • Campania 1,450 MW • Basilicata 400 MW • Calabria 1,100 MW • Molise 400 MW

Corporate Social Responsibility

Regarding sustainability, Terna attained new objectives in 2009 that represent just as much recognition received for an approach based on a sense of responsibility that is an integral part of its employees’ working culture and that is also based on the awareness and pride of providing a service of wide general interest for the community. Terna’s sustainability is demonstrated through a great respect for its stakeholders, through its trend for an ongoing improvement of its performance and in its focus on environmental and social consequences of its activities. The coherence pursued along this path was recognised in September 2009 with Terna being included in the Dow Jones Sustainability World Index, the most prestigious international stock market index that includes nearly 300 companies – of which only 12 are Italian – having the best sustainability performance. During 2009 Terna strengthened its commitment towards its stakeholders with an exhaustive distribution campaign of its Code of Ethics and by appointing an Ethics Committee. In parallel with this campaign, Terna’s Board of Directors consolidated its focus on the values expressed in the Code of Ethics and publicly reaffirmed its company commitment toward sustainability by participating in the most significant and prestigious international initiative in this field: the United Nations Global Compact. Advancing the publication of the 2008 sustainability report, the fourth in order of time, drawn up according to the G3 guidelines of the GRI (Global Reporting Initiative), allowed its widespread distribution to national and local authorities, media and universities. The focus on human resources was developed with the creation of the first “Safety 2009 Day” which involved the Company’s top management and its employees, joined in the objective of focusing on occupational safety. Terna continued its ongoing commitment towards the environment through the three-year agreement signed with the WWF in favor of the national electricity grid’s sustainable development and for protecting biodiversity through a greater integration of environmental criteria in planning the grid’s development.

Annual Report Special attention was also given to birdlife which was the object of scientific research conducted on Terna’s behalf by the 20 Italy 2009:withinthisrankingofthefirst40listedcompanies, Terna movedfrom 8thplacein2008to3 Complete transparency inTerna’s communicationwithitsstakeholderswasrewarded alsobytheAccountabilityRating ECPI andAxia.Withregard tocommunicationtools,the“Sustainability” sectionofitswebsite and intheEthibelSustainabilityIndexExcellence.Terna’s presence wasalsoconfirmedinthe FTSE4Good,FTSEKLD, that selectsthe120mostsustainablecompaniesamong the 600European companieswiththegreatest capitalisation World Indexandbyreceiving otherimportantrecognition. In2009Terna wasalsoincludedintheASPIEurozone index Terna’s sustainabilityplanwasrecognised bytheCompanybeingincludedinDowJonesSustainability internationally recognition External who in25and35yearsofemploymentcontributedtothegrowth ofboththeCompanyandcountry. nearly 500employeestothenewHeadOffice inRomeandto“CorporateLoyalty”byrecognising thecommitmentofthose “Ternaruga”. Strong communicationactivitiesdevotedtoaccompanyingthetransferof attention wasalsogiventointernal values”, afoundingelementinthegroup’s corporateidentity. Firstofall,thevaluesafetybycreating anactualmascot, obtained bythefirsteditionofartisticcontest“CreativInterna”, thisyeartheeventwasdevotedto“Transmission of events suchastheannualconventionWe:Me andthemanagement’smeetingsinitsterritorialoffices. Followingthesuccess tools andinitiativeswhichrevealed thehighestsatisfactionfor itscorporateIntranet“InTernamente” andforlarge scale communication processes. In2008aprogramme wascreated forexpressing satisfactionforTerna’s communication internal employees atleastinonecourse.Indemonstratingitsfocusonpeople,theCompanystrengthened itsinternal Company. In2009,employeesbenefitedfrom 160,000hoursoftraining,47percapitawhichinvolved91%Terna’s training: ajointinvestmentbetweentheCompanyandpeople,aimedatincreasing expertiseandcreating valueforthe analyses andcertifiesthebestcompaniesbasedonpersonnelpolicies.Terna enhancesitspersonnelthrough specialised In 2009,Terna waslistedamongthe28outstandingcompaniesoffirstItalianeditionCRFTop Employersthat on whichtoinvest,consolidatingandstrengthening individualtalen made of3,500professionals withanoutstandingknow-howanduniqueexpertise.Peopleare Terna’s most importantcapital Terna isalarge teammotivatedbypassionandtheawareness ofthedeepsocialvaluework.AleadingItaliancompany People with theworld’sartcapitalstopromote anexchangeofexperiencesandtobringItaliancontemporaryartabroad. In 2009,theTerna focusthrough Prizetookonaninternational the“Connectivity”project thatestablishesaconnection worlds enhancingtherole ofartistsasthedriverfordevelopinganewcreativity forthecountry. operators, thePrizewasconfirmedasaculturalplatformandcontestcapableofinterconnecting theartandbusiness 3,500 participatingartistsandagrowing interest onthepartofpublicauthorities,media,andsector second yearinarow, Terna maintaineditsculturalinvestmentthrough theTerna Prizeforcontemporaryart.Withover In linewiththeintentionofdemonstratingitscommitmenttowards thecommunityinalastingandcreative way, forthe reproductive activitiesare favored bytheproject Italica,“Nests&Pylons”. thatiscarriedouttogetherwithOrnis LIPU (ItalianLeagueforBird Protection) regarding itspossibleinteractionwithelectricitylinesandwhosenesting 10 Italiancompanies intermsofoverallevaluation ofeconomicandstrategic managementaspects. quality level,intheenergy sector, afterthetwomajorItalianenergy placedTerna companies.Journalists amongthefirst company thatregistered anincrease Terna’s inthefamiliaritylevelwithjournalists; press office rankedthird, intermsof 2009” inwhichTerna proved tobethecompanythatimproved relations withthepress themostduring2009and only Furthermore, thehighqualityof“mediarelation” activitywasdemonstratedbytheDemoskopeasurvey“City Journalists press in2009,markinga significantrisecompared totheprevious yearwith a26%increase inlocalnewspapers. Attention towards theactivitiescarried outbytheCompanywasdemonstratedalso 6,500 articlespublishedbythe Union whichalsoallowedTerna toberewarded withthe“Ruband’Honneur”. Business Award”, arecognition awarded tothemostsuccessfulcompaniesin27members countriesoftheEuropean Also importantwasTerna’s inclusionamong the10finalistsinCorporateSustainabilitycategoryof“TheEuropean places, from 13 th to 4 th place inthe“CSRonlineAward” draftedeachyearbytheindependentcompanyLunquist. ts, enhancingresults andpromoting professional growth. 90% 10% 360 1,020 3,447 Male employees Women employees Engineers forgriddevelopment Workers Employees inItaly www.terna.it rd place in2009. climbed 10 21 The Terna Group

chip stocks. With thisTSR,Terna rankednumber onebothamongallEuropean utilitiesandwasthe leading utilityamongItalianblue and bytheItalianmarket(23.9% forFTSEMib). to 37.2%,whichismuchhigher thanthereturn provided bytheindustry forthesameperiod(7.9%DJSTOXXUtilities) Indeed, thenewdividendpolicyhelpedsupportreturns forshareholders. In2009,Total Shareholder (TSR)came Return of aproject inthephotovoltaicpowerarea andanewdividend policy. subsidiary Terna Participações),whichledtoanumberofstrategically importantdevelopments,suchastheannouncement all, tointensiveM&Aactivities(theacquisitionofEnelDistribuzione’s high-voltagepowergridandthesaleofBrazilian declining energy volumesontheCompany’srevenue), aswelltoasignificant accelerationininvestmentand,above the favourableregulatory framework(includingtheintroduction ofmeasures aimedatmitigatingtheeconomiceffect of points from theendof2008.Terna’s stockalsocontinuedtorise,supportedbyaflowofpositivenewsrelated mainlyto recovery ofthisvalue,suchthattheEuropean andAmerican marketsclosedtheyearwithgainsofaround 20 percentage From mid-March, efforts andcentralbankstosupportmarket liquidity resulted bygovernments inthefull same period,Terna wasabletoholditsground, subsidingonlyfractionally(1.6%). banking industrycausedtheworld’smarketstolose35%oftheirvalueinlessthanthree months.Conversely, duringthis In 2009,fearsofanextendedglobalrecession, thedisappointing numbersfortheUSeconomy, andthedifficulties ofthe the onlybluechipstocktocloseyearatanall-timehigh. On thelasttradingdayof2009,Terna’s stockevenreached itshighestleveleversincetheIPO,at Utilities. the stockpostedgainsof28.5%,ascompared with the19.5%gainforFTSEMibindexand0.98%DJSTOXX that wasdecidedlybetterthanboththeaverageforItalianbluechipsandEuropean securitiesintheindustry. Indeed, In ayearofhighlyvolatilestockmarkets,thedefensivenature ofTerna’s stockenabled the Companyto Performance ofTerna S.p.A.shares Terna andthefinancialmarkets od’ Moody’s ic Fitch Standard &Poor’s Rating > intheFTSEItalyAllShare index(%) > intheFTSEMibindex(%) Weight ofTerna shares

FINANCIAL INDICATORS (2) IssuerDefaultRating. (1) Source: BorsaItaliana.Figures atDecember30,2009.

(1)

Outlook Outlook Outlook Short term Short term Short term

M/L term M/L term M/L term

€ (2) A+ Prime-1 A2 F1 3, thereby becoming A-1 Stable Stable Stable A post December 30,2009 performance 1.44% 1.63% 23 Terna and the financial markets 24 Annual Report 2009 up 6%sincethestartofyear, inacontextwhichboththeFTSEMibandEuropean sectorfellroughly 3% Terna shares continuedtoperformwellinthefirstfewmonthsof2010.Inmid-March, itreached anall-timehigh( falling just9%in2009(11millionshares). compared withtheprevious year. However, thedeclineforTerna wasnotasmarked,withaveragedailytradingvolumes The crisishadanegativeimpactontradingvolumestheItalianmarket,where bluechipsshed13%oftheirvolumes firms (at157%vs.the0.3%ofFTSEMib) by theFTSEMibindex.Total shareholder return hasalsobeensignificantlyhigherthantheaverageprovided byItalian Since itsplacementinJune2004,Terna haspostedgrowth ofaround 87%,ascompared withthedeclineof19%posted (1) Withrespect totheclosingpriceon March 16,2010. PERFORMANCE OFTERNASHARESANDTHEFTSEMIBDJSTOXX600UTILITIESINDICES Volumes (mln) Source: Bloomberg. 10 20 30 40 50 60 70 oue Tra TEMbDJSTOXX600Utilities FTSEMib Terna Volumes 0 -a-9 23-Mar-09 9-Jun-0926-Aug-0912-Nov-09 2-Jan-09 1 . 31-Dec-09 29-Jan-10 € 3.1825), 1 100 110 120 130 . Price 60 70 80 90 As ofMarch 2010,Terna S.p.A.’sshare capitaltotalled Shareholders held byItalianinstitutionalinvestorsremained at6.6%fortheperiod. 7.6%, Switzerland5.9%,France3.8%andGermany2.8%)NorthAmerica(US/Canada4%).Thepercentage ofshares by Italianshareholders, withtheremaining 36%beingheldbyforeign institutionalinvestors,primarilywithinEurope (UK Based ontheperiodicsurveysconductedbyCompany, itisbelievedthatroughly 64%ofTerna S.p.A.shares are held Other institutionalinvestorsandretail investorshold33.1% and22.8%,respectively. • Otherinstitutionalandretail investors:55.9% • Significantinstitutionalinvestors:PictetFundsEurope S.A.with4.9%,BlackRockInc.2% • EnelS.p.A.:5.1% • CassaDepositiePrestiti S.p.A.(CDP):29.99% date ofpreparation ofthisreport, theshareholders ofTerna S.p.A.break downasfollows: shares withaparvalueof Total 100% Total 100% SHAREHOLDING STRUCTUREBYTYPOLOGYANDGEOGRAPHICAREA SHAREHOLDING STRUCTURE and AssicurazioniGeneraliwith2% (Pictet FundsEurope S.A.,BlackRockInc.andAssicurazioniGenerali) Institutional InvestorsUS/Canada Institutional InvestorsItaly Institutional InvestorsUK Others Institutional InvestorsEurope (formerUK) Retail Core (CDP+Enel) Enel Major InstitutionalInvestors CdP Other InstitutionalInvestors+Retail € 0.22. Onthebasisofregister ofshareholders andotherinformationavailableasofthe € 440,199,936 andwasrepresented by2,000,908,800ordinary 35.1% 55.9% 22.8% 4.0% 5.1% 6.6% 9% 7.6% 15.6% 29.99% 8.3% 25 Terna and the financial markets

2009

Directors’ Report 30 Annual Report 2009 Directors’ Report Contents ainlTasiso rdDvlpetPa 71 64 Work carriedoutinperiod National Transmission GridDevelopment Plan Number ofplants-TELAT Number ofplants-Terna National Transmission Grid Social responsibility 55 The environment 63 Electrical service Corporate socialresponsibility Supplier Qualification 54 Information Security Physical Security Control ofManagementSystems 41 Risk Management Security OperationsCentre Company security 40 Risks connectedwithfinancingneeds Financial risks Litigation risk Operational risks:risksconnectedwithNTGmalfunction Regulatory risk Risks anduncertaintiestowhichTerna andtheGroup are exposed with thecorresponding figures fortheParent Reconciliation ofprofit for theyearandequityattributabletoshareholders oftheParent Cash flows Reclassified consolidatedstatementoffinancialposition Exchange rates Performance bygeographicarea andbybusinesssegment Reclassified consolidatedincomestatement Scope ofconsolidation Foreword Group performance andfinancialposition Cash flows Reclassified statementoffinancialposition Reclassified incomestatementofTerna S.p.A. Introduction Terna S.p.A.performanceandfinancialposition Sustainability index Markets andfinance Significant events Highlights 72 71 70 70 69 68 68 68 68 67 67 67 65 65 64 64 64 64 63 62 58 54 51 50 50 50 47 43 40 37 36 34 32 umr fAtoiyfrEetiiyadGs(EG eouin 92 87 88 88 87 Summary ofAuthority forElectricityandGas (AEEG)Resolutions Regulatory framework Italy’s regulatory framework 87 ANNEX Outlook TELAT-Terna planttransferforNTGdevelopmentandupgradepurposes 2010-2014 BusinessPlan Renewal andexpansionofEMTNprogramme andnewbondissues 86 Italy-Montenegro intergovernmental agreement 86 Terna andthe2010 photovoltaicproject Subsequent Events 82 of artt.36and37theCONSOBMarketRegulations(no. 16191/2007) Certification pursuanttoart.2.6.2oftheBorsaItaliaRegulations regarding theprovisions Information onshareholding structure Personal dataprotection code (LegislativeDecree no.196ofJune30,2003) Treasury shares Other information Significant non-recurring eventsandoperations,atypicalorunusualtransactions Shares heldbyDirectors, StatutoryAuditors,GeneralManagersandKey Related partytransactions 80 81 Consultative Committee Grid Code Expected developments Management incentiveplans Human resources Organisational structure Human Resources andOrganisation Research and development 3. Achievementofmanagementefficiency benefits 2. Enhancementofthetelecommunicationsinfrastructure asakeyasset 1. Benefitsforbusinessderivingfrom thecompletionofimportantinitiatives Information Technology Terna andphotovoltaicpower Service quality, unsuppliedenergy andotherserviceissues Interruptibility service Provisioning ofdispatchingresources Coverage ofdemand Electricity business Dispatching andtrade Power generation Energy demandinItaly Energy overview o ainlTasiso rdmngmn 81 for NationalTransmission Gridmanagement 90 90 89 88 87 87 87 86 86 85 85 85 83 83 83 83 83 82 81 80 79 77 76 75 75 74 74 74 31 Directors’ Report 32 Annual Report 2009 operations Discontinued operations Continuing profit Net of euros In millions Highlights of euros In millions million overthe million toservices. attributable entirely totheshareholders oftheParent The consolidatedfinancialstatementsatDecember31,2009,closedwith firms havebeenreclassified inthesamemanner. assets heldforsaleanddiscontinuedoperations).Forthepurposesofcomparison,2008balancestheseBrazilian been reclassified as“Profit from discontinuedoperationsandassetsheldforsale”inaccordance withIFRS5(Non-current Following thelatterevent,2009incomestatementaccountbalancesrelated tothesaleofBraziliancompanieshave “Significant events”. Enel DistribuzioneandthesaleofequityinvestmentheldinTerna ParticipaçõesS.A.describedinthesection As describedingreater detailbelow, 2009featured theacquisitionofhigh-voltage transmissioncompany, TELAT, from reclassified statements. and financialposition”ofthisreport, takenfrom the consolidatedfinancialstatementsasdescribedinthenotesto The figures discussedbelowhavebeendrawnfrom thereclassified statementsincludedinthesection“Group performance Revenue amountedtoabout the shareholders oftheParent ( the year. Thisisatotalincrease intotalprofit of million from discontinued operations asaresult oftheaforementioned saleof theinvestmentinTerna Participaçõesduring Operating expenses nine monthsoftheyear. the amountof the NationalTransmission Grid,andincreased by 2008 2009 Revenues GTF 2009 2008 0 0 0 0 0 0 0 800 700 600 500 400 300 200 100 0 0 0 ,0 1,600 1,200 800 400 0 € 40.9 417.0 300.5 354.0 341.4 771.0 1,060.5 1,195.8 1,185.6 1,360.7 € 1,087.9 millionare attributable totheParent and 850.4 millionoftheprevious year(+18.0%).TELAT contributed EBITDA amounted toabout (gross operatingprofit) € € 1,360.7 million 327.5 million). € 357.5 million , ofwhich € 443.5 million(+135.4%)ontheprofit fortheprevious yearattributableto € reached 164.9 millioncompared with 2008.Inparticular, transmissionfeesin , ofwhich , € € 1,185.6 millioninrelation revenue from feespaidfortheuseof 354.0 millionofwhichfrom continuingoperationsand € 1,003.2 million € € 97.7 milliontothesubsidiaryTELAT related tothelast 181.6 millionrelating topersonnelexpenseand , equalto73.7%ofrevenue, risingby profit fortheyearof € 95.3 milliontothistotal. € 771.0 million, € € € 417.0 152.8 128.0 of euros In millions of euros In millions continuing operationsin2008. Total capitalexpenditure does nottakeaccountofthedebtpositionBrazilian firms. As aresult, the million. The rate of35.2%. capital In termsofthestatementfinancialposition, subsidiaries, bestdescribedinthefollowing. The Income taxes Net financialexpensecameto € EBIT 2008 2009 (71.1%) 2008 (73.7%) 2009 EBITDA MARGIN 279.4 millionofwhichfortheParent and e netdcptl-cniun prtos Netfinancialdebt-continuingoperations Net investedcapital-continuingoperations Revenues EBITDA Profit from continuingoperations Profit from discontinuedoperations (operating profit) cameto was equalto 0 0 ,0 1,600 1,200 800 400 0 ,0 ,0 ,0 ,0 ,0 ,0 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 for theyeartotalled 2,953.6 4,775.8 3,758.2 6,259.6 850.4 1,195.8 1,003.2 1,360.7 debt-to-equity € 6,259.7 million,fundedbyGroup by theGroup duringtheyearcameto € ratio attheendof2009cameto1.50,compared with1.42atDecember31,2008,which 148.3 million,whichisattributableentirely totheParent. € 694.4 million € 192.1 million,ofwhich came to € 29.4 millionforthesubsidiaryTELAT. came to net non-current assets , after € 354.0 million,ofwhich € amortisation anddepreciation 417.0 millionandrefers totheeffects ofthesaleBrazilian equity € 179.5 millionattributabletotheParent, foraneffective tax of € 900.4 millionup17.7%from the € 2,501.5 millionand amounted to € 300.8 millionattributabletotheParent. € 7,468.5 million,while in theamountof net financialdebt € 764.9 millionfrom € 308.8 million net invested of € 3,758.2 , 33 Directors’ Report 34 Annual Report 2009 Significant events both inItalyandabroad, andrelated research, consultingandassistance services. dispatching ofelectricity, aswellofpowergenerationplants–including renewable energy –forself-consumptionorsale, construction, management,development andmaintenanceofnetworksotherinfrastructures forthetransmission and projects thatare expectedtobecomeoperationalbytheendof2010.Thecompany’s purpose includesthedesign, (or “RTR S.r.l.” forshort)withshare capitalintheamountof for thenewphotovoltaicpowergenerationbusiness,SunTergrid alsoestablishedthenewcompanyReteRinnovabileS.r.l. On as acapitalcontribution. and bywayofimplementingtheresolution oftheBoard ofJuly28,2009,Terna provided thecompanywith On 79/99 (i.e.the“BersaniDecree”). compatibility withthebylawsandconcessionofTerna S.p.A.,aswellwiththeprovisions ofLegislativeDecree no. This corporateorganisation bothmeetstheneedsoffunctionalandaccountingseparation Parent andensures contract assignmentinJanuary2010.InDecember, thefirstphotovoltaic plantbeganoperationsintheprovince ofRagusa. and connectionshavebeenrequested, andthefirstEuropean tenderpublishedfortheEPCcontractclosedwith Terna's electricitystationsthatare currently unusedandwhere noplanthasbeeninstalled.Thenecessaryauthorisations power capacityofabout100MWpandcapitalexpenditure inexcessof 2009 –toundertaketheconstructionandmanagementofsmall-scalephotovoltaicpowergenerationplants(fora total InTernational S.p.A.–whichwasrenamed “SungridS.p.A.”onJuly7,2009,andthen“SunTergrid S.p.A.”onOctober 22, In order toleverageand safeguard itsresources whilemaximisingreturn onitsassets,Terna designatedthesubsidiary Photovoltaic project execution ofapartnershipagreement betweenTerna andSTEG(signedinRomeonMarch 11andinTunis onMarch 26,2009). Development andtheTunisian MinistryofIndustry, Energy andSmallBusiness(ofJune29,2007August7,2008)in The companywasestablishedinaccordance withthepartnershipagreements betweentheItalianMinistryforEconomic SàrlisbasedinTunis andhasshare capitalofTND2.7million(equaltoabout ELMED ÉTUDES construction andmanagementofthepowergenerationhubinTunisia fortheItaly-Tunisia interconnection project. preliminary thepreparation consulting concerning ofdocumentsfortheTunisian callfortendersthe government's venture betweenTerna andSociétéTunisienne del’ÉlectricitéetduGaz(STEG)whosemainobject isthestudyand On Establishment ofELMEDÉTUDESSÀRL compensation fortheratedifferential. Asa result, thetotalcostofacquisitioncameto which tookplacefollowingthesigningofsaleagreement, EnelDistribuzionepaidTerna alumpsumof the calculationofremuneration, bytheAuthorityforElectricityandGas,ofportionNTGownedTELAT, of The shareholders approved achangeinthename ofthecompanyto“Terna LineeAltaTensione S.r.l.” (or“TELAT S.r.l.” forshort). company comprising18,583kilometres ofhigh-voltagelinesandrelated legalrelationships. Atthesametime,ELAT of EnelLineeAltaTensione S.r.l. (ELAT) toTerna, after transferring(effective asofJanuary1,2009)abusinessunittothi On Completion oftheacquisitionEnelLineeAltaTensione guarantee mechanismwithinarangeof+/-0.5%theeffects oftheannualchangesinenergy transmitted. the effects of AEEGResolutionno.188/08oftheAuthorityforElectricityandGas,whichintroduced the“mitigation” component related tothe business unitinquestion.BeginningonApril1,2009,TELAT, asfortheParent, nowbenefitsfrom issuance ofameasure by theAuthorityforElectricityandGas(AEEGResolutionno.31/09)grantingTELAT therate Authority, inclusionofthehigh-voltagelinesinNationalTransmission Gridbythecompetentauthorities,and The transactionwascompletedafterthecontractconditionswere met,particularlyincludingapproval bytheAntitrust Base (RAB). For Terna, theacquisitionresulted ingrowth ofabout43%intotalkilometres ofpowerlinesand18%inRegulatoryAsset charges directly attributabletothetransaction. € April 1,2009 April 20,2009 December 23,2009 October 22,2009 12.3 millionbasedonthechangeinTELAT equitywhichtookplaceinthefirstquarterof2009.Inaddition,following € 1,152 millionpriceforthecompanywaspaidinfulluponclosingofdealandsubjecttoabalancingpayment , inimplementationoftheagreement signedonDecember19,2008,EnelDistribuzionesoldtheentire capital , theTunisia-registered firmELMED ÉTUDESSàrlwasestablished.Thislimited-liabilitycompanyisajoint , inorder toprovide SunTergrid withthefinancialresources neededtodevelopthisnewbusiness, , aspartofaprocess reorganisation ofinternal andinorder tooptimiseresources andpotential € 50,000.00, whichistobethespecial-purposevehicleforall € 300 millionby2010)locatedintheareas of € 1,157.7 million,including € 1.5 million). € € 11 millionas 10.0 million s competent authorities. completion oftheaforementioned demerger andtheinclusionofRetrasm’s High-Voltage PowerGridintotheNTGby Finally, thetransferofownership equity issubjecttotheapproval oftheAntitrustAuthority, andisconditionedupon on 2008size)toreach atotalofapproximately 99%. This transactionwillenabletheTerna Group tofurtherincrease itsownershipoftheNTG,adding0.38%NTG(based the deal,istobereduced bythevalueofRetrasm’s netdebtasofthatdate. The totalpaymentagreed uponforthesalewas as wellrelated legal relationships (collectivelythe“High-Voltage PowerGrid”). transferred included108kilometres ofpowerlinesandthesubstationsrelated totheselineslocatedat22primarystations, S.p.A., awhollyownedsubsidiaryofA2A,toRetrasmbywaythepartialdemerger ofA2ARetiElettriche.Theassets Based onthisagreement, onJanuary26,2010,A2Aalsotransferred thehigh-voltagelinesownedbyA2ARetiElettriche subsidiary ofA2A. entire share capitalinRetrasm,atransmissioncompanythatownsportionoftheNTGandwhichiswhollyowned On Agreement fortheacquisitionofA2A’s high-voltageandnationaltransmissiongrids On Completion ofthesaleequityinvestmentinTerna Participações in general,aswelltechnicalandscientificprogress inthatfield. CESI S.p.A.constructsandmanageslabssystemsfortesting,inspectionresearch regarding electricaltechnology represents aninvestmentinassociatedcompany. As aresult ofthesetransactions,Terna’s equityinterest inCESIS.p.A.reached 30.91%,which,fortheTerna Group, S.p.A. inCESI. On On Purchase ofadditionalshares intheassociateCESIS.p.A. transactions carriedasfrom thesigningdate,isequalto The transactionsgeneratedatotalofR$2,347.6millionforTerna. Thecorresponding valueineuros, netofhedging already paidtoTerna inrespect ofitsholdingcametoatotalR$199.2million(about On share andR$37.14pershare depositoryreceipt (orunit,representing oneordinary share andtwopreference shares). The overallprice,includingtheadjustmentenvisagedinsaleagreement, wasR$2,148.4million,equaltoR$12.38per (Fundo deInvestimentoemParticipações)Coliseu,whichbringstogetheranumberofBrazilianinvestors,wascompleted. investment heldbyTerna inTerna ParticipaçõesS.A.toTAESA S.A.(“TAESA”), acompanyheldbyCemigGTandFIP Geração eTransmissão S.A.(“CemigGT”)andCompanhiaEnergética deMinasGerais(“Cemig”),thesaleofequity of thisdocument. 10,000 units,whichitwillsellwithintheframeworkofoffer, scheduledforApril19,2010asofthedatepreparat a publictenderoffer fortheremaining shares ofTerna Participaçõesatthesameper-share price.Terna holdsanadditional As envisagedunderBrazilianlawandthebylawsofTerna Participações, the changeofcontrol requires TAESA toundertake of thelocalregulatory authority (ANEEL,AgênciaNacionaldeEnergia Elétrica). theeffectivenessThe transactionwascompletedafterfulfilmentoftheconditionsgoverning oftheagreement, i.e.approval hedging theexposure). Withtherepayment, allintercompany relationships betweenTerna andTerna Participaçõesceased. 2009, intheamountofR$540.1million(equaltoabout On October 6,2009 November 3,2009 October 26 December 22,2009 October 30,2009 October 28 , Terna ParticipaçõesdistributedadividendofR$1.15pershare, equaltoR$3.44perunit.Theamount , Terna alsoreceived repayment oftheintercompany loan,grantedtoTerna ParticipaçõesinFebruary , Terna completedthepurchase ofthe1.871%stake(64,000shares) heldbyA2AS.p.A.inCESI. , theParent alsocompletedthepurchase of the4.68%stake(160,000shares) heldbySiemens , inimplementationofthesaleagreement signedonApril24,2009betweenTerna S.p.A.,Cemig , Terna, through itssubsidiaryTELAT, signedanagreement withA2A fortheacquisitionof € 36.5 million.Thepurchase price,whichistobepaidinfulluponclosing € € 797 million. 180.3 millionnetofBrazilianwithholdingtaxandthecost € 77.5 million). ion 35 Directors’ Report 36 Annual Report 2009 equal to6-monthEuriborplusaspread of2.50%. The financingisintheformofa5-yearinterest-bearing loantoberepaid insemi-annualinstalments,withan interest rate million, whichwasrepaid inNovember–Terna grantedaloanof subsidiary intheirextraordinary meetingofMay28,2009,soastooptimiseitsfinancialstructure, intheamount of TELAT thefinancialresources neededfortherepayment ofitsownshare capital–asapproved bytheshareholders ofthis In Intercompany loanbetweenTerna andTELAT and changeditsratingforunsecured seniordebtfrom “AA-”to“A+”.Theshort-termratingremained unchanged. 2009, theagencythendecidedtorevise theCompany’s long-term credit ratingfrom “A+”to“A”,withastableoutlook, of “F1”),anddoesnotintendtodowngradetheCompany’s ratinguntilthetransactionhasbeen completed. OnApril1, its ratingsunchanged(withalong-termratingof“A+”,forunsecured seniordebtof“AA-”,andashort-termrating Fitch changing itsshort-termratingfrom “A-1+”to“A-1”. Standard &Poor’s Moody’s acquisition ofEnelLineeAltaTensione (ELAT), theCompany’s credit ratingswere revised asfollows: During thefirsthalfofyear, followingTerna’s presentation ofthe2009-2013BusinessPlan, whichincludesthe Rating This financingwasprovided onJuly3,2009intheamountof The transactionisintendedtofinancethenetworkdevelopmentinvestmentsenvisagedinCompany’s businessplan. with astableoutlook. The ratingassignedtotheCompany’s unsecured debtbyFitchis“A+”;Moody’s, “A2”;andbyStandard &Poor’s, “A+” Bank actedasjointbookrunners. The bondissuefallswithinthescopeofEuro Medium-Term Notes(EMTN)programme, andBNPParibasDeutsche 4.875%, whichcorresponds toaspread of128basispointsoverthe6-monthEuribor. The ten-yearbond,maturingonOctober3,2019andissuedatanall-inpriceof98.785%,paysannualcoupon of On EMTN: privateplacementof10-yearnotesintheamount tranches on In April,followingtheacquisitionofELAT, Terna requested theearlyredemption ofthesecurities, whichoccurred intwo points. Thearrangementallowsthebuyertorequest earlyredemption atspecifieddates. The bondsmature onFebruary2,2010andcarryatwo-monthlycouponofthe2-monthEuriborplus0.65percentage e Prestiti. On Purchase ofsecuritiesfrom CassaDepositiePrestiti advantage offundsmadeavailabletoCDPbytheEIBupatotal On of fundingandamargin of70basis pointsappliedbyCDP. for theloanappliedtoeachofdisbursementsisbecalculatedbasedoninterbankrate(Euribor)plusEIBcost The periodoffinancingbeginsonthedatesigningagreement andrunsuntilNovember4,2011.Theinterest rate infrastructure projects madeavailablebytheEuropean InvestmentBank( In order fortheloantobedisbursed,CDPmustalsoablebenefitfrom thefundsallocatedtofundeligible a total On Loan from CassaDepositiePrestiti S.p.A. Markets andfinance November 2009 February 12,2009 February 2,2009 ue22,2009 June June 22,2009 maintained itsnegativeratingwatchissuedinconjunctionwiththeannouncementofELAT acquisitionandleft € 500 million,disbursableinmultipleinstalments,withamaximummaturityof10yearsandfullrepayment atmaturity. changed itslong-termratingfrom A1toA2withastableoutlook. April 2 , Terna signedanimplementingaddendumtotheagreement withCDPthatmakesitpossibletotake Terna S.p.A.carriedoutaprivateplacementoffixed-ratebondsworth , inimplementationoftheresolution oftheBoard ofDirectors ofMay15,2009,andinorder togive and revised itslong-termrating from “AA-”withanegativeoutlookto“A+”stableoutlook,while , Terna signedaloanagreement withitscontrolling entity, CassaDepositiePrestiti S.p.A.(CDP)for , Terna finalisedanoperationforthepurchase ofbondsworth April 30,2009 , withnominalvaluesof € 592.7 million. € € 200 millionand € 600 million 500 million. € 500 million. EIB ). € 500 millionrespectively. € 700 millionissuedbyCassaDepositi € 600 million. € 600 Only tenItalianfirmsare includedintheASPIandjusteightEthibelindex. maintaining arelationship oftrustwithstakeholders,whichcontributestocreating valueforshareholders. operations influencesaspectsofandtranslatesintoreal programmes andactionsaimedatcreating and and sustainabledevelopment.Thesenseofresponsibility forthesocialandenvironmental effects oftheCompany’s Inclusion intheseindicesisatestamenttoTerna’s growth strategy, whichissensitivetotheissuesofsocialresponsibility index inrecognition oftheCompany’s non-financial–i.e.environmental, –performance. socialandgovernance On Terna addedtotheASPIandEthibelsustainabilityindices theoperationanddevelopmentofinfrastructureconcerning neededfortheItalianelectricalsystem. This eventtestifiestothesoundnessofTerna’s strategyforgrowth thatissensitive tosocialandenvironmental issues capitalisation. Only12Italiancompanieshavebeenadmitted,5ofwhichjustmadetheirdebut. the enterpriseswithbestsustainabilityperformanceamongworld’s 2,500largest companiesbymarket On Terna becomespartoftheDowJonesSustainabilityWorld Index Sustainability index October 16,2009 September 3,2009 , Terna wasaddedtothespecialisedAdvancedSustainablePerformanceIndices(ASPI)andEthibel , Terna joinedtheDowJonesSustainabilityWorld stockindexof Index,theleadinginternational 37 Directors’ Report

40 Annual Report 2009 discontinued operationsandassetsheldforsale”intheincomestatement. all costandrevenue items related totheBraziliancompaniesforboth2008and2009havebeenreclassified as“Profit from been reclassified inaccordance withIFRS5-Non-current assetsheldforsaleand discontinuedoperations.Inparticular, detail inthesection“Significantevents”(seeabove),balancesrelated tothesaleofBraziliancompanieshave It shouldbenotedthat,followingthesaleofinterest heldinthesubsidiaryTerna ParticipaçõesS.A.,asdescribedin on itsabilitytocontinueasagoingconcern. and financialenvironment, itdoesnotfacematerialuncertainties(asdefinedinparagraph25ofIAS1)thatmightcastdoubt basis.TheCompanyhasdeterminedthat,despitethechallenging economic instruments, aswellonagoingconcern The 2009annualreport hasbeenprepared onahistoriccostbasis,modifiedwhere necessaryforcertainfinancial Commission (hereinafter theIFRS-EU). Reporting Standards AccountingStandards (IFRSs)issuedbytheInternational Board (IASB)andendorsedbytheEuropean has prepared Financial theseparatefinancialstatements atDecember31,2009,incompliancewiththeInternational Decree no.38ofFebruary28,2005,andinimplementationtheoptionenvisaged(EC)Regulation1606/2002,Terna introduced byLegislativeDecree no.195 ofNovember6,2007(the“Transparency Decree”). Inaccordance withLegislative The 2009annualreport ofTerna S.p.A.hasbeenprepared inaccordance withart.154 Introduction Terna S.p.A.performanceandfinancialposition ter of LegislativeDecree no.58/98, In millionsofeuros te eeu n noe 4. 41-. -4.8% -2.1 44.1 42.0 Other revenue andincome Other revenue from salesandservices oa prtn xess 3143541. 4.6% -9.4% 16.0 8.3% -18.9 14.1% 99.1 345.4 201.2 9.8% 15.6 50.0% 361.4 1,196.1 182.3 83.1 110.7 5.9 1,295.2 850.7 126.3 Amortisation anddepreciation 11.8 EBITDA 933.8 Total operatingexpenses Other expenses Materials 17.7 Services anduseofthird-party assets Personnel expense Operating expenses Total revenue Grid transmissionfees Revenue rftfrteya 9. 3. 5. 135.6% 2.8% 454.7 4.9 1,161.4% 335.3 6.8% 427.4 790.0 32.2 174.6 9.1% 36.8 179.5 473.1 27.3 464.2 505.3 298.5 9.6% Profit forthe year 325.8 operations andassetsheldforsale Profit fortheyear from discontinued 57.2 Profit for theyearfrom continuingoperations Income taxes 597.2 Profit before taxes Net financialincome/(expense) EBIT 654.4 Other energyitems theincrease ofabout • due mainlytothefollowing: (4) corresponds tothebalanceofitemsdescribedunderpoints1and2“C.Financialincome/expense”. (3) corresponds to“Amortisation,depreciation andimpairmentlosses”netofthenon-current assets( Revenue (2) corresponds to“Otheroperatingexpenses”and“Amortisation,depreciation andimpairmentlosses”fortheofnon- (1) thisfigure isincludedin“Revenuefrom salesandservices”; In theincomestatement: The reclassified consolidatedincomestatementofTerna S.p.A.for2008and2009isshownbelow. Reclassified incomestatementofTerna S.p.A. • • • to theprovision forbaddebts( ( € the release oftheprovision setasideforatechnicaldisputewithdispatching withdrawaloperator( 188/08); lower past-yeargridtransmission feesbalancingpayments(down greater gridtransmissionfeesrelated tothedefenceplan(up a 2.8 million)andtheaccrualtoprovision forbaddebts( € 38.5 millionincrease inrevenue from gridtransmissionfees,duetotherevised ratesfor2009(asperResolutionno. for 2009,intheamountof (2) (1) (1) € 27.4 million(+2.6%)forNTGfees,essentiallyasaresult ofthefollowingfactors: € 14.1 million); (4) (3) € 1,295.2 million,increased by (1) € 14.1 million); ,8. ,6. 742.6% 27.4 1,060.5 1,087.9 191-2. 2. 20.1% -25.0 -124.1 -149.1 7. 5. 5910.2% 25.9 253.5 279.4 512. 3461.8% 13.4 21.7 71.2% 89.0% 30.7 35.1 43.1 43.1 48.4 73.8 91.5 2009 € € 3.8 million); 99.1 million(+8.3%overthe € 14.9 million),withtheprevious yearbenefitingfrom 08Cag % Change 2008 € 2.8 million)andtheaccrual € 1,196.1 millionof2008) current assets € 14.0 million); 41 Directors’ Report 42 Annual Report 2009 Net financialexpense Operating expenses “Services anduseofthird-party assets”:intheamountof • “Personnel expense”:thereduction of • effect ofthefollowingfactors: EBIT € mainly tothestartofoperationsnewplantandmachinery, particularlythefirstpoleofSA.PE.I.( • other salesandservices,whichincreased other by • Amortisation anddepreciation rising by EBITDA “Otherexpenses”: the • “Materials”:the • Profit from continuingoperations fiscal yearduetotheregional businesstax(IRAP)notbeing deductedfrom corporate incometaxes(IRES)( to theapplicationofLawno. 2 ofJanuary28,2009,whichallowstherecovery ofthegreater taxespaid priortothe2008 operations andassetsheldfor sale”)duemainlytothepositiveadjustmentsrelated toprevious yearsrelated, inparticular, of thereclassification ofamountsdirectly attributabletotheBraziliansubsidiaries as“Profit fortheyear from discontinue equal toaneffective taxrateonprofits from continuingoperationsof35.5%,whichis down from the 36.9%of2008(net • other energy other items(+ • Income taxes anegativeimpact(of • anincrease innetfinancialexpenserelated totheupliftforperiod( • increase incapitalisedcostsonnon-current assets(areduction of • netfinancialincome(forareduction of • anincrease infinancialexpenserelated tomedium-andlong-termdebttherelative hedges( • mainly tothefollowing: 134.4 millionof2008). of million) andSunTergrid ( and managementfeesinexecutionoftherelated portionsofthecontractssignedwithsubsidiariesTELAT ( being withEnelDistribuzione)forhigh-andvery-high-voltagelines.The2009balancealsoreflects thetechnicalservices from themaintenanceandtechnicalservicescontractwithsubsidiaryTELAT, whichwaspreviously recognised as of charges forcontractrenewal; charges fortheyearincreased (by of thegreater investmentmadeduringtheyear(- the populationofretired employeebeneficiaries,aswelltotheincrease incapitalizedpersonnelexpenseasaresult provision (- technical, legalandotherprofessional services( previous yeardueessentially totheincrease intechnicalservicesandcontractsforplants( the unregulated activitiesforconstructionwork(up related toreceivables thatare unlikelytobecollected( million); interconnection between Italy andSwitzerland( contract withEL.IT.E. fortheconstructionofmerchant lineinValtellina, theunderground alternate-current Resolution no.206/08oftheAuthorityforElectricityandGas( the optimisationofresources fortheprovisioning servicesontheAncillaryServicesMarket,ascalledforbyARG/elt on saidloan. intercompany loanrepatriated bythesubsidiaryTerna Participações,which waspartiallyoffset bytheinterest income increase indebt,whichwasoffset byadeclineinmarketrates; € 5.1 million). (operating profit) cameto (gross operating profit) reached € 83.1 millionoverthe € 26.8 million)asaresult oftheagreement signedwith EnelServizioElettrico,related totherecalculation of for theyearcameto € 5.9 millionincrease isdue almostentirely toactivitiesforthird parties,including thoserelated tothe totalled € 43.1 million,or+89%)related mostlytotheincrease inrevenue fortheincentivesconnectedwith for theyearcameto € € € 10.9 million)duetothecombinedeffect ofthecoverage(nothedges) ofdividendsandthe 5.9 million,includingservicesrelated totheconstructionofphotovoltaicplantsinamount 13.4 millionincrease isdue mainlytotheaccrualprovision forbaddebtstheyear € € 361.4 million,increasing by € 850.7 millionof2008(+9.8%). for theyearcameto 654.4 million,foranincrease of9.6%( € came to € 16.8 million)duemainlytothegreater per-unit cost, whichalsoincludesanestimate 179.5 million(ofwhichanegative € € € 5.7 million)forthefairvalueadjustmentofbondsandrelative hedges; 18.9 millionfrom 2008isessentiallyduetotherelease oftheenergy discount 933.8 million,equalto72.1%ofrevenue (uponepercentage pointfrom 2008), € € 325.8 million,up € 149.1 million,foranincrease of 30.7 million(+71.2%)dueessentiallytotheincrease inrevenue related to € 2.2 million),andtheprovision ofthearmoured powerplantforA2A( € € 2.8 million)andinsurance( 8.9 million).Ordinary expensesforsalaries,wagesandsocialsecurity € € 279.4 million,increasing by 8.3 million)andmaintenance(up € 14.1 million). € 16.0 million(+4.6%)from 2008duemainlytothecombined € 126.3 million,increased by € € 27.3 million(+9.1%)from the 40.0 million); € 3.6 million); € € € 57.2 million)from 2008. 29.9 millionwasfornetdeferred taxes).Thisis 15.2 million); € 0.9 million); € 25.0 millionovertheprevious yeardue € 25.9 millionfrom 2008(+10.2%), due € € 3.2 million,includingrevenue 15.6 million(14.1%)overthe € 298.5 millionof2008. € 9.5 million),aswell € € 8.3 million)duetoan 747.5 millionvs.the € 4.2 million). € 14.0 € 1.4 d In millionsofeuros Trade payables netre 171. -4.9 16.6 11.7 Tax liabilities,net Payables forpass-through energyitems,net Other assets Inventories (9) “Long-termloans”,“Current portion oflong-termloans”,“Short-term“Non-current financialliabilities”,“Cashand (8) “Employeebenefits”,“Provisions forcontingenciesandcharges" and“Deferred taxliabilities”; (7) “Othernon-current liabilities”,“Current financialliabilities”and“Othercurrent liabilities”netofothertaxliabiliti (6) “Othercurrent assets”forthevalueofothertaxreceivables ( Brazilian subsidiaryTerna Participações,whichhadapositiveeffect onfinancialperformancetotalling € qiy24832080440.3 2,028.0 0.1 2,468.3 747.1 0.0 747.0 4,982.1 0.1 4,982.1 750.0 5,729.2 5,729.1 5,528.4 6,278.4 (5) “Trade receivables” forthevalueofreceivables forpass-through energy revenue ( (4) “Trade payables”netofpayables forpass-through energy items( (3) “Othercurrent assets”netofothertaxreceivables ( (2) “Trade receivables” netofreceivables forpass-through energy revenue ( (1) “Other non-current assets”and“Non-current financialassets”forthevalueofequityinvestments( In thestatementoffinancialpositionthesecorrespond to: 9.0 Total Net financialdebt 560.7 Equity Total netinvestedcapital and assetsheldforsale 255.8 5,415.6 Net investedcapitalfordiscontinuedoperations Net investedcapital 5,976.3 264.8 Sundry provisions Gross invested capital Total Trade receivables Net workingcapital Total Financial assets Property, plantandequipment Intangible assetsandgoodwill Net non-current assets below. The reclassified statementoffinancialpositionTerna S.p.A.atDecember31,2009and2008isshown Reclassified statementoffinancialposition Profit fortheyear Other liabilities thenetdividendsdistributedbyTerna Participaçõespriortothesaletotalling • thegainonsaleinamountof • including: 454.7 millionovertheprevious year. Thissignificantincrease ismostlyduetothesaleofequityinvestmentin well asofhedgingderivativesandrelated taxesonthetransaction; and “Current financialassets”forthe valueofshort-termsecurities( and “Incometaxassets” taxliabilities”; “Non-current financialassets”forthevalueofloantoTELAT andfairvaluehedgederivatives( for pass-through energy items( (3) (7) (4) (1) 6) (2) (9) (8) , includingtheProfit fortheyearofdiscontinuedoperations,cameto € 1,100.7 million); € 385.0 million,netofthecostssaleandotherdirectly related expenses, as € 17.7 million)and“Current financialassets”forthevalueofdeferred assets( (5) € 17.7 million),“Othercurrent liabilities”forothertaxpayables( € 1,100.7 million); € 500.0 million). € 797.3 million); € 797.3 million)and“Trade payables” for thevalueofpayables Dec. 31,2009 ,2. ,8. 747.1 4,982.1 5,729.2 930.2 5,892.1 6,822.3 ,6. ,5. 306.8 2,954.1 3,260.9 € 539-6. -180.2 -363.7 -543.9 € 500 millionand 8. 2. 360.5 220.7 581.2 4. 4. 3.0 546.3 15.1 215.3 66.8 549.3 250.3 88.1 140.0 320.1 265.4 239.8 303.4 386.9 379.8 € 575.7 million); 211. -1.6 13.7 12.1 79.2 million. 82-4716.5 -24.7 -8.2 es ( € € € e.3,20 Change Dec. 31,2008 88.3 million); 790.0 million,anincrease of 123.2 million,respectively) cashequivalents”, € 7.1 million), € 3.3 million); € 464.2 million, 43 Directors’ Report 44 Annual Report 2009 In millionsofeuros • Disposals, impairment losses and other changes (22.4) (22.4) • essentially tothefollowing: Net workingcapital Total Disposals, impairmentlossesandotherchanges Depreciation Total investment Other Transformer stations Transmission lines Investments • The • • property, plantandequipment trade receivables intangible assetsandgoodwill 188/08 forthelastninemonths oftheyearonportionNTGownedbythissubsidiary (atotalof from TELAT forthepass-through portionofgridtransmissionfeesduefor Decemberandfortheeffects ofResolutionno. in investmentduringthefourth quarterascompared with thefourthquarterof2008( trade payables Financial assets Therefore, theincrease ( The followingisabreakdown ofthechangesinproperty, plantandequipmentfortheyear: • • • • • • • • • • plant andequipment Total investments million) anddisposals,impairmentothernetreductions (- electrical system( dispatching concession). remote control dispatchingsystem( ( mechanism connectedwiththeoptimisationofresources fortheservicesprovided ontheAncillaryServicesMarket portion ofgridtransmissionfeesreceivable byTELAT ( recognised forTELAT’s portionoftheNTGforlastninemonths oftheyear),aswelltoreceivable forthe mitigation mechanismforthefullyearasestablishedbyResolution no.188/08( million) related largely totherecognition oftheamountsreceivable from theElectricity EqualisationFundforthe and SiemensS.p.A.(4.68%); Italian subsidiariesTELAT andSunTergrid; was thenreduced following reimbursement oftheshare capitalofthesubsidiary intheamountof amortisation fortheyear( investments, foranincrease of trade receivables from subsidiaries( the receivable from dispatchingwithdrawaloperatorsunderResolutionno.206/08,whichintroduced theincentive the greater gridtransmissionfeespaidtotheCompanyandotherownersfor transmissionactivities( capital contributionsbyshareholders intheamountof the acquisition(for the acquisitionofentire share capitalinTELAT S.r.l. inApriltheamountof the saleofequityinvestmentinTerna Participações(down (in theamountof recognition ofthejointventure equityinvestmentintheTunisian firmELMEDÉTUDES € € 40.0 million); 930.2 millionincrease innetnon-current assetsover thefigures atDecember31,2008,isattributabletothefollowing: : theincrease intradepayables( , whichincreased by : theincrease of made bytheCompanyduringyearcameto € came toanegative € 2.1 million),aswellsoftware andlicensesforgeneraluse( 2 million)ofadditionalshares intheassociateCESI,whichwere acquired from A2AS.p.A.(1.871%) € 560.7 million)istheneteffect ofnewcapitalexpenditures ( € 40.6 inmillionintangibleassets),up14%from the € 31.0 million, , whichincreased by , whichpostedanincrease of € 40.6 million,related inparticulartothedevelopmentandupgradeofsoftware forthe € 140.0 millionover2008isdueessentiallyto: € € € 9.9 million),forthePowerExchange( 10.1 million)related tothecontractsforcoordination andoperationsofthe 360.5 millionduemainlyto: € € 543.9 millionandgenerated 5.6 millionofwhichrelated totheamortisationofItaliantransmissionand € 66.8 million)isduetopurchases ofgoodsandservices fortheincrease € € 560.7 million. 10.0 millionforthesubsidiarySunTergrid (formerlyInTernational). € 23.1 million)related toNovemberandDecember; € € 22.4 million)duringtheyear. 9.0 millionduemainlytothecombinedeffect of: € 210.8 million); € 872.1 million( € 180.2 millioninliquidityduringtheyearrelated € € 4.7 million),andfortheprotection ofthe 764.9 millionof2008. € 1,157.7 million;thisequityinvestment € € € € 17.2 million); € 831.5 million),depreciation (- 51.8 million),aswellthepayable 61.0 million,includingtheamount 831.5 millionofwhichinproperty, € 600.0 million; € 15.0 million); € 0.7 million); (248.4) € 560.7 831.5 136.7 377.9 316.9 € 248.4 92.9

46 Annual Report 2009 In millionsofeuros ont EA 50000-500.0 306.8 0.0 2,954.1 689.1 -500.0 2.2 3,260.9 -460.0 -689.2 0.5 575.5 0.0 -0.1 3,642.8 2.7 -460.0 4,218.3 Total financialdebt Net positionontheintercompany treasury account Loan toTELAT Financial transactionswithsubsidiaries Cash andcashequivalents Short-term loansandinvestments Long-term debtsandrelated hedging Sundry provisions As aresult, • • 2008) andbynetfinancialdebtof This amountisfundedbyequityintheof December 31,2008. earnings, cameto1.32(comparedearnings, with1.46atDecember31,2008,whichdoes notincludesaideffect). As aresult, the For abreakdown oftheindividualcomponentsthisnetdebtatDecember31,2009, see“Cashflows”below. The followingisabreakdown ofnetfinancialdebt: use,fortherelevant portionoftheyear, ofnetdeferred taxesrecognised onprevious accrualsforamortisationand • • netallocationstoprovisions forcontingenciesandcharges ( • release the oftheenergy discount provision, netoftherelated taxeffect, intheamountof • At December31,2009, therecognition ofprobable charges related tocontractualandfiscal obligationsresulting from thesaleofequity • portion ( to RTL’s portionoftheNTGinconjunctionwithmerger ofthissubsidiary( depreciation inexcessofordinary amortisationanddepreciation rates( instruments andrelated hedges( million), whichwaspartiallyoffset bythedecrease indeferred liabilitiesoninterest expenseaccruedonfinancial transmission feesdeferred tofuture periodstocompensate forthefuture costsrelated totheNTGsafetyplan( million) andtosocialsecurityinstitutions( other liabilities net payablesforpass-through energyitems increase inVAT receivable ( 185/08 forthepurposeofredemption ofgoodwillresulting from themerger ofRTL ( net ofadvancespaid( tax liabilities generated byefficiency gainsinmanagingforecasts; for dispatchingfees,aswellthereduction inpayablesforprocuring resources ontheAncillaryServicesMarket receivables fortheupliftfee(about signing theagreement with EnelServizioElettricoaimedatredefining thesetofbeneficiaries; investment inTerna Participações( renewal” aimedatoffsetting theenvironmental impactofbuilding powerlines; € 8.7 million)ofdeferred tax provision forIRAPasperLawno.244ofDecember24,2007(the2008FinanceAct); gross investedcapital : theincrease of debt-to-equity : thisitemincreased by , intheamountof € 42.5 million),whichwaspartiallyoffset bythecapitalgaintaxpaidasperLegislativeDecree no. total netinvestedcapital € 10.0 million); € ratio attheendof2009,takingaccountcontribution ofthesaleinBrazilto2009 16.5 millionisduemainlytotheincrease intaxespayableforestimatedincometaxes, € € 3,260.9 million(up 6.5 million). came to € € € 42.4 million). 549.3 million,increased by 193 million)asaresult ofthepositivefinancialeffects ofthebalancingpayments € 15.1 millionduemainlytotheincrease inamountspayabletoemployees( € 5.0 million),aswelltotheadjustmentofportionCompany’s grid € 6,278.4 million,fora : theincrease (of € 2,468.3 million(ascompared with came to € 306.8 millionfrom December 31,2008). € € 5,729.2 million,foranincrease of 21.2 million)for“Projects forurbanandenvironmental € € 3.0 milliondueessentiallyto: € 750.0 millionincrease overDecember31,2008. 215.3 million)isdueessentiallytothereduction in € 21.5 million)andonthegreater amounts allocated Dec. 31,2009 € 2.3 million);italsoincludestherelease ofthe € 2,028.0 millionatDecember31, € 14.2 million),aswellbythe e.3,20 Change Dec. 31,2008 € 19.4 millionasaresult of € 747.1 millionover € € 11.1 6.8 In millionsofeuros adecrease inthenetassetbalance( • hr-emlas 4. . 40.0 0.0 40.0 Short-term securities Short-term loans Net positionontheintercompany current accounts oa + ,6. ,5. 306.8 246.4 2,954.1 -644.1 689.1 3,260.9 -397.7 60.4 -689.2 3,598.2 -0.1 3,658.6 (6) thisfigure isincludedunder “Short-termloans”. (5) thisfigure isincludedunder “Current financialassets”; (4) thisfigure corresponds to“Current portionoflong-termloans”; (3) thisfigure isincludedunder “Non-current financialassets”; (2) thisfigure corresponds to“Non-current financialliabilities”and“Non-current financialassets”forthevalueoffair (1) this figure corresponds to“Long-termloans”; In thestatementoffinancialposition: Total A+B Total B Cash andcashequivalents Floating-rate loans(current portion) B. Short-termdebt/(liquidity) Total A Bond A. Medium-andlong-termdebt Net financialdebtfortheCompanyatDecember31,2009( Net financialdebt Cash flows •a anincrease inthevalueof • Net financialdebtincreased by te iaca iblte . . -0.9 0.9 0.0 Loan toTELAT Other financialliabilities new • aninvestmentinthethird quarterin • anincrease in • Derivative financialinstruments Floating-rate loans •a •a Investment Bank(EIB)loans; of inflationfortheperiod( as welltheeffect oftheadjustmenttofairvaluethesefinancialinstruments( (in theamountof provide TELAT withimmediatelyavailablefundstobeusedreimburse share capital,whichalsotookplaceinNovember month Euriborplusaspread of250basispoints)loan,toberepaid insemi-annualinstalments,wasgranted in order to the purposesofcentralisedtreasure management; • • reduction inmarketinterest ratesduringtheyear; million attributabletothechangeininterest rates; an increase infinancialliabilitiesrelated tocash-flowhedgederivativescoverfloating-ratedebt intheamountof an increase infinancialassetsrelated tofairvaluehedgederivativesforbondsintheamountof € € € 2.2 millionincrease inthe 689.1 milliondecrease intheCompany’s 44.4 millionreduction in (1) loan toTELAT (3) short-term loans (1) € 600 million); (5) in theamountof € bonds 4.5 million)netofamortisedcost; (2) net positionontheintercompany current accounts floating-rate loans € 306.8 million.Thischangeisdueprimarilytothefollowing: (4) ( ( € € 40 million)related totheuseofcurrent accountoverdraft; 611.7 million)duetothedisbursementofprivateplacementinJuly( short-term securities € 9.1 million)related to € 500 million,whichwasdisbursedinNovember. Thisfive-year, floating-rate (6- cash andequivalents (6) , mainlyasaresult ofthe paymentofamountsdueonEuropean € 3,260.9 million)canbebroken downasfollows: (issued byUBSandMPS)intheamountof derivative financialinstruments Dec. 31,2009 . ,5. ,1. -59.5 611.7 1,615.2 2,031.8 1,555.7 2,643.5 50000-500.0 0.0 -500.0 -500.0 0.0 -500.0 4. 4. 9.1 -49.7 -40.6 974. 15.1 44.6 59.7 . . 2.2 0.5 2.7 held withTELAT andSunTergrid for € 7.2 million)andthecapitalisation valuehedgederivatives( e.3,20 Change Dec. 31,2008 due to: € 7.7 millionduetoa € 500 million; € 600 million), € 123.2 million); € 16.8 47 Directors’ Report 48 Annual Report 2009 Total cashflowsgeneratedby/(used in)financingactivities Total cashflowsgeneratedby/(usedin)investingactivities Dividends Intangible assets te hne nnncretast 357-25.7 -335.7 Other changesinnon-current assets necmaycretacut . 689.2 558.6 0.1 -689.1 & intercompany current accounts Closing cashandequivalents Total cashflowsfortheyear 480.1 585.4 -105.3 1,250.7 -0.5 335.3 1,070.5 180.2 253.5 Property, plantandequipment Capital expenditure 3.0 790.0 130.6 Cash flowsfrom operatingactivities 279.4 689.2 Change innetworkingcapital Self-financing Net losses/(profit) onassetdisposals Net changeinprovisions Amortisation anddepreciation Profit fortheyear & intercompany current accounts Opening cashandequivalents te hne neut -19-26.3 1,204.0 -11.9 -382.3 Other changesinequity Change inloans Cash flows In millionsofeuros (4) Seestatementof changesinequity. (3) Seenote13. (2) Seenote11. (1) Includedinthebalancesof“Other revenue andincome” “Otherexpenses”,respectively, from theincomestatement. rpry ln n qimn 43-383.8 24.3 Intangible assets Property, plantandequipment te iblte 391.9 0.0 95.2 13.4 9.7 -5.8 -192.4 13.9 20.8 -386.8 -7.0 -5.4 528.9 3.4 Other liabilities Current financialliabilities Tax liabilities Trade payables Other currentassets Tax assets Current financialassets Trade receivables Inventories hr-emlas4. 0.5 1,295.2 8.7 15.1 0.0 42.2 -115.5 552.2 15.1 15.9 -500.0 -507.7 Equity -Otherreserves Short-term loans Current portionoflong-termloans Long-term loans Non-current financialliabilities Non-current financialassets Current financialassets te o-urn ses-. 0.2 448.7 0.0 -0.9 -359.6 -0.1 Discontinued operationsandassetsheldforsale Other non-currentassets Non-current financialassets Goodwill Equity -Retainedearnings mlyebnft 2. 0.5 -17.6 16.6 -34.5 -28.8 66.3 Deferred taxliabilities Provisions forcontingenciesandcharges Employee benefits (4) (3) (3) (4) (4) (2) (1) 1278-790.6 -1,207.8 Dec. 31,2009 720869.1 -732.0 378-308.6 -337.8 -736.0 -831.5 Cash flow 4. -28.9 -40.6 19-2.9 -1.9 eoclainCashflow Reconciliation 1. -46.3 -11.9 . -23.3 -4.0 7.5 4.9 . -88.6 0.0 . 20.0 0.0 -2.2 0.6 Dec. 31,2008 Reconciliation lsn e iaca et-,6. -2,954.1 -3,260.9 -474.4 -790.6 -28.9 23.9 448.7 -1,207.8 -105.3 -40.6 -359.6 -736.0 180.2 -2,308.7 480.1 -2,954.1 -831.5 1,250.7 Closing netfinancialdebt Change infinancialdebt Equity movements Other changesinequity Dividends distributed Cash flowsusedininvestingactivities Other changesinnon-current assets Disposals (acquisitions)ofequityinvestments Capital expenditure onintangibleassets Capital expenditure onproperty, plantandequipment Cash flowsgeneratedfrom operatingactivities Change innetworkingcapital Self-financing Opening netfinancialdebt In millionsofeuros financing ( Cash flowgeneratedbycontinuingoperatingactivitiesfortheyearcametoabout Change innetfinancialposition capital) oftheentire share capitalinTELAT S.r.l. ( discontinued operations),amortisationanddepreciation intheamountof ( Cash flowsinrespect ofequitymovementsare essentiallytheresult ofthedistributionbalancefor2008dividend million) andthesaleofequityinvestmentinTerna Participações( SunTergrid ( acquired from A2AS.p.A.andSiemens(1.871%4.68%stakes,respectively), thecapitalcontributionto ( in theamountof Therefore, cashflowsabsorbedbyinvestingactivitiesandequitymovementsfortheyearresulted intotalusesofliquidity of and adjustmentofthefairvaluecash-flowhedgederivatives forfloating-ratedebt,netofrelated taxeffects (adecline recognised duringtheyear ( property, plantandequipment( Investing activitiesledtoanetuseofcashabout related totheaforementioned mitigationmechanismestablishedbyResolutionno.188/08. net balanceonpayablesandreceivables relating topass-through energy items,whichwere partiallyoffset bythereceivable million inprovisions. Themanagement ofnetworkingcapitalgeneratedcashflows € € 197.7 million)andtheinterimdividendfor2009( 1,250.7 million)andtheremaining € 11.9 million). € 1,070.5 million)includesprofit fortheyearinamountof € 0mlin,tercgiino h on otoln neeti h uiincmayEMDÉUE ( 10 million),therecognition ofthejointcontrolling interest intheTunisian companyELMEDÉTUDES € 1,557.5 million,whichwasfundedinlarge partbycashflowsgeneratedfrom operatingactivities € 14.7 million).Theyalsoreflect theacquisition(netof € 831.5 million)andintangibleassets( € 306.8 millionthrough newdebt. € € 557.7 million),aswelloftheadditionalinterest ( 140.1 million).Otherchangesinequityare related totherecognition € 1,207.8 million. These cash flows mainly concerned investmentsin 1,207.8 million.Thesecashflowsmainlyconcerned € 210.8 million). € € 790.0 million(includingtheProfit fortheyearfrom 40.6 million)fortheyear, aswellplantgrants € 279.4 million,andthenetincrease of € 1,250.7 million.More specifically, self- € € 180.2 million,duemainlytothe 600 millionreduction inshare ,7. 585.4 1,070.5 397-334.9 -349.7 368-645.4 -306.8 -308.6 -337.8 1. -26.3 -11.9 2009 € 2 million)inCESI € € 2008 3.0 0.7 49 Directors’ Report 50 Annual Report 2009 Group performanceandfinancialposition (as definedinparagraph25ofIAS1)thatmightcastdoubtonitsabilitytocontinueasagoingconcern. has determinedthat,despitethechallengingeconomicandfinancialenvironment, itdoesnotfacematerialuncertainties cost basis,modifiedwhere basis.TheGroup necessaryforcertainfinancialinstruments,aswellonagoingconcern endorsed bytheEuropean Commission(hereinafter theIFRS-EU).The2009annualreport hasbeenprepared onahistoric FinancialReportingStandards AccountingStandardsthe International (IFRSs)issuedbytheInternational Board (IASB)and 1606/2002, theTerna Group hasprepared theconsolidatedfinancialstatementsatDecember31,2009,incompliancewith Legislative Decree no.38ofFebruary28,2005,andinimplementationtheoptionenvisaged(EC)Regulation 58/98 asintroduced byLegislativeDecree no.195 ofNovember6,2007(the“Transparency Decree”). Inaccordance with the notestoindividualitems inthefinancialstatements. statements, are describedinthesection“Businesscombinations” ofthenotestofinancialstatements,aswell asin The nature andmethodsofthebusinesscombinations specifiedabove,aswelltheirimpactontheGroup’s financial theestablishment,onDecember 23,2009,ofthecompanyReteRinnovabileS.r.l. (RTR S.r.l.) bySunTergrid• S.p.A..The thesaleofBrazilianGroup followingthefinalisation,onNovember3,2009,ofagreement (datedApril24,2009) • SàrlonApril20,2009.Thislimitedliabilitycompanyisajoint theestablishmentof Tunisian firmELMEDÉTUDES • Terna’s acquisitionoftheentire share capitalofTELAT• S.r.l. from EnelDistribuzioneS.p.A.(completedonApril1,2009). The thecompaniesmeasured atequityandheldbyTerna S.p.A.: • theItalian(whollyowned)subsidiaryheldindirectly through SunTergrid S.p.A.: • thedirect (whollyowned)Italiansubsidiaries: • At December31,2009,thescopeofconsolidationTerna Group includedthefollowingcompanies: As oftheendfinancialyear, theGroup wasorganised asfollows: Scope ofconsolidation The 2009annualreport fortheTerna Group hasbeenprepared inaccordance withart.154 Foreword (*) Companiesmeasured using equitymethod. 100% between Terna S.p.A.andCemigGeraçãoeTransmissão S.A.forthetransferof66%interest inTerna ParticipaçõesS.A.; sale, bothinItalyandabroad, andrelated research, consultingand assistanceservices. dispatching ofelectricity, aswellofpowergenerationplants–including renewable energy –forself-consumptionor construction, management,developmentandmaintenance of networksandotherinfrastructures forthetransmissionand new companyisbasedinRomeandhasshare capitalof venture betweenTerna andSociétéTunisienne del’ÉlectricitéetduGaz(STEG); Therefore, thiscompany’s thelast nine monthsoftheyear; contributiontofinancialperformanceconcerns • • • • • the jointventure ELMEDÉTUDES Sàrl(50%stakeheld). the associatedcompanyCESIS.p.A.(withTerna havinga30.91%stake); RTR S.r.l.; TELAT S.r.l.; SunTergrid S.p.A.(formerlyInTernational S.p.A.); changes inthescopeofconsolidation TELAT 100% 100% compared withDecember31,2008,include: RETE RINNOVABILE SUNTERGRID TERNA € 50,000. Thecompany’s purposeincludes thedesign, 50% 30.91% ELMED ÉTUDES* ter of LegislativeDecree no. CESI* by Revenue and financialposition”above. However, in theinterests offulldisclosure, thefollowingshould alsobenoted. For commentsonthemainchangesinrevenue andexpensesfortheParent, seethesection“Terna S.p.A.performance The reclassified consolidatedincomestatementoftheTerna Group for2008and2009isshownbelow. Reclassified consolidatedincomestatement theincrease in gridtransmissionfees( • te eeu n noe4. 38-. -0.9% -0.4 43.8 43.4 Other revenue andincome Other revenue from salesandservices trbtbet ioiyitrss001. 1. -100.0% 125.8% 919.6% 10.0% -13.9 429.6 376.1 16.3% 17.5 135.4% 14.9% 13.9 341.4 40.9 97.5 443.5 71.0 174.6 771.0 0.0 -13.6% 417.0 327.5 596.9 192.1 475.1 -1.6 771.0 694.4 3.5% 546.1 -9.7% 11.8 12.1 Attributable tominorityinterests -19.6 Attributable totheshareholdersofParent 13.8% 15.6% Profit forthe year 10.2 and assetsheldforsale 345.4 Profit fortheyear from discontinuedoperations 164.9 201.2 17.3 18.0% Profit from continuingoperations 357.5 Income taxes 1,195.8 181.6 152.8 110.7 Profit before taxes Net financialincome/(expense) 1,360.7 850.4 EBIT 128.0 Amortisation anddepreciation EBITDA 1,003.2 Total operatingexpenses Other expenses Materials Services anduseofthird-party assets Personnel expense Operating expenses Total revenue Grid transmissionfees Revenue Other energyitems In millionsofeuros (4) corresponds tothebalanceofitemsdescribedunderpoints1,2and3“C.Financialincome/expense”. (3) corresponds to“Amortisation,depreciation andimpairmentlosses”netofthenon-current assets( (2) corresponds to“Otheroperatingexpenses”and“Amortisation,depreciation andimpairmentlosses”fortheof non- (1) this figure isincludedin“Revenuefrom salesandservices”; In theincomestatement: contribution from theacquisitionofTELAT intheamountof ( € to theprovision forbaddebts( € 3.7 million)andtheaccrualtoprovision forbaddebts( 164.9 million(+13.8%overthe for 2009,intheamountof (2) (1) (1) € 14.1 million); (4) (3) € € 1,360.7 million( 1,195.8 millionof2008).Inparticular: (1) € 125.1 million)isrelated totheParent intheamountof € 14.1 million); € 1,261.2 millionfortheParent and ,8. ,6. 2. 11.8% 125.1 1,060.5 1,185.6 € 183-2. 2. 21.8% -26.5 -121.8 -148.3 97.7 million,which isrelated totheremuneration forthelast 5. 0. 3517.8% 53.5 300.5 354.0 0. 5. 5321.8% 55.3 253.5 308.8 772. 6073.7% 16.0 -6.7% 21.7 89.0% -2.9 37.7 43.1 43.1 48.4 40.2 91.5 2009 08Cag % Change 2008 € 99.5 millionforTELAT), increased € 3.7 million)andtheaccrual € 27.4 millionandtothe current assets 51 Directors’ Report

thechangeinothersalesandservices(adeclineof • the • thereduction inotherrevenue andincome( • Operating expenses Income taxes related measurement fortheprevious year. in gainsonthemeasurement atequityofCESIandELMED ÉTUDES intheamountof The increase in 2008 (+16.3%).ThesubsidiaryTELAT contributed Therefore, attributable totheParent and Amortisation anddepreciation increase of3percentage pointsfrom 2008. 2008 (+18.0%).ThesubsidiaryTELAT contributed EBITDA theincrease in“Otherexpenses”( • thereduction intheconsumptionof“Materials”( • theincrease in“Servicesandtheuseofthird-party assets”( • as well Profit fortheyearfrom discontinuedoperations held forsale”). related tothesaleofTerna Participaçõesare includedunder“Profit fortheyearfrom discontinuedoperationsandassets The effective tax rateonprofits from continuingoperations cameto35.2%,compared with36.8%for2008(thetaxes negative thereduction in“Personnelexpense”( • of Profit fortheyear thecontribution,at consolidatedlevel,oftheresults oftheBraziliansubsidiariesfor2009andaccruedthrough the • therelease ofthetranslationreserve accruedthrough thedateofsaleinamount • thegainonsaleof theBraziliansubsidiaries,netofcostssaleandhedgingderivatives,aswell • amount of last ninemonthsoftheyear, whichwere recognised inrelation toEnelDistribuzione duringtheprevious year); account oftheGroup’s insourcing ofplantserviceandmaintenancecontractssignedwiththesubsidiaryTELAT forthe to theeffects ofthemitigationmechanismestablishedbyResolutionno.188/08( nine monthsoftheyearforRTN’s portionownedbytheCompanyasperAEEGResolutionno.31/09( regard tothelastninemonthsofyear. contract withtheWindGroup andEnelDistribuzioneforthehousingoffibre opticcablesforthenetworksownedwith partially offset bythecontributionofacquisitionTELAT intheamountof million and capitalised costsformaterialsrelated totheinvestmentsmadeinfavourofSunTergrid andTELAT intheamountof personnel expenseintheamountof of subsidiaries was date ofsaleintheamount the taxesandothercostsdirectly attributabletothetransaction,inamountof € 443.5 million(+135.4%)overthesamefigure oftheprevious year( € € 15.6 million,aswellthecontributionofacquisitionTELAT intheamountof 43.1 millionincrease inotherenergy itemsisrelated entirely totheParent; (gross operatingprofit) fortheyearreached € 3.8 millionofwhichfornetdeferred taxes). € EBIT 0.1 millionforSunTergrid), increased by € € 2.6 million,whichisrelated mainlytocapitallosses( 2.5 million,respectively); for theyeartotalled net financialexpense (operating profit) fortheyear reached , whichisattributableentirely totheshareholders oftheParent, reached € 40.9 million. for 2009,intheamountof € 29.4 milliontothecontributionofTELAT forthelastninemonthsofyear. € for theyearrose by 43.6 million.Forthefullyear2008,consolidatedfigure related totheBrazilian € € 16.0 million)isrelated totheParent intheamountof 192.1 million, ( € € 0.7 millionrelated totheinvestmentsmadeinfavourofTELAT); 26.5 million)isrelated entirely totheParent andwaspartially offset bytheincrease € 19.6 million)isentirely attributabletotheParent (taking accountofcapitalised € 0.4 million)isrelated totheParent intheamountof € 357.5 million( € € € came to 65.9 milliontothistotal. € € 95.3 milliontothistotal.TheEBITDAmargin cameto73.7%,foran 179.5 millionfortheParent and 1.6 million)isentirely attributabletotheParent (taking accountof 12.1 million(+3.5%overthe € € € 1,003.2 million,risingby 55.3 millionfrom 2008(+21.8%); ofthisincrease, € 2.9 million)isessentiallyrelated totheParent ( 694.4 million,risingby € 417.0 millionandincluded: € 17.3 million)isrelated mainlytotheParent in theamount € € 353.2 millionfortheParent and 0.6 million)andlocaltaxesduties( € 327.5 million). € € 152.8 millionoverthe € 97.5 millionoverthe € € 345.4 millionof2008).Inparticular: 1.7 million,relating essentiallytothe € 4.4 million); 305.0 million; € 12.6 millionforthesubsidiaries(a € € € 13.4 millionandtoTELAT inthe € 0.6 millioncompared withthe 68.4 million; € 1.6 million; 771.0 million,foranincrease € € 2.1 million,whichwas 4.2 millionforTELAT, € € € € € 93.3 million)and 3 million,taking 596.9 millionof 850.4 millionof 1.0 million). € 25.9 millionis € 5.0 53 Directors’ Report 54 Annual Report 2009 END-MONTH SPOTEXCHANGERATES* DISCONTINUED OPERATIONS Performance bygeographicarea andbybusinesssegment Profit forthe year from discontinuedoperationsattributabletotheshareholders oftheParent Profit for theyearfrom discontinuedoperations (*) Source: Ufficio ItalianoCambi. -58.1 EUR/BRL -28.7 the sameperiodoflastyear, risingtoanaverageexchangerate of2.8079. The 55.1 (*) Source: Ufficio ItalianoCambi. EUR/USD 62.3 EUR/BRL USD/BRL weakened againstthereal byabout21.2%. at theendofOctober2009,ascompared withtheR$2.3307recorded inDecember 2008.Duringthesameperiod,euro During thefirsttenmonthsof2009,Brazilianreal strengthened againsttheUSdollar, reaching R$1.7280tothedollar Exchange rates (1) EBITDA(gross operating profit) isdeterminedbyaddingamortisationanddepreciation toEBIT(operatingprofit). (*) Firsttenmonthsof2009(untilthedatesaleBraziliancompanies). Income taxes Profit before taxes Net financialincome/(expense) EBIT EBITDA Total operatingexpenses Total revenue discontinued operationsandassetsheldforsale and assetsheldforsale accordance withtheParent’s accountingpoliciesandgrouped under segment outsideItaly. Thesenumbersrefer, inparticular, tothediscontinuedoperationsinBrazil,whichare shownin The tablebelowsummarisesthemainfigures onconsolidatedfinancialperformancefor2009and2008bygeographic segments” ofthenotestoTerna Group financialstatements. The presentation ofthefinancialhighlightsforGroup byoperatingsegmentmaybefoundinthesection“Operating mriainaddpeito 9826.9 9.8 Amortisation anddepreciation AVERAGE EXCHANGERATE OVERTHE PERIOD* In millionsofeuros average EUR/BRLexchangerate (1) in theGroup’s consolidatedincomestatement(seethesection“ over thefirsttenmonthsof2009saweuro appreciate by5.4%compared with ” ofthenotestofinancialstatements). profit fortheyearfrom discontinuedoperations Profit fortheyearfrom Dec. 2008 .622.8079 2.6652 1.4800 2.5574 1.7280 1.3917 3.2436 2.3307 2. 117.4 126.7 199.4 198.8 3. 144.3 136.5 1918.4 31.9 3627.0 40.9 43.6 66.1 2009* 2008 859.3 98 First tenmonths Oct. 2009 of 2009 2008 Equity attributabletominorityinterests Equity attributabletotheshareholders oftheParent e iaca et-Iay3782 ,5. 804.6 2,953.6 3,758.2 Net financialdebt-Italy oa ,5. ,2. 730.2 5,529.5 6,259.7 0.1 1,483.9 -206.9 4,775.8 0.0 -363.7 730.2 1,483.8 37.6 0.1 4,775.8 1,575.8 5,529.5 730.1 5,322.1 -608.2 6,259.7 0.0 943.4 5,529.5 -570.6 Total 1,782.7 0.1 6,259.6 5,954.5 Total netfinancialdebt 5,685.8 6,897.9 905.8 Total netinvestedcapital 6,562.7 operations andassetsheldforsale 116.4 Net investedcapitalfordiscontinued 7,468.5 1,659.7 for continuingoperations 255.8 5,415.6 Sundry provisions -111.0 Gross invested capital 1,039.5 Total 483.2 6,035.8 7,075.3 372.2 Trade receivables Net workingcapital Total Financial assets Property, plantandequipment Intangible assetsandgoodwill Net non-current assets netre 171. 601. -4.9 16.6 -6.0 17.7 11.7 Net investedcapital Tax liabilities,net Payables forpass-through energyitems,net Other assets Inventories Other liabilities Trade payables Brazilian firmsfor2008. operations fortheperiod,column“Dec.31,2008-Italy”hasbeenadded,whichdoesnotincludefigures forthe Nonetheless,inorderin thevariousaccountsconcerned. tomore clearlypresent theactualchangesincontinuing the comparisonwithDecember31,2008,figures fortheBrazilianfirms,classifiedasdiscontinuedoperations,remain statement wasobtainedbyreclassifying thefigures shownontheconsolidatedstatementoffinancialposition.Asconcerns The reclassified consolidatedstatementoffinancialpositiontheTerna Group for2008and2009isshownbelow. This Reclassified consolidatedstatementoffinancialposition In millionsofeuros (7) “Othernon-current liabilities”,“Current financialliabilities”and“Othercurrent liabilities”netofothertaxliabiliti (6) “Othercurrent assets”forthevalueofothertaxreceivables ( (9) “Long-termloans”,“Current portionoflong-termloans”,“Short-term loans”,“Non-current financialliabilities”,“Cashand (8) “Employeebenefits”,“Provisions forcontingenciesandcharges" and“Deferred taxliabilities”; (5) “Trade receivables” forthevalueofreceivables forpass-through energy revenue ( (4) “Trade payables”netofpayables forpass-through energy items( (3) “Othercurrent assets”netofothertaxreceivables ( (2) “Trade receivables” netofreceivables forpass-through energy revenue ( (1) “Equity-accounted investees”and“Othernon-current assets”; In theconsolidatedstatementoffinancialpositionthesecorrespond to: “Non-current financialassets”and“Current financialassets”forthevalueofshort-term securities ( “Income taxassets”and liabilities”; for pass-through energy items( (3) (7) (4) (1) (6) (2) (8) (9) € 1,100.7 million); € (5) 17.9 million)and“Current financialassets”forthevalueofdeferred assets( € 17.9 million),“Othercurrent liabilities”forothertaxpayables( Dec. 31,2009 € 1,100.7 million); ,5. ,6. 392.4 424.7 3,365.8 3,758.2 2,076.8 2,501.5 7. 6. 0. 3. 132.0 239.8 107.6 264.2 371.8 3. 2. 1. 4. 92.0 546.3 15.0 213.3 215.3 61.2 250.3 88.1 425.0 320.1 -248.9 638.3 215.3 55.0 514.2 88.1 326.3 265.3 303.4 381.3 € 104. 2. 446.6 14.4 -22.7 43.7 21.0 48-103. 2. 39.5 -3.0 -24.7 13.7 35.8 -6.8 -21.0 17.5 14.8 10.7 797.3 million); . 69-86.9 86.9 0.0 € 797.3 million)and“Trade payables” for thevalueofpayables e.3,20 hneDc 1 08Change Dec.31,2008 Change Dec. 31,2008 € 500.0 million). es ( € 88.2 million); cashequivalents”, € 7.1 million), € Italy 1.0 million); 55 Directors’ Report 56 Annual Report 2009 In millionsofeuros reclassification ofdiscontinuedoperations,andisrelated essentiallytothefollowing: Total investments The followingisasummarybreakdown ofthechangesinproperty, plantandequipmentfortheyear: • ipsl,ipimn ossadohrcags(24.2) Total Disposals, impairmentlossesandotherchanges Amortisation anddepreciation Change inscopeofconsolidation Total investments Other Transformer stations Transmission lines Investments • The Net workingcapital • million related toproperty, plantandequipment),foranincrease of17.7%on2008. Property, plantandequipment Intangible assetsandgoodwill • • • • • • • • • Financial assets related todiscontinuedoperations),duemainlythejointeffect ofthefollowing: discontinued Brazilianoperations( the Ragusaarea wentinto operationattheendofDecember2009. by theParent andlocated nearpowertransformerstations.Itshouldalsobenotedthatthefirstphotovoltaicplantin ( statement offinancialpositionitemsinthesection“Terna S.p.A.performanceandfinancialposition”; the fairvalueofassetsandliabilitiesatdatesaidacquisition. months of2009)followingthedefinitiveallocationgreater valuepaidfortheTELAT acquisitioncompared with “Terna S.p.A.performanceandfinancialposition”); for goodwill( of theperiodrelated totheshare heldbytheGroup insaidcompanies( A2A S.p.A.(1.871%interest) andSiemensS.p.A.(4.68%interest) andadjustmentoftheequityinvestmentat theend investments madebySunTergrid in2009( investments ( the acquisitionofTELAT linesintheamountof changes inproperty, plantandequipmentfortheParent intheamountof the recognition ofgoodwill( net changesintheintangibleassetsofParent intheamountof the reclassification ofthevalueatDecember31,2008assetssoldinamount recognition ofthecostincurred fortheadditionalequityinvestmentsinassociateCESI( eonto ftejitvnueeut neteti h uiinfr LE TDS(in theamountof recognition ofthejointventure equityinvestmentintheTunisian firmELMEDÉTUDES € € 224.2 million)paidtoacquire thecompany; 905.8 millionincrease innetnon-current assetsover thefigures atDecember31,2008,isattributabletothefollowing: € € 115.3 million)andconcessions( 22.6 million)anddepreciation ( made bytheGroup duringtheyearrelated tocontinuingoperationstotalled : the came toanegative € 6.6 millionincrease, netofthereclassification ofthe2008valueitemrelated tothe € : increased by 101.6 million)andintangibleassets( : decreased by € 29.3 million),isessentiallyattributabletothefollowingfactors: € € 570.6 millionfor2009,generating 5.7 million)related totheconstructionofphotovoltaicplantsonlandowned € € 1,659.7 millionfortheyear(netofreclassification ofthe2008balance € € 28.9 million)forTELAT related tothelastninemonthsofyear; 111.0 millionduetothecombinedeffect ofthefollowingevents: 112.1 million)fortheBraziliansubsidiaries; € 1,101.4 million,includingthedefinitiveallocationofexcesscost € 9 million(fordetailsoftheseitems,seethesection € 5.8 million,netofamortisationforthelastnine € 3.0 million); € 560.7 million,asdescribedinrelation to € 206.9 millioninliquiditynetofthe € 227.4 million,andspecifically € 2 million)acquired from € 900.4 million( € 0.7 million). 1,659.7 1,101.4 (277.3) € 859.8 142.4 377.9 339.5 859.8 2009 € to continuingoperations,intheamountof 2008, to theshareholders ofthe Parent, intheamountof Total netinvestedcapital the publictakeoverbidtobeissuedbyTAESA S.A.,thecompanythatacquired control ofTerna ParticipaçõesS.A. the residual valueofthe equity investmentinTerna Participações(10,000units),whichistobesoldbyTerna aspartof Net investedcapitalfordiscontinuedoperationsandassetsheldsale € Net investedcapitalforcontinuingoperations oa iaca et37823358392.4 -460.0 3,365.8 689.1 - 3,758.2 -689.2 -412.2 -460.0 575.5 -0.1 804.6 412.2 3,642.8 2,953.6 - 4,218.3 3,758.2 Total financialdebt Total financialdebtfrom discontinuedoperations Total financialdebtfrom continuing operations Cash andcashequivalents Short-term loans Long-term debtandrelated hedges Continuing operations • recognition ofthe netdeferred taxliabilitiesonthegreater valueallocatedtotheNTGandintangibleassets the followingeffects: for theParent intheamountof Sundry provisions (net oftheBrazilianassets)atDecember31,2008. Therefore, • • the contributiontonet deferred the taxliabilitiesofTELAT ( • • • does nottakeaccountofthe debt positionoftheBrazilianfirms. As aresult, the For abreakdown oftheindividualcomponentsthisnet financialdebtatDecember31,2009,see“Cashflows” below. The followingisabreakdown ofnetfinancialdebt: • • In millionsofeuros 4,775.8 millionasatDecember31,2008. 804.6 millionnetofthedebtBraziliansubsidiaries). Trade payables Tax liabilities Trade receivables Other liabilities Net payablesforpass-through energyitems allocations calculatedondepreciation andamortisationinexcessofordinary depreciation andamortisationrates. acquired withTELAT intheamountof TELAT; last ninemonthsoftheyear; the Parent ( cables forthenetworksowned( trade receivables ofTELAT ( as tothepayablescontributedbyTELAT intheamountof for materialsandservicesreceived duringthelastperiod; € 2,076.8 millionofwhichattributabletotheshareholders oftheParent) andbynetfinancialdebt,related entirely gross investedcapital € 16.5 million)andtotherecognition ofincometaxexpensefortheyear( : theincrease innettaxliabilities( debt-to-equity : the : the for continuingoperationsincreased by : the € € 61.2 millionincrease isessentiallyattributabletotheParent intheamountof 15.0 millionincrease isessentiallyattributabletotheParent. € 132.0 millionincrease ismainlyattributabletotheParent ( at December31,2009,cameto € ratio attheendof2009came to1.50,compared with 1.42 atDecember31,2008,which € 2.1 million)primarilyfrom Enel.NetandEnelDistribuzioneforthehousingoffibre optic 3.0 million(see“Terna S.p.A.performanceandfinancialposition”above),aswellto € posted abalanceof 1.0 million); € 70.3 million,netoftherelease ofrelated depreciation andamortisationforthe € 3,758.2 million(anincrease of € : the 39.5 million)isalmostentirely related totheincrease intaxpayablesfor came to € € 2,501.5 million(compared with € 215.3 millionincrease isattributableinitsentirety to theParent; 6,897.9 million,foranincrease of € € € € 92.0 million.Thischangeisduetothechangesinprovisions € 6,259.6 million,foranincrease of 17.6 millionasatDecember31,2009)related tothepast 6,259.7 millionandisfundedbyequity, attributableentirely 8.6 million,whichare dueprimarilyfrom EnelDistribuzione Dec. 31,2009 € 392.4 millionfrom December 31,2008,orof , intheamountof € 129.9 million),butalsoincludesthe € 2,163.7 millionatDecember31, € € 23.2 million)bythesubsidiary 1,575.8 millionoverthefigure e.3,20 Change Dec. 31,2008 € € 1,483.8 millionoverthe 0.1 million,isrelated to € 51.8 million,aswell 57 Directors’ Report 58 Annual Report 2009 In millionsofeuros Total netfinancialdebtpostedasmallerincrease, of oa 404-4. 244.2 392.4 -644.6 3,365.8 560.4 -400.4 3,758.2 -412.2 3,598.2 804.6 412.2 4,158.6 companies sold( 2,953.6 December 31,2008)andtheloangrantedtoTELAT duringtheyear(inamountof 0.0 debt, takingaccountofintercompany itemsinrespect ofthenetcurrent account position(a The 3,758.2 (4) Thisfigure isincluded under “Current financialassets”. (3) Thisfigure corresponds to“Current portionoflong-termloans”; (2) Thisfigure corresponds to“Non-current financialliabilities”and“Non-current financialassets”; (1) Thisfigure corresponds to“Long-termloans”; On theconsolidatedstatementoffinancialposition: Total netfinancialdebt Net financialdebtfrom discontinuedoperations Net financialdebtfrom continuingoperations Total B B. Short-termdebt(liquidity) Total A A. Medium-andlong-termdebt Financial debtfrom continuingoperations Net financialdebt Cash flows € 804.6 millionincrease innet financialdebtfrom continuingoperationsreflects theimpact discussedinrelation toTerna - Short-termsecurities hr-emlas4. . 40.0 689.1 0.0 -689.2 40.0 -0.1 - Cashandcashequivalents - Short-termloans - Floating-rateloans(currentportion) - Bond te iaca iblte 0009-0.9 0.9 0.0 - Otherfinancialliabilities - Derivativefinancialinstruments - Floating-rateloans (1) € 412.2 millionatDecember31,2008). (1) (4) (2) (3) € 392.4 million,followingthedeconsolidationofdebtBrazilian Dec. 31,2009 ,5. ,1. -59.5 611.7 1,615.2 2,031.8 1,555.7 2,643.5 50000-500.0 0.0 -500.0 4. 4. 9.1 -49.7 -40.6 974. 15.1 44.6 59.7 € 500 million). e.3,20 Change Dec. 31,2008 € 2.2 millionincrease from

60 Annual Report 2009 oa ahfosgnrtdb/ue n iacn ciiis- -882.3 Total cashflowsgeneratedby/(used in)financingactivities Other changesinequityattributabletotheshareholders oftheParent -1,210.0 Total cashflowsgeneratedby/(usedin)investingactivities Other changesinequityattributabletominorityinterests Intangible assets te hne nnncretast 396-106.4 -309.6 Other changesinnon-current assets Dividends hnei on 3721,251.8 -387.2 Change inloans lsn ahadcs qiaet 01779.7 535.7 0.1 -779.6 ofwhichcash andcashequivalentsattributable - Closing cashandequivalents Total cashflowsfortheyear 539.5 583.3 -43.8 1,254.2 341.4 -35.6 1,291.8 280.4 -37.6 Property, plantandequipment 771.0 213.3 Capital expenditure Cash flowsfrom operatingactivities 244.0 308.8 Change innetworkingcapital 779.7 Self-financing Net losses/(profit) onthedisposalofassets Net changeinprovisions Amortisation anddepreciation Profit fortheyear ofwhichcashandequivalentsattributable - Opening cashandequivalents Cash flows In millionsofeuros (4) Seestatementof changesinconsolidatedequity. (3) Seenote15. (2) Seenote13. (1) Includedinthebalancesof“Other revenue andincome” “Otheroperatingexpenses”,respectively, from theconsolidated odsotne prtos0090.5 0.0 to discontinuedoperations odsotne prtos9. 120.8 90.5 to discontinuedoperations Equity attributabletotheshareholdersofParent-Otherreserves te o-urn ses000.5 -7.4 -98.8 0.1 82.4 0.0 22.7 106.4 0.0 -455.7 companies (equity) Translation offinancialstatementsforeign Equity-accounted investees Other non-currentassets Non-current financialassets Property, plantandequipment Intangible assets Goodwill hr-emlas-2. 160.2 1,189.8 1.4 8.7 7.2 -115.5 -120.2 243.9 -499.8 15.9 -19.3 -7.7 Short-term loans Current portionoflong-termloans Long-term loans Non-current financialliabilities Current financialassets Non-current financialassets te iblte 24553.6 -0.5 108.6 13.2 4.2 -5.8 -189.3 -254.5 42.2 -398.6 -8.5 1.3 561.3 5.7 Other liabilities Current financialliabilities Tax liabilities Trade payables Other currentassets Tax assets Current financialassets Trade receivables Inventories icniudoeain n seshl o ae-. 0.0 -0.1 Discontinued operationsandassetsheldforsale eerdtxlaiiis4. -39.0 0.5 -9.4 12.3 47.3 -28.8 127.0 67.8 Deferred taxliabilities Provisions forcontingenciesandcharges Employee benefits Deferred taxassets (4) (3) (4) (2) (1) (4) (4) Dec. 31,2009 Cash flow 378-327.5 -337.8 -747.0 -859.8 2. 878.5 823.8 8. 0.2 -86.9 -28.9 -40.6 1. -46.0 -11.9 13-2.9 -1.3 eoclainCashflow Reconciliation 1. -46.0 -11.9 37-3.7 13.7 . -22.7 -5.1 7.5 6.0 . -79.5 3.4 Dec. 31,2008 income statement. Reconciliation Change in net financial position In order to more clearly present the actual cash flows for the year, the table below shows the contribution of continuing operations to the generation or use of cash by operating activities, in investment activities, and in the remuneration of capital.

In millions of euros Dec. 31, 2009 Dec. 31, 2008

Opening net financial debt -3,365.8 -2,649.7

of which attributable to continuing operations -2,953.6 -

Self-financing 1,291.8 583.3

of which attributable to continuing operations 754.6 -

Change in net working capital -37.6 -43.8

of which attributable to continuing operations 206.9 -

Cash flows generated from operating activities 1,254.2 539.5

Investments in property, plant and equipment -859.8 -747.0 Investments in intangible assets -40.6 -28.9 Other changes in non-current assets -332.3 -99.1 of which attributable to continuing operations -1,181.8 - Change in equity investments 22.7 -7.3 of which attributable to continuing operations -5.7 -

Cash flows used in investing activities -1,210.0 -882.3

Dividends -337.8 -327.5 Other changes in equity attributable to the shareholders of the Parent -11.9 -46.0 Equity attributable to minority interests -86.9 0.2

Self-financing flows -436.6 -373.3

Change in financial debt -392.4 -716.1 of which attributable to continuing operations -804.6 - Closing net financial debt -3,758.2 -3,365.8

The cash flow generated from operating activities for the Group during the year came to about €1,254.2 million and is related to self-financing for the year (€1,291.8 million) and other financial resources used by net working capital (€37.6 million). In this regard, continuing operations, in particular, with profit for the year of €354.0 million, amortisation and depreciation of €308.8 million, and an increase in provisions of €92.0 million, due mainly to the recognition of deffered taxes on the portion of the excess cost paid for the TELAT acquisition (€70.3 million, net of the release of related amortisation and depreciation for the last nine months of the year), as well as the value of the provision for net deferred taxes acquired as a result of expanding the scope of consolidation (€17.6 million as at December 31, 2009). Net working capital from continuing operations generated cash in the amount of €206.9 million, due mainly to the net balance of receivables and payables related to pass-through energy items, which were partially offset by the receivable related to the aforementioned mitigation mechanism established by Resolution no. 188/08, as well as to the increase in trade payables due to the increased investment during the fourth quarter compared with the same quarter of 2008.

Investing activities led to a net use of cash of about €1,210.0 million.

For continuing operations, this cash was related mainly to investments during the year in property, plant and equipment (€859.8 million) and in intangible assets (€40.6 million) related to the Parent in the amount of €872.1 million, as well as to the value of the goodwill (€101.6 million), property, plant and equipment (€1,101.4 million) and intangible assets (€6.3 million) resulting from the definitive allocation of the greater amount paid for the acquisition of TELAT compared with the fair value of the assets and liabilities acquired. Directors’ Report Directors’

61 62 Annual Report 2009 through newdebt( generated onoperatingactivities( year, andinchangesequityresulted inatotaluseoffunds The cashflowsabsorbedbytheGroup ininvestingactivities,takingaccountoftheextraordinary transactionsduringthe to minorityinterests waseliminated( Furthermore, followingthecompletionofsaleBrazilianbusinessesinNovember, theshare ofequityattributable related taxeffects (adecrease of of thederivativeinstrumentsusedascash-flowhedgesforexchangeratesandfloating-ratedebtParent, netof The otherchangesinequityattributabletotheshareholders oftheParent are related tothemeasurement ofthefairvalue shareholders oftheParent ( Cash flowsusedinself-financingare essentiallytheresult ofthedistributionbalanceon2008dividendto of theParent withthecorresponding figures fortheParent Reconciliation ofprofit fortheyearand equity attributabletotheshareholders ( ELMED ÉTUDES million), dueinparttotheacquisitionofadditionalshares, andtherecognition oftheinvestmentinTunisian jointvent Also ofnoteinthatregard are theincrease intheequityinvestmentassociateCESI,whichismeasured atequity( ioiyitrss00001. 86.9 2,076.8 13.9 327.5 2,163.7 0.0 2,501.5 341.4 2,028.0 771.0 5.2 0.0 335.3 2,501.5 2.3 -0.2 771.0 2,468.3 790.0 -0.3 8.2 25.0 2.9 Terna Group 0.0 Minority interests Consolidated figures 25.3 atequity Measurement ofCESIandELMEDÉTUDES -47.2 from discontinuedoperations Adjustment toearnings andequityfrom Italiansubsidiaries Earnings Parent In millionsofeuros lmnto fdvdnsfo rzla usdais-9500-0. 0.0 133.9 -102.4 106.5 0.0 0.0 0.0 -79.5 43.6 - EliminationofdividendsfromBraziliansubsidiaries -79.7 - Translation offinancialstatements - AdjustmentofgainonsaleTerna Participações - EarningsandequityfromBraziliansubsidiaries fBaiinsbiire 840000-3.2 0.0 0.0 68.4 of Braziliansubsidiaries € € 0.7 million). 392.4 million,equalto € 197.7 million)andtheinterimdividendfor2009( € € 1,254.2 million, 11.9 million). € 86.9 million). € 804.6 millionrelated tocontinuingoperations). € 961.5 millionofwhichattributabletocontinuingoperations)andinpart rftEquity Profit 09Dec.31,2009 2009 € 1,646.6 million,whichwasfundedinpartbycashflows € 140.1 million). rftEquity Profit 08Dec.31,2008 2008 € ure 5.0 Risks and uncertainties to which Terna and the Group are exposed

This section presents a description of the risks and uncertainties faced by Terna over the medium term (2 years). Such risks and uncertainties will not be new to shareholders and the market, given that they have been discussed both in past annual reports and in other previously published disclosures. Terna has always paid particular attention to the prevention of all forms of risk that could in any way compromise or even minimally undermine Company performance.

Regulatory risk

About 94% of the Group’s consolidated revenue comes from annual fees paid for the services regulated by the energy authority in Italy. Within the scope of such regulations, there are a number of variables that could have an impact on performance.

Volume effect Terna’s revenue from the management, operation and development of the National Transmission Grid and from the management of ancillary services is governed by rates that are established by the Italian Authority for Electricity and Gas. Such rates are applied to the total volume of electricity transmitted over the Italian network. The volume of electricity transmitted over the grid depends on factors that are beyond the Company’s control. Given the current exceptional economic climate and the consequent decline in power consumption, and to protect transmission revenue from unusually high levels of risk, the Authority for Electricity and Gas has, in way of ARG/elt Resolution no. 188/08, established a guarantee mechanism for the level of revenue for the Company effective as of the beginning of 2009 through to the end of the regulatory period (December 31, 2011). Based on this mechanism: • if actual volumes should fall below the levels used to determine the rates for the year, the Authority will supplement Terna’s remuneration for the portion of volumes in excess of a 0.5% deductible; • if actual volumes should exceed the levels used to determine the rates for the year, the Authority will require Terna to refund the excess revenue for the portion of volumes in excess of a 0.5% deductible. Terna has used this mechanism starting from 2009, and will continue to do so until the end of 2011. ARG/elt Resolution no. 204/09 confirmed that the guarantee mechanism for the level of revenue for transmission services may be adopted for the DIS component to cover the costs of Terna operations. As from 2009 Terna has used that power.

Bonuses and penalties There are also currently a number of mechanisms for calculating bonuses and penalties in relation to certain activities conducted by the Company: • in accordance with Authority Resolution no. 341/07, Terna is required to pay its portion of penalties due to surpassing the service continuity targets established by the Authority for medium-voltage customers, as well as refunds to customers connected to the medium- and low-voltage distribution networks in the event it exceeds the time limit for restoring power following prolonged interruptions of service affecting either the National Transmission Grid or the distribution networks; • beginning in 2009, in accordance with Resolution no. 333/07, Terna is also required to pay a specific contribution to the Exceptional Events Provision established at the Electricity Equalisation Fund based on the electricity not delivered for which Terna is responsible for the portion of outages exceeding two hours; • the mechanism of bonuses and penalties that was in place for 2008 and 2009 (under Resolution no. 351/07) based on Terna’s capacity to forecast demand and power output from wind facilities was maintained for 2010; • with ARG/elt Resolution no. 188/08, the Authority established the parameters for a bonus and penalty mechanism connected with the effective start of a number of investments to develop the National Transmission Grid, as defined by Terna and recognised by the Authority as being of strategic importance. This optional mechanism is defined in greater detail in an Authority measure to be adopted; • with ARG/elt Resolution no. 213/09, the Authority confirmed the incentive payment mechanism related to procuring resources for Terna’s dispatching service which was introduced on an experimental basis for 2009. This mechanism uses the level of resources procured by Terna on the Ancillary Services Market as the variable for measuring Terna’s performance, and this is valid for the period 2010-2012. Payment of the incentive is conditioned upon meeting the same conditions defined in 2009 – maintaining safety standards and effectively monitoring and revising the algorithms for selecting the bids on the Ancillary Services Market. Directors’ Report Directors’

63 64 Annual Report 2009 Company security mitigate therisksinrespect ofoperatingactivities. of sucheventscould,inprinciple,giverisetocostsiftheGroup isfoundliable.Specificinsurancepoliciesare inplacet Restoration ofelementsthepartNTGownedbyGroup andanydamagesforlossestothird partiesasaresult equipment, deterioratingplantperformance,naturaldisasters,terrorist attack,andothersuchextraordinary events. by eventsthatare beyondTerna’s control, suchasaccidents,defectsorbreakdowns involvingcontrol systemsorother The Terna Group conductsoperationsthatare exposedtotheriskofmalfunctionorunexpectedserviceinterruptionscaused Operational risks:risksconnectedwithNTGmalfunction are alsoinlinewiththecurrent regulatory framework recently introduced inEurope. Terna’s securityunitadoptsthelatest bestpracticesintheareas ofcriticalinfrastructure protection andsecurity, which and managecriticalsituations. of criticalissuesaffecting infrastructures, Terna hascreated aSecurityOperations Centre, whichisequipped toprevent through efforts aimedatpreventing andhandlingcorporatefraud.Inorder toachievereal-time monitoringandmanagement In particular, securityefforts are aimedatprotecting theCompany’s physicalandtechnological infrastructures, inpart analysing andmonitoringCompanyrisks. goal ofsignificantlyenhancingtheorganisation’s securitymechanismsanddefininga broad-based systemfor identifying, In 2007,inorder tomeettheincreasing needforsecurity, Terna establishedtheCorporateSecurityDepartmentwith procedures andinstructionsapplicabletoparticipantsinItaly’s nationalelectricalsystem. and ahighleveloftechnicalorganisational skills,whichisreflected processes inbothinternal andsystemsin Terna hasalwaysmanaged thevulnerabilitiesofelectricalsystemanditscriticalinfrastructures withthelatestsolution additional financing,whichinlessfavourablemarketconditionscouldresult inanincrease infinancialexpense. has continuedtoenjoythesupportofitsbankingpartnersinfinancingdebt,itmaybecomenecessarytake on from operatingactivities. However, theplanforfuture investments shouldleadtoanincrease indebt.AlthoughtheGroup Even incurrent marketconditions, theGroup expectstopreserve asufficient capacitytogeneratefinancialresources Risks connectedwithfinancingneeds criteria” ofthenotesto2009financialstatements. information, seethesection“Riskmanagement-Terna S.p.A.”inSection“A. Accountingpoliciesandmeasurement are revised onaregular basisinorder toreflect anychangesinmarketconditionsandtheCompany’s activities. Formore appropriate limitsandcontrols andmonitoringriskscompliancewithsuchlimits.Thesepoliciesrelated systems Terna’s riskmanagementpoliciesseektoidentifyandanalysethe riskstheCompanyisexposedto,establishing used andtheprecise operating limitsinmanagingthem. responsibilities andoperating procedures theinstrumentstobe forfinancialriskmanagement,specifically asconcerns As apartofthefinancialriskmanagementpoliciesapproved bytheBoard ofDirectors, Terna hasestablishedthe rate riskandinflationrisk),liquiditycredit risk. In theconductofitsoperations,Terna isexposedtovariousfinancialrisks:marketrisk (namelyexchangeraterisk,interest Financial risks statements forTerna andfortheGroup formore information. See thesection“Commitmentsandcontingenciesarisingfrom off-balance sheetitems”ofthenotestofinancial the environment, regulatory matters,andpublicsafety issuesarisingfrom normalbusinessoperations. The Companyisinvolved,asbothplaintiff anddefendant,inanumberoflegalproceedings involvingcontracts,employees, Litigation risk o s complianceactivitiesfocusingoncooperatingwith andsupportingtheCompany’s management anditsvariousoffices, • activitiestosupportthe Company’s otherunits,suchasintheanalysisandassessmentofcounterparties,sotolimit • In additiontoitsefforts toprevent andmanagefraud,theFraudManagementUnitconducted: of strategicareas, suchastheelectricitymarketandrenewable energy resources, isofparticularimportance. understanding signedwiththetaxpolice(Guardia diFinanza)withthegoalofaverting criminalactsinthemanagement for anumberofcriticalprocesses designedtoprevent suchillegalconduct.Inthatregard, thefirstprotocol of management systemsandnewSAPtransactionsaimedat reducing theriskoffraud andhasdefinedspecificprocedures basis, aswelltobeableverifyandmanageanyreports ofpossiblefraud,the Companyhasintroduced custom and tookallstepsnecessarytodiscouragesuchfraud to limititseffects. Inorder tomonitor processes on an ongoing In 2009,theFraudManagementUnitimplementedaseries ofprojects aimedatpreventing andmanaging corporatefraud Fraud Management events isofgreat importance. for whichpreventive actionintheformofcontrols andotheractionsbasedontheoutcomeofmonitoringelectricalsystem Electrical SystemRiskManagementUnitinadditiontomanagingtheoperationalrisksderivingfrom vulnerabilities, external require analysesandstudiesthatmayleadtochangesoradditionssaidCode.Theseactivitiesare conductedbythe times, systemswithcertaininnovativecharacteristics,suchaswindfarms,orothereventsthathavenotbeenforeseen which generallyworktowards events,suchasmalfunctionsorfailures limitingexternal tocomplywiththeGridCode.At This isacomponentofoperationalriskthatmustbemonitored andforwhichmitigatingactionsmustbetaken, the conductoutsideofTerna represents anadditionalthreat thatcouldunderminethesuccessofCompany’s mission. thetransmissiongrid.Therefore,manages thepartthatconcerns theproper functioningoftheconnectedsystemsand Terna isresponsible forcoordinating thefunctioningofentire electricalsystem,althoughtheCompanyonlydirectly Electrical systemriskmanagement of keyactivitiesinmonitoringthismarketare arequirement forreceiving aportionofsuchincentives. Resolution no.206/08regarding theprocurement ofresources fortheAncillaryServicesMarket,effective performance This isofparticularimportancetotheCompanyinthat,aspartTerna’s incentivesestablishedbytheAuthority’s Services Market. to theacquisition,organisation andstorageofdatainorder tomonitor thevolumesandindicatorsrelated totheAncillary Electricity MarketRiskManagementisTerna’s monitoringunit,whichisresponsible fortheTIMMdatawarehouse andsees Terna, GMEandGSE,callingforeachofthesecompaniestoestablishaspecific monitoringoffice. the AuthorityforElectricityandGasdefinedgeneralprinciplescriteriaofmarketmonitoringcompanies With itsResolutionno.115/08(“TIMM”)regarding themonitoringofWholesaleEnergy andAncillaryServicesMarkets, Electricity marketriskmanagement Risk Management theprotectionof theInteriorconcerning oftheCompany’s infrastructures. integration oftheSOCwithlawenforcement, soastoimplementtheagreement signedbetweenTerna andtheItalianMinistry emergencies, aswellwiththeCarabinieri andtheItalianpoliceforce inorder todefineandimplementthefunctional Finally, thepartnershipcontinueswithDepartmentofCivilProtection, particularlyinconjunctionwiththevarious to prevent thespread ofunauthorisedprogrammes, whichhasreached criticallevelsaround theworld. electronic mail.Usingplatformstomonitorsecurityeventsonthetelecommunicationsnetwork,thiscontrol madeitpossible With regard tothemonitoringofinformationsecurity, in2009antivirusmonitoringbeganforcorporateICTplatforms,includin with thehelpofallgroups ofoperationspersonnelintheregion. G8eventswerethe physicalsecurityofpowerstationslocatedinareas held,whichwasdone inwhichtheinternational Of particularnoteamongthefirstactivitiesconductedbyControl ofManagementSystemsUnitwasthemonitoring of Terna facilities,aswelltoactivatingandtakingcharge ofthe18facilitiesactivatedduringyear. Ample spacewasdedicatedtooperationaltestingofthePSISplatformforanti-intrusionmonitoringandvideosurveillance In 2009,operationsbeganfortheSecurityOperationsCentre (SOC)withinthescopeofitsspecificmonitoringactivities. Security OperationsCentre reducing and/orpreventing theriskofsanctionsandsafeguarding theCompany’s image. aimed atensuringcompliance withlaws,regulations, procedures, codesofconduct,andbestpractices, aswellat the risksderivingfrom transactionswithothers; g 65 Directors’ Report

Organisational Model under Legislative Decree no. 231 of June 8, 2001 The Company Security Department (RM/FRM), in collaboration with the Legal and Corporate Affairs Department, is engaged in implementing and updating the Organisational Model under Legislative Decree no. 231. In 2009, following final approval of the bill to ratify and execute the Council of Europe Convention on cybercrime, Terna S.p.A. both updated and implemented its Organisational Model, introducing Special Section H concerning cybercrime, and drafted specific security policies aimed at reducing the risk of the commission of such computer-related crimes.

Control of Management Systems

In 2009, the Company updated and maintained Terna’s certified management systems (i.e. for quality, the environment and occupational health and safety), in particular by improving the procedures for operating and monitoring the environment management system and adding value to the culture of safety primarily by way of the project to analyse the workplace and define incentives to safe conduct in the workplace. These efforts resulted in confirmation of certification of the environment management system (UNI EN ISO 14001:2004) and the occupational health and safety management system (BS OHSAS 18001:2007), as well as the move from UNI EN ISO 9001:2000 certification to UNI EN ISO 9001:2008.

Physical Security

Terna has established new surveillance and protection systems that are in line with their importance to the functioning of the electrical system and suited to the number and type of actual or potential threats they are designed to face. With this goal, and for the first time in Italy, Terna has adopted risk assessment methodology for each of the 357 stations in order to analyse the related physical risk – concerning both actual and potential attacks – and electrical risk. Based on the “role” that each system plays in the functioning of the national electrical system, determined by assigning a risk index to each station based on their respective critical importance, a long-term action plan has been developed. In 2009, 18 new remote anti-intrusion systems were installed in the SOC offices. 40 video box systems were installed at medium/low risk index electrical stations to monitor a number of sensitive areas at our electrical stations via the SOC. Furthermore, an agreement was ratified during the year with the Ministry of the Interior calling for the development of a joint plan to enhance physical protection standards at electrical stations by linking Terna's video alarm systems to police operations centres, so that police intervention can be called in by the SOC. A dual technology access control system has been planned for installation at all electrical stations and operating premises during the course of 2010.

Information Security

Driven by the clear commitment made in the Strategic Guidelines on Information Security issued by management at the end of the previous year, in 2009 a wide-ranging three-year programme was rolled out to "improve information and corporate system security", and to ensure rapid, ongoing compliance with applicable regulatory framework obligations and requirements. At the start of the year, second-level regulatory requirements of the Information Security Policy were published, along with a series of specific policies designed to orient processes (and supporting technologies) towards an increasingly security- led approach. The programme consists of a number of technical and organisational actions designed to foster security framework adoption in new high-tech projects right from their inception, while at the same time conducting checks on the current policy compliance levels of select operational information services and systems. The piloted introduction of advanced risk analysis and management tools and methods at ICT offices responsible for technology is the beginning of the systemic promotion and advancement of a security-led culture, awareness and sensibility. Initial Information Security Assessments were carried out on major ICT systems and infrastructure to verify and check the security of systems currently in operation. The Assessment’s multiple objectives were: to measure levels of potential risk, check compliance with the Terna Information Security model, and where necessary adopt any action plans (compliance plans) necessary to eliminate detected vulnerabilities. Directors’ Report Directors’

67 Supplier Qualification

In October 2009, Terna introduced a new Supplier Qualification Database System to enhance the company qualification process. The new system is designed to make supplier qualification application management more linear and more transparent. Terna users benefit from system functions that include Qualification Committee management and organisation, and a reporting system for the accurate, ongoing monitoring of qualification application status.

Corporate social responsibility

One of Terna's defining characteristics is the adoption of a sustainability-led approach which has been integrated into its business policies, processes and management systems. The goal of this approach is to generate value from and enhance the asset base of management best practice, and to assist in drafting the Company’s ethical, environmental and social policies and objectives. The Company publishes its results in this field in an annual sustainability report, which is available for viewing on the corporate website at www.terna.it. Terna’s commitment to corporate social responsibility won the Company a number of awards in 2009 from specialised non- financial performance (environmental, social and governance) rating agencies. In September 2009, Terna became part of the Dow Jones Sustainability World Index, on which the world’s 300 top performing companies in sustainability are listed (of which just 12 are Italian enterprises). Terna's approach to corporate social responsibility embraces a number of key areas:

Electrical service

Terna has taken to heart the goals defined in the concession agreement and assumes responsibility towards the public at large. The Company pledges to constantly ensure the security, quality and cost-effectiveness of electricity transmission over time, and to provide equal access conditions to all network users. Terna furthermore pledges to maintain the transmission system's efficiency and to upgrade it as a corporate asset that is also a key infrastructure for society.

The environment

The most evident sign of Terna's operations is the physical, visible presence of power lines and stations across the country. To minimise this, Terna has developed a management system for monitoring and limiting the environmental impact of its operations. The Company has placed special emphasis on transmission infrastructure development activities. In this field, Terna has chosen to work with local institutions and harness Strategic Environmental Assessments (SEAs) to take environmental requirements into account right from the earliest stage of new line planning. This makes it possible to identify optimal solutions that combine the needs of developing the electricity grid with the need for protecting the environment and local cultural heritage. In 2009, Terna continued with many initiatives for reducing the environmental impact of its plants. In particular: • on January 13, 2009, Terna signed an agreement with the WWF to maximise the environmental focus of plans to develop the electricity grid. This is the first protocol of understanding that the WWF has signed in Italy with a leading national infrastructure enterprise. The main objectives of the agreement are greater integration of environmental criteria at the national electricity grid development planning stage, along with a harmonisation of these activities with the eco-regional conservation strategy promoted by the WWF. The three-year deal calls for a special jointly-prepared action plan to foster the sustainable development of the electricity grid in WWF sanctuaries, with a view to minimising environmental impact; • Terna S.p.A. has signed important Memoranda of Understanding with the regions of Valle d’Aosta, Liguria and Lazio regarding the use of SEAs by the Grid Operator in preparing the development plans for these regions. As a result of these agreements, Valle d’Aosta, Liguria, Lazio and Terna have made a commitment to accelerate and streamline the authorisation process for development projects subject to SEA, and to submit the environmental and local impact of new electricity infrastructures in these regions to prior verification. The approach adopted is based on openness and dialogue

2009 with local institutions regarding site placement decisions in order to minimise the environmental impact of electricity infrastructure on local areas; Annual Report

68 • two documents have been signed regarding the sustainable development of the electricity grid in Piedmont. The first concerns construction of the new “Trino-Lacchiarella” power line; the second concerns the rationalisation programme in the city of Turin. Among other things, the work planned includes the demolition of old lines, and infrastructure rationalisation in order to optimise and reduce the impact of these lines on local areas; • as part of the grid reorganisation work taking place near Cagliari, operations began on the final stage of removing 150 kV overhead lines at the “Molentargius-Saline” park. This involved the use of specially-modified helicopters to lift 10 pylon bases decommissioned over two years ago out of the Sardinian pond, along with the removal of 12 km of high- voltage power lines within the park; • the Rosental Group won first place in the international “Pylons of the Future” contest, which Terna sponsored to encourage the design and planning of new, lower environmental-impact national transmission grid support infrastructure. The philosophy behind “Pylons of the Future” contest was to combine innovation, technology, design and environmental awareness in the sustainable development of the national transmission.

Social responsibility

Terna's highly specialised and often unique technical skills in the electricity industry allow the Company to operate with complete professional excellence. The company's attentiveness to keeping this skill current is a key component of how Terna manages its human resources. Equally important is the Company's focus to workplace safety, in view of the risks associated with many of the Company's operations, such as, for example, working on live power lines.

Terna's social responsibility extends beyond the social per se to include engaging in charitable initiatives and supporting society-wide advancement, with a particular emphasis on art and culture. The Company's most significant initiatives include the Terna Prize for contemporary art, which was awarded for the second time in 2009. Under the auspices of a memorandum of understanding with the Ministry for Cultural Heritage and Activities, the Prize was established to engender a new and virtuous relationship between corporations, the art world and institutions through a synergy that promotes work by Italian artists.

Detailed information on Terna’s environmental and social impact can be found in the Sustainability Report that Terna has published every year since 2005 following the adoption of its annual financial statements. To provide increasingly full and complete disclosure of Corporate Governance-related achievements, below is a preview of key environmental and workforce indicators: • no fatal accidents were recorded in the workplace, nor were there any fatal or serious accidents in previous years for which the Company's liability was ascertained in a final ruling during the year; • no allegations were recorded regarding workplace bullying or work-related illness – regarding current or former employees – for which the Company was held liable in a final ruling; • no cases of environmental damage were registered for which the Company was held culpable in a final ruling; • no final penalties or sanctions were levied against the Company for environmental damage.

Terna is not subject to the greenhouse gas reduction obligations arising out of the Kyoto Protocol, nor is it a participant in emissions trading schemes. Directors’ Report Directors’

69 National Transmission Grid

Number of plants - Terna

The number of Terna plants at December 31, 2009, compared with the situation at December 31, 2008, is reported below:

Terna Terna Change Dec. 31, 2009 Dec. 31, 2008 Jan.-Dec., 2009 Stations no. 383 no. 371 +no. 12

Transformers no. 620 no. 610 +no. 10 121,501 MVA 118,539 MVA +2,962 MVA

Bays no. 4,537 no. 4,475 +no. 62

Lines 39,819 km 39,456 km +363 km

3-phase power lines no. 2,167 no. 2,145 +no. 22 44,560 km 44,172 km +388 km

Stations The main station-related changes are summarised below: 1. whole plants: • activation of 3 new transformation stations: Cedegolo Sud (went into service with 2 bays x 220 kV and 3 bays x 132 kV), Abbadia (went into service with 2 bays x 220 kV and 2 bays x 132 kV), and Napoli Levante (armoured, went into service with 4 bays x 220 kV); • activation of 8 new delivery stations: Mogorella (4 bays x 220 kV), Tirano (3 bays x 220 kV), Faeto (4 bays x 150 kV), Rotello, Feo, Sicignano and Regalbuto (3 bays x 150 kV each), and INNSE (1 bay x 132 kV). 2. existing plants: • activation of the new 380 kV section at the Casellina station (went into service with 3 line bays and 1 parallel bay); • activation of 2 new 150 kV sections respectively at the Santa Sofia (went into service with 1 machine bay, 1 power factor correction bay and 1 parallel bay) and Uvini stations (went into service with 2 line bays and 1 machine bay); • activation of bays for the new SA.PE.I. link at the stations of Latina and Fiumesanto (a total of 4 bays x 380 kV); • activation of 17 new line bays respectively at the stations of Scandale and Priolo (1 x 380 kV each), Marghera 3 and Avise (2 x 220 kV each), Verampio, Pianezza and Bussolengo San Salvar (1 x 220 kV each), Roma Est, Accadia, Fulgatore and Tula (1 x 150 kV each), Stazzona (2 x 132 kV), Fusina 2 and Calenzano (1 x 132 kV); • activation of 9 new machine and/or power factor correction bays at the stations of Casanova (1 x 380 kV and 2 x 132 kV), Brindisi Pignicelle, Andria and Santa Sofia (1 x 380 kV each), Verampio and Partinico (1 x 220 kV each), and Codrongianos (1 x 150 kV); • activation of 4 new parallel and/or connector bays at the stations of Pallanzeno and Verampio (1 x 220 kV each), La Spezia and Cedegolo (1 x 132 kV each); • deactivation and/or demolition of 18 bays at the stations of La Spezia (1 x 380 kV), Santa Massenza (5 x 220 kV), Codrongianos (1 x 150 kV), Carpi Fossoli (5 x 132 kV), Sud Ovest (3 x 132 kV), Pian Rocca (1 x 132 kV), Taloro and Uvini (1 x 70 kV each).

Transformers An additional 10 transformers went into operation compared with December 31, 2008, corresponding to a 2,962 MVA increase in transformation capacity. Specifically, there were 6 new 380 kV single-phase machines introduced at the Latina and Fiumesanto switching stations, operations began at the first pole of the SA.PE.I. connection, and 3 more transformers on the 380 kV line at the Brindisi Pignicelle, Santa Sofia and Casanova stations were added. 2009 Annual Report

70 Long distance power lines The total length of long distance three-phase power lines increased by 388 km compared with December 31, 2008 and the total length of lines increased by 363 km. Specifically, 490.9 km of lines were added after the first pole of the 500 kV d.c. SA.PE.I. underwater cable between the stations of Latina and Fiumesanto became operational, including land and sea- based lines, while 130.4 km of lines, corresponding to 5 three-phase power lines, were taken out of service after operational lines were decommissioned, deactivated and/or demolished.

Number of plants - TELAT

At December 31, 2009, the subsidiary TELAT owned 1,724 three-phase power lines covering a total of 17,943 km high- voltage lines, consisting of very-high- and high-voltage power lines acquired from Enel Distribuzione (April 1, 2009) and acknowledged as being part of the NTG pursuant to AEEG Resolution no. 31/09. From April 1, 2009, TELAT assigned the operational management of these lines to Parent Terna, after signing all necessary intercompany agreements for, in particular, maintenance and technical services regarding power lines it owns.

Acquisition of TELAT’s transmission plants generated growth for the Terna Group of about 41.5% in terms of total kilometres of power lines.

The following table provides greater detail about the number of Group transmission plants at December 31, 2009:

Terna Group Terna Group Change Dec. 31, 2009 Dec. 31, 2008 Jan.-Dec., 2009 Stations no. 383 no. 371 +no. 12

Transformers no. 620 no. 610 +no. 10 121,501 MVA 118,539 MVA +2,962 MVA

Bays no. 4,537 no. 4,475 +no. 62

Lines 56,691 km 39,456 km +17,235 km

3-phase power lines no. 3,891 no. 2,145 +no. 1,746 62,503 km 44,172 km +18,331 km

National Transmission Grid Development Plan

On January 29, 2010, in compliance with the Ministerial Decree of April 20, 2005, the Development Plan for 2010 was submitted to the relevant authorities for approval. The 2010 Development Plan was approved by the Terna Board of Directors on December 16, 2009, having already been favourably received by the Users’ Consultative Committee1 (which on October 31, 2009 approved the new developments initiatives included in the Plan and on November 25, 2009 approved the Plan in its entirety). The latest version of the Development Plan includes the conditions that the Ministry for Economic Development attached to its Final Approval for the 2009 Plan2.

These conditions regarded: • “accelerating activities for a further reduction in congestion, while fostering planned interconnections with new energy markets in the north-eastern and southern quadrants, in particular regarding completion of the Adriatic backbone and the 380 kV ring in Sicily”; • “ensuring the development of renewable energy resources in compliance with targets agreed at the European level” by resolving “in particular in the southern areas of the country, issues associated with grid plants arising out of a boom in this type of non-programmable energy”;

(1) The Users’ Consultative Committee, established with a Prime Minister’s Decree of May 11, 2004 in accordance with the provisions of the Antitrust Authority’s Resolution no. 14542 of August 4, 2005, issues a non-binding opinion on the Development Plan. (2) On December 23, 2009, the Ministry for Economic Development (MED) approved the 2009 Development Plan through the publication of its final ruling, which came out in the Gazzetta Ufficiale of January 20, 2010, no. 15. Report Directors’ 71 • monitoring the “implementation of new regulations that provide for the return of nuclear power generation to Italy with regard to the repercussions this will have on the national electricity grid”; • bearing in mind “development of distributed generation and new developments in bidirectional grid use associated with this type of plant, which must be taken into consideration, and coordination with local distributors in order to adopt and develop the required technological upgrades”; • as soon as is feasible, beginning the authorisation process for work to connect the islands situated off the Campania region to the national electricity grid in order to resolve the repeated critical issues affecting the electricity system during the tourist season.

The 2010 Development Plan adopts the structure of the previous year's version and is divided into two sections. 2010 Development Plan - Section I outlines the framework and the new development requirements highlighted in 2009. Pursuant to Legislative Decree no. 152/06, the section is subject to a Strategic Environmental Assessment (SEA), which commenced on October 2, 2009. The second section, Progress of Prior Plans - Section II, features a progress report on the actions envisaged in earlier Development Plans that have previously been approved and are confirmed in the current version of the Plan. Specifically, the plan highlights the development of the European transmission network. In fact, the European Commission notes the need for network operators to work together to develop a European network in order to ensure that transmission capacity keeps pace with demand and that national electricity markets are integrated. The 2010 European Development Plan was prepared under the auspices of ENTSO-E3. Terna is both a member and the coordinator of the Continental Central South Regional Forum, and is a member of the Continental South East Forum. Terna has supported its community-interest projects, giving particular precedence to new interconnections and resolving internal NTG congestion. The 2010 Development Plan envisages investments of around €3.14 billion in the period 2010- 2014 (an increase compared with the 2009 version of the Plan) and €3.77 billion in the five years thereafter. The implementation of the Development Plan will increase the size of the national transmission grid by adding around 4,800 km of new lines and 140 new stations with a transformation capacity of around 32,500 MVA.

SEA procedure for the 2010 Development Plan On October 2, 2009, the preliminary stage of the Strategic Environmental Assessment procedure for the 2010 Development Plan (scoping) was initiated, pursuant to the Consolidated Environmental Law (Legislative Decree no. 4/2008), following publication of the 2010 Preliminary Report (PR) “on potential significant environmental impacts of Plan implementation”. The PR is intended to define the extent and level of detail of information to be included in the 2010 Environmental Report (ER). This preliminary stage will be completed once an opinion (and, where applicable, observations) is received from the Ministry for the Environment (METPS) - EIA-SEA Technical Commission, which gathers and collates observations made during the consultative phase, including comments issued by the Ministry for Cultural Heritage.

Status of authorisation applications In 2009, pursuant to Law no. 239/04, 29 authorisation application procedures were initiated regarding NTG Development Plan development work. During 2009, 15 decrees received authorisation pursuant to Law no. 239/04 regarding Development Plan works.

Work carried out in period

In 2009, the most important work still in progress involved activities to reduce network congestion, to connect new generating plants (especially those fuelled by renewable resources), and to increase the reliability of the grid with ever greater attention to environmental and safety issues. The major works currently in progress are as follows: • 500 kV d.c. “Sardinia-Continent” (SA.PE.I.) underwater cable: work was completed in 2008 on underwater cabling of the first pole (a total of 425 km). In 2009, work was completed on civil structures and the construction of buildings to house high-tech electric equipment. Construction work is currently underway on the second underwater cable pole, and testing is underway to ensure that the plant will enter service in 2010; • 380 kV stations to connect renewable-resource fuelled plants: site work began on 380 kV stations suited to power input from and connection to new renewable fuel generating plants located in the areas of Turano, Maida, Bisaccia, San Severo, Deliceto and Troia. The final design stage has already been completed for the first four stations. Provisioning of materials is underway and work is scheduled to be completed by the end of 2010;

2009 • 380 kV rationalisation in the province of Lodi: site work has begun with the construction of two new 380 kV power stations in the municipalities of Chignolo Po and Maleo; work has also begun on building a new 380 kV double three-phase power line connection along the “La Casella-Caorso” line;

(3) ENTSO-E (the European Network of Transmission System Operators for Electricity) is a partnership body strengthened by community-level network Annual Report operators. 72

• new 380 kV “Sorgente-Rizziconi” underwater connection: site work has begun on the two 380 kV stations in Scilla (Calabria) and Villafranca (Sicily), and materials procured. Work is underway at the 380 kV Rizziconi power station to expand and install the 2 bays necessary for building the new long-distance line. Final design is still in progress, in preparation for executing the main orders for the manufacture and laying of the 380 kV double three-phase underwater cable; • 380 kV “Ittiri-Codrongianos” long-distance line: construction work is underway on the new 380 kV long-distance line and the new Ittiri power station adjacent to the existing 380 kV “Fiumesanto-Selargius” line, in order to prepare for connection of the aforementioned future station along this line on an in-and-out basis; • 132 kV Val d’Ossola rationalisation: the construction site was opened in 2008, and construction work has now reached an advanced stage. Tension work has been completed on almost half of the total number of kilometres of planned line, and demolition has begun of obsolete long-distance lines. Painted tubular pylons have been installed along this line to reduce environmental impact; • 380 kV “Casellina-Tavarnuzze-Santa Barbara” long-distance line: the planned works are at an advanced stage of implementation, and will be gradually brought into service as the new line is constructed and the old, obsolete, lower- power capacity line is demolished. The new 380 kV section of the Casellina power station was completed, as were the new 380 kV “Casellina-Poggio a Caiano” and “Casellina-Calenzano” connections. The new 380 kV “Tavarnuzze- Casellina” connection has also been completed, including the assembly of a number of Foster pylons; • replacement of conductors along the “Piossasco-Venaus-Villarodin” line: design, material provisioning and preparation for the complex operation of replacing conductors along the “Villarodin-Venaus” line have all been completed. The first phase of construction work will be implemented in August 2010.

Energy overview

Energy demand in Italy

In 2009, according to preliminary figures, domestic energy demand amounted to 317,602 GWh, a decline of 6.4% from 2008. In order to compare 2009 figures with those of the previous year, a number of factors need to be considered. First of all, there is the variation in the calendar. Although there are fewer total days than the previous year (2008 was a leap year so there were 366 days), there was one more business day in 2009. Secondly, weather conditions were different. In 2009, the first three months were cooler on average than the same months of 2008, whereas the remaining months (from April to December) were slightly warmer than in the prior year. Therefore, adjusting for both number of days and temperature, the change in electricity demand came to -6.6%.

Power generation

According to initial estimates, in 2009 net domestic power generation (see table below) decreased by 9.2% year on year. Breaking down the figures for generation by source, net of ancillary services, we see a decline in thermal power generation for the year of 13.7% from 2008. In 2009, hydroelectric production rose by a significant 9.5% compared with 2008, after taking into account consumption for ancillary services. The annual hydroelectric production index exceeded the figures recorded for the preceding year, rising to 1.03 compared with 0.91 in 2008. Wind and photovoltaic generation once again rose dramatically compared with the previous year, posting a 35.3% overall rise compared with 2008, spurred by growth in wind assessed at around 25.2%, and 288.6% growth in photovoltaic energy compared with the preceding year. Geothermal generation posted a modest 3.2% fall compared with the preceding year. 2009 Annual Report

74 GWh Dispatching andtrade GWh DOMESTIC POWERGENERATION ENERGY BALANCEINITALY upn ,2 ,1 181-24.8 -37.6 7.2 -6.4 -1,891 -1,278 3,137 -9.2 -8.5 -21,879 7,618 3,399 -9.2 43,433 339,481 -28,185 -1,031 5,727 2,121 317,602 -29,216 46,570 307,065 12,065 319,130 278,880 11,034 289,914 Total demand Pumping Exports Imports Net generation Ancillary services Gross generation e idgnrto ,7 ,5 ,2 25.2 -9.2 -3.2 - 9.5 22.2 1,224 -28,185 -13.7 -164 -8.5 2 4,852 along withadeclineinexports,whichfellfrom 4,412 3,399GWhto2,121(down 37.6%). -3.1 307,065 0 18.8 Net importsrose from 2008duetoanincrease intheamountofenergy importedfrom 43,433GWhto46,570(7.2%), -34,214 40,034 GWhfortheprevious year(+11%). from 2008.Theremaining portionofdemand(14%)wascovered bynetimports,foratotalof44,449GWh,compared with 5,198 278,880 -10.1 for atotalof273,153GWh,netconsumptionbyancillaryservicesandpumping,decrease of26,294GWh(-9%) -1,031 6,076 46,673 250,149 During theyear, 86%ofthedemandforelectricityonnetworkwasmetbydomesticpowergeneration(88.2%in2008), -10 104 9 year (seetablebelow). 0 25.2 Based onpreliminary figures, Italianelectricitydemandfor2009cameto317,602GWh,adeclineof6.4%from theprevious 5,034 -9.2 12,065 215,935 51,085 -1,127 Electricity business -3.2 323 554 9.6 11 1,226 11,034 11,179 0 -13.5 -29,216 -174 313 658 4,861 4,516 10,052 319,130 -35,341 Total netgeneration Net photovoltaicgeneration 5,521 Net windgeneration 289,914 6,087 47,227 Net geothermalgeneration 261,328 Net thermalgeneration Net hydro generation 5,347 225,487 51,743 Total ancillaryservices Photovoltaic ancillaryservices ancillaryservices Wind Geothermal ancillaryservices Thermal ancillaryservices Hydro ancillaryservices Total gross generation Gross photovoltaicgeneration Gross windgeneration Gross geothermalgeneration Gross thermalgeneration Gross hydro generation (*) Provisional figures. (1) Includesphotovoltaicplantssubsidisedthrough GSEEnergy Account. (*) Provisional figures. (1) (1) Jan.-Dec. 2009* 2009* 5 9 5 288.6 557 193 750 5 9 5 288.6 557 193 750 Generation a.Dc 08Cag % Change Jan.-Dec. 2008 08Cag % Change 2008 75 Directors’ Report Month-on-month trends in peak power demand in 2009 and 2008 are presented in the following table. In 2009, in every month the peaks were lower than in the respective month during the preceding year; in the first half of the year, the reduction was sometimes considerable. The highest level of demand registered at any time in 2009 was at midday on July 17, when demand reached 51,873 MW. The 2008 peak was at midday on June 26, when demand reached 55,292 MW. The highest load in 2009 was down 6.2% compared with the corresponding peak the preceding year.

MONTHLY PEAK DEMAND

MW Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

60,000

50,000

40,000

30,000

20,000

10,000 49,692 51,455 44,404 46,776 48,780 47,413 48,904 55,292 51,873 55,036 45,595 51,313 49,587 52,187 52,731 46,565 49,030 48,242 51,086 51,164 52,959 0 50,220 53,194 49,170

2009 2008

Coverage of demand

The high margins available at the peak recorded in 2009 are attributable to the considerable reduction in demand compared with the preceding year, as well as to maintenance forecasting and coordination by Terna. The year also saw the start-up of a number of new generating plants.

RESERVE MARGINS AT PEAK

MW 45,000 50,000 55,000 60,000 65,000 70,000 75,000

51,873 Summer peak 13,731 (July 17, 2009)

65,604

51,164 Winter peak 18,845 (December 15, 2009) 2009 70,009

Reserves/Demand 26.5% 36.8%

Annual Report Demand Reserves Available capacity

76 (1) Total inclusiveofcharges associatedwithtermcontractsfor dispatchingservicessignedin2008. corresponding toanincrease of8%and29%),foranetoutlay actual flow, buyingabout12.5TWhandselling 14.8 TWhofenergy (respectively 11.6TWhand11.5in2008, Terna operatedon the AncillaryServicesMarketduringschedulingphase, whichisheldonthedaypriortothatof the AncillaryServicesMarket. and Terna's owndemand forecasts. Asfrom January1,2009,however, Terna hasbeenbalancingdemandbyrecourse to Terna hadusedthis possibilitytocorrect divergences betweenthetotal demandofconsumersontheDayAheadMarket operate ontheDayAheadMarketexceptinresponse toexceptionaldifficulties inthenational electricitysystem. ARG/elt Resolutionno.203/08onDecember23,2008,establishing thatitwillnotreintroduce the possibilityforTerna to As partofthegradualintroduction ofthedefinitiveelectricitymarketrules,AuthorityforElectricity andGasissued Provisioning ofdispatchingresources and Germanywasabout15%higher( With regard toforeign trade,theaveragehourlypricedifferential betweentheItalianelectricitymarketandthoseofFrance increased theisland’s coveragemargins andsecurity. In thefinalmonthofyear, thefirstpoleofSA.PE.I.connectionbetweenItalianmainlandandSardinia significant the continuityofelectricitysupply. operations, thereby confirmingthearea asatriskfor coveringdemandwithadequatereserve margins, andthusensuring On thewhole,criticalpointsofelectricalsystemmanagementexpectedonislandswere encountered inactual in powergenerationandinterconnection capacitywiththemainland. In linewithexpectations,thecoveragemargins forSicilyandSardinia were extremely slim,owingtostructuraldeficiencies balance ofenergy importsofabout5.4 TWh compared withthecorresponding periodof2008. 1,000 1,100 1,200 -400 -300 -200 -100 IPEX EEXPNX 100 200 300 400 500 600 700 800 900 0 1 23456789101112131415161718192021222324252627282930313233 Jan. Feb.Mar. Apr. MayJun.Jul.Aug.Sep.Oct.Nov. € 23/MWh vs. € 20/MWh) than2008.Thispricetrend causedanincrease inthenet € 1,385 million( 34 353637383940414243444546474849505152 Export Terna Import Terna € 1,861 1 million in2008,down26%). Dec. 100.0 110.0 120.0 130.0 140.0 150.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 0.0 ly 77 Directors’ Report Despite changes in the regulatory framework, the 4.2 TWh increase in overall Ancillary Services Market volumes was far below the volumes traded in 2008 on the Day Ahead Market (11.3 TWh). This effectively large reduction in volume also reflects the effectiveness of Terna’s various actions to reduce/optimise provisioned dispatch resource volumes. The reduction was recorded during real-time equalisation of the Ancillary Services Market, where the volumes bought and sold up to November were, respectively, 7.1 TWh (down 19% compared with the same period in 2008, when the figure totalled 8.8 TWh) and 9.7 TWh (down 8% compared with the 2008 figure of 10.6 TWh), for a net charge of €384 million (down 49% on the 2008 figure of €760 million).

In millions of euros Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.

210

180

150

120

90

60

30 90 73 40 27 63 161 110 46 25 160 48 149 199 47 73 16 104 49 33 69 63 0 135

ASM ex-ante ASM ex-post -12

Overall costs in fees for dispatching resources provisioning (inclusive of term contracts for 2008) registered a reduction of €852 million over the period taken into consideration. After the real-time phase, Terna verifies the proper execution of commercial obligations by the market participants, both in terms of generation and demand. To that end, the measurements at each point of input and withdrawal are taken, with the help of the distribution firms, and the differences from the schedules are calculated. These differences (imbalances) are measured using algorithms established by the regulatory framework. The net charge resulting from the measurement of these imbalances and of the buying and selling transactions executed by Terna on the Day Ahead and Ancillary Services Markets are billed on a pro rata basis to each consumer with the uplift fee.

Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 6.5 €/MWh costs 4.8 4.2 3.6 2.9 2.7 3.2 3.7 3.7 2.3 2.5 3.3

2009 In millions of euros 82 38 98 94 75 91 57 137 116 150 95 124 93 64 103 64 127 56 92 47 84 49 37 36

Annual Report Revenues Costs

78 mrec 73 32 3,393 32 3,358 3,361 37 3,377 3,326 140 5 3,340 128 135 5 12 123 6 119 Total Emergency Instantaneous figure of Overall charges associatedwithremuneration oftheinterruptibilityserviceamountedto three-year period2008-2010followingtheallocationsmadeinMayandSeptember. Below isatablepresenting changesinthenumberofInterruptiblecustomers andcontractually-agreed powerforthe emergency interruptibilityservicemanagementonamonthlybasis interruptibility serviceonamonthlybasistotheemergency interruptibilityservice( Following guidancefrom theAuthority, inJuly2009Terna amendeditsRegulationstoextendtheinstantaneous (bar OctoberandNovember),theamountofinstantaneouspoweravailableexceededallocationdemand. Below isatableoftrends inmonthlyreleases andassociatedreallocations, from whichitisevidentthatduringallmonths Terna, alsoonamonthlybasis,toreallocate instantaneouslyinterruptiblepoweravailabletopartieseligibleforthe • holdersofinstantinterruptibilitycontractsforthethree-year period2008-2010tooffer Terna ashare ofcontractually- • for March 2009allocations,enabled: for instantaneousinterruptibilityservicemanagementonamonthlybasis a numberofchangesin2009.Specifically, inimplementationofAuthorityrequests, inFebruaryTerna drafted manufacturing activities,and,consequently, areduction inelectricityconsumption,theinterruptibilityserviceunderwent In viewoftheexceptionalandunpredictable economicclimatethattriggered asuddenandconsiderablereduction in Interruptibility service DEVELOPMENTS IN MONTHLY RELEASES AND ASSOCIATED REALLOCATIONS 1,000 1,200 1,400 interruptibility service. agreed instantaneousinterruptibilityonamonthlybasis; 200 400 600 800 aaiyrlae Cpct esind Capacity requested Capacity reassigned Capacity released 0 € 479 millionrecognised forthepreceding year. a.Fb a.Ar a ueJl u.Sp.Ot o.Dec. Nov. Oct. Sept. Aug. July June May Apr. Mar. Feb. Jan. at Jan.1,2009 Interruptible customers customers at June 1,2009 Interruptible 175 MW 375 MW at Oct.1,2009 Interruptible customers 814 MW ). at Jan.1,2009 Contractually- agreed power . TheseRegulations,whichwere introduced [MW] 258 MW Regulations forinstantaneousand € 421 million,down12%onthe at June1,2009 Contractually- agreed power [MW] Regulations at Oct.1,2009 Contractually- agreed power 209 MW [MW] 79 Directors’ Report 80 Annual Report 2009 Terna andphotovoltaicpower development andmaintenance oftheseplants. consumption orsale,andallactivities andcontractualrelationships pertainingtotheplanning,construction,management, transferred toRTR thebusinessunitconsistingofplantsforgeneratingpowerfrom renewable resources forinternal in the"SubsequentEvents"section,where more informationisavailable,effective from February1,2010,SunTergrid known as“RTR S.r.l.”), asavehicletotakeoverallprojects likelytobecomeoperationalbytheendof2010.Asexplained generating operations,inDecember2009SunTergrid foundedanewcompany, ReteRinnovabileS.r.l. (hereafter also reorganisationAs partofaninternal process conceivedtooptimisetheresources andpotentialofnewphotovoltaicpower then claimbacktheassociatedcostsfrom SunTergrid. resourcesusing itsowninternal forthis,aswelldrawingonservicesandmaterialsacquired from third parties,and for authorisationorprovisions ofanynature, tenderingprocesses, contractmanagementandpayments).Terna willbe Terna tomanageall worknecessaryandappropriate SunTergrid’s todevelopingandmodernising plants(i.e.applications provides theCompanywithcorporatesupportandadvice,innameof and onbehalfofthesubsidiarycommissions The Parent isresponsible fortheoperationalmanagementofSunTergrid pursuanttoanadhocserviceagreement which account, guaranteeingthefullneutralityofTerna withrespect tothesaleofpoweronelectricitymarket. withdrawn andpricedbyGSES.p.A.,inaccordance withthededicatedwithdrawalmechanismenvisagedunderenergy Energy generationin2009wasnegligible,andwillonlyreally take off startingin2010.Theelectricitygeneratedwillbe and are atvariousstages ofprogress. Investmentsexceeding are underwayfortheotherconstructionprojects (around 71ofwhichare scheduledtobeinservicebytheendof2010), Ragusa, onDecember28,2009),afterinvestmentswere made inthefinalquarterof2009.Applicationsforauthorisation By theendofyear, thenewbusinessisonlyupandrunningtoaminimalextent.Oneplanthasentered service(at capacity ofaround 100MWp onsiteswhere noinstallationsexist,adjacenttotransformationstationsleasedbytheParent. returns onitsassets,Terna commissioneditssubsidiarySunTergrid tobuildandmanagephotovoltaicsystemswithtotal As illustratedinthesectionon“Significantevents”,order tomakemosteffective useofitsresources andmaximise ASA(Average SystemAvailability ofTerna networkelements)= 99.034%;Annualnationaltarget =99.05%. • ENS (Energy NotSuppliedattributabletoTerna) =330MWh;Annualnationaltarget =550MWh; • SAIFI+MAIFI(systemandmomentaryaverageinterruptionfrequency indicesperuserdirectly connectedtotheTerna • AIT(Average InterruptTimeattributabletoTerna) =0.55min/period;Annualnationaltarget =1.00min/year; • which allshowpositiveresults: are calculatedinaccordance withResolution no.250/04oftheAuthorityforElectricityandGasTerna’s GridCodeand In conclusion,thefollowingare thefourkeyindicesofservicequalityandperformanceforTerna’s NTGsystems,which connected withthestructure ofthetransmissionsystem. Although inlinewiththepositiveservicequalitygenerally, thelarger islandscontinuedtofacetheirparticularchallenges failures peruserintheseareas. Nogasandwater availability-related criticalissueswere recorded. between JanuaryandMarch 2009inandaround Turin andNaples,whichledtoanincrease inthenumberofsupply Critical issuesgeneratedbycausesnotattributabletoTerna includedstorms,strong windsandsignificantsnowfalls supplied remained low. (TELAT), andwhichtriggered asignificantoutageontheisland.Notwithstandingtheseincidents,levelofenergy not involving a150kVconnectioncabletotheislandofIschia,whichhadonlyjustbeenacquired from EnelDistribuzione In 2009,onlyonesignificantincidentattributabletoTerna wasreported, intheNaplesarea, inadditiontoanincident with aqualitytarget of1,425MW; theNSFUvaluewas0.203,compared withaqualitytarget of0.231. Supply Failures perUser(NSFU),fallingbelowtheaveragesseeninrecent years:RENSamountedto796MW, compared Service qualityin2009recorded decidedlypositivefigures forRegulatedEnergy NotSupplied(RENS)andtheNumberof Service quality, unsuppliedenergyandotherserviceissues NTG attributabletoTerna) =0.19;Annualnationaltarget =0.22; € 300 millionare plannedby theendof2010. Information Technology • • • • • 2. Enhancementofthetelecommunications infrastructure asakeyasset • 1. Benefitsforbusinessderivingfrom thecompletionofimportantinitiatives 3. Achievementofmanagementefficiency benefits. 2. Enhancementofthetelecommunicationsinfrastructure asakeyassetforNationalTransmission Gridmanagement; 1. Benefitsforbusinessderivingfrom thecompletionofimportantinitiatives; at Terna. Thefollowingobjectiveswere achieved: Significant benefitswere achievedin2009asaresult ofinformationandcommunicationtechnologyprojects andinnovation to thesouthandnortheast-northwestbackbone. through thenewemergency control panel(ECP)system,andextensionofmonitoringtoadditionaleventsathubslimited Defence systemeffectiveness wasalsoimproved through theextensionofdisconnectableloadstodistributionstations making itpossibletoreduce thecostsincurred fordispatchingservices. expand therangeofofferings andallowoperatorstoreprice offerings multipletimesoverthecourseofday, thus operations. ThecompulsorysystemsupgradesoughtbytheAuthorityhasmadeitpossibletointroduce newrulesthat management platform(IntegratedMarketOperationSystem)andthereal-time equalisationmarketcommenced 31, ITsystemswere upgraded tohandlenewIntraDayMarkets,whileonDecember31,theservicesmarket completely reviewed toreflect theMinistryforEconomicDevelopmentDecree LawissuedonApril29,2009.OnOctober Regulatory changes monitoring andcontrolling volumesprocured ontheAncillaryServicesMarket. introduced inthetertiary voltagecontrol process forpower plants;andananalyticalinstrumentwasaddedforbudgeting, instruments were created tooptimisetheusageofstrategicstocking(pumping);OptimalPowerFlowtechniqueswere used forreal-time specific planning anddispatchoperations.Aswellasenhancingtheapplicationsplatformsconcerned, energy procured ontheAncillaryServicesMarket,significantworkwasundertakentoimprove ITsupport instruments Dispatching incentives system operationcontinuitywhichare normallyundertakenbytheNationalControl Centre. room servesastheRome area control room; inemergency conditions,itcantakeovercriticalprocesses vitaltoelectricity further enhancedfollowingthecompletionofback-upcontrol room. Undernormaloperatingconditions,thecontrol Operating continuity security are installed. intrusion prevention toolsformonitoringanyfraudulent useoftraffic which maybepotentiallydetrimentaltodatanetwork sites where perimeterdefencedevicesforensuringthat accessispermissibleonlytoauthorisedusersandprotocols and Perimeter Security processes, whichare distributedoverabroad geographical area. infrastructure's extensivereach andtransmissioncapacitywillalsoenhancemore effectively integrateTerna's core to handlingNationalElectricitySystem(NES)crisisand re-boot scenarios.Aswellasenhancing theNES,new the reliability oftelecommunicationsvitaltocontrol, operationandprotection issues,especiallyregarding processes key stations. Thisinvestmentispartoftheelectricityservicesecurity enhancementstrategy, whichisdesignedtoimprove control andoperations,theNationalControl Centre, theDisasterRecoveryCentre andaround 50%ofthenation'spower telecommunications backbones.Thenewnetworkmakes itpossibletolinkallelectricitygridlocationsdedicated telecommunications networkinfrastructure thatcancarrydataatspeedsofupto 10 GbpsandisoneofItaly'smain Telecommunications infrastructure than 8,000MWadded). perimeter (extendedtoaround three hundred 60-132-150kVstationsonthegrid)andreal-time outputplants(withmore series ofinterventionstoimprove theeffectiveness ofthecontrol andoperationsystemasregards theobservedgrid Enhancement ofNationalElectricitySystemsecurity for NationalTransmission Gridmanagement - PerimeterSecuritysystemeffectiveness has beenfurtherenhancedbyincreasing thenumberof - Theapplicationsplatformthatsupportstheplannedandreal-time AncillaryServicesMarketswas - In2009,BusinessContinuityprovisions toensure electricitysystem-criticaloperationswas - FollowingAEEGResolutionno.206/08,whichencouragedTerna toreduce thevolumeof - In2009,Terna fullybrought into servicea11,800kmproprietary fibre-optic - NationalElectricitySystemsecuritywasenhancedthrough a 81 Directors’ Report 82 Annual Report 2009 Research anddevelopment In 2009,Terna S.p.A.incurred costsof the developmentofnewtechnologiesandoperateundersupervisionproject managersfrom withintheCompany. universities, theassociatedcompanyCESIS.p.A.,and,where necessary, itsmainsuppliers,whichare alsointerested in the spread ofknowledge toallbranchesoftheCompany. Terna alsodrawsonthespecialistsupportofdevelopers, resources.These activitieshavebeenpursuedusinginternal Thestaff operateinworkinggroups, amethodthatfacilitates introduction ofnewclampsandtestinganti-rotation counterweightstoenhancethereliability ofexistinghigh-voltage • extensionoftherange380kVsingle-shafttubularpylonsanddesignanew seriesof150kVsingle-shafttubular • installationofnon-standard 380kVpylons(Fosterpylons)inTuscany; • DisconnectionSwitches(KSBDs)toensure saferemote linegrounding operations; • testingofHigh-Voltage PowerTransformers manufactured bySiemensandABB,usingnewmanufacturingtechniques • design ofaRapidInstallationCompactStation(RICS)fortemporaryhook-upstopower plantsofupto170MVA; • implementation stage,are describedbrieflybelow: A numberofactivitieswere identifiedandimplementedin2009.Themainactivities,someofwhichare stillatthe specialised informationsystems(MBIetc.)fortheclosemonitoringofequipment. A group ofexpertsisconstantly researching waysforimproving Terna’s core processes. Theteamisabletomakeuseof management ofcorporateprocesses. control technologies,enhancingtheefficiency andreliability ofplant,maximisingservicequalityandoptimisingthe In 2009,theCompany’s research anddevelopmentactivitieswere focusedondevelopingenvironmental monitoringand Significantefficiencies havebeenachievedintelecommunicationsthrough therenegotiation oftheCompany’s largest • 3. Achievementofmanagementefficiency benefits statements atDecember31,2009. “Intangible assets”undersection“A.Accountingpoliciesandmeasurement criteria”inthenotestoTerna S.p.A.’s financial For more information onhowResearch andDevelopmentexpenditures are presented intheaccounts, pleaseconsult line shunts. pylons; and newmaterialsdesignedtoeliminatethedangersofgasexplosionsleaks; on operatingexpenses. substantially reduced thenumberoftelecommunicationsnetwork-related serviceissuesandhavehadabeneficialimpact the acquired network.Thetelecommunicationsinfrastructure upgradeprogrammes completedinprevious yearshave the numberofemployeesinvolvedinmeteringactivities,whileatsametimeimproving dataqualityandextending contracts astheynearexpiry, andinmetering,where highlevelsofprocess automationhavemadeitpossibletoreduce € 13.2 millioninrespect of CESI S.p.A.ofwhich € 11.8 millionwere capitalised. CHANGE INTHEWORKFORCE Human Resources andOrganisation okr ,2 ,6 -47 -33 - 3 1,067 1,907 1,020 65 485 1,874 Company willtakeintoaccount emerging requirements related tocorporatestrategy in providing training. In 2010,Terna willimplementthehumanresource developmentandtrainingprogramme setoutinthetwo-yearplan. The 488 65 Expected developments targets setforthe2008-2010three-year period. year LongTimeIncentive(LTI) Plan,thepurposeofwhichis togeneratevalueandachievethechallengingperformance Long-term cash-basedmanagerialincentivesare availabletotopmanagersandkey peopleunderthecash-basedthree- the Planfrom March 31,2010toMarch 31,2013. Extraordinary shareholders’ meetingofApril22,2009resolved toextendthedateforexercising optionsallocatedunder As tolong-termincentives,no2006StockOptionPlan optionswere exercised duringthecourseof year. The related totheachievementofindividual,departmentandcompanyperformanceobjectives. Short-term managementincentiveschemesincludeanMBO planfor2009targeted atseniorand middlemanagement, Management incentiveplans with earlyretirement incentiveplans. Data forbothyearsdonotincludeterminationswitheffect from December31,andreflect associated continuingturnover Total Workers Office staff Middle management Senior management TELAT, SunTergrid andRTR donothaveanyemployees. Changes inthenumberofParent employeesare shownbelow. ItshouldbenotedthatatDecember31,2009,subsidiaries Human resources which report directly totheCEO. this change,“BusinessDevelopment”and“Finance,Control, andM&A”Departmentswere International formed,bothof Department totheFinanceandControl Department,whichwaspreviously responsible formergers and acquisitions. After activities (specificallyregarding Europe South-Eastern andNorthAfrica)from theBusinessDevelopmentandInternational Within Staff departments,organisational changesin2009includedaspin-off businessdevelopment ofinternational Department, havebeenbrought backundertheaegisofInstitutionalAffairs Department. (for authorisationsprocess management),whichwaspreviously theresponsibility ofthe“GridPlanningandDevelopment” In order tofostersynergies inPlanimplementation-related authorisations,negotiationswithMinistriesandlocalauthorities directly totheoperationsdirector. NTG userconnectionmanagementhavebeenreallocated toanew“InvestmentPlanning”Departmentwhichreports and Engineering”Department,whosecore focusisimplementationoftheGridDevelopmentPlan.Investmentplanningand The “GridPlanningandDevelopment”“Engineering”Departmentshavebeenrolled intothenew“GridDevelopment project management(timetaken,qualityandcost)ismore efficiently pursued. investments Terna ispoisedtomakeoverthenextfewyears,avarietyofplannedworks,anddesire toensure that In 2009,theItalianOperationsDepartmentunderwentaseriesoforganisational changestoprepare formajorgrowth in Organisational structure Dec. 31,2009 ,4 ,2 -77 3,524 3,447 e.3,20 Change Dec. 31,2008 Terna 83 Directors’ Report

Related partytransactions Grid Code Having beendeterminedin2007thatCassaDepositiePrestiti S.p.A.exercises Regulatory Framework”)totheDirectors’ Report. For more informationon the regulatory frameworkinwhichTerna conductsitsbusiness,pleaseseetheAnnex(“Italy's atCommitteemeetingsheldpriortothedateofthisreport, inadditiontoproviding opinionsonproposals foramending • Committeememberswere electedforthethree-year period2009-2011,pursuanttoChapter13oftheGridCode,while • 11, 2004: With regard totheUsers'ConsultativeCommitteementioned inart.1,paragraph4ofthePrimeMinister’s Decree ofMay Consultative Committee The GridCodeasamendedthisyearcanbeviewedonthe operators, andanopinionwassoughtfrom theUsers’ConsultativeCommittee. and managementconditions.Priortobeingimplemented,theamendmentswere submittedforconsultationamongindustry and GasARG/eltResolutionno.52/09.Itwasalsoupdatedtoreflect changedgridunavailabilityandpowerplantplanning the provisions ofLawno.2/2009,theApril29,2009MinistryforEconomicDevelopmentdecree, andAuthorityforElectricity During theyear, theGridTransmission, Dispatching,DevelopmentandSafetyCode(GridCode)wasamendedtoimplement (available onthe The Parent’s rules,whichare CorporateGovernance detailedinthespecificreport publishedwiththisAnnualReport and AnasS.p.A. Ferrovie delloStatoGroup; • Eni Group; • Enel Group; • GSE Group; • employee pensionfunds(FondenelandFopen),transactionswithcompaniesofthe: by Terna andtheGroup withrelated partiesduringtheyearconsistedofintercompany transactions,transactionswith sections “Personnelexpense” and“Services”,respectively. particular theirremuneration, bonusesandotherincentives,are detailedinthenotestofinancialstatements inthe In addition,transactionswithmembersoftheCompany’s Board ofDirectors andBoard ofStatutoryAuditors,and in which shouldbeconsultedformore details. in theseparateandconsolidatedfinancialstatements, in aspecificsectionofthenotes(“Relatedpartytransactions”), the year, andreceivables andpayablesatDecember31,2009,are presented intherespective notesonindividualitems The nature oftransactions,assetsandliabilitieswithrelated partiesaswellassociatedrevenue andcostspostedfor to transactionswiththird parties. in accordance withcriteriaofprocedural andsubstantivepropriety underthesametermsandconditionsthatwouldapply 2009 DevelopmentPlan. specifically anopiniononnewworkscontainedin2010DevelopmentPlan,andtheprogress underthe and updatingtheGridCode,asiscustomaryCommitteeissuedtwoopinionsonTerna 2010DevelopmentPlan, maintaining theongoingrepresentation oftheAssociationsonCommittee; www.terna.it web site),establishtheconditionsforensuringthatrelated partytransactionsare carriedout www.terna.it web site. de facto control, transactions undertaken 85 Directors’ Report 86 Annual Report 2009 lvoCtae en ...1000100002000ownership 200,000 0 100,000 100,000 Terna S.p.A. Flavio Cattaneo itroRsoiTraSpA - - 0 - ownership - 0 1,700 0 - 0 0 ownership 0 0 0 2,150 0 0 1,700 0 0 0 0 0 0 0 0 0 0 0 40,000 0 Terna S.p.A. Terna S.p.A. 2,150 0 Type of 0 Terna S.p.A. Terna S.p.A. Numberof Number Terna S.p.A. Terna S.p.A. Number Terna S.p.A. Rispoli Vittorio Terna S.p.A. Michele Polo Number Salvatore Machì Claudio Machetti Matteo DelFante Paolo DalPino Companyinwhichthe Cristiano Cannarsa Luigi Roth Name ai alloTraSpA - - - 0 - 0 - 0 0 0 0 0 0 Other information 0 0 0 0 0 0 0 0 0 0 atypical orunusualtransactions Significant non-recurring eventsandoperations, 0 Terna S.p.A. 0 Terna S.p.A. Terna S.p.A. Terna S.p.A. Terna S.p.A. Mario Paolillo Stefania Bettoni Lorenzo Pozza Marcello Cosconati Luca Aurelio Guarna any duringtheyear, eitherdirectly orindirectly. The Companydoesnothold any treasury shares orshares ofCassaDepositiePrestiti S.p.A., norhasitacquired orsold Treasury shares related parties. No significant,non-recurring, atypicalorunusualtransactionswere conductedduringtheyear, eitherwiththird partiesor Statutory Auditor, andGeneralManager. control bodies,andfrom GeneralManagers.These includeallthosepersonswho,in2009,filledthepositionofDirector, shareholders’ register, communicationsreceived orotherinformation obtainedfrom themembersofadministrativeand legally separated)andminorchildren, eitherdirectly orindirectly through subsidiaries,trusteesornominees,asperthe S.p.A. anditssubsidiariesheldbyDirectors, StatutoryAuditorsandGeneralManagers,inadditiontotheirspouses(unless As required bytheprovisions ofart.79CONSOBResolutionno.11971/99,thefollowingtablelistsshares ofTerna Shares heldbyDirectors, StatutoryAuditors,GeneralManagersandKey (5) Including:40,000heldbyspouse. (4) Including:40,000heldbyspouse. (3) OnNovember3,2009,Terna S.p.A.solditscontrolling interest inTerna ParticipaçõesS.A. (2) OnNovember3,2009,Terna S.p.A.solditscontrolling interest inTerna ParticipaçõesS.A. Resolution no.11971/99toin (1) Thiscolumn–whichisinadditiontotheformatprovided forinAnnex3Cofart.79CONSOB the informationrequired –isshowniftheinvestmentheldasaresult ofownership, apledge,beneficialownership,ondepo Terna ParticipaçõesS.A. Terna ParticipaçõesS.A. netet shl fsae edo hrso hrssae edownership shares held ofshares ofshares ofshares held investments isheld (2) (3) tteedo h curdsl attheend sold acquired at theendof rvosya i 09 i 09 ofthe (in2009) (in2009) previous year 20)current year (2008) ownership - ownership - 0 0 0 0 1 1 (4) 40,000 0 0 sit, ascollateraletc. dicate (2009) (5) ownership (1) Subsequent Events As from April6,2009,Prenos shares havebeen listedonthelocalstockexchange. energy company inMontenegro), holdsthree licenses: transmissionoperator, systemoperatorandmarketoperator. Prenos, whichwasestablishedonApril1,2009inaspin-off from Elektroprivreda Gore Crne -EPCG (theleadingpublic Terna willhavearightofvetoonstrategicdecisions. recapitalisation, thedesignationoftwosevenboard membersbyTerna arrangements inwhich andgovernance power grid.Inparticular, thepartnership provides forTerna totakeastakeofat least22%inPrenos byway ofarestricted partnership betweentheirrespective nationaltransmissionoperators,Terna andPrenos, forinvestmentinMontenegro's the constructionofanewunderwaterelectricityinterconnection lineandtheimplementation ofastrong strategic On Italy-Montenegro agreement intergovernmental approved acapitalcontributionof In order togiveRTR theresources necessarytostartoperations,onthesamedateBoard ofDirectors ofSunTergrid by independentexperts. The salepriceisconsistentwiththemarketvalueoftransferred operations,asdetermined byanappraisalconducted The transfertookeffect asfrom February1,2010.Thetotalamountpaidcameto related tothoseplants. as wellalltheassets,andcontractualdesign,construction,operation,developmentmaintenancerelationships approved thesaleto subsidiary RTR ofSunTergrid's plantsforrenewables generationforownconsumptionorsale, On Terna andthe2010photovoltaicproject operations directly orthrough itssubsidiaries,andismanageriallycontractuallyindependent. 19, 2007.Atpresent, nomanagement orcoordination activitieshavebeenformalisedorexercised; Terna conductsitsown which ownsa29.986%equitystakeintheCompany, according toadisclosure madebyCassaDepositiePrestiti onApril Pursuant toart.37oftheCONSOBRegulations,Terna issubjecttothe Participações priortothedatethatcompanywassold,onNovember3,2009. Regulations (no.16191/2007),specificallywithregard tothecontrolling interest inBraziliansub-holdingcompanyTerna From aprocedural pointofview, Terna S.p.A.isincompliancewiththeprovisions ofart.36theCONSOBMarket the provisions ofartt.36and37theCONSOB MarketRegulations(no.16191/2007) Certification pursuanttoart.2.6.2oftheBorsaItaliaRegulationsregarding the Directors’ Report. Law onFinancialIntermediation”,ispresented inaseparatereport whichisattachedto (Annex-CorporateGovernance), Information required underart.123 Information onshareholding structure persons onprocessing andcorporateelectronic archive systems. and alsodevelopedaproject tocollect,record andmanageessentiallogdataregarding operationsundertakenbysuch persons insystemadministratorroles”. Bythedeadline,Companyidentifiedandformallydesignatedtheseindividuals, November 27,2008(publishedintheGazzettaUfficiale ofDecember24,2008)regarding “measures andadviceregarding Moreover, duringtheyear, theCompanyimplementedanumberofinitiativestoapplyPrivacyAuthoritymeasure dated data protection code(LegislativeDecree no.196of June30,2003). Within thelegallyprescribed deadline,Terna S.p.A.updatedits2009SecurityPolicyDocumentpursuanttothepersonal Personal dataprotection code(LegislativeDecree no.196ofJune30,2003) January 29,2010 February 6,2010 the Board ofDirectors ofSunTergrid, withaviewtoimplementingthephotovoltaicproject underway, Italy andMontenegro formalisedanintergovernmental agreement committingthetwocountriesto € bis 5.0 milliontothesubsidiary. , “Report on Corporate Governance andownershipstructures”, “ReportonCorporateGovernance ofthe“Consolidated de facto control ofCassaDepositi e Prestiti S.p.A., € 3.2 million. 87 Directors’ Report 88 Annual Report 2009 term of30years. programme oroutsidethatprogramme. Theissues, tobedenominatedineuros orothercurrencies, mayhaveamaximum placements ofatotal existing EMTNprogramme andtheissueinoneormore tranchesbyMarch 31,2011ofbondsinpublicorprivate the annualsix-monthEuriborplusaspread of40basispoints. and isrepayable inhalf-yearlyinstalmentsfrom thefifthyear. Thetermsare highlycompetitive,withinterest accruingat (“SA.PE.I.”). Thisfinancingisinadditiontothe € On Agreement withEIBtofinancetheSA.PE.I.project € The overallvalueofthetransaction,equaltomarket valueoftheplantsundertransfer, corresponds toaround Areas) inMilan,Padua,Florence andNaples. ParentThe rationalisationandupgradeactivitiesprincipallyconcern territorialorganisational structures (Territorial Operat make compulsorypurchases, sinceTerna, astheconcessionholder, iseligibletobethusmandatedbytheMinistry. Pursuant toart.6ofPresidential Decree no.327/2001,theMinistryforEconomicDevelopmentonlyempowersTerna to authorised thetransferofanumberplantsownedbycompanytoParent Terna. On TELAT-Terna planttransferforNTGdevelopmentandupgradepurposes sustainable growth: inthenextfiveyearsatotalof • The 2010-2014planoftheTerna Group followsfourmainguidelines: the planbyBoard ofDirectors onthatsamedate. On 2010-2014 BusinessPlan On Renewal andexpansionofEMTNprogramme andnewbondissues Ministers onSeptember3,2009. sheet signedinJuly2009byTerna andPrenos, whichformallytookeffect withtheapproval ofMontenegro's Councilof Montenegro's parliamentforapproval. Inaddition,theaccord incorporatesandstrengthens themainelementsofterm the importanceofinvestmentenvironment fortheindustrialdevelopmentofcountry, willbesubmittedto The intergovernmental agreement isakeystepforthecompletion ofthedealbetweenTerna andPrenos and,inviewof confirmationofdividend policy:thepolicyprovides forminimumannualgrowth of4%,taking2008asthebaseyearand • asoundcapitalstructure: duringtheperiod oftheplan,netdebtwillremain below60%ofregulated capitalemployed; • improved margins (EBITDAmargin): increasing revenue andcontainingcostswillimprove Group profitability from the • 73 milliontoconnectSardinia withtheItalianpeninsulaviaahigh-voltageundersea cableatcontinuous500kW 21.1 million. increase of sale ofTerna Participações(approximately half-yearly couponsinrespect oftheinterimdividendandbalance.Inaddition,aportionproceeds from the current 74%to77%atthe endoftheperiodcovered bytheplan; include more than March 18,2010 February 17,2010 February 18,2010 March 3,2010 € 900 millionor26%overthelevelenvisagedinprevious plan( , forthepurposeoffacilitatingworkonNTGdevelopmentandupgrades,TELAT’s board ofdirectors , Terna S.p.A.signed anagreement withthe European Investment Bank(EIB)foranadditionalloanof € 300 millionforthephotovoltaicproject, bringingtotalbudgetedexpenditure tomore than , Terna presented theCompany’s 2010-2014businessplantofinancialanalysts,afterapproval of the Board ofDirectors ofTerna authorisedtherenewal andexpansionfrom € 1.5 billionreserved forqualifiedinvestorsinItalyorabroad eitherwithinthescopeofEMTN € € 150 million)willbeallocatedtotheabovepolicyuntil2012. 300 millionagreed onMay5,2008.Thenewloanalsohasa20-yearterm € 4.3 billionwillbeinvested,mainlytodevelopthepowergrid,an € 3.4 billion).Capitalexpenditure willalso € 2 to € 4 billionofthe € 4.6 billion; ing Outlook partnership betweenTerna andthelocaltransmissionoperator. ofMontenegro,the government whichcoverstheconstructionofanunderwaterinterconnection cable,andastrategic NTG thatitowns(risingtoaround 99%).Inaddition,theCompanyexpectstomakefurtherprogress intheagreement with complete itsacquisitionofRetrasmS.r.l., whichwillenabletheTerna Group tofurtherconsolidatethepercentage ofthe developing itsphotovoltaicproject, addingfurthervaluetotheGroup's assets.Duringtheyear, theCompanyexpectsto efficient andsecure management ofelectricitysystemenergy flows.In2010,theCompanywillalsobefocusingon achieving operatingefficiencies, ensuringthehighestpossiblestandards oftransmissionservice,andensuringincreasingly an increase inenergy generatedfrom renewable sources. TheCompany’s objectivesare increasingly orientedtowards Investments underthebusinessplanwillbetargeted atreducing gridcongestionandatremoving bottleneckscausedby The focusof2010willbeonimplementingthe2010-2014businessplanadoptedbyCompany'sBoard ofDirectors. 89 Directors’ Report 90 Annual Report 2009 Italy’s regulatory framework Annex transmission grid DevelopmentPlan,including executiveaspectsregarding thereuse ofexcavated earthandrock. theassessment ofenvironmentalconcerning issues affecting individualTerna projects, andamendments to theelectricity to theEnvironmental Codeontheinitiativeof MinistryfortheEnvironment. Thismayleadtochangesinregulations enablingauthority,The lawalsograntstheGovernment tobe exercised nolater than June30,2010,tomakeamendments petitions andrequirements intheappropriate fora. grid infrastructure orimpactTerna’s ownactivities.Concessionaires are alsoensured theopportunitytopresent theirown procedures regarding workscarriedoutbythird partieswhichmaypotentiallyaffect thenationalelectricitytransmission The lawguaranteesthatpublicserviceconcessionholders, suchasTerna, willbecalledtoparticipateinauthorisation court proceedings” Law no.69ofJune18,2009,“Measureseconomic growth, concerning simplification,competitivenessandcivil joint-stock companies,andchangestotheprovisions ofLegislativeDecree public tenderoffers. no.58/98concerning The legislationincludesanumberofsignificantamendments toregulations regarding thepurchase oftreasury shares by Ufficiale Law no.33ofApril9,2009,“Urgentmeasures tosupportindustrial sectorsindifficulty” Gazzetta Ufficiale functions allocatedtotheNationalEconomicandLabour CouncilandtheStateAuditCourt” sector, enhanceefficiency the departments,andadditionalmeasures andtransparency concerning ingovernment tooptimiseproductivityLaw no.15ofMarch inthepublic 4,2009,“EnablingauthoritygrantedtotheGovernment protection” Law no.13ofFebruary27,2009,“Extraordinary measures regarding waterresources andenvironmental Terna-owned gridperimeter. the MinistryforEconomicDevelopmentupdatedscopeofnationalelectricitytransmissiongridtoreflect thenew Following Terna’s acquisitionofa18,583kmsectiongridfrom EnelDistribuzione,inimplementationofapplicablelaw transmission grid” Ministry forEconomicDevelopmentDecree ofFebruary27,2009,“Extensionthescopeelectricity provision byTerna ofdataonthenetworkandplants,downtimemaintenance,amonthlybasis. • reform ofenergy pricesontheDayAheadMarket,established“onbasisofvariousaskingoffered onthe • establishmentofanIntraDayMarket“comparabletoacontinuoustradingmarket”,whichwasscheduledbecome • newrulesfortheAncillaryServicesMarket,whichwillbecomeoperationalcommencing onJanuary1,2010,providing • In summary, thedirectives callfor: adopted measures thatsetoutguidelinesforelectricitymarketreform. In implementationofLawno.22009ratifyingDecree Lawno.185/08,theMinistryforEconomicDevelopmenthas Gazzetta Ufficiale organised forward marketsandstrengthening monitoringfunctionsontheelectricitymarkets” market regulations pursuanttoart.3,paragraph10ofLawno.2January28,2009.Boostingthedevelopment Ministry forEconomicDevelopmentDecree ofApril29,2009,“Guidelinesanddirectives forthereform ofelectricity 28, 2009,no.22,ordinary supplementno.14. review thenationalstrategicframeworkinorder totacklethecrisis” Law no.2ofJanuary28,2009,“Urgentmeasures tosupportfamilies,labour, employmentandenterpriseto Below isabriefdescriptionofthemainregulatory measures thataffected theCompanyin2009. Regulatory framework shall becomeoperationalonApril1,2012; market, inabindingmanner, byeachmarketoperatorandacceptedtheEnergy MarketsOperator(EMO)”.Thisreform operational from October31, 2009;integrationwiththeancillaryservicesmarketisschedulednoearlierthanJanuary1,2011; which theyrefer; c)breakdown ofcharges ontheancillaryservicesmarketamongdifferent services; of day, structured toexpress avariationinthevalueofresources dependingontheequalizationorreserve service to for: a)atleastthree sessions onthesamedaytowhichbidsrefer; b)presentation ofdifferentiated bidsfordifferent times of April11,2009,no.85. , publishedinthe of March 3,2009,no.53. of May12,2009,no.108. , publishedinthe , publishedinthe Gazzetta Ufficiale Gazzetta Ufficiale Gazzetta Ufficiale of February28,2009,no.49. of March 23,2009,no.68. of June19,2009,no.140. , publishedinthe Gazzetta Ufficiale , publishedinthe , publishedinthe , publishedinthe of January Gazzetta Application hasbeenpostponed untilthesubsequentadoptionofaprimeministerialdecree. assessment ratherthancompensatorypurposes. breached qualityandfinancialstandards regarding statutoryorregulatory requirements ordeadlines.Suchactions are for bringing anactionbefore anadministrativejudge,whowillthenrulewhetherornot publicconcessionholdershave The decree introduced class-actionsuitsintoItalianlaw, offering usersanoptionviaassociationsandcommitteesof Gazzetta Ufficiale appealsregardingconcerning theefficiency andpublicservice concessionholders” ofgovernment Legislative Decree no.198ofDecember20,2009on“Implementation ofart.4Lawno.15March 4,2009, with France,Switzerland,Austria,SloveniaandGreece corresponds to8,040MWduringwinterdaytimehours (weekdays). This decree establishedthetermsandconditionsforenergy importsin2010.Available capacityoverinterconnections Ministry forEconomicDevelopmentDecree ofDecember18,2009 regarding electricity importsin2010. integrationbetweenthederivativesmarketrunbyBorsaItalianaandforwards market,withregard tocontractsfor • establishmentofanIntraDayMarketwhichwillallowoperatorstoupdatebidsfor salesandpurchases, alongwiththeir • The amendmentsapproved envisage: reform guidelinesadopted undertheMinisterialDecree datedApril29,2009. paragraph 10ofDecree Lawno.185/08,ratifiedasamendedby2/09,andcomplyingwiththeelectricitymarket Amendments submittedbytheEnergy MarketsOperator(“EMO”)were approved, implementingtheprovisions ofart.3, amendments totheregulation oftheelectricitymarket. Ministry forEconomicDevelopmentdecrees datedOctober16,2009andNovember24,2009,approving workplace healthandsafety” Legislative Decree no.106ofAugust3,2009,“AmendmentstoLegislativeDecree no.81ofApril9,2008,concerning 42/04 (theCulturalHeritageCode)wasextendedforafurthersixmonthsuntilDecember. naturalheritagepermitsenvisagedunderart.159ofLegislativeDecreethe validityoftransitionalrulesgoverning no. Finally, theentryintoforce class-actionsuitswaspostponeduntilDecember31,2009 and ofthegeneralrulesgoverning by December31,2009. accelerated depreciation with therevision ofdepreciation ratesonthepartof theMinistryforEconomyandFinance The decree alsointroduced taxincentivesforenterprises,includingaexemptionprofits reinvested inmachineryand from ordinary legislationandtosubstitutepublicbodiesdepartmentsthathavenotcompliedwithstatutorytimelimits. actions necessaryfortheauthorisationandimplementationofworks.TheCommissionerwillhavepowerstodepart appointed fortheprojects specifiedinanorder oftheCouncilMinisterswithresponsibility fortakingthemeasures and and economicdevelopmentofthecountry, shallbebuiltusingspecialresources andprocedures. ACommissionerwillbe hasestablishedthatthepowertransmissiongridinfrastructure,The Government whichisurgently neededforthesocial of October3,2009,no.230. Decree Lawno.103ofAugust3,2009 measures theenergyfield” concerning Law no.99ofJuly23,2009,“Measures expansionofbusinessesand forthedevelopmentandinternational instruments” financialintermediationandmarketsin Legislative Decree no.164ofSeptember17,2007concerning Legislative Decree no.101ofJuly17,2009,“AmendmentstoLegislativeDecree no.58ofFebruary24,1998and Communities –the2008CommunityLaw” Law no.88ofJuly7,2009,“Measures todischargeobligationsinrespect ofItaly’s membershipoftheEuropean no. 179. international missions" international Decree Lawno.78ofJuly1,2009,“Anti-crisismeasures andextensionoftimelimitsItalianparticipationin the physicaldeliveryofenergy overseenbytheEMO. commercial positionsintwo sessions,atafrequency comparabletoacontinuoustradingmarket; , publishedinthe of December31,2009,no.303. , ratifiedwithLawno.102ofAugust3,2009publishedinthe Gazzetta Ufficiale published inthe , ratifiedwithLawno.141ofOctober3,2009,publishedinthe published inthe , publishedinthe Gazzetta Ufficiale of August3,2009,no.178. Gazzetta Ufficiale Gazzetta Ufficiale of August5,2009,no.180. of July31,2009,no.176. of July14,2009,no.161. Gazzetta Ufficiale of August4,2009, Gazzetta Ufficiale , issuedinthe 91 Italy’s regulatory framework Summary of Authority for Electricity and Gas (AEEG) Resolutions

ARG/elt Resolution no. 52/09 In this measure, the Authority amended Resolution no. 111/06 in order to implement measures regarding the regulation of essential plants pursuant to art. 3, paragraph 11 of Law no. 2 of January 28, 2009. In particular, the measure establishes: • criteria for Terna to identify plants or groups of “essential plants” controlled by a single entity that are consequently subject to the regulations governing “essential plants”; • conditions for submitting market bids by entities controlling essential plants; • specific mechanisms governing essential units designed to ensure cost minimisation for the system and fair remuneration for generators. As regards dispatching rules, Terna is required to amend the Grid Code to incorporate the provisions contained in this measure regarding the regulation of essential plants, pursuant to the terms and conditions established under art. 6 of Resolution no. 111/06.

ARG/elt Resolution no. 74/09 In this measure, the Authority has established urgent provisions for calculating metering aggregation prices for dispatching purposes, which will be valid starting from the July 2009 metering aggregation fee. Specifically, the Authority has taken the following steps: • the extension through to the end of 2010 of Terna’s recourse to distribution companies for metering aggregation pending final determination of the procedure for the selection of entities other than distribution companies; • amendment of the fees paid to Terna and distribution companies by way of advance payment for the metering aggregation service, taking into account the economies of scale associated with an increase in the number of hourly points and the number of input points corresponding to small generation plants; • definition of an aggregation fee for differentiated metering for input points corresponding to 74/08 units in order to reflect the different procedure under which Terna provides metering aggregation services for this type of point. The Authority has postponed to a later provision the introduction of quality parameters for the performance of the aggregation service to which the fee and/or indemnities for ancillary service users would be linked.

ARG/elt Resolution no. 84/09 In this measure, from January 1, 2010, the Authority amended the provisions contained in Resolution no. 111/06, and set a new method for calculating aggregate zonal imbalancing. The methodology introduced under the resolution calculates zonal imbalancing solely with reference to actions taken by Terna on the Ancillary Services Market to balance electricity input and withdrawal within a macrozone. The new mechanism resolves a number of critical issues with the current system: prices will no longer be subject to adjustment as a result of adjustments to metering data, and it will be possible to calculate actual imbalancing prices on a close-to-real-time basis.

ARG/elt Resolution no. 89/09 With this measure the Authority established provisions concerning the provision of electricity dispatching services for grids that are not interconnected with the National Transmission Grid (the grids on the smaller islands), partly in order to implement the rules governing electricity sales services without discrimination between end users connected to grids with the obligation to connect third parties in areas interconnected with the National Transmission Grid and end users in areas not interconnected with the latter. The provisions will enter force as from January 1, 2010.

ARG/elt Resolution no. 90/09 With this measure the Authority, responding to complaints received by a number of generation companies, established that CIP 6 generation units and/or units producing both electricity and heat that are not authorised for dispatching, for which Terna has established generation restrictions for the purpose of ensuring the operational safety of the national electrical system, may exclude, for the purposes of implementing Resolutions nos. 27/99, 42/02 and 188/06, the period to which the generation restrictions imposed for the purpose of ensuring the operational safety of the national electrical system refer, as such restrictions are outside the control of the generators. By January 31 of each year, Terna will transmit a register of the generation restrictions established for generation unit involved to the generator, to the dispatching customer, to the ESO and the Authority. 2009 Annual Report

92 the procedures forapplyingtheprovisions generationandpumpingplants. ofARG/eltResolutionno.52/09concerning comments onamodifiedversionoftheproposed amendmentoftheGridCode.Thepurpose ofthechangesistoclarify deadline envisagedinart.63,paragraph63.4,ofAnnex A ofResolutionno.111/06toOctober15inorder tosolicit 28, 2009.Thechangecameinresponse toarecommendation from Terna, whichhad underscored theneed to extendthe theprovisions theessentialplantsreferredconcerning governing tounderart.3,paragraph11,ofLawno.2January With thismeasure, theAuthorityamendedResolutionno.111/06,extending thetimelimitsenvisagedinlatter ARG/elt Resolutionno.140/09 establishesthattheAuthority shallperiodicallyrequest informationonthestateofprogress from gridoperators. • extendstheperiodforupdating thestateofprogress report from 60to120days; • eliminatestherequirement fortransmissionofnotificationstotheAuthority; • to rationalisereporting notificationofdelaysintheconstructiongenerationplants: flows concerning for notificationofdelayedstartworksontheconstructiongenerationplants.More specifically, theresolution, inorde With thismeasure, theprocedures theAuthority amendedARG/eltResolutionno.99/08(TICA)concerning andconditions ARG/elt Resolutionno.130/09 establishesthat,asfrom August1,2009,theprovisions ofARG/eltResolutionno.178/08regarding thetreatment of • amendsResolutionno.111/06withregard totheprovisions theprovisioning concerning ofdispatchingresources and • and,accordingly, supplements repeals asfrom August1,2009Resolutionno.278/07-TILPandARG/elt • theprocessing governs ofdispatchingdatawhere thedistributioncompaniesdonotcomplywithdisclosure • unifiesinasingle,integratedtextallmeasures themonthlyaggregation concerning ofmetering,theattributiontoeach • of dispatchingservices(TIS).Themeasure: With thismeasure, theAuthority approved itsintegratedtextofprovisions thephysicalandfinancialsettlement governing ARG/elt Resolutionno.107/09 with thesettlementofdispatchingfeesforJune2009. approved thespecialprocedure proposed byTerna toresolve theissue,providing forasingleapplicationinconjunction users wouldotherwiseincurasaresult oftheapplicationincorrectly calculatedCRPUs.Withtheresolution, theAuthority coefficients (CRPUs)forJune2009andtherelated adjustmentinorder tominimisethefinancialexposure thatdispatching In thismeasure, theAuthorityestablishedurgent measures theadjustmentofwithdrawalallocation concerning ARG/elt Resolutionno.104/09 Ancillary ServicesMarket(uplift). in art.4ofResolutionno.34/05.Terna shallcharge theassociatedcoststofeeforprovisioning ofresources onthe submitted bythegeneratorinaspecificapplication,Terna shallpaythegeneratorapriceequaltosaleasdefined As regards generatingplantssubjecttodedicatedwithdrawal pursuanttoResolutionno.34/05,afterauditingthedata services. who failedtosubmittheaccessapplicationintime,andhavesinceoperatedwithoutacontractforinputdispatching eligible forthededicatedwithdrawalrulespursuanttoResolutionsnos.34/05and280/07.Themeasure regards generators In thismeasure, theAuthorityextendeddeadlineforremuneration ofelectricitydelivered tothegridbygenerators ARG/elt Resolutionno.91/09 requirements aggregation concerning ofmetering.Thenewprocedures are scheduledtobeappliedasfrom January2010; deliveries fordispatchingpurposesshallbeappliedtotheextentcompatiblewithTIS. dispatching fees.Accordingly, meteringaggregation Chapter3concerning isrepealed, asitisnowintegratedintheTIS; and thecorresponding delivery andwithdrawalprogrammes fordispatchingpurposes,aswellthedefinitionofunit dispatchingservicesasregardsthe definitionofconditionsgoverning theregistration ofelectricitypurchases andsales before August1,2009; The provisions willcontinue tobeappliedtheextentnecessaryandsolelyinrespect ofthesettlementitemsaccruing hourly withdrawalpointsandtheconventionalcalculationofelectricitywithdrawalsbynon-hourlypubliclightingusers. respectively,29/08 asconcerns, theconventionalcalculationbyhourlytimebandofelectricitywithdrawnfrom non- dispatching fees; dispatching useroftheelectricitywithdrawnfrom eachnon-hourlywithdrawalpointandsettlementoftherelated r 93 Italy’s regulatory framework 94 Annual Report 2009 managing interconnection networkcongestionfor2010(Italianmanagement) draftedbyTerna. interconnection accessrulesfor2010(theAuctionRules)andtheregulatory applicationmethodsfor frameworkgoverning With thismeasure, theAuthorityapproved theFrance-Italy, Switzerland-Italy, Austria-Italy, Slovenia-ItalyandGreece-Italy ARG/elt Resolutionno.194/09 fines pursuanttoart.2,paragraph20,letterc)ofLawno.481/95. regarding thesupplyoftransmission,dispatchingandelectricitymeteringservices,impositionadministrative electricity distributioncompaniesforthepurposeofassessing whetherornotAuthoritymeasures havebeenbreached not correctly allocatedtodispatchusers,andhasprompted thestartofaformalinvestigationintoTerna andanumberof anomalies detectedinthecalculationofamountselectricity withdrawnfrom theNational Transmission Gridwhichwere With thesemeasures, theAuthorityclosedpreliminary enquirylaunchedunderResolutionno.177/07 regarding VIS Resolutionsnos.168/09and171/09 market andessentialplants,wentintoeffect onJanuary1,2010. which followtheinstructionscontainedinabove-mentionedmeasures withregard toreform ofthedispatchingservices contained inLawno.2/09,theDecree ofApril29,2009andARG/eltResolutionsnos.52/09107/09.Thesedocuments, inimplementationoftheprovisions Consultative CommitteepursuanttothePrimeMinister’s Decree ofMay11,2004– andtotheUsers’ which hadbeenputouttopriorconsultationtheoperatorsconcerned, A.60 draftedbyTerna – Grid Transmission, Dispatching,DevelopmentandSecurityCode,associatedAnnexesA.22,A.23,A.26,A.31 With thismeasure, theAuthority issuedafavourableassessmentoftheproposals toamendChapters3,4and7ofthe ARG/elt Resolutionno.181/09 a competitiveprocess. introduction ofavirtualimport serviceundertakenbyoneormore “shippers”selectedonanannualbasisbyTerna through supply towithdrawalpointsbelongingendcustomersselectedbyTerna. Thesetransitionalmeasures includethe for aperiodnotexceedingsixyears,enabletheexecutionofanycross-border electricityprovisioning contractsregarding planning anddesignofinterconnectors, andupuntilsuchtimeastheseinterconnectors enterintoservice,andinanyevent Authority definedthetransitionalmeasures andassociatedfeeswhich,inviewoftheendagencycontractfor With regard totheinterconnectors pursuanttoart.32ofLawno.99July23,2009, inARG/eltResolutionno.179/09the ARG/elt Resolutionsnos.179/09and195/09 approved thecontractualproposals madebyTerna containedinart.65 • establishedquantityandpricereference parameterstobeinsertedintocontractsthatessentialplantownersintend • implementation ofARG/eltResolutionno.52/09.Specifically, theAuthorityhas: With thesemeasures, theAuthorityintervenedwithregard toplantsessentialelectricitysystemsecurity, in ARG/elt Resolutionsnos.162/09and183/09 to thecross-border tradeinelectricity(InterTSOcompensation -ITCAgreement). incurred bytheCompanyinparticipatingmechanismsforcoveringcostsoftransitonforeign electricitygridsrelating this balancewassetasidetoreduce charges acknowledgedinResolutionsnos.283/05,305/06,98/07,128/07and257/07 charges arisingfrom thesettlementofincomestatementitemsgeneratedbyadjustmentsfor2008.Specifically, With thismeasure, theAuthorityissueddirectives to Terna theallocationofdifference concerning betweenincomeand ARG/elt Resolutionno.154/09 remuneration systemestablishedunderart.1ofLegislativeDecree no.379/03. availability fortheperiodbetweenJanuary1andDecember31,2009,inanyeventpriortointroduction ofthe The resolution confirmedthecurrent transitionalmechanismandsetthefeeforremuneration forgeneratingcapacity containing measures forensuringadequategeneratingcapacityinthenationalelectricitysystem,witheffect for2009. With thismeasure, theAuthorityamendedChapter4ofAnnexAAEEGResolutionno.48/04March 27,2004, ARG/elt Resolutionno.148/09 sign withTerna inorder tofulfiltheiroffer obligationsarisingoutofownershipessentialplants; principles andpurposessetoutinart.65 no. 111/06,havingverifiedtheircompliancewiththemeasures containedinARG/eltResolutionno.162/09,andwiththe bis , AnnexAtoResolutionno.111/06. bis , paragraph65 bis 5 ofAnnexAtoResolution pursuant totheprovisions ofart.33,paragraph5Lawno.99/09. made certainamendmentsto theTIS. • extendedthrough 2010anumberofprovisional measures regarding, forexample,deadlinescalculatingandinvoicing fees; • calledforapplicationofadiscountperconsumptionunitinthecalculationimbalance fees(athreshold beneath • updatedfor2010theITCfeetocoverexpensesarisingfrom Terna’s participationinmechanismsforcoveringthecosts • Among otherthings,theresolution: supply ofthedispatchingservice,andpursuanttoARG/eltResolutionno.107/09(TIS). With thismeasure, theAuthority modifiedfor2010anumberofmeasures pursuanttoResolutionno.111/06regarding the ARG/elt Resolutionno.214/09 implement theprocess for reviewing AncillaryServicesMarketoffering selectionalgorithms. which Terna mustcomplyinorder toreceive thebonus:maintainsecuritystandards, conducteffective monitoring,and on theoverallincentivepayable.Furthermore, theresolution confirmsthemainconditions–already appliedin2009–with The resolution introduces amulti-yearincentivescheme(coveringtheyears2010-2012),anddoesnotincludeceiling by Terna ontheAncillaryServicesMarketasvariableformeasuringTerna's performance. for Terna S.p.A.toprocure resources fortheelectricitydispatchingservice,identifyingquantityofresources procured With thismeasure, the AuthorityamendedResolutionno.351/07,whichdefinesremuneration incentivemechanisms ARG/elt Resolutionno.213/09 no. 188/08. of anoptionalguaranteemechanismonlevelsrevenue payabletothetransmissionserviceunderARG/eltResolution Terna's operations(DIS),whichhasbeensetat0.0164c With thismeasure, theAuthority updatedcertaindispatchingfeesfor2010,includingthefeecoveringcostspayable ARG/elt Resolutionno.204/09 to 0.388c to cover2010.Inparticular, theAuthorityupdatedgridtransmissionfeesandfeeelements(respectively With thismeasure, theAuthorityupdatedpricingforsupplyoftransmission,distributionandelectricitymeteringservices ARG/elt Resolutionno.203/09 methodsforTerna toallocate interruptiblecapacity. Allocationsmustbemadethrough descendingpricebidding,starting • voluntarytermination,allowingownersofinterruptibilityallowancestowindupcurrent contractswith Terna validuntil • release ofinterruptibilityallowancesfrom March 2010pursuanttoart.32,paragraph8ofLawno.99/09; • Specifically, theresolution provides for: resources for2010,pursuanttoart.30,paragraph 18andart.32,paragraphs89ofLawno.99July23,2009. With thismeasure, theAuthorityissuedprovisions regarding Terna's procedures fortheforward provisioning ofinterruptible ARG/elt Resolutionno.201/09 obligatory programme forwithdrawalsfrom thedispatchingpointfor2010; which imbalancesforconsumptionunitsare valuedattheDayAheadMarketprice),corresponding to1%ofthemodified of transitonforeign electricitygrids,atarateof0.014c which previously-effective procedures shallapply. from thevaluescitedinResolutionno.289/06,withexceptionofcorresponding totemporaryrelease, for maintained current contractswithbeneficiariesuntilFebruary2010; December 31,2010,thereby reducing fees,from March 2010.Thisprovision isaconsequenceofLawno.99/09,which € /KWh and0.051c € /KWh), partlytocompensatefortheeliminationoftransmissionfeespayablebygenerators € /kWh. Forthisitem,theAuthorityfurtherconfirmedadoption € /kWh; 95 Italy’s regulatory framework

Separate financial statements at December 31, 2009 100 Separate financial statements 2009 Separate financialstatementsatDecember31,2009 Contents B. Operatingsegments 112 103 111 106 107 105 Accounting policiesandmeasurement criteria A. Notes totheseparatefinancialstatements Statement ofcashflows Statement ofchangesinequity Terna S.p.A.statementoffinancialpositionliabilities Terna S.p.A.statementoffinancialpositionassets Terna S.p.A.statementofcomprehensive income Terna S.p.A.incomestatement Financial statements icniudoeain n o-urn seshl o ae121 118 117 114 Risk management-Terna S.p.A. New reporting standards Discontinued operationsandnon-current assetsheldforsale Income taxes per shareEarnings Dividends Financial incomeandexpense Revenue Grants Share-based payments Provisions forcontingenciesandcharges Employee benefits Financial instruments Contract workinprogress (constructioncontracts) Inventories Impairment losses Intangible assets Property, plantandequipment Business combinations Translation offoreign currency captions Investments insubsidiariesandassociates Use ofestimates Basis ofpresentation Compliance withIAS/IFRS Introduction 124 121 120 120 120 120 119 119 119 118 117 117 116 116 115 114 114 113 112 112 112 129 109 108 104 C. Notes to the separate income statement 129 Revenue 129 Operating expenses 131 Financial income and expense 135

D. Notes to the separate statement of financial position 139 Assets 139 Liabilities 146

E. Commitments and contingencies arising from off-balance sheet items 159 Environmental litigation 159 Litigation concerning concession activities 159 Other litigation 159

F. Business combinations 160

G. Related party transactions 160

H. Significant non-recurring events and operations, atypical or unusual transactions 164

I. Notes to the statement of cash flows 164

L. Subsequent events 164 Italy-Montenegro intergovernmental agreement 164 Renewal and expansion of EMTN programme and new bond issues 165 2010-2014 Business Plan 165 TELAT-Terna transfer of plants for the development and upgrading of the NTG 165 Agreement with EIB to finance the SA.PE.I. project 165

Information provided pursuant to art. 149 duodecies of the CONSOB Issuers Regulation 166

Certification of the financial statement pursuant to art. 81 ter of CONSOB Regulation no. 11971 dated May 14, 1999 and subsequent amendments and additions 167

Reports 169

Report by the Board of Statutory Auditors to Terna S.p.A.’s shareholders’ meeting 170 Report of the Auditors 178 Contents

101

Financial statements 104 Separate financial statements 2009 Terna S.p.A.incomestatement .Profit for theyearfrom discontinued G. .rftfrteya 9,4,3 3,9,8 454,752,547 335,290,988 790,043,535 4,819,194 174,623,989 32,112,345 179,443,183 473,142,705 9,822,443 -34,823,331 505,255,050 -145,708,480 21,597,608 9 -180,531,811 31,420,051 57,113,233 42,030,257 597,253,577 598,827,071 8 fortheyear H.Profit 654,366,810 640,857,328 8 15,626,000 Profit fortheyearfrom F. 110,672,390 -18,873,157 126,298,390 201,161,582 E. Incometaxes 182,288,425 before taxes D.Profit 99,143,490 2. Financialexpense 5,924,517 4 1,196,080,648 1. Financialincome 5 1,295,224,138 11,837,019 income/expense C.Financial -2,100,494 17,761,536 A-B Operatingprofit 44,115,212 Total expenses 42,014,718 3 101,243,984 1,151,965,436 1,253,209,420 2 3. Personnelexpense 2. Services 1. Rawmaterialsandconsumables 1 expenses B.Operating Total revenue 2. Otherrevenue andincome 1. Revenuefrom salesandservices Revenue A. .Ohroeaigepne 82006 98143 -1,631,407 19,851,463 18,220,056 7 40,984,304 255,304,617 296,288,921 6 5. Otheroperatingexpenses 4. Amortisation,depreciation andimpairmentlosses In euros otnigoeain 2,1,6 9,1,1 27,293,151 298,518,716 427,459,396 325,811,867 36,772,272 464,231,668 10 operations andassetsheldforsale continuing operations aiaie esne ot 6,7,5 -29097 -8,847,532 -10,025,625 -52,930,927 254,092,509 -61,778,459 244,066,884 - capitalisedpersonnelcosts - gross personnelexpense fwiht eae ate ,1,4 1,1 1,300,731 5,333,666 17,614 0 1,318,345 5,333,666 96,147 -2,084,052 30,885 10,028,635 of whichtorelatedparties 7,944,583 of whichfromrelatedparties 127,032 -1,666,295 4,028,935 2,362,640 -117,398,702 1,421,383,510 1,303,984,808 of whichtorelatedparties of whichtorelatedparties of whichfromrelatedparties of whichfromrelatedparties fwiht eae ate 2,2 4349 132,576 493,449 1,283,440 626,025 2,068,775 3,352,215 of whichtorelatedparties of whichtorelatedparties Notes 2009 08Change 2008 Terna S.p.A.statementofcomprehensive income In euros rftfrteya 9,4,3 3,9,8 454,752,547 335,290,988 490,241,597 790,043,535 287,863,627 778,105,224 Comprehensive incomefortheyear Other componentsofcomprehensive income Profit fortheyear ahfo egsnto a fet2 1,3,1 4,2,6 35,489,050 -47,427,361 -11,938,311 22 Cash flowhedgesnetoftaxeffect Notes 2009 08Change 2008 105 Financial statements - Terna S.p.A. 106 Separate financial statements 2009 assets Terna S.p.A.statementoffinancialposition oa ses91263748430210709,631,604 8,473,052,110 9,182,683,714 -7,476,611 5,424,671 25,848,954 -728,383,359 2,465,491,318 18,372,343 21,096,407 1,737,107,959 -4,932,749 0 -689,102,531 26,521,078 689,183,999 496,539,039 16,640,688 6,739,656 81,468 20 -528,835,178 11,707,939 0 1,705,981,614 0 503,278,695 16 1,177,146,436 895,071 17 19 4,644,397 88,577,142 8,982,869 1,437,957,596 15 18 0 Total assets 6,007,560,792 88,577,142 7,445,518,388 5,539,468 167,202,001 C. Discontinuedoperationsand 867,334,256 176,184,870 331,526,685 Total current assets 1,198,860,941 Othercurrent assets 6. 12 Tax assets 5. 16 Cashandcashequivalents 4. 14 13 560,745,400 Current financialassets 3. 15 5,415,610,567 5,976,355,967 Trade receivables 2. Inventories 1. assets B.Current 11 Total non-current assets Othernon-current assets 6. Non-current financialassets 5. Deferred taxassets 4. Intangibleassets 3. Goodwill 2. Property, plantandequipment 1. Non-current assets A. In euros seshl o ae2 737057,367 0 57,367 21 assets heldforsale fwihfo eae ate ,8,1 1,088,319 0 2,684,770 0 1,088,319 28,355,159 2,684,770 102,310,484 130,665,643 500,000,000 0 500,000,000 of whichfromrelatedparties of whichfromrelatedparties of whichfromrelatedparties of whichfromrelatedparties fwihfo eae ate 53071 11220-5,761,479 21,102,250 15,340,771 of whichfromrelatedparties Notes at Dec.31,2009 tDc 1 08Change at Dec.31,2008 liabilities Terna S.p.A.statementoffinancialposition In euros .Txlaiiis2 08560020,825,680 0 709,631,604 12,685,978 -302,994,334 8,473,052,110 2,034,720,940 9,182,683,714 82,726,863 1,731,726,606 -6,986,176 20,825,680 95,412,841 42,128,719 32,510,479 -386,720,305 1,874,362,814 503,487 25,524,303 1,487,642,509 15,071,770 28 42,632,206 28 44,617,297 28 23 59,689,067 572,274,119 1,186,288 -34,466,336 23 4,410,363,069 15,867,922 -28,862,731 Total equityandliabilities 4,982,637,188 150,381,569 310,821,642 552,291,423 153,929,935 66,685,904 Total current liabilities 151,567,857 276,355,306 23 0 3,646,940,434 440,351,819 125,067,204 6. Othercurrent liabilities 82,553,826 454,752,547 4,199,231,857 2,027,968,101 -21,609,815 5. Current financialliabilities 66,257,553 335,290,988 19,147,397 2,468,319,920 -11,938,310 4. Tax liabilities -118,453,801 81,603,585 790,043,535 27 26 770,565,378 600,365,600 Trade payables 3. 440,199,936 -140,063,616 24 Current portionoflong-termloans 23 2. 23 758,627,068 619,512,997 147,861,138 440,199,936 22 1. Short-termloans F. Current liabilities Total non-current liabilities 25 6. Othernon-current liabilities 5. Non-current financialliabilities 4. Deferred taxliabilities 3. Provisions forcontingenciesandcharges 2. Employeebenefits 1. Long-termloans E. Non-current liabilities Total equity 5. Profit fortheyear 4. Interimdividend 3. Retainedearnings 2. Otherreserves 1. Share capital D. Equity fwiht eae ate ,5,5 1,156,250 -1,463,599 0 6,981,501 5,517,902 -6,308,016 2,136,733 1,156,250 52,218,309 -783,412 503,487 45,910,293 783,412 2,640,220 0 of whichtorelatedparties of whichtorelatedparties of whichtorelatedparties of whichtorelatedparties of whichtorelatedparties Notes at Dec.31,2009 tDc 1 08Change at Dec.31,2008 107 Financial statements - Terna S.p.A. 108 Separate financial statements 2009 DECEMBER 31,2007-DECEMBER2008TERNAS.P.A. SHARECAPITAL ANDRESERVES DECEMBER 31,2008-DECEMBER2009TERNAS.P.A. SHARECAPITAL ANDRESERVES Statement ofchangesinequity T egrcnrbto 0020.0 -118.5 1.1 -287.5 -118.5 -408.1 20.0 -6.5 126.0 -47.4 0.0 2,028.0 335.3 0.0 -118.5 600.4 287.9 1.0 730.1 -47.4 335.3 0.0 -49.3 0.0 0.0 1.8 1.0 0.1 0.0 0.0 88.0 0.0 0.0 440.2 Equity atDecember 31,2008 0.1 0.0 -47.4 -47.4 1.6 with equityowners Total transactions 0.0 merger contribution RTL -47.4 1.4 2008 interimdividend 0.0 Exercise ofstockoptions 0.0 0.0 2,027.6 2,026.0 0.0 0.0 408.1 Allocation of2007profit 406.7 0.2 equity owners: -112.0 0.0 -112.0 Transactions with 474.4 474.2 0.0 Comprehensive income 730.1 730.1 of comprehensive income Total 0.0 othercomponents -1.9 -1.9 -11.9 derivatives netoftaxeffect 0.0 of cashflowhedge 0.8 0.0 0.8 Change inthefairvalue 2,468.3 0.0 790.0 of comprehensive income: 88.0 Other components 0.0 88.0 -140.1 0.0 Profit fortheyear 778.1 440.1 619.5 440.1 0.0 Equity atDecember31,2007 -11.9 790.0 730.1 0.0 Adjustment ofopeningbalances 0.0 -61.2 0.0 At December31,2007 0.0 1.8 0.0 0.0 88.0 0.0 0.0 440.2 0.0 Equity atDecember31,2009 -11.9 -11.9 equity owners 0.0 Total transactionswith -11.9 Interim dividends 0.0 Exercise ofstockoptions 0.0 0.0 0.0 Allocation of2008profit equity owners: 0.0 Transactions with Comprehensive income of comprehensive income Total othercomponents derivatives netoftaxeffect of cashflowhedge Change inthefairvalue of comprehensive income: Other components Profit fortheyear Equity atDecember31,2008 In millionsofeuros In millionsofeuros 07dvdns120-0. -190.1 -302.1 0.0 112.0 -106.0 106.0 - Retainedearnings2007 - 2007dividends -197.7 0.0 -316.2 -19.1 118.5 19.1 - Retainedearnings2008 - 2008dividends 4. 8018-93701604-1. 3. 2,028.0 335.3 -118.5 600.4 730.1 -49.3 1.8 88.0 440.2 aia eev rmu eg eevserig iiedforthe dividend earnings reserves hedge premium reserve capital forthe dividend earnings reserves hedge premium reserve capital hr ea hr ahfo te eand nei Profit Interim Retained Other flow Cash Share Legal Share Profit Interim Retained Other flow Cash Share Legal Share eev eev year reserve reserve year reserve reserve 91-16-3. -337.8 -335.3 -21.6 19.1 101-140.1 -140.1 3. 335.3 335.3 790.0 790.0 Equity Equity 0.0 Statement ofcashflows* ** Netoffairvaluehedges(FVH). (***) Netof grantsrelated toplanttakenincome statementfortheyear.(**) See thesectioninnotes“Notestostatementofcashflows”forcomments. (*) lsn ahadcs qiaet . 689.2 130.6 0.1 689.2 0.5 1,137.3 20.0 850.6 -500.0 558.6 109.5 -88.6 0.0 -728.0 0.0 -0.6 -28.9 -689.1 449.3 0.0 -0.1 -790.8 -359.6 -40.6 0.0 -1,209.7 -411.0 Closing cashandequivalents Opening cashandequivalents -1.0 Increase/(Decrease) incashandequivalents [a+b+c] 0.0 -4.0 498.8 9.2 -255.1 Cash flowsgeneratedbyfinancingactivities[c] 191.7 Change inshort-termfinancialinvestments 2.1 and loans(includingshort-termportions)*** 0.0 1,248.6 -191.5 Changes inshort-andmedium/long-termfinancialpayables -720.2 4.9 252.9 -227.1 Increase ofshare capital 7.4 139.4 85.1 Dividends paid –mergercontribution Retained earnings -143.4 Increase inreserves -816,8 9.6 -309.0 Cash flowsgeneratedbyinvestingactivities[b] 123.9 Equity investmentsinassetsheldforsale -156.4 Elimination ofinvestmentinrespect ofmerger (Increase)/Decrease ininvestments Goodwill –mergercontribution Investments inintangibleassets 537.3 -44.9 Revenue from saleofproperty, plantandequipmentintangibleassets Property, -2.9 plantandequipment–mergercontribution Investments inproperty, plantandequipment,netofrecognised grants Cash flowsgeneratedbyoperatingactivities[a] -72.7 30.0 Taxes paid -1.9 Interest expenseandotherfinancialexpensespaid Interest incomeandotherfinancialreceived 245.4 Increase/(Decrease) intradepayablesandotherliabilities Deferred taxassets –mergercontribution 0.0 Increase/(Decrease) inothernon-current assets Increase/(Decrease) inothernon-current liabilities 54.5 272.9 (Increase)/Decrease intradereceivables andothercurrent assets (Increase)/Decrease ininventories Deferred taxliabilitiesandprovisions forcontingenciesandcharges–mergercontribution Decrease inprovisions (includingemployee-related andtaxprovisions) 114.0 in networkingcapital Cash flowsgeneratedbyoperatingactivities,before changes Income taxes Financial (income)/expenses (Gains)/Losses ondisposalofproperty, plantandequipment Accruals toprovisions (includingemployee-related provisions) andimpairmentlosses on property, plantandequipmentnon-current intangibleassets** Amortisation, depreciation, impairmentlosses/(reversals ofimpairmentlosses) Adjustments for: Profit fortheyear In millionsofeuros Dec. 31,2009 ,8. 892.4 1,483.6 378-308.6 -337.8 -217.4 -174.0 9. 335.3 790.0 8. 175.0 184.7 . 0.1 1.3 0.0 0.3 Dec. 31,2008 109 Financial statements - Terna S.p.A.

Notes to the separate financial statements 112 Separate financial statements 2009 A. Accountingpoliciesandmeasurement criteria recognised atfairvaluein accordance withIFRS-EU,asindicatedintheaccounting policiesforeachcaption. The financialstatementshave beenprepared usingthehistoriccostmethod,withexception ofcaptionsthatare otherwise specified. The financialstatementshave beenprepared ineuros, whilethefigures inthenotesare giveninmillions ofeuros, unless settled intheCompany’snormal operatingcycleorwithinoneyearfrom thereporting date. realisation, saleorconsumption intheCompany’snormaloperatingcycle.Current liabilities are thoseexpectedtobe mention ofassetsandliabilitiesheldforsale.Current assets,whichincludecashandequivalents,are thoseheldfor In thestatementoffinancialposition,assetsandliabilities are classifiedona“current/non-current” basis,withspecific Decree no.32ofFebruary2,2007,whichamendedart.40(Directors’ Report)ofLegislativeDecree no.127ofApril9,1991. as from the2008financialyearhasbeenprepared asasingledocument,exercising theoptiongrantedunderLegislative The separatefinancialstatementsare accompaniedbytheDirectors’ ReportforTerna S.p.A.andtheTerna Group, which The statementofcashflowshasbeenprepared usingtheindirect method. (including reclassification adjustments)thatare recognised inequityratherthanprofit orlossfortheyear. (statement ofcomprehensive income)startswiththeresult forthe yearandthenpresents therevenue andexpenseitems statements, thefirstofwhich(incomestatement)presents thecomponentsofprofit orlossfortheperiod;whilesecond The incomestatementisclassifiedonthebasisofnature ofcosts.Theincomestatementisnowpresented astwo settled intheGroup’s normaloperatingcycleorwithin one yearfrom thereporting date. for realisation, saleorconsumptionintheGroup’s normaloperatingcycle.Current liabilitiesare thoseexpectedtobe reporting ofassetsandliabilitiesheldforsale.Current assets,whichincludecashandequivalents,are thoseheld In thestatementoffinancialposition,assetsandliabilitiesare classifiedona“current/non-current” basis,withseparate of cashflows,thestatementchangesinequityandnotesthereto. The separatefinancialstatementsare composedofthestatement offinancialposition,theincomestatement,statement Basis ofpresentation might castdoubtonitsabilitytocontinueasagoingconcern. economic andfinancialenvironment, itdoesnotface material uncertainties(asdefinedinparagraph25ofIAS1)that basis.TheCompanyhasdeterminedthat,despitethechallenging financial instruments,aswellonagoingconcern The separatefinancialstatementshavebeenprepared onahistoriccostbasis,modifiedwhere necessaryforcertain toinart.116oftheConsolidatedLawonFinancialIntermediation the publicreferred of July28,2006(“ no.58/1998” rules forLegislativeDecree no.38/2005” in implementationofart.9,paragraph3,LegislativeDecree February 28,2005,theItalianCivilCodeandCONSOBResolutionsnos.15519( These separatefinancialstatementshavealsobeenprepared consideringtheprovisions ofLegislativeDecree no.38of Commission (IFRS-EU)atthatdate. Interpretations Committee(IFRIC)andtheStandingInterpretations Committee(SIC),endorsedbytheEuropean AccountingStandards(IFRS), International (IAS)andtheinterpretations FinancialReporting oftheInternational The separatefinancialstatementshavebeenprepared inaccordance FinancialReportingStandards withInternational Compliance withIAS/IFRS registered offices inViale EgidioGalbani70,Rome,oratthecompanywebsite The financialstatementsasofandfortheyearendedDecember31,2009are availableuponrequest attheTerna S.p.A. These financialstatementswere approved forpublicationbytheDirectors onMarch 19,2010. headquartered inViale EgidioGalbani70,Rome,Italy. Terna S.p.A.,whichoperatesintheelectricalenergy transmissionanddispatchingsector, isapubliclimitedcompany Introduction Disclosure requirements for listed issuers and issuers of financial instruments that are widelyheldamong forlistedissuersandoffinancialinstrumentsthatare requirements Disclosure ), bothofJuly27,2006,aswellCONSOBCommunicationno.DEM/6064293 ) and15520 “Provisions governing financialstatements “Provisions governing www.terna.it ”). (“Amendments totheimplementing . representation without,however, modifyingthefigures forequityatDecember 31,2008andtheincomestatementfor2008. Please notethatcertaincomparativeprioryearbalanceshavebeenreclassified forabetterandmore accuratecomparative appropriate. work” wastransferred toaspecificsub-itemof“Personnelexpense”and“Rawmaterialsconsumables”as costs tothevalueofitemsproperty, plantandequipment.More specifically, the2008amountof“Capitalisedinternal The comparativeincomestatementfigures for2008,havealsobeenreclassified toimprove theallocationofcapitalised dividends). operations andassetsheldforsale”2009and,comparativepurposes,theprevious year(withparticularregard to (and dividendsdistributeduptothesaledate)ofhavebeenreported under“Profit fortheyearfrom discontinued As describedinthesection“Discontinuedoperationsandnon-current assetsheldforsale”,theprofit andlosseffects recognised fortheyearof “Financial expense”. to theliability. Anyincrease inprovisions associatedwiththepassage oftimeistakentotheincomestatementunder tax discountratethatreflects current marketassessmentsofthe timevalueofmoneyand,ifapplicable,therisksspecific financial effect ofthepassagetimeismaterial,accruals are measured bydiscountingtheestimatedoutflowatapre- will berequired tosettletheobligationandareliable estimatecanbemadeoftheamountobligation.Where the constructive obligationasaresult ofapastevent,itisprobable thatanoutflow ofresources embodying economicbenefits Accruals totheprovisions forcontingenciesandcharges are recognised when, atthereporting date,there isalegalor Provisions forcontingenciesandcharges estimating theamountoffuture benefitsthatemployeeshavevestedatthereporting date. other long-termbenefitsisrecognised netofanyplanassetsandismeasured onthebasisofactuarialassumptions, The liabilityforemployeebenefitspaiduponorfollowingtermination ofemploymentinrelation todefinedbenefitplansor Employee benefits summarised below. risks thatwouldentailsignificantadjustmentstothecarryingamountsofassetsandliabilitiesinsubsequentyears are European Commissionthatcouldhavesignificanteffects ontheseparatefinancialstatementsorthatcouldgiveriseto The criticalareas forkeyestimatesandassumptionsused by managementinapplyingtheIFRSendorsed current andfuture years. is revised iftherevision affects onlythatyearorintheofrevision andfuture yearsiftherevision affects both are reviewed onanongoingbasisandtheeffects are recognised through profit orlossintheyearwhichestimate apparent from othersources. Actualresults maydiffer from theseestimates.Theestimatesandunderlyingassumptions which formthebasisofmakingjudgementsaboutcarryingamountsassetsandliabilitiesthatare notreadily on previous experienceandvariousfactorsthatare believedtobereasonable underthecircumstances, theresults of in additiontocontingentassetsandliabilitiesatthereporting date.Theestimatesandassociatedassumptionsare based the useofestimatesandassumptionsthataffect thecarryingamountsofassetsandliabilitiesrelated disclosures, The preparation ofthestatementfinancialpositionandincome statementinaccordance withtheIFRS-EUrequires Use ofestimates date oftheagreement, wasequalto in thetransactiondisposal,netofhedges(includingnon-hedge-accountingpositions)carriedoutasfrom thesigning section on“Profit fortheyearfrom discontinuedoperationsandassetsheldforsale”inthesenotes,theoverallprice completed. Asdiscussedinmore detailinthesection“Significantevents2009”ofDirectors’ Reportandinthe (Fundo deInvestimentoemParticipações)Coliseu,whichbringstogetheranumberofBrazilianinvestors,was investment heldbyTerna inTerna ParticipaçõesS.A.toTAESA S.A.(“TAESA”), acompanyheldbyCemigGTandFIP Geração eTransmissão S.A.(“CemigGT”)andCompanhiaEnergética deMinasGerais(“Cemig”),thesaleofequity On November 3,2009 , inimplementationofthesaleagreement signedonApril24,2009betweenTerna S.p.A.,Cemig € 72.2 million. € 797 million,foranetcapitalgainof € 384.7 millionandtotalnetdividends 113 Notes to the financial statements - Terna S.p.A. 114 Separate financial statements 2009 Recoverable amountofnon-current assets present valueofestimatedfuture cashflows,discountedattheoriginaleffective interest rate. recoverable, whichare takentothespecificprovision forbaddebts.Impairmentlossesare measured onthebasisof Trade receivables are initiallyrecognised atfairvaluenetofanyimpairmentlossesrelating tosumsconsidered non The provision forbaddebts is takentoprofit orloss. accordingly. Asaresult, theportionoflossesorgains realised onthedisposalinexcessofgoodwillsubsequently realised Decreases inminorityinterests, following saleordilution,insubsidiaries,withoutlosingcontrol, are accountedfor and liabilitiesassumedthepurchase pricehavebeenmeasured correctly. goodwill or, ifnegative,takentoprofit orloss,afterhavingverifiedonceagainthatthecurrent valuesofassetsacquired cost exceedsthefairvalueofnetassetsacquired andattributabletotheCompany, thisexcessamountisrecognised as recognising theidentifiableassets,liabilitiesandcontingentofacquired businessatfairvalue.Ifthepurc sold andliabilitiesincurred orassumed,plusanycostsdirectly attributabletothecombination.Thiscostisallocatedby recognised usingthepurchase method,where purchase costisequaltothefairvalue,atdateofexchange,assets All businesscombinations,includingacquisitionsofminority interests inentitiesoverwhichcontrol isalready held,are Business combinations are convertedattheexchangerateprevailing whenfairvaluewasmeasured. when thetransactionwasinitiallyrecognised. Non-monetary assetsandliabilitiesinforeign currency statedatfairvalue Non-monetary assetsandliabilitiesinforeign currency statedathistoriccostare convertedattheexchangerateprevailing at theexchangerateprevailing atyearend.Anyexchangerate differences are takentoprofit orloss. of thetransaction.Monetaryassetsandliabilitiesincurrencies otherthanthefunctionalcurrency are subsequentlyadjusted all transactionsincurrencies otherthanthefunctionalcurrency are recognised attheexchangerateprevailing onthedate Terna S.p.A.prepares itsfinancialstatementsineuros, whichisalsothefunctionalcurrency. Inthesefinancialstatements, Translation offoreign currency captions obligations oftheinvesteeor, in anycase,tocoveritslosses. amount, anyexcessisrecognised inaspecificprovision, where theParent isrequired tomeetthelegalorconstruction In theeventthataninvestee’slossesattributabletoshareholders oftheParent exceedthatinvestments’carrying losses, andthereversal istakentoprofit orloss. the impairmentlossesnolongerexist,carryingamountofinvestmentisreinstated withinthelimitsofimpairment Investments insubsidiariesandassociatesare measured atcost,reduced toreflect impairmentlosses.Ifthereasons for exercisable orconvertibleare considered. In assessingwhetherornottheCompanyhascontrol orsignificant influence,potentialvotingrightsthatare presently which Terna hassignificantinfluence. and operatingpoliciessoastoobtainbenefitsfrom theiractivities. Investmentsinassociatesare thoseinentitiesover Investments insubsidiariesare thoseinentitiesoverwhichTerna hasthepowertodirectly orindirectly financial govern Investments insubsidiariesandassociates period andtherisksspecifictoasset. discounted ataratethatreflects current marketassessmentsofthetimevaluemoneywithrespect totheinvestment assessments oftheperformancefuture variables,suchasprices,costs,demandgrowth rates,production profiles, and estimated future cashflowsconsideringavailableinformationatthetimeofestimateandonbasissubjective Recoverable amountisthehigherofanasset’sfairvalue,netcoststosellanditsvalueinuse,measured bydiscounting impairment. Ifthere isevidencethatanassetmaybeimpaired, itsrecoverable amountisestimated. Property, plantandequipmentintangibleassetsare analysedatleastonceayeartocheckforindicationsof hase Activities onApril 20,2005,intheeventoftermination andrevocation, orexpiryoftheconcession, theMinistryhas for anothertwenty-fiveyears. Undertheprovisions ofartt.18and19theDecree issuedbytheMinistryofProductive Activities tocarryoutelectricity transmissionanddispatchingactivitiesinItaly, runsfortwenty-fiveyears andisrenewab The concessiongrantedfree ofcharge totheCompany, witheffect from November 1,2005,bytheMinistryofProductive Costs related tooperatingleases are takeninfulltoprofit orlossoverthetermoflease. Leases inwhichthelessormaintainssubstantiallyallrisks andrewards ofownershipare classified asoperatingleases. rates describedabove. corresponding liabilitytothelessorisrecognised underfinancial payables.Assetsare depreciated usingthecriteriaand minimum leasepaymentsdue,includinganyamountsto bepaidtopurchase theassetatendof lease.The the risksandrewards ofownership,are recognised asCompany assetsattheloweroffairvalueandpresent value of Property, plantandequipmentacquired underfinanceleases,through whichtheCompanyhasacquired substantiallyall has anindefiniteusefullife. Land, regardless ofwhetheritisfree ofconstructionorrelated tocivil andindustrialbuildings,isnotdepreciated, since The maindepreciation ratescalculatedonthebasisofrelated asset’susefullifeare asfollows: the related asset.Theamountistakentoprofit orlossthrough thedepreciation oftheasset. Liabilities associatedwithitemsofproperty, plantandequipmentare takentoaspecificprovision asabalancingentryto assets becomeavailableforuse. which isreviewed annually, withrevisions appliedonaprospective basis.Thedepreciation ofassetsbeginswhenthe as describedbelow. Depreciation iscalculatedonastraight-linebasisovertheestimatedusefuleconomiclifeof asset, Property, plantandequipmentare shownnetofaccumulateddepreciation andanyimpairmentlosses, whichare measured which isconsidered deemedcostatthedateofrevaluation. Certain assetsthatwere revalued atJanuary1,2005(transitiondate)orpreviously are recognised attherevalued amount, which itbelongs,isrecognised anddepreciated separately. Each elementofanitemproperty, plantandequipmentofmaterialvalue,withrespect tothetotalvalueofitem costs are recognised inprofit orlosswhenincurred. is probable thatthefuture benefitsofthatcostwillflowtotheCompanyandifcanbereliably measured. Allother Costs incurred afterpurchase are recognised asanincrease inthecarryingamountofassettowhichtheyrelate ifit expense” below. are capitalisedaspartofthecostasset.Formore information,pleaseseethesection“Financialincome and attributable totheacquisition,constructionorproduction ofanassetthatqualifyforcapitalisationpursuanttoIAS23R The corresponding liabilityisrecognised intheprovisions forcontingenciesandcharges. Borrowing costsdirectly constructive obligations,costalsoincludesthepresent valueoftheestimatedcostdisposalorremoval oftheasset. the conditionnecessaryforittobecapableofoperatinginmannerwhichwasacquired. Intheeventoflegalor Property, plantandequipmentisrecognised athistoriccost,includingcostsdirectly attributabletoputtingtheassetin Property, plantandequipment eie,eetia qimn n nilr lns5.00% Electronic calculationequipment Devices, electricalequipmentandancillaryplants Central systemsforremote managementandcontrol: Automation andcontrol systems Electrical devicesandequipment Electrical machinery Transformer stations: Power lines Civil andindustrialbuildings DEPRECIATION RATE 10.00% 6.70% 3.13% 2.38% 2.50% 2.50% le it 115 Notes to the financial statements - Terna S.p.A. 116 Separate financial statements 2009 Recoverable amountisthehigher ofanasset’sfairvalue,netcoststosellanditsvalue inuse,measured bydiscounting assets notyetavailableforuse, isestimatedatleastannually. The recoverable amountofgoodwill andintangibleassetswithindefiniteusefullives,where present, aswellintangible evidence ofimpairment.Ifthere isanindicationthatassetmaybeimpaired, itsrecoverable amount isestimated. Property, plantandequipmentintangibleassets withfiniteusefullivesare testedatleastonceayearto check for Impairment losses rapid obsolescence. These intangibleassetsare amortisedovertheirestimatedresidual usefullife,whichisnormallythree years,giventheir expense” below. 23R are capitalisedaspartofthecostasset.Formore information,pleaseseethesection“Financialincomeand Borrowing costsdirectly attributabletotheacquisition,construction orproduction ofaqualifyingassetpursuanttoIAS development costsandresearch expensesare recognised inprofit orlosswhenincurred. asset canbeusedanditispossibletodemonstratethat itwillgenerateprobable future economicbenefits.Allother and there are technical possibilitiesandintenttocompletetheintangibleassetsoasforitbeavailableafteruse; Development costsare capitalisedbytheCompanyonlyifall following conditionsare met:costscanbereliably estimated software applicationsrelated tothedevelopmentofPowerExchange,particularlyrelating totheregistration of • developmentandevolutionofapplicationsoftware the to protect theelectricalsystem; • developmentandevolutionofapplicationsoftware the to managetheenergy invoicingprocess; • Other intangibleassetsmainlyrelate tothefollowing: reflected fairvalue. the concessionfrom GSE(formerlyGRTN) toTerna S.p.A.Thisintangibleassetwasinitiallyrecognised atcost,which another twenty-fiveyears,from thedateofeffective transferoftheactivities,functions,assetsandlegalarrangements issued bytheMinistryofProductive ActivitiesonApril20, 2005,thisconcessionrunsfortwenty-fiveyears,renewable for dispatching activitiesinItalyonNovember1,2005whenitacquired theTSObusinessunit.AsestablishedinDecree activities andotherintangibleassets.Inparticular, Terna S.p.A.obtainedtheconcessionforelectricitytransmissionand Intangible assetssubstantiallyregard theexclusiveconcessiontocarryoutelectricitytransmissionanddispatching useful lifeoftherelated asset,whichisreviewed annually. Anyrevisions are appliedon aprospective basis. Amortisation beginswhentheassetbecomesavailableforuseandiscalculatedonastraight-linebasisoverestimated Statutory Auditors,andshownnetofaccumulatedamortisationanyimpairmentlosses,measured asdescribedbelow. Intangible assets,whichallhavefiniteusefullives,are recognised atcost,havingobtainedtheapproval oftheBoard of Intangible assets in IFRIC12andwilltherefore bereclassified underintangibleassets. 12. Conversely, theproperty, plantandequipmentservingdispatchingactivitieswouldbesubjecttothetreatment specified financial statementssuggestssofarthattransmissionactivitieswouldbeexcludedfrom thescopeofapplicationIFRIC the applicabilityandanyeffects concerning oftheadoptionthisinterpretation ontheGroup stillunderway– analysis – FinancialReportingInterpretationsArrangements (publishedinNovember2006byIFRIC-International Committee).Our As specifiedbelow, inMarch 2009theEuropean CommissionendorsedIFRICInterpretation 12ServiceConcession depreciated overtheirusefullives. up theportionofelectricitytransmissiongridownedbyTerna are classifiedasproperty, plantandequipmentare The assetsdirectly related tothetransmissionanddispatchingactivities,includingplant(linesstations)thatmakes their incomegeneratingcapacity. parties, calculatedonthebasisofmostappropriate parametersatthatdate,assessingthevalueofassetsand the Ministrydecidestopurchase theconcessionholder’sassets,itwillpaylatteranamount,agreed uponbythe by theconcession-holder, withtheexclusionofplant(linesandstations)thatmakesupNationalTransmission Grid.If right topurchase assetsuseddirectly forthetransmissionanddispatchingactivitiesincludedinconcession owned operators, consumptionunitsandthedevelopmentofforeign procedures. methods usedtomeasure recoverable amount. the recoverable amountifthere isanindicationthattheimpairmentlossnolongerexistsorwhenthere isachangeinthe demand orwithaveryshortmaturity, subject toaninsignificantriskandwithoutcollectioncosts. Cash andcashequivalentsare stated atnominalvalue.Theyincludemonetaryitems,i.e. amountsthatare availableon Cash andcashequivalents Receivables withduedatesthatfallundernormalcommercial termsare notdiscounted. discounted attheoriginaleffective interest rate. provision forbaddebts.Impairmentlossesare measured onthebasisofpresent valueofestimatedfuture cashflows, interest method,andnetofanyimpairmentlossesduetosumsconsidered non-recoverable, whichare takentothespecific Trade receivables are initiallyrecognised atfairvalueand subsequentlymeasured atamortisedcost,usingtheeffective Trade receivables management andnolongerholdstherisksrewards ofthetransferred orsettledinstruments. assets are derecognised when,followingtheirtransferorsettlement, theCompanyisnolongerinvolvedintheir discounted usingtheoriginalinterest rate.Theamountofimpairmentlossesistakentoprofit orlossfortheyear. Financial which are determinedasthelowerofasset’scarryingamountandpresent valueofestimatedfuture cash flows, They are subsequentlymeasured atamortisedcost,usingthe effective interest method,netofanyimpairmentlosses, including transactioncosts. maturity are recognised atcostthesettlementdate,whichisfairvalueofinitialconsiderationgiveninexchange, Any financialassetsotherthanderivativesthattheCompanyhaspositiveintentionandabilitytohold to Financial assets Financial instruments incurred aspartofnormaloperations. Contract costsincludeallthosethatrelate directly tothespecificcontract,aswellfixedandvariablecosts to profit orloss. account therisksofcustomers’refusal torecognise theworkperformed.Expectedcontractlossesare immediatelytaken of financialpositionassetsorliabilities,consideringanyimpairmentlossesontheworkcarriedoutsoastotake into Differences betweenthevalueofcompletedcontractsandpaymentsonaccountreceived are recognised understatement (cost-to-cost). measured proportionally totheratioofcostsforworkscarriedoutupreporting dateandtotalcostofthecontract separately inprofit orlossonapercentage ofcompletionbasis.Progress ismeasured basedontheworkcarriedoutand When theprofit orlossonacontractcanbereliably estimated,therelated contractcostsandrevenue are recognised Contract workinprogress (constructioncontracts) price ofsaleundernormalconditionsnetcompletioncostsandtheestimatedtosell. calculated astheweightedaveragecost,includingrelated charges. Netestimatedrealisable valuestandsfortheestimated Inventories are recognised andmeasured atthelowerofpurchase costandnetestimatedrealisable value.Costis Inventories reduction inotherassetsoftheCGUona Impairment lossesofCGUsare firsttakenasareduction inthecarryingamountofanyallocatedgoodwillandthenasa of theCGUtowhichitbelongs,isgreater thanitsrecoverable amount. An impairmentlossisrecognised intheincomestatementwhenasset’scarryingamountornetinvestedcapital calculated aspartoftheCGUtowhichitbelongs. If theintangibleassetdoesnotgeneratecashinflowsthatare largely independent,theasset’srecoverable amountis period andtherisksspecifictoasset. discounted ataratethatreflects current marketassessmentsofthetimevaluemoneywithrespect totheinvestment assessments oftheperformancefuture variables,suchasprices,costs,demandgrowth rates,production profiles, and estimated future cashflowsconsideringavailableinformationatthetimeofestimateandonbasissubjective pro rata basis. Exceptforgoodwill,impairmentlossesmaybereversed upto 117 Notes to the financial statements - Terna S.p.A. 118 Separate financial statements 2009 provision isrecognised asabalancing entry tothe assettowh interest expense.Iftheliability relates toproperty, plant andequipment(sitedisposalrestoration, forexample), the liability, ifpresent. Where discounting is used,theincrease intheprovision duetothepassageoftime isrecognised asan pre-tax discountratethatreflects current marketassessmentofthetimevaluemoneyandthose risksspecifictothe effect ofthetimevaluemoney ismaterial,accrualsare measured bydiscountingestimated future cashflowsusinga will berequired tosettletheobligation andareliable estimatecanbemadeoftheamount obligation.Where the legal orconstructiveobligationtowards othersasaresult ofapasteventand itisprobable thatanoutflowofresources Accruals totheprovisions forcontingenciesandcharges are recognised when, atthereporting date,theCompanyhasa Provisions forcontingenciesand charges participating intheplan.Otherwise,actuarialgainsandlosses are notrecognised. obligation andthefairvalueofplanassetsare takentoprofit orloss fortheaverageexpectedtermofserviceemployees unrecognised actuarialgainsandlossesinexcessof10%thegreater ofthepresent valueofthedefinedbenefitplan Actuarial gainsandlossesatJanuary1,2005(dateoftransition toIFRS-EU)were recognised inequity. Afterthatdate, is measured byindependentactuaries. employees haveaccruedatthereporting date.Theliabilityis recognised onanaccrualsbasisoverthevestingperiod.It measured separatelyforeachplanonthebasisofactuarialcalculations thatestimatetheamountoffuture benefitsthat and otherbenefits)orlong-termemployeebenefits(loyaltybonus)isrecognised netofanyplanassets.Itis plans (terminationbenefits,additionalmonth’spay, indemnityforlack ofnotice,energy discount,ASEMhealthbenefits The liabilityinrespect ofemployeebenefitspayableuponor afterterminationofemploymentrelates todefinedbenefit Employee benefits developments, aswellnewderivativecontractssignedduringtheyear. Accordingly, theeffects inprofit orlossandequityofthesemeasurements are essentiallyattributabletonormalmarket The measurement techniquesusedforderivatives existingatyearenddidnotchangewithrespect totheprevious year. the originalassociatedcashflows. entity becomespartytothecontractorwhenisrenegotiated inamannerthatproduces amaterialchangein embedded derivatives,whichmustbeseparatedandmeasured atfairvalue.Thisanalysisisconductedthetime Financial andnon-financialcontracts(whichare notalready measured atfairvalue)are alsoanalysedtoidentifyany rates atthereporting date,andbyconvertingamounts incurrency otherthantheeuro attheyear-end exchangerate. instruments nottradedinregulated marketsismeasured bydiscountingprojected cashflowsalongayieldcurveofinterest Fair valueismeasured onthebasisofofficial quotationsforinstrumentstradedinregulated markets.Thefairvalueof recognised inprofit orloss. Changes inthefairvalueofderivativesthatdonotmeethedgeaccountingrequirements pursuanttotheIFRS-EUare value associatedwiththehedgedrisk. recognised atfairvaluethrough profit orloss.Accordingly, thehedgeditems are adjustedtoreflect changesinthefair When hedgingderivativescovertheriskofchangesinfairvaluehedgedinstruments(fairhedges),theyare that doesnotqualifyaseffective istakentoprofit orloss. to profit orloss,inlinewiththeeffects ofthehedgedtransaction. Theportionofthefairvaluehedginginstrument (cash flowhedges),thepartofchangesinfairvaluequalifyingaseffective isinitiallytakentoequityandsubsequently verified andperiodicallychecked.Whenderivativescovertheriskofchangesincashflowshedgedinstruments and thehedgeditemisformallydocumentedhedgehighlyeffective withinarangeof80%to125%,asinitially Derivatives are recognised atfairvaluethetradedateandclassifiedashedgesifrelationship betweenthederivative Derivative financialinstruments are covered byfairvaluehedges,theyare adjustedtoreflect changesinfairvaluewithrespect tothehedgedrisk. Subsequently, financialliabilitiesare measured atamortisedcost,usingtheoriginaleffective interest method.Iftheliabil net ofdirectly related transactioncosts. Financial liabilitiesotherthanfinancialderivativesare initiallyrecognised atthesettlementdateandmeasured atfairval Financial liabilities normal commercial terms,theyare notdiscounted. Trade payablesare initiallyrecognised atfairvalue andsubsequentlystatedatamortisedcost.Iftheirduedatefallsunder Trade payables ich itrelates. Th e expenseisrecognised inprofit orloss ities ue, • amounts collectedonbehalfofthird amounts parties,suchasthefeespaidtonon-Terna gridowners,aswellrevenue • whenthere therecovery isuncertaintyconcerning ofanamountalready recognised inrevenue, thenon-recoverable • revenue accruedduringtheyearinrespect ofcontractworkinprogress isrecognised onthebasisof the payments • revenue from servicesrendered isrecognised withreference tothestageofcompletiontransaction.Ifrevenue • revenue from thesaleofgoodsisrecognised whenthematerialrisksandrewards ofownershipthegoodshavebeen • enterprise. Dependingonthetypeoftransaction,revenue is recognised onthebasisoffollowingspecificcriteria: Revenue isrecognised whenitisprobable thattheeconomicbenefitsderivingfrom theoperationwillbeusedby Revenue Grants foroperatingexpensesare expensedinfullwhenthe recognition requirements are satisfied. From 2003,grantsfornewplantsthathaveentered serviceare recognised asadirect reduction inthevalueofrelated ass the related assets. before December31,2002are recognised underotherliabilitiesandtakentoprofit orlossoverthedepreciation periodof Grants received inrelation tospecificassetswhosevalueisrecognised undernon-current assetsare, forplantsoperating Grants to thenumberofequityinstrumentsthathaveactuallyvested,regardless ofachievementthemarketconditions. At thevestingdate,estimateisrevised through theincomestatementtorecognise theactualamountcorresponding at thegrantdate,inlinewithtermofplan. conditions, etc.),aswellthepriceofTerna S.p.A.shares atthegrantdate,volatilityofstockandyieldcur The measurement methodusedtocalculatefairvalueconsidersallthecharacteristicsofoptions(term,priceand of achievementthemarketconditions. number ofinstrumentsrepresentative ofcapitalthatwillmature differs from theestimatepreviously carriedout,regardless employees willbeabletoexercise. Suchestimateisreviewed where subsequentinformationindicatesthattheexpected period, withacorresponding increase inequity, consideringthebestpossibleestimateofnumberoptionsthat to employeesatthegrantdate.Thefairvalueofoptionsgrantedisrecognised underpersonnelexpenseoverthevesting The costofemployeeserviceremunerated through stockoptionplansismeasured atthefairvalueofoptionsgranted Share-based payments are recognised asanincrease orreduction oftherelated assetsandrecognised inprofit orlossthrough depreciation. economic resources necessarytoextinguishtheobligationorattributableamaterialchangeindiscountrate,which costs expectedfordismantling,removal andreclamation, whichcomeasaresult ofchangesinthetiminganduse Changes intheestimateare recognised through profit orlossfortheyearinwhichchangehappens,exceptthose through depreciation oftheitemproperty, plantandequipmenttowhichitrelates. revenue withtherelated costsarisingfrom the“sametransaction”,isdiscussedinfullaspecificsectionofnotes. are reported netoftherelated costs.Thispresentation method,which reflects thesubstanceoftransactionsbyoffsetting recognised formanagingactivitiesrelated tothebalancing ofthenationalelectricalsystem,whichdonotincrease equity, contingencies andcharges; value ortheamountwhoserecovery isnolongerprobable isrecorded asacost,withrecognition inprovisions for delays attributabletotheCompany; probable andcanbereliably thattheywillactuallybeearned determined.Revenueisalsoadjusted foranypenalties includes anypaymentsinrespect ofvariations,pricerevisions andincentives,withthelatterrecognised where itis agreed fortheprogress ofworksusingthecost-to-costmethod.Inadditiontocontractualpayments,project revenue cannot bereliably measured, itisrecognised totheextentofrecoverable costs; transferred tothebuyerandtheirtotalamountcanbereliably determinedandcollected; et. ve 119 Notes to the financial statements - Terna S.p.A. 120 Separate financial statements 2009 on thenetvalueofrelated financialassetsandliabilitiesusingthe effective interest rate. Financial incomeandexpenseotherthancapitalisedamountsare recognised onanaccrualsbasisinrespect oftheinterest The capitalisationrateusedfor2007is4.17%,that20084.93%and20093.12%. complete. Capitalisation ceaseswhentheactivitiesnecessarytoprepare theassetforitsintendeduseorsaleare substantially in progress. for theasset;(b)borrowing costsare beingincurred; and(c)activitiestoprepare theassetforitsintendeduseorsaleare Capitalisation commencesasfrom thedateallfollowingconditionshavebeenmet:(a)expenditures havebeen incurred amount ofborrowing costsincurred duringthatyear. specifically borrowed funds.Theamountofborrowing costscapitalisedduringayearshallinany casenotexceedthe the weightedaverageofborrowing costsapplicabletothefinancingoutstandingduringyear, excludingany amount isdeterminedbyapplyingacapitalisationratetotheexpenditure onthatasset.Thecapitalisationratewillbe onthetemporaryinvestmentofsuchborrowings.earned Where fundsare raisedthrough generalborrowing, theeligible Where fundsare borrowed specifically, costseligibleforcapitalisation are theactualcostsincurred lessanyincome expenditure fortheassethadnotbeenincurred. year before beingready foruse.Thedirectly attributableborrowing costisthatwhichwouldnothavebeenincurred ifthe The qualifyingassets(property, plantandequipmentintangibleassets)involvedare thosethatrequire atleastone are capitalisedaspartofthecostasset. Borrowing costsdirectly attributabletotheacquisition,constructionorproduction ofanassetthatqualifyforcapitalisatio Financial incomeandexpense Taxes inrespect ofcomponents recognised directly inequityare alsorecognised inequity. Deferred taxliabilitiesare recognised inanycaseiftheyexist. available againstwhichtheassetcanbeused.Therecoverability ofdeferred taxassetsisreviewed ateachyearend. Deferred taxassetsare recognised whentheirrecovery isconsidered probable, i.e.whenfuture taxableincomewillbe rates orthosethatare substantiallyapproved atthereporting date. using current taxratesortheexpectedtobeineffect whenthetemporarydifferences reverse, basedoncurrent and liabilitiesrecognised intheseparatefinancialstatementsandcorresponding amountsrecognised fortaxpurposes, Deferred taxassetsandliabilitiesare calculatedonthetemporary differences betweenthecarryingamountsofassets account ofanyapplicableexemptions. credit balance,are recognised onthebasisofestimatedtaxableincomeandinaccordance withcurrent legislation,taking Current incometaxes,recognised under“taxliabilities” netofprepayments, orunder“taxassets”when there isanet Income taxes have adilutingeffect. the weightedaverageofoutstandingshares, adjustedtoconsider theeffects ofallpotentialordinary shares thatcould pershareDiluted earnings are calculatedbydividingtheprofit fortheyearattributabletoholdersof ordinary shares by by theweightedaverageofoutstandingordinary shares duringtheyear. pershareBasic earnings are calculatedbydividingtheprofit orlossfortheyearattributabletoholders ofordinary shares pershare Earnings approved bytheshareholders andtheBoard ofDirectors, respectively. Dividends andinterimdividendspayabletothird partiesare shownaschangesinequityatthedatewhichtheyare Dividends from investeecompaniesare recognised whentheshareholders’ righttoreceive paymentisestablished. Dividends n c inputsnotbasedonobservablemarketdata(Level 3). (c) (b) market inputsthatare directly (e.g.prices)orindirectly (derivedfrom prices)observableotherthanthequoted prices (a) quotedprices(unadjusted)inactivemarketsforidentical assetsorliabilities(Level1); liabilities, asfollows: More specifically, entitiesmustspecifytheinputstheyusedtodetermine fairvalueforeachclassofassetsand the introduction ofafairvaluehierarchy. takes effect prospectively asfrom thefinancial statementsfortheyearendedDecember31,2009.Themainchangeis Endorsed with(EC)Regulationno.1165/2009,itextendsdisclosure requirements forfinancialinstruments.Theamendment Amendments toIFRS7-Financialinstruments:disclosures framework oftheproject toconverge theIFRSandUSGAAP. comparison ofIAS14withSFAS 131 -Disclosures aboutsegmentsofanenterprise andrelated information,withinthe services, thegeographicalareas inwhichitoperatesanditsmajorcustomers.Thenewstandard istheproduct ofthe and assessitsperformance”.Italsoestablishesthedisclosure requirements asegment’sproducts concerning and reviewed bytheentity’schiefoperatingdecisionmaker to makedecisionsaboutresources tobeallocatedthesegment operating segments.Itdefinessegmentsascomponentsofanentity“whoseresults are regularly IFRS 8,whichsinceJanuary1,2009,replaces IAS 14-SegmentReporting,requires entitiestodiscloseinformationonits IFRS 8-OperatingSegments inequityoriginatedbytransactionswiththeowner(e.g.dividends,share changes buybacks)mustbepresented inthe • maychoosebetweenpresenting entities incomeandexpensesinasinglestatementofcomprehensive incomeorintwo • The amendmentstoIAS1includethefollowing: IAS 1-Presentation ofFinancialStatements(revised in2007) Terna hasappliedthisstandard earlyatDecember31,2008,settingthecommencementdateJanuary1,2006. IAS 23-Borrowing Costs(revised in2007) As from FinancalReportingStandards January1,2009,thefollowingInternational tookeffect: FinancialReportingStandards entering forceInternational asfrom January1,2009 New reporting standards isanoperationacquired exclusivelywithaviewtoresale. • ispartof asingleco-ordinated plantodisposeofaseparatemajorlinebusinessorgeographicalarea ofoperations; • represents aseparatemajorlineofbusinessorgeographicalarea ofoperations; • that eitherhasbeendisposedof,orisclassifiedasheldforsale,and: financial positionvaluesfortheprevious yearare notreclassified. Adiscontinuedoperationisacomponentofanentity non-current assets(ordisposalgroups) classifiedasheldforsalethrough profit orloss.Thecorresponding statementof be recognised. Anysubsequentimpairmentlossesare recognised directly asanadjustmenttothecarryingamountof depreciated/amortised, whereas financialexpenseandotherexpensesattributabletoliabilitiesheldforsalecontinue fair valuelesscoststosellisredetermined. Theindividualassetsofthecompaniesclassifiedasheldforsaleare not measurement rulessetoutinIFRS5butare heldforsaleare remeasured onthebasisofapplicableIFRSbefore the amount andfairvaluelesscoststosell.Thecarryingamountsofeachassetliabilitythatare bythe notgoverned conformity withtheIFRSapplicabletoeachassetandliabilitysubsequentlyare measured attheloweroftheir carrying statement offinancialposition.Non-current assets(ordisposalgroups) classifiedasheldforsaleare firstmeasured in through continuinguseare classifiedasheldforsaleandreported separatedfrom otherassetsandliabilitiesinthe Non-current assets(ordisposalgroups) whosecarryingamountwillberecovered principallythrough asaleratherthan Discontinued operationsandnon-current assetsheldforsale statement ofchangesinequityseparatelyfrom otherchanges. comprehensive income,tobereported netoftaxeffects; statement ofcomprehensive incomethatstartswithprofit (loss)fortheyearandthenreports othercomponentsof separate statements:aincomestatementwiththecomponentsofprofit (loss)fortheyearandasecond or used forLevel1(Level2);and 121 Notes to the financial statements - Terna S.p.A. 122 Separate financial statements 2009 customer withongoingaccess toasupplyofgoodsandservices(forexample,electricity, gasorwater supplyetc.): interpretation establishesthefollowing treatment forsuchassetsreceived from acustomerand used toprovide the of property, plantandequipment,or cashtoacquire orconstructsuchassets,received from acustomer. In particular, the Endorsed withRegulation(EC) no.1164/2009,thisinterpretation provides guidelines ontheaccountingtreatment ofitems IFRIC 18-Transfers ofassetsfrom customers equipment” to“intangibleassets”. statement andequityoftheCompany, asthemainconsequence isareclassification ofassetsfrom “property, plantand At present, althoughtheanalysisisnotcomplete,thisinterpretation appearstohavenomaterialimpactontheincome More specifically, inviewoftheratesystemfordispatchingactivities,intangibleasset modelisfelttobeapplicable. theservicesprovidedof IFRIC12,asthepublicbodygoverns withsuchassetsandcontrols anyresidual interest inthem. the assetsservingservicetoState.Accordingly, theCompanyhasconcluded thatsuchassetsfallwithinthescope As regards dispatchingoperations,however, attheendoftermconcession, Terna couldbeobligatedtotransfer benefits orotherrights,anysignificantresidual interest intheNTG infrastructure attheendoftermconcession. public service.Inviewofthesefactors,thebodytherefore doesnotcontrol, eitherviaownership,control overthe to applyTerna, astheCompanyhasfullpoweroverinfrastructure, eveniftheNTGisrestricted tothedeliveryofa should restrict theabilityofoperatortosellassetsorpledgethemascollateral.Thisrestriction doesnotappear of anindemnity, and gainfulltitletotheassets.Inaddition,control ofthegrantoroverresidual interest inthea concession agreement northelawprovides forthepublicbodytoreacquire possessionoftheNTG,evenwithpayment interpretation doesnotapplytothepartofTerna concessioncovering transmissionactivities,giventhatneitherthe of itsadoptiononaccounts.Asthingscurrently stand, although ouranalysisisnotcomplete,itappearsthatthe Terna, withthehelpofoutsideconsultants,iscompletingitsassessmentapplicabilityIFRIC12andeffects for asproperty, plantandequipmentbytheoperatorpriortoenteringintoserviceconcessionarrangement. existing infrastructure grantedtotheoperatorprovide theservice.Itdoesnotapplytoinfrastructure ownedandaccounted The interpretation alsoappliestoinfrastructure thatathird partyconstructsoracquires tooperatetheconcession and and thepricesofsuchservices(2)controls anyresidual interest intheassetsatendoftermconcession. the useofinfrastructure whichservicesare andgoverns tobeprovided, themannerin whichtheyare tobeprovided is limitedtoserviceconcessionarrangementsbetweenpublicbodiesandprivateoperatorsinwhichthegrantor:(1)controls and therevenue generatedbytheoverallprovision oftheservices.IFRIC12doesnotapplytoallarrangements.Itsscope for theinfrastructure usedtoprovide theservices, that holdconcessionsforthedeliveryofpublicservices.More specifically, theinterpretation setsouttherulesforaccount specific accountingstandard, inorder toensure theuniformityandcomparabilityoffinancialstatementscompanies the accountingtreatment1, 2010.IFRIC12governs ofserviceconcessionarrangements,whichare byany notgoverned Endorsed withRegulation(EC)no.254/2009,theinterpretation willapplytothefinancialstatementsofTerna asfrom January IFRIC 12-ServiceConcessionArrangements only applytobusinesscombinationscarriedoutsubsequentitsentryintoforce. and IAS21,whichwere endorsed bytheEuropean CommissionwithRegulation(EC)no.494/2009.Thenewstandard will January 1,2010,asearlyapplicationwasnotadopted.Thechangesalsorequired anumberofamendmentsIAS27 Endorsed withRegulation(EC)no.495/2009,therevised standard willapplytothefinancialstatementsofTerna asfrom IFRS 3-BusinessCombinations(revised in2007) FinancialReportingStandardsfollowing International andinterpretations: In 2009andin2010uptothedateofpreparation ofthesefinancialstatements,theEuropean Commissionendorsedthe AccountingStandards endorsedbytheEuropeanInternational CommissionsinceJanuary1,2009 IFRIC13:Customerloyaltyprogrammes. • AmendmenttoIFRS2:Share-based payment:vestingconditionsandcancellations; • AmendmentstoIAS32and1:Puttablefinancialinstrumentsobligationsarisingonliquidation; • AmendmenttoIFRS1andIAS27:Costofaninvestmentinasubsidiary, jointly-controlled entityorassociate; • statements ofTerna haveentered force: Since January1,2009,thefollowingstandards issuesthatcurrently concerning havenomaterialimpactonthefinancial FinancialReportingstandards Other International publishing eachseparately. decided topublishanannualdocumentcontainingallminoramendmentspreviously publishedstandards, rather than Endorsed withRegulation(EC)no.70/2009,thiscontainsaseriesofamendmentstonumerous standards. TheIASBhas Improvements totheIFRS(publishedin2008) costs associatedwithdevelopingandmaintainingsuchinfrastructure ssets ing be endorsedbytheEuropean Commissioninthefirsthalfof2010. The 2009versionofthedocumentcontainsminoramendments topreviously publishedstandards. Thedocumentshould Improvements totheIFRS (publishedin2009) from January1,2011. a numberofdifficulties ofapplicationassociatedwith thecurrent notionofrelated party. Thestandard isapplicableas which apublicentityisthecontrolling shareholder, exercises asignificantinfluenceorhasjointcontrol, andtoeliminate Issued onNovember4,2009,theamendmentsseektosimplify related-party disclosure requirements forcompaniesin Amendments toIAS24-Relatedpartydisclosures of theentire IAS39replacement project. Accordingly, thestandard isnotapplicableforEuropean companiespendingtheEuropean Commission’sfullassessment IFRS 9iscurrently suspendedintheEuropean Union. the includingofowncredit riskinthemeasurement ofthefairvaluefinancialliabilities.Finally, theprocess ofendorsi as theIASB,partlyinreaction tocommentsontheexposure draft,decidedtodevotefurtherstudyissuesconcerning 39. Inadifference from theexposure draftpublishedlast July, thescopeofstandard doesnotincludefinancialliabiliti financial assets,whichwilltakeeffect asfrom January1,2013.Thispublicationisthefirstpartofaproject toreplace IA On November12,2009theIASBpublishedIFRS9-Financialinstrumentsonclassificationandmeasurement of IFRS 9-Financialinstruments More specifically: statements, takingaccountofthedatefrom whichthey takeeffect. issues thataffect orcouldaffect Terna, theCompanyisassessingpossibleimpactofchangesonitsfinancial For amendmentsandnewstandards andinterpretations thathavenotyetbeenendorsedbytheEUbutwhichaddress AccountingStandards notyetendorsed International AmendmentstoIAS32-Financialinstruments:Presentation: classificationofrightsissues. • IFRS1Revised-FirsttimeadoptionofIFRS; • IFRIC15-Agreements fortheconstructionofreal estate; • IFRIC17-Distributionsofnon-cashassetstoowners; • AmendmenttoIAS39-Reclassificationoffinancialassets:effective date; • IFRIC9-Embeddedderivatives; • IFRIC16-Hedgesofanetinvestmentinforeign operation (takeseffect asfrom October1,2009); • have nomaterialimpactonthefinancialstatementsofTerna: The European Commissionalsoendorsedthefollowingamendmentsandinterpretations issuesthatcurrently concerning Other amendmentsandinterpretations ofstandards the effect ofitseffectiveness. the possibleimpactsthatcouldresult intheapplicationofinterpretation onfinancialstatements,takingintoaccount period beginningonorafterJuly1,2009,andwilltherefore beappliedbyTerna asfrom January1,2010.Terna isassessing of inflationasahedgedriskorportionsuchandhedgingwithoptions.TheamendedIAS39takeseffect asfrom Endorsed with(EC)Regulation839/2009,theamendmentsseektoclarifytwoaspectofhedgeaccounting:identification Amendments toIAS39Financialinstruments-Recognitionandmeasurement: eligiblehedgeditems assetreceived the isrecognised atfairvalueinaccordance withtheprovisions theexchangeof ofIAS16governing • account ofthedateittakeseffect. The Companyisassessingtheimpactthatapplicationofinterpretation couldhaveonitsfinancialstatements,taking information necessarytoapplytheinterpretation topasttransferswere obtainedatthetimethosetransferswere made. will therefore beginonJanuary1,2010).Earlyapplicationispermittedtheconditionthat valuationsandother The interpretation shallapplyforallassetsreceived from customersonorafterJuly1,2009(forTerna, firsttimeapplicati specificaccountingtreatment isrequired where thecustomertransferscashsufficient forthepurchase oftheasset. • dissimilar assetswiththeconsequentrecognition ofrevenue whentheserviceisperformed; es, ng on S 123 Notes to the financial statements - Terna S.p.A. 124 Separate financial statements 2009 non-hedge-accounting derivatives,related tohedgesofexchange rateriskbutwhichdonotqualifyfortreatment under • fairvaluehedgederivatives,essentiallyrelated tohedgingtheexposure tochangesinthefairvalueofafinancial asset • cashflowhedgederivatives,essentiallyrelated tohedgingtheriskofchangesincashflowsassociatedwithlong- • The financialassetsandliabilitiesinrespect ofderivativeinstrumentsinplaceduringtheyearcanbeclassifiedas: yield curveandinflationatthereporting date. date (suchasinterest rates,exchangevolatility)anddiscountingprojected cashflowsonthebasisofmarket by meansofappropriate valuationtechniquesforeachcategoryoffinancialinstrument,usingmarketdataasattheclosing The fairvalueofinstrumentsisdeterminedinaccordance withthefairvaluehierarchy envisagedunderIFRS7(Level2) the estimatedamountthatTerna wouldpayorreceive inorder toextinguishcontractsattheclosingdate. change inthefairvalueand/orestimatedcashflowsofunderlyingposition.Thefinancialderivativesreflec liability, sothatanychangeinthefairvalueand/orestimatedcashflowsof contracts isoffset byacorresponding All derivativecontractshaveanotionalamountandmaturitydatelessthanorequaltothatoftheunderlyingfinancial objective oftotalorpartialhedgingtheincomestatementfinancialpositionitemfrom interest raterisk. hedging transactionisnotrestricted tothosehedges that qualifyforhedgeaccounting,butratherencompassesthe changes inmarketconditionsorthehedgeditemmakelatterunsuitableexcessivelyexpensive.Theconcept of in favourablemarketconditions.Thedynamicapproach makes itpossibletotakeactionimprove existinghedgeswhere aversion, aimingatminimisingriskthrough continuousmonitoringoffinancialmarketsinorder toplanhedgingtransactions Terna S.p.A.seekstoadoptadynamicapproach tofinancialriskmanagement. Thisapproach ischaracterisedbyrisk is notenvisagedinthecorporatemission. by selectingcounterpartiesandinstrumentscompatiblewiththecorporateriskmanagementpolicy. Speculativeactivity Risk managementmustbeperformedwiththeobjectiveofmaximisingfinancialincomeandminimisingrelated risks and inflationrisk. changes infinancialmarketconditions.Marketriskscomprisethree formsofrisk:exchangeraterisk,interest raterisk Market riskisthethatfairvalueorfuture cashflowsofafinancialinstrumentmayfluctuateasresult of Market risks used andtheprecise operatinglimitsinmanagingthem. responsibilities andoperatingprocedures the instrumentstobe forfinancialriskmanagement,specificallyasconcerns As apartofthefinancialriskmanagementpoliciesapproved bytheBoard ofDirectors, Terna hasestablishedthe are revised onaregular basisinorder toreflect anychangesinmarketconditions andtheCompany’sactivities. appropriate limitsandcontrols andmonitoringriskscompliancewithsuchlimits.Thesepoliciesrelated systems Terna’s riskmanagementpoliciesseektoidentifyandanalysetherisksCompanyisexposedto,establishing with furtherquantitativedisclosures the2009financialstatements. concerning presentation oftheobjectives,policiesandprocesses formanagingthoserisksandthemethodsusedtomeasure them, This sectionprovides comprehensive informationregarding Terna’s exposure toalltheaboverisks,alongwitha rate riskandinflationrisk),liquiditycredit risk. In theconductofitsoperations,Terna isexposedtovariousfinancial Risk management-Terna S.p.A. AmendmenttoIFRS1-Limitedexemptionfrom comparativeIFRS7disclosures forfirst-timeadopters. • AmendmenttoIFRS1-Additionalexemptionsforfirsttimeadopters; • AmendmenttoIFRS2-Group cash-settledshare-based paymenttransactions; • IFRIC19-Extinguishingfinancialliabilitieswithequityinstruments; • AmendmenttoIFRIC14-Prepayment ofaminimumfundingrequirement; • which havenotyetbeenendorsedbytheEuropean Commissionare listedbelow: Other interpretations andrevisions ofpreviously issuedstandards issuesthatdonotaffect governing theCompanyand Other interpretations andrevisions ofstandards IAS 39ashedgesofspecificassets,liabilities,commitments orforecast transactions. or liabilityassociatedwithfluctuationsininterest rates(fixed-ratebonds); term floating-rateloans; risks: marketrisk(namelyexchangeraterisk,interest ts In millionsofeuros A hypothetical10%variationin interest rateswithrespect tomarketinterest ratesatthereporting datehasbeenassumed. impact recognisable inprofit orloss andequityofsuchchanges. in interest rates,thetheoretical valueofthepositionsfollowingapositiveornegative shiftintheyieldcurveanddif The followingtablereports theamounts recognised inprofit orlossandequityinrespect ofpositions sensitivetochanges value onprofit orloss. related cashflowswillmaterialiseatthesamematuritiesasinterest onthedebt,withnoimpactofchangesinfair the hedgedinstrumentmaterialise.Thecharacteristicsof CFHderivativesmirror thoseofthehedgedunderlying,so of thehedgedirectly inprofit orloss)andthenreversed through profit orlossinthesameperiodwhich thecashflowsof derivatives, thechangesinfairvalueofderivativemust berecognised inequity(recognising anyineffective portion in profit orloss,thereby offsetting thechangesinfairvalue ofthederivativerecognised inprofit orloss.ForCFH for FVHderivatives,anychangesinthefairvalueofhedged itemattributabletotheriskbeinghedgedmustberecognised accounting istorecognise theeffects ofthehedgesandhedgeditemsinprofit orlossatthesametime.Accordingly, to usehedgeaccountingensure theperfecttemporalmatchingofhedgeandhedgeditem.The aimofhedge of thehedge,asverifiedinitiallyandperiodicallyoveritslife, ishigh(between80%and125%),theCompanyhaselected Since thehedgingrelationship betweenthederivativeandhedgeditemisformallydocumentedeffectiveness to hedgetheexpectedcashflowsinrespect ofallother floating-ratedebt. swaps (FVH)tohedgethefairvalueoffixed-rateriskbondsand,onother, floating-to-fixedinterest rateswaps(CFH) As regards themanagementofinterest raterisk,Terna has,ontheonehand,entered intofixed-to-floatinginterest rate Sensitivity tointerest raterisk (fixed orfloating). The followingtableshowsthefinancialinstrumentsentered into byTerna, classified according tothetypeofinterest rate appropriate intimesofuncertaintyaboutfuture developmentsininterest rates. Interest ratecollarsare usedtolowertheimpactofvolatilityinterest ratesonthecostofdebt.Theyare consid cash flows,orviceversa. intervals, thefloating-ratecashflowsonaspecifiednotionalamountagainstfixed-rate(agreed betweentheparties) the volatilityofborrowing costs.Withaninterest rateswap,Terna agrees withacounterpartytoexchange,atspecific Interest rateswapsare usedinorder toreduce thevolumeofdebtexposedtofluctuationsininterest ratesandtoreduce vanilla derivativesare used,suchasinterest rateswapsandinterest ratecollars. temporal correlation betweenaveragecostofdebtandregulatory rateusedintheWACC formula,varioustypesofplain In order toreduce theamountoffinancialdebtexposedtoriskfluctuationsininterest ratesandtooptimisethe into floatingratesandderivativesthattransformfixedrates. Accordingly, thehedginginstrumentsused,atvariousmaturitydates,includebothderivativesthattransformfixedrates Asset Base(RAB). framework, whicheveryfouryearsestablishesthecostofdebtaspartformulatosetreturn ontheRegulatory of companyassets.Itpursuesaninterest rateriskhedgingpolicythataimstoreconcile thisapproach withtheregulatory generate financialexpense.Terna’s borrowing strategyfocusesonlong-termloanswhosetermreflects theusefullife risk isassociatedwithitemsofnetfinancialdebtandtherelated hedgingpositionsinderivativeinstrumentsthat In conductingitsoperations,Terna isexposedtotheriskoffluctuationsininterest rates.Itsmainsource ofinterest rate on thefairvalueorfuture cashflowsoffinancialinstruments. Interest rateriskisrepresented bytheuncertaintyassociatedwithmovementsininterest ratesthatcouldhaveanimpact Interest raterisk Total 3,260. 1,665. Liabilities Assets 1,130.9 Floating-rate financialinstruments 2,726. Liabilities Assets Fixed-rate financialinstruments

Dec.31, arigaon Carrying amount 2009 0 0 0 0 2941306.8 2,954.1 9 5.4 1,660.3 7 627.6 2,098.5 1 847326.2 804.7

arigaon Change Carrying amount e.3,20 Dec. 31,2008

ferential ered 125 Notes to the financial statements - Terna S.p.A. 126 Separate financial statements 2009 market: aguaranteesystem(bank guaranteesprovided byindividualdispatchingcustomers, basedontheirrevenue), the in theeventofactualinsolvency. Inparticular, theresolution establishesthree instruments tosafeguard theelectricity instruments forthelimitation of risksrelated totheinsolvencyofdispatchingcustomers,both onapreventive basisand Credit riskmanagement isguidedbytheprovisions ofAEEGResolution no.111/06,which,atart.49,introduced and doesnothavehighlyconcentrated credit risk. Terna provides itsservicestocounterpartiesconsidered solventbythemarket, whotherefore haveahighcredit standing, ratings andsuchtransactionsare diversifiedincompliancewithspecificconcentrationlimits. counterparties, incompliancewithfinancialriskmanagemen The credit riskoriginatedbyopenpositionsontransactionsinfinancialderivativesisconsidered tobemarginal sincethe of theCompany. financial lossbyfailingtodischarge anobligation.Itismainlygeneratedbytradereceivables andthefinancialinvestments Credit riskistheacustomeroroneofcounterpartiestotransactioninfinancialinstrumentscouldcause Credit risk debt fallingduediscussedinthesectiononlong-termloans ( million inmedium-termcredit linesand adequate linesofcredit andappropriate managementofanysurplusliquidity. AtDecember31,2009Terna had and operationalcycle.Liquidityriskmanagementseekstoensure adequatecoverageoffinancialneedsbyobtaining The liquidityriskistheTerna mightencounterdifficulty indischarging itsobligations inrespect ofitsfinancialliab Liquidity risk rate riskwere present. investment. AtDecember31,2009(aswasthecaseat2008),nofinancialinstrumentsexposedtoexchange repayment ofprincipaland/orpaymentsdividends,interest on During theyearnon-deliverableforward contracts were usedtohedgethecashflowsfrom Brazilinrespect ofthe estimated cashflowsoftheunderlyingposition. or depreciation oftheeuro againstothercurrencies isfullyoffset byacorresponding changeinthefairvalueand/or the expectedcashflows,sothatanychangeinfairvalueand/orestimatedflowsderivingfrom anappreciation Such contractshaveanotionalamountandmaturitydatelessthanorequaltothatoftheunderlyingfinancialliability, or maturities ofnomore than12months. at aspecificexchangeratetheendofperiodtime.Normally, bothforward contractsandoptionshave use ofoptions.Currency optionsgiveTerna therightorobligation to buyorsellpredetermined amountsofacurrency Generally Terna hedgesexchangerateriskthrough theforward saleorpurchase ofcurrencies (forward contracts)orthe Exchange raterisk financial expense. profit fortheyear:anydecrease inexpectedrevenue duetoadecrease intheinflationratewouldbe offset bylower the accruedimpactofinflation.In2007,Companyusedaninflation-linkedbondissuetoobtaineffective hedgeof as toallowcoverageofthesector’srecognised costs.Suchcost componentsare updatedonanannualbasistoconsider As regards inflationraterisk,theratesestablishedbyregulators toremunerate Terna S.p.A.’sactivitiesare determinedso Inflation risk yohtclcag . -. 26- -12.7 - -78.5 -5.8 -65.8 12.6 - -22.6 -53.2 -2.4 -16.8 -3.6 5.8 - -11.0 -1.2 -0.4 0.8 2.3 1.1 - 1.2 0.4 1.6 Hypothetical change (FVH, bonds,CFH) Positions sensitivetointerest ratevariations Dec. 31,2008 Hypothetical change (FVH, bonds,CFH) Positions sensitivetointerest ratevariations Dec. 31,2009 In millionsofeuros € 729 millioninshort-termcredit lines.Suchamountissufficient torefinance the urn ae Rtsa Cretrts urn ae Rtsa Current rates Ratesat Current rates Current rates Ratesat Current rates 1%Dc 120 1%+0 e.3,09-10% Dec.31,2009 +10% -10% Dec.31,2009 +10% Profit orloss t policies,are credit leadinginternational institutionswithhigh € 59.7 million). the intercompany loanandthesaleofBrazilianequity Equity € 1,550 ilities

128 Separate financial statements 2009 Changes intheprovision forbaddebtsinthecourseofyearwere asfollows: The followingtablebreaks downcustomerreceivables byage,reporting anypotentialimpairment: (**) Of which Includesreceivable accruedinrespect ofTELAT gridtransmissionfees. (*) The followingtablesprovide qualitativeinformationoncustomerreceivables thatare notpastdueandhavenoimpairment: assets (current andnoncurrent), tradereceivables andcashequivalents. The totalvalueoftheexposure tocredit rateriskatDecember31,2009isrepresented bythecarryingamountoffinancial The followingtablesummarisestheexposure tosuchriskasatthereporting date: specific feedefinedbytheAuthority. finally, thepossibilityofrecovering uncollecteddebts,afterhavingtakenallotherpossiblecollectionactions,through a option ofterminatingdispatchingcontracts(intheeventinsolvencyorfailure toreplace enforced guarantees)and, aac tDcme 1-70-11.7 -27.0 43.9 148.4 -11.7 1,717.7 -27.01,204.1 1,496.3 - -1.0 29.1 - 18.6 -10.7 15.6 1,134.3 - 35.6 -0.6 -2.0 -24.4 678.0 42.8 19.4 380.5 Balance atDecember31 43.2 88.9 Impairment fortheyear Reversal ofallowance 786.2 Balance atJanuary1 455.1 Total More than120dayspastdue 31-120 dayspastdue 0-30 dayspastdue Not yetpastdue 500.0 7.7 -528.9 0.0 -689.1 1,706.0 Totale 115.5 Receivables from unregulated activities 689.2 dispatchingcontractors(nondistributors) Withdrawal 500.0 Input dispatchingcontractors 1,177.1 Electricity EqualisationFund(**) 123.2 Distributors (*) 0.1 Total Other countries Brazil Euro-area countries Italy Total Trade receivables Cash andcashequivalents TELAT loan FVH derivatives In millionsofeuros In millionsofeuros In millionsofeuros CUSTOMER TYPE In millionsofeuros GEOGRAPHICAL DISTRIBUTION In millionsofeuros € 62.9 millionfrom volumeeffect ongridtransmissionfeesandDIS. o a et forbaddebts for baddebts Carrying amount Dec. 31,2009 rvso rs Provision Gross Gross Provision ,0. ,1. -710.3 2,510.7 1,800.4 2009 arigaon Change Carrying amount Dec. 31,2008 1,177.1 1,706.0 1,177.1 1,706.0 1,165.9 1,674.7 209.4 179.6 1. -1.8 -13.8 -15.3 -11.7 Carrying amount Carrying amount 10.1 26.6 2009 2009 2009 1.1 4.7 - 3.9 - 2008 2008 2008 2008 The value of guarantees received from eligible electricity market customers is illustrated below:

In millions of euros 2009 2008

Input dispatching activity 251.3 192.8 Withdrawal dispatching activity 851.3 1,025.6 Grid transmission fees - distributors 172.3 168.9 Balance at December 31 1,274.9 1,387.3

Default risk and debt covenants This risk is associated with the possibility that the loan contracts or bond rules to which the Company is party may contain provisions authorising counterparties to call in such loans immediately upon the occurrence of certain events, thereby generating liquidity risk. For more information on the contractual provisions of outstanding loans at December 31, 2009, please see the section “Loans and financial liabilities” in the notes to the financial statements of Terna S.p.A.

B. Operating segments

Consistent with the provisions of IFRS 8 - Operating Segments concerning companies that publish the consolidated financial statements of a parent in the same document as the financial statements of that parent, operating segment disclosures are provided for the consolidated financial statements only. Accordingly, please see the analogous section of the notes to the consolidated financial statements of the Terna Group.

C. Notes to the separate income statement

Revenue

1. Revenue from sales and services - €1,253.2 million

The table below details “Revenue from sales and services” for 2009 and 2008:

In millions of euros 2009 2008 Change

Grid transmission fees 1,087.7 1,045.4 42.3 Adjustments for prior year grid transmission fees 0.2 15.1 -14.9 Other energy revenue 91.5 48.4 43.1 Other revenue from sales and services 73.8 43.1 30.7 Total 1,253.2 1,152.0 101.2

Grid transmission fees This caption reports revenue from the Company’s core business, comprising fees paid to it for use of the national transmission system. The item amounted to €1,087.9 million in 2009, an increase of €27.4 million on 2008, attributable to: • the rate adjustment for the year in implementation of AEEG Resolution no. 188/08, as well as effects of the mechanism, established in the same resolution, to mitigate changes in the volume of electricity transmitted exceeding a range of +/- 0.5% (+€38.5 million); • greater NTG fees in respect of the defence plan (+€3.8 million); • a reduction in net adjustments for prior-year grid fees (-€14.9 million) compared with 2008, which had benefited from the release of the provision made in respect of a technical dispute with a dispatching withdrawal operator (€14.0 million). Notes to the financial statements - Terna S.p.A. Notes to the financial statements - Terna

129 130 Separate financial statements 2009 Total pass-through energy costs 5,218.4 6,545 5,218.4 Total pass-through energycosts Total 777.3 servicesandfees 19.6 116.5 andother Fees tobepaidNTGowners,GRTN 47.3 Other items(CBTandother) 7 613.5 Purchase ofenergy marketrelated services 5,7 Total 4,441.1 costs-Power Exchange 64.5 Other items-PowerExchange 559.3 Congestion rent -Res.no. 288/06 2.7 Electricity MarketOperatorfees 0.1 On theforeign market -imports 1,373.4 For unbalancing 2,431.6 To provide thedispatchingservice 718.1 9.5 On DayAheadMarketandAdjustment Energy purchases: 6,545.1 5,218.4 Total pass-through energyrevenue 755.4 Total 777.3 revenue from outsidethePowerExchange Revenue from grid transmission fees of other owners 19.6 and GRTN 116.5 share CIP/6 47.3 Other items(CBTandother) 709.1 613.5 Revenue underRes.nos.168/04-237/04andothers 5,789. 4,441.1 Total revenue -PowerExchange Revenue -PowerExchange: 188/08 ( Other items - Power Exchange 311.5 311.5 Other items-PowerExchange 733.4 Congestion rent -Res.no.288/06 1, 980.9 Ancillary serviceresources procurement 1,597.4 Imbalancing andothers 1,47 813.5 Market, AncillaryServicesMarketandothers Sale ofenergyontheDayAheadMarket,Adjustment 4.4 Foreign market-exports The componentsofthesetransactionsare detailedbelow. It alsoincludesthegridutilisationfeewhichTerna paystootherownersofthegrid. with theupliftfee. selling transactionsexecutedbyTerna onthe by theregulatory framework.Thenetcharge resulting from themeasurement oftheseimbalancesandthebuying from theenergy marketschedulesare calculated.Thesedifferences (imbalances)are measured usingalgorithmsestablished dispatching activities.To thatend,themeasurements ateachpointofinputandwithdrawalare takenandthedifferences arise inrespect ofdailypurchases andsaleswithoperatorsontheelectricitymarkettocarryouttransmission and This captionincludesrevenue andcostsofa“pass-through” nature fortheGroup (whosebalanceistherefore nil).They Other energyitems-pass-through revenue/costs Resolution no.206/08( mechanism linkedtothereduction ofvolumessourced ontheAncillaryServicesMarket(ASM),asenvisaged inAEEG and metering(MIScomponent).Theitemrose by This captioncomprisesfeespaidtotheCompanybyelectricitycompaniesfordispatchingservices(theDIScomponent) Other energyrevenue In millionsofeuros

€ 2.0 million). € 40.0 million),aswelltheadoptionofmitigationmechanismintroduced withResolutionno. Ancillary ServicesMark € 43.1 million,largely duetothegreater revenue from theincentive t are billedona ets

2009 pro rata ,5. 217.3 1,156.1 . -4.5 8.9 ,2. 168.8 1,428.6 58-3.1 5.8 5. 21.9 755.4 6720.6 26.7 20.6 26.7 . -1.6 1.7 7. -6.6 71.1 3077-636.1 3,067.7 6. -209.9 769.2 2. 183.8 127.7 -114.6 848.0 basis toeachconsumer 0. -922.2 903.1 91-95.6 09.1 -1,348.6 89.7 08Change 2008 . -659.9 3.4 .1 -1,326.7 .1 7 -1,348.6 7 -1,326.7 -708.6 96.9 -95.6 21.9 96.9 In millionsofeuros armoured plantforA2A( servicesinperformanceofcontractsfortechnicalandmanagement feesentered intoduringtheyearwith • ( provision forbaddebtsaccruedinrespect ofadispatchingcustomerfollowingtheapproval ofthecompositionagreement management feesfrom TELAT ( maintenance, whichhadpreviously beenrecognised inrespect ofEnelDistribuzione),andtechnicalservices maintenance ofhigh-voltageplant(+ Total 4 1.6 Other revenue 1.0 Sales tothird parties 4.1 Prior yearrevenue 4.8 Capital gainsonthesaleofplantparts 3.3 Insurance settlementsforlosses 9.3 Third partycontributionsforhigh-voltageconnections 17.9 Rental income underground alternating-current interconnection linebetweenItalyand Switzerland( customers, includingthoseunderthecontractwithEL.IT.E. fortheconstructionofamerchant lineinValtellina, the The increase of in theoperationandmaintenanceofplant. The itemtotalled 3. Rawmaterialsandconsumables- Operating expenses Other revenue andincometotalled 2. Otherrevenue andincome - contributionduetotheCompanyforcoverageofcostincurred the forelectricitydiscountstoitsemployees( • operation,maintenanceanddevelopmentoftheopticalfibre ownedbytheWindGroup hostedonTerna S.p.A.plant the • high- andvery-high-voltageservicesthattheCompanyprovides tothird-party customers( Other revenue from salesandservicesamountedto Other revenue from salesandservices The decrease of The increase of ( Rental incomemainlyregards rent from theWindGroup forthehousingofopticalfibre onthegrid( requests toconn • work onprojects underconstruction( • Distribuzione’s useoftheCompany'sinfrastructure forpowerlinecommunication( € € subsidiaries TELAT ( in theamountof (safety cables)( 3.6 million). 13.8 million).Theamountreflects revenue from: € € € € € 5.9 millionontheprevious year( 30.7 millionisessentiallyattributabletohigherrevenue from variousconstructionactivities(+ 2.1 millionisessentiallyattributabletogreater prioryear revenue in2008,mainlyduetotherelease ofthe € 17.7 millionin2009.Itcomprisescostsincurred forthepurchase ofsundrymaterialsandequipmentused ect tothe National Transmission Grid asper 2.1 million); 5.1 million). € 14.0 million)andSunTergrid ( € 1.4 million). € 14.0 million)andSunTergrid ( € 42.0 millionandbreak downasfollows: € € 3.2 million,includingrevenue from thecontractwithTELAT forhigh-voltageline 12.3 million); € 42.0 million € 11.8 millionin2008)isalmostentirely attributabletoactivitiesforexternal € € 73.8 millionandmainlyrelates torevenue from avarietyofspecialised 5.9 million,includingservicesfortheinstallationofphotovoltaicplants € 17.7 million € AEEG Resolutionno.281/05( 5.9 million)fortheappropriate period. 2009 2.0 44.1 -2.1 44.1 2.0 € 4.0 million). € 150.1 1.5 2.2 million)andthesupplyof 681.1 16.8 . -0.2 1.2 -3.1 7.2 € € 21.8 million)andsubsidiaries . 0.6 2.7 66-1.8 6.6 2.5 million); € 08Change 2008 811.2 8.1 12.6 million)andEnel € € 8.3 million), 1.4 million); 131 Notes to the financial statements - Terna S.p.A. 132 Separate financial statements 2009 In millionsofeuros • an increase an inwagesand othershort-termbenefits ( • reversal the oftheelectricitydiscount provision ( • Total 126 13.4 Use ofthird-party assets 4 IT services 12.6 Remote transmissionandtelephone 5. Insurance 56.0 Maintenance andsundryservices 33.7 Tenders onplants Personnel expensedecreased by provided forbythecurrent national labourcontractfortheelectricitysector. for earlyretirement incentives,aswell asbenefitspaidtoemployeeswhostaywiththecompany andterminationbenefits This captionincludesthecostofwagesandsalaries,social security contributionsandothercostsincurred bytheCompany Personnel expensebreaks downasfollows: 5. Personnelexpense- (*) Feesforthepositionwere paidtoCassaDepositiePrestiti. basis ofthetermoffice ofthepositiononanaccrualsbasis. Fees paidtotheStatutoryAuditorsofTerna S.p.A.are detailedinthefollowing table.Thetablehasbeenprepared onthe million), technical,professional andlegalservices( The increase of services ( transmission andtelephoneservices( maintenance andexpenditures forgeneralservices(atotalof The maincomponentsregard costsinrespect oftendersandservicesforroutine maintenanceoperationsandplant The tablebelowdetailsrevenue from servicesfor2009and2008: 4. Services- oz oez tttr uio Jn 9-Dc 9Apoa f21 5000 45,000.00 45,000.00 45,000.00 Approval of2010 45,000.00 Jan.09-Dec. StatutoryAuditor Approval of2010 Jan.09-Dec. StatutoryAuditor Pozza Lorenzo Cosconati Marcello* oa tttr uiosfe 4,0 145,000 145,000 55,000.00 55,000.00 Approval of2010 Jan.09-Dec. Total StatutoryAuditorsfees Chairman LucaAurelio Guarna al eieeticnie . . 0.6 -0.2 -10.0 5.9 0.2 -8.9 254.1 -26.8 - 6.5 244.1 -52.9 0.0 -61.8 17.6 -26.8 -1.2 231.3 16.7 248.9 Total 15.5 work Personnel expenseforcapitalisedinternal Personnel expense-gross Employees’ stockoptionplans Early retirement incentives Reversal ofprovision forelectricity discount Termination benefits,electricitydiscountandotheremployee benefits Wages, salariesandothershort-termemployeebenefits unm oiinTr fEpr f eueain Total term Remuneration Expiryof office Term of Position Name Surname In millionsofeuros which comprises anestimateofcharges forthe contract renewal; Enel ServizioElettricoafterthe redetermination ofthenumbereligibleTerna beneficiaries(retirees); € 4.9 million). € 15.6 millionismainlyduetotheincrease intendersand technicalservicesconnectedwithplant( € 126.3 million € € 182.3 million 18.9 million,largely attributabletothenet effect of: € 12.6 million),leasesandrentals ( € € 2.8 million)andhigherinsurancecosts( 26.8 million)followingtheagreement reached duringtheyearwith € 17.6 million)mainly asaresult oftheincrease inunitlabourcosts, financial statements financial statements financial statements € 89.7 million).Italsoincludescostsforremote € 13.4 million),insurance( 8. 0. -18.9 201.2 182.3 2009 2009 3 10715.6 110.7 .3 0.3 4.6 .9 . 0.9 4.8 7 429.5 24.2 39-0.5 13.9 € 0.9 million). 095.1 50.9 230.3 12.3 08Change 2008 08Change 2008 € 5.7 million)andIT € 9.5 **) Theamountregards compensationforpositionasChairmanoftheBoard ofDirectors ofTELAT from October16toDecember (****) These amountsare reported bothtothevariableportionofremuneration linkedtospecificobjectives fortheyear2009 (***) Feesforthepositionwere paidtoEnelS.p.A. (**) Feesforthepositionwere paidtoCassa DepositiePrestiti. (*) increase an incapitalisedpersonnelexpense( • value oftheliabilityforemployeebenefitsandmainassumptions usedintheactuarialestimate. Reference shouldbemadetosection“24.Employeebenefits”forthereconciliation oftheopeningandclosingpresent The netchangeintheaveragenumberofemployeeson endof2008wasanincrease of7. The followingtableshowsthenumberofemployeesbycategoryatyearendandaverageforyear: loans ofthetermoffice ofthepositiononanaccuralsbasis. The feespaidtotheDirectors ofTerna S.p.A.are summarisedinthefollowingtable.Thetablehasbeenprepared onthe oa ,1 ,1 ,4 3,524 1,907 3,447 65 485 1,067 1,874 3,511 65 1,020 488 1,895 3,518 1,073 475 68 1,908 1,058 485 67 Total Production workers Office staff Junior management Senior management ipl Drco a.0 Apoa f21 50085,000 75,000 3,065,833 20,833 135,000 1,000,000 25,000 700,000 75,000 1,345,000 125,000 25,000 financialstatements Dec.09 85,000 75,000 financialstatements Dec.09 Approval of2010 620,833 Approval of2010 Jan.09 financialstatements 20,833 135,000 Dec.09 Director Jan.09 1.900,000 Total Directors fees financialstatements Approval of2010 Director Vittorio Dec.09 25,000 Rispoli financialstatements Jan.09 Dec.09 Michele Director financialstatements Approval of2010 75,000 Polo Dec.09 Salvatore Jan.09 1,000,000 125,000 Approval of2010 Machì Director financialstatements Claudio** 700,000 Jan.09 financialstatements Approval of2010 Dec.09 25,000 Machetti Dec.09 Director Jan.09 Matteo* 200,000 Approval of2010 Del Fante Director Approval of2010 Paolo Jan.09 600,000 financialstatements Dal Pino Jan.09 Dec.09 Director Cristiano* Approval of2010 CEO Director Cannarsa Jan.09 Flavio Chairman/ Cattaneo Luigi Roth aeoffice incen Expiryofterm Term of Position Name Surname

€ 8.9 million)asaresult ofincreased capitalexpenditure duringtheyear. eueainBnsadohrOhrOhrTotal Other Other andother Bonus Remuneration 2009 Average number ie**cmesto**compensation**** compensation*** tives*** 2008 Dec. 31,2009 andtothesalaryasamanager. Number at 31, 2009. Dec. 31,2008 133 Notes to the financial statements - Terna S.p.A. 134 Separate financial statements 2009 In millionsofeuros net accrualstoprovisions of • lowerprioryearexpenses( • increased accrualstotheprovision forbaddebtswhichare reasonably unlikelytobecollected( • lossesofproperty, impairment plantandequipmentintangibleassets( • increased amortisationanddepreciation ( • The itemfellby Other operatingexpensesbreak downasfollows: 7. Otheroperatingexpenses- The captionshowsanincrease ( The compositionofandchangesintheitemduringyearare reported inthefollowingtable: bad debtsrelating toreceivables foritemswhichare reasonably likelytobeunrecovered. useful livesoftheCompany’sproperty, plantandequipmentintangibleassets,aswellaccrualstotheprovision for These relate toaccrualsduringtheyearcalculatedonbasisofamortisationanddepreciation ratesthatreflect the 6. Amortisation,depreciation andimpairment losses- te prtn xess48440.4 -1.8 -0.2 4.4 4.1 4.8 -0.8 0.7 4.8 2.3 3.7 4.6 2.9 2.9 3.6 Total Other operatingexpenses Losses onthedisposal/retirement ofplants Prior yearexpenses Local taxesandduties Provisions forcontingenciesandcharges mriain3. 466.4 19.5 12.3 24.6 228.9 1.8 31.0 248.4 14.1 2.8 0 2.8 Total Impairment oftradereceivables Impairment ofproperty, plantandequipmentintangibleassets Amortisation Depreciation In millionsofeuros € been abandoned; intangible assetsenteringserviceduringtheyear; the ElectricityEqualisationFundbyResolutionno.333/07to coversupplyinterruptions. 11.0 millioninrespect ofdispatchingitems). € 1.7 millionontheprevious year, largely thenet result ofthefollowingfactors: € € 1.8 million)andcapitallossesonthedisposalretirement ofplantparts( 0.7 millionforthecontributiontobepaidProvision forExceptionalEventssetupwithin € 41.0 million)on2008,theneteffect ofthefollowing: € € 25.9 million)oftheCompany’snewplant(inparticularSA.PE.I.firstpole)and 18.2 million € € 2.8 million)forprojects thathavecurrently 296.3 million 9. 5. 41.0 255.3 296.3 821. -1.7 19.9 18.2 2009 2009 € 08Change 2008 08Change 2008 12.3 million,ofwhich € 0.8 million); In millionsofeuros • the recognition the offinancial expenseinrespect ofsubsidiariesforinterest onthecorrespondent accountswithTELAT • increased capitalisedfinancialexpense( • decreased financialexpenseinrespect oftheaccretion ofemployeebenefit provisions ( • • the negativeimpact(- the • increased interest expenseonshort-termloansandother financialexpense(- • increased financialexpensein respect ofmedium/long-termdebt (- • decrease a innetincomefrom non-hedge-accountingderivatives(- • netgainfrom the theadjustmenttofairvalueof bondsandrelated hedgescompared withtheprevious year( • lowerfinancialincome(- • financialincomeontheloangrantedduringyeartosubsidiaryTELAT ( • financialincomeaccruedintheyearonloangrantedbyTerna toTerna Participações( • increased financialincomeasaresult ofTerna’s subscriptionofbondsissuedbyCassaDepositiePrestiti ( • financial income.Theincrease of oa xes 105-4. -34.8 3.6 -145.7 7.6 -180.5 -23.0 -1.2 9.8 -0.1 4.5 -2.2 11.2 0.0 0.0 21.6 -4.5 -25.2 -11.4 -1.2 31.4 2.2 -0.1 1.1 3.1 -9.8 0.0 -0.5 1.2 -1.2 14.3 0.0 -8.3 -6.8 0.0 20.4 Net financialexpenseamountedto -11.9 0.0 1.2 0.0 Total -139.3 2.2 -5.7 10.6 3.1 Total expense Capitalised financialexpense 1.2 Interest expense onshort-termloansandotherfinancialexpense 0.0 Discounting ofterminationbenefitsandotherpersonnel-related provisions 14.3 -147.6 Debt adjustment(bonds)andrelated hedges derivatives onexchangerates Exchange ratedifferences and related non-hedge-accounting Financial expensetosubsidiaries Financial expensetoparent Interest expenseonmedium/long-termloansandrelated hedges Financial expense Total income Interest incomeandotherfinancial Debt adjustment(bonds)andrelated hedges Income onnon-hedge-accountingderivatives Financial incomefrom subsidiaries Interest incomefrom Terna Participações Financial incomefrom parents Financial income The captionbreaks downasfollows: 8. Netfinancialexpense- Financial incomeandexpense Prestiti bytheEuropean Investment Bank(EIB)inthemaximum amountof agreed inFebruary2009andnot yetdisbursed,whichgivesTerna accesstofundsmadeavailable toCassaDepositie and SunTergrid ( payments from Terna Participações( mitigate theriskassociatedwithvolatilityofexchange ratesinrespect ofthedividendsandintercompany loan charges (- offset bythereduction inmarketinterest rates; million), compared withnetupliftincomeof activities ( on investedliquidity(- € € 2.4 million)andthenetexpenseforuplift(recognised underotherfinancialexpenseintheamountof 11.8 million)fortheyear; € 0.1 million),aswellcostsin respect ofCassaDepositiePrestiti ( € € 23.0 million)mainlyattributabletohedgesnotqualifyingfor hedgeaccountingentered intoto 8.9 million),greater defaultinterest forlatepaymentofreceivables inrespect ofdispatching € 9.8 million)dueessentiallytothejointeffect ofthegeneraldecrease intheinterest ratespaid € 25.0 millionwithrespect to2008isthenetresult ofthefollowingmainfactors: € € 149.1 million,comprising € 149.1 million 7.3 millionand € 3.6 million)duetogreater capital expenditure duringtheyear; € 3.4 milliontheprevious year; € 17.9 millionrespectively); € € 180.5 millioninfinancialexpenseand 1.2 million)followingthedisposalofportfolioin2008; € 8.3 million)duetotheincrease inborrowing, partially € 500 million. 191-2. -25.0 -124.1 -149.1 € € 11.4 million),largely attributabletouplift 2009 2.2 million); € 1.2 million)forfeesontheloan € 1.1 million); € 14.3 million); 08Change 2008 € 31,4 millionin € € 3.1 million); 5.7 million); € 11.8 135 Notes to the financial statements - Terna S.p.A.

recognised in2008( deferred taxincomeinrespect oftheprovision forbaddebtsaccrualstheyear( personnel expenseintaxableincomeforthepurposesofIRAP (regional businesstax). The effective taxrateishigherthanthetheoretical rate(33.3%),essentiallyduetothedistortingeffect oftheinclusiono 2008, takingaccountofthereclassification oftheBrazilianoperations. Total 179 -5.2 Adjustments toincometaxesofprevious years -29.9 Total netdeferred taxexpense 0.0 Rate adjustment Deferred -32.8 taxexpense 16.7 Deferred taxincome Reversal oftemporarydifferences: 0.0 Deferred taxexpense -13.8 Deferred taxincome Temporary differences: Total 214.6 current taxes 50 IRAP 163. IRES Current taxes: Income taxes The effective rateofincometax(whichtotalled years asaresult ofnotdeductingIRAPintheamountprovided forunderthelaw( art. 6ofLawno.2January28,2009,thereceivable duefrom taxauthoritiesforexcessincometaxespaidinprevious Adjustments toincometaxesofprevious yearsamountedto- Adjustments toincometaxesofprevious years Net deferred taxexpenseof Deferred taxincomeandexpense Current taxesincreased by Current taxes The followingtablereports changesintaxeswithrespect to2008: Income taxesfortheyearamountto 9. Incometaxes- by Terna Participações. discontinued operationsandassetsheldforsale”,thebalances2008havealsobeenstatednetofdividendsdistributed In linewiththeseparaterecognition oftheproceeds ofthedisposalTerna Participaçõesas“Profit fortheyearfrom In millionsofeuros € 1.0 million). € € 179.5 million € 13.6 millionontheprevious year, essentiallyduetohighertaxableincome. 29.9 millionshowedanetincrease of € 179.5 million. € 179.5 million)ontaxableincomecameto35.5%,downfrom 36.9%in € 5.2 millionandmainlyregard therecognition, pursuantto € 3.9 millionon2008.Thechangeprimarilyreflects 2009 € 5 1464.9 174.6 .5 5.2 45.5 .7 4.2 million). 5. 8.4 155.5 9 03-0.3 0.3 1. -1.9 18.6 000.0 0.0 -330.5 -33.3 -2.2 -11.6

21013.6 201.0 € 2.2 million)andtherelease

-26.0 -3.9 -26.0 -. -4.8 -0.4 08Change 2008 f 137 Notes to the financial statements - Terna S.p.A. 138 Separate financial statements 2009 operations andassetsheldfor salein2009: The followingreports thecomposition oftheincomestatementbalancesthatgaveriseto theprofit from discontinued Terna S.p.A. the balanceforprevious year, equalto For comparativepurposes,the itemalsoincludesthecostandrevenue itemsoftheBrazilian companies.More specifically, from discontinuedoperationsandassetsheldforsaleto amounted to net gainfrom thedisposalcomesto in respect ofcontractualandtaxobligationsderivingfrom thetransaction andcostsdirectly attributabletothesale, exchange ratehedges( The priceforthesaleofequityinvestment(recognised intheamountof net dividendsdistributedbyTerna Participaçõesbefore thedisposalinamountof • • the capitalgainonthedisposalofBraziliansubsidiariesinamount the • Terna Participações.Inparticular, itreports: reports theoverallimpactonincomestatement( In accordance withtheprovisions of“IFRS5-Non-current assetsheldforsaleanddiscontinuedoperations”,thiscaption 10. Profit fortheyearfrom discontinuedoperations theoretical taxratewiththeeffective taxratefortheyear: For aclearer presentation ofthedifferences betweenthetheoretical andactualtaxrates,thetablebelowreconciles the RP-at a aur 8 09 06-0.1% -0.6 0.5% 2.3 Effective taxrate Total taxesfortheyear 139.0 Prior yeartaxes 505.3 to incometaxesofprevious years Effective taxratenetofadjustments Other increases/decreases Provision forbaddebts Personnel expense Permanent IRAPdifferences Brazil capitalgain IRAP -art.6LawJanuary28,2009 Other increases/decreases Non-deductible telephone,rental andotherexpenses Permanent IRESdifferences Theoretical taxrate Total on operatingprofit of IRAP -theoretical taxcharge(4.48% IRES -theoretical taxcharge(27.50%) Profit before taxes In millionsofeuros andassetsheldforsale- directly attributablecosts,hedgingderivativesandtaxesonthetransaction; € 79.5 million,netoflocalwithholdingtaxonexpatriatedcapital of € 5. ilo)29.3 654.4 million) € 105.3 million),amountedto € 385.0 million.Dividendsdistributedbefore thesalebyTerna Participações,which € € 36.8 million,regards dividends for2008distributedbyTerna Participações to 464.2 million € € 464.2 million)ofthedisposalBraziliansub-holdingcompany 727.2 million.Netoftotaltaxes € 464.2 million. Taxable income Tax % Change % Tax Taxable income € 210.7 millionatthetransactiondate),netof € € 385.0 million,netofcoststosell,other 0.3 million,bringtheprofit fortheyear € € 79.2 million. 84.7 million,thelikelycharges 179.5 168.3 202.4% 12.0 52-1.0% 0.0% -5.2 -0.1 . 0.1% 0.6 0.4% 2.2 35.5% 36.6% 33.3% tDcme 1 083. 450 ,5. 1. 2. 936 5,415.6 5,976.3 -4,623.4 903.6 815.1 - 25.7 40.7 -248.4 -4,442.0 -43.5 14.2 - 15.0 - -38.3 3,958.5 4,469.5 -10.0 475.0 -40.1 -4,268.8 - 582.3 1.0 67.0 59.4 0.75.9 10,599.7 -272.8 -2.9 38.6 -36.2 815.1 53.7 - - - At December31,2008 -4,109.2 - -218.2 -0.8 0.10.7 84.2 - At December31,2009 -256.5 -17.3 9,857.6 Carrying amount 53.3 - 903.6 at Dec.31,2009 - and impairmentlosses Accumulated depreciation 8,738.3 Reclassifications 65.8 - - -2.1 -62.9 -0.7-6.0-3.0 Disposals 2.5-0.1-2.4-1.4 -74.7 - 855.1 Depreciation forthe year 1.4 50.4 at Jan.1,2009 53.7 and impairmentlosses - Accumulated depreciation 0.1 12.0 0.33.79.5 17.3 8,067.7 -892.1 - 805.9 Cost atDec.31,2009 831.5 Reclassifications 13.6113.7747.5 731.5 Other losses Disposals andimpairment 38.6 Plant Investments changes - start-up Cost atJan.1,2009 -16.8 - 2.1 In millionsofeuros -14.7 (grants) D. Notestotheseparatestatementoffinancialposition changes foreachcategoryare reported inthefollowingtable: Value ofequityinvestmentinTerna Participações Sale price Property, plantandequipmentamountedto 11. Property, plantandequipment- Assets Profit fortheyearfrom discontinuedoperationsandassetsheldforsale Dividends received before thedisposal Net capitalgain Reasonably likelyfuture chargesinrespect ofthedisposal Costs directly attributabletothedisposal Taxes inrespect ofthedisposal Derivatives hedgingthedisposal Gross capitalgain In millionsofeuros adBidnsPlantand Buildings Land € 5,976.3 million( € 5,976.3 million machinery € 5,415.6 millionatDecember31,2008).Theamountofand commercial equipment Industrial 832.5 385.0 assets Other 621.8 84.7 105.3 4.4 79.2 and payments Assets under 210.7 construction on account 42.4 464.2 Total 139 Notes to the financial statements - Terna S.p.A. 140 Separate financial statements 2009 In millionsofeuros ( work onrationalisingtheBussolengoarea ( more than In termsofassetsunderconstructionattheendyear, themaingriddevelopmentandre-powering projects worth Alta Valcamonica line( Turin ( project ( million), rationalisationworkonthe132kVVal d’OssolaSudline( work ontheRomeheadquarters( million) andprogress onthe380kVSorgente-Rizziconi powerline( Expenditure ontheItaliantransmissiongrid( ( Disposals, impairmentlossesandotherchanges Depreciation Bussolengo station Bussolengo station Cagno station Castegnero station Brindisi Pignicelle SA.PE.I. station(FiumesantoandLatina) Transformation stations Rationalisation inprovince ofLodi Rationalisation ofTurin systems Reorganisation ofPalermoarea Villarodin-Venaus Santa Barbara-Tavarnuzze-Casellina AEM Moncalieri Valcamonica Sorgente-Rizziconi SA.PE.I. Transmission lines ( The itemshowsanincrease ontheprevious yearof Total Total investments A summaryofchangesinproperty, plantandequipmentduringtheyearisprovided inthetablebelow: for remote managementandthenationalelectricitycontrol system. The caption“Plantandmachinery”includestheelectricitytr Other Other Transformation stations Transmission lines Capital expenditure

€ € € 11.5 million)andanewarmoured sectionattheCagno station( 22.4 million)anddepreciation ( 831.5 million,ofwhich € 17.9 million),therenovation andupgrading ofthePiossascoplant( € 20.2 million),developmentoftheopticalfibre network ( € 10 millionare listedbelow.

€ 15.8 million),thestationforconnectionofFoggia-Beneventowindplants( € 11.2 millionforcapitalisedborrowing costs),disposals,impairmentlosses andotherchanges € 248.4 million). € 30.4 million),workonthe380kVCasellina-Tavarnuzze-Santa Barbara line ( € € 11.6 million),theconnectiontoTirreno PowerplantatNapoliLevante 831.5 million)included:constructionoftheSA.PE.I.undersealine( € 560.7 millioninrespect ofordinary changesforcapitalexpenditure ansmission grid,thetransformationstations,centralsystems € € € € 18.9 million),rationalisationofsystemsforthecity 10.7 million). 22.0 million),expenditure ontheintrusionprevention 47.3 million).Otherexpenditure includedrenovation € 16.3 million),therationalisationof220kV

560.7 136.7 50,900,580 -248.4 13,776,570 27,432,380 12,117,380 15,971,750 25,994,390 316.9 10,198,880 13,086,700 35,226,960 831.5 377.9

13,238,520 10,625,970 14,468,630

66,168,990 25,808,480

-22.4 € 11.9 million), € In euros € 113.6 25.2 The increase ontheprevious year( orpurchased aspartofprogrammesinternally externally forthedevelopmentandevolutionofsystems. ot15417082300.6 -31.0 8.2 176.2 -124.4 - - 176.2 8.2 - 157.0 40.6 -0.6 -38.9 8.2 135.4 40.4 -25.4 167.2 55.9 -0.5 For adiscussionofdeferred tax assets,pleaseseenote“26.Deferred taxliabilities”. -101.1 38.9 14. Deferred taxassets -5.6 7.2 55.9 112.1 -23.3 -0.2 - -0.1 112.1 42.3 - ( concession forelectricitytransmissionanddispatchingactivities inItaly, whichwasinitiallyrecognised in2005atfairval 117.7 Intangible assetsamountedto Balance atDec.31,2009 Accumulated amortisation Cost Balance atDec.31,2009 Amortisation Disposals andimpairmentlosses Entry intoservice Investments Balance atDec.31,2008 Changes duringtheyearinintangibleassetsare detailedbelow: 13. Intangibleassets- discount rates,confirmingthefullrecoverability ofgoodwill. The sensitivityanalysisconducteddidnotproduce anysignificant impactonthevaluation,evenwithuseofhigher than thecarryingamount. The discountratewassetataweightedaveragecostofcapital4.95%.valueinusethusdeterminedhigher years thecashflowprojection wasbasedonthedevelopmentofoperationsinlinewithlastyearbusinessplan. and assumptionsitusesfordevelopmentsintheCompany’sperformancefinancialposition,whilesubsequent particular, cashflowswere determined,upto2014,onthebasisofapproved businessplan,drawingontheforecasts terminal valuewasassumedtobeequaltheremuneration ofnetinvested(RAB-RegulatoryAssetBase)in2020.In The discountingofthecashflowswasperformedwithrespect totheperiod2010-2020,inlinewithforecasts, andthe forecasts andassumptionsitusesfordevelopmentsintheCompany’sperformancefinancialposition. future cashflows.Inparticular, cashflowswere determinedonthebasisofapproved businessplan,drawingonthe cash flowmethod,whichinorder todeterminethevalueinuseofanassetappliesappropriate discountrate to estimated Terna CashGeneratingUnit(CGU)recognised infinancialstatement, The recoverable amountofthegoodwill(recognised asaresult ofthemerger ofRTL intoTerna in2008)respect ofthe Cash GeneratingUnit-Terna Impairment testing Goodwill cameto 12. Goodwill- the electricalsystem( remote managementsystemfordispatching( ( million). Investmentsfortheyear( In millionsofeuros € € 40.6 million),mainlyonapplicationssoftware, disposalsandimpairmentlosses( 135.4 million)andsubsequentlymeasured atcost.Otherintangibleassetsincludeapplicationssoftware developed € 88.6 million,unchangedontheprevious year. € € 88.6 million 2.1 million),aswellgeneralapplicationsandsoftware licenses( € € € 176.2 million( € 176.2 million 40.6 million)includedexpenditure onthedevelopmentandevolutionofsoftware forthe 9.0 million)isattributabletoordinary changesduringtheyearduetocapitalexpenditure € 9.9 million),forthePowerExchange( € 167.2 millionatDecember31,2008).Thecaptionmainly includes the ocsin Other Assets Total under Concessions € 88.6 million,wasestimatedusingthediscounted sesdevelopmentand assets € € 0.6 million),andamortisation( 4.7 million)andfortheprotection of payments onaccount € 17.2 million). € 31.0 ue 141 Notes to the financial statements - Terna S.p.A. 142 Separate financial statements 2009 In millionsofeuros with datadrawnfrom themostrecent approved financialstatements: The followingtablesummarisesTerna S.p.A.’s direct investmentsinsubsidiariesandassociatesat December31,2009, please seethesection“Significanteventsin2009”. management ofthepowergenerationhubinTunisia fortheItaly-Tunisia interconnection project. Formore information, thepreparationconcerning ofdocumentsfortheTunisian callfortenderstheconstructionand government’s Terna andSociétéTunisienne del’ElectricitéetduGaz(STEG)whosemainpurposeisthestudyandpreliminary consulting Sàrlwasestablished.Thislimited-liabilitycompanyisanequally-held jointventure between In April2009,ELMEDÉTUDES area. experimental research relating totheelectro-technical fieldingeneralandtechnicalscientificdevelopmentsthat CESI S.p.A.operatesintheconstructionandmanagementoflaboratoriesplantsfortests,inspections,studies and • the holdingof30.91%intheassociateCESIS.p.A.( the • “Investments inassociates”andjointventures” regard, respectively: InTernational). h odn f5%i h on etr LE TDSSàrl( holdingof50%inthejointventure the ELMEDÉTUDES • and totherecognition oftheshareholder capitalpaymentof by thesubsidiaryinamountof capital ofTELAT S.r.l. inApril,equalto are givenbelow. Theincrease ( “Investments insubsidiaries”refers toinvestmentsinsubsidiaries directly heldbyTerna S.p.A.,ofwhichfurtherdetails the intercompany loantoTELAT S.r.l. andthefairvalueoffinancialderivatives. “Non-current financialassets”,equalto The followingtabledetailsfinancialassetsrecognised byTerna S.p.A.: 15. Financialassets urn iaca ses53367496.6 500.0 7.7 497.0 6.7 0.0 0.7 -0.4 2.0 6.3 115.5 867.3 503.3 356.9 500.0 123.2 0.4 0.0 4.6 503.3 331.6 211.5 1,198.9 - 0.7 6.6 568.4 Current financialassets Other current financialassets Deferred assetsonCFHderivativecontracts Non-current financialassets FVH derivatives TELAT loan Investments injointventures Investments inassociates Investments insubsidiaries 4.68% respectively); to theacquisitionofadditionalstakesincompanyduringyearfrom A2AS.p.A.andSiemens(1.871% € 356.9 million)onDecember2008isattributabletotheacquisitionofentire share € 600.0 million,tothedisposalofholdinginTerna Participações(- € € 1,157.7 million,subsequentlyreduced followingtherepayment ofshare capital 1,198.9 million,reported thevalueatDecember31, 2009ofequityinvestments, € 6.6 million),anincrease of € 0.7 million),acquired inApril2009. € 10.0 milliontothesubsidiarySunTergrid (formerly Dec. 31,2009 Carrying amount € 2.0 millionontheprevious yeardue e.3,20 Change Dec. 31,2008 € 210.8 million) • a decrease a indeferred financialassetsintheamountof • subscriptioninthefinalquarterofyearthree the securitiesissuedbyUBSandMPSforatotalof • the followingfactors: of securitiesissuedbyUBSandMPS( “Current financialassets”cameto the intercompany loantoTELAT S.r.l. ( increase ( The fairvalueoftheFVHderivativeshedgingCompany’sbonds,equalto yearly couponslinkedto6-monthEuriborplusaspread of250basispoints. resources torepay theshare capital.Theloanhasatermof5years,willberepaid infullatmaturityandwillpayhalf- On November16,2009Terna S.p.A.granteda loanof eoiainRgsee uiesatvt urnySae odn Carrying %holding Share Currency Businessactivity Registered Denomination ELMED ÉTUDES Sàrl Sàrl CESI S.p.A. S.p.A. CESI S.p.A. SunTergrid TELAT S.r.l. € 7.7 million)onDecember31,2008,mainlyduetothedeclineinmarketinterest ratesduring2009. fie aia amountineuros capital office ui Tnsa ,0,0 5%734,0 50% 2,700,000 Tunisian Tunis oeEr 2,0 0%10,672,709 100% 120,000 Euro 6,618 30.91% 8,550,000 Euro Milan Rome oeEr 4,7,5 0%557,666,437 100% 243,577,554 Euro Rome Tunisia interconnection ofItalyand involved intheproject forthe generation siteinTunisia management oftheelectricity construction tendersandthe tender documentationfor consulting forthepreparation of Analysis andpreliminary research Experimental electro-technical sale inItalyandabroad generation, forownuseand electricity, includingrenewables and plantsforthegenerationof of electricitytransmissiongrids Construction andmaintenance high-voltage powerlines operation andmaintenanceof management, development, Design, construction, € 503.3 million( € € 2.2 million).Theincrease ontheprevious year( 500.0 million)andinterest accruedandnotyetcollectedatthe reporting dateon € 6.7 millionatDecember31,2008),mainlyregarding thesubscription Subsidiaries Associates € € 500 milliontoTELAT S.r.l. togivethecompanyfinancial 3.4 million. Dinar € 123.2 millionattheendofyear, an € 496.6 million)isthenetresult of € 500 million; 95 ,241 143 Notes to the financial statements - Terna S.p.A. 144 Separate financial statements 2009 In millionsofeuros othertaxreceivables ( • ordinary maintenanceofplantinItaly. equipment usedintheoperation,maintenanceandconstruction ofplants;thedecrease of “Other current assets”amountto previous yearandrelate mostlytoloansandadvancespaidemployees( receivables from others( • VAT credit. The itemshowsanincrease of te rd eevbe 854. -4.4 10.1 -528.9 1,706.0 - 42.9 -627.5 92.9 1,177.1 1,471.4 38.5 10.1 191.7 843.9 284.6 Trade receivables Receivables from subsidiaries Other tradereceivables Receivables fortransmissiongrid fees Energy-related receivables Trade receivables are composedasfollows: 18. Trade receivables - Inventories undercurrent assetsamountto 17. Inventories- “Other non-current assets”( 16. Otherassets te urn ses2. 115.4 - 21.1 4.0 0.2 0.9 26.5 13.7 0.2 0.1 0.8 4.6 17.7 0.3 4.3 5.5 0.4 5.1 Other current assets Others Advances toemployees Receivables duefrom others: Other taxreceivables Other non-current assets Assets ondepositwiththird parties Loans andadvancestoemployees Receivables duefrom others: In millionsofeuros • • • • • • Distribuzione ( attributable tocostsoncontractsuseassetsthatTerna tookoverfollowingthetransferofplantfrom Enel of taxeswithheldbyBraziliantaxauthoritiesoninterest accrued ontheintercompany loantoTerna Participações; authorities forindirect taxesinrelation totheactivitiescarriedoutbyTerna’s branchinGreece and tax receivables accruedabroad ( sundry advancestoemployees( receivables forinsurancereimbursements accruedintheyearbutstillnotpaid(about assets intheamountof VAT receivables ( withholding taxoninterest incomeaccruedoninvestments ( € 0.9 million)andinsurancepremiums ( € 1.3 million). € € 17.7 million),mainlyrelated to: 11.7 million € € 8.8 million),mainlyregarding: € 5.5 million),detailedabove,havenotundergone anysignificantchangeswithrespect tothe € 4.0 millionreferred tocostsalready paidbutpertainingtosubsequentyears,mainly 4.0 millionontheprevious year, mainlyattributabletotheBrazilianwithholdingsand € € 1,177.1 million 26.5 million( € € 0.2 million)andnon-Group suppliers( 13.0 million),ofwhich € 11.7 million( € 21.1 millionatDecember31,2008)andmainlyrelate tothefollowing: € € 2.8 million); 16.6 millionatDecember31,2008)andincludematerials € 8.8 millioninrespect ofreceivables from theGreek tax € 3.0 million); Dec. 31,2009 Dec. 31,2009 € € 5.1 million). 0.5 million). . . 1.4 7.2 8.6 € 1.0 million); e.3,20 Change Dec. 31,2008 € e.3,20 Change Dec. 31,2008 4.9 millionismainlydueto € 2.3 millioninrespect The latterbreak downasfollows: third-party customers. the employeeelectricitydiscount( months oftheyear),aswellreceivable fortransmission feespertainingtoTELAT ( for more detailsplease seesection“I.Notestothestatementofcashflows”. on handheldbyoperationalunits oftheParent. Theitemdeclinedcompared withDecember31,2008,by Cash andcashequivalentsat December31,2009amountedto 19. Cashandcashequivalents - issued tosecure contractualobligationsassumedinrelation tooperatingactivities. The amountofguaranteesissuedbyTerna tothird partiesattheendof2009was management ofTELAT andSunTergrid. The itemamountsto Receivables from subsidiaries- connection ofrenewable resource plantsforthelastfouryears( ( Other tradereceivables mainlyregard receivables duefrom Italiancustomers ( Other tradereceivables - no. 188/08( the receivable from theElectricityEqualisationFundinrespect ofthemitigationmechanismprovided forunderResolution The increase of for thefinaltwomonthsofyear, fallingdueinJanuaryandFebruary2010. use oftheNationalTransmission Gridbydistributorsandelectricitygenerators.Mostofthereceivable regards thefees The receivable fortransmissiongridfeesof Receivables fortransmissiongridfees- exceptional strainsonthenationalelectricitysystem( electricity grids( Resolution no.203/08,whichspecifiedtheprocedures forcoverageofcostsinrespect ofelectricitytransitingonforeign below, byadecrease inpayablesforpurchases onthePowerExchange),dueinparticulartoapplicationofAEEG in respect ofsalesonthePowerExchange( The balanceshowsadecrease of no. 237/044). caption alsoincludesreceivables forfeespayablebymarketoperatorsdispatchingactivities(DISfeeasperResolution They mainlyincludereceivables inrelation topass-through energy itemsarisinginrespect ofdispatchingactivities.This Energy-related receivables - Trade receivables amountedto € Resolution no.34/09( which ledtoareduction inthevolumesandpricesofunbalancing,aswellearlyinvoicingadjustmentsunderAEEG adjustment intheprovision forbaddebts( Receivables are measured netofimpairmentlosses,relating toitemsconsidered uncollectibleandrecognised asan originating inrespect ofdispatchingactivities. with oa 981. . 23371.4 1.4 3.7 3.7 -2.3 -2.3 2.6 2.6 12.4 12.4 -9.8 -9.8 Total Others In millionsofeuros € 193 million). 4.6 million),from theEqualisationFundforcontribution grantedtotheCompanycovercostincurred inthe € 10.3 millionforenergy-related itemsand € 61.0 million,includingtheamountgrantedforportionofNTGpertainingtoTELAT forthelastnine € € 92.9 millioninthereceivable compared withtheprevious yearislargely attributabletotherecognition of 93.3 million)andlimitedrecourse tosupplementaryoffers ontheDayAheadMarkettosituationsinvolving € € 95.5 million).Finally, there wasasubstantialdecrease inthereceivable foruplifttheyear(about 10.1 millionandregards receivables inrespect ofcontractsforthecoordination andoperational € 38.5 million € 843.9 million € € € € 1,177.1 million,down 627.5 millioncompared withtheprevious year, mainlyattributabletolowerreceivables 10.1 million 1.4 million)andreceivables forlong-termcontractwork inprogress ( € 22.3 millionforenergy itemsand € € € 284.6 million 284.6 millionregards thefeespaidtoCompanyandotherownersfor 615.2 million,partlyoffsetting, asdetailedinthesectionontradepayables € amnso Contract Payments on € 0.1 million 1.4 millionforotheritemsin2008). con value account € 193.8 million);inaddition,itreflects thegeneralmarketconditions, € 528.9 millionon2008entirely duetopass-through items € € 4.0 million)andtocoverthecostincurred inrespect of 0.1 millionandwere entirely accountedforby thecash Dec 31,2009 Balance at € 4.7 millionforotheritemsin2009,compared € 25.3 million),from EnelGroup companies € 11.8 million.Theitemrefers tosureties amnso otat Balanceat Contract Payments on € account value Dec. 31,2008 Dec. value account 23.1 million)forDecember. € € 2.6 million)for 689.1 million; 145 Notes to the financial statements - Terna S.p.A. 146 Separate financial statements 2009 Decree no.185/2008andtheIRAPcredit describedabove. lower thanthetaxliabilityforyearandtorecognition duringtheyearoftaxpaidpursuanttoart.15Legisla in 2008( The decrease ( the taxliabilityinrespect ofthegoodwillarisinginmerger ofthesubsidiaryRTL intoTerna ( remaining afterthedistributionof 2008dividend( a componentofothercomprehensive income. Participações S.A.,istomake. units), whichwillbesoldbyTerna S.p.A.inthepublictenderoffer thatTAESA S.A.,whichacquired control ofTerna taxes paidinprevious yearsasaresult ofnotdeductingIRAPintheamountprovided forunderthelaw( recognition, pursuanttoart.6ofLawno.2January28,2009,thereceivable duefrom taxauthoritiesforexcessincome Tax assetscameto 20. Tax assets- The increase of - Retained earnings derivatives hedgingfloating-rateloansofTerna (- Other reserves decreased by Other reserves - The legalreserve isequalto20%oftheCompany’sshare capital. Legal reserve - was nochangeontheprevious year. The share capitalofTerna S.p.A.iscomprised of2,000,908,800ordinary shares withaparvalueof Share capital- 22. Equity- Liabilities The item,whichtotals 21. Discontinuedoperationsandassetsheldforsale- € 25.9 million)tocorresponding liabilitiesin2009duetothefactthatpaymentsonaccountduringyearwere € € € 7.5 million)ontheprevious yearisattributabletotheshiftfrom theIRESandIRAPtaxcredits recognised € € 19.1 millionin2009regarded theresidual profit fortheyearendedDecember31,2008,equaltoprofit 440.2 million € 88.0 million 2,468.3 million € 670.7 million 18.4 million,attributabletothetaxpaidunderart.15ofLegislativeDecree no.185/2008todischarge € € € 619.5 million 0.1 million,regards theresidual valueoftheinvestmentinTerna Participações(equalto10,000 18.4 million € 11.9 millionasaresult oftherecognition andadjustmenttofairvalueofcashflowhedge € 16.5 million)netoftherelated taxeffect (+ € 316.2 million). € 0.1 million € 4.6 million),recognised as € 14.2 million)andthe € € 0.22 each.There 4.2 million). tive

148 Separate financial statements 2009 In millionsofeuros Of thetotalavailableportion, The followingtablereports theorigin,availabilityandpossibilityofdistributioncomponentsequity: was paidbeginningfrom November26,2009,withan rftfr20 9. - if theexercise conditionsare met,individual beneficiariescanexercise theiroptionsbyMarch3. 31,2010 uptothe - - 619.5 the exercise of theoptionsand,consequently, therighttosubscribenewly-issuedTerna2. ordinary shares dependson 88.0 - A,B,C A,B,C the strike priceofeachshare shallbethearithmeticmeanof reference priceofTerna1. ordinary share observedon 790.0 Under theapproved thestockoptionplan: rulesgoverning B of theCompany. -140.1 the mostimportantpositionsintermsofachievingCompany’s strategictargets, includingtheCEO,asaseniormanager B 619.5 The planprovides forthedistributionofamaximum 10,000,000 optionstoapproximately 20Terna managersholding the2006stockoptionplan(approved onDecember21,2005) Rules governing The features ofthe2006stockoptionplanare outlinedbelow: 88.0 shareholders andmanagement. 440.2 corporate team,whileensuringtheyare constantlyfocused oncreating value,withaviewtomeldingtheinterests of managementincentiveandloyaltytoolthatimbueskeyemployeeswithasenseofbelongingtothe a companies – bestpracticeandthatoftheleadingpubliclylistedItalian linewithinternational in This planisaimedatgivingTerna – strategic targets. to adoptastockoptionplanforTerna managersholdingthemostimportantroles intermsofachievingtheCompany’s On December21,2005,basedonaproposal oftheRemuneration Committee,theParent’s Board ofDirectors resolved Stock optionplans Total Profit for2009 Interim dividend Retained earnings Other reserves Legal reserve Share capital AVAILABILITY ANDPOSSIBILITYOFDISTRIBUTIONTHECOMPONENTSEQUITY the Board ofDirectors approved thedistributionofaninterimdividend After receiving thereport oftheindependentauditorsasperart.2433 2009 interimdividend (*) Includes thenegativereserve(*) fortheeffective portionofchangesinthefairvaluecashflowhedges,whichisequal,n A -toincrease share capitalB-tocoverlossesCdistributeshareholders Key: )the2006performanceofeachbeneficiarymustbepositivelyassessedby theCEO,withaprovision fora50% b) Terna EBITDAforthegrantyear(2006)mustbegreater thanthatestablishedinthebudgetapproved bytheBoard of a) achieving twoperformanceparameters.Inparticular: following maximumquantities: same dayoftheprevious calendarmonth; the electronic stockexchangeoperatedbyBorsaItalianaS.p.A.intheperiodbetweendateofoffer andthe • up to60% ofvestedoptions,beginningfrom thefirstdayofcalendar yearsubsequenttothatinwhichthe up to30%ofvestedoptions, beginningfrom thedatespecifiedinnoticeannouncing thattheexercise• conditions Directors; reduction intheoptionsthatindividualbeneficiarycanexercise shouldthissecondconditionnotbemet; notice announcingthattheexercise conditionshavebeenmetisissued; have beenmet; noerltd 7. ,B 272.8 397.9 A,B,C A,B,C 272.8 397.9 - income-related* - equity-related € 684.4 millionregards untaxedincome-related reserves. ex dividend date(coupon11)ofNovember23,2009. bis € of theItalianCivilCode,onNovember10,2009 Dec. 31,2009 140.1 million,equalto ,6. 1,378.2 2,468.3 osblt Available Possibility et oftaxeffects, to € fueportion of use 0.07 pershare, which € 61.3 million. In millionsofeuros hr-emlas4. . 42.2 -0.9 16.8 0.5 15.1 0.9 611.7 -59.5 15.9 65.8 552.2 42.7 44.6 2,031.8 0.0 1,615.2 66.7 82.6 3,647.0 2,643.5 59.7 1,555.7 4,199.2 82.6 57.3 45.1 102.4 Total Short-term loansandcurrent portionofmedium/long-termloans Current portionoflong-termloans Short-term loans Non-current financialliabilities Other liabilities CFH derivatives Long-term loans Bank loans Bonds Other informationonthestockoptionplan: Board ofDirectors andGeneralManagers: The followingtableisprovided inaccordance withdisclosure requirements forstockoptionsgrantedtomembersofthe • historicvolatilityoftheshares recorded atthegrantdate(source: Bloomberg) of14.860%. • yieldcurveforthecalculationofdiscountfactoratgrantdate(source: Reuters); • strikepriceof • closingprice(underlyingorspotprice)oftheshares atthe grant date(source: Bloomberg) of plan. Thepricingparametersappliedare thefollowing: shares atthegrantdate,volatilityofshares, theyieldcurveatgrantdateconsistentwithdurationof lapsed. ThepricingmethodusedtodeterminethefairvalueisCox-Rubinstein,whichconsiderspriceofTerna were exercisable attheendofyear(9,083,200options).Duringyear, nooptionswere takenupandnooptions At December31,2009,alltheoptionsgrantedunderplanwere outstandingand,asthevestingperiodwascomplete, the financialstatementsatDecember31,2006. to 17managersoftheCompany. TheBoard ofDirectors verifiedthattheconditionsforexercise were metwhenitapproved The 2006stockoptionplanentailedthegranting,onDecember21,2005,of9,992,000optionswithastrikeprice in theperiodbetweendatescheduledforapproval ofthehalf-yearreport bytheBoard• ofDirectors andthesame in theperiodbetweendatescheduledforapproval• ofthefinancialstatementsbyBoard ofDirectors andthe • intheperiodbetweenthird-to-last tradingdayandthelastbefore the cannot inanycasebeexercised inthefollowingdays: Options canbeexercised onlyonastockexchangetradingdayduringthelast10daysofeachmonth.However, options option planbythree yearsuntilMarch 31,2013,andtoamendart.5ofthebylaws. On April22,2009,theExtraordinary shareholders’ meetingvotedtoextendthetimelimitforexercising theoptionsunder Gross debtincreased by December 31,2009. The followingtabledetailsloansandfinancialliabilitiesrecognised intheseparatefinancialstatementsofTerna at 23. Loansandfinancialliabilities te eeiire ftesokoto ln6,968,200 Other beneficiariesofthestockoptionplan Flavio Cattaneo Name day oftheprevious month. same dayoftheprevious month; • up to100%ofvestedoptions,beginningfrom thefirstdayofsecondcalendaryear subsequenttotheyearin which thenoticeannouncingthatexercise conditionshavebeenmetisissued. € 2.072; € 625.4 millionto € 4,384.2 million. Dec. 31,2009 ,8. ,5. 625.4 3,758.8 4,384.2 ex dividend date; e.3,20 Change Dec. 31,2008 oiinNumberofoptions Position E 2,115,000 CEO € 2.058; € 2.072 149 Notes to the financial statements - Terna S.p.A. 150 Separate financial statements 2009 oa ,9. 4289 5. ,9. 97 97 6. 781 2. 2,381.5 720.8 708.1 269.4 59.7 59.7 4,199.2 59.7 4,258.9 3,691.6 Total 366.9 720.8 79.2 269.4 59.7 59.7 1,555.7 59.7 1,615.4 1,659.8 0. 0.0 0.0 200.0 Total 0.0 floatingrate 0.0 200.0 0.0 200.0 200.0 648.5 2013 0.0 RCF 2006 0.0 0.0 0.0 648.5 0.0 648.5 251.5 648.4 19.4 2015 Club Deal 19.4 9.7 0.0 0.0 300.0 0.0 300.0 63.0 300.0 21.1 2028 EIB no.24423 21.1 21.1 21.1 21.1 168.5 21.1 189.6 4 200.0 9.1 2018 9.1 EIB no.22947 9.1 9.1 9.1 86.4 9.1 95.5 11.5 100.0 22.7 2020 EIB no.22947 22.7 22.7 22.7 22.7 125.0 22.7 147.7 170.5 0.0 2016 6.9 EIB no.21159 6.8 6.8 6.8 27.3 6.8 34.1 40.9 2014 EIB no.20271 628.9 0.0 0.0 0.0 2,643.5 0.0 2,643.5 2,031.8 0.0 0.0 Total 0.0 fixedrate 0.0 0.0 600.5 0.0 600.5 5 0.0 0.0 2019 0.0 Bonds 0.0 0.0 0.0 563.5 0.0 563.5 559.5 850.6 2023 0.0 Bonds 628.9 0.0 0.0 0.0 1,479.5 0.0 1,479.5 1,472.3 2014-2024 Bonds In millionsofeuros • useofcredit linesintheamountof • creditor positionontheintercompany current accountwithTELAT S.r.l. (- • theincrease ofthedebtorpositiononintercompany current accountwithSunTergrid S.p.A.( • a • bondmaturing2019,priceatDecember31,2009:103.56. • bondmaturing2023,priceatDecember23,2009:102.60and31,2008:91.12; • bondmaturing2014,priceatDecember31,2009:104.34and2008:100.68; • bondmaturing2024,priceatDecember31,2009:102.29and2008:105.09; Exchange, asdetailedbelow: The fairvalueofthebondsiscalculatedonbasisofficial pricesofthebondsregistered ontheLuxembourg Stock value ofderivativesrecognised underfinancialassetsintheamountof As regards debtoriginallybearingfloatingrates,thenetincrease of one yearand in respect ofthe2014-2024bondsand associated withhedgingofinterest rateriskincludes- € Terna in2009theformofaprivateplacement, The totalloansatDecember 31, 2009ofTerna amountto All otherfinancialdebtitemsare statedattheirnominalvaluealongwiththerelated repayment plan. inflation-linked bondswillberepaid atmaturity, onSeptember 15,2023,withthenominalvalueadjustedtoreflect inflation. of The repayment ofthenominalamount2014,2024,and2019bonds,equalto The originalcurrency ofeachpositionaboveistheeuro. down byloantype,includingamountsfallingduewithinoneyearandaverageinterest rateatyear-end: The followingtableshowsthecarryingamountoflong-termdebtandrepayment planatDecember31,2009,broken Long-term loans fair valueamountedto Consequently, compared withatotalcarryingamountof (Source: Reuters) Of thetotalincrease inthevalueofbonds( 08 2008 one

4.5 millionthecapitalisationofinflationforperiodnetamortisedcosteffect ( outstanding loans; € € 600.0 milliononOctober28,2014, 44.6 millionreduction inEuropean InvestmentBankloansandotherfinancingfollowingrepayments madeon €

2,381.5 milliondueafterthefifth year. auiyDec. 31, Maturity year year € 2,600.3 million( €

40.0 million. € Dec. 31, € € 0.5 millioninrespect oftheprivateplacement,offset bytheincrease inthefair 1,918.4 millionatDecember31,2008). 800.0 milliononOctober28,2024and 2009 € 611.7 million), within after after within

€ 7.2 millionregards thechangeinfairvalueofhedgedexposure and u De 21 02 21 04 21 fe Average After 2015 2014 2013 2012 2011 Due Due € 0.5 millioninrespect oftheinflation-linkedbondissue, € € one atDec.31, one 2,643.5 million( € 4,258.9 million,includingloans of 600.0 millionisattributabletothenewissuecarriedoutby € 2.2 millionisdueto: € 7.7 million. € € 7.6 million); 2,031.8 millionatDecember31,2008),the € 600 milliononOctober3,2019;the € 2,000.0 million,willentailpayment 2009 € 1.2 milliongross). Thechange € 0.0 4,199.2 milliondueafter € 2,014.6 9.8 million); 6054.88% 600.5 352.95% 63.5 . 1.82% 0.0 . 3.06% 0.0 1.90% 0.9 1.80% 0 interest rate € 2.34% 7.2 million 1.68% 1.88% 4.62% Total financial debt 3,581.2 3,691.6 -43.4 600.0 10.7 567.3 4,137 567.3 10.7 600.0 -43.4 3,691.6 3,581.2 Total financialdebt 1, -44.4 0.2 0.0 -44.6 1,659.8 1,661.4 Total bankloans -44.4 0.2 0.0 -44.6 1,659.8 1,661.4 Bank loans 611.7 10.5 600.0 1.2 Total 2,031.8 bonds1,919.8 600.5 0.5 600.0 0.0 0.0 0.0 Private placement 4.0 2.8 0.0 1.2 559.5 519.8 Listed fixedrateILbond 7.2 7.2 0.0 0.0 1,472.3 1,400.0 Listed fixedratebonds € At December31,2009,Terna retained additionalborrowing capacityofmore than will beredeemed atmaturity. Itpaysanannualcouponof4.875%. million; theissue,carriedoutaspartofEuro Medium Term Notes(EMTN)programme, hasamaturityof10yearsand Changes duringtheyearincludeissueonJuly3,2009,ofaprivatelyplacedfixed-ratebondinamount EIB financingand The changeinotherfinancial liabilities (- date. Thechangeintheyield curve withrespect toDecember31,2008generatedan increase of Fair valueismeasured bydiscounting estimatedfuture cashflowsonthebasisof themarketyieldcurveatreporting Non-current financialliabilitiesinclude thefairvalueofcashflowhedges. The tablebelowreports theamountandchangesinnon-current financialliabilitiesontheprevious year: Non-current financialliabilities million totheincrease inthefairvalueofbondsasa result ofafallininterest rates, Compared withDecember31,2008,long-termdebtshows atotalincrease of The followingtablereports changesinlong-termdebtfortheyear: Deal loan,4.89%andthe ( interest ratefluctuations,theaverageratesare asfollows:EIBno.20271,4.93%, no.21159,4.96%,EIB22947 Allowing fortheeffect offinancialderivativesaccountedforascashflowhedgesonfloating-rateloanshedgedagainst year was2.78%. rate securitybymeansofderivativecontractswiththesamematurity. Consequently, theaverageinterest ratepaidinthe In linewithfinancialriskmanagementpolicies,thefixed-rateprivateplacementwassyntheticallytransformedtoafloating paid intheyearwas0.71%. For theinflation-linkedbond,takinghedgesintoaccount,andassuminga0.22%inflationrate,averageinterest rate the averageinterest rateisequalto2.99%. As regards the2014-2024bondswithanaveragecouponof4.62%,ifFVHhedgingoperationsare takenintoaccount, hedging operationsagainstinterest ratefluctuations. The tablealsoreports theaverageinterest rateforeachtypeoffinancialliability. BelowwealsocommentontheGroup's to thenewborrowing inthe year, te iblte . . -0.9 16.8 0.9 65.8 0.0 82.6 Total Other liabilities CFH derivatives Type ofloan In millionsofeuros In millionsofeuros € 729.0 millionconsistedofshort-termcredit linesand 100-million tranche € 0.2 milliontothemeasurement ofthe ClubDealloanatamortisedcost. ), 5.04%,EIBno.22947( € 200-million RevolvingCredit Facility, 2.19%. at Dec.31, Nominal 2008 € debt 4.5 milliontothecapitalisationofinflationforperiodinrelation totheILbond, € at Dec.31, 0.9 million)refers totheextinguishment ofthenetpayabletoLehmanBrothers. Carrying amount 2008 € 200-million capitalisation Repayments € 1,550.0 millioninsyndicatedcredit lines. and tranche New issues ), 4.83%,EIBno.24423,4.70%,the - Dec.31,2009 Dec. 31,2008 Dec. 31,2009 Difference in € fair value 567.3 million,ofwhich 266. 15.9 66.7 82.6 € 2,279.0 million,ofwhichmore than € in carrying Difference 44.6 milliontotherepayment of amount e.3,20 Change Dec. 31,2008 € 600.0 600.5 600.0 521.0 563.5 521.0 16.8 million. 1,616.8 1,615.4 1,616.8 at Dec.31, 1,400.0 1,479.5 1,400.0 2,521.0 2,643.5 2,521.0 Nominal € € 616.8 1,615.4 616.8 600 millionrefers 650-million Club 2009 debt .8 4,258.9 .8 at Dec.31, Carrying amount € € 2009 600 7.2 151 Notes to the financial statements - Terna S.p.A. 152 Separate financial statements 2009 .Ntfnnildb J O Netfinancialdebt(J)+(O) P. Netnon-current financialdebt(K)+(L)(M)(N) O. Otherfinancialliabilities N. Derivativefinancialinstrumentsinportfolio M. Bonds L. Non-current bankdebt K. Netcurrent financialdebt(I)-(D) J. Current financialdebt(E)+(F)(G)(H) I. Net positionontheintercompany treasury account H. Short-termloans G. Current portionoflong-termdebt F. Current bankdebt E. Cashandcashequivalents(A)+(B)(C) D. TELAT loan C. Otherliquidity B. Cashonhand A. The followingtabledetailsdeferred liabilitiesonthebasisoffinancialtowhichtheyrelate: operations, mainlyduetotheincrease infloating-ratedebtduringtheyear. the Companyisasfollows: 10, 2005fortheconsistentimplementationofCommissionregulation onprospectuses, thenetfinancialpositionof Pursuant totheCONSOBCommunicationofJuly28,2006,andinconformitywithCESRRecommendationFebruary Net financialposition settled, decreased ontheprevious yearby Current financialliabilities,whichare generatedbythefinancialexpenseaccruedoninstrumentsbutnotyet Current financialliabilities position ontheintercompany current accountwithTELAT S.r.l. intheamountof- position ontheintercompany current accountwithSunTergrid S.p.A.intheamountof Short-term loans,equalto Short-term loans date oftheearlyterminationrelations betweenTerna S.p.A.andLehmanBrothers. This isequaltothenetfairvalueofFVHandnon-hedge-accountingderivativesoutstandingatSeptember16,2008, Total Loans Total Bonds Derivative contracts Deferred liabilitieson: In millionsofeuros In millionsofeuros e-er . . 0.0 0.0 0.1 14.6 4.5 7.0 -12.3 4.2 0.0 4.5 7.0 2.9 4.3 14.6 -9.4 - twenty-year - ten-year - privateplacement - inflationlinked - hedging € 42.7 million,are composedoftheusecredit linesintheamountof € 7.0 millionnetofthereclassification ofamountspertainingtodiscontinued Dec. 31,2009 553. -7.0 14.7 32.5 15.7 25.5 30.4 € . 39-9.4 13.9 4.5 7.6 million. 2,643.5 500.0 500.0 0.0 40.0 0.1 0.0 € 1,555.7 10.3 millionandthecreditor e.3,20 Change Dec. 31,2008 3,260.9 59.7 -40.6 -897.7 € 40.0 million,thedebtor 102.4 1,000.1 2.7 4,158.6 Carrying amount Dec. 31,009 • contract termination clauses,underwhichtheoccurrence ofspecifiedevents (failure topay, seriousinaccuraciesin periodic oroccasionalreporting requirements• linkedtotheoccurrence boththeprojects ofspecifiedevents concerning clauses requiring• thepledgingofadditionalguarantees totheEIBineventofareduction intheCompany’s rating:if negative pledge clausesunderwhichiftheCompanyestablishes,agrees, provides• ordecidestomaintainrestrictions in theEIBloanscanbesummarisedasfollows: The maincovenantsgoverning early redemption clausesunderwhichtheCompanywillberequired• torepay theloaneagerlyifitslong-termcredit rating • periodicoroccasionalreporting requirements linkedtotheoccurrence ofspecifiedevents; • specification ofdefaultevents, whoseoccurrence (e.g.failure topay, false statements,businessclosure, breach of • • negative pledgeclausesunderwhichtheCompanyorsignificantsubsidiaries(consolidatedcompanieswhosetotal can besummarisedasfollows: • negative pledgeclausesunderwhichtheissueror“significantsubsidiaries”(consolidatedcompanieswhosetotalassets • issuesunderthe The maincovenantsgoverning triggered todate. The long-termloansofTerna businesspractice,noneofwhichhavebeen S.p.A.containcovenantstypicalofinternational presented here innote23. For more detailonthecompositionofitemsinthistable,pleaseseenotes15and19,aswellinformation • • specification ofdefaultevents,whoseoccurrence (e.g.failure topay, initiationofliquidationproceedings, breach of The main covenants governing the revolvingThe maincovenantsgoverning credit lines,theClubDealand early redemption• clausesunderwhichtheCompanymayredeem alloutstandingbondsearlyatparintheeventofnew • periodicoroccasionalreporting requirements linkedtotheoccurrence ofspecifiedevents; on newassetsthatsecure onlythedebtassumedtoacquire theassets,etc.); A numberofexceptionsapply(guaranteesrequired bylaw, guaranteesinplacepriortothedateofloan, listed bondorforwhichlistingisplannedunlessthesameguaranteeextendedequallytobondsinquestion. country) maynotestablishormaintainmortgages,liensotherencumbrancesonallpartofitsassetstosecure any are atleast10%oftotalconsolidatedassetsand,fortheEMTNprogramme, havetheirregistered office inanOECD unsecured andunsubordinated borrowing oftheissuer; and are issuedwithoutpreferential rightsamongtheman tax requirements. respect oftheliabilityinquestion,whichbecomesimmediately repayable; a defaulteventinrespect ofanyfinancialliability(aboveathreshold level)issuedbytheissuerconstitutesadefaultin contractual termsandconditions,etc.)constitutesadefault;inaddition,undercross-default clauses,theoccurrence of such defaultshallalsoconstitute defaultontheloaninquestion,triggeringimmediaterepayment. in respect ofloans,credit facilities,bankadvances,discounting,theissueorsubscription ofanyformbondorsecurity, repayment; inaddition,where theCompanyisrequired upondefault todischarge inadvanceanyotherfinancialobligation documentation presented, insolvency, specialadministration, liquidationetc.)constitutesdefault,triggering immediate being financedandtheCompanyitself; the Bankinitsexclusivebutreasonable judgement; Moody’s; A-byFitch),theEIBmayrequest thattheCompanyprovides additionalsecurityconsidered satisfactoryby the credit ratingofunsubordinated andunsecured medium/long-termdebtiscut(A-byStandard &Poor’s;A3by guarantees, withtheexceptionofguaranteesgrantedforborrowing belowathreshold level; encumbrances, charges orotherrights),itisrequired, atthesimplerequest oftheEIB,tograntBankequivalent favour, whetherdirectly orindirectly, ofthird parties(suchasthepledgeofunsecured guarantees orcollateral,liens, ceases tobemonitored byoneormore ratingagencies. is reduced byamajorityoftheratingagenciesthatmonitor theCompanybelowinvestmentgrade(BBB-)or in question,whichbecomesimmediatelyrepayable; a defaulteventinrespect ofanyfinancialliability(aboveathreshold level)constitutesadefaultinrespect oftheliabili contractual termsandconditionsetc.)constitutesadefault;inaddition,undercross-default clauses,theoccurrence of obligation inrespect ofotherunsecured andunsubordinated creditors, exceptinthecaseofstatutorypreferential rights; of totalassetsetc.); entities,includingtheEIB,guaranteesonborrowing orinternational whoseamount doesnotexceed10% governmental the loan,guaranteesonnewassetsthatsecure only thedebtassumedtoacquire theassets,guaranteespledgedto liability withtheexceptionofpermittedguarantees(guaranteesrequired byLaw, guaranteesinplacepriorto thedateof assets are atleast10%oftotalconsolidatedassets)maynot establishnewguaranteessecuringanytypeoffinancial pari passu pari passu clauses underwhichthepaymentundertakingsofborrower inrespect ofloansare notsubordinate toany clauses underwhichthesecuritiesconstituteadirect, unconditionalandunsecured obligationoftheissuer € 2 billionEMTNprogramme canbesummarisedasfollows: d haveatleastthesameseniorityasotherpresent andfuture € 500 millionCassaDepositiePrestiti loan ty 153 Notes to the financial statements - Terna S.p.A. 154 Separate financial statements 2009 In millionsofeuros oa 5. 3057-75125.1 38.1 11.4 -47.5 -28.4 -0.5 5.7 1.8 82.1 26.7 0.3 13.0 -18.5 -27.9 1.2 4.9 0.0 7.3 3.7 153.9 1.5 63.5 71.5 -0.6 4.9 11.6 -0.9 11.6 1.2 -17.3 0.2 -0.6 3.3 0.4 85.3 3.2 51.9 -0.3 0.2 0.2 0.4 Costs forliabilitiesinrespect ofemployeebenefitsrecognised in profit orlossbreak downasfollows: 11.2 0.1 beneficiaries (retirees). 0.2 5.1 million netofthetaxeffect) followingtheagreement withEnelDistribuzionethatrecalculated thecorrect numberofeligible 7.4 million ontheprevious year, essentially duetothereversal from theelectricitydiscountprovision ( 74.4 The item,equalto 0.0 5.1 Total Total 3.5 ASEM Electricity discount Post-employment benefits Total Indemnities inlieuandothersimilarbenefits Additional month’spay Termination benefits Termination benefits Total Loyalty bonus Employee benefits along withchangesintheperiod: The compositionofterminationbenefitsandotheremployee-related provisions atDecember31,2009isdetailedbelow a healthplancomplementingthenationalservice,asagr • discount onelectricalenergy• consumedfordomesticuse.Thisbenefitisoffered toallemployeeshired before June30, Post-employment benefitsconsistofthefollowing: and juniormanagers)hired before July24,2001(additionalmonth’spayindemnity). hired orappointedbefore February28,1999(indemnityforlackofnotice),andemployees(production workers,office staff The benefitsgrantedattheterminationofemploymentare recognised forallemployees(terminationbenefits),managers and 35yearsofservice). The loyaltybonusisawarded toemployeesandmanagersoftheCompanywhentheyreach certainsenioritylevels(25 termination ofemployment(electricitydiscountandtheASEMhealthplan). employment (terminationbenefits,additionalmonth’spayandindemnityforlackofnotice),intheperiodafter Terna provides benefitstoitsemployeesduringtheirperiodofemployment(loyaltybonus),atthetermination 24. Employeebenefits- managers (theASEMhealthplan). 1996 (electricitydiscount); € 125.1 millionatDecember31,2009( € 125.1 million e.3,Acul neetcs Utilisationsand Interest cost Accruals Dec. 31, € 08otherchanges 2008 153.9 millionatDecember31,2008),decreased by eed underthetermsofnationalcontractforindustrial € 26.8 million, Dec. 31, € € 2009 28.8 19.4 In millionsofeuros In millionsofeuros • the useofaprevious accrual( • a netaccrualof relationship ofemployeeswhoare eligible forretirement. Thecaptionshowssubstantiallynochange ontheprevious year. This provision reflects theestimated non-recurring charges related tothevoluntaryearlytermination of theworking Provision forearly retirement incentives- a netaccrualof • • an accrualof 3.0%-4.0% utilisations of The provision showsanetincrease of 3.0% Provision forothercontingenciesandcharges - 2.0%-5.0% charge canreasonably becalculatedare describedunder“Off-balance sheetitems”. Compared withtheprevious year, thecaptionshowsaslightdecrease of 2.0%-4.0% legalcounsel. andexternal to Companyactivities.Theamountaccruedtakesintoaccounttheopinionsbothofinternal The provision isaccruedtocovertheliabilitiesatyearendthat mayarisefrom lawsuitsandout-of-courtdisputesrelating Provision fordisputesandlitigation- The itemsandchangesoftheprovisions forcontingencies andcharges atDecember31,2009are setoutbelow: 25. Provisions forcontingenciesandcharges- Rate ofincrease inhealthcare costs Rate ofincrease inpersonnelexpense Discount rate The mainassumptionsmadeintheactuarialestimateofemployeebenefitobligationsare asfollows: • anetaccrualof e.3,20 153373491. 67125.1 5.7 26.7 1.7 -26.8 1.5 -0.3 11.4 -9.1 -26.8 0.9 0.4 0.3 4.9 153.9 -1.2 0.0 0.2 0.2 -0.5 7.3 51.9 0.0 -0.2 0.2 0.0 0.4 11.6 3.3 -0.6 0.0 0.3 5.1 0.1 0.1 -0.9 0.0 7.4 0.1 -0.3 -0.1 71.5 3.5 3.2 0.0 0.0 0.0 -6.1 Dec. 31,2009 74.4 Distribuzione agreement Reversal followingEnel Payments andtransfers Interest cost gains andlosses Amortisation ofactuarial Service cost Dec. 31,2008 aac tDc 1 09 461111. 147.9 -20.7 86.9 12.2 81.6 -1.8 1.6 12.4 121.1 -18.5 85.3 54.3 14.6 Balance atDec.31,2009 -0.3 Utilisations andotherchanges 0.0 Accruals 14.9 Balance atDec.31,2008

already thesubjectofaredetermination pursuanttoAEEGResolutionno.162/06. Electricity EqualisationFundbyResolutionno.333/07tocover supplyinterruptions; controlling stakeinTerna Participações; environmental impactoftheconstructionpowerlines; €

€ 18.5 millioninthecourseofyear. More specifically: 42.4 millionforlikelycharges inrespect ofcontractualandtaxobligations related tothedisposalof € € € 21.2 millionrelating to“Projects forurbanandenvironmental renewal”, theaimofwhichistooffset the 6.8 millionforincentiveplansmanagementpersonneland socialsecuritydisputeswithINPS; 1.4 millionforthecontributiontobepaidProvision forExceptionalEventssetupwithinthe emnto Idmiisi iuadAdtoa Lyly SMEetiiy Total Electricity ASEM Loyalty Additional Indemnitiesinlieuand Termination € eeisohrsmlrbnft ot’ a ou discount bonus month’spay othersimilarbenefits benefits 7.0 million)relating togridtransmissionfeeadjustmentsreferring to2005,whichwas € iptsadltgto otnece n hre retirement incentives contingencies andcharges disputes andlitigation 66.8 millioncompared withend-2008,ascribabletoaccrualsof € 14.6 million € 12.2 million rvso o Poiinfrohr rvso o al Total Provision forearly Provision forother Provision for € 121.1 million € 147.9 million € 0.3 million.Litigationforwhichnopotential .%4.8% 4.1% 2009 € 85.3 millionand 2008 155 Notes to the financial statements - Terna S.p.A. 156 Separate financial statements 2009 In millionsofeuros • anincrease of of • provisions • net reversals of • therecognition, intheamountof • the release, intheamountof The increase of Deferred taxassetscameto the reversal• oftheaccruedportion( deferred portionofgridtransmissionfeesremunerating future costsinrespect ofthesafetyplanforNTG( • the useofprevious provisions tocoverthedifference • betweenacceleratedamortisation/depreciation andthedepreciation Deferred taxliabilitiestotalled the Company. V eiaie H 8100004622.7 21.5 This item( 61.8 276.3 3.1 27. Othernon-current liabilities - 4.6 0.0 -4.6 4.6 3.5 0.0 0.0 14.5 -12.7 -16.1 338.1 -16.7 0.0 0.0 334.6 7.6 0.0 0.0 -13.8 0.0 13.8 -0.3 2.2 0.0 310.8 26.6 18.1 -4.0 60.1 -32.8 0.0 0.9 The balance( -32.5 4.0 Net deferred taxliabilities 0.0 Total deferred taxassets 3.8 FVH derivatives–CHF 0.0 personnel expense Employee benefitsandother 14.5 370.9 Provision forbaddebts Provisions forcontingenciesandcharges 367.1 Deferred taxassets Total deferred taxliabilities financial instruments Employee benefitsand Property, plantandequipment Deferred taxliabilities Changes inthiscaptionare detailedasfollows: 26. Deferred taxliabilities- changes incashflowhedgeinstruments; net provisions forotheremployeecosts( thereversalconcerning oftheelectricitydiscountprovision followingtheagreement withEnelServizio Electrico)and assets attheratesspecifiedby theAEEGforratepurposes. the yearofNationalTransmission Gridsafety plan,essentiallyduetotheadjustmentofusefullife theintangible applicable totheplantsinvolved; rates. no. 244ofDecember24,2007(the2008FinanceAct)recognised inprevious yearsagainstordinary economic/technical following mergers carriedoutinprevious years( charge fortheyearattributabletodifference from merger eliminationsallocatedtoproperty, plantandequipment calculated usingordinary technicalrates( € 151.6 millionatDecember31,2009)reports thedeferred portionofplantgrants( € 276.3 million)represents thenetresult ofchangesinthedeferred taxliabilitiesanddeferred taxassetsof € € € 4.6 million,attributabletothetaxeffect, whichhasnoimpactontheincomestatement,inrespect of 1.2 millionintheitemwithrespect totheprevious year regards: € 2.2 millionintheprovision forbaddebts. 5.1 millionindeferred taxassetsinrespect ofprovisions foremployeebenefits( € € 61.8 million,anincrease of € 338.1 million,down 5.6 million,oftheportionsplantgrantsinconnectionwith depreciation fortheyear € 6.8 million,oftheaccruedportiongridtransmission fees tocoverthecostsin € 8.7 million)fortheuseofprovision fordeferred byLaw IRAPliabilitiesgoverned € 276.3 million e.3,Ipc eonsdImpactrecognised Impactrecognised Dec. 31, € € 23.8 million),includingthereversal inrespect oftheamortisation/depreciation 2.0 million); 08i rfto os inequity inprofit orloss 2008 € 151.6 million € 2.3 million); € 32.8 million,essentiallydueto: € crasUtilisations Accruals 1.7 million,mainlyattributabletothefollowingchanges: € 140.5 million)aswellthe € 7.1 million,mainly € 11.1 million). Dec. 31, 2009 (*) Seethecommentsinnote23.Loansandfinancialliabilities. adecrease of • • the reduction the inthebalance( • compared with thecorresponding period of2008. The increase ( purchase ofmaterialsandequipment. Amounts duetosuppliersrefer toinvoicesbothalready received andyettobereceived fortenders,servicesand the Non-energy related payables 20.8 12.7 -7.0 0.0 42.2 -386.8 82.7 The decrease of mostly topurchase ofenergy andthetransportfeeduetoownersofothersectionsNationalTransmission Grid. 32.5 1,874.4 This captionreports theeffects onthestatementoffinancialpositionpayablesfor“pass-through” costs, and refers 0.5 20.8 15.1 Energy-related payables 95.4 Suppliers 1,487.6 25.5 42.7 44.6 59.7 Trade payablesatDecember31,2009consistofthefollowing: Trade payables- Total Other current liabilities Current financialliabilities* Tax liabilities Trade payables Current portionoflong-termloans* Short-term loans* Current liabilitiesbreak downasfollowsatDecember31,2009: 28. Current liabilities adecrease of • oa rd aals14761844-386.8 2.5 -0.5 1,874.4 5.5 0.9 1,487.6 8.0 0.4 Total tradepayables Payables forcontractworkinprogress Payables tosubsidiaries Payables toassociates Suppliers In millionsofeuros In millionsofeuros payments ( ( (as describedaboveinthesectionontradereceivables) inreceivables from thesaleofelectricityonExchange ( decline isattributabletothefullsettlementofpayablesinrespect ofcongestionfeesandtheinterconnection guarantee border interconnections (AEEGResolution no.288/06asupdated); • • • • € € million); invoicing ofadjustmentsenvisagedunderAEEGResolution no.34/09compared withtheprevious year( critical conditionsinthenationalelectricalsystem,reducing payablesby the impactofgeneraleconomicconditions,whichcauseda declineinvolumesandpricesofunbalancingtheearly the non-renewal ofcontractsforforward resources ( a reduction inpayablesforresources acquired ontheASMthanksto more efficient managementofforecasts ( the effects ofAEEGResolutionno.203/08,whichreduced Terna’s recourse to supplementaryoffers toexceptionally 23.8 millionand 615.2 million).Thedecrease isascribableto: usdais1. . 15.0 0.0 15.0 49.8 -453.6 313.7 1,554.3 363.5 1,100.7 - Subsidiaries - Non-energyrelatedpayables - Energy-relatedpayables € € 42.9 million,alsoconsideringtheincrease inpayablesforUESS(essentialgenerationunits)of 49.8 million)reflects thehigher investmentspendingonpurchases andservicesinthefinalquarterof2009 € € € 27.2 millioninpayablesfortheassignmentofrights utilisationoftransmissioncapacityoncross- 395.2 millioninpayablesforthepurchase ofenergy onthePowerExchange,partlyoffset byadecrease € 453.6 millioncompared with2008isessentiallyattributable to: 1,487.6 million € 34.9 millionatDecember31,2008,respectively) andthepartialreduction ofpayablesforcapacity € 79.4 million)ofpayablesawaitingdefinitionbytheAEEGrecognised inprevious years.The € 127.0 million). Dec. 31,2009 Dec. 31,2009 € ,3. ,3. -303.0 2,034.7 1,731.7 39.4 million; e.3,20 Change Dec. 31,2008 e.3,20 Change Dec. 31,2008 € € 64.5 million); 22.2 million. € 125.3 157 Notes to the financial statements - Terna S.p.A. Payables to subsidiaries The caption shows a balance of €15.0 million, attributable to payables due to TELAT in respect of the grid transmission fees for December and to the effects of Resolution no. 188/08 for the last nine months of the year on the part of the NTG owned by the latter.

Payables to associates This caption amounts to €8.0 million and relates to payables to CESI for services provided to the Company in the construction and management of laboratories and plants for tests, inspections, studies and experimental research in the general field of electricity technology and scientific progress. The increase (€2.5 million) compared with end-2008 is the result of an increase in services delivered in the final part of the year.

Group commitments with suppliers totalled about €2,001.7 million and refer to purchase commitments relating to normal operating activities for the period 2010-2015.

Payables for contract work in progress This caption amounted to €0.4 million, and was substantially in line with the balance at December 31, 2008. It is composed as follows:

Payments on Contract Balance at Payments on Contract Balance at In millions of euros account value Dec. 31, 2009 account value Dec. 31, 2008

Other -3.0 2.6 -0.4 -1.7 0.8 -0.9 Total -3.0 2.6 -0.4 -1.7 0.8 -0.9

Tax liabilities - €20.8 million The caption refers to the Company’s tax payables for the financial year. In the previous year, the balance was nil since Terna reported a tax credit, as payments on account exceeded the tax liability recognised at the end of the year.

Other current liabilities - €95.4 million Other current liabilities are detailed below:

Dec. 31, Due within Due after Dec. 31, Change In millions of euros 2009 one year one year 2008 Payments on account 9.1 3.5 5.6 9.9 -0.8 Other tax liabilities 7.1 7.1 0.0 14.9 -7.8 Amounts payable to social security institutions 23.6 23.6 0.0 18.6 5.0 Amounts payable to employees 36.3 36.3 0.0 25.2 11.1 Other payables to third parties 19.3 4.2 15.1 14.1 5.2 Total 95.4 74.6 20.8 82.7 12.7

Payments on account This caption includes grants related to plant received by the Company for investments pending at December 31, 2009. The caption shows a net decrease of €0.8 million compared with 2008 (€9.9 million), which is essentially the net effect of new payments on account received from third parties (€13.9 million) and a decrease of €14.7 million in grants that directly reduce the carrying amount of the related assets, which entered service during the year.

Other tax liabilities Other tax liabilities, equal to €7.1 million, essentially regard payables for withholding taxes retained by the Company. The item decreased by €7.8 million, mainly because a VAT credit was recognised for 2009, compared with the VAT payable at December 31, 2008 (€8.7 million). 2009 Amounts payable to social security institutions This caption amounts to €23.6 million (€18.6 million at December 31, 2008), and mostly consists of the Company’s payables of €18.4 million to INPS for December; the item also reports the payable in respect of the Fondo Previdenza Elettrici (F.P.E., a complementary pension fund for the electricity industry), equal to €5.2 million. Separate financial statements

158 Amounts payable to employees Payables to employees came to €36.3 million (€25.2 million at end-2008) and essentially refer to: • accruals made for staff incentives to be paid the following year (€19.0 million); • payments due to employees for unused holiday time and abolished public holidays (€8.5 million); • termination benefits due to employees whose employment was terminated before December 31, 2009 (€3.2 million).

Other payables to third parties Other payables, equal to €19.3 million (€14.1 million at December 31, 2008), mainly regard security deposits (€15.2 million) received from electricity market operators securing their obligations in respect of dispatching contracts. These deposits rose by €4.8 million, mainly due to operators’ increased use in the final part of the year of security deposits rather than bank sureties.

E. Commitments and contingencies arising from off-balance sheet items

The main off-balance sheet commitments and contingencies of Terna S.p.A. at December 31, 2009 are as follows.

Environmental litigation

Environmental litigation relates to the installation and operation of electrical systems, in particular the effects of electric and magnetic fields. The Company is involved in various civil and administrative suits in which requests have been made for the transfer or change in operations of allegedly harmful power lines, even if installed in full compliance with applicable legislation. Only a very small number of cases include claims for damages for harm to health due to electromagnetic fields.

Only in a few cases have adverse judgements been issued against the Company. These have been appealed and the appeals are still pending, although adverse rulings are considered unlikely.

Litigation concerning concession activities

As it holds the concession for transmission and dispatching activities since November 1, 2005, Terna has been involved in a number of cases appealing AEEG, MAP and/or Terna measures relating to activities operated under the concession. Only in those cases in which the plaintiffs not only claim defects in the measures, but also allege that Terna violated the rules established by such Authorities is the Company called to appear in court. Within the scope of this litigation, although a number of cases have seen the voidance of Authority resolutions at the first or second level of adjudication, it is felt there is little risk of adverse outcomes for Terna, as the matters regard pass-through items for the Company, a position supported by the information provided by the external legal counsel representing the Company in the cases involved.

Other litigation

In addition, a number of cases relating to urban planning and environmental issues are pending in respect of the construction and operation of certain transmission lines. Any unfavourable outcome to these cases could have adverse effects for the Company, which cannot be foreseen to date. Accordingly, no accruals to provisions have been made in this respect. In a limited number of cases the possibility of an adverse outcome cannot be ruled out. The possible consequences could, in addition to the award of damages, include, inter alia, the costs of modifying lines and suspending their use temporarily. In any case, any unfavourable outcome would not jeopardise line operations. The above litigation has been examined, also considering the opinion of independent legal counsel, and any negative outcome is considered remote. Notes to the financial statements - Terna S.p.A. Notes to the financial statements - Terna

159 160 Separate financial statements 2009 G. Relatedpartytransactions F. Businesscombinations December 31,2009: liabilities withrelated parties,aswelltherelevant revenue andcostsfortheyearreceivables andpayablesat were settledonanarm’slengthbasis.The following tablesetsoutthenature oftheCompany’stransactions,assetsand Transactions withrelated partiesduringtheyearessentiallyregarded servicesrendered aspartofordinary operationsthat and AnasS.p.A. • theFerrovie delloStatoGroup; • theEniGroup; • theEnelGroup; • theGSEGroup; as companiesbelongingto: the associatecompanyCESIS.p.A.,employeepensionfunds(FondenelandFopen),CassaDepositiePrestiti aswell additiontothesubsidiaries(TELAT, in SunTergridDepositi ePrestiti S.p.A.firstascertainedin2007,regarded – andRTR) – Terna’s transactionswithrelated parties,takingaccountofthe No businesscombinationswere carriedoutin2009. de facto control exercised overtheCompanybyCassa Related party Fondenel andFopen Anas S.p.A. Ferrovie Group ENI Group Enel Group GSE Group CESI S.p.A. e Prestiti S.p.A. Cassa Depositi TELAT SunTergrid Group sesLiabilities Assets Line moving Non-energy related items Line moving Non-energy related items Line maintenance Non-energy related items of transmissioncosts,remuneration ofgrid for interconnection, coverage rights foruseoftransportcapacity Rights ofwithdrawal,energysales, Energy-related items Leases andrents, linemaintenance Non-energy related items of transportcapacityforinterconnection of transmissioncosts,rightsuse rights ofwithdrawal,coverage and meteringaggregation, energysales, Remuneration ofNationalTransmission Grid Energy-related items IT services Specialist services(remote console),leases, Non-energy related items for interconnection rights ofusetransportcapacity component, energysalerightsofwithdrawal, Remuneration ofthegridandMIS Energy-related items structures forspecificuse Lease oflaboratoriesandothersimilar Non-energy related items Subscription ofbonds Non-energy related items treasury services,financing maintenance, managementfees, Technical servicesandline Non-energy related items NTG transmissionfees NTG transmissionfees management fees,landleasing of photovoltaicplants, Services fortheconstruction Non-energy related items institutions byTerna Group Amounts payabletosocialsecurity Non-energy related items Right ofwayfees Non-energy related items Right ofwayfees Non-energy related items National Transmission Gridremuneration Energy-related items Transmission Gridremuneration of congestioncosts,National Energy purchase, coverage Energy-related items to Terna control andprotection systems specialised servicesforconnection supply ofMVpowertonewstations, Restitution ofelectricpowerdiscount, Non-energy related items costs, congestionrent for interconnection, coverageofcongestion rights ofusetransportcapacity Metering aggregation, energypurchases, Energy-related items transport capacityforinterconnection Purchase ofenergy, rightsofusethe Energy-related items and research, projects andexperimentation Technical consultancy, studies Non-energy related items Fees onloanstobedisbursed Non-energy related items Network remuneration NTG transmissionfees Treasury services Non-energy related items 161 Notes to the financial statements - Terna S.p.A. 162 Separate financial statements 2009 erveGop07 25 . 69 . 0.1 4.7 - - 643.2 6.9 - - 0.1 32.5 0.5 - 1.2 1,343.1 0.7 - - -109.9 26.0 7.4105.1 0.2 8.5 8.51,582.7 996.11,105.1 11.4 - 3.1 - - - ANAS S.p.A. - - - Ferrovie Group - - 97.8 Eni -97.7 1.3 30.1 Enel 0.1 1.3 GSE Group Group - Group Other related parties Total CESI Associates - - -97.8 associates Total -97.7 6.1 36.2 S.p.A. Cassa DepositiePrestiti S.p.A. - 0.1 De facto Total TELAT SunTergrid subsidiaries Subsidiaries Group oa eso ud - - 2.2 13.4 0.5 - 2,438.2 - 15.4 - - 51.5 - 2,683.6 - 1,030.2 ------8.6 1.7 - 2,340.5 15.4 12.2 2,585.8 Total 1,030.2 Total pensionfunds Fopen Fondenel Pension funds Total otherrelated parties In millionsofeuros opn e n te and andother fee Company de facto controlling company otoln opn - controlling 3.1 - 1.2 company nryieseeg tm nryiesenergyitems energyitems energyitems energy items rnmsin ohronr)rltd rnmsin(te wes related (other owners) transmission related (otherowners) transmission rdGi rn e o-nry rdGi rn e Non-energy Gridtran.fee Grid Non-energy Gridtran.fee Grid pass-through Revenue Income statement tm e n te and feeandother items Expenses pass-through items (*) Theguaranteesrefer tothebankguaranteesreceived oncontracts. odnl------485.3 - - 11.4 - - 51.4 510.3 1.4 - 436.0 131.8 - - 482.4 - 15.3 2.9 - - - - 1.4 - 22.8 - - 26.1 - 8.0 - - 117.6 - - - - -0.8 24.4 - 121.7 -0.5 3.5 -1.0 22.0 -2.0 - 0.3 - 2.2 3.5 1.1 - Total - Total pensionfunds 0.6 - - - Fopen - 11.8 Fondenel Pension funds 0.5 Total otherrelated parties ANAS 11.8 - - Ferrovie - 8.0 - - 3.1 - Eni 509.8 - 15.0 2.9 -0.9 Enel Group 10.3 S.p.A. GSE -7.0 Group Group - Other related parties Total Group CESI S.p.A. - 10.3 -10.1 Associates 509.8 15.9 associates Total Cassa DepositiePrestisti S.p.A. De facto Total TELAT SunTergrid subsidiaries Subsidiaries opn aiaie te iaca te iaca Guarantees* Financial Other Financial Other Capitalised In millionsofeuro Company de facto controlling company otoln opn - 0.5 - 1.1 - controlling company and equipment Property, plant costs Receivables and other assets Transactions Payables andother liabilities 163 Notes to the financial statements - Terna S.p.A. 164 Separate financial statements 2009 I. Notestothestatementofcashflows H. Significantnon-recurring eventsandoperations, L. Subsequentevents in short-termsecuritiesissuedbyUBSandMPS( million). Cashwasalsousedinshort-termfinancialinvestments, by newborrowing ( million intheyear, partof which( Consequently, thefinancialresources required forinvestingactivities andtheremuneration ofequityamountedto ( attributable tothepaymentofbalance2008dividend( The changein on etr LE TDS( joint venture ELMED ÉTUDES in theassociateCESIfrom A2AS.p.A.andSiemens S.p.A.(1.871%and4.68%respectively) andtheinvestmentin contribution of of thecapitaldecrease of Cash flowsinrespect ofinvestingactivitieswere affected bytheacquisitionof100%TELAT S.r.l. ( investment inintangibleassets. property, plantandequipment( Investing activities resources generatedbythemanagementofnetworkingcapital. around Ministers onSeptember3,2009. sheet signedinJuly2009by Terna andPrenos, whichformallytookeffect withtheapproval ofMontenegro’s Council of Montenegro’s Parliamentfor approval. Inaddition,theaccord incorporatesand strengthens themainelementsofterm the importanceofinvestmentenvironment fortheindustrialdevelopmentofcountry, willbesubmittedto The intergovernmental agreement isakeystepforthecompletionofdealbetweenTerna andPrenos and,inviewof As from April6,2009,Prenos shares havebeenlistedonthelocalstockexchange. energy companyinMontenegro), holdsthree licenses:transmissionoperator, systemoperatorandmarketoperator. Prenos, whichwasestablishedonApril1,2009inaspin-off from Elektroprivreda Gore Crne -EPCG(theleadingpublic Terna willhavearightofvetoonstrategicdecisions. recapitalisation, thedesignationoftwosevenboard membersbyTerna arrangementsinwhich andgovernance power grid.Inparticular, thepartnershipprovides forTerna totakeastakeofatleast22%inPrenos by way ofarestricted partnership betweentheirrespective nationaltransmissionoperations,Terna andPrenos, forinvestmentinMontenegro's the constructionofanewunderwaterelectricityinterconnection lineandtheimplementationofastrong strategic On Italy-Montenegro agreement intergovernmental The cashflowgeneratedfrom with related parties,withtheexceptionofanytransactionsdiscussedearlier. No significant,non-recurring, atypicalorunusualtransactionswere carriedoutduring2009, eitherwiththird partiesor atypicalorunusualtransactions € 140.1 million). February 6,2010 € 1,483.6 millionincashfrom operatingactivities(self-financing)andtheuseofaround cash flows € 10.0 milliontoSunTergrid (formerlyInTernational) andtheacquisitionofanadditionalstake( € used netfinancialresources ofaround 109.5 million,netofthechangeinFVHderivatives)andusecashequivalents( Italy andMontenegro formalisedanintergovernmental agreement committingthetwocountriesto for financingactivitiesinrespect ofequityshowsadecrease of € 600 million),thesaleofTerna Participações(- € continuing operations € 0.7 million)acquired inApril2009. € 1,248.6 million)wascovered bycashflowsgeneratedfrom operatingactivitiesandpart 831.5 millionnetofplantgrantstotalling € 500 million). in theyearamountedtoaround € 1,209.7 million,andincluded in particulartheinvestmentlastquarterofyear € 197.7 million)andtheinterimdividendfor2009 € 14.7 million),andabout € 210.8 million),theshareholder capital € € 1,248.6 million,whichreflects 816.8 millionofinvestmentin € € 337.5 million,essentially 235.0 millioninfinancial € 557.7 million,net € 40.6 millionof € € 2 million) 1,547.2 € 189.1 the annualsix-monthEuriborplusaspread of40basispoints. and isrepayable inhalf-yearlyinstalmentsfrom thefifthyear. Thetermsare highlycompetitive,withinterest accruingat maximum termof30years. EMTN programme oroutsidethatprogramme. Theissues,tobedenominatedineuros orothercurrencies, mayhavea placements ofatotal existing EMTNprogramme andtheissueinoneormore tranchesbyMarch 31,2011ofbondsinpublicorprivate confirmationofdividendpolicy:thepolicyprovides forminimum annualgrowth of4%,taking2008asthebaseyearand • soundcapitalstructure: a duringtheperiodofplan,netdebtwillremain below60%ofregulated capitalemployed; • improved margins: increasing revenue andcontrolling costswillimprove Group profitability from thecurrent 74%to77% • (“SA.PE.I.”). Thisfinancingisinadditiontothe € On March 18,2010,Terna S.p.A. signed anagreement withtheEuropean InvestmentBank(EIB)foranadditionalloanof Agreement withEIBtofinancetheSA.PE.I.project On TELAT-Terna transferofplantsforthedevelopmentandupgradingNTG growth: sustainable inthenextfiveyearsatotalof • The 2010-2014planoftheTerna Group followsfourmainguidelines: the planbyBoard ofDirectors onthatsamedate. On 2010-2014 BusinessPlan On Renewal andexpansionofEMTNprogramme andnewbondissues The overallvalueofthetransaction,corresponding tothemarket valueoftheplantinvolved,amountstoabout Padua, Florence andNaples. The rationalisationandupgradingactivitieswillmainlyinvolvetheParent’s localunits(Territorial Operational Units)ofMi expropriation powerssolelytoTerna, asthelatter, asconcessionholder, mettherequirements forsuchdelegationofpowers. In particular, theMinistry forEconomicDevelopment,asprovided forunderart.6ofPresidential Decree no.327/2001,granted NTG, transferred certainplantassetstoTerna. 73 milliontoconnectSardinia withtheItalianpeninsula viaahigh-voltageunderseacableatancontinuous500kW increase of sale ofTerna Participações(approximately half-yearly couponsinrespect oftheinterimdividendand balance.Inaddition,aportionoftheproceeds from the at theendofperiodcovered bytheplan; include more than March 3,2010 February 17,2010 February 18,2010 € 900 millionor26%overthelevelenvisagedinprevious plan( , theboard ofdirectors ofTELAT, inorder toenableinitiativesforthedevelopmentandupgradingof € 300 millionforthephotovoltaicproject, bringingtotalbudgetedexpenditure tomore than , theBoard ofDirectors ofTerna authorisedtherenewal andexpansionfrom , Terna presented theCompany’s2010-2014businessplantofinancialanalysts,afterapproval of € 1.5 billionreserved forqualifiedinvestorsinItalyand/orabroad eitherwithinthescopeof € € 150 million)willbeallocateduntil2012tocomplementthepolicybyitself. 300 millionagreed onMay5,2008.Thenewloan also hasa20-yearterm € 4.3 billionwillbeinvested,mainlytodevelopthepowergrid,an € 3.4 billion).Capitalexpenditure willalso € 2 to € 4 billionofthe € 21.1 million. 21.1 million. € 4.6 billion; lan, 165 Notes to the financial statements - Terna S.p.A. 166 Separate financial statements 2009 In euros IssuersRegulation of theCONSOB Information provided pursuanttoart.149 The followingtable,prepared pursuanttoart.149 for theauditandnon-auditservicesprovided toTerna S.p.A.bythesameauditingfirm. ui evcsKM ...453,556.21 147,410.34 KPMGS.p.A. KPMGS.p.A. Total Attestation services Audit services duodecies of theCONSOBIssuersRegulation,reports thefeesfor2009 Entity providing duodecies service for 2009-Italy 600,966.55 Amounts due Notes to the financial statements - Terna S.p.A. Notes to the financial statements - Terna

167

Reports 170 Separate financial statements 2009 171 Reports - Terna S.p.A. 172 Separate financial statements 2009 173 Reports - Terna S.p.A. 174 Separate financial statements 2009 175 Reports - Terna S.p.A. 176 Separate financial statements 2009 177 Reports - Terna S.p.A. 178 Separate financial statements 2009 179 Reports - Terna S.p.A.

Consolidated financial statements at December 31, 2009 184 Consolidated financial statements 2009 Consolidated financialstatementsatDecember31,2009 Contents .Oeaigsget B. Operatingsegments 192 191 190 189 Accountingpoliciesandmeasurement criteria A. 197 Notes totheconsolidatedfinancialstatements Consolidated statementofcashflows Statement ofchangesinconsolidatedequity Consolidated statementoffinancialpositionliabilities Consolidated statementoffinancialpositionassets Consolidated statementofcomprehensive income Consolidated incomestatement 187 Consolidated financialstatements icniudoeain n o-urn seshl o ae211 Risk management-Terna Group New reporting standards Discontinued operationsandnon-current assetsheldforsale Income taxes pershare Earnings Dividends Financial incomeandexpense Revenue Grants Provisions forcontingencies andcharges Share-based payments Employee benefits Financial instruments Contract workinprogress Inventories Impairment losses Goodwill Intangible assets Property, plantandequipment Business combinations Translation offinancialstatementsforeign operations Translation offoreign currency captions Consolidation policies Subsidiaries andthescopeofconsolidation Use ofestimates Basis ofpresentation Compliance withIAS/IFRS Introduction 209 206 210 209 207 198 210 206 199 210 206 208 207 201 198 220 202 211 208 207 198 202 210 215 201 209 200 198 202 194 188 n usqetaedet n diin 267 266 Report oftheauditors Reports and subsequentamendmentsadditions pursuant toart.81 Certification oftheconsolidatedfinancial statement of theCONSOBIssuersRegulation Information provided pursuanttoart.149 Subsequentevents L. Notes tothestatementofcashflows I. 26 Significantnon-recurring eventsandoperations,atypicalorunusualtransactions H. Relatedpartytransactions G. Businesscombinations F. Commitmentsandcontingenciesarisingfrom off-balance sheetitems E. Notestotheconsolidatedstatementoffinancialposition D. Notestotheconsolidatedincomestatement C. gemn ihEBt iac h AP..poet 266 265 266 Agreement withEIBtofinancetheSA.PE.I.project 2010-2014 BusinessPlan Renewal andexpansionofEMTNprogramme andnew bondissues Italy-Montenegro intergovernmental agreement Terna andthe2010photovoltaicproject TELAT acquisition Other litigation concessionactivities Litigation concerning Environmental litigation Liabilities Assets Financial incomeandexpense Operating expenses Revenue ter of CONSOBRegulationno.11971datedMay 14,1999 duodecies 242 233 256 222 270 257 265 256 224 257 260 228 264 256 222 233 269 256 266 265 4 185 Contents

Consolidated financial statements 188 Consolidated financial statements 2009 Consolidated incomestatement In millionsofeuros .Profit fortheyearfrom discontinued G. iue annsprsae016010 0.027 0.027 0.150 0.221 0.150 0.222 0.163 0.176 0.164 0.177 429.6 0.384 0.385 341.4 17.5 -13.9 12 71.0 771.0 174.6 13.9 12 7.6 475.1 -34.7 192.1 0.0 546.1 -145.7 per share Diluted earnings 21.6 67.4 97.5 pershare Basic earnings pershare ofcontinuingoperations Earnings -180.4 pershare Diluted earnings 10 29.2 598.9 596.9 pershare Basic earnings pershare Earnings 17.3 Profit fortheyearattributabletominority interests 666.3 694.4 -19.6 Profit fortheyearattributabletoshareholders oftheParent 8 H. Profit fortheyear 110.7 8 201.2 164.9 128.0 Profit fortheyearfrom F. -1.6 181.6 E. Incometaxes 1,195.8 -0.4 D. Profit before taxes 11.8 3. Share ofprofit/(losses) 1,360.7 4 2. Financialexpense 43.8 5 10.2 1. Financialincome 165.3 C. Financialincome/expense 43.4 A-B Operatingprofit 1,152.0 Total expenses 1,317.3 3 2 3. Personnelexpense 2. Services 1 1. Rawmaterialsandconsumables B. Operatingexpenses Total revenue 2. Otherrevenue andincome 1. Revenuefrom salesandservices A. Revenue .Ohroeaigepne 991. 0.0 19.9 19.9 71.3 255.3 7 326.6 6 5. Otheroperatingexpenses 4. Amortisation,depreciation andimpairmentlosses feut-cone nete . 23 0.6 2.3 2.9 -9.6 -10.0 9 -52.9 254.1 -62.5 244.1 of equity-accountedinvestees - capitalisedpersonnelcosts - gross personnelexpense otnigoeain 5. 305 53.5 300.5 354.0 operations andassetsheldforsale continuing operations fwiht eae ate . 00 1.2 3.1 0.0 0.0 1.2 3.1 -1.8 0.1 10.0 0.0 -1.9 8.2 0.1 of whichtorelatedparties 4.0 of whichfromrelatedparties -151.02 2.1 1,421.4 1,270.4 of whichtorelatedparties of whichtorelatedparties of whichfromrelatedparties of whichfromrelatedparties fwiht eae ate . 05 0.1 1.3 0.5 2.1 0.6 3.4 of whichtorelatedparties of whichtorelatedparties Notes 11 771.0 327.5 443.5 1. 40.9376.1 417.0 2009 08Change 2008 Consolidated statementofcomprehensive income In millionsofeuros ioiyitrss00-. 5.9 -5.9 542.1 0.0 220.4 548.0 429.6 548.0 762.5 214.5 341.4 214.5 762.5 771.0 762.5 Minority interests Shareholders oftheParent Comprehensive incomeattributableto: Comprehensive incomefortheyear Other componentsofcomprehensive income Profit fortheyear rnlto ffnnilsaeet 2 . 7. 82.9 35.5 -79.5 -47.4 3.4 -11.9 25 25 - Translation offinancialstatements - Cashflowhedgesnetoftaxeffect of foreignoperations Notes 2009 08Change 2008 189 Consolidated financial statements - Terna Group 190 Consolidated financial statements 2009 assets Consolidated statementoffinancialposition In millionsofeuros oa ses ,1. ,9. -75.0 9,394.7 -7.5 9,319.7 -1.3 -861.6 25.9 -6.0 2,589.5 28.9 -779.6 494.1 18.4 1,727.9 -561.3 17.7 779.7 27.6 6.9 1,730.4 0.0 11.7 0.1 -13.7 786.5 501.0 -127.0 1,169.1 23 -97.3 7.7 5.5 19 203.9 6,805.2 127.0 279.3 115.5 -22.7 20 7,591.7 22 5.5 190.2 Total assets 18 21 0.0 182.0 123.2 C. Discontinuedoperations 1,039.5 38.2 Total current assets 6,035.8 6. Othercurrent assets 5. Tax assets 15.5 14 4. Cashandcashequivalents 19 16 15 7,075.3 18 3. Current financialassets 2. Trade receivables 1. Inventories B. Current assets 17 13 Total non-current assets 7. Othernon-current assets 6. Non-current financialassets Investmentsinequity-accountedinvestees 5. 4. Deferred taxassets 3. Intangibleassets 2. Goodwill 1. Property, plantandequipment A. Non-current assets and assetsheldforsale fwihfo eae ate . 011.4 0.3 0.1 18.5 0.2 1.5 102.3 0.5 120.8 9.2 21.1 of whichfromrelatedparties 30.3 of whichfromrelatedparties of whichfromrelatedparties of whichfromrelatedparties Notes 24 at Dec.31,2009 . . 0.1 0.0 0.1 tDc 1 08Change at Dec.31,2008 liabilities Consolidated statementoffinancialposition In millionsofeuros .Eut trbtbet ioiyitrss . 69-86.9 86.9 0.0 E. Equityattributabletominorityinterests .Txlaiiis3 401842.2 -75.0 1.5 -502.9 -8.5 9,394.7 1.8 2,249.4 93.8 -398.6 -120.2 9,319.7 34.0 1,746.5 44.0 95.3 1,880.6 -19.3 160.2 25.5 1,482.0 90.1 79.0 40.0 47.3 -256.0 15.9 -28.8 31 31 243.9 4,981.6 59.7 407.6 316.5 31 153.9 66.7 26 5,071.7 67.8 3,955.3 26 151.6 363.8 Total 443.5 equityandliabilities 125.1 82.6 -21.6 4,199.2 -12.6 Total current liabilities 0.0 15.4 81.6 26 6. Othercurrent liabilities 327.5 -118.5 5. Current financialliabilities 771.3 4. Tax 656.3 liabilities 149.4 440.2 30 29 27 771.0 3. Trade 26 payables 26 -140.1 Current portion oflong-termloans 2. 758.7 1. Short-termloans 671.7 440.2 G. Current liabilities Total non-current liabilities 28 6. Othernon-current liabilities 5. Non-current financialliabilities 4. Deferred taxliabilities 3. Provisions forcontingenciesandcharges 2. Employeebenefits 1. Long-termloans F. Non-current liabilities Total equity to theshareholders oftheParent Total equityattributable 5. Profit fortheyear 4. Interimdividend 3. Retainedearnings 2. Otherreserves 1. Share capital of theParent D. Equityattributabletotheshareholders fwiht eae ate . 70-2.4 1.2 7.0 -12.9 0.0 4.6 52.2 1.2 -0.8 39.3 0.8 0.0 of whichtorelatedparties of whichtorelatedparties of whichtorelatedparties of whichtorelatedparties Notes 525152137337.8 2,163.7 2,501.5 25 25 at Dec.31,2009 ,0. ,7. 424.7 2,501.5 2,076.8 tDc 1 08Change at Dec.31,2008 191 Consolidated financial statements - Terna Group 192 Consolidated financial statements 2009 oa rnatoswt qiyonr . . . 0.0 0.0 0.0 Total transactionswithequityowners 2009 -interimdividend Exercise ofstockoptions Allocation of2008profit Transactions withequityowners: 0.0 0.0 Comprehensive income -0.9 0.0 0.0 Total othercomponentsofcomprehensive income derivatives netoftaxeffect Chage inthefairvalueofcashflowhedge of foreign operations Release oftranslationfinancialstatements Other componentsofcomprehensive income: Profit fortheyear 2. 88.0 440.2 Equity atDecember31,2008 qiya eebr3,20 402 8. 1. 88.0 440.2 Equity atDecember31,2009 qiya eebr3,20 4. 8027-93729.9 0.0 -49.3 0.0 1.3 0.0 2.7 0.0 -47.4 1.3 88.0 -47.4 0.0 0.0 440.2 0.1 0.0 0.0 0.0 0.1 729.9 729.9 0.0 0.0 0.0 -1.9 -1.9 Equity atDecember 31,2008 0.0 Total transactionswithequityowners 0.0 2008 interimdividend 1.4 1.4 Exercise ofstockoptions Allocation of2007profit 0.0 88.0 88.0 Transactions withequityowners: Comprehensive income 440.1 440.1 0.0 of comprehensive income Total othercomponents derivatives netoftaxeffect Change inthefairvalueofcashflowhedge Translation offinancialstatementsforeign operations Other componentsofcomprehensive income: Profit fortheyear Equity atDecember31,2007 Adjustment ofopeningbalances At December31,2007 Statement ofchangesinconsolidatedequity In millionsofeuros CONSOLIDATED SHARECAPITAL ANDRESERVES DECEMBER 31,2008-DECEMBER2009 In millionsofeuros CONSOLIDATED SHARECAPITAL ANDRESERVES DECEMBER 31,2007-DECEMBER2008 Retained earnings-2007 2007 dividends Retained earnings-2008 2008 dividends

capital capital Share Share reserve Legal reserve Legal premium reserve -. -0.9 Share

Share premium

reserve -0.9 -11.9 -0.9 Cash flow 7 -49.3 7 8 -61.2 8 reserve -47.4 hedge 0.0 -11.9 Cash flowhedge -11.9 reserves reserve Other Translation reserves reserve 730.1 0.0 671.7 -140.1 771.0 2,501.5 771.0 -140.1 671.7 0.0 730.1 2,076.8 327.5 -118.5 659.5 -3.2 729.9 5. . . 2. 2. 59214.5 -126.9 -5.9 -19.8 220.4 -107.1 327.5 0.0 0.0 0.0 0.0 0.0 -59.7 -59.7 5. 5. 1. -79.5 -19.8 -59.7 -59.7 65563-1. 1. ,6. 1. 2,275.1 2,273.5 111.5 111.5 2,163.6 2,162.0 415.3 413.9 -112.0 -112.0 546.3 546.1 56.5 56.5 Other 32695-1. 2. ,7. 692,163.7 86.9 2,076.8 327.5 -118.5 659.5 -3.2 . . 13-16 -2. -337.8 -327.5 -21.6 11.3 762.5 771.0 0.0 0.0-8.5 0.0 3.4 0.0 0.9 0.9 0.9 0.0 3.2 3.2 3.2 0.2 0.2 0.2 ...... 1.6 0.0 1.6 1.4 0.0 0.2 0.0 . 1. 65-1. 372-87-325.9 -18.7 -307.2 -415.3 -6.5 113.2 0.0 Retained earnings 1. 132000.0 0.0 -113.2 113.2 Translation reserve dividend 185-1. 1. -130.3 -11.8 -118.5 -118.5 Interim 1. 321-9. 71-197.2 -7.1 -190.1 -302.1 112.0 Retained earnings 11.3 -11.3 0.0 -11.3 11.3 Profit for the year 2. 2. 39341.4 13.9 327.5 327.5 to theshareholders Equity attributable dividend 101-140.1 -140.1 Interim 118.5 -316.2 -197.7 -316.2 118.5 of theParent 771.0 771.0 771.0 -11.9 0.0 4. -47.4 -47.4 . . 1.6 0.2 1.4 Equity attributable Profit for the year to minority interests to theshareholders Equity attributable of theParent equity Total 193 Consolidated financial statements - Terna Group 194 Consolidated financial statements 2009 Change inshort-andmedium/long-termfinancialpayables(including short-termport Minority interests indiscontinuedoperations Dividends paid Change inreserves Change incapital Closing cash and cash equivalents Closing cashandequivalents Opening cashandequivalents -779.6 Increase/(Decrease) incashandequivalents[a+b+c+d] Exchange rateeffect on cash andequivalents[d] -816.4 Cash flowsgeneratedbyfinancingactivities[c] -1,242.5 Cash flowsgeneratedbyinvestingactivities[b] Equity investmentsinassetsheldforsale -2. Acquisition ofequityinvestmentsinassociatesandjointventures 227 Intangible assetsandgoodwillofdiscontinuedoperations Goodwill from acquisitions Recognition ofintangibleassetsnewacquisitions Investments innon-current intangibleassets 620.2 Property, plantandequipmentofdiscontinuedoperations 7.5 Revenue from saleofproperty, plantandequipmentintangibleassets Recognition ofacquired companies’property, -1,101.4 plantandequipment Investments inproperty, -844.9 plantandequipment,netofgrantsreceived 1,279.3 Cash flowsgeneratedbyoperatingactivities[a] 1,033.8 1,510.2 Cash flowsgeneratedbyoperatingactivities,before changesinnetworkingcapital Income taxes Financial (income)/expense (Gains)/Losses ondisposalsofproperty, plantandequipment 114.0 Accruals toprovisions (includingemployee-related provisions) andimpairmentlosses 0.0 Exchange rategains/lossesonassetsandliabilities(includingcashequivalents) on property, plantandequipmentintangibleassets** Amortisation, depreciation, impairmentlosses/(reversals ofimpairmentlosses) Adjustments for: Profit fortheyear In millionsofeuros Income taxes paid Income taxespaid - Interest expenseandotherfinancialpaid Interest incomeandotherfinancialreceived -3 Increase/(Decrease) intradepayablesandotherliabilities Increase/(Decrease) inothernon-current assets Increase/(Decrease) inothernon-current liabilities 576.6 (Increase)/Decrease intradereceivables andothercurrent assets (Increase)/Decrease ininventories 14.4 Decrease inprovisions (includingemployee-related andtaxprovisions) iaca eto icniudoeain Financial debtofdiscontinuedoperations Change inshort-termfinancialinvestments Consolidated statementofcashflows* ** NetofFVH derivatives. (***) Netofplant grantsrecognised intheincomestatement. (**) Forcommentsonconsolidatedstatementofcashflows,pleasesee thesection"Notestoconsolidatedstatementofcash (*)

fwih ahadcs qiaet fdsotne prtos . 0.0 of which:Cashandcashequivalents ofdiscontinuedoperations

os** 6731 607.3 ions)*** 173193.4 197.3 378-327.5 -337.8 000.1 0.0 140-242.7 -174.0 2. 169.3 126.0 710341,4 771,0 371.8 3.7 116-32.5 -101.6 60-5.1 6.0 Dec. 31,2009 . 779.7 0.1 010.0 -0.1 7. 244.0 779.7 5270.0 -502.7 8. 0.0 -86.9 -4. 58.1 -247.6 -0. 226.7 -500.0 -06-28.9 -40.6 94-137.8 89.4 332272.3 303.2 -. -127.3 -6.3 2. -333.1 227.1 99165.8 59.9 -1.3 -2.9 -1.3 85268.7 28.5 . -22.5 0.0 flows" inthenotes. 40.0 .4 -9.4 7 1,008.6 0.0 -1,018.2 -193.7 567.8 -731.2 -46.2 -98.1 9.2 5.8 54.5 Dec. 31,2008 90.5 535.7 ,107.5

Notes to the consolidated financial statements 198 Consolidated financial statements 2009 A. Accountingpoliciesandmeasurement criteria unless otherwise indicated. These consolidatedfinancial statements are presented inmillionsofeuros, andallfigures are shown inmillionsofeuros, in theGroup’s normaloperating cycleorwithinoneyearfrom thecloseoffinancial year. realisation, saleorconsumption intheGroup’s normaloperatingcycle.Current liabilitiesare those expectedtobesettled mention ofassetsandliabilities heldforsale.Current assets,whichincludecashand equivalents,are thoseheldfor In thestatementoffinancial position, assetsandliabilitiesare classifiedona“current/non-current” basis,withspecific April 9,1991. Legislative Decree no.32ofFebruary2,2007,whichamendedart.40(Directors’ Report)ofLegislativeDecree no.127of which asfrom the2008financialyearhasbeenprepared asasingledocument,exercising theoptiongrantedunder The consolidatedfinancialstatementsare accompaniedbytheDirectors’ ReportforTerna S.p.A.andtheTerna Group, The statementofcashflowshasbeenprepared usingtheindirect method. (including reclassification adjustments)thatare recognised inequityratherthanprofit orlossfortheyear. (statement ofcomprehensive income)startswiththeresult forthe yearandthenpresents therevenue andexpenseitems statements, thefirstofwhich(incomestatement)presents thecomponentsofprofit orlossfortheyear;whilesecond The incomestatementisclassifiedonthebasisofnature ofcosts.Theincomestatementisnowpresented astwo settled intheGroup’s normaloperatingcycleorwithinoneyear from thecloseoffinancialyear. for realisation, saleorconsumptionintheGroup’s normaloperatingcycle;current liabilitiesare thoseexpectedtobe reporting ofassetsandliabilitiesheldforsale.Current assets,whichincludecashandequivalents,are thoseheld In thestatementoffinancialposition,assetsandliabilitiesare classifiedona“current/non-current” basis,withseparate statement ofcashflows,thechangesinequityandnotesthereto. The consolidatedfinancialstatementsare composedof thestatementoffinancialposition,incomestatement, Basis ofpresentation might castdoubtonitsabilitytocontinueasagoingconcern. economic andfinancialenvironment, itdoesnotface material uncertainties(asdefinedinparagraph25ofIAS1)that basis.TheGroupfinancial instruments,aswellonagoingconcern hasdeterminedthat,despitethechallenging The consolidatedfinancialstatementshavebeenprepared onahistoriccostbasis,modifiedwhere necessaryforcertain toinart.116oftheConsolidatedLawonFinancialIntermediation” widely heldamongthepublicreferred DEM/6064293 ofJuly28,2006( no.58/1998” implementing rulesforLegislativeDecree no.38/2005” statements inimplementationofart.9,paragraph3,LegislativeDecree of February28,2005,theItalianCivilCodeandCONSOBResolutionsnos.15519( These consolidatedfinancialstatementshavealsobeenprepared consideringtheprovisions ofLegislativeDecree no.38 (SIC), endorsedbytheEuropean Commission(IFRS-EU) atthatdate. FinancialReporting Interpretationsof theInternational Committee(IFRIC)andtheStandingInterpretations Committee FinancialReportingStandards AccountingStandardswith International (IFRS),International (IAS)andtheinterpretations The consolidatedfinancialstatementsasofandfortheyearendedDecember31,2009havebeenprepared inaccordance Compliance withIAS/IFRS at theTerna S.p.A.registered offices inViale EgidioGalbani70,Rome,oratthecompanywebsite 2010. TheconsolidatedfinancialstatementsasofandfortheyearendedDecember31,2009are availableuponrequest are listedbelow. Theseconsolidatedfinancialstatementswere approved forpublicationbytheDirectors onMarch 19, as welltheGroup’s investmentsinassociatesandjointventures. Thesubsidiariesincludedinthescopeofconsolidation for theyearendedDecember31,2009includeitsseparatefinancialstatementsandthoseofsubsidiaries(the“Group”), Terna S.p.A.hasregistered offices inViale EgidioGalbani70,Rome,Italy. Itsconsolidatedfinancialstatementsasofand Introduction “Disclosure requirements forlistedissuersandoffinancialinstrumentsthatare requirements “Disclosure ), bothofJuly27,2006,aswellCONSOBCommunicationno. ) and15520( “Provisions governing financial “Provisions governing www.terna.it “Amendments tothe ). . December 31,2008. representation without,however, modifyingthefigures forequityatDecember 31,2008andtheincomestatementat Please notethatcertaincomparativeprioryearbalanceshavebeenreclassified forabetterandmore accuratecomparative “Raw materialsandconsumables”asappropriate. work”wastransferredDecember 31,2008for“Capitalisedinternal toaspecificsub-itemof“Personnelexpense”and of capitalisedcoststothevalueitemsproperty, plantandequipment.More specifically, thevaluereported at The comparativeincomestatementfigures atDecember31,2008,havealsobeenreclassified toimprove theallocation and, forcomparativepurposes,theprevious year. the salehavebeenreported under“Profit fortheyearfrom discontinuedoperationsandassetsheldforsale”2009 As describedinthesection“Discontinuedoperationsandnon-current assetsheldforsale”,theprofit andlosseffects of amounted to million. ThecontributionoftheBraziliancompaniestoconsolidatedresults for2009accrueduptothesaledate “Financial expense”. to theliability. Anyincrease inprovisions associatedwiththepassageoftimeistakentoincome statementunder tax discountratethatreflects current marketassessmentsofthetimevaluemoneyand,if applicable,therisksspecific financial effect ofthepassage oftimeismaterial,accrualsare measured bydiscountingthe estimated outflowatapre- will berequired tosettletheobligationandareliable estimatecanbemadeoftheamountobligation.Where the constructive obligationasaresult ofapastevent,itisprobable thatanoutflow ofresources embodying economicbenefits Accruals totheprovisions forcontingenciesandcharges are recognised when, atthereporting date,there isalegalor Provisions forcontingenciesandcharges estimating theamountoffuture benefitsthatemployeeshavevestedatthereporting date. other long-termbenefitsisrecognised netofanyplanassetsandismeasured onthebasisofactuarialassumptions, The liabilityforemployeebenefitspaiduponorfollowingtermination ofemploymentinrelation todefinedbenefitplansor Employee benefits summarised below. that wouldentailsignificantadjustmentstothecarrying amountsofassetsandliabilitiesinsubsequentyearsare Commission thatcouldhavesignificanteffects ontheconsolidatedfinancialstatementsorthatcouldgiverisetorisks The criticalareas forkeyestimatesandassumptionsused bymanagementinapplyingtheIFRSendorsedEuropean future yearsiftherevision affects bothcurrent andfuture years. or lossintheyearwhichestimateisrevised iftherevision affects onlythatyearorintheofrevision and The estimatesandunderlyingassumptionsare reviewed onanongoingbasisandtheeffects are recognised through profit these estimates. carrying amountsofassetsandliabilitiesthatare notreadily apparent from othersources. Actualresults maydiffer from believed tobereasonable underthecircumstances, theresults ofwhichformthebasismakingjudgementsabout reporting date.Theestimatesandassociatedassumptionsare basedonprevious experienceandvariousfactorsthatare carrying amountsofassetsandliabilitiesrelated disclosures, inadditiontocontingentassetsandliabilitiesatthe The preparation oftheconsolidatedfinancialstatementsrequires theuseofestimatesandassumptionsthataffect the Use ofestimates of for theyearfrom discontinuedoperationsandassetsheldforsale”inthesenotes,thedisposalgeneratedacapitalgain As discussedinmore detailinthesection“Significantevents2009”ofDirectors’ Report andinthesectionon“Profit (Fundo deInvestimentoemParticipações)Coliseu,whichbringstogetheranumberofBrazilianinvestors,wascompleted. investment heldbyTerna inTerna ParticipaçõesS.A.toTAESA S.A.(“TAESA”), acompanyheldbyCemigGTandFIP Geração eTransmissão S.A.(“CemigGT”)andCompanhiaEnergética deMinasGerais(“Cemig”),thesaleofequity On that are recognised atfairvalueinaccordance withIFRS-EU,asindicatedintheaccountingpoliciesforeachcaption. The consolidatedfinancialstatementshavebeenprepared usingthehistoriccostmethod,withexceptionofcaptions € November 3,2009 305.0 million,aswelltherelease toincomeofthetranslationreserve accumulateduntilthesaledateof € 43.6 million. in implementationofthesaleagreement signedonApril24,2009betweenTerna S.p.A.,Cemig € 68.4 199 Notes to the consolidated financial statements - Terna Group 200 Consolidated financial statements 2009 • the establishmentbySunTergrid the S.p.A.,onDecember23,2009,ofReteRinnovabile S.r.l. (“RTR S.r.l.”),• withregistered saleofthe Brazilgroup the followingthecompletiononNovember 3, 2009oftheagreement (April24,2009)between • Terna’s acquisitionof theentire share capitalofTELAT S.r.l.• from EnelDistribuzioneS.p.A.(completedonApril1,2009). The Below isalistofthecompaniesincludedinscopeconsolidation: the datewhenParent gainscontrol untilthedatewhensuchcontrol ceases. The financialstatementsofsubsidiariesare includedintheconsolidated financialstatementsonaline-by-linebasisfrom or convertibleare alsoconsidered. type ofownership.InassessingwhetherornottheParent hascontrol, potentialvotingrightsthatare presently exercisable directly orindirectly financialandoperatingpoliciessoastoobtainbenefitsfrom govern theiractivities,regardless ofth The scopeofconsolidationincludestheParent Terna S.p.A.andthecompaniesoverwhichParent hasthepowerto Subsidiaries andthescopeofconsolidation period andtherisksspecifictoasset. discounted ataratethatreflects current marketassessmentsofthetimevaluemoneywithrespect totheinvestment assessments oftheperformancefuture variables,suchasprices,costs,demandgrowth rates,production profiles, and estimated future cashflowsconsideringavailableinformationatthetimeofestimateandonbasissubjective Recoverable amountisthehigherofanasset’sfairvalue,netcoststosellanditsvalueinuse,measured bydiscounting impairment. Ifthere isanindicationthatassetmaybeimpaired, itsrecoverable amountisestimated. Property, plantandequipmentintangibleassetsare analysedatleastonceayeartocheckforindicationsof Recoverable amountofnon-current assets present valueofestimatedfuture cashflows,discountedattheoriginaleffective interest rate. recoverable, whichare takentothespecificprovision forbaddebts.Impairmentlossesare measured onthebasisof Trade receivables are initiallyrecognised atfairvaluenetofanyimpairmentlossesrelating tosumsconsidered non Provision forbaddebts opn Registered Business activity Company T ...RTR S.r.l. S.p.A. SunTergrid TELAT S.r.l. sale inItalyandabroad, andany related research, consultingandassistanceactivities. dispatching sector, aswellofplantsforthegeneration electricity, including renewables generation,forownuseor management, developmentand maintenanceofnetworksandotherinfrastructure intheelectricitytransmissionand office inRomeandshare capitalof Terna S.p.A.andCemigGeraçãoeTransmissão S.A.forthetransferof66%Terna ParticipaçõesS.A.; Therefore, thiscompany’scontributiontotheperformance figures thelastninemonthsofyear; concerns changes inthescopeofconsolidation fiecptlaon method amount capital office oeEr 2,0 0%1,7,0 Line-by-line 10,672,709 100% 120,000 Euro Line-by-line 557,666,437 100% 243,577,554 Euro Line-by- 50,000 100% 50,000 Euro Rome Rome Rome sale inItalyandabroad generation, forownuseand electricity, includingrenewables and plantsforthegenerationof of electricitytransmissiongrids Construction andmaintenance high-voltage powerlines operation andmaintenanceof management, development, Design, construction, sale inItalyandabroad generation, forownuseand electricity, includingrenewables and plantsforthegenerationof of electricitytransmissiongrids Construction andmaintenance € 50,000. Thecorporatepurpose ofthenewcompanyisdesign,construction, Companies controlled directly byTerna S.p.A. compared withDecember31,2008, include: , Control through SunTergrid S.p.A. urnyShare % Currency holdi ng Carrying ng in euros Consolidation line e are convertedattheexchangerateprevailing whenfairvaluewas measured. when thetransactionwasinitiallyrecognised. Non-monetaryassetsandliabilitiesinforeign currency statedatfairvalue Non-monetary assetsandliabilitiesinforeign currency statedat historiccostare convertedattheexchangerateprevailing are takentoprofit orloss. functional currency are subsequentlyadjustedattheexchange rate prevailing atyearend.Anyexchangeratedifferences exchange rateprevailing onthedateoftransaction.Monetaryassetsandliabilitiesincurrencies otherthanthe In thesefinancialstatements,alltransactionsincurrencies otherthanthefunctionalcurrency are recognised atthe environment inwhicheachcompanyoperates. The financialstatementsofeachconsolidatedcompany are prepared usingthefunctionalcurrency fortheeconomic Translation offoreign currency captions In bothcases,unrealised lossesare eliminated,unlesstheyrepresent impairment. Unrealised gainsandlosseswithassociatesjointventures are eliminatedinproportion totheGroup’s holdingtherein. fully eliminated,netoftherelated taxeffect, where material(“consolidationonaline-by-linebasis”). In thepreparation oftheconsolidatedfinancialstatements,intercompany balances,transactions,revenue andcostsare to alignthemwiththeParent’s accounting policies. December 31,2009havebeenapproved bytheirrespective boards ofdirectors andhavebeen adjusted,where necessary, All financialstatementsofinvesteesusedtoprepare theconsolidatedfinancialstatementsasofandforyearended Consolidation policies Sàrl,aprivatelimitedcompany establishmentonApril20,2009,oftheTunisia-registered the companyELMEDÉTUDES • Compared withDecember31,2008,wereport: are alsoconsidered. In assessingwhetherornottheParent hasajointinterest, potentialvotingrightsthatare presently exercisable orconverti entities heldforsale,seethesection“Discontinuedoperationsandnon-current assetsheldforsale”above. significant influenceuntilthatceases.Formore informationontheGroup’s accounting treatment ofjointly-controll The profits orthelossesattributabletoshareholders oftheParent are recognised from thedatewhenitbeginstoexercis at costandsubsequentlymeasured usingtheequitymethod. Investments injointly-controlled entities,inwhichtheGroup exercises jointcontrol ofotherentities,are recognised initia Jointly-controlled entities the legalorconstructiveobligationsofinvesteeor, inanycase,tocoveritslosses. amount, thelatteriswrittenoff andanyexcessisrecognised in aspecificprovision, where theParent isrequired tomeet In theeventthataninvestee’slossesattributabletoshareholders oftheParent exceedthatinvestments’ carrying influence untilthatceases. and lossesattributabletotheshareholders oftheParent are recognised from thedatewhenitbeginstoexercise significant These investmentsare initiallyrecognised atacquisitioncostandsubsequentlymeasured usingtheequitymethod.Profits exercisable orconvertibleare alsoconsidered. nor jointventures. InassessingwhetherornotTerna hasasignificantinfluence,potentialvotingrightsthatare presently Investments inassociatesare thoseoverwhichtheTerna Group hassignificantinfluencebutwhichare neithersubsidiaries Associates • the saleofEmpresa the deTrasmissão doAltoUruguaiS.A.(ETAU) andBrasnortetrasmissoradeEnergia S.A.withthe • completion ofthetransferdiscussedabove66%Terna ParticipaçõesS.A. held equallybyTerna andSTEG(SociétéTunisienne del’ElectricitéetduGaz); ble ed lly e 201 Notes to the consolidated financial statements - Terna Group 202 Consolidated financial statements 2009 The maindepreciation ratescalculatedonthebasisofrelated asset’susefullifeare asfollows: the related asset.Theamountistakentoprofit orlossthrough thedepreciation oftheasset. Liabilities associatedwithitemsofproperty, plantandequipmentare takentoaspecificprovision asabalancingentryto assets becomeavailableforuse. which isreviewed annually, withrevisions appliedonaprospective basis.Thedepreciation ofassetsbeginswhenthe as describedbelow. Depreciation iscalculatedonastraight-line basisovertheestimatedusefuleconomiclifeofasset, Property, plantandequipmentisshownnetofaccumulateddepreciation andanyimpairmentlosses,whichare measured which isconsidered deemedcostatthedateofrevaluation. Certain assetsthatwere revalued at January1,2005(transitiondate)orpreviously are recognised attherevalued amount, which itbelongs,isrecognised anddepreciated separately. Each elementofanitemproperty, plantandequipmentofmaterialvalue,withrespect tothetotalvalueofitem measured. Allothercostsare recognised inprofit orlosswhenincurred. they relate ifitisprobable thatthefuture benefitsofthatcostwillflowtotheCompanyandifcanbereliably expense” below. Costsincurred afterpurchase are recognised asanincrease inthecarryingamountofasset towhich are capitalisedaspartofthecostasset.Formore information,pleaseseethesection“Financialincomeand attributable totheacquisition,constructionorproduction ofanassetthatqualifyforcapitalisationpursuanttoIAS23R The corresponding liabilityisrecognised intheprovisions forcontingenciesandcharges. Borrowing costsdirectly constructive obligations,costalsoincludesthepresent valueofthe estimatedcostofdisposalorremoval oftheasset. the conditionnecessaryforittobecapableofoperatinginmannerwhichwasacquired. Intheeventoflegalor Property, plantand equipmentisrecognised athistoriccost,includingcostsdirectly attributabletoputtingtheassetin Property, plantandequipment is takentoprofit orloss. accordingly. Asa result, theportionoflossesorgainsrealised onthedisposalinexcessofgoodwillsubsequentlyrealised Decreases inminorityinterests, followingsaleordilution,insubsidiaries,withoutlosingcontrol, are accountedfor values ofassetsacquired andliabilitiesassumedthepurchase pricehavebeenmeasured correctly. amount isrecognised asgoodwillor, ifnegative,takentoprofit orloss,afterhavingverifiedonceagainthatthecurrent fair value.Ifthepurchase costexceedsthefairvalue ofnetassetsacquired andattributabletotheGroup, thisexcess This costisallocatedbyrecognising theidentifiableassets,liabilitiesandcontingentofacquired business sold andliabilitiesincurred orassumed,plusanycostsdirectly attributabletothecombination. recognised usingthepurchase method,where purchase costisequaltothefairvalue,atdateofexchange,assets All businesscombinations,includingacquisitionsofminorityinterests inentitiesoverwhichcontrol isalready held,are Business combinations separately inaspecificequityreserve. Thisreserve isthenreleased toprofit orlosswhentheinvestmentissold. average exchangerateoftheyear. Anyresulting exchangeratedifferences are takendirectly toequity, andare classified rate prevailing atthereporting date.Incomestatementfigures includedinthesefinancialstatementsare convertedatthe currency otherthantheeuros, includinggoodwillandconsolidationadjustments,are convertedintoeuros attheexchange For thepurposesofpreparing theconsolidatedfinancialstatements,statementsofinvesteeswithafunctional which istheParent Terna S.p.A.’sfunctionalcurrency. For thepurposesofconsolidatedfinancialstatements,profits andlosses,assetsliabilitiesare expressed ineuros, Translation offinancialstatementsforeign operations at Automation and control systems Automation andcontrol systems Inverter Panels andsupportstructures Devices, electricalequipmentandancillaryplants Electrical machinery Buildings Solar powerplants: Electronic calculationequipment Devices, electricalequipmentandancillaryplants Central systemsforremote managementandcontrol: Transformer stations: Power lines Civil andindustrialbuildings and willtherefore bereclassified under intangibleassets. the property, plantandequipmentservingdispatching activitieswouldbesubjecttothetreatment specified inIFRIC12 statements suggestssofarthat transmissionactivitieswouldbeexcludedfrom theconcession arrangement.Conversely, stillunderway–of theapplicabilityandanyeffects oftheadoptionthisinterpretation ontheGroup financial analysis – FinancialReportingInterpretationsArrangements (publishedinNovember 2006byIFRIC-International Committee). Our As specifiedbelow, inMarch 2009the European CommissionendorsedIFRICInterpretation 12ServiceConcession equipment andare depreciated overtheirusefullives. that makesuptheportionofelectricitytransmissiongrid ownedbytheGroup are classifiedasproperty, plantand Accordingly, theassetsdirectly related tothetransmissionanddispatchingactivities, includingplant(linesandstations) their incomegeneratingcapacity. parties, calculatedonthebasisofmostappropriate parametersatthatdate,assessingthevalueofassetsand the Ministrydecidestopurchase theconcession-holder’sassets,itwillpaylatteranamount,agreed uponbythe by theconcession-holder, withtheexclusionofplant(linesandstations)thatmakesup NationalTransmission Grid.If right topurchase assetsuseddirectly forthetransmission anddispatchingactivitiesincludedintheconcessionowned Activities onApril20,2005,intheeventofterminationand revocation, orexpiryoftheconcession,Ministry has the for anothertwenty-fiveyears.Undertheprovisions ofartt.18and19theDecree issuedbytheMinistryofProductive Activities tocarryoutelectricitytransmissionanddispatchingactivitiesinItaly, runsfortwenty-fiveyearsandisrenewab The concessiongrantedfree ofcharge totheParent, witheffect from November1, 2005,bytheMinistryofProductive Terna Costs related tooperatingleasesare takeninfulltoprofits orlossesoverthetermoflease. Leases inwhichthelessormaintainssubstantiallyallrisksandrewards ofownershipare classifiedasoperatingleases. useful life. acquire ownershipattheendoflease,assetisdepreciated overtheshorteroftermleaseandasset’s Assets are depreciated usingthecriteriaandratesdescribedabove.Ifcompanyisnotreasonably certainthatitwill liability tothelessorisrecognised underfinancialpayables. lease paymentsdue,includinganyamountstobepaidpurchase theassetatendoflease.Thecorresponding risks andrewards ofownership,are recognised asGroup assetsattheloweroffairvalueandpresent valueofminimum Property, plantandequipmentacquired underfinanceleases,through whichtheGroup hasacquired substantiallyallthe has anindefiniteusefullife. Land, regardless ofwhetheritisfree ofconstructionorrelated tocivilandindustrialbuildings,isnotdepreciated, since Automation and control systems Automation andcontrol systems Electrical devicesandequipment Electrical machinery DEPRECIATION RATES

10.00% 5.00% 2.50% 5.00% 2.38% 2.50% 10.00% 5.00% 3.13% 6.60% 6.70% 5.00% 5.00%

le it 203 Notes to the consolidated financial statements - Terna Group

206 Consolidated financial statements 2009 profiles, anddiscounted atapre-tax ratethatreflects current marketassessment of thetimevaluemoneyfor the subjective assessmentsofthe performanceoffuture variables,suchasprices, costs,demandgrowth rates,production discounting estimatedfuture cashflowsconsideringavailableinformationat the timeofestimateandonbasis Recoverable amountisequal tothegreater offairvaluelesscoststosellandinuse. Value inuseismeasured by assets notyetavailableforuse, isestimatedatleastannually. The recoverable amountofgoodwillandintangibleassetswithindefiniteusefullives,where present, aswellintangible evidence ofimpairment.Ifthere isanindicationthatassetmaybeimpaired, itsrecoverable amountisestimated. Property, plantandequipmentintangibleassetswithfiniteusefullivesare testedatleastonceayeartocheckfor Impairment losses corresponds totheamountrecognised usingtheprevious accountingpolicies. combinations thatoccurred afterthetransitiondate(January1,2004).Goodwillarisingonacquisitionsbefore thatdate In theadoptionofIFRSendorsedbyEuropean Commission,theGroup decidedtorestate onlythosebusiness Where negativegoodwillarises,itistakentoprofit or lossatthetimeofacquisition. Goodwill relating toinvestmentsinassociatesandjointventures isincludedinthecarryingamountofthosecompanies. Goodwill isnotamortisedafterinitialrecognition. Itisadjusted toreflect impairmentlosses,measured asdescribedbelow. The identifiedCGUsare thecompaniesthatholdconcessions forelectricitytransmissionanddispatchingactivities. Goodwill arisingfrom theacquisitionofsubsidiariesisallocatedto eachoftheidentifiedCashGeneratingUnits(CGU). Goodwill rapid obsolescence. These intangibleassetsare amortisedovertheirestimatedresidual usefullife,whichisnormallythree years,giventheir All otherdevelopmentcostsandresearch expensesare recognised inprofit orlosswhenincurred. expense” below. 23R are capitalisedaspartofthecostasset.Formore information,pleaseseethesection“Financialincomeand Borrowing costsdirectly attributabletotheacquisition,constructionorproduction ofaqualifyingassetpursuanttoIAS asset canbeusedanditispossibletodemonstratethatwillgenerateprobable future economicbenefits. and there are technical possibilitiesandintenttocompletetheintangibleassetsoasforitbeavailableafteruse; Development costsare capitalisedbytheGroup onlyifallfollowingconditionsare met:costscanbereliably estimated software applicationsrelated tothedevelopmentofPowerExchange,particularlyrelating totheregistration of • developmentandinnovationofapplicationsoftware the to protect theelectricalsystem; • developmentandinnovationofapplicationsoftware the to managetheelectricityinvoicingprocess; • Other intangibleassetsmainlyrelate tothefollowing: initially recognised atcost,whichreflected fairvalue. assets andlegalarrangementsoftheconcessionfrom GSE(formerlyGRTN) toTerna S.p.A.Thisintangibleasset was twenty-five years,renewable foranothertwenty-fiveyears,from thedateofeffective transferoftheactivities,functions, As establishedintheDecree issuedbytheMinistryofProductive ActivitiesonApril20,2005,thisconcession runsfor 1, 2005whenitacquired theTSObusinessunit. In particular, theParent obtainedtheconcessionforelectricitytransmissionanddispatchingactivitiesinItalyonNovember and otherintangibleassets. Intangible assetsessentiallyregard theexclusiveconcessiontocarryoutelectricitytransmissionanddispatchingactivities useful lifeoftherelated asset,whichisreviewed annually. Anyrevisions are appliedonaprospective basis. Amortisation beginswhentheassetbecomesavailableforuseandiscalculatedonastraight-linebasisoverestimated Statutory Auditors,andshownnetofaccumulatedamortisationanyimpairmentlosses,measured asdescribedbelow. Intangible assets,whichallhavefiniteusefullives,are recognised atcost,havingobtainedtheapproval oftheBoard of Intangible assets operators, consumptionunitsandthedevelopmentofforeign procedures. methods usedtomeasure recoverable amount. the recoverable amountifthere isanindicationthattheimpairmentlossnolongerexistsorwhenthere isachangeinthe demand orwithaveryshortmaturity, subject toaninsignificantriskandwithoutcollectioncosts. Cash andcashequivalentsare stated atnominalvalue.Theyincludemonetaryitems,i.e. amountsthatare availableon Cash andcashequivalents Receivables withduedatesthatfallundernormalcommercial termsare notdiscounted. effective interest rate. Impairment lossesare measured onthebasisofpresent valueofestimatedfuture cashflows,discountedattheoriginal provision forbaddebts. interest method,andnetofanyimpairmentlossesduetosumsconsidered non-recoverable, whichare takentothespecific Trade receivables are initiallyrecognised atfairvalueand subsequentlymeasured atamortisedcost,usingtheeffective Trade receivables transferred orsettledinstruments. the Group companiesare nolongerinvolved intheirmanagementandnolongerholdtherisksrewards ofthe discounted usingtheoriginalinterest rate.Financialassetsare derecognised when,followingtheirtransferorsettlement, which are determinedasthelowerofasset’scarryingamount andthepresent valueofestimatedfuture cashflows, They are subsequentlymeasured atamortisedcost,usingtheeffective interest method,netofanyimpairmentlosses, exchange, includingtransactioncosts. to maturityare recognised atcostthesettlementdate,whichisfairvalueofinitialconsiderationgivenin Any financialassetsotherthanderivativesthatGroup companieshavethepositiveintentionandabilitytohold Financial assets Financial instruments incurred bytheGroup companiesaspartofnormaloperations. Contract costsincludeallthosethatrelate directly tothespecificcontract,aswellfixedandvariablecosts to profit orloss. account therisksofcustomers’refusal torecognise theworkperformed.Expectedcontractlossesare immediatelytaken of financialpositionassetsorliabilities,consideringanyimpairmentlossesontheworkcarriedoutsoastotake into Differences betweenthevalueofcompletedcontractsandpaymentsonaccountreceived are recognised understatement (cost-to-cost). measured proportionally totheratioofcostsforworkscarriedoutupreporting dateandtotalcostofthecontract separately inprofit orlossonapercentage ofcompletionbasis.Progress ismeasured basedontheworkcarriedoutand When theprofit orlossonacontractcanbereliably estimated,therelated contractcostsandrevenue are recognised Contract workinprogress the estimatedcoststosell. Net estimatedrealisable valuestandsfortheestimatedpriceofsaleundernormalconditionsnetcompletioncostsand calculated astheweightedaveragecost,includingrelated charges. Inventories are recognised andmeasured atthelowerofpurchase costandnetestimatedrealisable value.Costis Inventories reduction inotherassetsoftheCGUona Impairment lossesofCGUsare firsttakenasareduction inthecarryingamountofanyallocatedgoodwillandthenasa of theCGUtowhichitbelongs,isgreater thanitsrecoverable amount. An impairmentlossisrecognised intheincomestatementwhenasset’scarryingamount,ornetinvestedcapital independent, theasset’srecoverable amountiscalculatedaspartoftheCGUtowhichitbelongs. investment periodandrisksspecifictotheasset.Ifintangibleassetdoesnotgeneratecashinflowsthatare largely pro rata basis. Exceptforgoodwill,impairmentlossesmaybereversed upto 207 Notes to the consolidated financial statements - Terna Group 208 Consolidated financial statements 2009 of achievementthemarket conditions. number ofinstrumentsrepresentative ofcapitalthatwillmature differs from theestimate previously carriedout,regardless employees willbeabletoexercise. Suchestimateisreviewed where subsequentinformation indicatesthattheexpected period, withacorresponding increase inequity, consideringthebestpossibleestimateofnumber ofoptionsthat to employeesatthegrantdate. Thefairvalueofoptionsgrantedisrecognised underpersonnel expenseoverthevesting The costofemployeeservice remunerated through stockoptionplans ismeasured atthefairvalueofoptionsgranted Share-based payments participating intheplan.Otherwise,actuarialgainsandlosses are notrecognised. obligation andthefairvalueofplanassetsare takentoprofit orloss fortheaverageexpectedtermofserviceemployees unrecognised actuarialgainsandlossesinexcessof10%thegreater ofthepresent valueofthedefinedbenefitplan Actuarial gainsandlossesatJanuary1,2004(dateoftransition toIFRS-EU)were recognised inequity. Afterthatdate, is measured byindependentactuaries. employees haveaccruedatthereporting date.Theliabilityisrecognised onanaccrualsbasisoverthevestingperiod.It measured separatelyforeachplanonthebasisofactuarialcalculationsthatestimateamountfuture benefitsthat and otherbenefits)orlong-termemployeebenefits(loyaltybonus)isrecognised netofanyplanassets.Itis plans (terminationbenefits,additionalmonth’spay, indemnityforlack ofnotice,energy discount,ASEMhealthbenefits The liabilityinrespect ofemployeebenefitspayableuponor afterterminationofemploymentrelates todefinedbenefit Employee benefits developments, aswellnewderivativecontractssignedduringtheyear. Accordingly, theeffects inprofit orlossandequityofthesemeasurements are essentiallyattributabletonormalmarket The measurement techniquesusedforderivatives existingatyearenddidnotchangewithrespect totheprevious year. the originalassociatedcashflows. entity becomespartytothecontractorwhenisrenegotiated inamannerthatproduces amaterialchangein embedded derivatives,whichmustbeseparatedandmeasured atfairvalue.Thisanalysisisconductedthetime Financial andnon-financialcontracts(whichare notalready measured atfairvalue)are alsoanalysedtoidentifyany rates atthereporting date,andbyconvertingamounts incurrency otherthantheeuro attheyear-end exchangerate. instruments nottradedinregulated marketsismeasured bydiscountingprojected cashflowsalongayieldcurveofinterest Fair valueismeasured onthebasisofofficial quotationsforinstrumentstradedinregulated markets.Thefairvalueof recognised inprofit orloss. Changes inthefairvalueofderivativesthatdonotmeethedgeaccountingrequirements pursuanttotheIFRS-EUare value associatedwiththehedgedrisk. recognised atfairvaluethrough profit orloss.Accordingly, thehedgeditems are adjustedtoreflect changesinthefair When hedgingderivativescovertheriskofchangesinfairvaluehedgedinstruments(fairhedges),they are that doesnotqualifyaseffective istakentoprofit orloss. to profit orloss,inlinewiththeeffects ofthehedgedtransaction. Theportionofthefairvaluehedginginstrument (cash flowhedges),thepartofchangesinfairvaluequalifyingaseffective isinitiallytakentoequityandsubsequently verified andperiodicallychecked.Whenderivativescovertheriskofchangesincashflowshedgedinstruments and thehedgeditemisformallydocumentedhedgehighlyeffective withinarangeof80%to125%,asinitially Derivatives are recognised atfairvaluethetradedateandclassifiedashedgesifrelationship betweenthederivative Derivative financialinstruments hedged risk. If theliabilitiesare covered byfairvaluehedges,theyare adjustedtoreflect changesinfairvaluewithrespect tothe Subsequently, financialliabilitiesare measured atamortisedcost,usingtheoriginaleffective interest method. net ofdirectly related transactioncosts. Financial liabilitiesotherthanfinancialderivativesare initiallyrecognised atthesettlementdateandmeasured atfairval Financial liabilities normal commercial terms,theyare notdiscounted. Trade payablesare initiallyrecognised atfairvalue andsubsequentlystatedatamortisedcost.Iftheirduedatefallsunder Trade payables ue, revenue from thesaleofgoodsisrecognised whenthematerialrisksandrewards ofownershipthegoodshavebeen • Depending onthetypeoftransaction,revenue isrecognised on thebasisoffollowingspecificcriteria: enterprise. Revenue isrecognised whenitisprobable thattheeconomicbenefitsderivingfrom theoperationwillbeusedby Revenue Grants foroperatingexpensesare expensedinfullwhenthe recognition requirements are satisfied. value oftherelated asset. the related assets.From 2003,grantsfornewplantsthathaveentered serviceare recognised asadirect reduction inthe before December31,2002,recognised underotherliabilitiesandtakentoprofit orlossoverthedepreciation periodof Grants received inrelation tospecificassetswhosevalueisrecognised undernon-current assetsare, forplantsoperating non-recoverable valueortheamountwhoserecovery isnolongerprobable isrecorded asacost. enterprise. However, when there therecovery isuncertaintyconcerning ofanamountalready recognised inrevenue, the The revenue isrecognised whenitisprobable thattheeconomicbenefitsderivingfrom theoperationwillbeusedby Grants are recognised asanincrease orreduction oftherelated assetsandrecognised inprofit orlossthrough depreciation. economic resources necessarytoextinguishtheobligationorattributableamaterialchangeindiscountrate,which costs expectedfordismantling,removal and reclamation, whichcomeasaresult ofchangesinthetiminganduse Changes intheestimateare recognised through profit orlossfortheyearinwhichchangehappens,except those depreciation oftheitemproperty, plantandequipmenttowhichitrelates. recognised asabalancingentrytotheassetwhichitrelates. Theexpenseisrecognised inprofit orlossthrough If theliabilityrelates toproperty, plantandequipment(sitedisposalrestoration, forexample),theprovision is Where discountingisused,theincrease intheprovision duetothepassageoftimeisrecognised asaninterest expense. to theliability, ifpresent. using apre-tax discountratethatreflects current marketassessmentofthetimevaluemoneyandthoserisksspecific Where theeffect ofthetimevaluemoneyismaterial, accrualsare measured bydiscountingestimatedfuture cashflows will berequired tosettletheobligationandareliable estimatecanbemadeoftheamountobligation. legal orconstructiveobligationtowards othersasaresult ofapasteventanditisprobable thatanoutflowofresources Accruals totheprovisions forcontingenciesandcharges are recognised when,atthereporting date,theCompanyhasa Provisions forcontingenciesandcharges to thenumberofequityinstrumentsthathaveactuallyvested,regardless ofachievementthemarketconditions. At thevestingdate,estimateisrevised through theincomestatementtorecognise theactualamountcorresponding at thegrantdate,inlinewithtermofplan. conditions etc.),aswellthepriceofTerna S.p.A.shares atthegrantdate,volatilityofstockandyieldcurv The measurement methodusedtocalculatefairvalueconsidersallthecharacteristicsofoptions(term,priceand • amounts collectedonbehalfofthird amounts parties,such asthefeespaidtonon-Terna gridowners,aswellrevenue • whentherecovery ofanamountalready recognised inrevenue isuncertain,thenon-recoverable valueorthe amount • revenue accruedduringtheyearinrespect ofcontractwork inprogress isrecognised onthebasisofpayments • revenue from servicesrendered isrecognised withreference tothestageofcompletiontransaction.Ifrevenue • revenue withtherelated costsarising from the“sametransaction”,isdiscussedinfullaspecific sectionofthenotes. are reported netoftherelated costs. This presentation method,whichreflects thesubstanceoftransactions byoffsetting recognised formanagingactivities related tothebalancingofnationalelectricalsystem,which donotincrease equity, whose recovery isnolongerprobable isrecorded asacost,withrecognition inprovisions forcontingencies andcharges; delays attributabletoGroup companies; probable andcanbereliably thattheywillactuallybeearned determined.Revenueisalsoadjusted foranypenalties includes anypaymentsinrespect ofvariations,pricerevisions andincentives, withthelatterrecognised where itis agreed fortheprogress ofworksusingthecost-to-costmethod.Inadditiontocontractualpayments,project revenue cannot bereliably measured, itisrecognised totheextentofrecoverable costs; transferred tothebuyerandtheirtotalamountcanbereliably determined andcollected; e 209 Notes to the consolidated financial statements - Terna Group 210 Consolidated financial statements 2009 are alsorecognised inequity. Deferred tax liabilitiesare recognised inanycaseiftheyexist.Taxes inrespect ofcomponentsrecognised directly inequity available againstwhichtheassetcanbeused.Therecoverability ofdeferred taxassetsisreviewed ateachyearend. Deferred taxassetsare recognised whentheirrecovery isconsidered probable, i.e.whenfuture taxableincomewillbe those thatare substantiallyapproved atthereporting date. current taxratesortheexpectedtobeineffect whenthetemporarydifferences reverse, basedoncurrent ratesor and liabilitiesrecognised inthefinancialstatementsandcorresponding amountsrecognised fortaxpurposes,using Deferred taxassetsandliabilitiesare calculatedonthetemporary differences betweenthecarryingamountsofassets account ofapplicableexemptions. captions ispositive.Theyare basedontheestimatedtaxableincomeandinaccordance withcurrent legislation,taking Current incometaxesare recognised astaxliabilities,netofadvancespaid,orassetswhere thenetbalanceof the Income taxes have adilutingeffect. the weightedaverageofoutstandingshares, adjustedtoconsider theeffects ofallpotentialordinary shares thatcould pershareDiluted earnings are calculatedbydividingtheprofit fortheyearattributabletoholdersof ordinary shares by by theweightedaverageofoutstandingordinary shares duringtheyear. pershareBasic earnings are calculatedbydividingtheprofit orlossfortheyearattributabletoholders ofordinary shares pershare Earnings approved bytheshareholders andtheBoard ofDirectors, respectively. Dividends andinterimdividendspayabletothird partiesare shownaschangesinequityatthedatewhichtheyare Dividends from investeecompaniesare recognised whentheshareholders’ righttoreceive paymentisestablished. Dividends on thenetvalueofrelated financialassetsandliabilitiesusingthe effective interest rate. Financial incomeandexpenseotherthancapitalisedamountsare recognised onanaccrualsbasisinrespect oftheinterest The capitalisationrateusedfor2007is4.17%,that20084.93%and20093.12%. Capitalisation ceaseswhentheactivitiesnecessarytoprepare theassetforitsintendeduseorsaleare substantiallycomplet in progress. for theasset;(b)borrowing costsare beingincurred; and(c)activitiestoprepare theassetforitsintendeduseorsaleare Capitalisation commencesasfrom thedateallfollowingconditionshavebeenmet:(a)expenditures havebeen incurred costs capitalisedduringayearshallinanycasenotexceedtheamountofborrowing costsincurred duringthatyear. of theborrowing costsapplicabletothegeneralpool,excludinganyspecificallyborrowed funds.Theamountofborrowing determined byapplyingacapitalisationratetotheexpenditure onthatasset.Thecapitalisationratewillbetheweightedave the temporaryinvestmentofsuchborrowings. Where fundsare raisedthrough generalborrowing, theeligibleamountis Where fundsare borrowed specifically, costseligibleforcapitalisationare theactualcostsincurred o lessanyincomeearned which wouldnothavebeenincurred iftheexpenditure fortheassethadnotbeenincurred. involved are thosethatrequire atleastoneyearbefore beingready foruse.Thedirectly attributableborrowing cost isthat are capitalisedaspartofthecostasset.Thequalifyingassets(property, plantandequipmentintangibleassets) Borrowing costsdirectly attributabletotheacquisition,constructionorproduction ofanassetthatqualifyforcapitalisatio Financial incomeandexpense rage e. n n c inputsnotbasedonobservablemarket data(Level3). (c) marketinputsthatare directly (e.g.prices) orindirectly (derivedfrom prices)observableotherthanthe quotedprices (b) quotedprices(unadjusted)inactivemarketsfor identicalassetsorliabilities(Level1); (a) value foreachclassofassetsandliabilities,asfollows: the introduction ofafairvaluehierarchy. More specifically, entitiesmustspecifytheinputs theyusedtodeterminethefair takes effect prospectively asfrom thefinancial statementsfortheyearendedDecember31,2009.Themainchangeis Endorsed withRegulation(EC)no.1165/2009,itextendsdisclosure requirements forfinancialinstruments.Theamendment Amendments toIFRS7-Financialinstruments:disclosures framework oftheproject toconverge theIFRSandUSGAAP. comparison ofIAS14withSFAS 131 -Disclosures aboutsegmentsofanenterprise andrelated information,withinthe services, thegeographicalareas inwhichitoperatesanditsmajorcustomers.Thenewstandard istheproduct ofthe and assessitsperformance”.Italsoestablishesthedisclosure requirements asegment’sproducts concerning and reviewed bytheentity’schiefoperatingdecisionmakertomakedecisionsaboutresources tobeallocated thesegment operating segments.Itdefinessegmentsascomponentsofanentity“whoseresults are regularly IFRS 8,whichsinceJanuary1,2009,replaces IAS 14-SegmentReporting,requires entitiestodiscloseinformationonits IFRS 8-OperatingSegments inequityoriginatedbytransactionswiththeowner(e.g.dividends,share changes buybacks)mustbepresented inthe • maychoosebetweenpresenting entities incomeandexpensesinasinglestatementofcomprehensive incomeorintwo • The amendmentstoIAS1includethefollowing: IAS 1-Presentation ofFinancialStatements(revised in2007) Terna Group, hasappliedthisstandard earlyatDecember31,2008,settingthe“commencementdate”January1,2006. IAS 23-Borrowing Costs(revised in2007) As from FinancailReportingStandards January1,2009,thefollowingInternational tookeffect: FinancialReportingStandards entering forceInternational asfrom January1,2009 New reporting standards isanoperationacquired exclusivelywithaviewtoresale. • ispartof asingleco-ordinated plantodisposeofaseparatemajorlinebusinessorgeographicalarea ofoperations; • represents aseparatemajorlineofbusinessorgeographicalarea ofoperations; • held forsale,and: not reclassified. Adiscontinuedoperationisacomponentofanentitythateitherhasbeendisposedof,orclassifiedas as heldforsalethrough profit orloss.Thecorresponding statementoffinancialpositionvaluesfortheprevious yearare are recognised directly asanadjustmenttothecarryingamountofnon-current assets(ordisposalgroups) classified and otherexpensesattributabletoliabilitiesheldforsalecontinueberecognised. Anysubsequentimpairmentlosses The individualassetsofthecompaniesclassifiedasheldforsaleare notdepreciated/amortised, whereas financialexpense fair valuelesscoststosellisredetermined. measurement rulessetoutinIFRS5,butare heldforsale,are remeasured onthebasisofapplicableIFRSbefore the amount andfairvaluelesscoststosell.Thecarryingamountsofeachassetliabilitythatare bythe notgoverned conformity withtheIFRSapplicabletoeachassetandliabilitysubsequentlyare measured attheloweroftheir carrying statement offinancialposition.Non-current assets(ordisposalgroups) classifiedasheldforsaleare firstmeasured in through continuinguseare classifiedasheldforsaleandreported separatedfrom otherassetsandliabilitiesinthe Non-current assets(ordisposalgroups) whosecarryingamountwillberecovered principallythrough asaleratherthan Discontinued operationsandnon-current assetsheldforsale statement ofchangesinequityseparatelyfrom otherchanges. comprehensive income,tobereported netoftaxeffects; statement ofcomprehensive incomethatstartswithprofit (loss)fortheyearandthenreports othercomponentsof separate statements:aincomestatementwiththecomponentsofprofit (loss)fortheyearandasecond or used forLevel1(Level2);and 211 Notes to the consolidated financial statements - Terna Group 212 Consolidated financial statements 2009 Other International AccountingStandards Other International publishing eachseparately. decided topublishanannualdocumentcontainingallminoramendmentspreviously publishedstandards, rather than Endorsed withRegulation(EC)no.70/2009,thiscontainsaseriesofamendmentstonumerous standards. TheIASBhas Improvements totheIFRS(publishedin2008) equipment” to“intangibleassets”. statement andequityoftheCompany, asthemainconsequence isareclassification ofassetsfrom “property, plantand At present, althoughtheanalysisisnotcomplete,thisinterpretation appearstohavenomaterialimpactontheincome More specifically, inviewoftheratesystemfordispatchingactivities,intangibleasset modelisfelttobeapplicable. theservicesprovidedof IFRIC12,asthepublicbodygoverns withsuchassetsandcontrols anyresidual interest inthem. the assetsservingservicetoState.Accordingly, theGroup hasconcludedthatsuchassetsfallwithinthescope As regards dispatchingoperations,however, attheendoftermconcession, Terna couldbeobligatedtotransfer rights, anysignificantresidual interest intheNTGinfrastructure attheendofterm concession. view ofthesefactors,thepublicbodytherefore doesnotcontrol, eitherviaownership,control overthebenefitsorother as theCompanyhasfullpoweroverinfrastructure, eveniftheNTGisrestricted tothedeliveryofapublicservice.In the abilityofoperatortosellassetsorpledgethem as collateral.Thisrestriction doesnotappeartoapplyTerna and togainfulltitletheassets.Inaddition,control ofthegrantoroverresidual interest intheassetsshouldr agreement northelawprovides forthepublicbodytoreacquire possession oftheNTG,evenwithpaymentanindemnity, does notapplytothepartofTerna concessioncoveringtransmissionactivities,giventhatneitherthe its adoptiononaccounts.Asthingscurrently stand,although ouranalysisisnotcomplete,itappearsthattheinterpretat Terna, withthehelpofoutsideconsultants,iscompletingitsassessmentapplicabilityIFRIC12andeffects of into theserviceconcessionarrangement. not applytoinfrastructure ownedand accountedforasproperty, plantandequipmentbytheoperatorpriortoentering or acquires tooperatetheconcessionandexistinginfrastructure grantedtotheoperatorprovide theservice.Itdoes assets attheendoftermconcession.Theinterpretation alsoappliestoinfrastructure thatathird partyconstruct the mannerinwhichtheyare tobeprovided andthepricesofsuchservices(2)controls anyresidual interest inthe operators inwhichthegrantor:(1)controls theuseofinfrastructure whichservicesare andgoverns tobeprovided, apply toallarrangements.Itsscopeislimitedserviceconcessionarrangementsbetweenpublicbodiesandprivate and maintainingsuchinfrastructure and therevenue generatedbytheoverallprovision oftheservices.IFRIC12doesnot sets outtherulesforaccountinginfrastructure usedtoprovide theservices,costsassociatedwithdeveloping statements ofcompaniesthatholdconcessionsforthedeliverypublicservices.More specifically, theinterpretation byanyspecificaccounting standard,governed inorder toensure theuniformityand comparability ofthefinancial as from theaccountingtreatment January1,2010.IFRIC12governs ofserviceconcessionarrangements,whichare not Endorsed withRegulation(EC)no.254/2009,theinterpretation willapplytothefinancialstatementsofTerna Group IFRIC 12-ServiceConcessionArrangements subsequent toitsentryintoforce. Commission withRegulation(EC)no.494/2009.Thenewstandard willonlyapplytobusinesscombinationscarriedout The changesalsorequired anumberofamendmentsIAS27and21,whichwere endorsedbytheEuropean as from January1,2010,asearlyapplicationwas notadopted. Endorsed withRegulation(EC)no.495/2009,therevised standard willapplytothefinancialstatementsofTerna Group IFRS 3-BusinessCombinations(revised in2007) following standards andinterpretations: In 2009andin2010uptothedateofpreparation ofthesefinancialstatements,theEuropean Commissionendorsedthe AccountingStandards endorsedbytheEuropeanInternational CommissionsinceJanuary1,2009 IFRIC13:Customerloyaltyprogrammes. • AmendmenttoIFRS2:Share-based payment:vestingconditionsandcancellations; • AmendmentstoIAS32and1:Puttablefinancialinstrumentsobligationsarisingonliquidation; • AmendmentofIFRIC1andIAS27:Costaninvestmentinasubsidiary, jointly-controlled entityorassociate; • financial statementshaveentered force: Since January1,2009,thefollowingstandards issuesthatcurrently concerning havenomaterialimpactontheGroup estrict ion s ,

214 Consolidated financial statements 2009 January 1,2011. number ofdifficulties ofapplicationassociatedwiththecurrent notionofrelated party. Thestandard isapplicableasfrom which apublicentityisthecontrolling shareholder exercises asignificantinfluenceorhasjointcontrol andtoeliminatea Issued onNovember4,2009,theamendmentsseektosimplify related-party disclosure requirements forcompaniesin Amendments toIAS24-Relatedpartydisclosures project. applicable forEuropean companiespendingtheEuropean Commission’sfullassessmentoftheentire IAS39 replacement Finally, the process ofendorsingIFRS9iscurrently suspendedintheEuropean Union.Accordingly, thestandard isnot value offinancialliabilities. theincludingofowncreditdraft, decidedtodevotefurtherstudyissuesconcerning riskinthemeasurement ofthefair the scopeofstandard doesnotincludefinancialliabilities,astheIASB,partlyinreaction tocommentsontheexposure This publicationisthefirstpartofaproject toreplace IAS39.In adifference from theexposure draftpublishedlastJuly, financial assets,whichwilltakeeffect asfrom January1,2013. On November12,2009theIASBpublishedIFRS9-Financialinstrumentsonclassificationandmeasurement of IFRS 9-Financialinstruments More specifically: statements, takingaccountofthedatefrom whichthey takeeffect. issues thataffect orcouldaffect Terna, theCompanyisassessingpossibleimpactofchangesonitsfinancial For amendmentsandnewstandards andinterpretations thathavenotyetbeenendorsedbytheEUbutwhichaddress AccountingStandards notyetendorsed International AmendmentstoIAS32-Financialinstruments:Presentation: classificationofrightsissues. • IFRS1Revised-FirsttimeadoptionofIFRS; • IFRIC15-Agreements fortheConstructionofRealEstate; • IFRIC17-Distributionsonnon-cashassetstoowners; • AmendmentstoIAS39-Reclassificationoffinancialassets:effective date; • IFRIC9-Embeddedderivatives; • IFRIC16-Hedgesofanetinvestmentinforeign operation(takeseffect asfrom October1,2009); • have nomaterialimpactonthefinancialstatementsofTerna Group: The European Commissionalsoendorsedthefollowing amendmentsandinterpretations issuesthatcurrently concerning Other amendmentsandinterpretations ofstandards account theeffect ofitseffectiveness. assessing thepossibleimpactsthatcouldresult intheapplication oftheinterpretation onfinancialstatements,takinginto period beginningonorafterJuly1,2009,andwilltherefore beappliedbytheGroup asfrom January1,2010.Terna is of inflationasahedgedriskorportionsuchandhedgingwithoptions.TheamendedIAS39takeseffect asfrom Endorsed withRegulation(EC)839/2009,theamendmentseekstoclarifytwoaspectsofhedgeaccounting:identification Amendments toIAS39Financialinstruments-Recognitionandmeasurement: eligiblehedgeditems account ofthedateittakeseffect. The Companyisassessingtheimpactthatapplicationofinterpretation couldhaveonitsfinancialstatements,taking other informationnecessarytoapplytheinterpretation topasttransferswere obtainedatthetimethosetransfers were made. application willtherefore beginonJanuary1,2010).Earlyapplicationispermittedtheconditionthatvaluations and The interpretation shallapplyforallassetsreceived from customersonorafterJuly1,2009(fortheTerna Group, firsttime specificaccountingtreatment isrequired where thecustomertransferscashsufficient forthepurchase oftheasset. • assetreceived the isrecognised atfairvalueinaccordance withtheprovisions theexchangeof ofIAS16governing • customer withongoingaccesstoasupplyofgoodsandservices(forexample,electricity, gasorwatersupplyetc.): interpretation establishesthefollowingtreatment forsuchassetsreceived from acustomerandusedtoprovide the of property, plantandequipment,orcashtoacquire orconstructsuchassets,received from acustomer. Inparticular, the Endorsed withRegulation(EC)no.1164/2009,thisinterpretation provides guidelinesontheaccountingtreatment ofitems IFRIC 18-Transfers ofassets from customers dissimilar assetswiththeconsequentrecognition ofrevenue whentheserviceisperformed; non-hedge-accounting derivatives, related tohedgesofexchangerateriskbutwhich donotqualifyfortreatment under • fairvaluehedgederivatives,essentiallyrelated tohedgingtheexposure tochanges inthefairvalueofafinancialasset • cashflowhedgederivatives,essentially related tohedgingtheriskofchangesincashflowsassociated withlong- • The financialassetsandliabilitiesinrespect ofderivativeinstrumentsinplaceduringtheyearcanbeclassifiedas: yield curveandinflationatthereporting date. date (suchasinterest rates,exchangevolatility)anddiscountingprojected cashflowsonthebasisofmarket by meansofappropriate valuationtechniquesforeachcategoryoffinancialinstrument,usingmarketdataasatthe closing The fairvalueofinstrumentsisdeterminedinaccordance withthefairvaluehierarchy envisagedunderIFRS7(Level2) contracts attheclosingdate. The fairvalueoffinancialderivativesreflects theestimatedamountthatTerna wouldpayorreceive inorder toextinguish change inthefairvalueand/orestimatedcashflowsof underlyingposition. liability, sothatanychangeinthefairvalueand/orestimatedcashflows ofthecontractsisoffset byacorresponding All derivativecontractshaveanotionalamountandmaturity datelessthanorequaltothatoftheunderlyingfinancial objective oftotalorpartialhedgingtheincomestatement orstatementoffinancialpositionitemfrom interest raterisk. hedging transactionisnotrestricted tothosehedges that qualifyforhedgeaccounting,butratherencompassesthe changes inmarketconditionsorthehedgeditemmakelatterunsuitableexcessivelyexpensive.Theconcept of in favourablemarketconditions.Thedynamicapproach makes itpossibletotakeactionimprove existinghedgeswhere aversion, aimingatminimisingriskthrough continuousmonitoringoffinancialmarketsinorder toplanhedgingtransactions Terna S.p.A.seekstoadoptadynamicapproach tofinancial riskmanagement.Thisapproach ischaracterisedbyrisk is notenvisagedinthecorporatemission. by selectingcounterpartiesandinstrumentscompatiblewiththecorporateriskmanagementpolicy. Speculativeactivity Risk managementmustbeperformedwiththeobjectiveofmaximisingfinancialincomeandminimisingrelated risks and inflationrisk. changes infinancialmarketconditions.Marketriskscomprisethree formsofrisk:exchangeraterisk,interest raterisk Market riskisthethatfairvalueorfuture cashflowsofafinancialinstrumentmayfluctuateasresult of Market risks used andtheprecise operatinglimitsinmanagingthem. responsibilities andoperatingprocedures the instrumentstobe forfinancialriskmanagement,specificallyasconcerns As apartofthefinancialriskmanagementpoliciesapproved bytheBoard ofDirectors, Terna hasestablishedthe The exposure oftheTerna Group totheaforementioned risksissubstantiallyrepresented bytheexposure oftheParent. on aregular basisinorder totakeaccountofanychangesinmarketconditionsortheoperationsGroup companies. limits andcontrols andmonitoringriskscompliancewithsuch limits.Thesepoliciesandtherelated systemsare reviewed Terna’s riskmanagementpoliciesseektoidentifyandanalysetherisksGroup isexposedto,establishingappropriate quantitative disclosures the2009financialstatements. concerning of theobjectives,policiesandprocesses formanagingthose risksandthemethodsusedtomeasure them,withfurther This sectionprovides informationregarding theTerna Group’s exposure toalltheaboverisks,alongwithapresentation risk, interest rateriskandinflationrisk),liquiditycredit risk. In theconductofitsoperations,Terna Group isexposedtovariousfinancialrisks:marketrisk(namelyexchangerate Risk management-Terna Group AmendmenttoIFRS1-Limitedexemptionfrom comparativeIFRS7disclosures forfirst-timeadopters. • AmendmenttoIFRS1-Additionalexemptionsforfirsttimeadopters; • AmendmenttoIFRS2-Group cash-settledshare-based paymenttransactions; • IFRIC19-Extinguishingfinancialliabilitieswithequityinstruments; • AmendmentstoIFRIC14-Prepayment ofaminimumfundingrequirement; • have notyetbeenendorsedbytheEuropean Commissionare listedbelow: Other interpretations andrevisions ofpreviously issuedstandards issuesthatdonotaffect governing theGroup andwhich Other interpretations andrevisions ofstandards be endorsedbytheEuropean Commissioninthefirsthalfof2010. The 2009versionofthedocumentcontainsminoramendmentstopreviously publishedstandards. Thedocument should Improvements totheIFRS(publishedin2009) IAS 39ashedgesofspecific assets, liabilities,commitmentsorforecast transactions. or liabilityassociatedwithfluctuations ininterest rates(fixed-ratebonds); term floating-rateloans; 215 Notes to the consolidated financial statements - Terna Group 216 Consolidated financial statements 2009 In millionsofeuros with respect tomarketinterest rates atthereporting datehasbeenassumed: differential impactrecognisable inprofit orlossandequityofsuchchanges.Ahypothetical10% variationininterest rates in interest rates,thetheoretical value ofthepositionsfollowingapositiveornegativeshift intheyieldcurveand The followingtablereports theamountsrecognised inprofit orlossandequity inrespect ofpositionssensitivetochanges the changesinfairvalueonprofit orloss. underlying, sotherelated cashflowswillmaterialiseatthesamematuritiesasinterest onthedebt,withnoimpactof flows ofthehedgedinstrumentmaterialise.Thecharacteristics oftheCFHderivativesmirror thoseofthehedged portion ofthehedgedirectly inprofit orloss)andthenreversed through profit orlossinthesameperiodwhichcash For CFHderivatives,thechangesinfairvalueofderivative mustberecognised inequity(recognising anyineffective recognised inprofit orloss,thereby offsetting thechangesinfairvalueofderivativerecognised inprofit orloss. for FVHderivatives,anychangesinthefairvalueof hedgeditemattributabletotheriskbeingmustbe accounting istorecognise theeffects ofthehedgesandhedgeditemsinprofit orlossatthesametime.Accordingly, to usehedgeaccountingensure theperfecttemporalmatchingofhedgeandhedgeditem.Theaim ofhedge of thehedge,asverifiedinitiallyandperiodicallyoveritslife, ishigh(between80%and125%),theCompanyhaselected Since thehedgingrelationship betweenthederivativeandhedgeditemisformallydocumentedeffectiveness (CFH) tohedgetheexpectedcashflowsinrespect ofallotherfloating-ratedebt. swaps (FVH)tohedgethefairvalueoffixed-rateriskbondsand,onother, floating-to-fixedinterest rateswaps As regards themanagementofinterest raterisk,Terna has,ontheonehand,entered intofixed-to-floatinginterest rate Sensitivity tointerest raterisk (fixed orfloating): The followingtableshowsthefinancialinstrumentsentered into byTerna, classifiedaccording tothetypeofinterest rate appropriate intimesofuncertaintyaboutfuture developmentsininterest rates. Interest ratecollarsare usedtolowertheimpactofvolatilityinterest ratesonthecostofdebt.Theyare consid cash flows,orviceversa. intervals, thefloating-ratecashflowsonaspecifiednotionalamountagainstfixed-rate(agreed betweentheparties) the volatilityofborrowing costs.Withaninterest rateswap,Terna agrees withacounterpartytoexchange,atspecific Interest rateswapsare usedinorder toreduce thevolumeofdebtexposedtofluctuationsininterest ratesandtoreduce vanilla derivativesare used,suchasinterest rateswapsandinterest ratecollars. temporal correlation betweenaveragecostofdebtandregulatory rateusedintheWACC formula,varioustypesofplain In order toreduce theamountoffinancialdebtexposedtoriskfluctuationsininterest ratesandtooptimisethe into floatingratesandderivativesthattransformfixedrates. Accordingly, thehedginginstrumentsused,atvariousmaturitydates,includebothderivativesthattransformfixedrates Asset Base(RAB). framework, whicheveryfouryearsestablishesthecostofdebtaspartformulatosetreturn ontheRegulatory of companyassets.Itpursuesaninterest rateriskhedgingpolicythataimstoreconcile thisapproach withtheregulatory generate financialexpense.Terna’s borrowing strategyfocusesonlong-termloanswhosetermreflects theusefullife risk isassociatedwithitemsofnetfinancialdebtandtherelated hedgingpositionsinderivativeinstrumentsthat In conductingitsoperations,Terna isexposedtotheriskoffluctuationsininterest rates.Itsmainsource ofinterest rate on thefairvalueorfuture cashflowsoffinancialinstruments. Interest rateriskisrepresented bytheuncertaintyassociatedwithmovementsininterest ratesthatcouldhaveanimpact Interest raterisk Total 3,758. 1,655. Liabilities Assets 623. Floating-rate financialinstruments: 2,726. Liabilities Assets Fixed-rate financialinstruments:

Dec. arigaon Carrying amount 31, 2009 0 0 0 0 2941804.1 2,954.1 2 -4.9 1,660.3 4 -181.4 804.7 3 627.6 2,098.5 1

Carrying amount e.3,20 Change Dec. 31,2008

ered in thesectiononlong-termloans( credit lines and market: aguaranteesystem(bank guaranteesprovided byindividualdispatchingcustomers, basedontheirrevenue), the in theeventofactualinsolvency. Inparticular, theresolution establishesthree instruments tosafeguard theelectricity instruments forthelimitation of risksrelated totheinsolvencyofdispatchingcustomers,both onapreventive basisand Credit riskmanagement isguidedbytheprovisions ofAEEGResolution no.111/06,which,atart.49,introduced and doesnothavehighlyconcentrated credit risk. Terna provides itsservicestocounterparties considered solventbythemarket,whotherefore havea highcredit standing, ratings andsuchtransactionsare diversifiedincompliancewithspecificconcentrationlimits. counterparties, incompliancewithfinancialriskmanagemen The credit riskoriginatedbyopenpositionsontransactionsinfinancialderivativesisconsidered tobemarginal sincethe Company. loss byfailingtodischarge anobligation.Itismainlygeneratedbytradereceivables andthefinancialinvestmentsof Credit riskistheacustomeroroneofcounter Credit risk and appropriate managementofanysurplusliquidity. AtDecember 31,2009Terna had Liquidity riskmanagementseekstoensure adequate coverageoffinancialneedsbyobtainingadequatelinescredit and operationalcycle. The liquidityriskistheTerna mightencounterdifficulty indischarging itsobligationsinrespect ofitsfinancialliab Liquidity risk were present. investment. AtDecember31,2009(asat2008),nofinancialinstrumentsexposedtoexchangerate risk repayment ofprincipaland/orpaymentsdividends,interest on During theyearnon-deliverableforward contracts were usedtohedgethecashflowsfrom Brazilinrespect ofthe estimated cashflowsoftheunderlyingposition. or depreciation oftheeuro againstothercurrencies isfullyoffset byacorresponding changeinthefairvalueand/or the expectedcashflows,sothatanychangeinfairvalueand/orestimatedflowsderivingfrom anappreciation Such contractshaveanotionalamountandmaturitydatelessthanorequaltothatoftheunderlyingfinancialliability, or more than12months. exchange rateattheendofaspecificperiodtime.Normally, bothforward contractsandoptionshavematuritiesofno Currency optionsgiveTerna therightorobligationtobuy sellpredetermined amountsofacurrency ataspecific use ofoptions. Generally Terna hedgesexchangerateriskthrough theforward saleorpurchase ofcurrencies (forward contracts)orthe Exchange raterisk financial expense. profit fortheyear:anydecrease inexpectedrevenue duetoadecrease intheinflationratewouldbe offset bylower the accruedimpactofinflation.In2007,Companyusedaninflation-linkedbondissuetoobtaineffective hedgeof as toallowcoverageofthesector’srecognised costs.Suchcost componentsare updatedonanannualbasistoconsider As regards inflationraterisk,theratesestablishedbyregulators toremunerate Terna S.p.A.’sactivitiesare determinedso Inflation risk yohtclcag . 241. -12.7 - -78.5 -5.8 -65.8 12.6 - -53.2 -22.6 -2.4 -16.8 -3.6 5.8 - -11.0 -1.2 -0.4 0.8 2.3 1.1 - 1.2 0.4 1.6 Hypothetical change (FVH, bonds,CFH) Positions sensitivetointerest ratevariations Dec. 31,2008 Hypothetical change (FVH, bonds,CFH) Positions sensitivetointerest ratevariations Dec. 31,2009 In millionsofeuros € 729 millioninshort-termcredit lines.Suchamountissufficient torefinance thedebtfallingduediscussed € 59.7 million). urn ae Rtsa Cretrts urn ae Rtsa Current rates Ratesat Current rates Current rates Ratesat Current rates parties toatransactioninfinancialinstrumentscouldcause a financi 1%Dc 1 09-0 1%Dc 1 09-10% Dec.31,2009 +10% -10% Dec.31,2009 +10% Profit orloss t policies,are credit leadinginternational institutionswithhigh the intercompany loanandthesaleofBrazilianequity € 1,550 millioninmedium-term Equity ilities al 217 Notes to the consolidated financial statements - Terna Group option of terminating dispatching contracts (in the event of insolvency or failure to replace enforced guarantees) and, finally, the possibility of recovering uncollected debts, after having taken all other possible collection actions, through a specific fee defined by the Authority.

The following table summarises the exposure to such risk as at the reporting date:

Carrying amount Carrying amount Change In millions of euros Dec. 31, 2009 Dec. 31, 2008 FVH derivatives 123.2 115.5 7.7 Cash and cash equivalents 0.1 689.2 -689.1 Trade receivables 1,177.1 1,706.0 -528.9 Total 1,300.4 2,510.7 -1,210.3

The total value of the exposure to credit rate risk at December 31, 2009 is represented by the carrying amount of financial assets (current and non current), trade receivables and cash and cash equivalents.

The following tables provide qualitative information on customer receivables that are not past due and have no impairment:

GEOGRAPHICAL DISTRIBUTION Carrying amount

In millions of euros 2009 2008

Italy 1,165.9 1,674.7 Euro-area countries 10.1 26.6 Brazil - - Other countries 1.1 4.7 Total 1,177.1 1,706.0

CUSTOMER TYPE Carrying amount

In millions of euros 2009 2008

Distributors (*) 209.4 179.6 Electricity Equalisation Fund (**) 88.9 19.4 Input dispatching contractors 380.5 678.0 Withdrawal dispatching contractors (non distributors) 455.1 786.2 Receivables from unregulated activities 43.2 42.8 Total 1,177.1 1,706.0

(*) Includes receivable accrued in respect of TELAT grid transmission fees. (**) Of which €62.9 million from volume effect on grid transmission fees and DIS.

The following table breaks down customer receivables by age, reporting any potential impairment:

2009 2008 In millions of euros Provision for Provision for bad debts Gross bad debts Gross Not yet past due -2.0 1,134.3 - 1,496.3 0-30 days past due - 18.6 -1.0 148.4 31-120 days past due -0.6 15.6 - 43.9 More than 120 days past due -24.4 35.6 -10.7 29.1 Total -27.0 1,204.1 -11.7 1,717.7

Changes in the provision for bad debts in the course of the year were as follows:

In millions of euros 2009 2008

Balance at January 1 -11.7 -13.8 Reversal of provision - 3.9 Impairment for the year -15.3 -1.8 Balance at December 31 -27.0 -11.7 Notes to the consolidated financial statements - Terna Group Notes to the consolidated financial statements - Terna

219 220 Consolidated financial statements 2009 B. Operatingsegments meet finalconsumers’demandforelectricity. to through ownership,development andmanagementoftheNTGdispatchingelectricity– make itpossible– In short,theseoperationscomprisepublicinterest servicesthatare closelyconnected,interdependent andintendedto and very-high-voltagesector and intelecommunications. free marketinwhichtheGroup leveragesitsskillsandresources tooffer othercompaniesspecialisedservicesinthehigh- These businessesare pursued ascommercial initiativesunregulated bytheAEEG. Inotherwords, theyare pursuedina In essence,thissegmentincludesspecialistservicesperformed bytheTerna Group forthird-party customers. other entities,plantengineeringservices,maintenanceofthe third-party fibre opticnetworkandhousingofTLCequipment. The unregulated activitiesmainlyregard themanagement(operationandmaintenance)ofhigh-voltageplantownedby overallfeesfortransmission,dispatchingandmetering(Terna’s the core revenue) are setbytheAEEGusinga“cost • commoneconomic/regulatory the environment inwhichservicesare provided: thesegmentprovides publicservices • economic characteristics: These activitiesformpartofasingleoperatingsegmentastheymeettheaggregation criteriabasedonthefollowing measurement, validationandregistration activitiesassociatedwithmetering. The regulated activitiessegmentcompriseselectricitytransmission anddispatchingoperationsaswellthe Unregulated activities. • Regulatedactivities; • In viewofthecharacteristicsGroup’s businessinItaly, theidentifiedoperatingsegmentsare: consolidated figures for2009(uptothedisposaldate). subsidiaries, and,separately, fordiscontinuedoperationsinrespect ofthecontributionBraziliangroup tothe information onoperatingsegmentsispresented for continuingoperations,namelytheParent, Terna S.p.A.,andtheItalian Following thedisposalofinvestmentinsubsidiaryTerna ParticipaçõesS.A.,formalisedonNovember 3,2009,the Parent forseniormanagement. The operatingsegmentsoftheTerna Group were financialreporting identifiedonthebasisofinternal used bythe please seethesection“Loansandfinancialliabilities”innotestoseparatestatementsofTerna S.p.A. generating liquidityrisk.Formore informationonthecontractualprovisions ofoutstandingloans atDecember31,2009, provisions authorisingcounterpartiestocallinsuchloansimmediatelyupontheoccurrence ofcertainevents,thereby This riskisassociatedwiththepossibilitythatloancontractsorbondrulestowhichCompanypartymaycontain Default riskanddebtcovenants The valueofguaranteesreceived from eligibleelectricitymarketcustomersisillustratedbelow: aac tDcme 112491,387.3 168.9 1,025.6 1,274.9 851.3 172.3 Balance atDecember31 Grid transmissionfees-distributors dispatchingactivity Withdrawal Input dispatchingactivity In millionsofeuros The current regulatory period runsfrom 2008to2011. namely: theCTRcomponentfortransmission,DIS fordispatchingandtheMIScomponentmetering. an annualbasis,theAEEGupdatesrecognised costsandissuesresolutions settingratestocoverthosecosts, return oninvestedcapital.Therecognised costsare setbytheAEEGatstartofeachfour-year regulatory period.On plus” method,i.e.feesare settocoveroperatingexpenses,amortisationanddepreciation charges andanappropriate are performedunderthetransmissionanddispatching concession grantedtoTerna; (energy sector)subjecttoregulation andcontrol bytheAEEG.Theseactivitiessupport theItalianelectricalsystemand 5. 192.8 251.3 2009 2008 3 EBITDA (gross operatingprofit): thisisanindicator ofoperatingperformanceand iscalculatedbysummingoperating profit (3) In millionsofeuros results: discontinued operationsfor2009and2008are indicatedbelowsolelyinrespect oftheircontributiontotheconsolidated As regards segmentreporting bygeographicalsegment,therevenue andsegmentperformanceoftheBrazilian supporting theoperatingactivitiesandassuchnotallocabletoanysinglesegment. Segment profit/(loss) - (adjusted EBITDA) Segment profit/(loss) -(adjustedEBITDA) Total segmentrevenue January-December 2008 Segment profit/(loss) -(adjustedEBITDA) 1,195.8 Total segment revenue - January-October 2009 948.0 62.1 29.9 1,360.7 - 1,090.5 62.2 2.0 1,133.7 31.6 918.1 2.8 losses andamortisationdepreciation 1,298.5 Non-monetary itemsotherthanimpairment Segment profit/(loss) -(adjustedEBITDA) 1,058.9 Total segmentrevenue January-December 2008 losses andamortisationdepreciation Non-monetary itemsotherthanimpairment Segment profit/(loss) -(adjustedEBITDA) Total segmentrevenue January-December 2009 indicator usedforeachsegmentisadjustedEBITDA financialreportingIn theinternal periodicallypresented toandreviewed byseniormanagement,thekeyperformance well asareconciliation ofthetotalsectorprofit orlosswiththeGroup result before taxesanddiscontinuedoperations. The followingtablesreport therevenue andperformanceoftheTerna Group’s operatingsegmentsfor2009and2008,as iaca noe(xes)-5. -124.1 596.9 -151.2 475.1 2.3 694.4 546.1 2.9 948.0 1,090.5 Profit before taxesofcontinuingoperations Share ofprofit/(loss) ofequity-accountedinvestees Financial income/(expense) EBIT -continuingoperations Amortisation Non-allocated expenses Profit ofoperatingsegments-continuingoperations Reconciliation In millionsofeuros depreciation. dutdEID agn() adjusted EBITDAmargin(%) 48.1% 50.8% 81.0% 81.5% adjusted EBITDAmargin(%) adjusted EBITDAmargin(%) dutdEID agn() adjusted EBITDAmargin(%) 3 , adjustedforoperatingexpensesattributabletocorporatefunctions Regulated Unregulated Total continuing ciiisatvte operations activities activities

Italy 199.4 198.8 157.6 146.2 73.5% 79.0% 308.8 253.5 (EBIT)withamortisation and 87.3 97.6 2009 Discontinued operations Brazil 2008 221 Notes to the consolidated financial statements - Terna Group 222 Consolidated financial statements 2009 In millionsofeuros C. Notestotheconsolidatedincomestatement In millionsofeuros • the increase the inrevenue oftheParent ( • The increase of • grid transmissionfeesforTELAT grid forthefinalninemonthsof year( • section on“Relatedpartytransactions”. represented bytransactionswithrelated partiesinrespect ofregulated activities;formore information,pleaseseethe from individualcustomersorcompaniesundercommoncontrol equaltomore than10%ofconsolidatedrevenue were As regards thedependenceofTerna Group customers,in2009transactionsthatgeneratedrevenue customersonexternal and fortheGroup inItalyandabroad in2008: The followingtablereports thatindicatorforcontinuingoperationsinItaly(regulated andunregulated activities)for2009 but rathertotheoverallmeasurement andrepresentation ofgross investedcapital. The informationregularly reported toseniormanagementdoesnotmakedirect reference toindividualsegmentactivities pertaining tothesubsidiaryTELAT, which wasacquired onApril1,2009( ( Grid transmissionfeeslargely regard theremuneration paidtotheParent foruseoftheNationalTransmission Grid Grid transmissionfees The tablebelowdetails“Revenuefrom salesandservices” fortheyear: 1. Revenuefrom sales and services– Revenue Total 1,317. 40.2 Other revenue from salesandservices Other energyrevenue 91.5 0.2 Adjustments forprioryeargridtransmissionfees 1,185.4 Grid transmissionfees 15.5 Investments inassociatesandjointventures 6,897.9 Gross investedcapital -570.6 Net workingcapital 7,468.5 Net non-current assets € well astheadoptionfrom April1ofthemitigationmechanismforvolumefluctuations( Resolution no.31/09,whichauthorisedtheinclusionof company’shigh-voltagelinesintheNTG( • • • 1,087.9 million).Italsocomprisesthenetrevenue forthelastninemonthsofyearfrom theportionofNTG release oftheprovision madeinrespect ofatechnicaldisputewithdispatchingwithdrawaloperator( to mitigatechangesinthevolumeofelectricitytransmitted exceedingarangeof+/-0.5%( a reduction innetadjustmentsforprior-year gridfees (- greater NTGfeesinrespect ofthedefenceplan(+ the rateadjustmentforyearinimplementationofAEEG Resolutionno.188/08,aswelleffects ofthemechanism

€ 125.1 millionisthenetresult ofthefollowingfactors: € 27.4 million),essentiallydueto: € € 3.8 million); 1,317.3 million € 14.9 million)compared with2008,whichbenefitedfrom the € € 97.7 million)asaresult oftheeffects ofAEEG Dec. 31,2009 97.7 million). 2009 tl ItalyBrazil Italy 1120165.3 1,152.0 3

337-244.5 -363.7 8443.1 48.4 ,2. 632.4 5,322.1 1054140.0 1,045.4 € ,8. 876.9 5,685.8 4.4 million). € 4. -2.9 43.1 38.5 million); 9828.4 9.8 51-14.9 15.1 08Change 2008 Dec. 31,2008 € 93.3 million),as € 14.0 million); The componentsofthesetransactionsare detailedbelow. It alsoincludesthegridutilisationfeewhichTerna paystootherownersofthegrid. consumer withtheupliftfee. ( Total pass-through energy costs 5,120.6 6,545 5,120.6 Total pass-through energycosts Total 679.5 servicesandfees 19.6 18.7 andother Fees tobepaidNTGowners, GRTN 47.3 Other items(CBTandother) 7 613.5 Purchase of energy marketrelated services 5,7 Total 4,441.1 costs-Power Exchange 64.5 - otheritemsPowerExchange 559.3 - congestionrent - Res.no.288/06 2.7 - ElectricityMarketOperatorfees - ontheforeign 0.1 market -imports 1,373.4 - forunbalancing - toprovide thedispatching service2,431.6 718. 9.5 - onDayAheadMarketandAdjustment Energy purchases: 6,545.1 5,120.6 Total pass-through energyrevenue 755.4 Total 679.5 revenue from outsidethePowerExchange 18.7 shareof otherownersandGRTN CIP/6 Revenue from gridtransmissionfees 47.3 Other items(CBTandother) 709.1 613.5 Revenue underRes.nos.168/04-237/04andothers 5,789. 4,441.1 Total revenue -PowerExchange Revenue -PowerExchange: buying andsellingtransactionsexecutedbyTerna ontheAncillaryServicesMarketsare billedona established bytheregulatory framework.Thenetcharge resulting from themeasurement oftheseimbalancesandthe from theenergy marketschedulesare calculated.Thesedifferences (imbalances)are measured usingalgorithms dispatching activities.To thatend,themeasurements ateachpointofinputandwithdrawalare takenandthedifferences They ariseinrespect ofdailypurchases andsaleswithoperatorsontheelectricitymarkettocarryouttransmission and entirely totheParent. This captionincludesrevenue andcostsofa“pass-through” nature fortheGroup (whosebalanceistherefore nil)relating Other energyitems-pass-through revenue/costs 206/08 ( linked tothereduction ofvolumessourced ontheAncillaryServicesMarket(ASM),asenvisagedinAEEGResolution no. metering (MIScomponent).Theitemrose by This captioncomprisesfeespaidtotheParent byelectricitycompaniesfordispatchingservices(DIScomponent)and Other energyrevenue - other items - Power Exchange 311.5 311.5 - otheritemsPowerExchange 733.4 - congestionrent -Res.no.288/06 1, 980.9 - ancillaryserviceresources procurement 1,597.4 - unbalancingandothers - saleofenergyontheDayAheadMarket,Adjustment 4.4 - foreign market-exports In millionsofeuros

€ Ancillary Services Market and others 813.5 1, 813.5 Ancillary ServicesMarketandothers 2.0 million). € 40.0 million),aswelltheadoptionofmitigationmechanismintroduced withAEEGResolutionno.188/08 € 43.1 million,largely duetothegreater revenue from theincentivemechanism

2009 1161217.3 1,156.1 . -4.5 8.9 58-3.1 5.8 -1.6 1.7 1486168.8 1,428.6 755.4 -75.9 755.4 6720.6 26.7 20.6 26.7 11-6.6 71.1 ,6. -636.1 3,067.7 177183.8 127.7 6. -209.9 769.2 4. -114.6 848.0 0. -922.2 903.1 7. -659.9 473.4 96-0.9 19.6 91-95.6 09.1 -1,348.6 89.7 pro rata 08Change 2008 .1 -1,424.5 .1 -708.6 1 -1,348.6 7 -1,424.5 -0.9 -95.6 basis toeach -75.9 223 Notes to the consolidated financial statements - Terna Group 224 Consolidated financial statements 2009 In millionsofeuros Distribuzione withinthescopeofconsolidationandincreased revenue forvariousconstructionactivities(+ high-voltage plant( The itemdecreased by contributionduetotheParent the forcoverageofcostsincurred forelectricitydiscountstoitsemployees( • requests toconnecttheNationalTransmission GridasperAEEGResolutionno.281/05( • constructionworks( • • the operation,maintenance anddevelopmentoftheopticalfibre the ownedbytheWindGroup hostedonTerna S.p.A.plant • ( from avarietyofspecialisedhigh-andvery-high-voltageservices,whichtheParent provides tothird-party customers increased rental income( • greater prioryearrevenue in2008,mainlyduetotherelease oftheprovision forbaddebtsaccruedinrespect ofa • The slightdecrease inotherrevenue andincome( Distribuzione’s useoftheParent's infrastructure forpowerlinecommunication( Other revenue from salesandservicesamountedto Other revenue from salesandservices million) andTELAT ( offset bycapitalisedcostsformaterialsinrespect ofcapitalexpenditure on behalfofthesubsidiariesSunTergrid ( interconnection linebetweenItalyandSwitzerland( the contractwithEL.IT.E. fortheconstructionofamerchant lineinValtellina, theunderground alternating-current attributable totheParent (+ used intheoperationandmaintenanceofplant.Thedecrease of The itemtotalled 3. Rawmaterialsandconsumables- Operating expenses Rental incomemainlyregards rent from theWindGroup for the housingofopticalfibre onthegrid( This captionismainlyattributabletotheParent ( The followingtableprovides abreakdown of“Otherrevenue andincome”: 2. Otherrevenue andincome- Total 4 1.5 Other revenue 1.0 Sales tothird parties 4.1 Prior yearrevenue 4.8 Capital gainsonthesaleofplantparts 3.3 Insurance settlementsforlosses 9.3 Third partycontributionsforhigh-voltageconnections 19.4 Rental income € (safety cables)( nine monthsoftheyearforopticalfibre ofEnel.Net andEnelDistribuzioneonitsgridinfrastructure ( dispatching customerfollowingtheapproval ofthecomposition agreement ( 21.8 million);theamountreflects revenue from: € € 2.1 million); 10.2 millionin2009.Itcomprisescostsincurred forthepurchase ofsundrymaterialsandequipment € € 2.5 million). € 10.6 million)owingtotheinclusionofhigh-voltagelinemaintenancecontractwithEnel 12.3 million); € 2.9 million,mainlyattributabletothecombinedeffect ofreduced revenue formaintenanceof € € 2.6 million),partlyattributabletothecontributionofTELAT forhousingservicesinthelast 5.9 million),almostallinrespect customers,includingthoseunder ofactivitiesforexternal € 43.4 million € € € 41.7 million). 0.4 million)isessentiallyattributableto: 2.2 million)andthesupplyofarmoured plantforA2A( € € 10.2 million 40.2 million( € € 43.1 millionin2008)andmainlyrelates torevenue 1.6 millionontheprevious year( € € 3.6 million); 2009 4.0 million). 3.4 43.8 -0.4 43.8 3.4 120.3 1.2 682.6 16.8 . -0.2 1.2 -3.1 7.2 . 0.6 2.7 66-1.8 6.6 € 2.5 million); € 08Change 2008 811.2 8.1 14.1 million)andEnel € € 11.8 million)is € 1.6 million). € € 8.3 million). 1.4 million). 1.4 million), € 5.0 In millionsofeuros of thetermoffice ofthepositiononanaccrualsbasis. Fees paidtotheParent’s StatutoryAuditorsare detailedinthefollowingtable.Thetablehasbeenprepared onthe basis costsinthelastninemonthsofyearTELAT ( • • the Parent the intheamountof • The increase ( provided forbythe current nationallabourcontract fortheelectricitysector. for earlyretirement incentives,aswell asbenefitspaidtoemployeeswhostaywiththeCompany andterminationbenefits This captionincludesthecost ofwagesandsalaries,socialsecuritycontributionsother costsincurred bytheParent Personnel expensebreaks downasfollows: 5. Personnelexpense- (*) Feesforthepositionwere paidtoCassaDepositiePrestiti. million), leasesandrentals ( general services(atotalof costs inrespect oftendersandservicesforroutine maintenanceoperationsandplantexpenditures for The itemislargely attributabletocostsforservicesincurred bytheParent ( Total 128 13.9 Use ofthird-party assets 4 IT services 12.6 Remote transmissionandtelephone 6. Insurance 56.5 Maintenance andsundryservices 33.7 Tenders onplants The tablebelowdetailsrevenue fortheyearfrom services: 4. Services- oa tttr uiosfe 4,0 145,000 145,000 55,000.00 55,000.00 Approval of2010 Jan.09-Dec. Total StatutoryAuditorsfees Chairman LucaAurelio Guarna oz oez tttr Jn 9-Dc 9Apoa f21 4,0.045,000.00 45,000.00 Approval of2010 Jan.09 -Dec.09 Statutory Pozza Lorenzo ocnt aclo tttr Jn 9-Dc 9Apoa f21 5000 45,000.00 45,000.00 Approval of2010 Jan. 09-Dec. Statutory Cosconati Marcello* al eieeticnie . . 0.6 -0.2 -10.0 -1.2 5.9 0.2 -9.6 254.1 16.7 -26.8 6.5 244.1 0.0 -52.9 0.0 15.5 -62.5 17.6 -26.8 231.3 248.9 Total work Personnel expenseforcapitalised internal Personnel expense-gross Employees’ stockoptionplans Early retirement incentives Reversal ofprovision forelectricity discount post-employment benefits Termination benefits,electricitydiscountandother Wages, salariesandothershort-termemployeebenefits unm oiinTr fofc xiyo emRmnrto Total Remuneration Expiryofterm Term ofoffice Position Name Surname In millionsofeuros right-of-way feesandpubliclanduse(TOSAP)totalling plant ( € 9.5 million),technical,professional andlegalservices( € 17.3 million)ontheprevious yearislargely attributableto: € 128.0 million € € 90.2 million).Italsoincludescostsforremote transmissionandtelephoneservices( 13.9 million),insurance( € 15.6 million,mainlyduetotheincrease intendersand technical servicesconnectedwith € 181.6 million Auditor financial statements financial statements financial Auditor Auditor € € 1.6 million),essentiallyforplantinsurance( 6.4 million)andITservices( € 0.5 million. € 2.8 million)andhigherinsurancecosts( financial statements € 126.3 million).Themaincomponentsregard 8. 0. -19.6 201.2 181.6 2009 2009 € 0 10717.3 110.7 .0 0.3 4.6 .9 . 1.6 4.8 4 4.9 million). 429.5 24.2 390.0 13.9 095.6 50.9 230.3 12.3 € 08Change 2008 0.7 million),electricity 08Change 2008 € 0.9 million); € 12.6 225 Notes to the consolidated financial statements - Terna Group 226 Consolidated financial statements 2009 value oftheliabilityforemployeebenefitsandmainassumptions usedintheactuarialestimate. Reference shouldbemadetosection“27.Employeebenefits”forthereconciliation oftheopeningandclosingpresent The netchangeintheaveragenumberofemployeeson endof2008wasanincrease of7. The followingtableshowsthenumberofemployeesbycategoryatyearendandaverageforyear: basis ofthetermoffice ofthepositiononanaccrualsbasis. The feespaidtotheDirectors oftheParent are summarisedinthefollowingtable.Thetablehasbeenprepared onthe **) Theamountregards compensationforpositionasChairmanoftheBoard ofDirectors ofTELAT from October16toDecember (****) These amountsare reported both tothevariableportionofremuneration linkedtospecificobjectivesfortheyear2009 (***) Feesforthepositionwere paidtoEnelS.p.A. (**) Feesforthepositionwere paidtoCassaDepositiePrestiti. (*) • an increase an incapitalisedpersonnelexpense( • increase an inwagesandothershort-termbenefits( • reversal the oftheelectricitydiscountprovision ( • The itemdecreased by oa ,1 ,1 ,4 3,524 1,907 3,447 65 485 1,067 1,874 3,511 65 1,020 488 1,895 3,518 1,073 475 68 1,908 1,058 485 67 85,000 75,000 3,065,833 20,833 135,000 1,000,000 25,000 Total 700,000 Production workers Office 75,000 staff 1,345,000 Junior management Senior management 125,000 25,000 finan Dec.09 85,000 finan 75,000 Dec.09 Approval of2010 620,833 Approval of2010 Jan.09 finan 20,833 Dec.09 135,000 Director Jan.09 1,900,000 Total Directors fees finan Approval of2010 Director Vittorio Dec.09 finan 25,000 Rispoli Jan. 09 Dec.09 Michele finan Director Approval of2010 Polo Dec.09 75,000 Salvatore 1,000,000 Jan.09 Approval of2010 Machì Director 125,000 700,000 finan Claudio** finan Jan.09 Approval of2010 Dec.09 Machetti Dec.09 25,000 Director Jan.09 Matteo* 200,000 Approval of2010 Del Fante Director Approval of2010 Paolo Jan.09 finan Dal Pino Jan.09 600,000 Dec.09 Director Cristiano* CEO Approval of2010 Director Cannarsa Jan.09 Flavio Chairman/ Cattaneo Luigi Roth Surname Position Term Expiry Expiry Term Position Surname aeo fieicnie * opnain* compensation**** compensation*** incentives*** ofoffice Name

(of which which comprisesanestimateofcharges forthecontractrenewal; the redetermination ofthenumbereligibleTerna beneficiaries(retirees); € 0.7 millioninrespect ofcapitalexpenditure onbehalfofTELAT). € 19.6 millioncompared with2008,mainlyattributableto: cial statements cial statements cial statements cial statements cial statements cial statements cial statements cial statements cial statements ftr Remuner term of € 9.6 million)asaresult ofincreased capitalexpenditure duringtheyear € 26.8 million)followingtheagreement withEnelServizioElettricoafter € 17.6 million)mainlyasaresult oftheincrease inunitlabourcosts, to Bonus andothe ation 2009 Average number te te Total Other Other r 2008 Dec. 31,2009 andtothesalaryasamanager. Number at 31, 2009. Dec. 31,2008 In millionsofeuros • the Parent the intheamountof • The balanceisinlinewiththeprevious year. are reasonably likelytobeunrecovered ( The captionshowsanincrease ( • prior yearexpenses( prior • impairment losses( • the subsidiaryTELAT the intheamountof • costsforlocaltaxesandduties( • te prtn xess49440.5 -1.8 0.8 4.4 4.1 4.8 -0.2 0.7 4.9 2.3 3.7 5.6 2.9 3.5 3.6 The item,whichtotalled last ninemonthsoftheyearsubsidiaryTELAT. Of totalotheroperatingexpenses, Total Other operatingexpenses Losses onthedisposal/retirement ofplants Prior yearexpenses Local taxesandduties Provisions forcontingenciesandcharges The captionbreaks downasfollows: 7. Otheroperatingexpenses- useful livesoftheGroup companies’plant,property andequipmentintangibleassets( These relate toaccrualsduringtheyearcalculatedonbasisofamortisationanddepreciation ratesthatreflect the 6. Amortisation,depreciation andimpairment losses- accrualstotheprovision forcontingenciesandcharges ( • promotion ofcontemporaryItalianartsignedwiththeMinistry forCulturalHeritage( outages ( the ExceptionalEventsProvision establishedattheElectricity EqualisationFundwithResolutionno.333/07forpower the year( intangible assets.Formore detail,pleaseseesection“F. Businesscombinations”. • • • for itemsthatare unlikelytobeuncollected; assets inserviceduringtheyear( been abandoned; increased accrualstotheprovision forbaddebts( impairment lossesonproperty, plantandequipmentintangibleassets( increased amortisationanddepreciation, largely accountedforbynewplants(notablySA.PE.I.firstpole)andintangible € € 29.4 million),includingcharges fortheportionofexcesscostdefinitively allocatedtotransmissionplantand 2.8 million)andtheprovision forexpectedcharges inrespect oftheprotocol ofunderstandingforthe € 3.7 million)aswellaccrualstotheprovision forbaddebtsrelating toreceivables foritemswhich € 2.3 million)andlossesonthedisposalofplantparts( € 19.9 millionin2009,includes: € 41.0 million,theneteffect of: € 71.3 million)on2008,mainlyduetothefollowing: € € 5.6 million),mainlyforTOSAP( 18.2 millionare attributabletotheParent and € 25.9 million); € € 30.3 million,mainlyforamortisationanddepreciation inthelastninemonthsof 14.1 million). € 19.9 million € 12.3 million,ofwhich € 3.6 million),mainlyinrespect ofthecontributiontobepaid € 2.4 million)andlocalproperty tax( € € € 11.0 millioninrespect ofdispatchingitems) € 2.8 million)forprojects thathavecurrently 3.5 million). 326.6 million 991. 0.0 19.9 19.9 2009 € 1.7 milliontothecontributionin € 0.6 million); € 308.8 million),related 08Change 2008 € 2.4 million); 227 Notes to the consolidated financial statements - Terna Group 228

Consolidated financial statements 2009

Total

oa xes 104-4. -34.7 -145.7 -180.4 Totalexpense

aiaie iaca xes 12763.6 7.6 11.2 expense financial Capitalised

neetepneo hr-emlasadohrfnnilepne-19-. -11.4 -0.5 -11.9 Interestexpense financial other and loans short-term on expense

eiaie necag ae 2. 22-23.0 -2.2 -25.2 rates exchange on derivatives

Exchange rate differences rate Exchange related and non-hedge-accounting

icutn ftriainbnftadohrpronlrltdpoiin 57-. 1.1 -6.8 -5.7 personnel-related other and benefit termination of Discounting provisions

etajsmn bns n eae egs . 454.5 -4.5 0.0 related and (bonds) adjustment Debt hedges In millionsofeuros

neetepneo eimln-emlasadrltdhde 176-3. -8.3 -139.3 -147.6 Interestrelated and loans medium/long-term on expense hedges

iaca xes nrseto aet-. . -1.2 0.0 -1.2 respect in expense Financial parent of

Financial expense Financial

oa noe2. 167.6 21.6 29.2 Totalincome

noeo o-eg-conigdrvtvs . . -1.2 1.2 0.0 derivatives non-hedge-accounting on Income

etajsmn bns n eae egs . . 1.2 0.0 1.2 related and (bonds) adjustment Debt hedges

neeticm n te iaca noercie 062. -9.8 20.4 10.6 Interestreceived income financial other and income

neeticm rmTraPriiaõs1. . 14.3 0.0 14.3 Interestfrom income Terna Participações

iaca noefo aet . . 3.1 0.0 3.1 from income Financial parents Financial income Financial decreased financialexpense inrespect oftheaccretion ofemployeebenefitprovisions ( • increased capitalisedfinancialexpense( • negativeimpact(- the • increased interest expenseonshort-termloansandother financialexpense(- • increased financialexpenseinrespect ofmedium/long-termdebt(- • • a decrease a innetincomefrom non-hedge-accountingderivatives (- • netgainfrom the theadjustmenttofairvalueof bondsandrelated hedgescompared withtheprevious year( • lowerfinancialincome(- • increased financialincomeinrespect ofinterest ontheintercompany loanfrom Terna toTerna Participações ( • increased financialincomeasaresult ofTerna’s subscriptionofbondsissuedbyCassaDepositiePrestiti ( • The increase of expense and Net financialexpenseamountedto The captionbreaks downasfollows: 8. Netfinancialincome/(expense)- Financial incomeandexpense Terna Participações( risk associatedwiththevolatilityofexchangeratesinrespect ofthedividendsandintercompany loanpaymentsfrom charges (- offset bythereduction inmarketinterest rates; in 2008; million), compared withnetupliftincomeof activities ( on investedliquidity(- € € 2.4 million)andthenetexpenseforuplift(recognised under otherfinancialexpenseintheamountof 11.8 million)fortheyear; € 29.2 millioninfinancialincome. € 27.1 millionwithrespect to2008isthenetresult ofthefollowingmainfactors: € € 7.3 millionand € 23.0 million)mainlyofhedgesnotqualifyingforhedgeaccounting entered intotomitigatethe 8.9 million),greater defaultinterest forlatepaymentofreceivables inrespect ofdispatching € 9.8 million)dueessentiallytothejointeffect ofthegeneraldecrease intheinterest ratespaid € 151.2 million,entirely attributabletotheParent, comprising € 17.9 millionrespectively); € 3.6 million)duetogreater capitalexpenditure duringtheyear. € 3.4 milliontheprevious year; € 151.2 million € 8.3 million)duetotheincrease inborrowing, partially €

1.2 million)followingthedisposalofportfolio 112-2. -27.1 -124.1 -151.2 € 11.4 million),largely attributabletouplift 2009 € 1.1 million); € 180.4 millioninfinancial 08Change 2008 € € € 14.3 million); 3.1 million); 5.7 million); € 11.8 forTELAT, thenetreversal of deferred taxliabilitiesinrespect oftherelease• ofprevious provisions foramortisationand fortheParent, deferred taxassetsinrespect oftheprovision for baddebtsforaccrualstheyear( • attributable to: contribution ofTELAT, whichwas absentin2008,fortaxesthelastninemonthsof2009( Parent establishedinApril2009,bothofwhichare measured usingtheequitymethod. Net deferred taxexpenseof Deferred taxincomeandexpense Current taxes( Current taxes Income taxesfortheyearamountedto Total 192 -5.2 Adjustments toincometaxesofprevious years Total -33.7 deferred taxassetsandliabilities 0.0 - rateadjustment -36.2 - deferred taxexpense 16.7 - deferred taxincome Reversal oftemporarydifferences: Temporary differences: Total 231.0 current taxes 53 - IRAP 177, - IRES Current taxes: Income taxes The followingtablereports changesintaxeswithrespect to2008: Income taxesfortheyearamountto 10. Incometaxes- ( The captionrefers totheadjustmentequityatDecember31,2009ofinvestmentsinassociatesCESIS.p.A. 9. Share ofprofits/(losses) ofequity-accountedinvestees- and assetsheldforsale”). (taxes inrespect ofthedisposalTerna Participaçõesare reported under“Profit fortheyearfrom discontinuedoperations - deferred tax expense 0.0 0.0 - deferred taxexpense -14.2 - deferred taxincome In millionsofeuros € year inrespect ofthegreater value allocatedtoproperty, plantandequipmentintangibleassets( depreciation inexcessofdeductible amounts( the release recognised in2008( 3.0 million,anincrease of € 231.0 million)rose by

€ 192.1 million € € . ilo n20)adEMDÉUE (- 0.7 millionon2008)andELMEDÉTUDES 33.7 million,showedanetincrease of € 1.0 million); € € 192.1 million. 30.0 millionontheprevious year, essentiallyduetohighertaxableincomeandthe € 192.1 million,foraneffective taxrateof35.2%,compared with36.8%in2008 € 1.4 million)andfortheamortisation anddepreciation charge for the € 7.7 millionon2008.Thechangeismainly € 0.1 million),aTunisian jointventure ofthe 2009 1 14617.5 174.6 .1 8.4 45.5 .9 5. 21.6 155.5 1 € 2.9 million . -0.3 0.3 1. -1.9 18.6 000.0 0.0 -33-2.9 -33.3 -16-2.6 -11.6 21030.0 201.0 € 16.4 million).

-26.0 -7.7 -26.0 -. -4.8 -0.4 08Change 2008 € €

2.1 million). 2.2 million)and 229 Notes to the consolidated financial statements - Terna Group 230 Consolidated financial statements 2009 In millionsofeuros dutet oicm ae fpeiu er 52-0.4 36.8% -5.2 36.1% Actual taxcharge Adjustments toincometaxesofprevious years Actual taxratenetofprioryearadjustments Actual taxcharge Permanent differences IRAP Theoretical taxcharge In millionsofeuros to theprofit from discontinuedoperationsandassets heldforsalein2009. possible betweenthetwoyears.Thefollowingreports thecompositionofincomestatementbalancesthatgaverise months oftheyear, i.e.uptothedisposaldateforBraziliancompanies.Forthis reason, nosignificantcomparisonis discontinued operationsandassetsheldforsaleof for theBraziliansub-holdingcompany, equalto reclassified to“Profit fortheyearfrom discontinuedoperationsandassetsheldforsale”.Consequently, theresult for2008 For comparativepurposes,pleasenotethatthecostandrevenue itemsoftheBraziliancompanieshavealsobeen operations break downasdiscussedbelow. up tothesaledateinamountof The itemalsoincludesthecontributiontoconsolidatedfigures ofthenetincomeBraziliansubsidiariesaccrued a result oftheappreciation oftheBrazilianreal againsttheeuro. It alsoreports thereversal ofthetranslationreserve accrueduptothetransactiondateinamountof hedging derivatives( noetxs3. 84 13.5 25.2 18.4 38.7 29.4 40.9 9.3 -9.9 59.3 31.9 199.4-0.6 -58.1 66.1 117.4 82.0 98.0 16.7 198.8 -28.7 126.7 72.1 27.0 43.6 assets heldfor salepertainingtoshareholders oftheParent Profit fortheyear from discontinuedoperationsand and assetsheldforsale Profit fortheyear from discontinuedoperations Income taxes Profit before taxes Net financialexpense Operating profit Operating expenses Revenue transaction date( equal tothedifference betweenthepricereceived andthecarryingamountofassetsliabilitiessoldat In particular, itreports thenetcapitalgainondisposalofBraziliansubsidiariesinamount Terna Participações. reports theoverallimpactonincomestatement( In accordance withtheprovisions of“IFRS5-Non-current assetsheldforsaleanddiscontinuedoperations”,thiscaption 11. Profit fortheyearfrom discontinuedoperationsandassets held profit before taxeswithtaxableincomeforIRES(corporatetax)purposes: For aclearer presentation ofthedifferences betweenthetheoretical andactualtaxrates,thetablebelowreconciles the years asaresult ofnotdeductingIRAPintheamountprovided forunderthelaw( art. 6ofLawno.2January28,2009,thereceivable duefrom taxauthoritiesforexcessincometaxespaid inprevious Adjustments toincometaxesofprevious yearsamountedto- Adjustments toincometaxesofprevious years forsale- € € 542.1 million)netofcoststosell( 417.0 million € 105.3 million),aswelltaxesonthetransaction( € 43.6 million.Theincomecomponentsthatmadeuptheprofit from discontinued € € € € 66.1 millionfor2009refers totherevenue andcostsforthefirstten 40.9 million,regards theentire year, whilethetotalProfit from 417.0 million)ofthedisposalBraziliansub-holdingcompany 4.4 million),otherdirectly attributablecosts( € 5.2 millionandmainlyregard therecognition, pursuantto € 85.0 million). 2009 € 4.2 million). 9. 174.6 192.1 197.3 175.0 150.2 130.7 3945.5 53.9 68-1.2 -6.8 08Change 2008 2009 € 42.4 million),netof € € 68.4 millionas 305.0 million, 2008

232 Consolidated financial statements 2009 otheroperatingexpenses( • • amortisation, depreciation amortisation, andimpairmentlosses( • and adenominatorof2,009,992.0thousand). personnelexpense( • profit from discontinuedoperationsof € Profit fortheyearfrom discontinuedoperationsandassetsheldforsale for aneffective taxrateof32.6%taxableincome. numerator of The corresponding pershare basicanddilutedearnings ofcontinuingoperationsamountrespectively to numerator of services( • investments intheareas involved. ( by Terna ServiçosinperformanceoftheEngineering,Procure andConstructcontractwithBrasnorte.“Otherrevenue” “Other revenue from salesandservices”( unrealised exchangerategains( • interest incomeontheinvestmentofliquidity( • to pershare anddilutedearnings fromBasic earnings continuingoperationsanddiscontinued operationsamountrespectively pershare 12. Earnings Income taxesfordiscontinuedoperationsamountedto Income taxes interest expenseontheintercompany loan grantedtoTerna ParticipaçõesinFebruary2009,untilthedateofrepayment • interest expenseonlong-termloans( • Net financialexpensecameto Net financialincome/(expense) raw materialsandconsumables( • The operatingexpensesofdiscontinuedoperationscameto Operating expenses the year( The captionreports feesfortransmissionservicesprovided bytheBrazilianconcessionholdersforfirst10monthsof Revenue €

intangible assets( 66.1 million,ofwhich (October 28)toTerna ( contributions ( services ( ( 17.3 million) include the Ada and Adene tax incentives granted by the Brazilian government toTSNandNovatransfor 17.3 million)includetheAdaandAdenetaxincentivesgrantedbyBraziliangovernment € € 11.3 million); 0.385 (withanumeratorof € 166.6 million),includingtherevenue ofETEO,whichwasacquired inMay2008( € € 21.0 million),including:costsfortendersandtechnicalservices( 5.9 million)andinsurance,telephonedatatransmissioncosts(totalling € € 354.0 millionandadenominatorof2,000,908.8thousand) and 771.0 millionandadenominatorof2,009,992.0thousand). € 2.2 million); € 2.0 million)uptothesigningdateofagreement forthedisposalofBraziliangroup (April2009); € € € 10.6 million),mainlyattributabletoemployeecompensation( 43.6 million 14.3 million); € 18.4 million),essentiallycomposedoflocaltaxesandduties( € € 28.7 million,breaking downasfollows: 771.0 millionasthesumofprofit ofcontinuingoperations of € € 10.0 million). 12.3 million),largely usedbyTerna Serviçosfor the constructionworkofBrasnorte attributable totheshareholders oftheParent € € € 34.6 million); 417.0 millionandadenominatorof2,000,908.8thousand) 14.9 million)attributabletotheengineeringandconstructionservicesperformed € 8.9 million); € 9.8 million)inrespect ofproperty, plantandequipment( € 31.9 million(ofwhich- € 72.1 millionandregard: € 7.0 million),consulting,technicalandnotary € 0.176 (withanumeratorof € for thefirst10monthsof2009cameto 9.9 millioninnetdeferred taxliabilities), . € € 7.6 million)andsocialsecurity 1.4 million); € € 23.2 million).Italsoincludes 18.2 million). € 354.0 millionandthe € € € 7.8 million)and € 0.384 (witha 0.177 (witha 354.0 million tDcme 1 083. 8. ,3. 422. 3. 6,035.8 7,075.3 933.8 -5,208.1 896.5 - 27.3 40.7 -556.9 14.2 -277.3 -43.5 - 101.6 15.0 -38.3 4,534.9 - -4,544.2 - 5,487.5 68.7 - 0.75.9 - 486.8 -4,853.3 581.9 -10.0 -273.0 1.0 38.8 61.1 - 53.7 -41.1 -2.9 - 12,283.4 - - At December31,2008 -1.0 - At December31,2009 - -78.0 -0.8 0.10.7 -36.2 896.5 - -247.1 -556.9 Carrying amount -3.9 98.3 84.2 -17.3 -4,207.9 - -721.8 at Dec.31,2009 and impairmentlosses Accumulated depreciation -259.0 -30.2 - -6.0 2.3 53.3 10,580.0 Reclassifications - - - Disposals 933.8 Contribution ofnewacquisitions -2.6 -0.7 - Depreciation fortheyear 10,340.8 - losses of discontinued 859.8 operations 68.4 depreciation andimpairment 2.5-0.1-2.4-1.4 854.9 - Reclassified accumulated 0.0 3.79.5 1.4 -65.3 830.6 17.3 -915.5 at Jan.1,2009 - 53.7 50.4 and impairmentlosses Accumulated depreciation -2.1 0.1 -14.9 -674.3 12.0 3.9 - Cost atDec.31,2009 8,742.8 -16.8 - Reclassifications 13.6113.7770.9 -14.5 1.9 - Other Disposals 745.8 and impairment losses Contribution ofnewacqui -0.2 Plant Investments 38.8 changes “Discontinued operations” Reclassified costof start-up Cost atJan.1,2009 In millionsofeuros D. Notestotheconsolidatedstatementoffinancialposition million (costof shown netofthereclassification ofthevalueatDecember31,2008discontinued operationsintheamountof A summaryofchangesinproperty, plantandequipmentduringtheyearisprovided inthe tablebelow. Thechangesare quarter oftheyear. plant, whichentered serviceinDecember2009,atRagusa,asaresult ofthecapitalexpenditure carriedoutinthelast the centralsystemsforremote management,thenationalelectricitycontrol systemandthevalueofonephotovoltaic At December31,2009,“Plantandmachinery”includesthe electricitytransmissiongrid,transformationstationsinItaly, changes foreachcategoryare reported inthefollowingtable: Property, plantandequipmentamountedto 13. Property, plantandequipment- Assets € 721.8 millionandaccumulated depreciation of iin ,7. 121,658.3 - 81.2 - - sitions 1,577.1 adBidnsPlantand Buildings Land € 7,075.3 million( € 7,075.3 million machinery € € 6,035.8 millionatDecember31,2008).Theamountand 101.6 million): commercial equipment Industrial assets Other and payments Assets under construction on account € 620.2 Total 233 Notes to the consolidated financial statements - Terna Group 234 Consolidated financial statements 2009 more than In termsofassetsunderconstructionattheendyear, themaingriddevelopmentandre-powering projects worth In millionsofeuros station ( the connectiontoTirreno Power plant atNapoliLevante( connection oftheFoggia-Beneventowindplants( Piossasco plant( network ( Sud line( on the380kVCasellina-Tavarnuzze-Santa Barbaraline( power line( mainly regarded: constructionoftheSA.PE.I.undersealine( million forSunTergrid) comprises,inparticular, expenditure ontheItaliantransmissiongrid,ownedbyParent, which Capital expenditure fortheyear( Terna LineeAltaTensione S.r.l., whichownsaportionofthenationalhigh-voltagetransmissiongrid. allocation oftheexcesscostinamount million), theitemalsoreflects thevalueofplantinserviceandunderconstruction( capitalised financialexpense),disposals,impairmentlossesandotherchanges( Bussolengo station Bussolengo station Cagno station Castegnero station Brindisi Pignicelle SA.PE.I. station(FiumesantoandLatina) Transformation stations Rationalisation inprovince ofLodi Rationalisation ofTurin systems Reorganisation ofPalermoarea Villarodin-Venaus Santa Barbara-Tavarnuzze-Casellina AEM Moncalieri Valcamonica Sorgente-Rizziconi SA.PE.I. Transmission lines In additiontoordinary changesduringtheyearinrespect ofcapitalexpenditure ( Total Disposals, impairmentlossesandotherchanges Depreciation Contribution ofnewacquisitions Total investments Other Other Transformer stations Transmission lines Capital expenditure

€ € € 10.7 million). € 18.9 million),rationalisationofsystemsforthecityTurin ( 22.0 million),expenditure ontheintrusion prevention project ( € 10 millionare listedbelow. 47.3 million).Otherexpenditure includedrenovation workontheRomeheadquarters(

€ 16.3 million),therationalisationof220kVAltaValcamonica line( € 859.8 million,ofwhich € 224.2 million)from theacquisition(completedonApril1,2009ofTELAT - € 11.9 million),workonrationalisingtheBussolengoarea ( € € 25.2 million),rationalisationworkonthe132kVVal d’Ossola € 831.5 millionfortheParent, 113.6 million)andprogress onthe380kVSorgente-Rizziconi € 11.5 million)andanewarmoured sectionatthe Cagno € 17.9 million),therenovation andupgradingofthe € 20.2 million),developmentoftheopticalfibre

€ € 1,659.7 142.4 859.8 million,ofwhich 24.2 million)anddepreciation ( 50,900,580 -277.3 13,776,570 27,432,380 12,117,380 15,971,750 € 25,994,390 339.5 10,198,880 13,086,700 35,226,960 377.9 € 1,101.4 million,includingthefinal € 859.8

22.6 millionforTELAT and 15.8 million),thestationfor 13,238,520 10,625,970 1,101.4 14,468,630

66,168,990 25,808,480

-24.2 € 30.4 million),work € € 11.2 millionin 11.6 million), € In euros 277.3 € 5.7 In millionsofeuros CASH GENERATING UNIT • the recognition the ofgoodwill( • reclassification the ofthegoodwilldiscontinuedoperations(theTerna ParticipaçõesCashGeneratingUnit)at • than thecarryingamount. the concessionperiod(2030).Thediscountratewassetat a WACC of6.5%.Thevalueinusethusdeterminedwashigher terminal valuewasassumedtobeequaltheremuneration ofnetinvested(RAB-Regulatory Asset Base)attheendof The discountingofthecashflowswasperformedwithrespect totheperiod2010-2030,inlinewithforecasts, andthe In particular, cashflowswere determinedonthebasisofforecasts contained in thebusinessplanofcompany. acquisition ofTELAT (CashGeneratingUnit(CGU)-TELAT) wasalsoestimatedusingthediscountedcashflowmethod. The reduction on2008( Generating Units.Thebalanceandthechangesbycashgeneratingunitare showninthetablebelow: The recoverable amountofthegoodwillrecognised infinancialstatement, Cash GeneratingUnit-TELAT discount rates,confirmingthefullrecoverability ofgoodwill. The sensitivityanalysisconducteddidnotproduce anysignificant impactonthevaluation,evenwithuseofhigher than thecarryingamount. The discountratewassetataweightedaveragecostofcapital4.95%.valueinusethusdeterminedhigher years thecashflowprojection wasbasedonthedevelopment ofoperationsinlinewiththelastyearbusinessplan. and assumptionsitusesfordevelopmentsintheCompany’sperformancefinancialposition,whilesubsequent particular, cashflowswere determinedupto2014onthebasisofapproved businessplan,drawingontheforecasts terminal valuewasassumedtobeequaltheremuneration ofnetinvested(RAB-RegulatoryAssetBase)in2020.In The discountingofthecashflowswasperformedwithrespect totheperiod2010-2020,inlinewithforecasts, andthe future cashflows. cash flowmethod,whichinorder todeterminethevalue inuseofanassetappliesappropriate discountratetoestimated Terna CashGeneratingUnit(CGU)recognised infinancialstatement, The recoverable amountofthegoodwill(recognised asaresult ofthemerger ofRTL intoTerna in2008)respect ofthe Cash GeneratingUnit-Terna Impairment testing 88.6 0.0 Balance atDec.31,2009 - Contribution ofnewacquisitions - -115.3 Reclassification of“Discontinuedoperations” 88.6 115.3 Balance atDec.31,2008 Goodwill amountedto 14. Goodwill-

“Business combinations”. TELAT andthefairvalueof assetsandliabilitiesattheacquisitiondate.Formore details,pleaseseethesectionon December 31,2008(

€ 190.2 million € € € 115.3 million); 190.2 million( 13.7 million)isattributableto: € 101.6 million)followingthefinalallocationofdifference betweenthepurchase priceof € 203.9 millionatDecember31,2008)andregards theTerna andTELAT Cash en atcpçe en EA Total TELAT Terna Terna Participações

€ 88.6 million,wasestimatedusingthediscounted

€ 101.6 million,recognised asaresult ofthe - 101.6 101.6 101.6 - 101.6 190.2 101.6 0.0 203.9 0.0 --115.3 - 235 Notes to the consolidated financial statements - Terna Group 236 Consolidated financial statements 2009 electrical system( management systemfordispatching( Investments fortheyear( Distribuzione isthecounterparty). ( nArl20,EMDÉUE Sàrlwasestablished. In April2009,ELMEDÉTUDES 31, 2009.Consequently, itsfinancial statementsatDecember31,2009were prepared inaccordance withItalianGAAP. As permittedbycurrent regulations, CESIoptednottoapplyIFRSthepreparation ofitsfinancial statementsatDecember the Group attheendofyear ( S.p.A., amountingto1.871% and 4.68%respectively, andtheadjustmentofinvestmentto theshare ofequityheldby acquisition (completedbytheParent in2009)ofadditionalinterests inCESI( area. Thevalueoftheinvestmentincreased onprevious yearasaresult oftherecognition ofthecostincurred forthe experimental research relating totheelectro-technical fieldingeneral andtechnicalscientificdevelopmentsinthat CESI S.p.A.operatesintheconstructionandmanagement oflaboratoriesandplantsfortests,inspections,studies disposals andimpairmentlosses( of The increase ontheprevious year( for thedevelopmentandevolutionofsystems. Other intangibleassetsincludeapplicationssoftware orpurchased aspartofprogrammes developed internally externally ( concession forelectricitytransmissionanddispatchingactivitiesinItaly, which wasinitiallyrecognised in2005atfairval ot15417082300.6 6.3 8.2 182.0 -124.9 0.0 --31.5 - 8.2 182.0 157.0 - 40.6 -0.6 -38.9 6.3 8.2 135.4 61.7 -25.9 6.3 40.4 -0.5 -101.6 279.3 38.9 - 112.1 -5.6 61.7 -112.1 - -23.3 -0.2 7.2 -0.1 - - 6.3 112.1 - 42.3 - - Balance atDec.31,2009 229.8 Contribution ofnewacquisitions Accumulated amortisation Cost -112.1 Balance atDec.31,2009 Amortisation Disposals andimpairmentlosses Entry intoservice Investments Contribution ofnewacquisitions Reclassification ofdiscontinuedoperations Balance atDec.31,2008 ntejitvnueEMDÉUE Sàrl( • inthejointventure ELMEDÉTUDES theassociateCESIS.p.A.( in • Investments inequity-accountedinvesteesamountto 17. Investmentsinequity-accountedinvestees - € For adiscussionofdeferred taxassets,netofthereclassification ofamountsinrespect ofdiscontinuedoperationstotalling 16. Deferred taxassets the yearduetocapitalexpenditure ( Intangible assetsamountedto Changes duringtheyearinintangibleassetsare detailedbelow: 15. Intangibleassets- In millionsofeuros € € 127.0 millionatDecember31,2008,pleaseseenote“29. Deferred taxliabilities”. 135.4 million)andsubsequentlymeasured atcost. 6.3 million)inrespect ofthecontracttoinstallopticalfibre networkandrepeaters ontransmissionlines(Enel € 112.1 million(costof € 2.1 million),aswellgeneralapplicationsandsoftware licenses ( € € 40.6 million)includedexpenditure onthedevelopmentandevolutionofsoftware fortheremote 115.4 millionandaccumulatedamortisationof € € € 14.8 million),representing astakeof30.91%; € 182.0 million( € 182.0 million € 3.0 million). 14.8 million),consideringthereclassification ofdiscontinued operationsintheamount 0.6 million),isalsoattributabletotheintangibleassetsofnewcompanyTELAT € € 40.6 million),mainlyonapplicationssoftware, amortisation ( 9.9 million)forthePowerExchange( € 0.7 million),whichwasacquired inApril2009,representing astakeof50%. € 279.3 millionatDecember31,2008).Thecaptionmainlyincludesthe € ocsin te sesudrTotal Other Assets under Concessions 15.5 millionandrelate totheinvestmentsofTerna S.p.A.: € 15.5 million € 3.3 million),aswellordinary changesduring € € sesdevelopmentand assets 4.7 million)andfortheprotection ofthe 2 million)from A2AS.p.A.andSiemens payments onaccount € 17.2 million). € 31.5 million)and ue opn Ast Laiiis Liabilities Assets Company EI 50 65 89 46 80 48.0 34.6 28.9 46.5 65.0 CESI In millionsofeuros ELMED ÉTUDES 1.4 - - - 1.4 1.4 - - - 1.4 ELMED ÉTUDES • a decrease a indeferred financialassetsintheamountof • • the subscriptioninthefinalquarterofyear three the securitiesissuedbyUBSandMPSforatotalof • • the reclassification the oftheamountspertainingtodiscontinuedoperationstotalling • The increase of securities subscribedwithUBSandMPS( urn iaca ses51069494.1 -0.2 6.9 0.2 494.3 494.7 7.7 501.0 6.7 0.0 -0.4 6.3 7.7 115.5 0.4 501.0 501.0 123.2 115.5 - 123.2 Current financialassets Other current financialassets Discontinued operations Total continuingoperations Other current financialassets Deferred assetsonFVHderivativecontracts Continuing operations Non-current financialassets FVH derivatives Continuing operations At December31,2009,“Non-current financial assets”,equalto The followingtabledetailsfinancialassetsrecognised intheconsolidated financialstatements: 18. Financialassets by Terna Group, are asfollows: The mainfigures oftheaboveassociates,restated inaccordance withthepresentation andmeasurement criteriaapplied For more information,pleaseseethesection“Significantevents”. the Italy-Tunisia interconnection project. Tunisian callfortenderstheconstructionandmanagementofpowergenerationhubinTunisia government’s for Gaz (STEG)whosemainpurposeisthestudyandpreliminary thepreparation consultingconcerning ofdocumentsforthe This limited-liabilitycompanyisanequally-heldjointventure betweenTerna andSociétéTunisienne del’Electricitéetdu “Current financialassets”showsabalanceof to thedeclineinmarketinterest ratesin2009. The increase inthefairvalueofderivatives( the Parent’s bondissues.

€ 494.1 millionontheprevious yearisthenetresult of thefollowingfactors: Current Non-current € 500.0 million). € € 7.7 million)compared withDecember31,2008,isessentiallyattributable 501.0 million( Current Non-current € 5.7 million. theyear € € 6.9 millionatDecember31,2008),mainlyinrespect of 123.2 million,reported thevalueoffairhedges of qiy Rvne Profit for Revenues Equity Dec. 31,2009 Carrying amount € 0.2 million; e.3,20 Change Dec. 31,2008 75.1 8.0 75.1 - - € 500 million; 237 Notes to the consolidated financial statements - Terna Group

240 Consolidated financial statements 2009 • other taxreceivables other ( • Other current assets paid totheParent’s employees( previous year( receivables from others( • VAT credit describedabove. The itemshowsanincrease of Other non-current assets 19. Otherassets te urn ses2. 89-1.3 -1.6 -7.8 28.9 -4.0 1.6 7.8 27.6 4.0 - - 6.5 - - 4.2 0.2 21.1 0.0 13.7 0.2 27.6 0.9 5.5 17.9 4.6 Other current assets 5.5 Total discontinuedoperations Others Advances toemployees 5.5 Receivables duefrom others: Other taxreceivables Discontinued operations Total continuingoperations others advances toemployees Receivables duefrom others: Other taxreceivables Continuing operations Other non-current assets Discontinued operations Total continuingoperations Continuing operations Receivables duefrom others: In millionsofeuros • • • • • • Distribuzione ( attributable tocostsoncontracts touseassetsthattheParent tookoverfollowing thetransferofplantfrom Enel Participações; respect oftaxeswithheldbyBraziliantaxauthoritiesoninterest accruedontheintercompany loantoTerna authorities forindirect taxesinrelation totheactivities carriedoutbyTerna’s branchinGreece and sundry advancestoemployees ( receivables forinsurancereimbursements accruedintheyearbutstillnotpaid(about assets intheamountof VAT receivables ( tax receivables accruedabroad ( withholding taxoninterest incomeaccruedoninvestments( seso eoi ihtidpris . -0.9 0.1 0.9 0.8 0.3 - 4.3 0.4 5.1 assets ondepositwiththirdparties assets ondepositwiththirdparties loans andadvancestoemployees € 4.6 millionnetofthereclassification ofdiscontinuedoperations) andrelate mostlytoloansandadvances € 0.9 million)andinsurancepremiums ( € 1.5 million). amount to € 17.9 million),mainlyrelated to: € ( € 9.7 million),mainlyregarding: 5.5 million),detailedabove,havenotundergone anysignificantchangeswithrespect tothe € € 4.4 millionreferred tocostsalready paidbutpertainingtosubsequentyears,mainly € 4.2 millionontheprevious year, mainlyattributabletotheBrazilianwithholdingsand € 5.1 million). 27.6 million( € € 0.2 million)andnon-Group suppliers( 13.0 million),ofwhich € 28.9 millionatDecember31,2008)andmainlyrelate tothefollowing: € 3.2 million); € € 8.8 millioninrespect ofreceivables from theGreek tax 3.0 million); Dec. 31,2009 € 0.6 million). . . 2.3 7.2 9.5 . -2.2 2.2 - € 1.0 million); e.3,20 Change Dec. 31,2008 € 2.3 millionin In millionsofeuros adjustment intheprovision forbaddebts( Receivables are measured netofimpairmentlosses,relating toitemsconsidered uncollectibleandrecognised asan originated bythedispatchingactivitiesofParent. reclassification ofdiscontinuedoperationsintheamount maintenance andconstructionofplants;theincrease of transmission feespertainingto TELAT ( granted fortheportionofNTGpertainingtoTELAT forthelastninemonthsofyear), aswellthereceivable for Fund inrespect ofthemitigationmechanismprovided forunderResolutionno.188/08( compared withtheprevious yearislargely attributabletotherecognition ofthe receivable from theElectricityEqualisation for thefinaltwomonthsofyear, fallingdueinJanuaryandFebruary2010.Theincrease of use oftheNationalTransmission Gridbydistributorsandelectricitygenerators. Mostofthereceivable regards thefees rd eevbe ,6. 1704 -561.3 -24.4 -2.3 1,730.4 The receivable fortransmissiongridfeesof Receivables fortransmissiongridfees- 1,169.1 24.4 Resolution no.34/09( -536.9 42.9 which ledtoareduction inthevolumesandpricesofunbalancing,aswellearlyinvoicingadjustmentsunderAEEG -627.5 exceptional strainsonthenationalelectricitysystem( 92.9 electricity grids( - Resolution no.203/08,whichspecifiedtheprocedures forcoverageofcostsinrespect ofelectricitytransitingonforeign 1,706.0 below, byadecrease 1,471.4 inpayablesforpurchases onthePowerExchange),dueinparticulartoapplicationofAEEG 40.6 in respect ofsalesonthePowerExchange( The balanceshowsadecrease of 191.7 1,169.1 Resolution no.237/044). 843.9 caption alsoincludesreceivables forfeespayablebymarket operatorsfordispatchingactivities(DISfeeasperAEEG They mainlyincludereceivables inrelation topass-through energy itemsarisinginrespect ofdispatchingactivities.This Energy-related receivables - 284.6 with Trade receivables amountedto Trade receivables Receivables fortransmissiongridfees Discontinued operations Total continuingoperations Other tradereceivables Receivables fortransmissiongridfees Energy-related receivables Continuing operations Trade receivables are composedasfollows: 21. Trade receivables - Inventories undercurrent assetscameto 20. Inventories- € discontinued operationsintheamountof 193 million). € 10.3 millionforenergy-related itemsand € 93.3 million)andlimitedrecourse tosupplementaryoffers ontheDayAheadMarkettosituationsinvolving € 95.5 million).Finally, there wasasubstantialdecrease inthereceivable foruplifttheyear(about € 11.7 million € 843.9 million € € € 1,169.1 million 627.5 millioncompared withtheprevious year, mainlyattributabletolowerreceivables 1,169.1 million,adecrease of € 23.1 million)forDecember. € € 22.3 millionforenergy itemsand € 11.7 million( € € € 284.6 million 1.1 million)andincludematerialsequipmentusedintheoperation, 615.2 million,partlyoffsetting, asdetailedinthesectionontradepayables 284.6 millionregards thefeespaidtoParent andotherownersforthe € 1.4 millionforotheritemsin2008). € 193.8 million);inaddition,itreflects generaleconomicconditions, € € 4.9 millionismainlyduetoordinary maintenanceofplantinItaly. 16.6 millionatDecember31,2008netofthereclassification of € 24.4 million,allofwhichattributabletopass-through items € 536.9 millionontheprevious year, netofthe Dec. 31,2008 € 4.7 millionforotheritemsin2009,compared € 61.0 million,includingtheamount € e.3,20 Change Dec. 31,2008 92.9 millioninthereceivable 241 Notes to the consolidated financial statements - Terna Group 242 Consolidated financial statements 2009 Decree no.185/2008andtheIRAPcredit describedabove. lower thanthetaxliabilityforyearandtorecognition duringtheyearoftaxpaidpursuanttoart.15Legisla • the reclassification the toretained oftheshare earnings premium reserve intheamountofstockoptionsexercised inprevious • did notchangeduringtheyear. Participações S.A.,istomake. units), whichwillbesoldbyTerna S.p.A.inthepublictenderoffer thatTAESA S.A.,whichacquired control ofTerna in 2008( the taxliabilityinrespect ofthegoodwillarisinginmerger ofthesubsidiaryRTL intoTerna ( • the recognition the andadjustment tofairvalueofderivativeshedgingfloating-rateloans oftheParent (cashflowhedge • namely: Other reserves declinedby Other reserves - The legalreserve isequalto20%oftheParent’s share capital. Legal reserve - The share capitaloftheParent is represented by2,000,908,800ordinary shares withaparvalueof Share capital- 25. Equityattributabletotheshareholders oftheParent - Liabilities The item,whichtotals 24. Discontinuedoperationsandassetsheldforsale- The decrease ( taxes paidinprevious yearsasaresult ofnotdeductingIRAPintheamountprovided forunderthelaw( recognition, pursuanttoart.6ofLawno.2January 28,2009,ofthereceivable duefrom taxauthoritiesforexcessincome Tax assetscameto 23. Tax assets - statement ofcashflows”. of thereclassification ofdiscontinuedoperations( on handheldbyoperationalunitsoftheParent. Theitemshowsadecrease onDecember31, 2008,of Cash andcashequivalentsatDecember31,2009amountedto 22. Cashandcashequivalents- of theemployeeelectricitydiscount( in theconnectionofrenewable resource plantsforthelastfouryears( ( Other tradereceivables mainlyregard receivables duefrom Italiancustomers( Other tradereceivables - issued tosecure contractualobligationsassumedinrelation tooperatingactivities. The amountofguaranteesissuedbyTerna tothird partiesattheendof2009was for third-party customers. € years intheBraziliancompanies (- derivatives), whichproduced adecrease of 4.6 million),from theElectricityEqualisationFundforcontributiongrantedtoCompanycovercostincurred € 25.9 million)tocorresponding liabilitiesin2009due tothefactthatpaymentsonaccountduringyearwere € € 7.5 million)ontheprevious yearisattributabletotheshift from theIRESandIRAPtaxcredits recognised € 440.2 million € 88.0 million € 670.7 million 18.4 million,attributabletothetaxpaidunderart.15ofLegislativeDecree no.185/2008todischarge € € 0.1 million,regards theresidual valueoftheinvestmentinTerna Participações(equalto10,000 18.4 million € € 12.6 millionasaresult ofchangerecognised asothercomponents ofcomprehensive income, 40.6 million € € 0.9 million). 1.4 million)andreceivables forlong-termcontractworkinprogress ( € € 16.5 million,netoftherelated tax effect (+ 0.1 million € 90.5 million);formore detailspleaseseesection“I.Notestothe € 0.1 millionandwere entirely accountedforbythecash € 4.0 million)andtocoverthecostincurred inrespect € € 26.2 million),from EnelGroup companies 0.1 million € € 11.8 million.Theitemrefers tosureties 2,501.5 million € 4.6 million); € € 14.2 million)andthe 0.22 each.Theitem € € 689.1 million,net 4.2 million). € 2.6 million) tive In millionsofeuros • the reclassification the underretained oftheshare earnings premium reserve intheamountofstockoptionsexercised in • release the toincome( • • the allocationtoretained the ( earnings • transactions withowners),thechangeslargely regarding: rftfr20 7. - - - 671.7 88.0 A,B,C A,B,C 771.0 B -140.1 B 671.7 88.0 440.2 Total Profit for2009 Interim dividend Retained earnings Other reserves Legal reserve Share capital AVAILABILITY OFTHEMAINCOMPONENTSEQUITY .the exercise oftheoptions and,consequently, therighttosubscribe newly-issuedTerna2. ordinary shares dependson the strikepriceofeachshare shall bethearithmeticmeanofreference priceofTerna1. ordinary share observed on Under theapproved thestockoptionplan: rules governing Company. important positionsintermsofachievingtheCompany’sstrategic targets, includingtheCEO,asaseniormanagerof The planprovides forthedistributionofamaximum10,000,000optionstoabout20Terna managersholdingthemost the2006stockoptionplan(approved onDecember21,2005) Rules governing The features ofthe2006stockoptionplanare outlined below. shareholders andmanagement. corporate team,whileensuringtheyare constantlyfocusedoncreating value,withaviewtomeldingtheinterests of Italian companies–amanagementincentiveandloyaltytool thatimbueskeyemployeeswithasenseofbelongingtothe This planisaimedatgivingtheTerna Group bestpracticeandthatoftheleadingpubliclylisted –inlinewithinternational Group’s strategic targets. to adopta2006stockoptionplanforTerna Group managersholdingthemostimportantroles intermsofachievingthe On December21,2005,basedonaproposal oftheRemuneration Committee,theParent’s Board ofDirectors resolved Terna S.p.A.stock optionplans Includes thenegativereserve(*) fortheeffective portionofchangesinthefairvaluecashflowhedges,whichisequal,n A -toincrease share capitalB-tocoverlossesCdistributeshareholders Key: the Parent’s Board ofDirectors approved thedistributionofaninterimdividend After receiving thereport oftheindependentauditorsasperart.2433 2009 interimdividend The itemincreased by - Retained earnings Of thetotalavailableportion, The followingtablereports theavailabilityandpossibilityofdistributioncomponentsequity: share, whichwaspaidbeginningfrom November26,2009,withan previous yearsintheBraziliancompanies( of theBraziliansubsidiariesfollowingsalebyTerna S.p.A.ofitscontrolling stakeinTerna ParticipaçõesS.A.; 2008, equaltoprofit remaining afterthedistributionof2008dividend( same dayoftheprevious calendar month; the electronic stockexchangeoperated byBorsaItalianaS.p.A.intheperiodbetween dateoftheoffer andthe noerltd 7. ,B 272.8 397.9 A,B,C A,B,C 272.8 397.9 - income-related* - equity-related € € 671.7 million 15.4 million(ofwhich € 3.2 million)ofthenegativetranslationreserve generatedinprevious yearsbytheconsolidation € 684.4 millionregards untaxedincome-related reserves. € 11.3 million)oftheresidual consolidatedprofit fortheyearendedDecember31, € € 0.9 million). 4.1 millionascomponentsofcomprehensive incomeand ex bis dividend date(coupon11)ofNovember23,2009. of theItalianCivilCode,onNovember10,2009 Dec. 31,2009 € 316.2 million); 2,501.5 1,430.4 € 140.1 million,equalto Possibility Available et oftaxeffects, to fueportion of use € 11.3 millionas € € 61.3 million. 0.07 per 243 Notes to the consolidated financial statements - Terna Group 244 Consolidated financial statements 2009 .if theexercise conditionsare met,individualbeneficiariescanexercise, theiroptionsbyMarch3. 31,2010uptothe • historicvolatilityoftheshares recorded atthegrantdate(source: Bloomberg) of14.860%. • yieldcurveforthecalculationofdiscountfactoratgrantdate(source: Reuters); • strikepriceof • closingprice(underlyingorspotprice)oftheshares atthe grant date(source: Bloomberg) of The pricingparametersappliedare thefollowing: of theshares, theyieldcurveatgrantdateconsistent withthedurationofplan. The pricingmethodusedistheCox-Rubinstein,whichconsiderspriceofTerna shares atthegrantdate,volatility were exercisable attheendofyear(9,083,200options).Duringyear, nooptionswere takenupandnooptionslapsed. At December31,2009,alltheoptionsgrantedunderplanwere outstandingand,asthevestingperiodwascomplete, the financialstatementsatDecember31,2006. to 17managersoftheParent. TheBoard ofDirectors verifiedthattheconditionsforexercise were metwhenitapproved The 2006stockoptionplanentailedthegranting,onDecember21,2005,of9,992,000optionswithastrikeprice in theperiodbetweendatescheduledforapproval ofthehalf-yearreport bytheBoard• ofDirectors andthesame in theperiodbetweendatescheduledforapproval• ofthefinancialstatementsbyBoard ofDirectors andthe • intheperiodbetweenthird-to-last tradingdayandthe last tradingdaybefore the cannot inanycasebeexercised inthefollowingdays: Options canbeexercised onlyonastockexchangetradingdayduringthelast10daysofeachmonth.However, options stock optionplanbythree yearsuntilMarch 31,2013,andtoamendart.5ofthebylaws. On April22,2009,theExtraordinary shareholders’ meetingvotedtoextendthetimelimitforexercising theoptionsunder day oftheprevious month. same dayoftheprevious month; b) the 2006performanceofeachbeneficiarymustbepositivelyassessedbyCEO,withaprovision fora50% Terna EBITDAfor thegrantyear(2006)mustbegreater thanthatestablishedinthebudgetapproved bytheBoard of a) following maximumquantities: achieving twoperformanceparameters.Inparticular: • up to100%ofvestedoptions,beginningfrom thefirstdayofsecondcalendaryearsubsequenttoin • up to60%ofvestedoptions,beginningfrom thefirstdayofcalendaryearsubsequenttothatinwhich up to30%ofvestedoptions,beginningfrom thedatespecifiedinnotice announcingthattheexercise• conditions Directors; reduction intheoptionsthatindividualbeneficiarycanexercise, shouldthissecondconditionnotbemet; which thenoticeannouncingthatexercise conditionshavebeenmetisissued. notice announcingthattheexercise conditionshavebeenmetisissued; have beenmet; € 2.072; ex dividend date; € 2.058; € 2.072 In millionsofeuros hr-emlas00102-160.2 160.2 -34.4 40.0 0.0 -0.9 34.4 0.0 15.1 16.8 0.9 0.0 40.0 44.6 15.9 65.8 -139.5 0.0 243.9 611.7 239.2 59.7 -59.5 66.7 82.6 3,955.3 2,031.8 99.7 1,615.2 -308.3 82.6 Total 4,199.2 2,643.5 1,555.7 Short-term loansandcurrent portionofmedium/long-termloans 308.3 Total Current portionoflong-termloans Short-term loans 0.0 Discontinued operations Total Current portionoflong-termloans Short-term loans Continuing operations Non-current financialliabilities Other liabilities CFH derivatives Continuing operations Long-term loans Bank loansofdiscontinuedoperations Total Bank loans Bonds Continuing operations originally bearingfloatingrates, thedecrease of Net ofthereclassification ofthe valueattributabletotheBraziliancompaniesatDecember 31,2008,inrespect ofdebt the Parent in2009theform ofaprivateplacement, and • bondmaturing2019,priceatDecember31,2009:103.56. • bondmaturing2023,priceatDecember23,2009:102.60 andpriceatDecember31,2008:91.12; • bondmaturing2014,priceatDecember31,2009:104.34 andpriceatDecember31,2008:100.68; • bondmaturing2024,priceatDecember31,2009:102.29 andpriceatDecember31,2008:105.09; Exchange, asdetailedbelow: The fairvalueofthebondsiscalculatedonbasisofficial pricesofthebondsregistered ontheLuxembourg Stock in thefairvalueofderivativesrecognised underfinancialassetsintheamountof € change associatedwithhedgingofinterest rateriskincludes- Consequently, compared withatotal carryingamountof (Source: Reuters) Of thetotalincrease inthevalueofbonds( Gross debt,excludingthe2008debtofBraziliansubsidiaries, increased by 31, 2009. The followingtabledetailsloansandfinancialliabilitiesrecognised intheconsolidatedfinancialstatementsatDecember 26. Loansandfinancialliabilities fair valueamountedto 7.2 millioninrespect ofthe2014-2024bondsand € 4.5 millionthecapitalisationofinflationforperiodnet oftheamortisedcosteffect ( € 2,600.3 million( € 1,918.4 millionatDecember31, 2008). € 611.7 million), € 4.4 millionismainlyattributable to: € € 0.5 millioninrespect oftheprivateplacement,offset bytheincrease 7.2 millionregards thechangeinfairvalueofhedgedexposure € 2,643.5 million( € 600.0 millionisattributabletothenewissuecarriedoutby € 0.5 millioninrespect oftheinflation-linkedbondissue, Dec. 31,2009 € 2,031.8 millionatDecember 31, 2008),the ,8. ,6. 120.3 4,261.2 4,381.5 552.2 3,647.0 4,199.2 € 974. 55.1 44.6 99.7 € 623.2 millionto . 9. -194.6 194.6 0.0 7.7 million. e.3,20 Change Dec. 31,2008 € € 1.2 milliongross). The 4,381.5 million. 245 Notes to the consolidated financial statements - Terna Group 246 Consolidated financial statements 2009 oa laigrt 2025 ,1. 97 1557 5. 5. 294 92 2. 366.9 720.8 79.2 269.4 59.7 59.7 1,555.7 59.7 1,615.4 2,002.5 Total floatingrate 342.7 operations 0. 0.0 0.0 200.0 Loans -discontinued 0.0 0.0 200.0 0.0 200.0 200.0 648.5 2013 0.0 RCF 2006 0.0 0.0 0.0 648.5 0.0 648.5 251.5 648.4 19.4 2015 Club Deal 19.4 9.7 0.0 0.0 300.0 0.0 300.0 63.0 300.0 21.1 2028 EIB no.24423 21.1 21.1 21.1 21.1 168.5 21.1 189.6 4 200.0 9.1 2018 9.1 EIB no.22947 9.1 9.1 9.1 86.4 9.1 95.5 11.5 100.0 22.7 2020 EIB no.22947 22.7 22.7 22.7 22.7 125.0 22.7 147.7 170.5 0.0 2016 6.9 EIB no.21159 6.8 6.8 6.8 27.3 6.8 34.1 40.9 2014 EIB no.20271 2,014.6 0.0 628.9 0.0 0.0 0.0 2,643.5 0.0 2,643.5 2,031.8 6 0.0 Total 0.0 fixedrate 0.0 0.0 0.0 600.5 0.0 56 600.5 0.0 0.0 0.0 0.0 0.0 PP bonds2019 0.0 563.5 0.0 563.5 559.5 850.6 2023 0.0 IL bonds 628.9 0.0 0.0 0.0 1,479.5 0.0 1,479.5 1,472.3 2014-2024 Bonds In millionsofeuros oa 4043 ,5. 97 4192 5. 5. 294 0. 7082,381.5 720.8 708.1 269.4 59.7 59.7 4,199.2 59.7 4,258.9 4,034.3 Total The followingtablereports changesinlong-termdebtfortheyear: Deal loan,4.89%andthe ( interest ratefluctuations,theaverageratesare asfollows:EIBno.20271,4.93%,21159,4.96%,22947 Allowing fortheeffect offinancialderivativesaccountedfor ascashflowhedgesonfloating-rateloanshedgedagainst year was2.78%. rate securitybymeansofderivativecontractswiththesame maturity. Consequently, the averageinterest ratepaidinthe In linewithfinancialriskmanagementpolicies,thefixed-rate privateplacementwassyntheticallytransformedtoafloating paid intheyearwas0.71%. For theinflation-linkedbond,takinghedgesintoaccount, and assuminga0.22%inflationrate,theaverageinterest rate the averageinterest rateisequalto2.99%. As regards the2014-2024bonds,withanaveragecouponof4.62%,ifFVHhedgingoperationsare takenintoaccount, operations againstinterest ratefluctuations. The tableshowstheaverageinterest rateforeachtypeof financialliability. BelowwealsocommentontheGroup’s hedging including loansof The totalloansatDecember31,2009oftheTerna Group, allofwhichpertaintotheParent, amountto All otherfinancialdebtitemsare statedattheirnominalvalue alongwiththerelated repayment plan. inflation-linked bondswillberepaid atmaturity, onSeptember15,2023,withthenominalvalueadjustedtoreflect inflation. of The repayment ofthenominalamount2014, 2024,and2019bonds,equalto The originalcurrency ofeachpositionaboveistheeuro. down byloantype,includingamountsfallingduewithinoneyearandaverageinterest rateatyear-end: The followingtableshowsthecarryingamountoflong-termdebtandrepayment planatDecember31,2009,broken Long-term loans • useofcredit linesintheamountof • a one 20 2008

€ outstanding loans; 100-million € € 600.0 milliononOctober28,2014, 44.6 millionreduction inEuropean InvestmentBankloansandotherfinancingfollowingrepayments madeon tranche

€ auiyDec. 31, Maturity 4,199.2 milliondueafteroneyearand ), 5.04%,EIBno.22947( year year € 200-million RevolvingCredit Facility, 2.19%. €

40.0 million. Dec. 31, € 800.0 milliononOctober28,2024and 2009 € within after within

200-million u De 21 02 21 04 21 fe Average After 2015 2014 2013 2012 2011 Due Due € n rateatDec. one tranche 2,381.5 milliondueafterthefifthyear. ), 4.83%,EIBno.24423,4.70%,the € 600 milliononOctober3,2019;the € 2,000.0 million,willentailpayment 31, 2009 € € 05 4.88% 00.5 . 1.82% 0.0 650-million Club 4,258.9 million, . 3.06% 0.0 1.90% 0.9 2.95% 3.5 1.80% 0 interest 2.34% 1.68% 1.88% 4.62% Total financial debt 3,923.1 4,034.3 -342.7 -43.4 600.0 10.7 567.3 4,137.8 567.3 10.7 600.0 -43.4 -342.7 Total 4,034.3 3,923.1 financialdebt 1,61 -44.4 0.2 0.0 -44.6 -342.7 2,002.5 2,004.1 Total bankloans 0.0 0.0 0.0 0.0 -342.7 342.7 342.7 Bank loansofsubsidiaries -44.4 0.2 0.0 -44.6 0.0 1,659.8 1,661.4 Bank loans 611.7 10.5 600.0 1.2 0.0 2,031.8 1,919.8 Total bonds 600 0.5 600.0 0.0 0.0 0.0 0.0 Private placement 2.8 0.0 1.2 0.0 559.5 519.8 rate ILbond Listed fixed 7.2 0.0 0.0 0.0 1,472.3 1,400.0 rate bonds Listed fixed than At December31,2009,theParent retained additionalborrowing capacityofmore than will beredeemed atmaturity. Itpaysanannualcouponof4.875%. million; theissue,carriedoutaspartofEuro Medium Term Notes(EMTN)programme, hasamaturityof10yearsand Changes duringtheyearincludeissueonJuly3,2009,ofaprivatelyplacedfixed-ratebondinamount EIB financingand million totheincrease inthefairvalueofbondsasa result ofafallininterest rates, the newborrowing inthe year, settled, decreased ontheprevious yearby Current financialliabilities,whichare generatedbythefinancial expenseaccruedonfinancialinstrumentsbutnotyet Current financialliabilities Short-term loans,equalto Short-term loans The changeinotherfinancialliabilities(- date. Thechangeintheyieldcurvewithrespect toDecember 31,2008generatedanincrease of Fair valueismeasured bydiscountingestimatedfuture cashflowsonthebasisofmarketyieldcurveatreporting Non-current financialliabilitiesincludethefairvalueofcashflow hedges. The tablebelowreports theamountandchangesinnon-current financialliabilitiesontheprevious year: Non-current financialliabilities € Compared withDecember31,2008,netofthereclassification ofthedebtBraziliancompaniesin amountof operations, mainlyduetotheincrease infloating-ratedebtduringtheyear. date oftheearlyterminationrelations betweenTerna S.p.A.andLehmanBrothers. This isequaltothenetfairvalueofFVHandnon-hedge-accounting derivativesoutstandingatSeptember16,2008,the te iblte . . -0.9 16.8 0.9 65.8 0.0 82.6 Total Other liabilities CFH derivatives Type ofloan In millionsofeuros In millionsofeuros

342.7 million,long-termdebtshowsatotalnetincrease of € 729.0 millionconsistedofshort-termcredit linesand € 0.2 milliontothemeasurement ofthe ClubDealloanatamortisedcost. € 40.0 million,consistexclusivelyofdrawingsoncurrent accountcredit facilities. Nominal Dec. 31, debt at € 2008 4.5 milliontothecapitalisationofinflationforperiodinrelation totheILbond, amount at Carrying € Dec. 31, 0.9 million)refers totheextinguishmentofnetpayable toLehmanBrothers. 2008 € 7.0 millionnetofthereclassification ofamountspertainingtodiscontinued Reclassifica- discontinued liabilities of operations tion ofthe Repayments € capitalisa- € 1,550.0 millioninsyndicatedcredit lines. 567.3 million,attributableintheamountof tion and Dec. 31,2009 issues New Dec. 31,2009 Dec. 31,2008 Diff. infair 266. 15.9 66.7 82.6 value

€ € 44.6 milliontotherepayment of 2,279.0 million,ofwhichmore in carrying Difference e.3,20 Change Dec. 31,2008 amount 40 2. 563.5 521.0 4.0 72 14001,479.5 1,400.0 7.2 € 5 0. 600.5 600.0 .5 16.8 million. ,1. 1,615.4 1,616.8 25102,643.5 2,521.0 000.0 0.0 31, 2009 Nominal at Dec. € debt . 1,615.4 6.8 600 millionto 4,258.9 atDec. amount Carrying 31, 2009 € € 600 7.2 247 Notes to the consolidated financial statements - Terna Group 248 Consolidated financial statements 2009 .Ntfnnildb I N Netfinancial debt (I)+(N) O. Net noncurrent financialdebt(J)+(K)(L)(M) N. Otherfinancial liabilities M. Derivative financialinstrumentsinportfolio L. Bonds K. Non-current bankdebt J. Netcurrent financialdebt(H)-(D) I. Current financialdebt(E)+(F)(G) H. Short-termloans G. Current portionoflong-term debt F. Current bankdebt E. Cashandcashequivalents(A)+(B)(C) D. Securitiesheldfortrading C. Otherliquidity (details) B. Cashonhand A. presented here innote26. For more detailonthe compositionoftheitemsinthistable,pleaseseenotes 18and22,aswelltheinformation position oftheCompanyisasfollows: 10, 2005fortheconsistentimplementationofEuropean Commissionregulation onprospectuses, thenetfinancial Pursuant totheCONSOBCommunicationofJuly28,2006,andinconformitywithCESRRecommendationFebruary Net financialposition The followingtabledetailsdeferred liabilitiesonthebasisoffinancialtowhichtheyrelate: Bonds Derivative contracts Deferred liabilitieson: Continuing operations eerdlaiiiso on . . -1.5 1.5 -7.0 0.0 32.5 25.5 Total Deferred liabilitiesonloans Discontinued operations Total continuingoperations Loans Total In millionsofeuros In millionsofeuros e-er . . 0.0 0.0 0.1 14.6 4.5 7.0 -12.3 4.2 0.0 4.5 7.0 2.9 4.3 14.6 -9.4 - twenty-year - ten-year - privateplacement - inflationlinked - hedging Dec. 31,2009 553. -8.5 34.0 14.7 25.5 15.7 30.4 . 39-9.4 13.9 4.5 2,643.5 500.0 0.0 40.0 0.1 0.0 0.0 1,555.7 3,758.2 e.3,20 Change Dec. 31,2008 59.7 -40.6 -400.4 99.7 500.1 4,158.6 Carrying amount Dec. 31,2009

250 Consolidated financial statements 2009 In millionsofeuros oa 5. 3057-75125.1 38.1 11.4 -47.5 -28.4 -0.5 5.7 1.8 82.1 26.7 0.3 13.0 -18.5 -27.9 1.2 4.9 0.0 7.3 3.7 153.9 1.5 63.5 71.5 -0.6 4,9 11.6 -0.9 11.6 1.2 -17.3 0.2 -0.6 3.3 0.4 85.3 3.2 51.9 -0.3 0.2 0.2 0.4 Costs forliabilitiesinrespect of employee benefitsrecognised intheincomestatementbreak down asfollows: 11.2 beneficiaries (retirees). 0.1 0.2 million netofthetaxeffect) followingtheagreement 5.1 withEnelDistribuzionethatrecalculated thecorrect numberofeligible million ontheprevious year, essentially duetothereversal from theelectricitydiscountprovision ( 7.4 74.4 The item,equalto 0.0 5.1 Total Total 3.5 ASEM Electricity discount Post-employment benefits Total Indemnities inlieuandothersimilarbenefits Additional month’spay Termination benefits Termination benefits Total Loyalty bonus Employee benefits to theParent, isdetailedbelowalong withchangesintheyear: The compositionofterminationbenefitsandotheremployee-related provisions atDecember31,2009,pertainingentirely healthplancomplementingthenationalservice,asagreed a underthetermsofnationalcontractforindustrial • discountonelectricalenergy consumedfordomesticuse.Thisbenefitisoffered toallemployeeshired before June30, • Post-employment benefitsconsistofthefollowing: and juniormanagers)hired before July24,2001(additionalmonth’spayindemnity). hired orappointedbefore February28,1999(indemnityforlackofnotice),andemployees(production workers,office staff The benefitsgrantedattheterminationofemploymentare recognised forallemployees(terminationbenefits),managers 35 yearsofservice). The loyaltybonusisawarded toemployeesandmanagersoftheGroup whentheyreach certainsenioritylevels(25and termination ofemployment(electricitydiscountandtheASEMhealthplan). employment (terminationbenefits,additionalmonth’spayandindemnityforlackofnotice),intheperiodafter The Group provides benefitstoitsemployeesduringtheirperiodofemployment(loyaltybonus),atthetermination 27. Employeebenefits- the financialstatementsofTerna S.p.A. For more informationonthecontractualprovisions ofoutstandingloansatDecember31,2009, pleaseseethenotesto “G. Relatedpartytransactions”inthenotes. There are nofinancialpayablesorreceivables duefrom/to related parties;furtherdetailsare availableinthesection managers (theASEMhealthplan). 1996 (electricitydiscount); € 125.1 millionatDecember31,2009( € 125.1 million e.3,20 crasItrs otUtilisationsand Interest cost Accruals Dec. 31,2008 € 153.9 millionatDecember31,2008),decreased by other changes € 26.8 million, Dec. 31,2009 € € 28.8 19.4 In millionsofeuros Percentage figures In millionsofeuros Litigation forwhichnopotentialcharge canreasonably becalculatedare describedunder“Off-balance sheetitems”. • an accrualof an • utilisations of • the useofaprevious the accrual( • netaccrualof a • aeo nraei elhaecss30 3.0%-4.0% The provision showsanetincrease of Provision forothercontingenciesandcharges - 3.0% 2.0%-5.0% TELAT of Compared withtheprevious year, thecaptionshowsanetincrease of 2.0%-4.0% legalcounsel. to Group andexternal activities.Theamountaccruedtakesintoaccount theopinionsbothofinternal The provision isaccruedtocovertheliabilitiesatyearendthat mayarisefrom lawsuitsandout-of-courtdisputesrelating Provision fordisputesandlitigation- The itemsandchangesoftheprovisions forcontingencies andcharges atDecember31,2009are setoutbelow: 28. Provisions forcontingenciesandcharges- Rate ofincrease inhealthcare costs Rate ofincrease inpersonnelexpense Discount rate The mainassumptionsmadeintheactuarialestimateofemployeebenefitobligationsare asfollows: • a netaccrualof a • • a netaccrualof a • e.3,20 153373491. 67125.1 5.7 26.7 1.7 -26.8 1.5 -0.3 11.4 -9.1 -26.8 0.9 0.4 0.3 153.9 4.9 -1.2 0.0 0.2 -0.5 51.9 7.3 0.2 -0.2 0.0 0.4 0.2 0.0 11.6 3.3 0.0 -0.6 0.3 0.1 0.1 5.1 -0.9 0.0 7.4 0.1 -0.3 -0.1 71.5 3.5 3.2 0.0 0.0 0.0 -6.1 Dec. 31,2009 74.4 Distribuzione agreement Reversal followingEnel Payments andtransfers Interest cost gains andlosses Amortisation ofactuarial Service cost Dec. 31,2008 aac tDc 1 09 611111. 149.4 -20.6 1.5 86.9 12.2 -1.8 1.6 81.6 0.0 12.4 121.1 -18.5 85.3 0.0 54.3 16.1 Balance atDec.31,2009 -0.3 Utilisations andotherchanges 0.0 Accruals 1.5 Contribution ofnewacquisitions 14.9 Balance atDec.31,2008

already thesubjectof aredetermination pursuanttoAEEGResolution no.162/06. Electricity EqualisationFundbyResolutionno.333/07tocover supplyinterruptions; controlling stakeinTerna Participações; environmental impactoftheconstructionpowerlines; € 1.5 millionandutilisationsof €

€ 18.5 millionbytheParent inthecourseofyear. More specifically: 42.4 millionforlikelycharges inrespect ofcontractualandtaxobligations related tothedisposalof € € € 21.2 millionrelating to“Projects forurbanandenvironmental renewal”, theaimofwhichistooffset the 6.8 millionforincentiveplansmanagementpersonneland socialsecuritydisputeswithINPS; 1.4 millionforthecontributiontobepaidinProvision forExceptionalEventssetupwithinthe emnto nente nle n Adtoa Lyly SMEetiiy Total Electricity ASEM Loyalty Additional Indemnities inlieuand Termination € eeisohrsmlrbnft ot’ a ou discount bonus month’spay othersimilarbenefits benefits 7.0 million)relating togridtransmissionfeeadjustmentsreferring to2005,whichwas € 66.8 millioncompared withend2008,ascribabletoaccrualsof € € 16.1 million 0.3 millionbytheParent. rvso o ipts Poiin o te Poiinfrery Total Provision for early Provisions forother Provision fordisputes n iiaincnignisadcagsretirement incentives contingencies andcharges and litigation € 121.1 million € 149.4 million € 1.2 million,consistingofprevious accrualsby .%4.8% 4.1% 2009 € 85.3 millionand 2008 251 Notes to the consolidated financial statements - Terna Group 252 Consolidated financial statements 2009 In millionsofeuros • the contribution ofTELAT the totalling • • an increase an of • provisions of • net reversals of • attributable tothefollowingchanges: reversal the oftheaccruedportion( • Deferred taxassetsinrespect ofcontinuingoperationscame to useofprevious the provisions tocoverthedifference betweenacceleratedamortisation/depreciation andthedepreciation • • the contributionofthenewacquisition,TELAT the ( • Deferred taxliabilitiesinrespect ofcontinuingoperationstotalled of continuingoperationsafterthereclassification oftheopening balanceassociatedwithassetsheldforsale. 29. Deferred taxliabilities- of employeeswhoare eligibleforretirement. Theprovision showsnetusesof This provision reflects theestimatednon-recurring charges related tothevoluntaryearlyterminationofworkingrelations Provision forearlyretirement incentives- The finalbalanceof Changes inthiscaptionare detailedasfollows: e eerdtxlaiiis 365 -. 9. -42-95-. 363.8 62.7 22 -4.6 3.1 2 4.6 4.6 -19.5 - - -14.2 -5.791.3 316.5 Net deferred taxliabilities - -16.7 0. - 14.2 60.10.00.5 - Total deferred taxassets - - - - Other -12.7 - - 18.1 7.6 FVH derivatives-CHF - - 26.6 personnel expense -4.0 426.5 2.2 Employee benefitsandother - - 0.9 4.1 Provision forbaddebts 0.5 - 14.5 - and charges - Provisions forcontingencies 423.0 Deferred taxassets - -36.2 -0.3 - -5.791.8 376.6 - Total - deferred taxliabilities - 3.8 and financialinstruments Employee benefits -35.9 - -5.791.8 Property, 372.8 plantandequipment Deferred taxliabilities 244 ofDecember24,2007(the2008FinanceAct)recognised inprevious yearsagainstordinary economic/technical rates. changes incashflowhedgeinstruments; net provisions forotheremployeecosts( thereversalconcerning oftheelectricity discountprovision followingtheagreement withEnelServizioElectrico)and following mergers carriedoutinprevious years( charge for the yearattributabletodifference from merger eliminationsallocated to property, plantand equipment calculated usingordinary technicalrates( and intangibleassets.Theallocationcanbeconsidered final; the excesscostpaidtopurchase thecompanyfollowing completionoftheallocationsametotransmissionplant to associatedamortisationanddepreciation forthefinalnine monthsoftheyear)recognised inrespect oftheportion € € 4.6 million,attributabletothetaxeffect, whichhasno impactontheincomestatement,inrespect of € 2.2 millionintheprovision forbaddebts; 5.1 millionindeferred taxassetsinrespect ofprovisions foremployeebenefits( € 363.8 millionrepresents thenetresult ofchangesindeferred taxliabilitiesandinrespect € e.3, elsiiain Cnrbto Ipc eonsd Impact Impactrecognised Contribution Reclassification Dec. 31, € 8.7 million)fortheuseofprovision fordeferred byLaw no. IRAP liabilitiesgoverned 0.5 million. 08 f“icniud o e i rfto os recognised inprofit orloss ofnew of“Discontinued 2008 € 363.8 million € € prto” custosinequity acquisitions operation” 23.8 million),includingthereversal inrespect oftheamortisation/depreciation 2.0 million); € 12.2 million € € 91.8 million),includingdeferred taxes( 2.3 million); € 426.5 million,up € 62.7 million,anincrease of crasUtilisations Accruals € 0.2 million. € 55.6 million,essentiallydueto: . 0.3 - 3 0.0 € 70.3 million,netofthereversals € € 2.6 million,mainly 7.1 million,mainly 3.5 Dec. 31, 15.1 2009 1.5 .7 hip (*) Seethecommentsinnote“26.Loans andfinancialliabilities”. h increase, intheamountof the • h release, intheamountof the • icniudoeain . 11-11,1 12.6 -502.9 2,249.4 11,1 82.7 -1.5 -7.0 1,746.5 0.0 95.3 1.5 32.5 -1.8 44.0 0.0 25.5 1.8 0.0 -6.2 0.0 -392.4 44.0 6.2 -34.4 15.1 1,874.4 0.0 Total current liabilities 34.4 1,482.0 44.6 Total 40.0 Discontinued operations -160.2 Continuing operations 0.0 Other current liabilities 59.7 0.0 160.2 Total Discontinued operations Continuing operations 0.0 Current financialliabilities* 40.0 Total Discontinued operations Continuing operations Tax liabilities Total Discontinued operations Continuing operations Trade payables Total Discontinued operations Continuing operations Current portionoflong-termloans* Total Discontinued operations Continuing operations Short-term loans* Current liabilitiesbreak downasfollowsatDecember31,2009: 31. Current liabilities million), showedanincrease of The item( 30. Othernon-current liabilities- In millionsofeuros the ratesspecifiedbyAEEGforratepurposes. subsequent years,totalled costs intheyearofNationalTransmission Gridsafetyplan(atDecember31,2009theamounts,deferred to applicable totheplantsinvolved(atotalof € 151.6 million),netoftheothernon-current liabilitiesofdiscontinuedoperationsatDecember31,2008( € 11.1 million),essentiallyduetotheadjustmentofusefullifeintangibleassetsat € € € 1.2 milliononprevious year, attributabletothecombinedeffect ofthefollowingchanges: 5.6 million,oftheportionsplantgrantsinconnectionwithdepreciation fortheyear 6.8 million,oftheaccruedportiongridtransmissionfeeParent tocoverthe € 140.5 millionatDecember31,2009); € 151.6 million Dec. 31,2009 ,8. ,8. -398.6 1,880.6 1,482.0 539. 1.5 93.8 -8.5 95.3 34.0 42.2 25.5 1.8 44.0 -19.3 79.0 -120.2 59.7 160.2 40.0 e.3,20 Change Dec. 31,2008 € 257.2 253 Notes to the consolidated financial statements - Terna Group 254 Consolidated financial statements 2009 operating activitiesfortheperiod 2010-2015. Group commitmentswithsuppliers totalledabout increase inservicesdelivered inthe finalpartoftheyear. of electricitytechnologyandscientificprogress. Theincrease ( and managementoflaboratoriesplantsfortests,inspections, studiesandexperimentalresearch inthegeneralfield This captionamountsto Payables toassociates the Parent ( services inrespect ofincreased capitalexpenditure inthelastquarterof2009compared withthesameperiodof2008by The increase onprevious yearintheliabilitiesofcontinuingoperations ( purchase ofmaterialsandequipment. Amounts duetosuppliersrefer toinvoicesbothalready received andyettobereceived fortenders,servicesandthe Non-energy related payables decrease of a • The decrease of mostly topurchase ofenergy andthetransportfeeduetoownersofothersectionsNationalTransmission Grid. This captionreports theeffects onthestatementoffinancialpositionpayablesfor“pass-through” costs, and refers Energy-related payables Suppliers Trade payablesatDecember31,2009consistofthefollowing: Trade payables- • the reduction the inthebalance( • adecrease of • o-nryrltdpybe . . -6.2 -398.6 2.5 1,880.6 6.2 -0.5 1,482.0 5.5 0.0 0.9 8.0 0.4 Total tradepayables Non-energy related payables Discontinued operations Total Payables forcontractworkinprogress Payables toassociates Suppliers Continuing operations In millionsofeuros ( (as describedaboveinthesectionontradereceivables) inreceivables from thesaleofelectricityonPowerExchange € capacity payments( guarantee ( The declineisattributabletothefullsettlementofpayablesinrespect ofcongestionfeesandtheinterconnection border interconnections (AEEGResolutionno.288/06asupdated); • • • • € 22.2 million. million); critical conditionsinthenationalelectricalsystem,reducing payables by invoicing ofadjustmentsenvisagedunderAEEGResolutionno.34/09compared withtheprevious year( the impactofgeneraleconomicconditions,whichcausedadeclineinvolumesandpricesunbalancingearly the non-renewal ofcontractsforforward resources ( a reduction inpayablesforresources acquired ontheASMthankstomore efficient managementofforecasts ( the effects ofAEEGResolutionno.203/08,whichreduced Terna’s recourse tosupplementary offers toexceptionally 615.2 million).Thedecrease isascribableto: o-nryrltdpybe 7. 1. 59.2 -453.6 313.7 1,554.3 372.9 1,100.7 - Non-energyrelatedpayables - Energy-relatedpayables € € 49.8 million)andnewcapitalexpenditure byTELAT ( 23.8 millionand € € € 395.2 millioninpayablesforthepurchase ofenergy onthePowerExchange,partlyoffset byadecrease 27.2 millioninpayablesfortheassignmentofrightsutilisationtransmissioncapacityoncross- € 453.6 millioncompared with2008isessentiallyattributable to: 1,482.0 million € 42.9 million),alsoconsideringtheincrease inpayables forUESS(essentialgenerationunits)of € 8.0 millionandrelates topayablesCESIforservicesprovided to theParent intheconstruction € € 34.9 millionatDecember31,2008,respectively) andthe partialreduction ofpayablesfor 79.4 million)ofpayablesawaitingdefinitionbytheAEEGrecognised inprevious years. € 2,001.7 millionandrefer topurchase commitments relating tonormal € 127.0 million); € 2.5 million)compared withend-2008istheresult of an € 8.6 million). € 59.2 million)isessentiallyduetopurchases and Dec. 31,2009 € ,8. ,7. -392.4 1,874.4 1,482.0 39.4 million; e.3,20 Change Dec. 31,2008 € 64.5 million); € 125.3 In millionsofeuros In millionsofeuros assets were offset bynewpaymentsonaccountreceived from third parties. The balanceisbroadly inlinewiththeprevious year, asgrantsdeducteddirectly from thecarrying amount oftherelated for TELAT) forinvestmentspendingatDecember31,2009. the Parent reported ataxcredit, aspaymentsonaccountexceededthetaxliabilityrecognised attheendofyear. In theprevious year, theitem,netofreclassification oftheincometaxliabilitiesBraziliancompanies,wasnils 31, 2008.Itiscomposedasfollows: fund fortheelectricityindustry), equalto December; theitemalsoreports thepayableinrespect oftheFondoPrevidenza Elettrici(FPE,a complementarypension This caption,whichregards theParent only, cameto Amounts payabletosocialsecurityinstitutions was recognised for2009,compared withtheVAT payablerecognised atDecember31,2008by the Parent ( For continuingoperations,theitemdecreased by Other taxliabilities,equalto Other taxliabilities The item( -0.9 Payments onaccount -0.9 0.8 0.8 -1.7 -1.7 -0.4 -0.4 2.6 2.6 -3.0 -3.0 Other current liabilitiesare detailedbelow: Other current liabilities- TELAT intheamountof • Parent the intheamountof • The captionrefers totheGroup’s taxpayablesforthefinancialyearandrefers to: Tax liabilities- Total Other This captionamountedto Payables forcontractworkinprogress in respect ofdiscontinued operations)andmainlyconsistsoftheParent’s payables( oa 537. 169. 1.5 93.8 -5.9 21.6 -4.4 12.6 5.9 73.7 4.4 82.7 - -11.1 95.3 -0.8 - - -7.8 21.6 11.1 - 4.2 0.1 0.8 14.9 11.1 73.7 - 14.1 9.9 - - - 25.2 95.3 - 5.0 15.1 6.5 - - 7.1 3.2 18.6 3.5 36.3 7.1 - - 18.3 Total 10.0 36.3 Total Other payablestothird 23.6 parties Amounts payabletosocialsecurityinstitutions Other taxliabilities 23.6 Discontinued operations Total Other payablestothird parties Amounts payabletoemployees Amounts payabletosocialsecurityinstitutions Other taxliabilities Payments onaccount Continuing operations € 10.0 million)reports grantsrelated toplantreceived bytheGroup ( € 44.0 million € € € 23.2 million. € 0.4 millionatDecember31,2009andwassubstantiallyinlinewiththebalance 95.3 million 7.1 million,essentiallyregard payablesforwithholding taxesretained bytheParent. € 20.8 million; € 5.2 million. nacutvalue on account € amnsContract Payments 7.8 millioncompared withtheprevious year, mainlybecauseaVAT credit € Dec. 31,2009 23.6 million( € 18.6 millionatDecember31,2008,excludingamounts u ihn u fe e.3,20 Change Dec.31,2008 Dueafter Due within n eroneyear one year Dec. 31,2009 Balance at € 9.1 millionfortheParent and nacutvleD value on account amnsCnrc Balanceat Contract Payments € 18.4 million)duetoINPSfor € 8.7 million). € 0.9 million ec. 31,2008 ince 255 Notes to the consolidated financial statements - Terna Group 256 Consolidated financial statements 2009 E. Commitmentsandcontingenciesarisingfrom off-balance outcome isconsidered remote. The abovelitigationhasbeen examined,alsoconsideringtheopinionofindependent legalcounsel,andanynegative In anycase,unfavourable outcomewouldnotjeopardise lineoperations. in additiontotheaward ofdamages, include, In alimitednumberofcasesthe possibilityofanadverseoutcomecannotberuledout.The possibleconsequencescould, Parent, whichcannotbeforeseen todate.Accordingly, noaccrualstoprovisions have beenmadeinthisrespect. and operationofcertaintransmissionlines.Anyunfavourable outcometothesecasescouldhaveadverseeffects forthe In addition,anumberofcasesrelating tourbanplanningandenvironmental issuesare pendinginrespect oftheconstruction Other litigation legalcounselrepresentingthe external theParent inthecasesinvolved. for Terna, asthemattersregard pass-through itemsfortheParent, apositionsupportedbytheinformationprovided by although anumberofcaseshaveseenthevoidanceAEEG resolutions, itisfeltthere islittleriskofadverseoutcomes violated therulesestablishedbysuchAuthoritiesisParent calledtoappearincourt.Withinthescopeof this litigation concession. Onlyinthosecaseswhichtheplaintiffs notonlyclaimdefectsinthemeasures, butalsoallegethatTerna involved inanumberofcasesappealingAEEG,MAPand/orTerna measures relating toactivitiesoperatedunderthe As itholdstheconcessionfortransmissionanddispatchingactivitiessinceNovember1,2005,Parent hasbeen concessionactivities Litigation concerning appeals are stillpending,althoughadverserulingsare considered unlikely. Only inafewcaseshaveadversejudgementsbeenissuedagainstthecompanies.Theseappealedand the electromagnetic fields. applicable legislation.Onlyaverysmallnumberofcasesincludeclaimsfordamagesharmtohealthdue to made forthetransferorchangeinoperationsofallegedlyharmfulpowerlines,evenifinstalledfullcompliance with The Parent andthesubsidiaryTELAT are involvedinvariouscivilandadministrativesuitswhichrequests havebeen and magneticfields. Environmental litigationrelates totheinstallationandoperationofelectricalsystems,inparticulareffects ofelectric Environmental litigation sheet items. reported below. Atthesamedate,othersubsidiarieshadnocommitmentsandcontingenciesinrespect ofoff-balance The mainoff-balance sheetcommitmentsandcontingenciesofTerna S.p.A.andTELAT S.r.l. atDecember31,2009are Other payables,equalto Other payables terminationbenefitsduetoemployeeswhoseemploymentwasterminatedbefore December31,2009( • payments duetoemployeesforunusedholidaytimeandabolishedpublicholidays( • accruals madeforstaff incentivestobepaidthefollowingyear( • operations), pertaintotheParent andmainlyregard: Amounts payabletoemployees,whichcame Amounts payabletoemployees use inthefinalpartofyearsecuritydepositsratherthanbanksureties. obligations inrespect ofdispatchingcontracts.Thesedepositsrose by Parent andmainlyregard securitydeposits( sheetitems € 18.3 million( € 14.1 millionatDecember31,2008forcontinuingoperations),pertaintothe inter alia € 15.2 million)received from electricitymarketoperatorssecuringtheir € 36.3 million( , thecostsofmodifyinglines and suspendingtheirusetemporarily. € € 19.0 million); 25.2 millionatDecember31,2008forcontinuing € 4.8 million,mainlyduetooperators’increased € 8.5 million); € 3.2 million). , F. Businesscombinations and grantingofraterevenue forthebusinessunit toTELAT (AEEGResolutionno.31/09). approval oftheantitrustauthority, inclusionofthecompany’shigh-voltagelinesinNTGbycompetentauthorities theeffectivenessThe transactionwasfinalisedfollowingfulfilmentoftheconditionsgoverning ofthecontract,namely: The acquisitionexpandedthelengthofTerna’s networkbyatotalof43%anditsRegulatoryAssetBase (RAB)by18%. to thetransaction( The overallcostoftheacquisitiontherefore amountsto the ratedifferential. of thesaleagreement, EnelDistribuzionepaidTerna the determinationbyAEEGofremuneration oftheportionNTGinvolved,whichoccurred followingthesigning million basedontheincrease intheequityofTELAT inrespect ofprofit forthefirstquarterof2009.Inaddition,following The priceforthecompany, equalto Alta Tensione S.r.l. (or“TELAT S.r.l.”). the shareholders ofELAT, meetinginextraordinary session,alsoapproved achangeinthecompany’snametoTerna Linee unit tothiscompanycomprising18,583kilometres ofhigh-voltagelinesandrelated legalrelationships. Onthesamedate, share capitalofEnelLineeAltaTensione S.r.l. (ELAT) toTerna, aftertransferring(effective asofJanuary1,2009)abusine On April1,2009,inimplementationoftheagreement signedonDecember19,2008,EnelDistribuzionesoldtheentire TELAT acquisition e dniibeast n iblte 5. 1,056.1 - 855.9 42.1 1.5 61.6 1.5 61.6 Consideration 1,101.4 Goodwill from acquisition Net identifiableassetsandliabilities 877.2 Total liabilities 6. Othercurrent liabilities 4. Tax liabilities 3. Trade payables Current liabilities 6. Othernon-current liabilities 4. Deferred taxliabilities 3. Provision forcontingenciesandcharges Non-current liabilities Total assets 4. Cashandcashequivalents 3. Current financialassets 2. Trade receivables 1. Inventories Current assets 4. Deferred tax assets 3. Intangibleassets 1. Property, plantandequipment Non-current assets In millionsofeuros € 4.4 million). € 1,152 million,waspaidinfullatclosingbutadjustedtheamountof € 11 million,determinedonalump-sumbasis,ascompensationfor € 1,157.7 million,includingincidentalexpensesdirectly attributable FScryn mutbfr Fairvalue IFRS carryingamountbefore the businesscombination 1,157.7 942.9 1,173.4 878.8 1,109.3 87.2 117.5 10.4 23.4 20.1 92.5 63.7 94.0 64.1 6.0 7.1 1.1 1.1 0.3 1.6 6.3 - € 101.6 12.3 ss 257 Notes to the consolidated financial statements - Terna Group

260 Consolidated financial statements 2009 G. Relatedpartytransactions already includedinthevalueofassets,goodwillfrom thebusinesscombinationamountsto Accordingly, consideringthatthevalueofdeferred incomeinrespect ofgrants(allocatedtoothercurrent liabilities)is Deferred taxliabilitiesintheamountof • assetsintheamountof Intangible • Property, plantandequipmentintheamountof • led totherecognition ofthefollowingamounts: the acquisitiondatewascompleted.Thedeterminationoffairvaluesassetsacquired andliabilitiesassumed During theyearallocationofexcesscostpaidwithrespect tothefairvalueofassetsandliabilitiesTELAT at contribution toconsolidatedprofit for2009was December 31,2009. and liabilitieswithrelated parties,aswelltherelevant revenue andcostsfortheyearreceivables andpayablesat were settledonanarm’slengthbasis.Thefollowing tablesetsoutthenature oftheTerna Group’s transactions,assets Transactions withrelated partiesduringtheyearessentiallyregarded servicesrendered aspartofordinary operationsthat and ANASS.p.A. • theFerrovie delloStatoGroup; • theEniGroup; • theEnelGroup; • theGSEGroup; funds (FondenelandFopen),CassaDepositiePrestiti, aswell ascompaniesbelongingto: Cassa DepositiePrestiti firstascertainedin2007,regarded theassociatecompanyCESIS.p.A.,employeepension The Terna Group’s transactionswithrelated parties,takingaccountofthe policies, amountedto,respectively, The revenue andtheprofit fortheyearofTELAT in2009,calculatedaccordance withtheTerna Group’s accounting € 6.3 million; € 129.6 millionand € 72.4 million. € € 53.0 million. 224.2 million; € 43.9 million.Measured from thedateofacquisition, de facto control exercised overtheParent by € 101.6 million. Related party Fondenel andFopen Anas S.p.A. Ferrovie Group ENI Group Enel Group GSE Group CESI S.p.A. e Prestiti S.p.A. Cassa Depositi sesLiabilities Assets Line moving,connectiongrants Non-energy related items Line moving,connectiongrants Non-energy related items National Transmission Gridremuneration Energy-related items Line maintenance Non-energy related items of transmissioncosts,remuneration ofgrid for interconnection, coverage rights foruseoftransportcapacity Rights ofwithdrawal,energysales, Energy-related items Leases andrents, linemaintenance Non-energy related items of transportcapacityforinterconnection of transmissioncosts,rightsuse rights ofwithdrawal,coverage and meteringaggregation, energysales, Remuneration ofNationalTransmission Grid Energy-related items IT services Specialist services(remote console),leases, Non-energy related items capacity forinterconnection of withdrawal,rightsusetransport component, energysalerights Remuneration ofthegridandMIS Energy-related items similar structures forspecificuse Lease oflaboratoriesandother Non-energy related items Subscription ofbonds Non-energy related items institutions byTerna Group Amounts payabletosocialsecurity Non-energy related items Right ofwayfees Non-energy related items National Transmission Gridremuneration Energy-related items Grid remuneration management costs,NationalTransmission Energy purchase, coverageofjoint Energy-related items protection systems services forconnectiontoTerna control and of MVpowertonewstations,specialized Restitution ofelectricpowerdiscount,supply Non-energy related items of congestioncosts,rent for interconnection, coverage rights ofusetransportcapacity Metering aggregation, energypurchases, Energy-related items of thetransportcapacityforinterconnection Purchase ofenergy, rightsofuse Energy-related items and research, projects andexperimentation Technical consultancy, studies Non-energy related items Fees onloanstobedisbursed Non-energy related items 261 Notes to the consolidated financial statements - Terna Group 262 Consolidated financial statements 2009 oa eso ud - - 2.2 - - - 0.1 13.5 - 2,340.5 15.4 - 109.9 4.7 15.5 1,030.22,585.8 8.7 - - - 643.2 6.9 1,582.7 8.8 - - 0.2 8.5 0.1 - 2,340.5 11.6 15.4 105.1 0.5 32.5 - 7.4 12.4 1,105.1 0.7 1,343.1 996.1 26.0 2,585.8 Total 1,030.2 Total pensionfunds Fopen Fondenel - - 3.1 - - Pension funds 1.2 - - 1.3 - - - Total otherrelated parties 1.3 ANAS S.p.A. Ferrovie Group Eni Group Enel Group GSE Group Other related parties Total CESI Associates associates Total S.p.A. CDP De facto opn feadohr tm tm e n te iesitems items feeandother items items feeandother In millionsofeuros Company de facto controlling company controlling - - 3.1 - 1.2 company nryiesenergyitems energy items rnmsineeg eae rnmsinenergy related transmission energy related transmission rdPs-hog Nneeg- rd astruh Non-energy- Pass-through Grid Non-energy- Grid Pass-through Revenue Income statement Expenses 1.7 0.5 In millionsofeuros Company S ru 06 - - 0.6 - GSE Group Other related parties Associates De facto D . . - -0.51.1 CDP nlGop 85 1. 3. 436.0 2.9 31.3 8.0 118.2 18.5 - - -1.00.8 11.8 -0.30.5 24.4 -2.22.0 22.0 ANAS Ferrovie Eni Enel Group S.p.A. Group Group CESI S.p.A. oa eso ud - . - 1.4 45.1 485.3 30.3122.8 - - - 1.4 - 482.4 - - - 2.9 - 34.6 8.0 122.3 - 18.5 Total 11.8 Total pensionfunds Fopen Fondenel Pension funds Total otherrelated parties Total associates Total (*) Guaranteesregard sureties received onsupplycontracts. de facto controlling company otoln opn -0511 - -0.51.1 controlling company and equipment Property, plant Capitalised costs Statement offinancialposition Receivables and other assets other liabilities Payables and Guarantees* 263 Notes to the consolidated financial statements - Terna Group 264 Consolidated financial statements 2009 I. Notestothestatementofcashflows H. Significantnon-recurring eventsandoperations, sold aswelltheoverallimpactonnetfinancialpositionofTerna Group from thedisposalofBrazilianassets. As regards discontinuedoperations,thefollowingtablereports thenetvalueatdisposaldateofassetandliabilities million) andtheinvestmentinlastquarterofyear to thepaymentofbalance2008dividend( The changein overall changeindebtandtheuseofcashequivalents( million intheyear, part of which( Consequently, thefinancialresources required forinvestingactivities andtheremuneration ofequityamountedto addition, followingthedisposalofBrazilianoperations,minorityinterests inequitywere eliminated( assets andgoodwill( Also materialwasthevalueatDecember31,2008,ofproperty, plantandequipment( • intangibleassets • goodwill • property, plantandequipment and equipmentintangibleassets(takingaccountoftheprovisional allocationoftheexcesscost)wasasfollows: activities were substantiallyaffected bytheacquisitionofstakeinTELAT. Inparticular, the valueoftheproperty, plan ftecssicre oetbihteTnsa opn LE TDS( of thecostsincurred toestablishtheTunisian companyELMEDÉTUDES from A2AS.p.A.andSiemens(1.871%4.68%respectively) andtherecognition ofthejointventure inrespect in intangibleassets.Alsomakinganimpactwastheacquisitionofadditionalstake( property, plantandequipment( Investing activities generated bythemanagementofnetworkingcapital. around The cashflowgeneratedfrom with related parties. No significant,non-recurring, atypicalorunusualtransactionswere carriedoutduring2009, eitherwiththird partiesor atypical orunusualtransactions € 1,510.2 millionincashfrom operatingactivities(self-financing)andaround € 101.6 million; cash flows € used netfinancialresources ofaround € 6.3 million. 227.4 million)oftheBrazilianassetsdiscontinuedwithsaleholdinginTerna Participações. for financingactivitiesinrespect ofequityshowsadecrease of continuing operations € € 859.8 millionnetofplantgrantstotalling € 1,101.4 million; 1,279.3 million)wascovered bycashflowsgenerated from operatingactivities.The € 197.7 million)andtheinterimdividendfor2009( in theyearamountedtoaround short-term securities € 1,242.5 million,andincluded € 884.2 million)covered thecashrequirement ( € € 0.7 million).Cashflowsinrespect ofinvesting 14.9 million),and issued byUBSandMPS( € € € 230.9 millioninfinancialresources 421.0 million,essentiallyattributable 2.0 million)intheassociatedCESI € € 620.2 million)andtheintangible € 1,279.3 million,whichreflects 844.9 millionofinvestmentin € 40.6 millionofinvestment € 86.9 million). € 140.1 million);in € 500 million). € 1,663.5 € 384.2 t L. Subsequentevents EFFECT OFDISPOSALONTHEGROUP'SNETFINANCIALPOSITION feto ipslo h ru’ e iaca oiin1,265.9 -384.1 Effect ofdisposalontheGroup’s netfinancialposition Deconsolidation ofnetdebt: Price received netofhedgesandtaxes Total net(assets)andliabilitiesofdiscontinuedoperations Net financialdebt Payables andothercurrent liabilities Other non-current liabilities Deferred taxliabilities Receivables andothercurrent assets Other non-current assets Equity-accounted investees Deferred taxassets Intangible assets Goodwill Property, plantandequipment Net (assets)andliabilitiesofdiscontinuedoperations In millionsofeuros Directors ofSunTergrid approved acapitalcontributionof by independentexperts.Inorder togiveRTR theresources necessarytostartoperations,onthesamedateBoard of The salepriceisconsistentwiththemarketvalueoftransferred operations,asdeterminedbyanappraisalconducted The transfertookeffect asfrom February1,2010.Thetotalamountpaidcameto related tothoseplants. sale, aswellalltheassets,andcontractualdesign,construction,operation,developmentmaintenancerelationships way, approved thesaletosubsidiaryRTR ofSunTergrid’s plantsforrenewables generationforownconsumptionof On Italy-Montenegro agreement intergovernmental On Terna andthe2010photovoltaicproject As from April6,2009, Prenos shares havebeenlistedonthe localstockexchange. energy companyinMontenegro), holdsthree licenses:transmissionoperator, systemoperatorandmarketoperator. Prenos, whichwasestablished onApril1,2009inaspin-off from Elektroprivreda Gore Crne –EPCG (theleadingpublic Terna willhavearightofvetoon strategicdecisions. recapitalisation, thedesignation oftwothesevenboard membersbyTerna arrangementsinwhich and governance power grid.Inparticular, thepartnershipprovides forTerna totakeastake ofatleast22%inPrenos bywayofarestricted partnership betweentheirrespective nationaltransmissionoperators,Terna andPrenos, forinvestmentinMontenegro’s the constructionofanewunderwaterelectricityinterconnection lineandtheimplementationofastrong strategic February 6,2010 January 29,2010 ahadcs qiaet -49.3 -0.9 388.2 215.4 Cash andcashequivalents Short-term financing(formerTerna-Terna Participaçõesintercompanyloan) Medium/long-term loantoBrasnorte Loans andotherfinancingreceived Italy andMontenegro formalisedanintergovernmental agreement committingthetwocountriesto the Board ofDirectors ofSunTergrid, withaviewtoimplementingthephotovoltaicproject under € 5.0 milliontothesubsidiary. € 3.2 million. -200.4 -140.1 -146.2 -792.8 553.4 712.5 553.4 388.1 -52.5 -50.8 47.0 11.3 -1.1 265 Notes to the consolidated financial statements - Terna Group 266 Consolidated financial statements 2009 In millionsofeuros of theCONSOBIssuersRegulation Information provided pursuant toart.149 the annualsix-monthEuriborplusaspread of40basis points. and isrepayable inhalf-yearlyinstalmentsfrom thefifthyear. Thetermsare highlycompetitive, with interest accruingat The followingtable,prepared pursuanttoart.149 (“SA.PE.I.”). Thisfinancingisinadditiontothe € On March 18,2010,Terna S.p.A.signed anagreement withtheEuropean InvestmentBank(EIB)foranadditionalloanof Agreement withEIBtofinancetheSA.PE.I.project growth: sustainable inthenextfiveyearsatotalof • The 2010-2014planoftheTerna Group followsfourmainguidelines: the planbyBoard ofDirectors onthatsamedate. On 2010-2014 BusinessPlan On Renewal andexpansionofEMTNprogramme andnewbondissues Ministers onSeptember3,2009. sheet signedinJuly2009byTerna andPrenos, whichformallytookeffect withtheapproval ofMontenegro’s Councilof Montenegro’s parliamentforapproval. Inaddition,theaccord incorporatesandstrengthens themainelementsofterm the importanceofinvestmentenvironment fortheindustrialdevelopmentofcountry, willbesubmittedto The intergovernmental agreement isakeystepforthecompletionofdealbetweenTerna andPrenos and,inviewof for theauditandnon-auditservicesprovided totheTerna Group bythe same auditingfirm. confirmationofdividend policy:thepolicyprovides forminimumannualgrowth of4%,taking2008asthebaseyearand • soundcapitalstructure: a duringtheperiodofplan,netdebtwillremain below60%ofregulated capitalemployed; • improved margins: increasing revenue andcontrolling costswillimprove Group profitability from thecurrent 74%to77% • maximum termof30years. EMTN programme oroutsidethatprogramme. Theissues,tobedenominatedineuros orothercurrencies, mayhavea placements ofatotal existing EMTNprogramme andtheissueinoneormore tranchesbyMarch 31,2011ofbondsinpublicorprivate ui evcsKM ...50368 235,187.62 570,336.81 147,410.34 KPMGS.p.A. KPMGS.p.A. Total Attestation services Audit services of Terna Participações(approximately half-yearly couponsinrespect oftheinterimdividendand balance.Inaddition,aportionoftheproceeds from thesale 73 milliontoconnectSardinia withtheItalianpeninsula viaahigh-voltageunderseacableatcontinuous500kW increase of include more than at theendofperiodcovered bytheplan; February 17,2010 February 18,2010 € 900 millionor26%overthelevelenvisagedinprevious plan( € 300 millionforthephotovoltaicproject, bringingtotalbudgeted expenditure tomore than , Terna presented theCompany’s2010-2014 businessplantofinancialanalysts,afterapproval of the Board ofDirectors ofTerna authorisedtherenewal andexpansionfrom € 1.5 billionreserved forqualifiedinvestorsinItalyand/orabroad eitherwithinthescopeof € 150 million)willbeallocateduntil2012tocomplementthepolicybyitself. € 300 millionagreed onMay5,2008.Thenewloan also hasa20-yearterm duodecies € 4.3 billionwillbeinvested,mainlytodevelopthepowergrid,an of theCONSOBIssuersRegulation,reports thefeesfor2009 Entity providing duodecies service € 3.4 billion).Capitalexpenditure willalso for 2009-Italy 1,4.5235,187.62 717,747.15 Amounts due € 2 to € 4 billionofthe Amounts duefor 2009 -Abroad € 4.6 billion; 267 Notes to the consolidated financial statements - Terna Group

Reports 270 Consolidated financial statements 2009 271 Reports - Terna Group

2009

Corporate Governance (traditional administration and management model)

Issuer: «Terna – Rete Elettrica Nazionale Società per Azioni» (“Terna S.p.A.”) Web site: www.terna.it Reporting period: 2009 Date of approval: March 19, 2010 276 Annual Report 2009 2009 CorporateGovernance Contents ETO VI SECTION V SECTION IV SECTION III SECTION II SECTION I SECTION Foreword aaeetadCodnto 286 Management andCoordination take-over bid(pursuanttoart.123 Indemnities forDirectors incaseofresignation, discharge orcessationof relation followingapublic fteCnoiae a nFnne 282 281 (pursuant toart.123 Appointment andsubstitutionofDirectors andbylawsamendments of theConsolidatedLawonFinance) Restrictions totherightvote(pursuantart.123 (pursuant toart.123 Restrictions inshare transferandshares grantingspecialpowers of theConsolidatedLawonFinance) Lead IndependentDirector Independent Directors Composition Change ofcontrol clauses(pursuanttoart.123 (pursuant toart.123 Employees’ shareholding: systemtoexpress therighttovote (pursuant toart.123 Powers toincrease share capitalandauthorisationforthepurchase oftreasury shares (pursuant toart.123 Significant investmentsinshare capitalandshareholders agreements (pursuant toart.123 Share capitalstructure (pursuant toart.123 Company organisation Issuer’s profile oeo h or fDrcos290 292 Delegated bodiesandotherExecutiveDirectors Role oftheBoard ofDirectors aaeeto ofdnilifrain293 Committees Board Internal Management ofconfidential information Board ofDirectors Compliance 278 Information onshareholding structure Issuer’s Profile -CorporateStructure ponmn,rqieet n emo fieo ietr 283 - Bylawsamendments - Appointment,requirements andtermofoffice ofDirectors or fDrcosmeig 291 291 289 - CEOs - AssessmentoftheBoard ofDirectors activity - Board ofDirectors meetings - Maximumnumberofpositionsinothercompanies - SocialResponsibility - Mission bis bis bis bis bis bis bis aarp ,lte )o h osldtdLwo iac)283 , paragraph1,letterI)oftheConsolidatedLawonFinance) 281 , paragraph1,lettersb)andd),oftheConsolidatedLawonFinance) aarp ,lte )o h osldtdLwo iac)281 280 280 , paragraph1,lettere)oftheConsolidatedLawonFinance) 280 , paragraph1,letterm),oftheConsolidatedLawonFinance) , paragraph1,lettersc)andg),oftheConsolidatedLawonFinance) , paragraph1,lettera),oftheConsolidatedLawonFinance) aarp fteCnoiae a nFnne 280 , paragraph1oftheConsolidatedLawonFinance) bis aarp ,lte )o h osldtdLwo iac)286 , paragraph1,letteri)oftheConsolidatedLawonFinance) bis , paragraph1,letterh), bis , paragraph1,letterf) 278 284 293 292 292 287 279 278 278 278 295 287 286 ATTACHMENTS Glossary Attachment 1 Table 2 Table 1 TABLES XVI SECTION XV SECTION XIV SECTION XIII SECTION XII SECTION SECTION XI X SECTION IX SECTION VIII SECTION VII SECTION fteCnoiae a nFnne 314 311 310 305 304 of theConsolidatedLawonFinance) with regard tothefinancial informativenote(pursuanttoart.123 controlPrincipal characteristicsofexistingriskmanagementandinternal systems Composition oftheBoard ofStatutoryAuditors 298 Composition ofTerna’s Board ofDirectors andoftheCommittees 301 296 298 Composition oftheBoard ofStatutoryAuditors 295 Appointment andrequirements ofAuditors 299 Executive inCharge ofthepreparation ofaccountingdocuments Audit Company Code ofEthicsandOrganisational ModelunderLegislativeDecree no.231/2001 Executive inCharge Control forInternal Executive Director inCharge Control oftheInternal System ControlFunctions oftheInternal Committee Functions oftheRemunerationCommittee ietr’itrssadrltdprytascin 304 296 Shareholders’ meetings Investor Relations Auditors Auditors appointment Directors’ interests andrelated partytransactions Control System Internal Control Committee Internal Remuneration ofDirectors Remuneration Committee Appointment Committee oeo tisadOgnstoa oe ne eiltv eren.2120 299 - CodeofEthicsandOrganisational ModelunderLegislativeDecree no.231/2001 bis , paragraph2,letterb) 300 318 308 307 305 304 297 296 295 295 277 Corporate Governance 278 Annual Report 2009 2009 Corporate Governance 2009 CorporateGovernance lines andstationstheirinteraction withthelandscapeandbiodiversityare indeedcrucial forTerna’s activities.Thatis From thepointofviewsustainability, respect for theenvironment isparticularlyimportant.Thephysicalpresence of responsibility fortheelectricityservice totheotherones. economic, environmental and socialareas. Consideringitsrole intheelectricity system,Terna hasaddedthespecific Taking onsustainability asaguidingfeature, Terna hasdefineditsresponsibilities andestablisheditsobjectivesinthe Terna’s mainCorporateSocialResponsibility (CSR)aspectsare provided bytheCode ofEthicsandbyCompany’smission. a sustainabilityapproach forcreating, maintainingandconsolidating arelationship ofmutualtrustwithitsstakeholders. Terna managesallitsactivitiesfocusingontheirpossibleeconomic, socialandenvironmental consequencesandhas identified Social Responsibility environment inwhichitoperates.” a strong commitmenttoprofessional bestpracticesandwitha responsible approach tothecommunity, respecting the experience andtechnicalskillsgainedinthemanagement of complexsystems.Itcreates valuefortheshareholders with equal conditionsofaccesstoallgridusers.Itdevelops marketactivitiesandnewbusinessopportunitieswiththe It provides servicesunderconcessionagreements andensures safety, qualityand costeffectiveness overtime.Itensures “Terna ReteElettricaNazionaleis amajorelectricitytransmissiongridoperator. Mission Issuer’s profile Section I S.p.A.’s management–theinformationenvisagedinart.123 isseparatefrom that thereport onmanagementpublishedjointlywiththeannualreport onTerna – Corporate Governance Furthermore, already aspartoftheannualinformativereport regarding 2008activity, Terna provides withitsreport on the relative otherwiseappliedbytheCompany. practiceofgovernance Failure tocomplywithcertainprovisions Codeisexplainedinthesectionofreport oftheGovernance thatconcerns system withrespect totheprovisions CodeofBorsaItaliana,whichtheCompanyhasadopted. oftheGovernance Report thatsupplementstheannualfinancialstatement,informationregarding thedevelopmentofitsCorporateGovernance Since 2004,theyearCompany’sshares were listedontheItalianStockExchange,Terna provides, withanappropriate of thoseactivities. social meaningoftheGroup’s activitiesandtheresulting needtoadequatelyconsiderallstakeholdersintheperformance systemismainlybasedoncreatingpractices. ThisCorporateGovernance valueforshareholders, takingintoaccountthe Code forlistedcompanies,withCONSOBrecommendations inthisrespect and,more generally, best withinternational Therefore, system inplaceatTerna theCorporateGovernance isinlinewiththeprinciplesofCorporateGovernance the approval dateofthe2009draftfinancialstatements,asillustratedhere below. in placewithintheCompanytomeetitscommitmentsarisingthere from, thatwere implementedduring2009andupto March Code)andasof2007hasapproved system 2006(CorporateGovernance theupdatestoCorporateGovernance Since 2006,Terna CodeforlistedcompaniespublishedbyBorsaItalianain hasadoptedthenewCorporateGovernance Foreword as ofthedatereport’s approval. All theinformationincludedinReport,unlessotherwisespecified,were updatedonthebasisofinformationavailable regard tothefinancialinformativenote. controlattachment thatillustratesthemaincharacteristicsofexistingriskmanagementandinternal systemswith the specificreferences intheprovisions oftheConsolidatedLawonFinanceandsupplementedwithanappropriate This report wasexpanded–takingintoaccounttheindications byBorsaitalianawiththesupportofAssonime–also Finance) asstatedinLegislativeDecree no.173/2008(in effect foractivitiesbeginningafterNovember21,2008). Issuer’s Profile -Corporate Structure bis of LegislativeDecree no.58/98(ConsolidatedLawon • • • • based onthetraditionaladministrationandmanagementmodel,includesfollowing: In compliancewiththeprovisions listedcompanies,theCompany’sorganisation, oftheItalianlegislationconcerning Company organisation • • • Among themain2009results forCSRitisworthmentioning: marked asB+. the GlobalReportingInitiativeandverifiedbyanauditingcompany. ThelevelofapplicationtheG3Guidelineswas Since the2006edition,ReporthasbeendrawnupincompliancewithG3SustainabilityReportingGuidelinesof social andenvironmental responsibility are presented inthesustainabilityreport, publishedyearly. The managementapproach adoptedandtheresults andneweconomicresponsibility objectivesreached inthefieldof safe electricitysystem. development investmentsandinthemore generalinterest ofcommunityforareliable, inexpensiveandenvironmentally impact ofitsactivities.Thus,considerationenvironmental issuesmatchesTerna’s interests inimplementinggrid stages ofplanningnewlines.TheCompanyhasalsodevelopedamanagementsystemtocontrol andlimittheenvironmental stakeholders suchasthemainenvironmentalist associationstotakeenvironmental needsintoconsiderationfrom theearly why Terna haschosentheapproach ofnegotiationandcoordination withlocalauthorities,alsoinvolvingsignificant fall withinoneoftheincompatibility situationspursuanttoPartIII,TitleVI,paragraphI any companyoftheGroup andofthe consolidated financialstatementsisnotinanycasegiven toauditcompaniesthat and oftheofficer incharge ofauditing,the assignmentfortheauditingofCompany’sfinancialstatements andthatof one givenunderLawprovisions, inanyeventrelated toauditingactivities.Inorder toensure independenceofthecompany assignments totheauditcompany are submittedtoTerna’s Control Internal Committee foranyassignmentotherthanthe of control bodiesandemployees oftheauditcompanyandothercompaniesbelonging tothesamenetwork.The or anycompanyoftheGroup, extendingtoallnetworkofth company oftheGroup andoftheconsolidatedfinancialstatementsisnotcompatiblewithconsultancyactivitiesforTerna 231/01, whichwasrecently updated,provides that theauditingofCompany’sfinancialstatementsandthatany CONSOB (IssuerRegulations),theOrganisational ModeladoptedbytheCompanypursuanttoLegislativeDecree no. the “Implementationregulation ofLegislativeDecree no.58ofFebruary24,1998,regarding rulesforissuers”adoptedby Further toprohibition ofsupplyingcertainservicesimposedtoauditcompaniesbyConsolidatedLawonFinanceand Terna’s independentauditorsalsohave similarengagementswiththeCompany’smainsubsidiaries. by theshareholders withthepriorapproval oftheBoard ofStatutoryAuditors. Auditing activityisentrustedtoaspecialisedcompanyregistered intheCONSOBrecords, whichisspecificallyappointed Axia andKLD. Terna wasincludedintheASPIandEthibelExcellenceEurope andwasalsoconfirmedintheFTSE4Good,ECPI, companies intheworld,only12ofwhichare Italianfirms withrespect tosustainabilityperformance.InOctober2009, possible inSeptember2009tobeincludedtheDowJonesSustainabilityWorld Index,thatincludesthebest300 Terna’s constantcommitmentforcontinuallyimproving itseconomic, environmental andsocialperformancemadeit (art. 8.C.3). responsibilities provided bytheLawandregulations aswellthoseprovided Code forbytheCorporate Governance issuanceofconvertiblebonds; the the bylaws,and(V) to amendments thepurchase andsaleoftreasury shares, (IV) statements andallocationoftheprofits fortheyear, (III) theapproval ofthefinancial of memberstheBoards ofDirectors andStatutoryAuditorstheirfeesduties,(II) Codeforlistedcompanies; Statutory AuditorsbyLawandtheCorporateGovernance the foreign subsidiariesoutsideoftheEU.Itisalsoresponsible forcarryingoutalldutiesassignedtotheBoard of Company’s organisational structure, Control Internal Systemandadministrative/accountingsystemaswellthoseof theadequacyof of associationandtheprinciplescorrect administration inperformingCompanyactivities,(II) purpose, excludingonlytheactionthatLawandbylawsreserve totheshareholders’ meeting; powers soastocompletealltheactionsthatdeemsappropriate fortheperformanceandattainmentofcorporate 18001) managementsystem. voltage powerlinesandthebirdlife forestablishingmitigationmeasures; the existingones,forplanningmeasures tobecarriedoutinnaturaloases; an ExecutiveinCharge ofthepreparation oftheCompany’saccountingrecords, whoisgivenallassignmentsand the shareholders’ meeting–ordinary andextraordinary –thatresolves upon, thattheCompanycomplieswithLaw, thememorandum a Board ofStatutoryAuditorsresponsible formonitoring:(I) a Board ofDirectors responsible fortheCompanymanagement.To suchaim,theBoard isentrustedwiththewidest confirmed certificationfortheintegratedenvironmental (ISO14001),quality9001)andoccupationalsafety(OHSAS developing scientificresearch, togetherwithLIPU(ItalianLeagueforBird Protection), ontheinteractionbetweenhigh- collaboration withtheWWFaimingatintegratingbiodiversitypreservation criteriainplanningnewlinesandmanaging e auditcompanyaswelltoshareholders, directors, members inter alia I theappointmentandrevocation , (I) bis of theIssuerRegulation. 279 Corporate Governance 280 Annual Report 2009 The share-based incentive planadoptedbythe Board ofDirectors followingtheResolution datedApril1,2005, isoutlined The 2006stockoptionplanis currently theonlyexistingplanatTerna S.p.A. resolution datedApril 22,2009,themaximumdatefortotalsubscriptionof theincrease isMarch 31,2013. during theMeetingheldonApril28,2008forappointmentofpresent Board ofDirectors andBoard ofStatutoryAuditors. With reference totheappointmentofDirectors andAuditors,suchmodificationswere implementedforthefirsttime Decree no.303ofDecember29,2006whichare alsoinlinewithexistingimplementationactsissued byCONSOB. Company bylawstotheprovisions regarding listedcompaniesunderLawno.262ofDecember28,2005andCorrective Terna’s shareholders’ meetingofMay24,2007approved thebylawsamendmentsnecessaryforadjustmentof value of up tomaximum partially exercised theabovementioned proxy, approving ashare capitalincrease regarding the2006stockoptionplan adopted ashare-based incentive plan.Withreference totheadoptedplan,Board ofDirectors of March 21,2007 Pursuant totheshareholders’ meetingresolution ofApril1,2005,onDecember21,Terna’s Board ofDirectors and art.134,paragraph2,oftheConsolidatedLawonFinance, asprovided forbyart.5.3oftheCompany bylaws. as paymentwithexclusionoftheoptionrightundercombined provisions ofart.2441,lastparagraph,theCivil Code shares withanominalvalueof Directors forashare capitalincrease formaximum The Extraordinary shareholders’ meetingofApril1,2005approved theassignmentofafive-yearproxy totheBoard of (pursuant toart.123 Powers toincrease share capitalandauthorisation forthepurchase oftreasury shares any shareholders’ agreement relating totheCompanyshares. No otherinvestorsownmore than2%ofTerna S.p.A.’sshare capitalandtheCompanyisnotaware oftheexistence (UK) Ltd)with2.047%ofshare capital;AssicurazioniGenerali (directly orindirectly) with2.026%ofshare capital. Funds (Europe) S.A.(directly andindirectly) with4.941%;BlackRockInc.(through BlackRockInvestmentManagement Economy andFinanceoftheItalianRepublicowns70%),with29.986%;EnelS.p.A.5.116%share capital;Pictet than 2%oftheshare capital:CassaDepositiePrestiti S.p.A.(publiclimitedcompanyinwhichtheItalianMinistryof a totalof2,000,908,800ordinary Terna’s shares withanominalvalueof available information,andwithreference totheCompany’sshare capitalasofMarch 19,2010,equalto On thebasisofshareholders’ book,communications received pursuanttoCONSOBResolutionno.11971/99and (pursuant toart.123 Significant investmentsinshare capitalandshareholders agreements Terna didnotissueshares thatwere notnegotiatedonregulated marketsoftheEU. The Companydidnotissueotherfinancialtoolsgrantingtherighttosubscribenewlyissuedshares. paragraph “Powerstoincrease theshare capitalandauthorisationsforthepurchase oftreasury shares”. share-based incentiveplanthatincludesincreasing theshare capitalaccording totheprovisions inthesubsequent In compliancewiththisprovision oftheCompanybylaws, theShareholder’s MeetingheldonApril1,2005resolved one of subjectsidentifiedbyshareholders. for employees,orratheraspayment,andwiththeexclusionofoptionrightunderart.2441CivilCode,infavor issuance, alsobelongingtospecialcategories,beassignedfree ofcharge pursuanttoart.2349oftheItalianCivilCode Pursuant toart.5.2oftheCompanybylaws,shareholders’ meetingcanapprove capitalincreases through share Italiana S.p.A.(Telematic Share Market-BlueChipsegment). As ofJune23,2004,Terna’s shares have beenlistedintheElectronic StockExchangeorganised andmanagedbyBorsa administrative andfinancialrightsprovided forbytheLawregulating theshares withrighttovote. bear votingrightsatboththeordinary andextraordinary shareholders’ meetings.Ordinary shares grantfurther shares, foratotalof2,000,908,800ordinary Terna’s shares withanominalvalueof The Company’sshare capitalasofMarch 19,2010amountsto Share capitalstructure (pursuanttoart.123 Section II paragraph 1oftheConsolidatedLawonFinance) € 0.22 each,at Information onshareholding structure (pursuanttoart.123 € 2,198,240.00 through theissuanceofmaximum 9,992,000newordinary Terna’s shares withanominal bis bis € , paragraph1,letterm),oftheConsolidatedLawonFinance) , paragraph1,lettersc)andg),oftheConsolidatedLawonFinance) 2.072 each,tobeimplemented incompliancewithart.5.4ofthebylaws.BasedonMeeting € 0.22 each,onadividend-rightbasis,tobeoffered forsubscriptiontoTerna Group managers bis , paragraph1,lettera),oftheConsolidatedLawonFinance) € 2,200,000 through theissuanceofmaximum10,000,000 ordinary € 440,199,936 andcomprisesexclusivelynominalordinary € 0.22 each,thefollowinginvestorsholdmore € 0.22 each.Theyare fullypaid-upand bis , € 440,199,936 for pursuant toart.84 or alternative solutionsthatsatisfytheBankitself. or alternative undertaken bytheCompany, thebankitselfwillhave thepowertorequest thenecessarychangesinloan contracts according toitsindisputablejudgment,thatthesetransactionsmayhavenegativeconsequencesonthecommitments and relative consequencesintheCompany’scommitments toward theBank.Insuchcases,shouldEIBdeem, any informationthatthelattermayreasonably require regarding theCompanysituation,inorder tounderstandanychanges In suchcases,theEIBwillhavepowerofrequesting, andtheCompanywillhaveobligationtoinformBank, Elettriche”), intheeventCompanyproceeds tooris involvedinamerger, asplitortransferofCompanybranch. repayment clauses(“Terna Trasmissione”) orterminationclauses(“SA.PE.I.HighVoltage CableLink”and“Terna Reti Furthermore, theloancontracts stipulatedwiththeEuropean InvestmentBank(EIB),includemandatoryadvance financing banksdeemingtheloanrefund necessary. along withtheclosure ofthelineitself,inevent ofCompany’scredit ratingdecreasing belowBBB-andthe2/3of pursuant toart.2359nos.1and2,paragraphoftheCivilCode,coulddetermineearlyrefund ofthecredit lineutilised pool, undersignedin2006,provides that,asusual forthistypeoftransactions,changesinCompany’sshareholding, The agreement forasyndicatedloanrelative tothe or expire intheeventofshareholding changewithinTerna, thefollowingshouldbenoted. As regards significantagreements Terna oranyofitssubsidiariesare partiesofandthatcomeintoeffect, are amended Change ofcontrol clauses(pursuanttoart.123 As ofMarch 19,2010theCompanydidnotreceive anynotificationoftheestablishmentemployees’shareholding groups. encouraging inthiswaytherelative involvementinthemeeting decision-makingprocesses (art.11.1ofthebylaws). aimed atfacilitatingcollectingvotingproxies withitsemployees’ shareholding groups aswellofitssubsidiaries, Based ontheprovisions regarding thespeciallegislationonlistedcompanies,Terna’s bylawsintroduced aspecialprovision employee’s shareholding groups isregulated basedontheexistingspecificlegalprovisions onthesubject. The systemforexpressing therighttovoteduringshareholder’s meetingthrough shareholding associations,including (pursuant toart.123 Employees’ shareholding: systemtoexpress therighttovote www.terna.it Report tothefinancialstatementsasofDecember31,2005(pages104andfollowing)availableinCompany’swebsite as ofDecember31,2007(pages129and130),well200654121),intheDirector’s Notes) aspartofthereports onTerna S.p.A.’sfinancialstatementsasofDecember31,2008(pages93,248and249) in Terna S.p.A’sfinancialstatementsasofDecember31,2009(paragraph“StockOptions”inthesection“Equity” (“Privatisation Law”)asprovided forbyart.4,paragraph227,ofLawno.350 December24,2003)canbeexercised by 31, 1994,convertedwithmodifications byLawno.474ofJuly30,1994andfollowing integrationsandamendments “Special powers”(indicatedby art.6.3ofthebylaws,pursuantto2,paragraph1,Legislative Decree no.332ofMay some circumstances indicatedby thebylaws,haseffects alsoonthevotingright. state-controlledGovernment, companiesandentitiessubjecttoeither control: theimplementationofthoseprovisions, in and/or indirect ownershipofTerna shares formore than5%oftheshare capital– forsubjectsotherthantheItalian toexerciseGovernment certain “special powers”andestablishesa“maximumlimitofshare ownership” –equaltoadirect In particular, pursuanttoItalianregulations privatisations, Terna’s concerning bylawsprovides forthepossibility socalled“PrivatisationLaw”. the July 30,1994andsubsequentchanges– privatisation basedontheLawDecree no.332datedMay31,1994convertedwithamendmentsbyLaw no. 474dated No bylawslimitationsexisttotheavailabilityofshares exceptfortheprovisions statedbythebylawsregarding rulesfor (pursuant toart.123 Restrictions inshare transferandshares grantingspecialpowers Terna doesnotown,norhaspurchased orsoldduringtheyear, notevenindirectly, treasury shares orsubsidiaries’shares. submitted toTerna’s shareholders’ meeting. No resolution authorisingthepurchase oftreasury shares underart.2357andfollowingoftheCivilCodehasbeen No otherpowertoincrease capitalhasbeenassigned,pursuanttoart.2443oftheCivilCode. Price SensitiveReleases-2007”:alldocumentstowhichreference shouldbemade. under the“InvestorRelations”section/“AnnualReports”–andininformativenoteofSeptember14,2007 bis bis bis fCNO IssuerRegulations–availableat of CONSOB , paragraph1,lettere)oftheConsolidatedLawonFinance) , paragraph1,lettersb)andd),oftheConsolidatedLaw onFinance) bis € , paragraph1,letterh),oftheConsolidatedLawonFinance) 750 millionrevolving credit linegrantedtoTerna S.p.A.byabank www.terna.it under “TheCompany/Press Room– 281 Corporate Governance 282 Annual Report 2009 for whichtherighttovotecannotbeexercised are calculatedanyhow fortheregular formationoftheshareholders’ meeting. the CivilCodeifrequested majoritywouldnotbeachievedwithoutthevotesexceedingabovementionedlimit.Shares joint communicationsbytheinvolvedshareholders. Incaseofnon-compliance,decisioncanbeappealedunderart. 2377of proportionally reduces therighttovoteofeachsubjectwhom thelimitinshare ownershiprefers to,exceptintheeventof The righttovoterelated toshare ownershipexceedingtheabovementioned maximumlimitcannotbeexercised and Consolidated LawonFinance. Such limitofshare ownershipterminates,ifexceededduetoatake-overbidcarriedoutunderartt.106or107 of the trustees and/orthrough athird personand,generally, through anintermediaryperson are alsoconsidered. companies. Withreference tothecalculationofabovementionedlimitshare ownership(5%),shares ownedthrough refer toatleast10%oftheshare capitalwithrighttovote,incaseoflistedcompanies,or20%non-listed pacts asperart.122oftheConsolidatedLawonFinance,withreference toothercompanies,iftheseagreements orpacts to theexercise oftherighttovoteortransfershares orportionsofthird companiesor, anyway, toagreements or through subsidiariesotherthan those managingcommoninvestmentfunds,join,alsowiththird parties,agreements related occurs incasesunderart.2359,paragraph3,oftheCivilCode,aswellbetweensubjectswho,directly andindirectly, to subjectsotherthancompanies,incasesprovided for byart.2359,paragraphs1and2,oftheCivilCode.Association second gradeandbymarriage,intheeventthathusband/wifeare notlegallyseparated.Control occurs,alsowithreference controlling subject;toallassociatedsubjectaswellnatural personsboundbyparental oraffinity relationships upto person orlegalentitycompany;toalldirect andindirect subsidiariesaswelltheundersame additions (“PrivatisationLaw”)iscalculatedalsoconsideringtotalshare ownershiprelated totheParent Company, natural no. 332ofMay31,1994,convertedwithmodificationsbyLaw474July30,1994andfollowingamendments and The “maximumlimitofshare ownership”(provided forbyart.6.4ofthebylawsandpursuantto3LegislativeDecree Decree ofJune10,2004. The specialpowersunderlettersa),b),c)andd)are exercised withrespect ofthecriteriaprovided forbythePrimeMiniste date suchcausesarose. actual occurrence. Inthiscase,theactofexercising theStatepowermustincludeexplicitandmotivatedreference tothe power canalsobeexercised everytimetheneedtoprotect mandatorypublicinterest arises,withintendaysfrom their when ownership,alsothrough singlepurchase acts,records anincrease whichisequalorhigherthanexpectations.Such The powerofoppositionunderlettersa)andb)canbeexercised with reference toeachaspect.Itcanalsobeexercised appointmentofonedirector withnorighttovote.Incaseofterminationtheassignmentappointeddirector, the d) to voteincaseofDirectors’ appointment(art.14.3lettere)ofCompanybylaws). the NationalTransmission Grid”)forwhichalimit equalto5%oftheshare capitalwasestablishedforexercising theright dated May11,2004asregards “criteria,modalitiesandconditionsfortheunification ofownershipandmanagement Further restrictions are appliedtooperators oftheelectricitysector(asprovided forbyart.3of the PrimeMinister’sDecr the exercise of“specialrights”theItalianStateandtolimitsshare ownershipasmentionedearlier. Pursuant toprivatisationregulations, restrictions exist (underartt.6.3and6.4ofthebylaws)torightvoterelated Restrictions totherightvote(pursuantart.123 veto,dutifullymotivated,inrelation toconcrete jeopardy ofthevitalpublicinterest, totheadoptionofprovisions fort c) oppositiontoshareholder agreements undertheConsolidatedLawonFinance,incaseatleast1/20ofTerna’s share b) oppositiontorelevant ownership(thatisequalorhigherthan1/20ofTerna’s share capitalformedbyshares granting a) for EconomicDevelopment),isassignedthefollowing“specialpowers”: In particular, theMinistryofFinanceandEconomy, asagreed withtheMinistryofProductive Activities(nowcalledMinistry Terna’s shares potentiallyownedbytheMinistryitself. representedthe ItalianGovernment, inthiscasebytheMinistryofFinanceandEconomy, notwithstandingthenumberof purpose change,ofbylawsamendmentssuppressing ormodifyingpowersindicatedbythesameart.6.3ofbylaws; winding-up oftheCompany, oftransfer, merger, division,movingabroad oftheregistered offices, ofCompanycorporate right tovoteandnon-financialrightsrelated toshares representing therelevant ownership,are suspended; of subscriptionintheshareholders’ book,onlywhenthismayjeopardise thevitalpublicinterest. Inthemeantime, must beexpressed within10daysfrom thedateofcommunication,whichmustbemadebyDirectors attherequest right tovoteinshareholders’ meetings)byentitiessubjecttotheownershiprestriction presented above.Theopposition Economic Development),willappointthesubstitute. Ministry ofEconomicsandFinance,inagreement withtheMinistry forProductive Activities(nowcalledMinistryfor to voteandnon-financialrightsrelated toshares ofshareholders thatare partiesoftheagreements, are suspended; expressed within10daysfrom thedateofcommunicationthatmustbemadebyCONSOB. Inthemeantime,right capital, includingshares grantingrighttovoteatshareholders’ meetings,isthereby represented. Oppositionmustbe bis , paragraph1,letterf)oftheConsolidatedLawonFinance) he ee to r • 2380 The Chairmanisappointedbytheshareholders’ meetingamongthemembersofBoard (art.16.1of bylawsandart. hasnotyetusedthisappointmentpower.the ItalianGovernment Director pursuanttoprivatisationregulations. withoutvotingrightsmaybeappointedbytheItalianGovernment, To date, a periodnotlongerthanthree years(art14.1ofthebylaws)andtheymaybereappointed attheendoftheirterm. Another As resolved uponbytheMeeting,Board ofDirectors ismadeupofseventothirteenmemberswhoare appointedfor Appointment, requirements andtermofoffice ofDirectors (pursuant toart.123 Appointment andsubstitutionofDirectors andbylawsamendments • • Decree no.332 datedMay31,1994convertedintoLawno.474/94(socalled “PrivatisationLaw”)andofart.144 appointment ofaDirector –statesinline withtheprovisions indicatedby theItalianGovernment ofart.4Legislative number totheunit,following unit(art.14.3ofthebylaws).Suchappointmentsystem –whichdoesnotapplytothe designated byminorityshareholders equalto3/10oftheDirectors tobeappointed withrounding, incaseoflowerfractional to themechanismof“list voting”,aimingatguaranteeingthepresence inthe managementbodyofmembers according Minister’s Decree ofMay11, 2004andincompliancewiththeprovisions oftheItalian Lawforlistedcompanies– compliance withtheprivatisationregulation, in underPrime The appointmentoftheentire Board ofDirectors takesplace– days before theapproval ofthefinancialstatements). time eventstakeplacethatcaninterfere withtheindependenceofaDirector andhoweveratleastonceayear(inthe30 Code”).SuchprocedureGovernance demandstheassessmentofrequirements followingthe appointment,thatisevery application andprocedure fortheassessmentof independence ofthedirectors pursuanttoart.3oftheCorporate assessment oftherequirements necessaryaccording Code(“Criteriaof tothebylawsandCorporateGovernance procedure thatdefinesthecriteriaforassessment ofindependencethenon-executivemembersandfor members, onthebasisofinformationsuppliedbyeach member. TheCompanyisequipped withaspecificinternal of itsmembersandperiodicallyassessesthepresence ofrequirements ofindependenceforeveryoneitsnon-executive The Board ofDirectors assessesthepresence ofhonor, professionalism andindependencerequirements, foreveryone of BorsaItaliana,becomesimportantinthecomposition theBoard Committees,asprovided forbytheCodeitself. The presence of“independent”Directors asprovided Codefor listedcompanies forbythe2006CorporateGovernance 2003/54/EC are applicabletotheExecutiveDirectors underart.15.5ofthebylaws. specific activitycarriedoutbytheCompany, therequirements ofindependenceprovided forbyart.10ofDirective requirements oftheAuditorsindicatedbyart.148,paragraph3,ConsolidatedLawonFinance;considering must alsobeinpossessionofspecificrequirements ofindependenceunderart.15.4thebylawsthatrecalls the in linewiththeprovisions ofart.3thePrimeMinister’s Decree ofMay11,2004,atleast1/3theDirectors inforce With stricterapplicationcompared totheprovisions ofart.147 of atleastthree yearsinthefollowingcannotbeappointedas Director and,ifso,theymustresign: As regards therequirements ofprofessionalism, thebylaws(art.15.3)provides thatthosewhohavenotaccruedexperience of thebylaws). according tothebylawsBoard ofDirectors, aswellanypossiblecauseofineligibilityorincompatibility(art.14.3 The appointedDirectors mustcommunicatewithouthesitation thelossofrequirement aspercurrent regulations and statutory auditorsoflistedcompanies(art.15.2thebylaws). The Company’sDirectors mustmeetcertainintegrityand professionalism requirements, similartothoserequired bythe The Director mustmeettherequirements ofhonor, professionalism andindependence. committee and/oroneormore ofitsmembers(art.22.1thebylaws). The Board ofDirectors, withinthelimitsasperart.2381ofCivilCode,cangiveownassignmentstoan executive law (art.16.1oftheCompanybylaws). Chairman. InnocasesuchpositionscanbeheldbytheDirector undertheprivatisation appointedbytheItalianGovernment to beconsidered ascloselyrelated totheCompany'sscopeofactivities). economy andfinance,aswellsubjectslinkedtoenergy ingeneral,thenetworkcommunicationsandstructures, are related tothatoftheCompany, asdefinedbytheart.26.1ofbylaws (subjectssuchastraderight,taxbusiness related totheactivitiesofCompanyasdefinedinart.26.1 ofthebylaws;or managing roles inpublicbodiesorauthorities thefinanceandinsurancefieldsor, however, infieldsclosely professional activitiesoruniversityteachinginlegal,economic, financialandtechnical-scientificsubjectsclosely activities ofadministration,control ormanagementincompanies havingashare capitalnotlowerthan bis , paragraph5oftheCivilCode).Incaseimpossibility, bytheBoard itself.TheBoard canappointaDeputy bis , paragraph1,letterI)oftheConsolidatedLawonFinance) ter , paragraph4oftheConsolidatedLawonFinanceand € 2 million;or undecies 283 Corporate Governance 284 Annual Report 2009 dated May11, 2004 (November1,2005). relative tothemanagement oftheNationalTransmission Gridasperart.1,paragraph1of thePrimeMinister’sDecree of three yearsfrom thedateofeffectiveness ofthetransfertoTerna oftheactivities,functions,assets andobligations included inthebylawsthathave thepurposetoensure protection oftheshare minorities, cannotbemodifiedforaperiod “maximum limitofshare ownership”and“restrictions inshare transferandshares grantingspecialpowers” andthose 11, 2004,Terna’s bylaws provides thatthemeasures asperart.6.4ofthe Companybylawsrelative totheabovementioned modifications byLawno.474 ofJuly30,1994andart.3,paragraph2,letterc)thePrime Minister’sDecree datedMay Furthermore, asprovided forbyart.3paragraphofLegislativeDecree no.332ofMay31,1994,convertedwith “Restrictions inshare transferandshares grantingspecial powers”. shareholders’ meetingofsignificantimpactontheCompany, capableofamendingthebylaws,aspreviously describedin effective vitalinterests, detrimentoftheGovernment’s ontheadoptionofaseriesresolutions adoptedbythe for thispurposebytheMinistryofEconomicsandFinance, the“specialpower”toveto,dulymotivatedwithreference to Art. 6.3ofthebylaws,incompliancewithregulations represented onprivatisation,attributestotheItalianGovernment, thetransferofCompanyheadquartersinnationalterritory. f) theamendmentof thebylawsaccording toregulations; e) reduction oftheshare capitalincaseoneormore memberswithdraws; d)the statingwhichofthe directors represents theCompany; c) establishmentoreliminationofotheroffices; b)the themerger andthesplit,incasesenvisagedbyLaw; a) pertaining totheshareholders’ meetingthatcandetermine bylawsamendmentssuchas: The bylaws(art.21.2),according toLawprovisions, attributestheBoard ofDirectors thepowertoadoptanyresolutions on thematterwithmajorityenvisagedbyLaw. With regard toregulations applicabletotheamendmentsofbylaws,extraordinary shareholders’ meetingresolves Bylaws amendments for appointinganewBoard. considered ashavingresigned andtheshareholders’ meetingmustbecalledwithoutdelaybytheDirectors stillinoffice If themajorityofDirectors appointed bytheshareholders’ meetingisnotreached, theentire Board ofDirectors is Law andbyart.15.4ofthebylaws. the presence ofthenecessarynumberdirectors inpossessionoftherequirements ofindependenceestablishedbythe In anycase,thereplacement ofDirectors whoseoffice hasendedwillbecarriedoutbytheBoard ofDirectors guaranteeing Any replacement ofDirectors willbecarriedoutpursuanttoart.2386oftheCivilCode. appointment oftheDirectors according totheabovementionedrules. the electricitysectoralimitequalto5%ofshare capital asregards theexercise ofthevotingrightduring In compliancewiththeprovisions ofPrimeMinister’sDecree datedMay11,2004,thebylawsenvisagesforoperatorsof a numberofvotes. and isnotconnectedinanyway, notevenindirectly, withthememberswhohavesubmittedorvotedlistthatwonfor members oftheBoard ofDirectors shouldbeappointedbytheminoritylistthathasobtainedhighestnumberofvotes that, according totheprovisions ofart.147 of shares forthelistssubmissionmustbepresented and/ordelivered totheregistered office. Itshouldberemembered At leastfivedayspriortothedatesetforMeetinginfirstcall,copyofdocumentationproving thenecessarynumber 6.P.1 Code. oftheCorporateGovernance website basedonaspecificitemofthenoticecallshareholders’ meetingandinlinewiththeprovisions ofart. Such documentsare depositedattheregistered office alongwiththelistsandare immediatelypublished intheCompany’s prescribed, andbythebylaws(art.14.3ofbylaws). envisaged bytheLawandbylawsforrespective positionsandeveryotherinformationrequired bytheLaw, also responsibility, thenonexistenceofineligibilityandincompatibilitycauses,requirements as The listsmustalsoincludedeclarationswithwhicheachcandidateacceptshisowncandidacyandstates,under provided bytheLaw, CodewhichTerna bylawsandtheCorporate Governance hasadopted. characteristics ofthecandidates,accompaniedbyindicationtheirsuitabilitytoindependencerequirements the Lawandbyart.15.4ofbylawsare provided withexhaustiveinformationaboutthepersonalandprofessional Italiana inMarch 2006.Thelistsindicatethecandidatescomplyingwithindependencerequirements provided forby Directors asrecommended CodeoflistedcompaniespublishedbyBorsa byart.6.C.1oftheCorporateGovernance atransparent guaranteeing procedure fortheappointmentofBoard of the listsare submittedbytheshareholders – settermisatleast20daysifthelistsubmittedbyoutgoingBoard the ofDirectors andatleast15daysif meeting – the listsare depositedattheregistered offices andpublishedonnationalnewspaperspriortothedateofshareholders’ by shareholders who,aloneorwithothershareholders, represent atleast1%oftheshare capital.Itisalsoprovided that of theCONSOBIssuerRegulations–thatlistscandidatescanbesubmittedbyoutgoingBoard ofDirectors or ter , paragraph3,oftheConsolidatedLawonFinance,atleastone

286 Annual Report 2009 Consolidated LawonFinanceregarding: consideration for the constant update and adjustment of the issuer’s governance systemtothe bestpractices. consideration fortheconstantupdateandadjustmentof issuer’sgovernance Further actionsaimedatimproving theGroup’s are system ofgovernance beingcarriedoutandotherswillbetakeninto Directors ofDecember21,2006. recognise asumequaltothetotalemolumentsenvisagedasfixedorvariablecompensationuntilendofterm. of themajorityshareholder ofanappointmentequivalenttotheoneheldatTerna, itispointedoutthattheCompanywill voluntary resignation (notrequested bythemajorityshareholder) orofrevocation forajustcauseorofanoffer onthepart As partofthefinancialcompensationrecognised inthecaseofearlydischarge oftheappointmentwithexception is pointedoutthatTerna’s CEOisalsoemployedbyTerna S.p.A.asanexecutivemanager. over bid,followingtherenewal oftheBoard ofDirectors resolved bytheshareholders’ meetingheldonApril28,2008,it resignation ordismissal/revocation ofassignmentwithnojustcauseorifthesameterminatespursuanttoapublic take- With reference totheagreements entered intobetweenTerna andtheDirectors thatprovide indemnitiesincaseof (pursuant toart.123 Indemnities forDirectors incaseofresignation, dischargeorcessationofrelation followingapublictake-overbid S.p.A.’s website: CodeoflistedcompaniespublishedbyBorsaItalianainMarchGovernance 2006(whichcanbeconsultedinBorsaItaliana system oftheCompanyissubstantiallyinlinewithprinciplesincludedCorporate The CorporateGovernance Section III • • • • envisagedinart.123 The additionalinformationonthecompany’sCorporateGovernance Terna carriesoutitsactivityeitherdirectly orthrough itssubsidiariesundermanagement andnegotiationindependence. and madepubliconApril19,2007.Asoftoday, nomanagingandcoordination activityhasbeenofficialised norexercised; assessment, from whichtheexistenceofsuchcontrol emerged, hasbeencarriedoutbyCassaDepositiePrestiti S.p.A. Terna issubjecttothe Management andCoordination Finance) are control illustratedinthesectionofReportdevoted tointernal system(sectionXI)andinAttachment1there and further Corporate Governance practices(pursuanttoart.123 and furtherCorporateGovernance informative note,alsoconsolidated(pursuanttoart.123 the principal characteristics of existing risk management and existing internal controlthe principalcharacteristicsofexistingriskmanagementandinternal systemsinrelation tothefinancial in thesectionofreport devotedtotheshareholders’ meeting(sectionXVI); control body(pursuanttoart.123 section ofthereport devotedtocompliance(sectionIII); composition oftheBoard ofStatutoryAuditors(sectionsXIII and XIV). the Board’s Committees(sectionsVI,VII,VIIIandX)inthesectionsdevotedtoappointment Internal Report respectively inthesectiondevotedtoBoard ofDirectors (sectionIV)andinsubsequentsectionsdevotedto the compositionandrole oftheBoard Membersaswellthoserelative totheappointmentandcompositionof the shareholders’ meetingactivity(pursuanttoart.123 compliance (pursuanttoart.123 Compliance http://www.borsaitaliana.it bis de-facto , paragraph1,letteri)oftheConsolidatedLawonFinance) control ofCassaDepositiePrestiti S.p.A.with29.986%oftheshare capital.The bis bis , paragraph2,lettera),oftheConsolidatedLawonFinance)isillustratedin , paragraph2,letterd),oftheConsolidatedLawonFinance),are illustratedinthe ) thatTerna hasadopted,asillustratedbefore, withresolution bytheBoard of bis bis , paragraph2,letterc),oftheConsolidatedLawonFinance) , paragraph2,letterb),oftheConsolidatedLawonFinance), bis , paragraph2,lettera),oftheConsolidatedLawon bis , paragraph2,ofthe in; • • S.A., asubsidiaryofTerna S.p.A. Holding andtheunbundling of accounts.From May2006toNovember2009hewas ChairmanofTerna Participações in April2003,thepositionof GeneralManager, whichhehelduntilAugust2005.Healsooversawthemerger withRai Gas S.p.A.,SenecaS.r.l. andMalpensaEnergia S.r.l. HewasappointedheadofItaly’spublictelevisionnetworkRAIS.p.A. companies (from 1999to2001),includingAEMS.p.A.ofMilan(asDeputyChairman),Serenissima GasS.p.A.,Triveneta Fiera diMilanoS.p.A.,servingasChairmanandCEOuntil 2003.FlavioCattaneohasbeenDirector ofmany energy diMilanoasExtraordinaryFiera Internazionale Commissionerin1999andwentontooverseeitsstockmarketlistingas service, newtechnologies,building,publicserviceandfacilities sectors.HebecameheadoftheformerEnteAutonomo He hasheldimportantmanagerialandadministrativepositions invariousItaliancompaniestheradioandtelevision and Environmental PoliciesatUIR,UnionofIndustrialistsandCompaniesinRome. independent Director inCementirHoldingS.p.A.SinceOctober2008,hehasbeenDeputyChairmancharge ofEnergy management. SinceNovember2005,FlavioCattaneohas beenCEOofTerna S.p.A.SinceJanuary2008hehasbeen With adegree inArchitecture from theMilanPolitecnico, Mr. Cattaneohasalso specialised traininginbusiness November 2009heisDeputyChairmanofTerna ParticipaçõesS.A.,asubsidiary ofTerna S.p.A. TELECOM ItaliaS.p.A.andfrom 2001to2009 he wasPresident oftheFondazioneFieraMilano.From May2006to 2007 hewasDeputyChairmanatCassaDepositiePrestiti S.p.A.From May2004toApril2007hewasBoard Memberat Finmeccanica S.p.A.From 2002to2006,hewas Board MemberattheBocconiUniversity. From January2004toApril Esercizio S.p.A.From May1998toDecember2000hewasCEOofAnsaldoTrasporti S.p.A. andtransmissionagentfor 1996 toJanuary1998.From December1996toJanuary 1998hewasChairmanandCEOofSocietàFerrovie Nord Milano April 1996toJanuary1998,hewasChairmanofSocietàFerrovie Nord MilanoS.p.A.ofwhichhewasCEOfrom December BredaCEO atErnesto S.p.A.;from 1993to2001hewasChairmanandCEOofBreda CostruzioniFerroviarie S.p.A.From manufacturing andreal estatesectors,inthepositions ofGeneralManagerandCEO.From 1986to1993,heservedas joined Metropolitana MilaneseasDirector ofPlanning.Since1980,hehasmanagedmid-sizedcompaniesbothinthe Mr. Rothbeganhiscareer asabusinessmanagerwiththePirelli Group, handlingactivitiesinItaly andabroad. Hethen and President ofBancaPopolare diRoma(CARIFEGroup). Nuova EditorialeItalianaS.p.A.,andsinceApril2009hehasalsobeenDirector atCassadiRisparmioFerrara(CARIFE) of Terna S.p.A.SinceApril2007,Mr. RothhasbeenindependentDirector atPirelli &C.S.p.A.andDirector ofAvvenire 2005, hehasbeenChairmanofTerna S.p.A.andsinceNovember 2009,hehasbeenChairmanofTELAT S.r.l. asubsidiary With adegree inBusinessAdministrationfrom theBocconiUniversity, Milan,heisaregistered auditor. SinceNovember professional background isprovided: Since itsappointment,theBoard’s compositionhas remained unvaried.AbriefdescriptionoftheBoard members’ number ofvotes. is notconnectedinanyway, notevenindirectly, withthememberswhohavesubmittedorvotedlistthatwonfora members oftheBoard ofDirectors were appointedbytheminoritylistthathasobtainedhighestnumberofvotesand of Directors meetstherequirements envisagedbyart.147 On thebasisofstatementsmadeforappointment,votecountandendvoting,appointedBoard three ofthefourlistspresented forthisshareholders’ meeting. appointed withintheminoritylistsubmittedbyGruppoAssicurazioniGenerali).TheBoard Membersrepresent Machetti (Director appointedwithinthelistsubmittedbyEnelS.p.A.),Salvatore MachìandVittorio Rispoli(Directors Fante, MichelePolo(Directors appointedwithinthemajoritylistsubmittedbyCassaDepositiePrestiti S.p.A.),Claudio Directors currently inoffice iscomposedofLuigiRoth,FlavioCattaneo,CristianoCannarsa,PaoloDalPino,MatteoDel In compliancewiththeshareholders’ resolution passedduringtheordinary meetingheldonApril28,2008,theBoard of statements asof2010. Directors currently inoffice iscomprisedofninemembers,whosetermwillexpire withtheapproval ofthefinancial In compliancewiththeshareholders’ resolution passedduringtheordinary meetingheldonApril,28,2008,theBoard of Composition Section IV Flavio Cattaneo,46yearsold–CEO Luigi Roth [born inRho(Milan)onJune27,1963] [born inMilanonNovember 1,1940] [born , 69yearsold–Chairman Board ofDirectors ter , paragraph3,oftheConsolidatedLawonFinanceandtwo 287 Corporate Governance 288 Annual Report 2009 • • • • • is currently Director ofApiEnergia S.p.A.and,sinceSeptember2004, aDirector ofTerna S.p.A.aswell. of Directors ofCESI S.p.A.sinceMarch 2003,where hepreviously (from July 1999toOctober2001)servedasCEO.He Nazionale S.p.A.,andDirector ofGestore delMercato Elettrico S.p.A.duringthattime.HehasbeenChairmanoftheBoard He wasCEO(from July1999toApril2000)and,then,Chairman(up 2003)oftheGestore dellaRetediTrasmissione Generation andPurchase andTender Manager. positions upto1999,includingManageroftheTransmission Department, NationalManagerofThermoelectricalEnergy Telecomunicazioni, inadditiontohisprofessional experiencewithEssoandIBM.HejoinedEnelin1965heldvarious He holdsadegree inElectronic Engineeringandhasreceived specialisedtrainingattheIstitutoSuperiore di he wasDirector ofTerna S.p.A. taking overFercredit S.p.A.intheFSGroup asCEOin1997.From April2004toNovember2005andthenfrom March 2007 positions withFerrovie delloStatoS.p.A.(headoftheFinancialMarketsCentralService,thenOperatingFinanceManager) He beganhismanagerialcareer in1983theFinancialDepartmentofBancodiRoma.From 1992to2000,heheldvarious and inthelistedcompanyEndesaS.A. Holding B.V., EnelIreland FinanceLtd,EnelReTrade S.p.A.,EnelDistribuzione S.p.A.,EnelProduzione S.p.A. Enel.NewHydro S.r.l., EnelEnergy Europe S.r.l., Enel CapitalS.r.l. (tobewoundup)andasDirector at:EnelInvestment July 2009,hehasbeenChiefRiskOfficer. WithintheEnelGroup, healsoservedasChairmanoftheBoard ofDirectors of: In March 2000hehasbeenappointedheadofthe FinancialDepartmentatEnelS.p.A.andin2005Director. Since Mr. Machettihasadegree inStatisticsfrom “LaSapienza”UniversityinRome. subsidiary ofbank-basedfoundations. Committee ofSTMicroelectronics NVandsinceMay2007heisBoard memberoftheconsultingcompanySINLOC,a involved inthereal estatesector. From 2005to2008,hewasamemberoftheSupervisoryBoard andoftheAudit been FinanceDirector tothenbeappointedCEOofCDP Investimenti,asavingsmanagementcompanyoftheCDPgroup and strategicoperationsinEurope. From 2004,hehasbeenatCassaDepositiePrestiti S.p.A.where, forsixyearshehas in thesectoroffixedincomemarkets.From 1999to2003, asManagingDirector inLondon,hemanagedsignificantfinancial He beganhiscareer atJ.P. Morgan in1991holdingpositionsofincreasing responsibility forItalyandforeign countries He hasadegree inEconomicPolicyfrom theBocconiUniversityinMilan. was CFOoftheVerkerke Group inTheNetherlands. In 1986,hebeganhiscareer intheFininvestGroup andfrom 1987,until1990,hejoinedtheMondadoriGroup where he Editorial Group Espresso, CEOofKatawebS.p.A.andDirector andmemberoftheExecutiveCommitteeatANSA. that ofFinancialDirector ofthenewspaperlaRepubblica S.p.A.andfrom 1995toJuly2001,ofGeneralDirector ofthe From 1990to2001hehasheldvariouspositionswithintheEspresso Group, amongwhich–from 1991toMarch 1995– 2001 to2004,andChairmanofTelecom ItaliainLatinAmericaandChairmanofTimBrazilfrom February2004to2005. 2006 toJune2007hehasbeenCEOofWindTelecomunicazioni afterhavingbeenCEOatSEAT PagineGiallefrom July He ispresently SeniorAdvisorofthePrivateEquityCyrteInvestmentsfundandBoard memberatAirplusTV. From January He hasadegree inEconomicsfrom theUniversityofPavia. financial-technical committee,between1992and1996,heparticipatedintheHigh-Capacity/High-SpeedProject. Department ofBancaOPIandHeadthePublicFinancialCorporateDepartment.AsamemberTAV S.p.A. and project companies;subsequently, withintheGruppoSanpaoloIMI,hebecameHeadofLarge Infrastructure 1991 hejoinedtheIstitutoMobiliare Italianoacquiringexperienceinindustrialcorporateinvestmentprojects, public bodies Finance, Project FinanceandAdvisory. Afterseveralyearsofexper He hasheldpositionsofincreasing responsibility andcoordination incompaniesspecialisedthefieldsofCorporate Economic andFinancialGroup oftheIntergovernmental CommissionfortheTurin-Lyon railwayline. the Director oftheBusinessDepartmentatCassaDepositiePrestiti S.p.A.Since2005hehasbeena memberofthe With adegree inMechanicalEngineeringfrom “LaSapienza”UniversityinRomeandspecialisedhisprofession, heis Matteo DelFante,42yearsold–Director Paolo DalPino,48yearsold–Director Cristiano Cannarsa,47yearsold–Director Salvatore Machì,72yearsold–Director Claudio Machetti,51yearsold–Director [born inFlorence[born onMay27,1967] inMilanonJune26,1962] [born inRomeonFebruary16,1963] [born [born inPalermoonMay28,1937] [born inRome onOctober30,1958] [born ience intherenewable energy sectorwithAeritalia,in • • The attachedtable1includestheinformationregarding thecompositionofBoard ofDirectors asof March 19,2010. the meetingheldonMarch 19,2010according tothetermsstatedinfollowingparagraph“IndependentDirectors”. made, takingintoaccounttheinformationprovided by eachperson,duringtheappointmentand,subsequently, during The evaluationregarding theexistenceofrequirements ofindependenceforeachthenon-executivememberswas by eachofitsmembers. During itsterm,theBoard ofDirectors hasconfirmedtheexistenceofrequirements ofhonorandprofessionalism held and CassinoinPublicRightofEconomy, CivilRightandofInsurances. He hascarriedout,forapproximately tenyears,assignments ofcontractteachingattheUniversitiesRome,Perugia IRI Group (SOFINS.p.A.andAlitaliaS.p.A.)until1997and, subsequently, intheinsurancefield(INA-AssitaliaandGenerali). Manager since1987,hehasheldvariousmanagerialpositions,essentiallyinthelegalandcorporateareas atfirstinthe Assicurazioni Generaliholdsaminorityinterest. in thelistedcompanyAutostradaTorino-Milano S.p.A.,aswellintheinsurancecompaniesofSARAGroup, inwhich is alsoDirector insubsidiariesofAssicurazioniGenerali,includingAlleanzaS.p.A.Furthermore, heisDirector November 2007hehasalsobeenGeneralManagerandCEOofFataAssicurazioniDanniS.p.A.Vita S.p.A.He General ManagerandSecretary oftheCorporateBodiesAssicurazioniGeneraliS.p.A.sinceApril2003; With adegree inLawfrom “LaSapie He isalsotheauthorofnumerous essaysandmonographsonthemessuchasantitrust,liberalisationenergy sectors. From 2003to2006hewasEconomicAdvisoroftheGeneralManagementCompetitionEuropean Commission. advisor ofthepublishinghouse“IlMulino”,inBologna. of Energy Sources andtheEnvironment andoftheEditor’sCommitteeMarket,Competition,Regulations.Heisscientific and academicactivities:heisDirector ofEconomistsandmembertheEditorsCommitteeEconomy oftheJournal for EconomicsandPolicyofEnergy andtheEnvironment (IEFE)oftheBocconiUniversityandcarriesoutotherscientific Policy andfrom 2007,Vice-Chancellor attheBocconiUniversity. HeisamemberoftheBoard ofDirectors oftheInstitute Economic Sciencesfrom theLondonSchoolofEconomics.From 2003hehasbeenOrdinary Professor ofEconomic He hasadegree inEconomicsfrom theBocconiUniversityinMilan,andgraduatedEconomicPolicywithaMasters )otherItalian or foreign companieswithshares notlistedonregulated markets, notoperatinginthesectorslistedletter c) Italianorforeign companieswithshares notlistedonregulated markets,andoperatingintheinsurance,banking, b) companieswithshares listedonregulated markets, inItalyorabroad; a) To thispurpose,“significantlylarge companies”were definedas: positions asaDirector orAuditorcompatiblewiththeassignmentofDirector ofTerna S.p.A.” of Terna document“Orientationsofthe Board S.p.Aincludedintheinternal ofDirectors overthemaximumnumberof Auditor insignificantlylarge companiesthatcanbeheldstillenablingtheefficient performanceofthedutiesasDirector Terna’s Board ofDirectors approved itsownguidelinesregarding themaximumnumber ofpositionsasDirector orStatutory To Code, thisend,duringthemeetingofFebruary22,2007,incompliancewithart.1.C.3CorporateGovernance of theoffice held. and todevotethenecessarytimediligentperformanceoftheirduties,astheyare wellaware oftheresponsibilities regulated markets(alsoabroad), financialcompanies,banks,insurancecompaniesandsignificantlylarge companies– performance oftheirduties–alsoconsideringthepositionstheyholdoutsideCompanyinothercompanieslisted on All theDirectors accepttheirappointmenttooffice whentheybelievecandevotethenecessarytimetodiligent Maximum numberofpositionsinothercompanies at Terna isincompatiblewiththe samerole inothersignificantlylarge companies. the purposesofassessing commitmentrequired, andtheDirectors alsoestablishedthatthe role ofExecutiveDirector from theassignmentitself,are not calculatedinthetotalnumber).A“weight”wasassigned to eachtypeofpositionfor in whichthepositionsare held andwhethertheyare partoftheTerna Group orare Terna’s investees (which,originating executive and/orIndependent Director andStandingStatutory The Board hasidentifieddifferent generalcriteriaforthecommitmentsrequired ofeachrole (ExecutiveDirector, Non- Vittorio Rispoli,50yearsold–DirectorVittorio Michele Polo,52yearsold–Director [born inSoverato(Catanzaro)[born onMay31,1959] inMilanonAugust7,1957] [born million oranannualfinancialstatementstotalof of b) butthatexceedatleasttwoofthefollowingparameters: they have250employeesorworkers,annualturnover substantial equivalents; Decree no.385/1993(theso-called“Consolidatedbankingact”);foreign companiesare evaluatedonthe basisof to theprudentsupervisionbyBankofItalyandregistered withinthespeciallistprovided forbyart.107ofLegislative brokerage, assetmanagementorfinancialsectors.Withrespect tothelatter, financialcompaniesare onlythose subject nza” University in Rome, he nza” UniversityinRome, € 43 million;companiesthatdrawupconsolidatedfinancialstatements. Auditor), consideringthenature andsizeoftheCompany is alawyerandregistered auditor. HehasbeenDeputy € 50 289 Corporate Governance 290 Annual Report 2009 • • • • • • • the following: 28, 2008),andconsideringtheprovisions Code,theBoard ofart.1the CorporateGovernance ofDirectors carriesout In thiscontextandincompliancewiththeLawprovisions ofspecificresolutions (thelastonebeingthatofApril the bylawsaspreviously describedin“Bylawsamendments”. Board thecompetencetoresolve onissuespertainingtotheshareholders’ meetingthatcandetermineamendmentsto In additiontoexercising thepowersthatare attributedtoitbytheLaw, theCompany’sbylaws(art.21.1)attributes are inplacetomonitortheperformanceofCompanyanditssubsidiaries. responsibilities withrespect totheCompanyandGroup. Itisalsoresponsible forverifyingthatthenecessarycontrols The Company’sBoard ofDirectors holdsacrucialrole initsorganisation. Ithasstrategicandorganisational functionsand Role oftheBoard ofDirectors provided forbyart.2390oftheCivilCode. There havenotbeenexceptions,issuedbyTerna’s shareholders’ meeting,totheprohibition ofcompetitionbytheDirectors of positionsheldasDirectors orStatutoryAuditorsinsignificantlylarge companiesisprovided intheattachedtable1. In thesummariesofeachDirector’s personalcharacteristics,allthepositionsheldbythemare indicated.Thetotal number a numberofpositionsthatiscompatiblewiththeguidelinessetbyBoard. information delivered totheCompanyincompliancewithapproved guidelines,asofMarch 19,2010allDirectors hold the timelistswere submittedandsubsequentlywhentheyacceptedtheirappointment.Basedontheupdated All theDirectors inoffice thatwere appointedbytheMeetingonApril28,2008,informedaboutpositionstheyheldat the positionwithgreatest “weight”isconsidered. When more thanonepositionisheldwithinthesamegroup, includingemploymentbyoneof theGroup companies,only involved andtheirrelationship Code); withtheCompanyoritssubsidiaries (art.1.C.1,letterc)oftheCorporateGovernance theparties (II) characteristics, approval bytheBoard ofDirectors) theCEOreports totheBoard ofDirectors ontheir(I) transactions carriedoutbytheCompanyanditssubsidiaries(includinganyrelated partytransactionswhichdonotrequire during theyearincompliancewithpowers,through specificquarterlyreports. Inparticular, withrespect toallsignificant receives, similarlytotheBoard ofStatutoryAuditors,constantandexhaustiveupdatesfrom theCEOonactivitiesperformed aiming atimplementingmeasures thatwere already approved bytheBoard intheElectricity Transmission Grid’s term, foranamountexceeding dispatching andallotherrelated services;subscriptionofloans,grantedandreceived, ofany type,mediumandlong than an informativedocumentincompliance withthesupervisoryauthoritiesoffinancialmarkets and/ortransactionsformore completeness andaccuracy of Terna’s accountingandotherinformationwhichrequire Terna todisclose the public underlying item,consideration,methodortimingcouldhave animpactonsafeguarding theCompanyassetsor the to theBoard ofDirectors inadvance:“significanttransactions” carriedoutalsothrough subsidiariesforwhichthe support of the Internal Controlsupport oftheInternal Committee isprovided. Inparticular, thefollowingtransactions, if theyare related partytransactionsorcouldotherwise giverisetoapotentialconflictofinterest. Insuchcasesthe Code); of theBoard’s Committees (art.1.C.1,lettera)oftheCorporateGovernance Internal Code); Governance include thecombinedannualbudgetsandlong-termplans ofthesubsidiaries)(art.1.C.1,lettera)Corporate provides that,inparticular, theBoard ofDirectors approves theCompany’sannualbudgetandlong-term plans(which With regard tothismatter, reference shouldbemadetosectionXI; adequacy andactualoperationoftheTerna Group’s Control Internal Systemisreviewed atleastonanannual basis. the subsidiaryTerna ParticipaçõesS.A.whosemajorshareholding wassoldduring2009(November3,2009).The to themanagementofconflictsinterest Code).Thisdefinitionincludes (art.1.C.1,letter b)oftheCorporateGovernance core business),withspecificreference Control totheInternal System,whoseguidelinesare definedbytheBoard, and a) subsidiarieslistedonregulated marketsandb)subsidiaries thathaveasignificantforeign marketshare intheGroup’s subsidiaries thatholdstrategicimportance(incompliancewiththeBoard’s ResolutionofFebruary22,2007,theseare: Code); Governance determines theremuneration oftheCEOandotherDirectors withspecialduties(art.1.C.1,letterd)oftheCorporate or reserved fortheBoard ofDirectors byresolutions thereof Code); (art.1.C.1, letter c)oftheCorporateGovernance the CEOwidestpowersforadministrationofCompany, exceptforthoseassignedbytheLawor bylaws The current structure oftheBoard ofDirectors provides foronlyoneCEO.Thepowerscurrently assignedtohimgive examines andapproves transactionswithasignificantimpactontheCompany’sfinancialpositionandresults, especially systemwithintheCompany,defines theCorporateGovernance provides fortheappointment,role definition andrules examines andapproves strategic,businessandfinancialplans.Inthisrespect, thecurrent structure ofCompanypowers evaluates theadequacyofgeneralorganisational, administrativeandaccountingstructure oftheCompanyandits on thebasisofproposals madebythespecificcommittee andwiththeapproval oftheBoard ofStatutoryAuditors, delegates andrevokes powerstooneormore Directors, definingthecontent,limitationsandmethodsofsuchpowers. € 30 million,exceptforthoseapproved inthebudgetandfinancialplansaswellagreements relating to € 50 millionthatwere notincludedintheapproved budgetandfinancialplans not inter alia , are submitted relations, in coordination with the CEO, and (II) supervising activities of internal auditing. supervisingactivitiesofinternal relations, incoordination withtheCEO,and(II) insurance andsocialsecurity, privatecompaniesandnaturallegalpersons, supervisingtherelative international bothcentralandlocal,financialinstitutions,banks, and publicadministrativebodies,nationalinternational, supervisingtheCompany’srelations inItalyandabroad, withinstitutions,agencies Resolution ofApril28,2008,suchas:(I) In addition,theChairmanisrecognised furthernon-managerialpowersand/orhavingastrategicnature, basedonBoard’s way astheCEO–haspowersoflegalrepresentation oftheCompany. matters submittedtoexamination.Moreover, heverifiescompliancewithresolutions, chairsthemeetingand–insame and urgency –ofthedocumentationandnecessaryinformation sothattheBoard canconsciouslyexpress onthe the agendaandguidesmeeting’srunning,makingsure thattheDirectors are timelyprovided –exceptincasesofnecessity The activitiesoftheBoard ofDirectors are coordinated bytheChairman.ThelattersummonsBoard’s meetings,sets quality oftheinformationprovided. the lackofpositionsbasedon interest, theeffectiveness oftheinformativejobcarriedout bytheCommitteesand information provided. Other outstandingpointswere structure, identified, suchas:thegovernance thetransparency and and thefullyshared performanceobjectivesandCompanystrategyonthepartofBoard, theexcellentqualityof the effectiveness oftheBoard’s decision-makingcapability;thestrong reliance onthemanagerialandfinancialcapabilities Chairman andCEOthatcontinuestobethestrong pointandoutstandingfunctionalaspectfortheCompany’sefficiency; knowledge ofissues;thehighlypositiveevaluationTop Managerscharacterisedbyaperfectbalanceinthe roles of improvement intheinteractionbetweenDirectors and theManagementandinunderstandingofprocesses andthe In particular, theBoard pointedoutthefollowing:veryconstructiveapproach withintheBoard itself;thecontinuous examined andcommittedtoexercising theirrole asbestpossible. size, compositionandperformanceoftheBoard anditsCommitteeshavingpositivelyevaluatedalltheprincipalprofiles On thebasisofresults oftheanalysiscarriedout,Board ofDirectors passedanoverallpositiveevaluation onthe bestpractices. the international performance andefficiency oftheBoard anditsCommitteesalsothrough abenchmarkinganalysisbetweenTerna and performance andefficiency oftheBoard anditsCommittees;b)identifyingtheelementsthatcanhinderorimprove the gathered; itfocusedonnumerous aspectsregarding: a)thesize,compositionandunderstandingoflevel of questionnaires andindividualinterviewswitheachDirector andthrough subsequentquantitativeanalysisoftheinformation The independentconsultant’sanalysisstartedduringthefirstquarterof2010andwascarriedoutthrough qualitative evaluations. Thisinitiativefollowssimilaronesthatwere undertakenbyTerna’s Board ofDirectors asof2006. assessment, drawingontheassistanceofaspecialisedindependentconsultanttoensure theutmostobjectivityofits assessed theBoard’s size,compositionandperformance,as wellasthatofitsCommittees.TheBoard conductedsuch CodepublishedbyBorsaItaliana,Terna’sIn compliancewiththeCorporateGovernance Board ofDirectors alsofor2009 Assessment oftheBoard ofDirectors activity present report, theBoard ofDirectors met2times. December 16,2009,January13,2010andFebruary17,2010.Inthecurrent yearandasofthedateapproval ofthe of theeconomicandfinancialdatabyBoard ofDirectors according towhatofficially communicatedtothemarketon For 2010,aBoard meetingisexpectedeverymonthandallthe meetingshavebeenscheduledrelative totheexamination regularly participatingaswelltheBoard Code). ofStatutoryAuditors(art.1.C.1letth)theCorporateGovernance During 2009,theBoard met9timesandeachmeetinglasted anaverageofonehourandfifteenminuteswiththeDirectors to adequatelyconsiderallstakeholdersintheperformanceofthoseactivities. of creating valueforshareholders, takingintoaccountthesocialaspectsofGroup’s activitiesandtheresulting need The Directors gatherregularly andcarryouttasksbasedontheirfullknowledgeinautonomy, pursuingtheobjective Board ofDirectors meetings • • • • 1.C.1, letter g) of the Corporate Governance Code); 1.C.1, letterg)oftheCorporateGovernance planned results Code); havebeenachieved(art.1.C.1,lettere)oftheCorporateGovernance on thebasisofinformationreceived from Control theCEOandInternal Committee,periodicallycheckingthat Code); subsidiaries havingastrategicimportance(art.1.C.1,lettera)oftheCorporateGovernance the shareholders’ meetingsofsubsidiariesandotherinvesteesaswelltheappointmentdirectors andauditorsin companies orcompanybrancheswithavalueexceeding Code); Development Plan(art.1.C.1,letterf)oftheCorporateGovernance reports totheshareholders duringthemeeting. at leastonceayear, evaluatesthesize,compositionandperformanceofBoard ofDirectors anditscommittees(art. assesses thegeneralperformanceofCompanyoperations,withspecificreference tosituationsofconflictinterest, resolves regarding theestablishmentofnewcompanies,purchase andtransferofshares incompanies,namely € 10 millionandarrangesfortheexercise ofvotingrightsat 291 Corporate Governance 292 Annual Report 2009 a specificmeetingtobeheld for them. Committees has beentakingplace,bothat meetingsoftheInternal the committees,inoperatingsystemaconstantexchange ofinformationbetweenthesameIndependentDirectors Following theworkmethodofBoard ofDirectors, andthepresence ofIndependentDirectors inthecompositionof independence establishedforAuditorsbyart.148,paragraph 3,ofLegislativeDecree no.58ofFebruary24, 1998. force –withrounding, incaseoffractional numberlowerthantheunit,tofollowingunit–meetsrequirements of requirement ofindependenceenvisagedforinart.15.4the bylawsthatdemandsatleast1/3ofthedirectors in Among theassessmentscarriedoutbyBoard, withreference tothe4Directors, theexistenceisproven ofthe within theBoard anditscommittees,suitablyensures adequate considerationofallshareholding members’interests. can bequalifiedas“independent”incompliancewiththe abovementionedcriteria,andwhoserole issignificant both Although independencecharacterisestheactivityofall Directors, executivesandnon-,thepresence ofDirectors that Code). was verifiedbytheAuditors(art.3.C.5ofCorporateGovernance At thesametime,correct applicationofthedefinedcriteriaandprocedures adoptedbytheBoard ofDirectors Michele Polo,Vittorio Code). Rispoli(artt.3.C.1,3.C.2and3.C.4 oftheCorporateGovernance existence oftherequirement ofindependenceineachthe4Non-executiveDirectors: PaoloDalPino,Salvatore Machì, Codeand onthebasisofinformationsuppliedbypersonsinvolved–confirmed the CorporateGovernance defined fortheassessmentofindependencenon-executive their appointment.Moreover, theBoard ofDirectors’ meetingofMarch 19,2010–onthebasisofcriteriapreviously CodewhichTernabylaws andtheCorporateGovernance hasadopted,foreachDirector inthefirstusefuloccasionafter The Board ofDirectors hasevaluatedtheexistenceofrequirements ofindependenceprovided forbytheLaw, the A suitablenumber, also for competence,ofNon-executiveDirectors isindependent. Independent Directors business activitieswithparticularreference tothepreparation ofthedevelopmentplanforNationalTransmission Grid. During 2009,theDirectors participatedinspecificmeetings withtheCompany’smanagementinrelation tothecore resolutions inlinewithsocialinterests. of thesubjectsaccording tovariousperspectivesandsubsequently passdeeplyanalysed,consciousandrespectful The Non-executiveDirectors enrichwiththeirspecificcompetences theBoard’s discussions,soastofavortheexamination a significantweightinBoard’s decisionsinlinewithwhat provided Code(art.2.P.3). forbytheCorporateGovernance with operatingproxies and/ormanagingroles intheCompany)are capableofguaranteeingthattheirjudgmentcanhave For theirnumber, competence, authorityandavailabilityoftime,theNon-executiveDirectors (sincetheyare notprovided auditing–areitself, aswellthetasksofvigilanceonactivitiesinternal notcarriedoutonspecificmanageriald correct withintheBoard CorporateGovernance ofDirectors, andthetasksofrepresentation acknowledgedbytheBoard in theGroup –connectedbothtotherole, acknowledgedbythebylaws’provisions, ofguarantortheapplication It mustbenotedthatalsotheChairmandoesnotplayanexecutiverole, sincetheindicatedandimportantfunctionsheld executive. Pino, MatteodelFante,ClaudioMachetti,Salvatore Machì,MichelePolo,Vittorio Rispoli)mustallbeconsidered asnon- Exception madefortheCEO,other8membersofBoard ofDirectors (LuigiRoth,CristianoCannarsa, PaoloDal andthefundamentallinesofgovernance. adequately informedabouttheexistingsystemofCompanygovernment theCompanyandexerciseinnovations concerning ofownfunctions.Onoccasiontheappointment,theyare In addition,theDirectors are keptconstantlyinformedbycompetentdepartmentsonthemainlegislativeandregulatory On aquarterlybasis,specificreports are prepared inorder toinformtheBoard onmajoractionandactivities. a quarterlybasisandonoccasionofBoard’s meetings. the Companyaswellofresolutions passedinexercising hispowerspursuanttoart.21.3ofthebylaws,atleaston The CEOinformstheBoard ofDirectors andtheBoard ofStatutoryAuditorstheactivitiesandmanagement by thebylawsorreserved fortheBoard ofDirectors onthebasisofitsresolutions aspreviously indicated. of theCompany, pursuanttoBoard ResolutionofApril28,2008,withexceptionthosedifferently attributedbytheLaw, The CEOhaspowersoflegalrepresentation oftheCompanyandisentrustedwithwidestpowersforadministration defining theircontent,limitsandanyexercise modalities;noexecutivecommitteewasestablished. The current structure oftheBoard ofDirectors provides foronlyoneCEO,towhichtheBoard hasattributedpowers, CEOs Delegated bodiesandotherExecutiveDirectors members, incompliancewiththecriteriaindicatedby and attheBoard’s meetings, whichhasnotrequired uties. management decisionsthatcould affect theoutlookandfuture developmentof Terna. departments, indicatedinthe procedure itselfastheyhaveregular accesstoprivileged informationandmaytake which “relevant persons”in additiontoTerna’s Directors andStandingAuditors, were identifiedasthemanagersof Terna’s structural assetofthecompany;thisprocedure replaced Code,in theprevious dealingCorporate Governance internal according totheresolution bytheBoard ofDirectors datedMarch 19,2010basedonCONSOB’sexplanations andonthe whichwasrecently updated the Board ofDirectors procedure adoptedaspecificinternal effective asofApril1,2006 – 114, paragraph7,ofLegislativeDecree no.58/98andart.152 instruments oftheCompanycarriedoutby“relevant persons”withinthesameCompanyorcloselyrelated people(art. measures thereporting thatgoverned obligationtoBorsaItalianaandCONSOBontransactions involving thefinancial sensitive information(“relevant persons”).DuringthemeetingofMarch 15,2006,incompliancewiththelegislative or itssubsidiaries,carriedoutbypeoplewithsignificantdecision-making powersintheCompanyandwithaccesstoprice requirement forlistedcompanieswith respect tosignificanttransactions, involvingthefinancialinstrumentsofCompany compliance withtheregulatory measures laiddown byBorsaItalianaS.p.A.,establishingthemarkettransparency As ofApril2004,theCompany’sBoard ofDirectors Code,in alsoapproved dealingCorporateGovernance theinternal requires thatsubsidiariesalsocreate theirownslists. within Terna. Italsoprepared aspecificregulation howthelistshouldbeheldandupdated. Thesameregulation togovern issued byCONSOB,Terna’s Board ofDirectors created aspecificlistofpeoplewithaccesstoprivilegedinformation In compliancewiththeprovisions ofart.115 Lastly, thenewregulation introduced specific“Measures forpersonscommittingviolations”intotheregulation’s provisions. (i.e. financialanalystsandinstitutionalinvestors). thewayinwhichmembers oftheCompanyshoulddealwithpressgoverns andothermasscommunicationmeans information outsidetheCompany, withparticularfocusonthedisclosure ofprivilegedinformation.Italsoscrupulously Moreover, theregulation establishesspecificprocedures tobefollowedwhendisclosingCompanydocumentsand be disclosedwiththepriorauthorisationofCompany’sCEO. of confidentialinformationforwhichtheyare responsible, pr The regulation generallyentruststheCompany’sCEOand delegatedbodiesofthesubsidiarieswithmanagement discussions duringBoard meetings,confidential. any case,keepalldocumentsandinformationacquired inthe performanceoftheirduties,aswellthecontentany and StatutoryAuditorsofTerna anditssubsidiariesare required tocomplywiththeprovisions ofthisregulation and,in they willprovide Terna withallthenecessaryinformationforittomeet thedisclosure requirements oftheLaw. TheDirectors information tothemarketrelating toCompany’sdata. Theregulation alsosetstheguidelinesforsubsidiaries,sothat information whileatthesametimeensuringdisclosure ofcorrect, complete,adequate,timelyandobjectiveCompany specific reference to“pricesensitive”information.Itaimsatmaintainingthesecrecy ofconfidentialandprivileged This regulation represents anupdatetothemeasures includedintheregulation thatTerna approved asofApril2004,with confidential informationprovided forbyparagraph 1,art.114ofLegislativeDecree no.58/98. documents andinformationontheCompanyitssubsidiariesoutsideofCompany, withspecificreference tothe regulation forthemanagementandtreatment ofconfidentialinformation,whichalsoincludestheprocedures fordisclosing Code,ofart.114,paragraph1,and181LegislativeDecreeCorporate Governance no.58/98,approved aspecific management ofprivilegedinformationaimedatpreventing insidertradingandwiththeprovisions ofart.4thenew During themeetingofDecember21,2006,Company’sBoard ofDirectors, incompliancewiththeprovisions onthe Section V was notestablishedwithinTerna. Codeareassumptions indicatedbytheCorporateGovernance notpresent, thepositionofLeadIndependentDirector basis ofsuchassumptions,confirmedbytheoutcomesboard review whichtheBoard issubjectto,andsincethe information thatrendered theworkofBoard productive andfocusedonthetruerequirements oftheCompany. Onthe the Non-executiveDirectors and,inparticular, oftheIndependentDirectors; italsoguaranteedapreventive exchangeof The workmethodoftheBoard ofDirectors hasassured thesuitablecoordination ofthecontributionsandrequests of Lead IndependentDirector Management ofconfidentialinformation bis of theConsolidatedLawonFinanceandwithregulatory measures oviding thatsuchinformationonindividualsubsidiariesshould sexies , septies and octies of CONSOB’sIssuerRegulation) 293 Corporate Governance

their remuneration were submittedtotheBoard ofDirectors. an averageofhalfhoureach. NoneoftheDirectors participatedinthecommitteemeetings inwhichproposals regarding In 2009,theRemunerationCommittee held3meetings,withtheregular participation ofallmembers.Themeetingslasted and LuigiRoth,allNon-executive Directors andmostofwhomare alsoindependent. The RemunerationCommittee iscurrently composedofVittorio Rispoli(ascoordinator), PaoloDal Pino,Salvatore Machì for theRemunerationCommittee”whichwasapproved withresolution datedJanuary24,2007. The Committee’staskswere reconfirmed asalready identifiedbytheBoard within“Terna S.p.A.’sOrganisational Rules was alsorenewed aswellitsmembers. Following therenewal oftheBoard ofDirectors duringthemeetingheldonApril28,2008, theRemunerationCommittee recommendations totheBoard onthematter. subsidiaries, periodicallyevaluatingitscriteriaonthebasis ofindicationsprovided bytheCEOandsubmittinggeneral fordeterminingtheremuneration criteriaofthetopmanagementCompanyandits Board’s resolutions, and(II) fortheremuneration oftheCEOandotherDirectors withspecialdutiesmonitoringtheimplementationof Board (I) In 2004,withintheBoard ofDirectors aRemuneration Committeewassetup,responsible formakingproposals tothe Functions oftheRemunerationCommittee Section VIII line withtheprovisions Codeforlistedcompanies. oftheCorporateGovernance shareholders havenotmetdifficulties inpresenting adequatecandidacies,suchastoallowacompositionoftheBoard in Currently, Terna hasnotsetup,withintheBoard ofDirectors, aspecificAppointmentCommittee, sinceuptonow Section VII of thecommittee,canparticipateinmeetings. On invitationofthecoordinator ofeachcommittee,other subjects,whosepresence cancontributetothebestperformance Within theCompanybudget,adequatefinancialresources are allocatedfortheimplementationoftaskseachcommittee. advisorsinthe limitsprovideduse possibleexternal forbytheBoard ofDirectors. committee hasalsothefacultytoaccessinformationandnecessarydepartmentscarryoutitstasks can Board ofDirectors asofJanuary24,2007.Themeetingsthecommitteesincludedrawingupminutes.Each modalities ofcarryingoutthemeetingshavebeenruledthrough proper organisation internal regulations adoptedbythe composition, thetasksandresponsibilities Codeandthe attributed incompliancewiththeCorporateGovernance The committeeshavebeenattributedthetasksprovided Code.Thecriteriaforthe for bytheCorporateGovernance Code. pursuant toCorporateGovernance proposal-making andadvisoryfunctions,madeupofatleastthree Directors, themajorityofwhichindependent, Within theBoard ofDirectors, Control theRemunerationCommitteeandInternal Committeehavebeenset,bothwith Section VI • • • This procedure isavailableintheCompany’swebsite heightening thequalitativecontent: Dealing”section.Theprocedure/Internal includesthefollowingqualifyingelements,whichare considered adequatein can establishadditionalblockingperiodsduringtheyear, followingspecificevents; the approval ofthedraftfinancialstatementsandhalfyearreport byTerna’s Board ofDirectors. Moreover, the Board subsidiaries asidentifiedintheprocedure (inadditiontoTerna’s actualDirectors andStandingAuditors); an adequatepenaltysystemwascreated for“relevant persons”identifiedasviolatingthemeasures ofthisprocedure. “relevant persons”are notallowedtocarryouttransactions(otherthantheexercise ofoptions)duringthe30daysbefore dealingtransparencyapplication ofinternal obligationstowards “relevant persons”withintheCompanyandits Board Internal Committees Board Internal Appointment Committee Remuneration Committee www.terna.it in the“InvestorRelations/CorporateGovernance 295 Corporate Governance 296 Annual Report 2009 • • • within “Terna S.p.A.’sOrganisational Rulesfor the RemunerationCommittee”whichwere approved on January24,2007: re-established anditsmemberswere appointed.The committeewasassignedthefollowingduties,asalready identified Following therenewal oftheBoard ofDirectors Control duringthemeetingofApril28,2008, Internal Committeewas functions. As of2004,theBoard ofDirectors created Control aspecificInternal Committee,withadvisoryandproposal-making Control Committee Functions oftheInternal Section X financial statements. The compensationreceived bythemembersofBoard ofDirectors duringtheyearare indicatedin thenoteto achievements oftheCompany. TheNon-executiveDirectors are noteligibletoshare-based incentiveplans. considering thepossibleparticipationinoneormore committees.Thecompensationisnotboundtotheeconomic The compensationoftheNon-executiveDirectors isadequate tothecommitmentdemandedeveryoneofthem, of objectivesindicatedinadvancebytheBoard ofDirectors Code. inlinewithart.7.C.1oftheCorporateGovernance A portionofthecompensationCEOisboundtoeconomicresults achievedbytheCompanyandtoattainment of StatutoryAuditors. of Directors basedontheproposal submittedbytheRemunerationCommitteeandfollowingevaluationBoard of theBoard ofStatutoryAuditors;theoverallcompensationfor theChairmanandCEOisalsoidentifiedbyBoard with art.2389,paragraph3oftheCivilCodeand24.2bylaws,byBoard itself,followingtheevaluation CodeofBorsaItaliana wasresolved,Governance followingtheevaluationbyBoard ofStatutoryAuditors,incompliance Extra compensationforthemembersofCommitteesformedwithinBoard ofDirectors incompliancewiththe The compensationoftheDirectors isestablishedbythe shareholders’ meetingforeachDirector (art.24.1ofthebylaws). Section IX The committeehasbeengrantedadequatefinancialresources. of Directors, withintheyearlyreview oftheBoard andthecommittees. The altogetherpositiveevaluationonthesize,compositionandoperationofcommitteewasconfirmedbyBoard During themeetingofMarch 19,2010,theBoard ofDirectors evaluatedthedutiesandperformanceofcommittee. top management. addition, duringthemeetingsheldin2009,RemunerationCommitteeexaminedincentiveplansforCompany’s to bebasedontheCompany’sresults andtheachievementofspecificobjectivesindicatedinadvancebyBoard. In Committee madespecificproposals totheBoard ofDirectors thatprovided foraportionoftheExecutiveDirector’s fees Furthermore, withrespect totheremuneration oftheCEOandotherDirectors withspecialduties,during2009,the with adequateexperience,increasing theirsenseofbelongingandensuringtheyare constantlyfocusedoncreating value. management. Theseare incentiveandloyaltyplansaimedatattractingmotivatingresources attherightlevelsand As partofitsduties,theRemunerationCommitteehasakeyrole inimplementingspecificstockoptionplansforthe up tothedateofapproval ofthisReport,theCommitteehasheld1meeting. In 2010,theCommitteewillholdasmanymeetingsare sufficient forcarryingoutthedutiesassigned.Duringyear, (art. 8.C.3, letter a) of the Corporate Governance Code); (art. 8.C.3,lettera)oftheCorporateGovernance correct applicationofaccountingprinciplesandtheiruniformityforthepreparation oftheconsolidatedfinancialstatement and effective implementationthereof Code); (art.8.C.1oftheCorporateGovernance Code); Controlplanning, implementationand management oftheInternal System(art.8.C.3,letterb)oftheCorporate Governance expressing opinionsonrequest identificationofmainCompanyrisks and oftheCEO,onspecificaspectsconcerning assessing, togetherwiththeexecutiveincharge ofthepreparation ofaccountingdocumentsandtheAuditors, assisting theBoard ofDirectors Control inestablishingInternal Systemguidelinesandperiodicallycheckingtheadequacy Internal Control Committee Internal Remuneration ofDirectors these elementsmakestheICS effective overall. management system;control activities;information,communicationsandmonitoring. Thecoordinated implementationof and guaranteedimpartiality in concessionactivities.Itisbasedonthefollowingelements: control environment; risk and regulations, thereliability ofCompanyandfinancialreporting, thesafeguarding oftheelectricityservicecontinuity the efficiency andeffectiveness ofCompanytransactions,thereliability offinancialstatements, compliancewiththeLaw With reasonable certainty, theGroup’s ICScontributestoreaching strategicobjectives, tosafeguarding Companyassets, Code). consistently manageoperationsinlinewithitsobjectives(artt. 8.C.1and8.C.2oftheCorporateGovernance identification, measurement, managementandmonitoringprocess ofprimaryrisks,enabletheCompanytocorrectly and bestpractices,asthesetofrules,proceduresand international andorganisational structures which,through anadequate 21, 2006,theBoard ofDirectors updatedthe“Terna Group’s Control Internal System”(ICS)definition,inlinewithnational With respect control, tointernal onthebasisofpreliminary Control assessmentoftheInternal Committee,onDecember Section XI The committeewasgrantedadequatefinancialresources. of Directors withintheyearlyreview oftheBoard itselfandofthecommittees. generally positiveevaluationofthecomposition,sizeandresponsibilities ofthecommittee,wasconfirmedbyBoard During themeetingofMarch 19,2010,theBoard ofDirectors evaluatedthedutiesandoperationofcommittee.The up tothedateofapproval ofthisreport, theCommitteehasheld2meetings. In 2010,theCommitteewillholdasmanymeetingsare sufficient forcarryingoutthedutiesassigned.Duringyear 231/01 withreference totheadequacyanddevelopmentofmodelactivitycarriedoutbythisboard. the standards. Thecommitteealsoreceived dueinformationfrom thesupervisoryboard underLegislativeDecree no. Code,the committeeassessed,togetherwiththeExecutiveinCharge,by theCorporateGovernance thecorrect useof the Board ofDirectors withadvisorysupportinsignificanttransactionsrelated parties.Pursuanttowhatprovided for to theprovisions underLawno.262/05andsubsequent modifications(socalled“262Project”). Furthermore, itprovided the preparation ofaccountingdocuments,theCommittee specificallyexaminedthestateofprogress ofadjustmentactivity provided informationregarding theirworkplanandtheresults obtained.WiththesupportofExecutiveinCharge of adequacy oftheauditprocess, aswelltherelative 2009activityplan;italsometwiththeindependentauditorsthat In particular, Control Control in2009,the Internal CommitteeexaminedtheguidelinesforInternal Systemandthe deemed helpfulforthebestinformationregarding theitemsonagenda. Upon theCommittee’srequest, themeetingswere alsoattendedbydirectors oftheCompanywhosepresence was as required Code). bycurrent listedcompanies(art.8.C.4oftheCorporateGovernance legislationconcerning was present ateachmeeting,giventheBoard’s specificsupervisoryfunctionswithrespect Control totheInternal System, an averageofonehour;theChairmanBoard ofStatutory AuditorsoranotherStatutoryAuditorappointedthereby ControlIn 2009,theInternal Committeemet7times,withtheregular participationofallmembers.Eachmeetinglasted accounting andfinancialexperience. Fante andMichelePolo,whoare allnon-executiveandmostlyindependentdirectors. Atleastonememberhasadequate ControlThe Internal Committeeiscurrently composedofSalvatore Machì(ascoordinator), PaoloDalPino,MatteoDel party transactions”(sectionXII). functions forrelated partytransactionsasindicatedinthesectionofthisreport devotedto“Director interests andrelated compliance withLegislativeDecree no.231/01andwithTerna’s CodeofEthics.TheCommitteeisalsoassignedadvisory Additional specificdutiesare assignedtotheCommitteebasedonOrganisational ModeladoptedbyTerna in • • • • • company. Control Code); System(art.8.C.3,letterg)oftheCorporateGovernance Code); Governance for theauditingandresults presented inthereport andinthesuggestionletter(art.8.C.3,d)ofCorporate Code); by him(art.8.C.3,letterc)oftheCorporateGovernance carrying outfurtherdutiespotentiallyassignedbytheBoard ofDirectors relations especiallyconcerning withtheauditing reporting, atleasteverysixmonths,totheBoard ofDirectors aboutactivitycarriedoutandadequacyoftheInternal supervising theeffectiveness oftheauditingprocess Code); (art. 8.C.3,lettere)oftheCorporateGovernance evaluating theproposals comingfrom theauditingcompaniestoobtainassignmentaswellworkplanprepared examining theworkplanprepared bytheExecutiveinCharge control ofinternal aswelltheperiodicalreports prepared Internal Control System Internal 297 Corporate Governance 298 Annual Report 2009 companies. pursuant toLegislativeDecree no.231/01ontheimplementation oftheorganisational modelwithinTerna andother Group In itsreport, Control theInternal Committeealsodiscussedinrelation tothereport ofthesupervisoryboard appointed and corporatestructure Code). (art.8.C.1,letter c)oftheCorporateGovernance suitable toachieveanacceptableriskprofile, inconsideration ofthefieldinwhichTerna operates,ofitssize,organisatio Committee onthebasisofanalysesmadeincourse2009,judgedTerna Group’s Control Internal System Terna’s Board ofDirectors’ meetingofMarch 19,2010incompliancewiththeopinionrendered Control bytheInternal Law onFinance). with respect tothefinancialinformationnote,alsoconsolidated ( Attachment 1tothisreport control includestheprincipalcharacteristics ofexistingriskmanagementandinternal systems Control System,onthebasisofadequatepreliminary assessments. correct managementprinciples.TheBoard alsoevaluatestheadequacyandeffective implementationof theInternal System, sothatthemainrisksare identified,monitored andmanagedonacompatiblebasisinlinewithsound ControlWith thesupportofInternal Committee,theBoard ofDirectors Control establishestheguidelinesfor Internal certain criticalprocesses, specificprocedures aimedatpreventing illegalconduct. managing reports ofillegalitieshaveledtointroducing specificcontrols aimedatreducing suchrisksandatdefining,for spreading theculture oflegalityandrespecting corporateregulations. Continuouslymonitoringprocesses, verifyingand Terna, hasindeedanappropriate structure dedicatedtopreventing andmanagingcorporatefraudactivitiesalsoaimedat with the departments that carry out activities of Internal controlwith thedepartmentsthatcarry outactivitiesofInternal in subsidiaries. whose fieldofapplicationisextended tothewholeGroup. auditcanbecarriedoutinconnection TheactivitiesofInternal an acceptableoverallriskprofile Code).Heoperatesthrough (art.8.C.6,lettere)oftheCorporateGovernance auditactivity the auditactivityresults relative Control to risk managementandtothesuitabilityofInternal Systeminorder toachiev The Auditresponsible reports theresults Control totheCEO,Internal CommitteeandtotheAuditorsconcerning Code. Governance supervised bytheCompany’sChairmanpursuanttoartt. 8.C.1,8.C.6,lettersa)andb)8.C.7oftheCorporate Within Terna, theExecutiveinCharge Control oftheInternal isthepersonResponsible fortheauditfunction,whois Control Executive inChargeforInternal Code). letters a),b)andc)oftheCorporateGovernance Company structures; hethenperiodicallysubmitssuchriskstotheBoard ofDirectors (artt.8.C.1,letter b) and8.C.5, and planning,implementing,managingdealingtheidentification ofthemainrisksforGroup through thedesignated The CEOsupervisesthefunctionalityofICSGroup, implementingtheguidelinesdefinedbyBoard ofDirectors ControlExecutive Director System inChargeoftheInternal continuous, andtypical,butnotexclusive,oftheAuditDepartment. carried outbypersonnelintheperformanceoftheirwork,andthrough separateassessmentsthatare regular, butnot “Monitoring” aimsatconstantlyverifyingtheeffectiveness Control oftheInternal Systemthrough continuousactivities outside theCompanyare correct andtransparent. roles, responsibilities andconductare clearlydisclosedinternally, whileguaranteeingthatdisclosures tostakeholders The “communicationsandinformationprocesses” ensure thattheCompany’sexpectedobjectives, culture, values, principles, suchasself-control, hierarchical control, accountability, opposinginterests andsegregation ofduties. The “control activities”are carriedoutbymanagementandemployeestoachievespecificobjectivesonthebasisof security levelsthatexceedtheregular standards attainablethrough asectoralandfragmentedsecuritymanagement. In additiontoensuringabsolutecompliancewithlegalprovisions, thisintegratedmodelallowsreaching corporate and themomentinwhichthisthreat materialises. which, beingofavariedtypeare alsocharacterisedbythetimevariablebetweenmomentathreat presents itself that promotes andsupervisesitsimplementation,derivesfrom thefactthatriskscaninfluencecorporateactivities, The importanceofusingastructured organisation methodandadedicatedinternal (CorporateSecurityDepartment), integrating itssecuritytoolsanddefiningatransversalsystemforidentifying,analysingcontrolling corporaterisks. implement anintegrated“riskmanagementsystem”,in2007Terna created aCorporateSecurityDepartmentsignificantly risks withinacceptablelimits,usingwide-rangingriskmanagementpoliciesdefinedinspecificprocedures. Inorder to The “riskmanagementsystem”implementedbytopandmiddleenablestheGroup tomanageitsmain and allemployees’conductmustbeincompliancewith. its ethics,whichare setoutintheCodeofEthicswhichGroup’s managerialstyle,personnelmanagementpolicies The “Control environment” atthebasisofallotherelementsconsistsGroup’s modeland CorporateGovernance ex art. 123 bis , paragraph2,letterb)oftheConsolidated nal e , • • • • • Terna’s CodeofEthicsisbroken down intofivesections,whichdiscuss,inthisorder: the 10principlesofGlobalCompact,mostimportantexpression ofthisvision. by everybody, andthatshouldbefullyadoptedbycompanies.Itisnot chancethattheCodeofEthicsisinspired by terms Terna’s uniqueness.Itunderlinestheneedtorespect universal ethical principles,thatcanbeimmediatelyrecognised The newCodeofEthics,whichwasapproved bytheBoard ofDirectors onDecember21,2006,explainsalsoinethical operator intheelectricitytransmissionmarket,withasetofrulesandpoliciestofollowonbasisthisnewcontext. In 2006,theCompanyupdatedCodeofEthicstoequipTerna, followingthechangethatrendered itanindependent in therightwayorder toestablishtrust,strengthen theCompany’spositivereputation andcreate value. Code ofEthics(thatwasupdatedinMarch 2004)toallowemployees andallthosehavingrelations withTerna, tooperate In May2002,aware ofthemoralaspectsinvolvedinitscore activities,Terna’s Board ofDirectors resolved toadoptits Code ofEthics Code ofEthicsandOrganisationalModelunderLegislativeDecree no.231/2001 respective tasks. ControlAuditors andtheInternal Committeetimelyexchangeimportantinformationfortheaccomplishmentof specific operatingareas orCompanyoperations. The Board ofStatutoryAuditors,withinitsownactivities,canrequest theAuditdepartmenttocarryoutassessmentson by theIIA,obtainingresult of“generalcompliance”,thehighestpositiveassessmentobtainableaccording totheIIA. forth itsmissionandcomplianceoftheactivitiescarriedoutwithStandards Auditingissued forthepracticeofInternal Quality AssessmentofTerna’s Auditdepartmentendedthatassessedtheeffectiveness oftheauditdepartmentinbringing standards Audit(IIA),theExternal In February2009,asenvisagedbytheinternational issuedbytheInstituteofInternal facts orasaresult ofparticularevents. approved bytheChairmanorcanbedeterminedeachtimeCompany’stopmanagementinrelation tospecific ControlAudit activitiescanbeconductedonthebasisofayearlyactivityplanexaminedbyInternal Committeeand Code). availability ofadequatemeans(art.8.C.6,letterd)theCorporateGovernance Code).Fortheexerciseletter c)oftheCorporateGovernance ofitsowntasks,theauditdepartmentisassured the judgment withrespect Control tothesuitabilityofInternal Systemtoachieveanacceptableriskprofile (art.8.C.6, The auditdepartmenthasfree accesstoallinformationsystems,actsandbusinessdata,usefulexpress anindependent to illustrateitsworkinthefieldofethicsandsocialresponsibility whichispublishedonayearlybasis. To completetheCodeofEthicsandcommitmentsundertakentherein, Terna decidedtodrawupasustainabilityreport the 10universalprinciplesofhumanrights,occupation,environmental protection andanti-corruptionmeasures. companies,UNagencies,tradeunionorganisationsgovernments, andthecivilsocietywithaimofgloballypromoting resolving toofficially jointheGlobalCompact,multi-stakeholdernetworkpromoted bytheUNOrganisation thatjoins On December16,2009Terna’s Board ofDirectors, basedonsustainability, undertookanadditional andcoherent step at furtherstrengthening itscompleteimplementation. the CodeofEthicstorespond toclarificationrequests, anewcampaign waslaunchedfordisseminatingtheCode,aimed In November2009,inconcomitancewiththebeginningof office oftheEthicsCommittee,corporatebodybasedon stakeholders) limitedtotheinitialguidelinesforconduct tobefollowedwiththeindividualcategoriesofstakeholders. (Principles), 2(Conflictsofinterest, Companyloyaltyandtheintegrityofcompanyassets)forsection3(Relationswith The CodeofEthicswasapproved inDecember2006.Itapplies toallofTerna Group’s subsidiariesforsections1 be contactedforanyclarifications. Terna requires consistent conduct; of interest andtheintegrityofCompanyassets; transparency); Terna believesare particularlyimportant,givenitsactivitiesandnature (goodmanagement,respect, and fairness accountability), thatare universalandtherefore toberecognised andshared byall,andintofourmainprinciplesthat the rulesimplementingCodeandrelevant people responsible forupdatingitandgatheringreports, whoshould Terna’s commitmenttocompliancewiththeCodeandconductrequired withrespect tocertainstakeholders; general instructionsfortheconducttofollowinrelations withstakeholders,broken downintoeightgroups inwhich the conductrequired, especiallyfrom employees,basedonthree importantelements:loyaltytotheCompany, conflicts Terna’s fundamentalethicalpinciples,whichare organised intogeneralethicalprinciples(legality, honestyand 299 Corporate Governance 300 Annual Report 2009 website ( In order toguaranteewiderdiffusion oftheknowledgeadoptedModel,sameispublishedinCompany’s relations, andexternal whileofferinginternal shareholders aguaranteeofefficient andcorrect management. line withthebestpractices,andrepresents thefinalsteptowards completeaccuracy, transparency andaccountabilityin The contentofthisModelisconsistentwiththeguidelinesprepared forthispurposebytradeassociations.Itisalsoin of theCompanyonJune23, 2004. 2002 (for2002-2004)andbytheshareholders’ meetingofMarch 3,2004(for2004-2006);thelatterrelated tothelisting assignment followsthepreviously attributedassignmentstotheKPMGcompanybyshareholders’ meetingofApril9, Decree no.303ofDecember29,2006(theso-calledcorrective decree) ofLawno.262 ofDecember28,2005,such Considering provisions underart.159oftheConsolidatedLawonFinanceand8,paragraph7Legislative and totheGroup. Board ofAuditorspreventively verifiedtherequirements ofindependence ofthecompanyassignedwithreference toTerna In elaboratingtheproposal forassignmentofauditsubmittedtotheshareholders’ meetingheldonMay24,2007,the audit companyKPMGS.p.A.forthe2007-2010period. the resolution passedbytheshareholders’ meeting of May24,2007onproposal oftheBoard ofStatutoryAuditors,tothe The assignmentofauditingtheannualreport andtheconsolidatedfinancialstatementhasbeenentrusted,pursuant to Audit Company • • • • • • • • • The Modeliscurrently organised intoninesections: performance oftheiractivities,toprevent theriskofoffences provided forbytheDecree from beingcommitted. those operatinginthenameandonbehalfofTerna anditsGroup, sothattheirconductbecorrect andtransparent inthe regardless oftheregulations thatmadeitoptionalratherthanmandatory–wasavalidtoolinincreasing theawareness of This project wenthand-in-handwiththeCodeofEthics,asCompanybelievedthatadoptionthisModel– During 2009,inparticular, integrationsandupdateswere approved totheModelrelative tocomputer-related offences. management activities,aswelloftheaccruedexperienceandlegalguidelinesthatwere issued. new offences intoLegislativeDecree no.231taking intoaccounttheintegrationofNationalTransmission Grid Over time,theModelunderwentchangesandupdateswasadaptedtoLawprovisions andsubsequentadditionof were listed. employees intheCompany’sinterest ortoitsbenefit.ThemodelwasupdatedinJune2004,aftertheCompany’sshares (and criminal)liabilityforcompanieswithrespect tocertaintypesofoffences committedbytheirdirectors, managersor requirements ofLegislativeDecree no.231ofJune8,2001,whichintroduced intotheItalianLawasystemofadministrative Since December2002,Terna’s Board ofDirectors resolved toadoptamanagerialandadministrativemodelthatmetthe Organisational ModelunderLegislativeDecree no.231/2001 consequently forpreventing conductpotentiallyrepresenting asource ofadministrativeresponsibility fortheCompany. operational toolforevaluatingtheirconductintegratingoffences andadministrativeillegalitiesofmarketabuse offences andadministrativeillegalitiesofmarketabuse”aimedatproviding therecipients oftheModelanadditional As asupplementtotheModel,already in2008,Terna alsoapproved aspecific“ComplianceRegulationforpreventing extended thescopeofoffences provided forbyLegislativeDecree no.231/2001oramendedotherrelevant legislation. Additional updatesandintegrationstotheModelare currently underwayinrelation tosubsequentlegislation,which occupational healthandsafety; illegal sources asintroduced inDecree no.231/01consequenttoLegislativeDecree no.231/07becoming effective; prevention ofoffences andadministrativemarketabuseoffences”; the implementationandcomplianceofModel,informationflowspenaltysystem; Model anditsimplementation,thedutiesofsupervisoryboard –structured asacollectivebody–required tomonitor a “specialsectionH”regarding computer-related offences. a “specialsectionG”regarding manslaughterandseriousorveryinjuriescommittedinviolationoftheruleson a “specialsectionF”regarding dealinginstolengoods,moneylaunderinganduseoforassetscomingfrom market abuseoffences,a “specialsectionE”,concerning withtheadditionofaspecific“Complianceregulations forthe a “specialsectionD”,onoffences againstindividuals; a “specialsectionC”,whichdealswithoffences ofterrorism orsubversionofthedemocraticorder; a “specialsectionB”,whichdiscussescorporateoffences; a “specialsectionA”,whichcoversoffences committedindealingswiththepublicadministration; a “generalsection”whichdescribes, www.terna.it ) undertheInvestorRelationssection. inter alia , thecontentofLegislativeDecree no.231/2001,theobjectivesof Committee, thecorrect useofthestandards. According Code,theExecutiveinCharge Control totheCorporateGovernance assessed,togetherwiththeInternal the actualcontrol. to thenormalchangesmadeprocesses. Testing operations were alsoconductedforverifyingthe implementationof Company, activitieswere implementedrelating totheadjustmentofadministrativeandaccountingprocedures, consequent During both2008and2009,incompliancewiththeprovisions ofbothLawno.262/2005andtheModeladopted bythe adopted, jointlywiththe“Model262”validforentire Terna Group, aspecific“RegulationfortheExecutiveinCharge”. management andmonitoringofthemainrisksonpreparation ofthefinancialstatements.TheCompanyhas also procedures underparagraph3ofart.154 statements. SuchplaninvolvedthebusinessDirections oftheGroup andhasdeterminedthepreparation oftheaccounting Controloperating modalitiesfortheappraisalofanInternal Systemthatsupervisesthedrawingupoffinancial Consolidated LawonFinance,during2007,Terna startedandcompletedaspecificplanwiththeobjectivetodefine In order toallowtherelease oftheabovementionedcertifications,according toart.154 the yearclosingonDecember31,2007. paragraph 5ofart.154,according tothemodelestablished withCONSOBregulations, asofthefinancialstatements reports, andcertifies,togetherwiththedelegatedadministrative bodies,theiradequacyandeffective application,under accounting procedures forthepreparation ofthefinancialstatements,consolidatedstatementsandhalf-year Under art.154 supervision tasksasperart.154 The ExecutivecarriesoutalltheactivitiesnecessarytogiveBoard ofDirectors thepossibilitytocomplywithits to themarket,withreference tothereport, evenhalf-year, oftheCompany, todocuments,andtheaccountingbooks. Consolidated LawonFinance,withtheactionandcommunicationsofCompanyprovided forbyLaworcommunicated The ExecutiveinCharge hascertified,asofthe2007half-yearreport, compliance,underart.154 to theCEO. Executive autonomyandauthorityregarding thestructure ofhisDepartmentandgrantinghimatoprole directly reporting Such appointmenthasalsoinvolvedtheadjustmentoforganisational structure oftheCompanyattributingto Bacco, HeadoftheAdministrationDepartmentTerna, afterverificationoftherequirements ofhonorandprofessionalism. The Board ofDirectors, incompliancewiththeregulations, hasimmediatelyappointedasExecutiveinCharge LucianoDi professional activitiesoruniversityteachinginfinancialaccountingsubjects. c) activityoflegalcontrol oftheaccountsincompanieslistedItalianregulated marketsorinthoseofothercountries b) administrationactivities,financeandcontrol and/ormanagingfunctionsinherent totheactivityofpreparation and/or a) three yearsin: In particular, theExecutiveinCharge ofthepreparation ofaccountingdocumentsmusthaveatotalexperienceatleast the bylaws. The Executivemustalsobeinpossessionofrequirements ofhonorindicatedbyLawandprofessionalism indicatedin paragraph 4oftheConsolidatedLawonFinance). in linewithLawprovisions thatdirectly acknowledgetheBoard ofDirectors aspecifictaskofsupervision(art.154 The choicetoreserve theappointmentandrevoking oftheExecutiveinCharge totheBoard ofDirectors wascarriedout Board ofStatutoryAuditors,basedonspecificrequirements ofprofessionalism. documents (ExecutiveinCharge), delegatinghisappointmenttothe Board ofDirectors, followingtheindicationby 2007 hasprovided forinthebylaws(art.21.4)positionofExecutiveCharge ofthepreparation ofaccounting subsequently modifiedbyLegislativeDecree no.303ofDecember29,2006–Terna’s shareholders’ meetingofMay24, Pursuant toart.154 Executive inChargeofthepreparation ofaccountingdocuments documents oftheCompany;or analysis and/orevaluationverificationofCompanydocumentswhosecomplexityiscomparabletoaccounting the European Union;or bis , paragraph3oftheConsolidatedLawonFinance,Executiveprepares suitableadministrativeand bis of theConsolidatedLawonFinance–introduced byLawno.262ofDecember28,2005and bis , paragraph4oftheConsolidatedLawonFinance. bis of theConsolidatedLawonFinance,through aprocess ofidentification, bis , paragraphs2and5ofthe bis , paragraph2ofthe bis , 301 Corporate Governance

304 Annual Report 2009 Section XII Ministry forJusticeDecree no.162ofMarch 30,2000,asintegratedbyappropriate bylawsprovisions (art.26.1ofbylaws). legislation forstatutoryauditors oflistedcompanies(art.148,paragraph4theConsolidated LawonFinance)nowunder All membersoftheBoard ofStatutory Auditorsmustmeetthehonorandprofessionalism requirements asperthespecial their term. Auditors,whoareAuditors andtwoAlternate appointedforaperiod ofthree yearsandmaybere-appointed attheendof In compliancewiththeprovisions oftheCompany’sbylaws,th Appointment andrequirements ofAuditors Section XIII scheduled informativenotesaccording totheabovementionedterms. During thecourseofyear, theBoard ofDirectors andtheBoard ofStatutoryAuditorsperiodicallyreceived the there are noconflictsofinterest withrespect tothetransaction. companies, lawfirmsandotherexpertswithspecifictechnicalskills)whoseindependenceisrecognised andinwhich of thetransaction.Thechoiceexpertsshouldbebasedonreputable professionalism andexpertise(banks,audit on theassistanceofindependentexpertsinevaluatingeconomicconditionsand/orexecutiveandtechnicalmethods where required bythenature, valueorothercharacteristicsoftheindividualtransaction –theBoard ofDirectors maydraw In termsofsubstantialcorrectness ofrelated –forthepurposesofensuring thefairness partytransactionconditionsand advantageous fortherelevant company. In addition,Board resolutions passedinrelation tointercompany transactionsshouldbeadequatelyjustifiedand • • • • • • • • • this end: 2008, consistentlywiththeassignmentofpowerswithinnewBoard ofDirectors), theseconditionswere defined.To (as ofFebruary22,2007implementingtheprovisions CodeandupdatedonJune10, ofthenewCorporateGovernance With aspecificprocedure Control submittedinadvancetotheInternal Committeeandapproved bytheBoard ofDirectors its owninterest, andasadutytothemarket(art.9.P.1 Code). oftheCorporateGovernance related partytransactionswere carriedoutincompliancewiththeprinciplesofprocedural andsubstantialcorrectness, in Even before listingitsshares inthestockmarket,Terna anditssubsidiariesdecidedtolaythefoundationforensuringthat In termsofprocedural correctness, itisparticularlyenvisagedthat: Board ofDirectors authorisationandreporting requirement; Board onthem. than theabove,withexceptionofrelated partytransactions totalinglessthan reasons andanyriskthatcouldariseforTerna anditssubsidiariesinconnectionwiththetransaction; and economictermsconditionsofthetransaction,measurement procedure applied,underlyinginterests and Controlof theInternal Committee; requirements withtheBoard ofDirectors; between theparties,andinformsTerna’s CorporateandLegalAffairs Departmentinduetime,sothatitcanmeetits parties, were Code). specified(art.9.C.2oftheCorporateGovernance subsidiaries, were Code); specified(art.9.C.1oftheCorporateGovernance the methodsusedtoidentifyandmanagesituationsinwhichaDirector hasaninterest, directly oronbehalfofthird the methodsbywhichrelated partytransactionsare identified,approved andperformedbyTerna, directly orthrough its related partieswere FinancialReportingStandards; identifiedinlinewiththeInternational Directors are required toinformtheBoard oftheirpositionsatthetime of theirappointmentandregularly updatethe Directors whohaveaninterest (includingpotentialorindirect interests) inthetransaction: the Board ofDirectors andBoard ofStatutoryAuditorsshouldreceive specificperiodicreporting ontransactionsother the Board ofDirectors shouldbeappropriately informedonthenature oftherelations, theoperatingmethods,timing significant transactionswithrelated partiesare subjecttotheapproval ofTerna’s Board ofDirectors, withtheconsultancy each Companydepartmentevaluatesinadvancethetypeoftransactiontobecarriedoutandnature ofrelations • • participation intherelated discussionsand/orvote; specifying itsnature, terms,originand scope; are required toleavetheBoard meetingorabstainfrom votingatthattime, unlesstheBoard specificallyauthorises are required toinformtheBoard ofDirectors andBoard ofStatutoryAuditorsinduetimetheexistenceinterest, Directors’ interests andrelated partytransactions Auditors appointment e Board ofStatutoryAuditorsiscomprisedthree Standing € 10,000 whichare excludedfrom the compliance withtherequirements ofhonorandprofessionalism establishedbytheLaw. above-mentioned procedure, butnonetheless soastoensure acompositionoftheBoard ofStatutoryAuditorsin Auditors, theshareholders’ meetingresolves based onthemajorityenvisagedbyLawandwithoutrespecting the For theappointmentofStatutoryAuditorsoccurringoutside theprovisions forrenewing theentire Board ofStatutory Auditors isreplaced, StatutoryAuditortakenfrom thispositionwillbetakenbytheAlternate thesamelist. Auditors isreplaced, StatutoryAuditorfirstonthelisttakeshisplace.IfChairmanofBoard theAlternate ofStatut For anyreplacement oftheStatutoryAuditors, thetermsofart.26.2bylawswillbeapplied.IncaseoneStatuto necessary numberofshares forthelistssubmissionmustbe presented and/ordelivered totheregistered offices. At leastfivedayspriortothedatesetforshareholders’ meeting infirstcall,copyofthedocumentationproving the recommendation fortheirupdateuntiltheactualholding ofthemeeting. respective assignmentsandanyotherinformationrequired bytheapplicableregulations andbythebylawswitha of incompatibilityandineligibilitycauses,theexistencerequirements prescribed byLawandthebylawsfor declarations withwhichthecandidatesaccepttheircandidacyandcertify, undertheirownresponsibility, thenonexistence On thebasisofaspecificitemincludedinnoticecallmeeting,listsare alsoaccompaniedbythe item inthenoticeofcallshareholders’ Code. meetingand inlinewithart.10oftheCorporateGovernance of theCompany, alongwiththelists,andare immediatelypublished intheCompany’swebsiteaccording toaspecific administration andcontrol positionsheldwithinothercompanies. Suchdocumentsare depositedattheregistered offices candidates according toLawprovisions and,pursuanttoart.2400,lastparagraphoftheCivilCode,withlist professional characteristicsofthecandidates,accompaniedbydeclaration ofeligibilitytobeappointedasindependent provisions Code,listsare oftheCorporateGovernance provided withanaccuratedescription ofthepersonaland To ensure transparency intheprocedure fortheappointmentofBoard ofStatutoryAuditors,alsoinlinewiththe of StatutoryAuditorstothestandingAuditorappointedbyminoritylist. In compliancewiththeItalianlegislationforlistedcompanies,bylaws(art.26.2)attributechairmanshipofBoard list winningforanumberofvotes. minority shareholders whoare notconnected,evenindirectly, withtheshareholders whohaveintroduced orvotedthe Pursuant toart.148,paragraph2oftheConsolidatedLawonFinance,atleastoneeffective memberisappointedbythe auditors andhaveexercised theactivityoflegalcontrol ofaccountsforaperiodatleastthree years. shareholders presenting thelists.Thefirstoneofcandidateseachsectionmustbeenrolled intheregistry ofthe auditors.Thelistsarefor standingauditors,andtheothercandidatestoalternate depositedandpublishedbythe must includethecandidatesaccording toaprogressive numberandare dividedintotwosections,oneforthecandidates to thesubmissionofonlyonelistandeachcandidatemaybeincludedinotherwiserisksineligibility. Thelists financial nature, atleast15daysbefore thedateofshareholders’ meeting.Eachshareholder maysubmitorcontribute the listsare filedattheregistered offices andpublishedinatleastthree nationalnewspapers,two ofwhichhavinga presented byshareholders that,aloneorjointlywithothershareholders, holdatleast1%oftheshare capital.Moreover, (“Privatisation Law”)andart.144 This systemprovides –inlinewithart.4ofLegislativeDecree no.332ofMay31,1994transformed intoLawno.474/94 voting listsystem,toensure thattheBoard Auditorfrom includesoneStandingAuditorandAlternate minoritylists. laws regarding listedcompanies,thebylawsrequire thattheentire Board ofStatutoryAuditorsbeappointedusingthe In linewiththeprovisions fortheBoard ofDirectors, andtheregulation onthematterofprivatisationsandpursuanttoItal 148, paragraph3oftheConsolidatedLawonFinance. All themembersofBoard ofStatutoryAuditorsmustalsopossessprovided requirements ofindependenceunderart. within thelimitsestablishedbyart.144 administration andcontrol inshare capitalcompaniesaccording toBookV, TitleV, ChaptersV, VIandVIIoftheCivilCode markets inItalyorotherEUcountries.ThemembersoftheBoard ofStatutoryAuditorscanholdotherassignments Moreover, eachauditormaynotbestandingoffivecompaniesthathaveissuedsecuritieslistedinregulated by CassaDepositiePrestiti Auditorswere S.p.A.).Alternate alsoappointed:StefaniaBettoni(included intheminoritylist Assicurazioni Generali),Marcello CosconatiandLorenzo Pozza(StandingAuditors appointedbythemajoritylistsubmitted Luca Aurelio (ChairmanoftheBoard Guarna ofStatutoryAuditorsappointedbytheminoritylistsubmitted byGruppo According totheresolution passedduringtheMeetingonApril28,2008,Board ofStatutoryAuditorsisformedby 2008, willbeinoffice untiltheapproval ofthefinancialstatementsasand for2010. The Board ofStatutoryAuditors currently inoffice, appointedbytheshareholders duringtheordinary meetingofApril28, Composition oftheBoard ofStatutoryAuditors Section XIV Auditors undecies terdecies of theCONSOBIssuerRegulations–thatlistscandidatescanbe of CONSOBIssuerRegulations. ory ian ry 305 Corporate Governance 306 Annual Report 2009 below, alongwithasummaryoftheirprofessional background. From itsappointment,theBoard ofStatutoryAuditorsisunchanged.ThestandingauditorsformingtheBoard are listed list thatcamefirstforthenumberofvotes. by theminoritymembersthatare notconnected,evenindirectly, withthememberswhohavesubmittedorvoted Following thestatementsmadeforappointment,votecountandaftervoting,astandingmemberwasappointed Depositi ePrestiti S.p.A.).TheAuditorsappointedrepresent twoofthethree listssubmittedforsaidMeeting. submitted bytheGruppoAssicurazioniGenerali)andMarioPaolillo(includedinmajoritylistCassa on Finance. to thereport onsupervisory activitydrawnupbytheAuditorspursuanttoart.153,paragraph 1oftheConsolidatedLaw Table 2.Thetotalnumberofassignments,according toart144 (S.r.l.) oftheCivilCode,relevant according toart.148 The totalnumberofassignmentsinothercompaniesaccording toBookV, TitleV, ChaptersV(S.p.A.),VI(S.A.p.A.)and VII markets orinothercountriesoftheEuropean Union. No standingStatutoryAuditorholdsfiveassignmentsin other companiesissuingstockslistedintheItalianregulated 19, 2010. In theattachedTable 2informationare includedregarding thecomposition oftheBoard ofStatutoryAuditorsasMarch April 28,2008. and independenceofthemembersBoard ofStatutoryAuditorsappointedbytheshareholders’ meetingheldon based ontheenvisagedterms,hasconfirmedandverified theexistenceofrequirements ofhonor, professionalism During theappointmentandtakingaccountofinformation provided bytheindividualsinvolved,Board ofDirectors, also writtenarticlesandessaysonthissubject. He istheauthorofthree booksonbudgetandcompanyevaluation, aswellofnumerous otherpublicationsandhas 1990 andhasbeenafoundingmemberofthePartnersS.p.A.consultingfirm. S.p.A., GasPlusBraccoImagingS.p.A.andLeonardo &CoS.p.A.Healsocarriesoutprofessional activitysince various different companiesintheindustrial,financial,real estateandinsurancesectors,amongwhich: Telecom Italia and since1996attheUniversityinItalianpartofSwitzerland.Hehasheldadministrativeauditingpositions with Accounting andBudgetsince1991atthesameuniversity, andsince 1992attheCorporateManagementSchool(SDA) quantitative standards forcompaniesafterhavingheldvarious positionsasaProfessor Accountingand inInternational been AssociateProfessor ofBusinessAdministrationatthe BocconiUniversityandProfessor ofMethodologyand He hasadegree inBusinessAdministrationfrom theBocconiUniversity, taxconsultantandauditor. Since2001,hehas • Lorenzo Pozza,43yearsold–Standingauditor Province ofCaserta. He hasworkedasaprofessor forseminarsorganized bythePublicAuthoritiesandRollofAccountantsin with theTax CommissioninCaserta. Statutory AuditorsofSACES.p.A.andFctaswellTirrenia NavigazioneS.p.A.Heisalsoataxjudge Ministry ofEconomicsandFinance,hehasheldvariousassignmentsasauditor. Heispresently ChairmanoftheBoard of Accounting. WiththeMinistryofEconomicsandFinancehehasheldpositionsindifferent offices. Inrepresentation ofthe and FinanceGeneralDirector oftheCentralBudget Office attheMinistryofInterior, DepartmentoftheState’sGeneral He hasadegree inLawandPoliticalScienceEconomics andisanauditor. Heisanofficial oftheMinistryEconomics • Marcello Cosconati,60yearsold–StandingAuditor He hasworkedasaProfessor fortheArthurAndersennetworkandFoundationofTax ConsultantsinMilan. S.r.l., EaglePictures S.p.A.,Bieffe MeditalS.p.A.andImmucorItalia such as:DelmiS.p.A.(companybelongingtotheA2AGroup whichispartofEdisonS.p.A.’sholdingchain),Tech DataItalia He ispresently theChairmanofBoard ofStatutoryAuditorsatGeminaS.p.A.andStandingAuditorinother companies offices andsince2001hehasbeenamemberoftheadministrative,taxcorporateconsultingSpadaccinioffice inMilan. and since2002,hehasbeenenrolled asAuditor. Hehascarriedoutprofessional activitywithprestigious legalandtax He hasadegree inBusinessAdministrationfrom theBocconiUniversity;hequalifiedfortitleofTax Consultantin2000 37yearsold–ChairmanoftheBoard• LucaAurelio ofStatutoryAuditors Guarna, [born inMilan onOctober11,1966] [born inPresenzano[born (Caserta)onSeptember25,1949] inMilanonDecember20,1972] [born bis of theConsolidatedLawonFinance,isindicatedinattached quinquiesdecies of CONSOBIssuerRegulations,isattached ( Furthermore, theCompanyhasfurtherencourageddialoguewith investors bycreating aspecificsectioninitswebsite Code). 11.C.1 and11.C.2oftheCorporate Governance Filomena Passeggio(Viale EgidioGalbani,70-tel.0683138136fax8218 e-mail:[email protected]) -(artt. for relations withgeneral shareholders withintheCorporateandLegal Affairs Departmentunderthedirection ofAttorney adepartment Galbani, 70,00156Rome-tel. 0683138145-fax9312e-mail:[email protected] and (II) the taskofkeepingcontactswithinstitutionalinvestorsunder theresponsibility ofMrs.ElisabettaColacchia(Viale Egidio InvestorRelationsDepartment,whichcurrently reports totheCEOandhas Accordingly, theCompanyhassetup(I) creation ofspecificCompanystructures. To thisregard, andalsoconsideringtheCompany’ssize,itwasdecidedthatthisdialogueshouldbe facilitatedbythe regulations onmarketdisclosure. the Companyandprinciplesincludedin“Guide for marketdisclosures” andrecent regulatory measures and understanding ofroles andisincompliancewiththeprocedures forthedisclosure ofdocumentsandinformationoutside and institutionalinvestorsisbothinitsbestinterest andadutytothemarket:thisdialogueisbasedonmutual Since itslistingonthestockexchange,Companyhasbelieved thatestablishingaconstantdialoguewithshareholders Section XV company andwiththeauditingcompany. with theExecutiveinCharge pursuanttoLawno.262/05,aswellwiththeBoards ofStatutoryAuditorstheholding Code),withtheControl10.C.6 and10.C.7oftheCorporateGovernance BodypursuanttoLegislativeDecree no.231/01, ControlInternal Committeeaccording tothetermsincludedinprevious Control “SectionXI:Internal System”(articles In carryingoutitsactivity, theBoard ofStatutoryAuditorswas documents pursuanttoLawno.262/05. to LegislativeDecree no.231/01andoftheRegulationsfor theExecutiveinCharge ofthepreparation offinancial Directors forevaluatingtheindependenceofitsmembersand alsoanalysedtheimplementationofregulations pursuant The Board ofStatutoryAuditorsverifiedtheproper applicationofcriteriaandprocedures adoptedbytheBoard of Code). and thebodiesbelongingtoitsnetwork(art.10.C.5ofCorporateGovernance and entityoftheservicesdifferent from theaccountingandauditingprovided toTerna andtoitssubsidiariesbyKPMG independence oftheauditingcompanyverifyingbothrespect oftheprovisions applicableonthematter, andthenature Law onFinancerelative tothecommunicationobligations. TheBoard ofStatutoryAuditorsalsomonitored the business. Ithasalsoverifiedtheimplementationofprovisions pursuanttoart.114,paragraph2oftheConsolidated in November2009,theBoard ofStatutoryAuditorshas alsoverifiedthemanagementandstructuralaspectsof regard tothelatter, specificallyfortheBraziliansubsidiaryTerna ParticipaçõesS.A.,untilthesaleofitsshares thatocc auditing systemandoftheCompany’sadministrative-accountingitssubsidiariesoutsideEU.With theadequacyoforganisational structure, oftheinterna of proper administrationincarryingoutcorporateactivities,(II) theobservanceofLawandfoundingdeed,includingrespect ofprinciples national regulations regarding (I) During 2009,theBoard ofStatutoryAuditorscarriedouttheactivitiesthatare typicaltoauditingasenvisagedbythe in themeetingheldonFebruary12,2009. Code).ThisorientationwasalsoconfirmedbythenewBoard10.C.4 oftheCorporateGovernance ofStatutoryAuditors analogous tothatoftheDirectors incaseofoperationswhichtheybearaninterest forthemselvesorthird parties(art. The Board ofStatutoryAuditors,already sinceMarch 16,2007,decidedtovoluntarilyadaptasystemoftransparency information provided byeachsinglemember–certifiedthatallStandingAuditorsmettheindependencerequirement. companies publishedbyBorsaItalianainMarch 2006regarding theindependenceofDirectors andonthebasisof The Board Codeoflisted ofStatutoryAuditorsFebruary17,2010–utilisingallthecriteriaindicatedbyGovernance meetings. Directors. Duringtheyearinprogress uptothedateofapproval ofthisReport,theBoard ofStatutoryAuditorsheld2 In 2010,allthepreliminary meetingsare scheduledforreviewing theeconomic-financialdataonpartofBoard of each, withtheregular participationoftheStandingAuditors. During 2009,theBoard ofStatutoryAuditorsheld11meetingswhichlastedinaverageapproximately 2hours andahalf www.terna.it ), where theycanfindboth financialinformation(financialstatements,halfyearand quarterlyreports and Investor Relations coordinated auditdepartmentandwiththe withtheinternal urred l 307 Corporate Governance 308 Annual Report 2009 requested thefloor mayreply briefly. all thosewhoassisthim,respond tothespeakersatconclusionofallreports orquestions. Thosethathave order toguaranteethattheshareholders’ meetingcanenditsactivityinasinglesession.The Chairmanand,byinvitation, in of thereports andtheresponse – usually nottoexceedtenminutesforreports andfiveminutes fortheresponses – of eachitemdiscussedaswell asofthenumberthoserequesting thefloor, theChairmanpredetermines theduration request, fortakingthefloorand relative order, are establishedbytheChairman. Consideringthetopicandimportance untiltheChairmanhimselfhasnotdeclared thediscussionontopicclosed.Thetermsforsuch by theChairman– The request tohavethefloorcanbesubmittedattimeshareholders’ meetingisheldand–unlessotherwisestated once regarding thetopicsbeingdiscussed,presenting observations,requesting informationandformulatingproposals. shareholders’ meetingsregulations envisagesthatthoseentitled toexercising therighttovotecanaskforflooronly In particular, withregard totherightofeachshareholder totakethefloorregarding theitemsonagenda,art.6of discussed, express anopinionandsubmitproposals Code). (art.11.C.5ofBorsaItaliana’sCorporateGovernance sectors, incompliancewitheachshareholders’ fundamen Company, aimedatensuringtheexactandfunctional runningofshareholders’ meetings,withdetailedrules forthevarious Furthermore, duringthemeetingofMarch 3,2004,theshareholders resolved toimplementaspecificregulation forthe report theyhaveprepared. itself envisagesthataresolution ismadeontheproposal bytheDirectors oronthebasisofonetheirprojects orofa the shareholders’ meetingisauthorisedtoresolve pursuantto theLaw. ThesetopicsexcludethoseforwhichtheLaw the agendamustbeindicated.Theintegrationoflistitemstodiscussedisallowedonlyforthosetopicsonwhich publication ofthenoticecallshareholders’ meeting:thedeadline inwhichtheadditionalitemstobeincluded this forecast, thedeadlineinwhichshareholders canrequest theintegrationofagendaisfivedaysas capital according tothedirect provisions oftheLaw(art.126 pursuant toart.30ofthebylaws,isheldbyshareholders that,alsojointly, represent atleastonefortiethoftheshare The rightforintegrationoftheagendaonpartshareholders’, byvirtueofthepostponementgeneralnature made looseseffectiveness forthepurposesoflegitimisingattendance. do notrepresent anobstacletothesubsequentwithdrawalandnegotiationofshares; incaseofwithdrawal,thedeposit Meeting issuedbytheintermediarywillhavesameeffect andvalidityofthedepositshares. Theseprovisions first callandhasnotwithdrawnthempriortotheshar shareholders’ meetingisallowedonlytothosewhohavedeposited shares atleasttwodayspriortothedatesetfor With regard totherightattendashareholders’ meeting,thebylaws(art.10.1)envisagesthatattendancein through theexpression oftherighttovotebycorrespondence. The bylaws,instead,donotenvisageattendancetotheshareholders’ meetingthrough telecommunicationsmeansor activities forcollectingproxies. representatives, theseassociationshavemadespacesavailabletobeusedforcommunicationandcarryingout requirements envisagedbytheexistinglaws,according tothetermsandmodalitiesagreed uponeachtimewiththeirlegal shareholders’ employedwiththeCompanyanditssubsidiaries associatedwithshareholders’ associationsthatmeetthe can berepresented according totheLaw, through awrittenproxy. Inorder tofacilitatethecollectionofproxies withthe In particular, pursuanttoart.11.1 ofthebylaws,everyshareholder thathastherighttoattendshareholders’ meeting Company anditssubsidiaries,soastoinvolvetheminthedecision-makingprocess attheshareholders’ meetings. a specificregulation aimedatfacilitatingthegatheringofvotingproxies forshareholders whoare employeesofthe Also onthebasisofspeciallegislationenactedasexpectedinrelation tolistedcompanies,Terna introduced intoitsbylaws Code). Italiana’s CorporateGovernance to adequatelyimprove themeetings,inadditiontoguaranteeingparticipationofitsDirectors (art.11.C.4ofBorsa This wascarefully evaluatedandfullyapproved bytheCompany, whichbelieveditnecessarytoadoptspecificmeasures the communicationsmethodsusedbylistedcompanieswiththeirshareholders, institutionalinvestorsandthemarket). to initiatefruitfuldialoguebetweenshareholders andtheBoard ofDirectors (despitethewide-rangingdiversificationof Codeestablishesthattheshareholders’The CorporateGovernance meetingsshouldbeconsidered asspecialoccasions Section XVI Decree Code). no.231/2001)(art.11.C.1oftheCorporateGovernance information anddocuments,thecodeofethicsorganisational andmanagementmodelpursuanttoLegislative releases, theCompanystructure, thebylawsandregulations forshareholders’ meetings,CorporateGovernance presentations tothefinancialcommunity)andupdatedinformationdocumentsofinterest toshareholders (press Shareholders’ meetings eholders’ meetingdate.Thecommunicationforparticipatinginthe tal righttorequest clarificationsonthevariousissuesbeing bis of theConsolidatedLawonFinance).Onbasis bis characteristics ofexistingriskmanagementsystemswithregard tothefinancialinformativenote”(pursuantart.123 fourteenth sectionsofthedocument.An“Attachment1”isalsoenclosedthatincludesdescription“Principal The hereby attachedtwotablessummarisesomeofthe mostsignificantinformationincludedinthefourth,ninthand and oftheprerogatives setforminorityprotection Code). (art.11.C.6ofBorsaItaliana’sCorporateGovernance the shareholders’ meetinganyamendmentsofthebylawsregarding thepercentages establishedforexercising shares the compositionofitscorporatebodiesforwhichBoard of Directors hadtoevaluatetheopportunityofproposing to Company mentionedabove–nosignificantchangeswere madeinmarketcapitalisationoftheCompany’sshares orin During 2009–withreference totheregulations forminorityrightsandcompatiblywiththeregulations and rulesforthe passed withthemajorityrequired bytheLawineachcase(art.13.2ofbylaws). The resolutions, bothforordinary andextraordinary shareholder and shares grantingspecialpowers”and“Bylawsamendments”. and FinanceasmentionedaboveinsectionII“InformationonShareholding” inparagraphs“Restrictionsshare transfer bylaws indicatedinart.6.3oftheCorporateare subject tothe“specialpower”ofvetobyMinistryEconomics The resolutions adoptedbytheshareholders’ meetingofsignificantimpactontheCompany, capableofamendingthe established bylaw(art.13.1oftheCorporatebylaws). the shareholders’ meetingsdutiesthatcandetermineamendmentstothebylawsandresolves onallthetopicsas Board ofDirectors, according tothetermsestablishedbylaw, thepowertoadoptcertainresolutions thatfallunder The shareholders’ meeting,unlessotherwisestatedbythetermsenvisagedart.21.2ofbylaws,assignsto envisaged bytheLaw, isnotnecessarywhentheminutesofshareholders’ meetingare prepared byanotary public. and canappointoneormore votecounters(art.12.2ofthebylaws).Theassistancesecretary, according totheterms The Chairmanoftheshareholders’ meetingisassistedbyasecretary, evenifnotashareholder, designatedbythosepresent, should alltheaboveconditionsnotapply, theshareholders’ meetingappointsitsownChairman(art.12.1ofthebylaws). by theDeputyChairman,ifappointed,or, intheabsenceofboth,byanotherpersondesignatedBoard ofDirectors; The shareholders’ meetingischaired bytheChairmanofBoard ofDirectors, or, incaseofhisabsenceorimpossibility, Code). Corporate Governance in atimelymanner, sothattheymaypassresolutions withfullknowledgeofthefacts(art.11.C.4BorsaItaliana’s statements approval andregarding thereport onmanagementandprovides theshareholders withadequateinformation The Board ofDirectors reports totheshareholders’ meetingontheactivitiescarriedoutandplannedduringfinancial meetings” canbefoundintheCompany’swebsiteundersection:“InvestorRelations/CorporateGovernance”. prepared bytradeassociations(AssonimeandABI),forlistedcompanies.The“RegulationsTerna S.p.A.’sshareholders’ the shareholders bythebylaws(art.11.2).Thecontentsofregulation havebeenalignedtothemostsophisticated models Although saidregulation isnotincludedinthebylaws,itapproved byordinary meetingsunderthespecificpowergivento , paragraph2,letterb)oftheConsolidatedLawonFinance). s’ meetingsbothonfirst,secondandthird call,are 309 Corporate Governance 310 Annual Report 2009 X: assignments Other %: Law onFin.: on Cons. Indep. based Indep.: Non exec.: Exec.: List: Position: ICC: RC: AC: EC: BoD: Key: NUMBER OFMEETINGSHELDDURINGTHEYEARUNDERCONSIDERATION: LEGAL NUMBERNECESSARY FORSUBMITTINGTHELISTS DURINGTHELASTAPPOINTMENT: DIRECTORS WHORESIGNEDFROMTHEIRPOSITIONDURINGTHEYEARUNDERCONSIDERATION COMPOSITION OFTERNA’SBOARDDIRECTORSANDTHECOMMITTEES Table 1 ietrRsoi uy1,20 iaca ttmns 77%3--X100% X - - - 100% - - 100% X X 100% 3 X ------0 - 77.78% - - -- 1 - 88.89% - - - 100% - 100% - X 100% - X - 1 100% - 67% - X 66.67% - 0 X 1 - - - 88.89% - 100% m 0 Financialstatements - July13,2006 1 M Financialstatements 100% Rispoli Apr. 28,2008 100% 3 Director m Financialstatements Polo 100% Nov. 2,2005 Director Machì m Director Financialstatements Mar. 21,2007 Machetti M Director Financialstatements Apr. 28,2008 DelFante M Director Financialstatements Apr. 28,2008 DalPino M Director Financialstatements M Apr. 28,2008 Cannarsa Financialstatements Director Nov. 2,2005 Cattaneo M Financialstatements Nov. 2,2005 CEO Roth Chairman o C CA COtherCommittee EC AC RC ICC - -- 3 97 BoD % X % In X Non Exec. List office Other Indep. Appointed Name Indep. % Position itroas ofDec.31,2010 Vittorio ihl asofDec.31,2010 asofDec.31,2010 as ofDec.31,2010 as ofDec.31,2010 Michele asofDec.31,2010 Salvatore Claudio as ofDec.31,2010 asofDec.31,2010 Matteo asofDec.31,2010 Paolo Cristiano Flavio Luigi is ae LawonFin. Cons. onCode based based exec. on assignments until first name) name and (Last since : indicates thetotalnumberstatedofassignmentsasdirectors indicates orauditorsinothercompanies listedinregulated markets(also : “X” indicatesthatthe Board Director belongs totheCommittee. Board oroftheCommitteethatwere heldduring theyearunderconsiderationorafterhisappointment). calculating thispercentage thenumberofmeetings wasconsidered whichtheDirector attendedcompared tothenumberofmeeting indicates theattendanceinpercentage termsof directors at themeetingsof,respectively, theBoard ofDirectors andoftheC by art.147 It istickedifthedirector hastheindependencerequirements asperart.148,paragraph3oftheConsolidatedLawonFinance It istickediftheDirector canbequalifiedasindependentaccording Code. tothecriteriaofGovernance It istickediftheDirector canbequalifiedasanonexecutive. It istickediftheDirector canbequalifiedasanexecutive. Indicates M/mwhethertheDirector wasappointedfrom themajoritylist(M)orfrom theminoritylist(m). Indicates whetherisChairman,DeputyCEOetc. ControlInternal Committee. Remuneration Committee. Appointment Committee. Executive Committee. Board ofDirectors. assignment isconsidered. For thelistofassignmentsheldbyeach Director, pleaseseethebriefprofessional resumes included more assignmentsare heldwithinthesame Group, alsoforaworkrelation withacompanybelongingtotheGroup itself,onlyth indicated assignments,thoseheldinsubsidiaries, eitherdirectly orindirectly controlled, namely Terna’s subsidiaries,were in financial,bankingandinsurancecompanies orinlarge companies,identifiedonthebasisofcriteriadefinedby Board. ter , paragraph4ofthesameLaw. o n.Cnr RC Int. Contr. BoD Committee not included.When foreign markets), In calculatingthe e mostimportant inthisreport. ommittees (in as indicated s ofthe 1% NUMBER OFMEETINGSHELDDURINGTHEYEARUNDERCONSIDERATION: LEGAL NUMBERNECESSARY FORSUBMITTINGTHELISTS DURINGTHELASTAPPOINTMENT: AUDITORS WHORESIGNEDFROMTHEPOSITIONDURINGYEARUNDERCONSIDERATION COMPOSITION OFTHEBOARDSTATUTORY AUDITORS assignments: Number other %: on Code: Indep. based List: Position: Key: Table 2 ------lent uio Poil ai Ar 8 08Fnnilsaeet M--- - - 8 - - 24 3 81.82% - M Financialstatements 100% Apr. 28,2008 81.82% M Financialstatements M Apr. Financialstatements 28,2008 PaolilloMario Apr. 28,2008 Auditor Alternate BettoniStefania M M Financialstatements Financialstatements Auditor Alternate PozzaLorenzo Apr. 28,2008 Apr. 28,2008 LucaAurelio Guarna Standing Auditor CosconatiMarcello Standing Auditor Chairman oiin ebr Apitd nofc Ls ne.bsd Numberother % Indep.based List Inoffice Appointed Members Position VII (S.r.l.) ofthecivilcodethatare importantaccording toart.148 indicates thetotalnumberofassignmentsasdirectors orauditorsincompaniesasperBookV, TitleV, ChaptersV(S.p.A.),VI consideration orafterhisappointment). was considered whichtheauditorattendedcompared tothenumberofmeetingsBoard thatwere heldduringtheyearunder indicates theattendanceinpercentage termsoftheauditoratmeetingsBoard (incalculatingthispercentage thenu ” ifthestandingauditorcanbequalifiedasindependentaccording tothecriteriaofCode. it indicates“ Indicates M/mwhethertheauditorwasappointedfrom themajoritylist(M)orfrom theminoritylist(m). Indicates whetherisChairman,StandingAuditor, Auditor. Alternate Auditors according toart.153,paragraph1oftheConsolidatedLawonFinance. attached, pursuanttoart.144 Ls aeadfrtnm)sne ni nCd assignments onCode until since (Last nameandfirstname) quinquiesdecies Board ofStatutoryAuditors fCNO IssuerRegulationstothereport onthesupervisoryactivitydrawnupby of CONSOB as ofDec.31,2010 as ofDec.31,2010 as ofDec.31,2010 as ofDec.31,2010 as ofDec.31,2010 bis of theConsolidatedLawonFinance.Thetotallistassignmentsis mber ofmeetings (S.A.p.A.)and 1% 11 311 Corporate Governance

314 Annual Report 2009 Attachments • • Controls are assessedonthe basisofthefollowingrequirements, where applicable: control objectives. Risk Assessment,Control Activity, Information SystemandCommunicationFlows,Monitoring), developedinspecific This methodisappliedbyfilling outachecklistbasedonthefivecomponentsofcontrol system(Control Environment, to byofficial best-practicesadoptedbycompaniessimilartothe Terna bodiesorwiththeinternational Group. The assessmentisexpressed witha“benchmarking”activityrespect tothereference procedures definedorreferred company thatwouldpotentiallyrender ineffective eventhebeststructure ofcontrols overseeingtheprocesses. The objectiveoftheindividualcompanyanalysisistoidentify anyshortcomingsinthegeneralcontrol oftheindividual of the“individualcompany”beinganalysed. in charge of thevariouscompanydepartments(management)with The establishment,managementandassessmentoftheICS attheindividualcompanylevelistobecarriedoutbythose but withaparticularfocusontheconsequencesofquality oftheeconomicandfinancialinformation. by theBoard ofStatutoryAuditorsaswellthecorporatepoliciesandgeneralgroup policiesetc.)conductedingeneralterm Controlof theInternal System(the overseeingactivitiescarriedoutbytheBoard ofDirectors, Control bytheInternal Commit specifically focusingontheadequacyoffinancialinformative note.Thisismainlyananalysisoftheinfrastructuralcomp Overall analysis(brief)oftheindividualcompaniesGroup withreference to5elementsthatformtheCoSOReport, Individual CompanyAnalysis method ofanalysis: The analysisapproach oftheICSthatoverseesdrafting thefinancialstatementsadoptedbyTerna isbasedonatwofold control systemswithrespecta) Phasesoftheexistingriskmanagementandinternal tothefinancialinformativenote. control systemswithrespectand internal tothefinancialinformativenote Description oftheprincipalcharacteristicsexistingriskmanagement On thebasisofprovisions envisagedbyart.154 equity aswellitseconomicandfinancialpositionincompliancewiththecommonlyacceptedaccountingprinciples. ensuring thatthefinancialinformativenoteprovides atruthful andproper representation ofthecompany’sshareholders’ December 29,2006)relative totheICSthatoverseesdrafting ofthefinancialstatementhaveprincipalobjective The provisions ofLawno.262(datedDecember28,2005 subsequentlymodifiedbyLegislativeDecree no.303dated management thatisinlinewiththeobjectssetbyTerna”. identification, measuringandmanagingprocess andmonitoringoftheprincipalrisks,allowaproper corporate recognised as“theentirety ofregulations, procedures andorganisational structures thatthrough anappropriate “Terna Group’s Control Internal System”approved bytheBoard ofDirectors onDecember21,2006,inwhichtheICSis “The ICSthatoverseesthedraftingoffinancialstatementisinlinewithcriteriaenvisagedGuidelines issue thecertificationrequired asperparagraphs2and5ofart.154 Control“Internal System”hereinafter referred toasICSthatoverseesthedraftingoffinancialstatementsinorder to The Terna Group draftedthe“262Control Model”withtheobjectiveofdefiningoperationalmodalitiesforassessing Foreword to art.123 controlinternal systemswithregard tothefinancialinformativenote(pursuant Attachment 1:Principalcharacteristicsofexistingriskmanagementand This updatemustbeappropriately substantiatedinorder toguaranteethetraceabilityofactivities. integrate/modify accordingly theadministrativeandaccounting procedures. (hereinafter referred toas“EIC”)atleastonceayearinorder toanalysethevariationsthathaveimpactedICSand Updating thefieldofactivity(scoping)andprocesses tobeanalysed mustbecarriedoutbytheExecutiveinCharge pursued byestablishingadequate“accountingadministrativeprocedures” andbyverifyingtheiractualimplementation. drafting ofthefinancialstatements,activelyinvolvingallcorporatedepartments,isfocusedonreliability objective adequate communicationregarding theexistenceofcontrol toolidentifiedforallthebodies referred to; existence ofthecontrol tool(organisational structure, legalstructure, process); bis , paragraph2,letterb)oftheConsolidatedLawonFinance) bis of theConsolidatedLawonFinance,ICSthatoversees regard totheirrespective duties,inlinewiththestructure bis of theConsolidatedLawonFinance. onents tee, s s b) RolesandDepartmentsinvolved. in Charge notifiesthecompanyexecutives. whointurn corrective measures andimprovement plans.Theresults oftheseactivitiesare submittedtotheevaluation oftheExecutive bestpractices.Controlinternational assessment, where deemednecessary, caninvolveidentifying compensatorycontrols, testing activitythatisconductedbyadedicatedstructure, usingsamplingtechniquesthatare recognised by the Verifying theeffectiveness oftheactionplanandactualoperationallevel“key”controls iscarriedoutthrough a must beidentifiedthatare usefulinidentifyingexistingrisksandcontrols. For everyprocess, formappingpurposesandthesubsequentassociationofriskscontrols, the“key”elements information havinganadministrativeimpactiscollected,processed andsentcorrectly andinatimelyfashion. of datacreation orforthenotescommentingfinancialstatementsandshouldbecapableofensuringthat Mapping activitiesthatformtheprocesses are functionaltothe final objectiveofapplyingcontrols alongtheentire process being includedintheaccountingprospects orinthenotes. or thecommenttoberepresented inthefinancialstatements,from identifyingtheinitialeventthatoriginatesituptoits Analysing activitiesthatformtheprocesses (“mapping”)isaimed atclearlyidentifyingtheprocess thatcreates thedata • Is responsible for: The ExecutiveinCharge • • • • • For thispurpose,theanalysisofsignificantprocesses occurs through thefollowingoperationalsteps: accounting procedures andassessestheiradequacyeffective implementing(assessmentoftheiroperationallevel). relevant processes, theEICestablishesguidelinesfor“riskactivitiesandcontrols” thatrepresent administrativeand On thebasisofqualityandquantityparameters,afterhavingdefinedsignificantinformationselected the its elaboration,inorder todeterminethesignificantprocesses. selected significantinformation/iteminthefinancialstatementsmustbeassociatedwithprocesses thatcontributeto identification activitiesonthoseprocesses thatcandeterminesignificant errors regarding thefinancialinformation.Each of theinformationidentifiedasbeingsignificantforrelative processes theyare basedonallowsconcentrating that represent animportantperformanceindicatororforthesectortheybelongto.Theassociation materiality, bythemselves.Investorscoulddemonstrateacertaininterest invariouscalculationsthefinancialstatement considering possible“factors”thatrender significant variouscalculations,evenifthesedonotexceedthethreshold of linked tothespecificriskforfinancialstatementsectionsorinformativenotes.Identifyingqualityparametersconsists in the combinationofquantitativeparameters,linkedtolevelsignificancedefinedforTerna andqualityparameters even iftheamountislowerthanlevelofrelevance identified. Identifyingsignificantinformationiscarriedoutthrough percentages compared toincomebefore taxes,aswellqualityparameterscapableofrendering aninformation relevant, financial statements.Withregard totheabove,quantityparametersare identified,thatare normallydefinedintermsof or misrepresentation coulddetermineindecisionsmadebytheindividualswhoare notifiedaboutthenotethrough the The relevance ofthefinancialinformativenoteisassessedwithreference tothepossibleconsequencethatitsomission items inthefinancialstatements/financialinformativenoteaswellassociatesignificantinformationtoprocesses. of “significantprocesses”. Forthispurpose,itisnecessarytocarryoutspecific“scoping”inorder toidentifyboththesig The process analysisandthesubsequentestablishmentofadministrativeaccountingprocedures requires theselection preventing theoccurrence ofriskswithsignificanterrors infinancialstatementsduringthedevelopmentofprocesses. preparing thehalf-yearreport/consolidated report thatincludetheexecutionofspecificcontrol activitiesaimedat based. Thetermsforcarryingoutthisanalysisare theestablishmentofadministrativeandaccountingprocedures for operational levelofthecontrols oncorporateprocesses andsub-processes onwhichthefinancialinformativenoteis and relative controls aimedatmitigatingthem.Theindividualprocess analysisallowsassessingtheactionplanand Analysis ofrelevant processes byestablishingguidelinesthatdefinetheprincipalrisksonfinancialinformativenote Individual Process Analysis • • • • application, oractionundertakenbythemanagementaimedatensuringcompliancewithimplementedcontrol tool. control tool; by theDirectors ofTerna S.p.A.and bythemanagementofcompaniesthatare individually significant; assessing theoperationalsuitabilityofexistingcontrols. assessing theoperationallevelofexistingcontrols. identifying andassessingexistingcontrols; identifying andassessingrisksforeachactivitytheirbeingassociatedwiththecontrol objectives; defining andanalysingactivitiesthatformtheprocesses (“mapping”); management supportinimplementingthecontrol tool; appropriate andeffective monitoringofthecontrol tool; understanding onthepartofcompany’semployeestheirrole andresponsibility inimplementingtheidentified annually updatingthefieldofactivity andthesignificantprocesses consideringthefactorsof change/riskcommunicated nificant

315 Corporate Governance 316 Annual Report 2009 • • • The certification,issuedwiththeCONSOBform,isbasedon acomplexevaluationprocess thatincludes: update suchprocedures. as partofthe“262Project”, ofpreparing anddisseminatingthePlanforcorrective measures, where necessary, andto with theobjectiveofensuringadequacyandactualimplementationadministrativeaccountingprocedures drafted Consolidated LawonFinanceintroduced withLawno.262/2005, itwasnecessarytodefineasystemof“chain”certificates To enabletheEICandadministrativebodiesincharge toissuethecertificatesincompliancewithart.154 • • • Is responsible for: Management ofthecompaniesthatare individuallysignificant • • • • Are responsible for: Terna S.p.A.’sDirectors • • • • Is responsible for: AuditandRiskManagement Internal assessment activitiesandtheofoperationallevelscontrols overadministrativeandaccountingprocedures. The EICcanrely companieswithspecialisedprofessional ontheassistanceofqualifiedexternal staff forcarryingoutplan • • • Body andtheBoard ofStatutory AuditorsofTerna S.p.A. of thecompensatorycontrols Control carried outbytheCEOandEIC,toInternal Committee,totheSupervisory Any significantshortcomings highlighted bytheassessmentprocess mustbeimmediatelynotified jointlywiththeoutcome that are individuallysignificant.Theexistenceofaperiodicreporting flowallowscarryingoutthefollowing: the companythatisindividuallysignificant. activities andtheiroperationallevel. his activities; and indefiningprioritiesalso,ifnecessary, withtheassistanceofadministrativebodyincharge. administrative andaccountingprocesses, withthemodalitiesshared withtheEIC; into accounttheresults oftheoperationalriskanalysiscarriedoutbycompanydepartments; proper Control operationoftheInternal Systemandrelative mechanismsforriskmanagement; procedures fordraftingthefinancialstatementsandconsolidatedsuitability executing operational,control andreporting activitiesthatare partoftheirspecificduties. and accountingprocedures andactionplans; the consolidatedfinancialstatements; an error in thefinancialstatementscouldoccurandwithreference totheriskthatthiserror mayhave beensignificant. above. Itistherefore carriedoutoverallwithreference totheprobability thatfollowingoneormore significantshortcoming is supportedbytheassessmentofplanforspecificcontrols aswellbythatfortheiroperationallevelmentioned the finalassessmentofadequacyadministrativeand accountingprocedures bytheCEOandEIC.Thisactivity the assessmentofactualoperationalleveladministrative andaccountingprocedures carriedoutbytheEIC; “chain”certificatesissuedbytheDirectorscollecting internal ofTerna S.p.A.andbythemanagementofcompanies preparing andforwarding, inthetimeframeestablishedbyreporting calendar, thecertifications regarding theICSof assessing, incollaborationwiththeEIC,ICSofcompanythatisindividuallysignificant; coordinating thoseincharge ofindividualcontrols inexecutingthecontrols theyare responsible for; preparing andforwarding inthetimeframesestablishedbyreporting calendarthecertificationsregarding thecontrol supporting theactivitiescarriedoutbyEICandensure accesstoalldocuments/informationusefulincarryingout coordinating individualcontrols inestablishingandimplementingtheActionPlan; coordinating thoseincharge ofindividualcontrols inexecutingthecontrols theyare responsible for; in caseofinvolvementspecifictestingactivities,ensuringthenecessarycollaborationandchangesauditplan providing theEICwithasuitableinformationflowregarding theresults ofactivitiesconnectedwiththeauditplanfor coordinating withtheEICindefiningAnnualAuditPlanforadministrativeandaccountingprocesses inorder totake supporting theEICinitsactivitiesforassessingadequacyandactualapplicationofadministrativeaccounting supporting theDirectors ofTerna S.p.A.andthemanagementofcompaniesthatare individuallysignificantin providing, withthecollaborationofHumanResource andOrganisation Department,todisseminateadministrative establishing andupdatingadequateadministrativeaccountingprocedures fordraftingthefinancialstatementsand • • • periodic assessmentoftheplanforexistingcontrols andconsequentupdatingofadministrativeaccountingprocedures; impacting theinformativenoteonfinancialstatements; of administrativeandaccountingprocedures; assessment oftheshortcomings(absencecontrol orfailure toexecutecontrols) thatemerge withreference totheir assessment oftheoperationallevelexistingcontrols andthesubsequentcertificationofactualimplementation bis of the s

318 Annual Report 2009 Glossary Maximum totaltransportcapacity oninterconnection withforeign countries Maintenance kWh kW kilowatt-hour (kWh) neighbouring countries. Maximum transportcapacity forimportingalongthelinesofinterconnection grid with theelectricityplantsof taking intoaccountanydeclines inperformance. Measures andinterventionaimed atthemaintenanceorrestoration ofefficiency andproper functioning ofelectricityplants, Unit ofmeasurement ofenergy. Unit ofmeasurement ofpower(1kW=1000J/sec). Unit ofmeasurement thatexpresses thequantityofelectricityequalto1,000wattsprovided orrequested inonehour. interconnected grids,inorder toensure simultaneousandcoordinated functioningofthesame. Operating methodforthecompletionofmanagement,operation, maintenanceanddevelopmentactivitiesfortwoormore Interoperability ofelectricitygrids Connection betweenelectricitygridsrequired forthetransferof electricity. Interconnection ofelectricitygrids or distributiongridseventwogenerationplants. currentHigh-voltage powerlineinalternating (a.c.)ordirect current (d.c.)whichlinkstwodifferent electricaltransmissio Interconnection line electricity amonggridswithdifferent voltages. A transferpowerstationisthepartofgridusedbothfordividingelectricityamonggrid’slinesandtransferring High-voltage powerstation (geographical length). point. Thelengthofanelectricityline(km/line)isexpressed asthelengthofcircuits projection overtheground An electricitylineisasystemthatconnectstwopowerstations,orstationandanenergy inputorwithdrawal High-voltage electricityline Nominal voltagegreater than35kVandless orequalto220kV. High voltage Sum ofthequantitieselectricalenergy produced, measured attheelectrical generatorterminals. Gross production ofelectricity and thenecessaryauxiliaryservices,aswelldecisionsformaintenancedevelopmentmeasures. electrical network.Saidactivitiesandprocedures includethemanagementofelectricityflows,interconnection devices The setofactivitiesandprocedures thatbringaboutoperationandtheoperatingplan,undereverycondition,ofan Grid management Unit ofmeasurement equaltoonebillion watts(1,000megawatts). Gigawatt (GW) Electrical machinethattransformsasource ofprimary energy intoelectricity. Generator varies from positivepolaritytonegativepolarity. Itismeasured inHertz(Hz). Represents quantity, thenumberofoscillationspersecond, duringwhichthevalueofanalternating suchasvoltage, Frequency along thegridisknownas“dispatching”. equilibrium, thereby ensuringcontinuingandsecurityinsupplyingthisservice.Managementoftheseflowselectricity consumers anddeliverittotheNationalTransmission Gridinsuchawayastokeepelectricitysupplyanddemand Electricity cannotbestored. Itistherefore necessarytocontinuouslyproduce thequantityofenergy requested by Dispatching and interconnection capacity, anincrease inoperatingflexibilityofthegridoradisposalelements. Intervention withintheelectricitygridinvolvinganadaptationorexpansionoftransport,transformation,connection Development connection station. Any powerlinethatlinksthedistributionplantwithuser’splant,or Connection line length oftheconnectionisnormallylineconstitutingactuallink. sectioning devices.Classificationofconnectionsbyvoltageleveliscarriedoutwithreference tothenominalvoltage.The Set ofgridelementsconsistingthetransmissionlineandstallsatendssame,includingrelative circuit Connection n Watt Volt Very-high voltage Unified managementofthegrid Transmission line Transmission activity Transmission Transformer Transformation station Switching station Switch Stall Power station Planning Peak power Operations planning Net production ofelectricity National Transmission Grid(NTG) Megawatt (MW) Megavolt-ampere (MVA) Medium voltage Unit ofmeasurement ofelectricpower. Unit ofmeasurement ofvoltage. Nominal voltageover220kV. Coordinated managementofallportionstheGrid. to thedistributionsystemsorusers. High- andvery-high-voltagepowerline,overheadorcable, usedforthetransportofelectricityfrom theproduction plants The activityoftransportingandtransformationelectricityacross thegrid. of deliverytoclients,distributorsandrecipients ofself-produced energy. Electricity transportandtransformationactivitiesalongtheinter Electrical machineusedfortheconnectionandtransferof energy betweengridsatdifferent voltagelevels. Part ofagridconsistingthesetequipmentusedtotransferelectricitybetweengridswithdifferent voltages. level ofvoltage. Part ofagridconsistingthesetequipmentusedtodistributeelectricityamonglinesatsame specific exceptionaloperatingconditions,suchasinthecaseofshortcircuits. Sectioning andmanoeuvringdeviceabletocarryinterruptcurrent undernormaloperatingconditions,aswellduring the busbarsofapowerstation. Set ofpowerplantsandaccessorysystemslinkedtoalineortransformerthatlinkssaidelementsthegrid with day, monthandyear. Demand forelectricalenergy tobesatisfiedbythenationalelectricitysystem.Itshowsavariabletrend throughout the Requirement companies forthepurposesofdeterminingapplicabletariffs. Value ofthenetcapitalinvested,asrecognised bytheItalianAuthorityforElectricityandGastransportdistributio RAB (RegulatoryAssetBase) Generation ofelectricalenergy, inanyway. Production Natural orlegalpersonthatproduces electricity, regardless ofownershipthegenerationplant. Producer electricity amonggridsatdifferent voltagesandtransformelectricityintothelowestvoltageforuser. Part ofagrid,concentratedandclosedwithinspecificsite,usedtodistributeelectricityamongthelinestrans to satisfytheenergy requirements withrespect toqualityandcontinuityofservice. Definition oftheusageplans,foraspecificperiodtime,availablemeansproduction andtransmission,inorder The highestvalueofelectricalpowersuppliedorabsorbedatanypointthesystemduringaspecifictimeinterval. Preparation ofplansandschedulesforoperationtheelectricitysystem. Sum ofthequantitieselectricalenergy produced, measured attheoutgoingpointsofproduction plants. amendments andadditions. National electricitytransmissiongridasdefinedbytheDecree oftheMinistryIndustryJune25,1999andsubsequent Unit ofmeasurement equaltoonemillionwatts. Unit ofmeasurement oftheapparent electricalpower. Nominal voltagegreater than1kVandlessorequalto35kV. connected high-andvery-high-voltagegridforthepurposes fer n 319 Glossary Coordination and Development by Terna S.p.A.

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