ESB Annual Report and Accounts 2005 Chairman’S Review 3 Chief Executive’S Review 5 Financial Review 10

ESB Annual Report and Accounts 2005 " Chairman’s Review 3 " Chief Executive’s Review 5 " Financial Review 10 Power Generation Review 17 ESB Customer Supply and Group Services Review 21 ESB Networks Review 25 ESB International Review 29 Transmission System Operator Review 32 Corporate Social Responsibility 33 Board and Executive Information " Organisational Structure 35 " Board Members 36 " Executive Team 38 " Board Members’ Report 42 " Statement of Board Members’ Responsibilities 49 Independent Auditors’ Report 50 Financial Statements and Notes 52 " In 2005 ESB Power Generation completed delivery of two new peat powered plants in the midlands – West Offaly Power (150MW) and Lough Ree Power (100MW) " 2005 saw the commencement of the Moneypoint Environment Retrofit Project which will significantly reduce NOx and SO2 emissions from Moneypoint Power Station thereby delivering major benefit to the environment " The ESB billing system, in place for more than 20 years, was replaced in 2005 by a state of the art billing system, which better facilitates operation of the new structures in the deregulated market " In 2005, over 11 million bills were issued, over 15 million payments collected and over 3.5 million calls were received at the National Customer Contact Centre " During 2005 ESB Networks successfully completed the change over to the new IT systems which support the fully opened market Networks " Total expenditure on Networks infrastructure in 2005 was almost €700m " ESBI's largest ever overseas investment, the 800MW CCGT plant at Amorebieta in Northern Spain, started commercial operation in 2005. ESBI also won an operations and maintenance management contract for the 2,100MW coal fired plant at Manjung in Malaysia " Construction of the Coolkeeragh power plant in Northern Ireland and Derrybrien wind farm, one of the largest in Ireland, were completed by ESBI in 2005 www.esb.ie Facts at a Glance 2005 2004 Change Revenue €m 2,756 2,458 298 Profit after tax €m 241 157 84 Capital expenditure €m 943 1,209 (266) Net debt €m 1,847 2,299 (452) Customers connected 89,079 90,600 (1,521) Average staff numbers 8,292 9,289 (997) Capital Expenditure (€m) Net Debt (€m) 1500 2800 2400 1250 2000 1000 1600 750 1200 500 800 250 400 0 0 2001 20022003 2004 2005 2001 20022003 2004 2005 Generation Networks Coolkeeragh/ Other Amorebieta 2 Chairman’s Review Tadhg O’Donoghue In accordance with the provisions of the ESB Networks has invested €3.3 billion in Electricity (Supply) Act 1927 (as amended) the transmission and distribution infrastructure since Board presents its Annual Report and Accounts 2000 – one of the biggest capital investment for the year ended 31 December, 2005. programmes in the history of the State. ESB International in 2005 pursued growth in other markets to balance falling market share at Performance in 2005 home. The construction of an 800MW combined 2005 was an excellent year for ESB. cycle plant in Spain and of a 400MW combined cycle plant in Northern Ireland was completed ESB power stations achieved the plant availability in 2005. Other potential projects are being target for the year of 83%. The two new peat actively pursued. stations, Lough Ree commissioned in late 2004 and West Offaly commissioned in early 2005 are Throughout 2005 ESB Customer Supply sought having significant teething problems but I am to improve communications with its 1.9 million confident that these will be resolved so that the customers and also to improve response times stations will be making a full contribution before to customer queries. the start of next winter. Sustained investment in the generation portfolio, including replacement of ESB Retail, which at its height operated over 120 very old stations, is essential for meeting critical shops nationwide, closed its doors for the last availability targets. time in 2005. Most of the shop premises were acquired by Bank of Scotland (Ireland) in a ESB Networks in 2005 completed a further transaction which maximised value for ESB and 16,000 kilometres of medium voltage network also offered alternative employment opportunities renewal throughout the country. This programme, to ESB Retail staff either with the Bank or within which involves the renewal of all 75,000 ESB. I want to recognise the contribution of ESB kilometres of the medium voltage system, is Retail staff over so many years to customer service on track for completion during 2006. Overall in local communities throughout the country. 3 2005 Financial Performance Board, Shareholders and Staff Joe LaCumbre resigned from the Board in early 2006 after over 21 years as a Worker Board Profitability Member. I wish Joe every happiness in his € Group profit after tax increased by 84 million retirement after such long service. Seamus € to 241 million. In respect of 2005 the Board Mallon was appointed to the Board on 21 is proposing a final dividend of 30% of 2005 February 2006. I welcome Seamus to the Board. distributable profits which equates to a dividend € of 72.4 million in aggregate or 3.66 cent per I would like to thank the Minister for Finance and unit of capital stock. the Minister for Communications, Marine and Natural Resources and their respective officials, Time of Change for their continued assistance during the year. The process of change in the electricity industry I would also like to acknowledge the contribution in Ireland continued in 2005 with full market of my Board colleagues during the year. My opening. All electricity users, including domestic congratulations to the management and staff. customers, are now able to pick their electricity They have achieved a great deal, delivering yet supplier of choice. In this competitive market ESB again on a very ambitious programme in 2005. Customer Supply market share on the supply side fell a further 6% during 2005 to 58%. Competition will increase further with the introduction of the All Island Market scheduled for 2007. This will see ESB’s market share in supply fall to a projected 50% and ESB’s share Tadhg O’Donoghue of the generation market fall below 35%. Further Chairman down the road is the prospect of an all islands (Britain/Ireland) market and an integrated 18 May 2006 European market. Price Increases Average electricity prices increased by 3.5% during 2005. Fuel accounts for over 50% of our Power Generation costs and consequently fuel price inflation is putting great pressure on electricity prices. Corporate Governance ESB’s Board and staff are committed to doing business in an ethical and socially responsible way. For the Board this includes adherence to the highest standards of corporate governance and to transparency and independence in the Board process. 4 Chief Executive’s Review Padraig McManus Overview Staff numbers are 20% down on the level employed 10 years ago, but ESB is spending 5 On a global basis 2005 saw the profile of the times more per annum on capital, connecting 3 energy sector raised dramatically. Driven by times as many new customers, while distributing events in the Middle East, hurricanes in the significantly higher volumes of electricity to the Mexican Gulf, a growing awareness of the growing market. economic impact of CO2 and elevated security of supply concerns across many fuels, the prices It is against this backdrop that the performance of all fuel commodities rose significantly. The both financially and operationally in 2005 is volatility of these fuel prices has also increased particularly pleasing. ESB is reporting for the with price spikes occurring frequently. This first time under the new International Financial fundamental shift in the way global fuel Reporting Standards. Comparative figures for commodities are priced has affected many 2004 have been restated on the same basis. industries and in particular it has dramatically effected the electricity sector in both the short ESB has exited from the Retail appliance and perhaps more significantly the long term. business through the sale to Bank of Scotland (Ireland) (BOSI), and has disposed of the UK At the same time there have been further electrical contracting business (ESBI UK). The changes in Ireland. The deregulation of sale of 50% of the Spanish IPP to Osaka Gas of the supply sector, the rapid change in ESB’s Japan has also been completed. market share in both the generation and supply business, continued record demand for new These transactions are all clear signs of ESB’s connections, the buoyant demand coupled with commitment to keeping the focus on delivering the age of the generation portfolio and genuine long-term value by growing the electricity concerns over security of supply have placed an business while maintaining an acceptable risk unprecedented strain on resources. profile. All of these one-off transactions have had a positive impact on 2005’s financial performance. 5 During 2005 ESB staff demonstrated their capacity to deal with the changes facing the organisation The scale of the financial and operational challenge will address the actuarial deficit on the pension that faces ESB cannot be underestimated. The fund and will maintain a strong and relevant continuing growth in the Irish economy is driving ESB into the future. Addressing the funding large capital expenditure in the Networks business. requirements of the business and continuing to The renewal of an ageing generation portfolio is a adapt to market changes are issues that must priority, including the need to expand the thermal be addressed over the next few years. and renewable generation portfolio to meet the major demand growth in Ireland, in addition to investing to meet environmental targets. As a Operational Review result, it is estimated that ESB will invest an Irish economic growth continued strongly in € average of 1 billion per annum over the next 5 2005, resulting in a 3.7% rise in electricity years.

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