september 30, 2011operations interim report on · interim report on operations – september 30,...

INTERIM REPORT ON OPERATIONS

SEPTEMBER 30, 2011

INTE

RIM

REP

ORT

ON

OPE

RATI

ON

S –

SEPT

EMBE

R 30

, 201

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www.a2a.eu

0.1 Performance indicators and corporateinformation

5 The A2A Group September 30, 2011

6 Financial highlights

8 A2A S.p.A. on the Stock Exchange

11 Corporate Boards

13 Significant events during the period

19 Summary of results, assets and liabilities and financial position of the A2A

Group

26 Significant events after September 30, 2011

0.2 Consolidated financial statements 30 Consolidated balance sheet

32 Consolidated income statement

34 Consolidated statement of comprehensive income

35 Consolidated cash flow statement

36 Consolidated statement of changes in equity

0.3 Notes to the Interim report on operations

39 General information on A2A S.p.A.

40 Interim report on operations

41 Financial statements

42 Basis of preparation

43 Changes in international accounting standards

50 Scope of consolidation

51 Consolidation policies and procedures

57 Seasonal nature of the business

58 A2A Group – Areas of activity

Contents

Interim report on operations – September 30, 2011

1

59 Geographical areas of activity

60 Results sector by sector

64 Notes to the balance sheet

83 Net debt

84 Notes to the income statement

92 Earnings per share

93 Consob Communication no. DEM/6064293 of July 28, 2006

94 Guarantees and commitments with third parties

96 Other information

0.4 Attachments to the notes to the Interim

report on operations

120 1. List of companies included in the consolidated financial statements

122 2. List of shareholdings in companies carried at equity

124 3. List of companies included in the consolidated financial statements of the

Ecodeco Group

126 4. List of companies included in the consolidated financial statements of the

Coriance Group

128 5. List of financial assets available for sale

0.5 Interim report on operations 131 Results sector by sector

133 Macroeconomic scenario

135 Performance of the energy market

138 Energy Sector

150 Heat and Services Sector

154 Environment Sector

158 Networks Sector

170 Other Services and Corporate Sector

172 Outlook for operations

173 Risks and uncertainties

0.6 Certification by the Manager in charge ofpreparing accounting documents

197 Certification by the Manager in charge of preparing accounting documents

This is a translation of the Italian original “Resoconto Intermedio di gestione al 30 settembre 2011”

and has been prepared solely for the convenience of international readers. In the event of any

ambiguity the Italian text will prevail. The Italian original is available on the website www.a2a.eu


Contents

2

0.1Performanceindicators andcorporateinformation


5

The A2A Group at September 30, 2011

(1) The 61.28% refers to the ordinary shares held in Transalpina di Energia (TdE). Theactual stake in share capital is 60%. Note that Edison holds 50% of shares inEdipower.

(2) 0.38% of these are held through A2A Reti Gas. (3) There are call and put options on a further stake in the company's share capital.(4) There are put options on a futher stake in the company's share capital.

This table shows the A2A Group's most significant shareholdings. You are referred toattachments 1, 2, 3, 4 and 5 for full details of all shareholdings.

Areas of activity

Energy

Heat and services

Environment

Networks

Other companies

A2A Spa

51.00%Delmi (3)

50.00%Transalpina diEnergia

61.28%Edison (1)

20.00%Edipower

100.00%AspemEnergia

100.00%A2A Trading

70.00%A2A Alfa

50.00%Premiumgas

70.00%Plurigas

100.00%Abruzzoenergia

50.00%Ergosud

50.00%Metamer

100.00%A2A Energia

33.33%Lumenergia

100.00%A2AMontenegro

43.70%EPCG

39.49%Rudnik Uglja ad Pljevlja

100.00%A2A Calore &Servizi

98.08%A2A Coriance

100.00%Coriance

90.00%Varese Risorse (4)

60.00%Proaris

50.00%Asm Novara (3)

100.00%Amsa

100.00%Ecodeco

99.99%Aprica

80.00%Montichiariambiente

100.00%PartenopeAmbiente

100.00%A2A Reti Elettriche

100.00%A2A Ciclo Idrico

99.98%BAS-SII

67.00%Seasm

90.00%Aspem (4)

100.00%A2A Reti Gas

100.00%A2A Servizi alladistribuzione

91.60%Retragas

74.50%Camuna Energia

48.86%ASVT (2)

100.00%Selene

100.00%A2A Logistica

100.00%MincioTrasmissione

49.00%e-Utile

21.94%ACSM-AGAM

7.9%Dolomiti Energia

Revenues 4,351 million euro

Gross operating income 659 million euro

Net income 114 million euro

Income statement figures 01 01 2011 01 01 2010 3rd Qtr 3rd QtrMillions of euro 09 30 2011 09 30 2010 2011 2010

Revenues 4,351 4,040 1,301 1,182

Operating expenses (3,278) (2,990) (992) (860)

Labour costs (414) (371) (127) (113)

Gross operating income 659 679 182 209

Depreciation, amortization, provisions and write-downs (388) (343) (134) (105)

Net operating income 271 336 48 104

Financial balance (133) (79) (53) (23)

Other non-operating income 1 – – –

Other non-operating expenses (6) – (1) –

Profit before tax 133 257 (6) 81

Income taxes (93) (88) (19) (20)

Net result from non-current assets sold or held for sale 41 290 2 8

Minority interests 33 (23) 17 (4)

Net profit for the period pertaining to the Group 114 436 (6) 65

Gross operating income/revenues 15.1% 16.8% 14.0% 17.7%

(1) The figures serve as the performance indicators required by CESRN/05/178/B

Financial highlights (1)


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Balance sheet figures 09 30 2011 12 31 2010Millions of euro

Net capital employed 8,547 8,738

Total equity attributable to the Group and minorities 4,612 4,845

Consolidated net financial position (3,935) (3,893)

Consolidated net financial position/Equity attributable to the Group and minorities 0.85 0.80

Consolidated net financial position/Average market capitalization 1.18 1.03

Financial data 01 01 2011 01 01 2010Millions of euro 09 30 2011 09 30 2010

Net cash from operating activities 306 439

Net cash used in investing activities (145) 167

Free cash flow 161 606

Key figures of A2A S.p.A. 09 30 2011 12 31 2010

Share capital (euro) 1,629,110,744 1,629,110,744

Number of ordinary shares (par value 0.52 euro) 3,132,905,277 3,132,905,277

Number of treasury shares (par value 0.52 euro) 26,917,609 26,917,609

Key indicators 09 30 2011 09 30 2010

Average 6-month Euribor 1.612% 1.028%

Average price of Brent crude (US$/bbl) 111.46 77.93

Average exchange rate euro/US$ (*) 1.41 1.32

Average price of Brent crude (euro/bbl) 79.20 59.31

(*) Source: Italian Foreign Exchange Office


Financial highlights

7

A2A in figures

Capitalisation at September 30, 2011 (millions of euro) 2,934

Average capitalisation in the first 9 months 2011 (millions of euro) 3,348

Average volumes in the first 9 months 2011: 9,822,627

Average price in the first 9 months 2011 (*) 1.069

Maximum price in the first 9 months 2011 (*) 1.231

Minimum price in the first 9 months 2011 (*) 0.825

Number of shares 3,132,905,277

(*) euro per shareSources: Bloomberg

In June 23, 2011 A2A distributed a dividend equal to 0.06 euro per share. In November 24, 2011

will be distributed an additional non-recurring dividend equal to 0.036 euro per share.

A2A forms part of the following indices

FTSE MIB

DJ STOXX

DJ EUROSTOXX

DJ Italy

WisdomTree

S&P Developed Ex-US

Ethical Indices

FTSE ECPI Italy SRI Benchmark

Axia CSR and ETHICAL Italy

FTSE ECPI Italy SRI Benchmark

ECPI Ethical Index Global, Euro and EMU

Solactive Climate Change

Sources: Bloomberg

A2A ranked as a leading business in the Carbon Disclosure Project 2010.

A2A S.p.A. on the Stock Exchange


8

Shareholding (*)

(*) Quota greater than 2% (updated at September 30, 2011)Sources: CONSOB

Rating

Current

Medium/Long-term rating BBB+

Standard & Poor’s Short-time rating A–2

Outlook Negative

Moody’s (*) Medium/Long-term rating Baa1

Outlook Negative

(*) updated at October 7, 2011Sources: rating agencies



9

A2A in the first 9 months 2011

A2A vs FTSE MIB

Sources: Bloomberg



10

SUPERVISORY BOARD

CHAIRMANGraziano Tarantini

DEPUTY CHAIRMANRosario Bifulco

DIRECTORSAdriano BanderaGianbattista BrivioBruno CapariniGianni CastelliAlberto CavalliStefano GrassaniEnrico MattinzoliMarco MiccinesiMassimo PeronaNorberto RosiniGiorgio Maria Filiberto SommarivaFranco TamburiniAntonio Matteo Taormina

MANAGEMENT BOARD

CHAIRMANGiuliano Zuccoli

DEPUTY CHAIRMANVittorio Cinquini

DIRECTORSFranco BaigueraMario CocchiFrancesco RandazzoRenato RavanelliPaolo RossettiGiuseppe Sala

Corporate boards


11

GENERAL MANAGERS

CORPORATE AND MARKET AREARenato Ravanelli

TECHNICAL-OPERATIONS AREAPaolo Rossetti


Corporate boards

12


A single sales company for the A2A Group since January

On January 1, 2011, Asm Energia e Ambiente S.r.l., Bas-Omniservizi S.r.l. and A2A Servizi al

Cliente S.r.l. were merged into A2A Energia S.p.A..

The single sales company arising from this operation concentrates on the sale of electricity

and gas and the related commercial services (call centers, desks and billing).

In particular a leading operator on the national energy market has been created which has

around 2 million customers (large-scale industry, apartment blocks and domestic

customers), who are mostly concentrated in the Milan metropolitan area and the provinces of

Brescia and Bergamo.

This represents a further step in the process of corporate streamlining and rationalization

aimed at making the Group more competitive on the liberalized markets.

Lombardy customers will be able to continue to put their trust in quality services that are

nearby, a factor which up until now has been a “winning card” for the Group as certified by the

excellent results obtained in customer satisfaction surveys and in the special league tables

regularly prepared by the Electricity and Gas Authority.

A2A Ciclo Idrico S.p.A. comes to life on January 1, 2011

The contribution of the “water cycle” segment by the parent A2A S.p.A. and the demerger of

the “ownership of the end customers of the water business of the province of Brescia”

segment by A2A Energia S.p.A. (formerly Asm Energia e Ambiente S.r.l.) into A2A Ciclo Idrico

S.p.A. became effective on January 1, 2011.

More specifically, this company carries out the following activities which are listed by way of

example:

• research, production, procurement, capitation, transfer and transportation, conversion,

distribution and sale of water for primary, industrial and agricultural use;

Significant events during theperiod

13


Significant events during the period

• collection and treatment of waste water;

• use and recovery of energy from the integral water cycle;

• management, maintenance and development of the water and sewage networks and of

the plants for the capitation, potabilisation and purification of water.

A2A as one of the leaders in Italy for the Carbon Disclosure Project

A2A was classified as one of the Italian “2010 Carbon Performance Leaders” by the Carbon

Disclosure Project, the body acting on behalf of over 500 institutional investors and which for

more than 10 years has been providing an analysis of the means by which the largest

companies in the world counter greenhouse gas emissions.

A new managing director for Ecodeco S.r.l., an A2A Group company

On March 11, 2011, the Board of Directors of Ecodeco S.r.l., one of the companies in the A2A

Group’s Environment Sector, appointed Mr. Enrico Friz as managing director of the company.

The aim behind renewing the subsidiary’s top management is to consolidate the company’s

development process as part of the A2A Group’s Environment Sector, with the objective of

optimizing organizational and process synergies and strengthening the offer of

environmental services.

Communication of A2A S.p.A., Delmi S.p.A. and EDF S.A. regarding theshareholders’ agreement concerning Edison S.p.A. and Transalpina diEnergia S.r.l. (TdE)

On March 15, 2011, as part of the discussions relating to a new industrial project concerning the

Edison Group and the structure of TdE’s shareholdings, A2A S.p.A., Delmi S.p.A. and EDF S.A.

reached agreement over a change in the shareholders’ pacts concerning Edison S.p.A. and

Transalpina di Energia S.r.l. which extended the deadline for the termination of such pacts to

September 15, 2011, namely if no termination notice was sent by any of the parties by

September 15 the agreements would be renewed for the following three years.

This amendment also provided for the appointment of the boards of directors of Edison S.p.A.

and Transalpina di Energia S.r.l. for a period of one year by the shareholders’ meetings

approving the respective annual financial statements.

On September 15, 2011, EDF S.A., A2A S.p.A. and Delmi S.p.A. agreed to extend the expiry date of

the shareholders’ pacts concerning Edison S.p.A. and Transalpina di Energia S.r.l. to October 31,

2011.

14



The Supervisory Board of A2A S.p.A. approves the 2010 results

On April 27, 2011, with Mr. Graziano Tarantini in the chair, the Supervisory Board met and

approved the separate financial statements and consolidated annual financial report of the

A2A Group for the year ended December 31, 2010. The Supervisory Board agreed with the

proposal of the Management Board to submit for the approval of shareholders the

distribution of a dividend of 0.060 euros per ordinary share, to be put into payment on June

23, 2011.

The Supervisory Board additionally agreed with the proposal of the Management Board to

submit for the approval of the shareholders the distribution of an additional non-recurring

dividend of 0.036 euros per ordinary share, to be put into payment on November 24, 2011.

Ecodeco S.r.l. is awarded a contract in Britain for the design andconstruction of a new waste treatment plant

3SE, a consortium set up by the British companies Shanks Waste Management and Scottish

and Southern Energy, has chosen Ecodeco technology to build a waste treatment plant

located in Yorkshire.

In more detail the A2A Group company Ecodeco S.r.l. will be the supplier of the project and the

technology and will build a plant which will treat the waste of the cities of Barnsley, Doncaster

and Rotherham. The value of these supplies exceeds 26 million euros and it is envisaged that

Ecodeco will also be paid royalties on the concession for the next 25 years, based on each

tonne of waste treated. The plant will be used to treat 250,000 tonnes/year of residual solid

urban waste from the differentiated collection and will serve around 350,000 families. At the

end of the treatment process a secondary fuel will be obtained which will be used in a multifuel

plant for producing electricity.

Glass, plastic and metals will be recovered by building a section for the production of compost.

The agreement provides that the work for the construction of the plant will begin by the

spring of 2013 and that the first waste will be treated in 2015.

A total of 23.5% of the share capital of Metroweb S.p.A has been sold toFondo Infrastrutturale F2i and IMI Investimenti

On May 30, 2011, A2A S.p.A. together with Stirling Square Capital Partners, the majority

shareholder of Metroweb S.p.A., signed an agreement for the sale of their shareholdings in

Metroweb S.p.A. (respectively 23.5% and 76.5%) to Fondo Infrastrutturale F2i and IMI

Investimenti.

15



This transaction led to proceeds of 53 million euros for A2A S.p.A. and a capital gain of 38

million euros. A2A S.p.A. continues to hold a convertible bond in its portfolio which if the

option is exercised will enable it to acquire a shareholding of up to 25% in Metroweb S.p.A., and

a put option which may be exercised until November 30, 2013 under the same conditions as

the transaction, increased by a financial return.

Acerra waste to energy plant: production capacity reaches 100% in thefirst six months of 2011

The Acerra waste to energy plant treated 300 thousand tonnes of waste in the first six months

of 2011, in line with the requirements of the Integrated Environmental Authorization which

allows 600 thousand tonnes/year of waste to be treated. At the same time the plant produced

and put into the grid 260 GWh of electricity.

The reported figures, which refer to the first half of the second year in which Partenope

Ambiente S.p.A. has been responsible for the industrial management of the waste to

energy plant, therefore represent an improvement over the already excellent results

achieved in 2010, when a total of 516 thousand tonnes of waste were transferred to the

plant (being 86% of its production capacity) and 450 GWh of electricity was put into the

grid, equivalent to the needs of 150 thousand households.

The waste to energy plant worked regularly during the first six months of 2011, succeeding in

maintaining the planned high standards of yield also through the maintenance which had been

scheduled by Partenope Ambiente S.p.A. at the beginning of the year and which, in addition to

being absolutely usual in complex set-ups such as waste to energy plants, has the scope of

ensuring safety and efficiency.

Particular emphasis has been placed on environmental aspects: the waste to energy plant is

equipped with leading edge combustion gas purification technologies and a double

“continuous monitoring” system for controlling emissions which provides a constant

guarantee that the plant is working as it should.

Emissions have been well below the limits allowed by the Authorization since the start of plant

management, limits which moreover for the Acerra waste to energy plant are fixed at values

which are on the average 50% lower than those envisaged by the community directive and the

Italian legislation transposing this.

In addition to the daily measurements made by Partenope Ambiente S.p.A., two outside

certified laboratories were engaged in 2010 to carry out five emission monitoring campaigns,

and a further two were performed during the first part of 2011. The data collected have all

confirmed the complete reliability of the plant and the efficiency of the fume treatment system,

with results well below the emission limits set by the Integrated Environmental Authorization.

16



A2A and the Confederations of Small and Medium Enterprises sign aprotocol of understanding concerning the Joint SettlementProcedure

A2A, Casartigiani, CNA, Confagricoltura, Confapi, Confartigianato Imprese, Confcommercio

Imprese per l’Italia and Confesercenti have signed an important joint settlement agreement,

putting into practice the desire expressed in this respect by the AEEG - the Electricity and Gas

Authority. This procedure acts as an out of court tool for resolving certain types of dispute

which have not been settled by previous complaint procedures, and which relate to the supply

of electricity and gas on both the protected and free markets and arise between business

customers belonging to the Confederations and A2A Energia S.p.A., the single sales company

of the A2A Group.

A distinctive feature of the procedure is its swiftness and informality and the ease by which it

may be accessed and carried out.

The settlement procedure may be activated for disputes relating to assessments,

contestations and the management of problems arising from the supply of electricity or gas,

such as: the reconstruction of usage following the ascertained malfunctioning of a meter

pursuant to the resolutions of the Electricity and Gas Authority; contestations relating to

issues connected with the billing of usage, the management of a reduction in power or

suspension of supply for disputed payment arrears by the customer; the de-activation of a

meter at the customer’s request which has not been carried out; and the management of

problems connected with the issuing of bills.

The Settlement Office is staffed by qualified operators from A2A and the Confederations who

have attended specific training courses, a necessary requirement for the qualification to be

recognized. Staff involved in managing the settlements are required to act in an impartial and

neutral manner to encourage a compromise being reached which is acceptable to both

parties.

Any measures being taken by A2A Energia S.p.A. to collect the receivable under dispute are

suspended for the whole period of the settlement process.

The introduction of the procedure at a national level will be preceded by a trial period of 12

months, at the end of which A2A and the Confederations will be entitled to check its

effectiveness and agree any changes which may be needed.

The aim of the agreement, which has already been tested on similar occasions, is to improve

the relationship between small and medium enterprises and energy suppliers under the

customer satisfaction principle.

17



A2A S.p.A.: acquisition of 5.05% of the share capital of AbruzzoenergiaS.p.A.

On July 27, 2011, A2A S.p.A. purchased the remaining 5.05% of the share capital of

Abruzzoenergia S.p.A. which was held by minority shareholders.

As a result of this transaction A2A S.p.A. is now the owner of 100% of the company’s share

capital.

Approval of the half-yearly financial report at June 30, 2011

The Management Board approved the consolidated half-yearly financial report at June 30,

2011 on August 3, 2011.

18


ResultsThe results of the A2A Group for the period ended September 30, 2011 are set out below

together with comparative figures for the corresponding period of the previous year:

Millions of euro 01 01 2011 01 01 2010 Changes 09 30 2011 09 30 2010

Revenues 4,351 4,040 311

of which:

– Revenues from sales of goods and services 4,276 3,959 317

– Other operating income 75 81 (6)

Operating expenses (3,278) (2,990) (288)

Labour costs (414) (371) (43)

Gross operating income 659 679 (20)

Depreciation and amortization (318) (290) (28)

Provisions and write-downs (70) (53) (17)

Net operating income 271 336 (65)

Net financial expense (109) (135) 26

Share of results of companies at equity (24) 56 (80)

Other non-operating income 1 – 1

Other non-operating expenses (6) – (6)

Profit before tax 133 257 (124)

Income taxes (93) (88) (5)

Income from current operations, net of tax 40 169 (129)

Net result from non-current assets sold or held for sale 41 290 (249)

Minorities 33 (23) 56

Group net profit for the period 114 436 (322)

Note: the Montenegro subsidiary EPCG has been consolidated on a line-by-line basis for the period ended September 30, 2011, whilefor the period ended September 30, 2010 it was consolidated on a one-line basis.

The Group earned revenues totaling 4,351 million euro in the first nine months of 2011, of

which 203 million euro relates to the EPCG Group. Revenues from sales and services

amounted to 4,276 million euro (of which 202 million euro attributable to the EPCG Group),

while other operating income totaled 75 million euro.

Summary of results, assets andliabilities and financial position ofthe A2A Group

19


Summary of results, assets and liabilities and financial position of the A2A Group

The key quantitative data contributing to the formation of these revenues were as follows:

09 30 2011 09 30 2010

Electricity sold to wholesale and retail customers (GWh) 16,792 14,791

Electricity sold on the Power Exchange (GWh) 10,024 12,526

Electricity sold on foreign markets (GWh) 9,100 6,441

Electricity sold (GWh) - EPCG 3,475

Gas sold to wholesale and retail customers (Mcm) 2,575 2,847

Heat sold (GWht) 1,816 1,882

Electricity distributed (GWh) 8,615 8,468

Electricity distributed (GWh) - EPCG 1,899

Gas distributed (Mcm) 1,295 1,430

Water distributed (Mcm) 51 51

Water purified (Mcm) 29 29

Waste disposed of (Kton) 1,953 2,032

In particular, sales mainly derived from the following quantities produced by the plants

managed by the Group:

09 30 2011 09 30 2010

Thermoelectric production (GWh) 6,208 6,380

Thermoelectric production (GWh) - EPCG 1,055

Hydroelectric production (GWh) 2,617 2,931

Hydroelectric production (GWh) - EPCG 1,009

Heat production (GWht) 1,534 1,604

Electricity produced by cogeneration (GWh) 373 347

Electricity sold from waste to energy and biogas plants (GWh) 903 883

Gross operating income for the period of 659 million euro decreased by 20 million euro over

the same period of the previous year.

20



The following table sets out changes in gross operating income by business sector.

Millions of euro Gross Gross Operating Operating Income Income 09 30 2011 09 30 2010

Energy Sector 223 265

-electricity 165 230

-gas 58 35

Heat and Services Sector 38 30

Environment Sector 216 202

Networks Sector 199 206

Other services and Corporate Sector (17) (24)

Total 659 679

The Energy Sector saw a decrease in gross operating income compared to the same period of

the previous year: the reduction in margins in the electricity sector was partially offset by the

rise in margins in the gas sector.

The drop in results in the electricity sector is essentially due, at a plant level, to the fact that the

Monfalcone thermoelectric power station (coal and oil) no longer has the essentiality

prerequisites it previously had and that the results at a gross operating income level of the San

Filippo del Mela power station in Sicily (oil), which has left the boundary regulated by the

tolling agreement with Edipower, have been deconsolidated. There was also a decrease of 300

GWh in hydroelectric production during the period.

Unit margins for commercial activity also fell although remained positive.

The production and sale of electricity in Montenegro provided a positive contribution of 2

million euro.

In the gas sector, the effects of the fall in volumes as the result of the especially mild weather

and those arising from a reduction in unit margins due to new tariff measures were more than

offset by the positive effects of the renegotiation of the gas procurement agreements at the

beginning of the fourth quarter of 2010.

The gross operating income of the Heat and Services Sector amounted to 38 million euro, a

rise of 8 million euro over the same period of the previous year. This result is mainly due to the

positive effects of commercial development only in part offset by the fall in margins due to the

especially mild season. The period also benefited from the recognition of an increase in energy

efficiency allowances (White Certificates) relating to the development of the district heating

networks.

21

The gross operating income of the Environment Sector amounted to 216 million euro (202

million euro in the first nine months of 2010). This performance is mainly due to the good

economic performance of the waste to energy plants managed by the Group.

The fall in margins in the Networks Sector is mainly due to the electricity distribution

sector, which in the third quarter of 2010 benefited by around 20 million euro from non-

recurring items relating to the company specific equalization mechanism which arose

from the adjustment of the revenue component expected for the III regulatory period

(2008-2011).

In addition, electricity distribution in Montenegro provided a positive contribution of 8 million

euro to the sector.

Depreciation, amortization and write-downs amounted in total to 388 million euro (343

million euro for the nine months ended September 30, 2010). The increase of 45 million euro

includes costs of 39 million euro arising from the line-by-line consolidation of the subsidiary

EPCG and costs of 6 million euro resulting from an increase in the accruals made to risk

provisions regarding activities in Italy.

As a result of these changes net operating income amounted to 271 million euro, compared

to 336 million euro for the nine months ended September 30, 2010.

Net financial expense, amounted to 109 million euro (135 million euro for the nine months

ended September 30, 2010). This improvement is due to the positive change in the fair value

of financial derivative contracts hedging interest rate risk and the significant fall in average

debt (-400 million euro approximately), effects which were partially offset by the rise in the

average cost of borrowing.

Affiliates are negative for 24 millions euro (a profit of 56 million euro for the nine months

ended September 30, 2010). The negative change is mainly due to Transalpina di Energia (-45

million euro compared to +35 million euro in the first three quarters of 2010). It should also be

recalled that the subsidiary EPCG made a positive contribution of 9 million euro in the first nine

months of 2010 when the investment was consolidated on a one-line basis.

Other non-operating income and expenses totaled 5 million euro in the nine months

ended September 30, 2011 (nil for the nine months ended September 30, 2010) and relate to

costs incurred by the EPCG Group.

Income taxes amounted to 93 million euro (88 million euro for the nine months ended

September 30, 2010); the increase is mainly due to the introduction of Law no. 111 of July 15,

2011 which increased the IRAP regional production tax rate from the previous 3.90% to 4.20%

for companies acting as concessionaires, other than those involved in the construction and



22



management of motorways and tunnels, and the introduction of Law no. 148 of September 14,

2011 which made significant changes to the “Robin Hood tax”, by which the previously

excluded electricity and gas distribution activities are also liable to the additional IRES

corporate income tax from fiscal 2011, and increased the rate of the “Robin Hood tax” from

6.5% to 10.5% for the period from 2011 to 2013.

Net income from non-current business assets sold or held for sale totaled 41 million

euro (290 million euro for the nine months ended September 30, 2010) and mainly consists of

the gain arising on the sale of the investments in Metroweb S.p.A. and CESI, while in the first

nine months of 2010 this item mostly consisted of the gain arising on the sale of the

investment in Alpiq Holding AG.

After deducting the net income attributable to minority interests (of which 22 million euro is

attributable to the minority shareholders of Delmi), the net income attributable to the

Group for the period amounted to 114 million euro (436 million euro for the nine months

ended September 30, 2010).

Balance sheet and financial position

Consolidated “Capital employed” amounted to 8,547 million euro at September 30, 2011 and

is covered by equity (4,612 million euro - of which 1,295 million euro attributable to minority

interests) and net debt (3,935 million euro).

In particular “Working capital” of 717 million euro has decreased by 46 million euro

compared to December 31, 2010.

“Net fixed capital”, which includes “Assets/liabilities held for sale”, amounted to 7,830

million euro (-145 million euro).

The “Net financial position” at September 30, 2011 of 3,935 million euro increased by 42

million euro compared to December 31, 2010 mainly as the effect on the third quarter of the

year of the occurrence of certain working capital items of a typically seasonal nature in the

period, such as for example gas storage.

23



Millions of euro 09 30 2011 12 31 2010 Changes

CAPITAL EMPLOYED

Net fixed capital 7,812 7,911 (99)

Tangible assets 4,725 4,872 (147)

Intangible assets 1,579 1,552 27

Investments and other non-current financial assets (*) 2,416 2,423 (7)

Other non-current assets/liabilities(*) (133) (137) 4

Deferred tax assets/liabilities (35) (63) 28

Provisions for risks, charges and liabilities for landfills (465) (460) (5)

Employee benefits (275) (276) 1

of which with counter-entry to equity (110) (118)

Working capital 717 763 (46)

Inventories 308 239 69

Trade receivables and other current assets (*) 2,055 2,416 (361)

Trade payables and other current liabilities (*) (1,625) (1,854) 229

Current tax assets/tax liabilities (21) (38) 17

of which with counter-entry to equity (113) 3

Assets/liabilities held for sale (*) 18 64 (46)

of which with counter-entry to equity

TOTAL CAPITAL EMPLOYED 8,547 8,738 (191)

SOURCES OF FUNDS

Equity 4,612 4,845 (233)

Total financial position beyond one year 3,442 3,635 (193)

Total financial position within one year 493 258 235

Total net financial position 3,935 3,893 42

of which with counter-entry to equity (30) (41)

TOTAL SOURCES 8,547 8,738 (191)

(*) Excluding balances included in the Net Financial Position.

24



Millions of euro 01 01 2011 01 01 2010 09 30 2011 09 30 2010

NET FINANCIAL POSITION AT THE BEGINNING OF THE PERIOD (3,893) (4,644)

Net income for the period (including minorities) (**) 43 238

Depreciation and amortization 318 290

Write-downs/disposals of tangible and intangible assets 4 3

Results from companies at equity 24 (56)

Write-downs of investments 3 –

Changes in assets and liabilities (*) (86) (36)

Net cash flows from operating activities 306 439

Net cash flows from investing activities (145) 167

Free cash flow 161 606

Dividends paid by the parent company (186) (217)

Dividends paid by subsidiaries (6) (28)

Cash flows from the distribution of dividends (192) (245)

Changes in financial assets/liabilities with counter-entry to equity (11) (1)

NET FINANCIAL POSITION AT THE END OF THE PERIOD (3,935) (4,284)

(*) Excluding balances with counter-entry to equity.(**) The result for the period is stated excluding gains on the disposal of investments. 25

Convertible loan converted into Metroweb S.p.A. shares

On October 6, 2011, A2A S.p.A. fully converted the convertible bond loan it held in portfolio

after the sale of 23.5% of Metroweb S.p.A.. As the result of this operation, A2A S.p.A. currently

holds a 19.44% interest in the share capital of Metroweb S.p.A. which will increase to

approximately 25% on the merger between Metroweb S.p.A. and its parent company.

Acerra waste to energy plant: production capacity is confirmed at100% in the first nine months of 2011

The Acerra waste to energy plant treated 440 thousand tonnes of waste in the first nine

months of 2011, in line with the requirements of the Integrated Environmental Authorization

which allows 600 thousand tonnes/year of waste to be treated. At the same time the plant

produced and put into the grid 390 GWh of electricity.

The Management Board of A2A S.p.A. unanimously approves thenegotiation guidelines for the Edison/Edipower transaction

On October 31, 2011, the Management Board of A2A S.p.A. reviewed the guidelines for the

continuation of the negotiations with EDF S.A., subject to prior agreement between the

management of A2A S.p.A., Delmi S.p.A. and EDF S.A., concerning Edison S.p.A. and Edipower

S.p.A..

The main industrial aspects of the envisaged transaction are as follows:

1. Demerger of Edipower S.p.A.: A2A S.p.A. and Iren S.p.A will own the Mese and Udine

hydroelectric plants while Edison S.p.A. will retain the thermoelectric plants and the Tusciano

run of river plant.

2. Acquisition by EDF S.A. of A2A S.p.A.'s 100% holding in the company owning the Gissi CCGT

plant, which will subsequently be integrated into Edison S.p.A..

Significant events afterSeptember 30, 2011


26

3. Delmi S.p.A.’s call option on 250 MW of Edison S.p.A.'s wind farm capacity at fair value,

exercisable in three years and payable in Edison S.p.A. shares also at fair value.

4. Delmi S.p.A.'s call option, or that of its designees, on Edison's minority interests in the

companies owning the Trento and Bolzano hydroelectric plants, exercisable in one year.

5. The A2A Group's availability to negotiate a gas sourcing agreement with the Edison Group

aimed at creating synergies between the two industrial entities.

6. EDF S.A.'s call option on A2A S.p.A.'s 50% interest in the company owning the Scandale

CCGT plant, exercisable in three years.

The main steps in the shareholding reorganization resulting from the Edison transaction are

as follows:

1. Demerger of Transalpina di Energia S.r.l., as a result of which each of EDF S.A. and Delmi S.p.A.

will receive half of TdE's assets and liabilities; following the demerger, the two shareholders EDF

S.A. and Delmi S.p.A. will hold 50% and 31% respectively of Edison S.p.A.'s ordinary shares.

2. Execution of a new shareholders' agreement between EDF S.A., A2A S.p.A. and Delmi S.p.A.

providing for Delmi S.p.A.'s governance rights for the protection of its investment (with

specific reference amongst other things to related party transactions). The chairman of

Edison S.p.A. will be Italian.

3. Put option held by Delmi S.p.A. with respect to EDF S.A. on 100% of the shares in Edison

S.p.A.: (i) 75% of the shares of Edison S.p.A. held by Delmi S.p.A. at fair value, exercisable in 3/5

years, in the event that there is no improvement in the liquidity of the trading market for

Edison S.p.A. shares, and (ii) in any case on 25% of the shares of Edison S.p.A. held by Delmi

S.p.A. at a price determined through a formula based on Edison S.p.A.'s EBITDA and an EBITDA

multiple derived from a sample of comparable Italian companies, exercisable in 3 years.

The implementation of the transactions to be entered into by Edison S.p.A. will require the

approval of the corporate bodies of Edison S.p.A. in accordance with applicable law. The

completion of the transaction is in any case subject to confirmation from CONSOB that the

method used to calculate Edison's share price in the event of a mandatory tender offer, being

the average of the previous 12 months, is acceptable.

A2A's Management Board has unanimously approved the above guidelines and granted

powers to continue negotiations on the above basis conditional upon the approval of the

Supervisory Board.

Pending the approval of the negotiation guidelines by A2A S.p.A.'s Supervisory Board and

Delmi S.p.A.’s board of directors, the current shareholders' agreement between A2A S.p.A.,

Delmi S.p.A. and EDF S.A. has been extended until Friday, November 4.


Significant events after September 30, 2011

27

From an industrial standpoint the transaction will significantly strengthen the position of the A2A

Group and the other shareholders of Delmi S.p.A. in the renewables sector. The renewables asset

base which could be transferred to A2A S.p.A. and/or the other Delmi shareholders as part of the

transaction will include approximately 640 MW relating to the Mese and Udine hydroelectric

plants, with concessions with due date in the 2030, and the full property of the hydroelectric

companies today held by Edison S.p.A. currently held by Edison S.p.A. and operating in the

provinces of Bolzano and Trento, and 250 MW of wind assets.

In addition, by retaining a shareholding in Edison S.p.A., A2A S.p.A. and the other shareholders

of Delmi S.p.A., would benefit, together with EDF S.A. and the other shareholders of Edison

S.p.A, from the improved industrial base and the company’s future prospects. In fact if the

transaction is successful, Edison S.p.A. will see its combined cycle gas-based electricity

generation capacity significantly increased and will enjoy a more balanced gas position.

A2A S.p.A.’s Supervisory Board approves the negotiation guidelinesfor the Edison/Edipower transaction and the extension of theshareholders’ agreement to November 30, 2011 for the finalization ofthe binding agreements

A2A S.p.A.’s Supervisory Board, chaired by Graziano Tarantini, met on November 2, 2011 and

reviewed the guidelines for the continuing negotiations with EDF S.A. approved by the

Management Board on October 31, 2011.

Confirming that they are consistent with the company’s strategic guidelines, the Supervisory

Board approved the key elements for the continuation of the negotiations with EDF S.A. by the

management of A2A S.p.A. and Delmi S.p.A. and the extension of the shareholders’ agreement

until November 30, 2011 to negotiate the binding agreement with EDF S.A..

The Supervisory Board also renewed the mandate given to its chairman and deputy chairman

(also separately) to monitor how negotiations are proceeding and the further developments

of the industrial, economic, financial, and legal aspects relating to the finalization of the

binding agreement.


Significant events after September 30, 2011

28

0.2Consolidatedfinancial statements

Millions of euro Note 09 30 2011 12 31 2010 09 30 2010

NON-CURRENT ASSETS

Tangible assets 1 4,725 4,872 4,059

Intangible assets 2 1,579 1,552 1,481

Shareholdings carried at equity 3 2,377 2,411 3,109

Other non-current financial assets 3 67 40 20

Deferred tax assets 4 459 430 437

Other non-current assets 5 156 113 146

Total non-current assets 9,363 9,418 9,252

CURRENT ASSETS

Inventories 6 308 239 298

Trade receivables 7 1,636 2,141 1,740

Other current assets 8 419 275 398

Current financial assets 9 23 56 8

Current tax assets 10 10 18 61

Cash and cash equivalents 11 121 132 32

Total current assets 2,517 2,861 2,537

NON-CURRENT ASSETS HELD FOR SALE 12 39 82 42

TOTAL ASSETS 11,919 12,361 11,831

(1) Significant non-recurring events and transactions in the consolidated financial statements are stated in note 40, as required by Consob Communication

DEM/6064293 of July 28, 2006.

Consolidatedbalance sheet (1)

Assets


30

Millions of euro Note 09 30 2011 12 31 2010 09 30 2010

EQUITY

Share capital 13 1,629 1,629 1,629

(Treasury shares) 14 (61) (61) (61)

Reserves 15 1,635 1,625 1,560

Net profit for the year 16 – 308 –

Net profit for the period 16 114 – 436

Equity pertaining to the Group 3,317 3,501 3,564

Minority interests 17 1,295 1,344 893

Total equity 4,612 4,845 4,457

LIABILITIES

Non-current liabilities

Non-current financial liabilities 18 3,584 3,736 3,837

Deferred tax liabilities 19 494 493 460

Employee benefits 20 275 276 267

Provisions for risks, charges and liabilities for landfills 21 465 460 424

Other non-current liabilities 22 175 177 190

Total non-current liabilities 4,993 5,142 5,178

Current liabilities

Trade payables 23 1,124 1,450 1,108

Other current liabilities 23 501 404 484

Current financial liabilities 24 639 448 585

Tax liabilities 25 31 56 17

Total current liabilities 2,295 2,358 2,194

Total liabilities 7,288 7,500 7,372

LIABILITIES DIRECTLY ASSOCIATED WITH NON-CURRENT ASSETS HELD FOR SALE 26 19 16 2

TOTAL EQUITY AND LIABILITIES 11,919 12,361 11,831

Equity and liabilities


Consolidated balance sheet

31

Millions of euro Note 01 01 2011 01 01 2010 3rd Qtr 3rd Qtr 09 30 2011 09 30 2010 2011 2010

Revenues

Revenues from sales of goods and services 4,276 3,959 1,280 1,144

Other operating income 75 81 21 38

Total revenues 28 4,351 4,040 1,301 1,182

Operating expenses

Costs for raw materials and services 3,055 2,779 922 791

Other operating expenses 223 211 70 69

Total operating expenses 29 3,278 2,990 992 860

Labour costs 30 414 371 127 113

Gross operating income 31 659 679 182 209

Depreciation, amortization, provisions and write-downs 32 388 343 134 105

Net operating income 33 271 336 48 104

Financial balance

Financial income 23 10 5 3

Financial expenses 132 145 47 32

Portion of income and charges when shareholdings are carried at equity (24) 56 (11) 6

Total financial balance 34 (133) (79) (53) (23)

Other non-operating income 35 1 – – –

Other non-operating expenses 35 (6) – (1) –

Profit before tax 133 257 (6) 81

(1) The effects of non-recurring events and significant transactions on the consolidated financial statements are provided in note 40 as required by Consob

Communication DEM/6064293 of July 28, 2006.

(2) The comparative figures for January-September 2010 and for the third quarter of 2010 for income statement items relating to revenues and operating

expenses,depreciation and amortization and financial management have been reclassified to reflect the application of IFRS 5.

Consolidated income statement (1-2)


32

Millions of euro Note 01 01 2011 01 01 2010 3rd Qtr 3rd Qtr 09 30 2011 09 30 2010 2011 2010

Income taxes 36 93 88 19 20

Profit of current operations net of tax 40 169 (25) 61

Result from non-current assets held forsale 37 41 290 2 8

NET PROFIT 81 459 (23) 69

Minorities 33 (23) 17 (4)

Gruop net profit (loss) for the year/period 38 114 436 (6) 65

Earnings per share (in euro):

– basic 0.0368 0.1404

– basic, from operating activities 0.0236 0.0484

– diluted 0.0368 0.1404

– diluted, from operating activities 0.0236 0.0484


Consolidated income statement

33

Millions of euro 09 30 2011 09 30 2010 3rd Qtr 3rd Qtr 2011 2010

Net income/(loss) for the period/year (A) 81 459 (23) 69

Effective portion of gains/(losses) on cash flow hedges (6) (8) (2) (28)

Gains/(losses) on the re-measurement of financial assets available for sale – (317) – –

Tax effect of other gains/(losses) – (30) (1) 9

Total other gains/(losses) net of the tax effect of companies consolidated on a line-by-line basis (B) (6) (355) (3) (19)

Other gains/(losses) of companies valuated at equity net of the tax effect (C) 7 (8) (3) (7)

Total gain/(loss) (A + B + C) 82 96 (29) 43

Total gain/(loss) attributable to:

Shareholders of the parent company 81 99 (27) 47

Minority interests 1 (3) (2) (4)

Consolidated statement ofcomprehensive income


34

Millions of euro 09 30 2011 12 31 2010 09 30 2010

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR 132 25 25

EPCG cash brought in – 95 –

CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR 132 120 25

Operating activities

Net income for the period/year (**) 43 (26) 238

Depreciation of tangible assets 257 342 229

Amortization of intangible assets 61 85 61

Tangible and intangible asset write-downs/disposals 4 23 3

Result from investments carried at equity 24 231 (56)

Write-downs/disposal of investments 3 5 –

Change in assets and liabilities (*) (86) 183 (36)

Cash flows from operating activities 306 843 439

Operating activities

Investments in tangible assets (114) (247) (162)

Investments in intangible assets and goodwill (90) (85) (63)

Investments in shareholdings and securities (*) (11) (14) (14)

Disposal of fixed assets and shareholdings 56 347 347

Dividends received from investments carried at equity and other investments 14 59 59

Cash flows from (used in) investing activities (145) 60 167

FREE CASH FLOW 161 903 606

Financing activities

Change in financial assets (*) (11) (94) (82)

Change in financial liabilities (*) 31 (552) (272)

Dividends paid by the parent company (186) (217) (217)

Dividends paid by subsidiaries (6) (28) (28)

Cash flows from financing activities (172) (891) (599)

CHANGE IN CASH AND CASH EQUIVALENTS (11) 12 7

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD/YEAR 121 132 32

(*) Excluding balances with counter-entry to equity and other balance sheet items.(**) The result for the period/year is stated net of gains from the disposal of investments.

Consolidated cash flowstatement


35

Millions of euro Share Treasury Cash flow capital shares hedge reserve Note 13 Note 14 Note 15

Equity at December 31, 2009 1,629 (61) (3)

Changes in the first nine months of 2010

Allocation of 2009 net income

Distribution of dividends

IAS 32 and IAS 39 reserves (*) (10)

Put option on Delmi S.p.A. shares

Put option on Abbruzzo Energia S.p.A. shares

Other changes

Group and minorities net profit for the period

Equity at September 30, 2010 1,629 (61) (13)

Changes in the fourth quarter of 2010

IAS 32 and IAS 39 reserves (*) 44


Consolidation of EPCG Group

Other changes


Equity at December 31, 2010 1,629 (61) 31

Changes in the first nine months of 2011

Allocation of 2010 net income

Distribution of dividends

IAS 32 and IAS 39 reserves (*)


Dividends resolved but not yet distributed

Other changes


Equity at September 30, 2011 1,629 (61) 31

(*) These are included in the statement of comprehensive income

Consolidated statement ofchanges in equity


36

Result from Other Group net Total Minority Total available- reserves income Group interests net for-sale and retained for the net equity financial earnings period/year equity assets Note 15 Note 15 Note 16 Note 17

350 1,695 80 3,690 905 4,595

80 (80)

(217) (217) (28) (245)

(350) (360) (3) (363)

9 9 9

3 3 (1) 2

3 3 (3)

436 436 23 459

– 1,573 436 3,564 893 4,457

44 14 58

16 16 16

3 3 572 575

2 2 1 3

(128) (128) (136) (264)

– 1,594 308 3,501 1,344 4,845

308 (308)

(186) (186) (6) (192)

1 1

6 6 6

(112) (112) (112)

(6) (6) (11) (17)

114 114 (33) 81

– 1,604 114 3,317 1,295 4,612


Consolidated statement of changes in equity

37

0.3Notes to the Interimreport on operations

A2A S.p.A. is a company incorporated under Italian law.

A2A S.p.A. and its subsidiaries (the “Group”) operate both in Italy and abroad, especially

following the acquisitions in France and Montenegro which took place in recent years.

The A2A Group mainly operates in the following sectors:

• the production, sale and distribution of electricity;

• the sale and distribution of gas;

• the production, sale and distribution of heat through district heating networks;

• waste management (from collection and sweeping to disposal) and the construction and

management of integrated waste disposal plants and systems, including making these

available for other operators;

• integrated water cycle management.

General information on A2A S.p.A.


39

The interim report on operations (the “Report”) of the A2A Group at September 30, 2011 is

presented in millions of euro; this is also the functional currency of the economies in which the

Group operates.

The Report of the A2A Group September 30, 2011 has been prepared:

• in compliance with Legislative Decree no. 58/1998 (art. 154-ter) and subsequent

amendments and with the Issuers’ Regulations published by Consob;

• in accordance with the International Financial Reporting Standards (IFRSs) issued by the

International Accounting Standard Board (IASB) and approved by the European Union.

In preparing the Report the Group has adopted the same principles as those used in the

preparation of the Consolidated annual report at December 31, 2010.

The principles and interpretations described in detail in the paragraph below “Changes in

accounting principles” were adopted for the first time on January 1, 2011.

This Report at September 30, 2011, which has not been audited, was approved on November

10, 2011 by the Management Board which also authorized its publication.

Interim report on operations


40

The Group has adopted a format for the statement of financial position which presents

current and non-current assets and current and non-current liabilities separately, as required

by paragraphs 60 and following of “IAS 1 revised”.

The income statement is presented in a vertical format with items classified by nature, as this

is considered more representative than a classification by function. The selected format is

consistent with the presentation used by the Group’s major competitors and is line with

international practice. The results of ordinary operations are shown in the income statement

separately from income or expense deriving from transactions that do not recur in the

business's ordinary operations, such as gains or losses on the sale of investments and other

non-recurring income or expense; this makes it easier to measure the effective performance

of the Group’s ordinary operating activities.

The cash flow statement has been prepared using the indirect method as permitted by IAS 7.

The statement of changes in equity has been prepared in accordance with “IAS 1 revised”.

The formats adopted for the financial statements are the same as those used to prepare the

Consolidated annual report at December 31, 2010.

Financial statements


41

The interim report on operations at September 30, 2011 has been prepared on a historical cost

basis, with the exception of those items which under IFRS must or can be measured at fair

value.

The consolidation principles, the accounting principles, the accounting policies and the

methods of measurement used in the preparation of the Report are consistent with those

used to prepare the Consolidated annual report at December 31, 2010, to which reference

should be made for completeness.

Basis of preparation


42

The accounting standards adopted during the first nine months of 2011 are the same as those

used in the prior year, with the exception of the changes discussed in the paragraphs below

“Accounting principles, amendments and interpretations approved by the European Union

and applicable from the current period with effects for the Group” and “Accounting

principles, amendments and interpretations approved by the European Union and applicable

from the current period with no effects for the Group”.

In the subsequent paragraph “Accounting principles, amendments and interpretations not

yet approved by the European Union”, however, a summary is provided of the changes which

will be adopted in future periods, indicating to the extent possible the estimated effects on the

interim report on operations of the A2A Group.

Accounting principles, amendments and interpretations approved bythe European Union and applicable from the current period witheffects for the Group

Certain changes to international accounting standards and their interpretations became

effective on January 1, 2011, none of which however led to any significant effects on the

Group’s various financial statements. The main changes were as follows:

• IAS 24 (Revised) “Related Party Disclosures”: approved on July 19, 2010 and applicable

from January 1, 2011, this amends the definition of a related party and adds to the

minimum information to be provided. The current principle requires additional

information on relationships, transactions and balances with related parties, including

commitments, to be provided in the consolidated and separate financial statements of

a parent, a joint venturer or an investor, and that this be disclosed in accordance with

IAS 27 “Consolidated and Separate Financial Statements”. The current principle is also

applicable to separate financial statements;

• IFRS 3 “Business Combinations”: applicable prospectively from July 1, 2010, the

amendment requires that the option to measure minority interests at either fair value

Changes in internationalaccounting standards


43

or at the proportionate share of the net assets of the acquired company at the

acquisition date should only include minority interests entitling the owner to a portion

of net assets on liquidation. All other minority interests must be measured at their fair

value at the date of acquisition unless another IFRS requires a different measurement

method to be used. This change additionally clarifies that the requirement to measure

quotaholdings or shareholdings of the acquirer which replace the share-based

payments of the acquiree in accordance with IFRS 2 at the acquisition date (market

based measure) must also include the share-based payments of the acquiree which are

not replaced;

• IFRS 7 “Financial Instruments: Disclosures”: from July 1, 2011, emphasis is given to the

disclosures of a qualitative and quantitative nature required by the standard regarding

the nature and extent of the risks implicit in financial instruments. This approach should

assist the users of the financial statements to link the information that is presented and

obtain a general description as to the nature and extent of the risks resulting from

financial instruments. Finally, the requirement to provide disclosures concerning

financial assets which have expired but have been renegotiated or written down and

that relating to the fair value of collateral have been eliminated. An amendment was

made to this standard in October 2010 concerning the transfer of financial assets which

allows users of financial statements to improve their understanding of transfers of

financial assets (for example securitizations) and analyse the possible effects of any

risks that may remain with the entity that transferred the assets. In particular, this

amendment requires a qualitative description to be given of the nature of the link

between the assets transferred and the associated liabilities together with a table

setting out the fair value of the assets transferred and the associated liabilities. Further,

additional disclosures concerning the amount of the cash flows that would be required

in the case of a future repurchase of the transferred assets must be provided. The

amendment also requires additional disclosures to be provided regarding any

quantitatively significant transfers carried out at year end. The amendment is

applicable from July 1, 2011;

• IAS 1 “Presentation of Financial Statements”: the amendment is applicable from

January 1, 2011 and establishes that an entity may present the analysis relating to other

comprehensive income either in the statement of changes in equity or in the notes to

the financial statements. Early application of the amendment is permitted;

• IAS 34 “Interim Financial Reporting”: from January 1, 2011 the disclosures relating to

significant events reported in interim financial statements must include an update of the

significant events discussed in the annual financial statements, with specific reference to

financial instruments and their fair value.


Changes in international accounting standards

44

Accounting principles, amendments and interpretations approved bythe European Union and applicable from the current period with noeffects for the Group

The following standards and interpretations already approved by the European Union and

published in the European Union will become applicable over the next few years:

• IFRS 1 “First-time Adoption of International Financial Reporting Standards”: the

amendment is applicable from January 1, 2011 and clarifies that if an entity makes changes

to its accounting manual or the use of the exemptions permitted by IFRS following the

publication of interim financial statements in accordance with IAS 34, but before the first

financial statements prepared in accordance with International Financial Reporting

Standards are published, it must motivate these changes and update the reconciliation

between its previous accounting standards and IFRSs. The requirements of IAS 8

“Accounting Policies, Changes in Accounting Estimates and Errors” are not applicable in

these circumstances. Early application of the amendment is permitted;

• IFRIC 13 “Customer Loyalty Programmes”: the amendment, applicable from January 1,

2011, establishes that an entity may estimate the fair value of award credits by referring to

the fair value of the awards with which these credits can be redeemed.

Accounting principles, amendments and interpretations not yetapproved by the European Union

The following standards and interpretations have not been applied as at the present time the

competent bodies of the European Union have still to complete their approval process.

• IFRS 10 “Consolidated Financial Statements”, published by the IASB on May 12, 2011, is

applicable from January 1, 2013. IFRS 10 establishes the criteria for the presentation and

preparation of consolidated financial statements and emphasizes the concept of control,

regardless of the nature of the investment held by the entity preparing the consolidated

financial statements. Control exists if and only if the investor has all of the following

simultaneously:

1. power to influence and direct the relevant activities of the investee;

2. exposure or rights to variable returns from its involvement with the investee;

3. the ability to use its power over the investee to affect the amount of the investor’s

returns.

The power to influence the activities which significantly affect the investee’s returns

(relevant activities) is most generally exercised through voting rights (including potential

voting rights) but also on the basis of contractual agreements. In the case of control by

virtue of voting rights, the relevant activities are represented by operating activities



45

(development, purchase and sale of products) and by activities connected with financial

management (obtaining and negotiating loans, the acquisition and disposal of financial

assets).

Variable returns include amongst other things dividends, remuneration linked to the

supply of services by the parent to the activities of the subsidiary and benefits of a fiscal

nature.

The third condition in assessing whether there is control considers the interaction

between the first two. In certain circumstances, in particular, an entity may have an

interest in a particular sets of assets and liabilities of the investee on the basis of a legal or

contractual restriction. IFRS 10 establishes that for the purpose of determining whether

control exists, this set of assets and liabilities may be considered a separate entity only if it

is economically separate from the entity as a whole and hence a subsidiary for the purpose

of the consolidated financial statements. At the same time as this standard was published

a revised version was also published of IAS 27 “Separate Financial Statements”, which

maintains its role as the general reference standard on the subject of separate financial

statements, and IAS 28 “Investments in Associates and Joint Ventures”; in addition, the

interpretation SIC 12 “Consolidation - Special Purpose Entities” has been superseded.

Early application of the standard in question is permitted;

• IFRS 11 “Joint Arrangements”, published by the IASB on May 12, 2011, is applicable from

January 1, 2013. This standard establishes that in a joint arrangement two or more parties

have joint control and decisions about the relevant activities require the unanimous

consent of the parties. IFRS 11 identifies two separate types of joint arrangements:

1. joint operations;

2. joint ventures.

The two types differ on the basis of the rights and obligations which arise for the parties to

a joint arrangement; in a joint operation the parties have rights regarding the assets and

obligations regarding the liabilities of the joint arrangement, while in a joint venture the

parties have rights to the net assets of the arrangement. IFRS 11 establishes that the assets,

liabilities, revenue and expenses of a joint operation should be recognized by the parties on

the basis of their interest, while on the other hand joint ventures should be recognized by

the parties using the equity method, as required by IAS 28 “Investments in Associates and

Joint Ventures”.

Joint operations are recognized in the same way in both the separate and consolidated

financial statements by recognizing assets, liabilities, revenue and expenses on the basis of

the percentage interest, while joint ventures, as well as investments in subsidiaries and

associates, may be recognized in the separate financial statements either at cost or on the

basis of IFRS 9 “Financial Instruments” (and IAS 39 “Financial Instruments: Recognition

and Measurement”), as required by IAS 27 “Separate Financial Statements”. For details of



46

the disclosures to be provided in the notes to the financial statements reference should be

made to the requirements of the new IFRS 12 “Disclosure of Interests in Other Entities”.

Early application of the standard is permitted;

• IFRS 12 “Disclosures of Interests in Other Entities”, issued by the IASB on May 12, 2011, is

applicable from January 1, 2013; this standard establishes the minimum disclosures that an

entity must provide, integrating these with those already determined by other standards, to

assist users of the financial statements when assessing the nature and risks associated with

the interests held by the entity in subsidiaries, associates and joint arrangements (as

defined in IFRS 11). In particular, an entity must provide information concerning the

assumptions it has made in determining the existence or otherwise of control, including

joint control, and the significant influence exercised over another entity. Early application of

the standard is permitted;

• IFRS 13 “Fair Value Measurement”, issued by the IASB on May 12, 2011, is applicable from

January 1, 2013. IFRS 13 defines fair value, provides guidance on measuring fair value and

introduces disclosure requirements. The standard does not establish when measurement

at fair value is required, but explains the way in which fair value is calculated when its use is

required by other standards. The new standard is applicable to all transactions, of a

financial and non-financial nature, with the exception of transactions recognized on the

basis of IFRS 2 “Share-based Payment”, leasing transactions within the scope of IAS 17

“Leases” and transactions recognized on the basis of net realizable value such as in IAS 2

“Inventories”, or value in use, such as in IAS 36 “Impairment of Assets”. The standard

defines fair value as the price that would be received to sell an asset or paid to transfer a

liability in an orderly transaction between market participants. If transactions are directly

observable in a market, the calculation of fair value may be relatively easy, but if this is not

the case then a valuation technique is used. The standard describes three different

valuation techniques to be used to calculate fair value, represented by the “market

approach”, a technique that uses prices and other relevant information generated by

market transactions involving identical or comparable (i.e. similar) assets and liabilities, the

“income approach”, a technique that consists in discounting cash inflows and cash

outflows, and the “cost approach”, a technique that requires an entity to calculate the

amount that would be required currently to replace the service capacity of an asset. In

terms of the disclosures to be provided in the financial statements, IFRS 13 extends the

three-level hierarchy of fair value already required by IFRS 7 “Financial Instruments:

Disclosures”, where the levels depend on the inputs used in the valuation technique, to all

of the assets and liabilities forming part of its scope. The information provided by certain

disclosures may vary on the basis of whether the fair value measurement has been made on

a recurring or non-recurring basis; recurring fair value measurements are those that other

IFRSs require or permit at the end of each reporting period, while non-recurring fair value



47

measurements are those that other IFRSs require or permit in particular circumstances.

Early application of the standard is permitted;

• IAS 27 revised “Separate Financial Statements”, issued by the IASB on May 12, 2011, is

applicable from January 1, 2013; at the same time as IFRS 10 “Consolidated Financial

Statements” was published a revised version was also published of this standard which

maintains its role as the general reference standard on the subject of separate financial

statements. This standard applies to the measurement of investments in subsidiaries,

associates and joint ventures in the separate financial statements of the parent. Joint

ventures and investments in subsidiaries and associates may be recognized in the separate

financial statements either at cost or on the basis of IFRS 9 “Financial Instruments” (and

IAS 39 “Financial Instruments: Recognition and Measurement”). If in accordance with IFRS

10 “Consolidated Financial Statements” a parent company decides not to prepare

consolidated financial statements, it must provide disclosures in its separate financial

statements about its investments in subsidiaries, associates and joint ventures, their

principal places of business (and country of incorporation if different), its proportion of

the ownership interest held in each individual investee and a description of the method

used to account for the investments. Early application of the standard is permitted but

only if an entity applies it in conjunction with IFRS 10 “Consolidated Financial Statements”,

IFRS 11 “Joint Arrangements”, IFRS 12 “Disclosure of Interests in Other Entities” and IAS 28

(as amended in 2011);

• IAS 28 revised “Investments in Associates and Joint Ventures”, issued by the IASB on May

12, 2011, is applicable from January 1, 2013; at the same time as IFRS 10 “Consolidated

Financial Statements” was published a revised version was also published of this standard,

which has the purpose of establishing the criteria for accounting for investments in

associates and joint ventures. An entity with joint control of, or significant influence over,

an investee must account for its investment using the equity method. Early application of

the standard is permitted but only if an entity applies it in conjunction with IFRS 10

“Consolidated Financial Statements”, IFRS 11 “Joint Arrangements”, IFRS 12 “Disclosure of

Interests in Other Entities” and IAS 27 (as amended in 2011);

• IAS 1 “Presentation of Financial Statements”; this amendment applicable from January 1,

2012, relates to the presentation of the figures included in the statement of

comprehensive income. In particular, it keeps the option of presenting the income

statement and the statement of other comprehensive income in either a single statement

or in two separate statements with one following directly after the other. In addition an

entity must group together in the statement of comprehensive income the items which

will be reclassified to profit and loss in subsequent periods: amounts may be presented

either net of the related tax effects or before the related tax effects. Early application of

the amendment is permitted;



48

• IAS 19 “Employee Benefits”, applicable from January 1, 2013; the changes made in the

amendment may be grouped into three main categories:

(i) recognition and presentation in the financial statements;

(ii) disclosures;

(iii) additional changes.

The first category of changes concerns defined benefit plans. In particular the corridor

method used as a means of recognizing actuarial gains and losses has been eliminated, with

the simultaneous requirement being introduced to recognize these items directly in profit

or loss.

The change in the defined benefit obligation is then separated into three components in

the income statement:

1. an operating component (service cost);

2. a financial component (finance cost);

3. a measurement component (remeasurement cost).

As far as disclosures are concerned, in addition to the elimination of the disclosure relating

to the deferral of the recognition of income components (which is no longer required

following the elimination of the option to select the corridor method), information is

required concerning the features of the plans and the related amounts recognized in the

financial statements and the risks involved in the plans including a sensitivity analysis for the

demographic risk together with details about any participation in multiemployer pension

plans.



49

The consolidated financial statements of the A2A Group at September 30, 2011 include the

figures of the parent company A2A S.p.A. and those of the subsidiaries over which A2A S.p.A.

holds, directly or indirectly, the majority of the voting rights which may be exercised in an

ordinary shareholders’ meeting. In addition, companies in which the parent exercises joint

control with other entities (joint ventures) and those over which it has a significant influence

are consolidated using the equity method.

Changes in the scope of consolidation

The results for the period ended September 30, 2011 and the assets and liabilities at that date

of the Montenegro company EPCG, acquired during 2009 have been consolidated on a line-

by-line basis in this interim report on operations, with 56.3% of its results and net assets being

attributed to minority interests. This differs from the treatment adopted for the period ended

September 30, 2010.

In more detail this company was included in the consolidation scope of A2A S.p.A. in the same

period of the previous year but was consolidated on a “one-line” basis, as control was

acquired at the beginning of 2010, as discussed in further detail in the financial statements for

the year ended December 31, 2010.

Scope of consolidation


50

Consolidation policies

Subsidiaries

The consolidation scope of the A2A Group comprises the parent A2A S.p.A. and the companies

over which it exercises direct or indirect control. Subsidiaries are consolidated from the date

on which the Group effectively acquires control and cease to be consolidated on a line-by-line

basis from the date on which control is transferred to a company outside of the Group.

Associates and joint ventures

Investments in associates, namely those in which the A2A Group has a considerable interest

and is able to exercise significant influence, and those over which A2A has joint control

together with other entities (joint ventures) are accounted for using the equity method. Gains

and losses attributable to the Group are recognized in the financial statements from the date

on which the significant influence or joint control commences.

In the event that the loss attributable to the Group exceeds the shareholding's book value, the

carrying amount is reduced to zero and any excess loss is provided for to the extent that the

Group has legal or constructive obligations in respect of the associate to make good its losses

or, in any case, to make payments on its behalf.

Potential voting rights

If the A2A Group holds call options on shares or other equity instruments that are convertible

into ordinary shares or similar instruments having the potential, if exercised or converted, to

give the Group voting rights or reduce the voting rights of third parties (“potential voting

rights”), such potential voting rights are taken into consideration when assessing whether or

not the Group has the power to govern or influence another company's financial and

operating policies.

Consolidation policies andprocedures


51

Consolidation procedures

General procedure

The financial statements of the subsidiaries, associates and joint ventures consolidated by the

A2A Group are prepared at the end of each reporting period using the same accounting

policies as the parent. Any items recognized or measured using different accounting

principles are adjusted during the consolidation process to bring them into line with Group

accounting policies. All intragroup balances and transactions, including any unrealized profits

arising from transactions between Group companies, are fully eliminated.

In preparing the Interim report the assets, liabilities, income and expenses of the companies

being consolidated are included in their entirety on a line-by-line basis, stating the portion of

equity and net income for the period attributable to minority interests separately in the

balance sheet and income statement.

The shareholding's book value in each subsidiary is eliminated against the corresponding

share of its net equity, including any adjustments to fair value at the acquisition date; any

differences arising are accounted for in accordance with IFRS 3.

Transactions with minority shareholders which do not lead to the loss of control in

consolidated companies are accounted for using the economic entity view approach.

Procedure for the consolidation of assets and liabilities held for sale(IFRS 5)

In the case of particularly large amounts and exclusively in connection with non-current assets

and liabilities held for sale, and only in this case, in accordance with the requirements of IFRS 5

the related intercompany financial receivables and payables are not eliminated in order to

provide a clear presentation of the financial impact of a possible disposal.

Effect on consolidation procedures of certain contracts concerning theshares/quotas of Group companies

a) Option contracts between A2A S.p.A. and Società Elettrica Altoatesina SEL S.p.A.

relating to a part of their investment in Delmi S.p.A.

A2A S.p.A. has signed option contracts with Società Elettrica Altoatesina SEL S.p.A. (SEL) in

relation to the portion of the shares it holds in Delmi S.p.A..

Under the option contracts between A2A S.p.A. and SEL S.p.A., the latter has the right to sell to

A2A S.p.A. and A2A S.p.A. has the right to purchase from SEL S.p.A. two lots of Delmi S.p.A.


Consolidation policies and procedures

52



shares, representing 50% and 35% respectively of SEL S.p.A.’s shareholding in Delmi S.p.A.

(currently 10% of Delmi S.p.A.'s share capital).

The strike price of these options will be calculated for each lot based on various formulas that take

into account SEL S.p.A.’s initial investment and/or the value of Edison S.p.A.'s shares at the time the

options are exercised, depending among other things in the case of SEL S.p.A.'s put options

whether SEL S.p.A. - at the time of exercising the option - has or has not become the owner of

certain of Edison S.p.A.’s hydroelectric power plants located in the Province of Bolzano.

If exercised, the SEL S.p.A. put options and the A2A S.p.A. call options can be implemented in

stages. A2A S.p.A and SEL S.p.A. have renegotiated the expiry dates of these options,

postponing them beyond the initial deadline. In part, this deferral was due to the fact that the

parties could not agree on whether the conditions for the exercising of one of SEL S.p.A.’s put

options had been satisfied or not. As a result, the options are still outstanding and the new

expiry date is “not later than 2015”.

In accordance with paragraph 23 of IAS 32, the Group has recognized the present value of the

estimated outlay as a liability.

Changes in the present value of this liability caused by the passing of time are considered as

financial expenses and are recognized in profit or loss.

There is still some uncertainty in international accounting standards as to how to treat the

difference between the present value of the strike price of the put options and the carrying

amount of the minority interests. In the absence of an interpretation of this question by the

IFRIC, the Group has decided to present this difference as a deduction from equity

attributable to the Group (if positive) or as an increase in equity attributable to the Group (if

negative) as an alternative to adjusting goodwill.

This is in line with previous decisions taken by the Group. Accordingly, any changes in the

liability that do not depend on time result in adjustments to Group equity.

If the options expire without being exercised, the liability will be reclassified to equity,

reinstating the minority interests.

The consolidated financial statements at September 30, 2011 report a liability to third parties

for the possible exercise of the put options on the shares of Delmi S.p.A. of 91 million euro (93

million euro at December 31, 2010), a reduction in minority interests of 157 million euro

(unchanged with respect to December 31, 2010), a positive change in equity attributable to the

Group of 6 million euro (92 million euro at December 31, 2010) and financial expenses of 4

million euro (5 million euro at December 31, 2010).

The share of Delmi S.p.A.’s result remains 51% as the above options do not currently give A2A

access to the economic benefits associated with the shares under option.

53

b) Call option for the purchase of 1% of the share capital of ASM Novara S.p.A.

A2A S.p.A. owns 50% of the shares of ASM Novara S.p.A., a company with a share capital of one

million euro set up with other shareholders in order to build and manage a district heating

network in the town of Novara.

As a result of an agreement between the shareholders of ASM Novara S.p.A., A2A S.p.A. holds

a call option to buy 1% of the share capital of that company. Similarly the other shareholders,

who hold the remaining 50%, have a put option to sell 1% of the share capital to A2A S.p.A..

Exercising one of these options would give A2A S.p.A. control over ASM Novara S.p.A..

Any of the parties can exercise their options within three years of the satisfaction of certain

conditions relating to the construction of the district heating network in Novara: at September

30, 2011 these conditions had not yet been fulfilled.

IAS 27, paragraph 14, establishes that when assessing whether an entity has the power to

govern the financial and operating policies of another entity it has to take account of the

“potential voting rights” that would derive from exercising the options, providing they are

currently exercisable. Such potential voting rights should then be added to the existing voting

rights in order to calculate the total interest held in the share capital, which in turn establishes

the method of consolidation to be applied to the investee.

Potential voting rights that are not currently exercisable are understood as being, for example,

those that cannot be exercised until a future date or until some future event takes place.

Since as explained above the potential voting right held by A2A S.p.A. in ASM Novara S.p.A. is

not currently exercisable, the shareholding in ASM Novara S.p.A. is consolidated using the

equity method.

When the option right is exercised an assessment will be made as to whether ASM Novara

S.p.A. is controlled by A2A S.p.A. in order to decide on the consolidation method to be used.

c) Option granted to the Municipality of Varese for the sale of 9.8% of Aspem S.p.A.

and 10% of Varese Risorse S.p.A.

A2A S.p.A. holds 90% of the shares of Aspem S.p.A., a company that provides local public

services in the city of Varese and in other municipalities in the province of Varese.

Under the shareholders’ agreement between A2A S.p.A. and the Municipality of Varese, the

latter has the right, but not the obligation, to sell (put option) to A2A S.p.A. 9.8% of the

share capital of Aspem S.p.A. and 10% of the share capital of Varese Risorse S.p.A. (held 90%

by Aspem S.p.A.). The two shareholdings must be purchased together within the same

context.



54

The Municipality of Varese can exercise its option after the expiry date of the period of

intratransferability of the shares in Aspem S.p.A. and Varese Risorse S.p.A., which lasts for

three years from the date of signing the shareholders’ agreement: at September 30, 2011, this

term was still in course. These transactions have been valued on the basis of purchase value

for Aspem S.p.A. and enterprise value for Varese Risorse S.p.A..

In accordance with paragraph 23 of IAS 32, the Group has recognized the present value of the

estimated outlay as a liability which it will not be able to avoid if the above option is exercised,

with a corresponding entry being made to equity.

The financial statements at September 30, 2011 show a liability of 4 million euro to the

Municipality of Varese for the possible exercising of the put option on the shares of Aspem

S.p.A. and Varese Risorse S.p.A., with a corresponding reduction in the equity attributable to

minority interests.

d) Option on the sale of approximately 5.0% of the share capital of PRVA BANKA CME

GORE A.D.

At December 31, 2010 the Montenegro company EPCG held an equity interest in the bank PRVA

BANKA CME GORE A.D. equal to 18.24% of its share capital; in April 2011 EPCG subscribed a

capital increase, resolved by the company’s board of directors on April 18, 2011, increasing its

holding to 24.10%. In addition, at the same time a put option contract was signed with a group

of Montenegro investors, which may be exercised between September 1, 2011 and November

30, 2011, on a number of preferred shares at a price corresponding to their nominal value.

Exercising this option will allow EPCG to take its investment in PRVA BANKA CME GORE A.D

back to the level of December 31, 2010.



55

Key figures at September 30, 2011 and September 30, 2010 for jointventures (consolidated at equity)

Key figures for the nine months ended September 30, 2011 Edipower Transalpina Companies MetarmerMillions of euro di Energia of Ecodeco Group 20% 50% 50% (*) 50%

INCOME STATEMENT

Sales revenue 177.9 4,543.0 8.5 7.4

Gross operating income 70.0 359.5 0.4 0.2

% of net sales 39.3% 7.9% 4.7% 2.7%

Depreciation, amortization and write-downs 37.9 300.0 0.6 –

Net operating income 32.1 59.5 (0.2) 0.2

Profit (loss) for the period 15.3 (45.0) (0.4) 0.1

BALANCE SHEET

Total assets 772.4 8,403.0 12.2 6.1

Net equity 430.0 1,720.5 1.0 1.2

Net debt (212.4) (2,682.5) (3.1) 2.3

(*) Bellisolina S.r.l., Bergamo Pulita S.r.l., Biotecnica S.r.l and Sed S.r.l..

Key figures for the nine months ended Edipower Transalpina Companies Metamer GesiSeptember 30, 2010 di Energia of Ecodeco Millions of euro Group 20% 50% 50% (*) 50% 47.5%

INCOME STATEMENT

Sales revenue 144.2 3,963.0 9.2 8.0 2.1

Gross operating income 57.8 464.5 1.3 0.3 0.4

% of net sales 40.1% 11.7% 14.1% 3.1% 19.0%

Depreciation, amortization and write-downs 41.7 303.5 1.0 - 0.2

Net operating income 16.1 161.0 0.3 0.2 0.2

Profit (loss) for the period 6.8 34.5 0.0 0.2

BALANCE SHEET

Total assets 830.2 8,536.0 12.0 6.5 2.7

Net equity 416.1 2,008.5 1.2 1.3 1.4

Net debt (221.7) (2,623.5) (3.9) 3.3 0.1

(*) Bellisolina S.r.l., Bergamo Pulita S.r.l., Biotecnica and Sed S.r.l..



56

Given the nature of the Group’s ordinary activities the interim results are liable to change as a

result of the weather experienced during the period.

In this respect reference should be made to the comments on performance by sector

presented below.

Seasonal nature of the business


57


58

The A2A Group operates in the production, sale and distribution of gas and electricity, district

heating, environmental services and the integrated water cycle. These activities in turn form

part of the following sectors:

• Energy Sector;

• Heat and Services Sector;

• Environment Sector;

• Networks Sector;

• Other Services and Corporate Sector.

A2A Group – Areas of activity

Sectors of the A2A Group

Energy

Heat & Services

Environment

Networks

Other services and corporate

Sectors of theA2A Group

Thermoelectricand hydroelectric

plants

EnergyManagement

Sale of electricityand gas

Cogenerationplants

District heatingnetworks

Saleof heat and other

services

Collection andstreet sweeping

Treatment

Disposal ofwaste with

energy recovery

ElectricityNetworks

Gas Networks

Integrated WaterCycle

Other services

Corporate sector

Hydroelectric plants

Thermoelectric plants

Cogeneration plants

Waste disposal plants

Technological partnerships

Geographical areas of activity


59

Millions of euro Energy Heat and Services

01 01 11 01 01 10 01 01 11 01 01 10 09 30 11 09 30 10 09 30 11 09 30 10

Revenues 3,417 3,145 245 223

– of which inter-sectors 123 113 23 16

Gross operating income 223 265 38 30

% of revenues 6.5% 8.4% 15.5% 13.5%

Depreciation, amortization, provisions and write-downs (*) (167) (140) (35) (37)

Net operating income 56 125 3 (7)

% of revenues 1.6% 4.0% 1.2% (3.1%)

Net financial income/expense

Non-operating income/expense

Income before tax

Income taxes

Net income

Net income from non-current assets held for sale

Income attributable to minorities

Group net income for the period

Gross investments (1) 19 27 61 47

(*) The "Eliminations/consolidation adjustments" for the item "Depreciation, amortization, provisions and write-downs" for theperiod from January to September 2010 were allocated directly to the individual sectors.

(1) See "Tangible assets" and "Intangible assets" in the notes to the consolidated financial statements


3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 2011 2010 2011 2010

Revenues 1,020 900 29 25

– of which inter-sectors 21 21 1 1

Gross operating income 60 74 (10) (9)

% of revenues 5.9% 8.2% (34.5%) (36.0%)

Depreciation, amortization, provisions and write-downs (*) (53) (43) (11) (10)

Net operating income 7 31 (21) (19)

% of revenues 0.7% 3.4% (72.4%) (76.0%)

Gross investments 9 11 30 22

(*) The "Eliminations/consolidation adjustments" for the item "Depreciation, amortization, provisions and write-downs" for the thirdquarter of 2010 were allocated directly to the individual sectors.

Results sector by sector


60



Networks Environment Other Services and Eliminations Total Group Corporate

01 01 11 01 01 10 01 01 11 01 01 10 01 01 11 01 01 10 01 01 11 01 01 10 01 01 11 01 01 10 09 30 11 09 30 10 09 30 11 09 30 10 09 30 11 09 30 10 09 30 11 09 30 10 09 30 11 09 30 10

514 466 610 575 170 162 (605) (531) 4,351 4,040

279 232 21 20 159 150 (605) (531)

199 206 216 202 (16) (23) (1) (1) 659 679

38.7% 44.2% 35.4% 35.1% (9.4%) (14.2%) 15.1% 16.8%

(82) (78) (81) (68) (23) (20) (388) (343)

117 128 135 134 (39) (43) (1) (1) 271 336

22.8% 27.5% 22.1% 23.3% (22.9%) (26.5%) 6.2% 8.3%

(133) (79)

(5) –

133 257

(93) (88)

40 169

41 290

33 (23)

114 436

85 94 23 40 16 17 – – 204 225


3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 3rd Qtr 2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

167 165 192 180 57 53 (164) (141) 1,301 1,182

83 66 5 4 54 49 (164) (141)

71 89 64 61 (2) (7) (1) 1 182 209

42.5% 53.9% 33.3% 33.9% (3.5%) (13.2%) 14.0% 17.7%

(29) (26) (31) (22) (10) (4) (134) (105)

42 63 33 39 (12) (11) (1) 1 48 104

25.1% 38.2% 17.2% 21.7% (21.1%) (20.8%) 3.7% 8.8%

30 34 12 10 5 7 – – 86 84

61


09 30 11 12 31 10 09 30 11 12 31 10

Tangible assets 2,193 2,290 476 465

Intangible assets 57 60 137 118

Trade receivables and current financial assets 1,259 2,478 111 190

Trade payables and current financial liabilities 1,015 2,075 118 163



62



63


09 30 11 12 31 10 09 30 11 12 31 10 09 30 11 12 31 10 09 30 11 12 31 10 09 30 11 12 31 10

1,456 1,481 489 525 222 222 (111) (111) 4,725 4,872

1,365 1,357 38 39 74 72 (92) (94) 1,579 1,552

327 339 287 255 89 128 (414) (1,193) 1,659 2,197

350 298 175 184 512 363 (407) (1,185) 1,763 1,898

Changes in the consolidation scope compared to December 31, 2010

The consolidation scope for the period ended September 30, 2011 compared to the previous

year was mainly affected by the sale of the investment in Metroweb S.p.A..

Notes to the balance sheet


64

ASSETS

Non-current assets

1) Tangible assets

Millions of euro Balance Changes in the period Balance

at

Investm./ Other Disposals Write- Ammorti- Total at

12 31 2010

Additions changes and sales downs zation changes 09 30 2011

Land 247 (1) (1) 246

Buildings 825 2 3 (15) (10) 815

Plant and machinery 3,223 59 45 (2) (178) (76) 3,147

Industrial and commercial equipment 39 3 (4) (1) 38

Other assets 64 9 (14) (5) 59

Landfills 14 2 1 (1) (2) 14

Assets held under concession (freely transferable) 355 1 (39) (38) 317

Construction in progress and advances 83 36 (50) (14) 69

Leasehold improvements 10 1 1 (1) 1 11

Leased assets 12 1 (4) (3) 9

Total 4,872 114 (1) (2) (1) (257) (147) 4,725

of which:

Historical cost 7,540 114 (7) (1) 106 7,646

Accumulated depreciation (2,668) (1) 5 (257) (253) (2,921)

“Tangible assets” amounted to 4,725 million euro (4,872 million euro at December 31, 2010)

representing a net decrease of 147 million euro.

The following changes took place during the period:

• an increase of 114 million euro due to investments, as described in further detail below;

• a decrease of 1 million euro due to other changes;

• a decrease of 2 million euro for disposals, net of accumulated depreciation;

• a decrease of 1 million euro arising from write-downs for the period;

• a reduction of 257 million euro relating to the depreciation charge for the period.

Investments may be analyzed as follows:

• there was an increase of 19 million euro in the energy sector which related mainly to

the following: 10 million euro for work carried out at the Monfalcone and Calabria

power stations; 5 million euro for work carried out at the Cassano d’Adda, Ponti sul

Mincio, Braulio, Stazzona, Lovero, Grosio and Premadio power stations; 2 million euro

for work carried out at the Gissi power station; 2 million euro for the investments made

by EPCG;



65

• investments of 33 million euro in the heat sector regarded the development of the district

heating networks in the Milan, Brescia, Bergamo and Varese areas for 23 million euro;

extraordinary maintenance work and the development of plants in the area totaled 10

million euro;

• the increase of 21 million euro in the environment sector relates to development and

maintenance work on the waste treatment and disposal plants and the purchase of

equipment and vehicles for refuse collection;

• investments in the networks sector amounted to 38 million euro and mainly related to

development and maintenance work carried out on electricity distribution equipment, the

extension and reconstruction of the low and medium voltage network, the installation of

new electronic meters and the upgrading of primary plants;

• investments in the services sector amounted to 3 million euro.

Included in tangible assets are “Leased assets” totalling 9 million euro, recognized in

accordance with the accounting treatment required by IAS 17 and for which the outstanding

payable to the lessor at September 30, 2011 amounted to 26 million euro.

2) Intangible assets

Millions of euro Balance Changes in the period Balance

at

Invest./ Other Disposals/ Write- Amorti- Total at

12 31 2010

Additions changes sales downs zation changes 09 30 2011

Industrial patents and the intellectual property rights 22 7 3 (12) (2) 20

Concessions, licenses, trademarks and similar rights 802 73 7 (1) (44) 35 837

Assets in progress 21 10 (10) 21

Other intangible assets 32 (1) (5) (6) 26

Goodwill 675 675

Total 1,552 90 (1) (1) (61) 27 1,579

“Intangible assets”, which at September 30, 2011 amounted to 1,579 million euro (1,552 million

euro at December 31, 2010), have increased by 27 million euro over the balance at December

31, 2010.

Under IFRIC 12, from 2010 intangible assets also include assets in concession, which mainly

relate to gas distribution and the integrated water cycle.

The following changes took place during the period:

• an increase of 90 million euro as the result of investments;

• a decrease of 1 million euro for other changes;

• a reduction of 1 million euro for disposals, net of accumulated amortization;



66

• a reduction of 61 million euro relating to the amortization charge for the period.

Investments relate mainly to the following:

• “Industrial patents and the use of intellectual property” for 7 million euro mainly relating

to the CRM software, the new receivables management system and the integration of the

information systems of the A2A Group;

• “Concessions, licenses, trademarks and similar rights ”, for 73 million euro, regarding:

- the development and maintenance of the plant in the gas distribution area relating to the

connection of new users and the replacement of low and medium pressure underground

tubing for 35 million euro;

- the intervention on the water transportation and distribution network, on the sewage

networks and on the purification plants for 10 million euro;

- investments made by the Coriance Group for 28 million euro;

• “Assets under formation” for 10 million euro relating mainly to the development of new

computer projects and the development and maintenance of plants for the distribution of

gas and water, sewage networks and purification plants.

“Other intangible assets” include the “customer list” relating to the acquisition of customer

portfolios by Group companies. These balances are being amortized on the basis of the

estimated benefits expected to be obtained in future years.

More specifically, the outstanding balance of 25 million euro at September 30, 2011 relates

mainly to the amount paid in previous years by subsidiaries for the acquisition of customers of

the business acquired from ENEL in 2003 relating to a portion of the networks and the

customers of the city and province of Bergamo, the value of the customers belonging to the

gas sector and the valuation of the customer portfolio of the subsidiary Aspem Energia S.r.l., a

company belonging to the Aspem Group.

Goodwill

Million of euro Balance at Changes in the period Balance at

12 31 2010

Invest- Other Write- Total 09 30 2011

ments changes downs changes

Goodwill 675 – – – – 675

Total 675 – – – – 675

There has been no change in goodwill over the previous year-end.



67

Goodwill at September 30, 2011 may be analyzed as follows:

Cash Generating Unit - Millions of euro

Electricity networks 271

Ecodeco 228

Aprica 5

Gas networks 38

Gas 7

Heat - Italy 21

Heat - France 11

EPCG 94

Total goodwill at September 30, 2011 675

No impairment indicators arose during the period which led to write-downs. Impairment

testing is carried out on goodwill at least once a year.

3) Investments and other non-current financial assets

Millions of euro Balance at Changes Balance at of which included in the NFP 12 31 2010 in the period 09 30 2011

12 31 2010 09 30 2011

Shareholdings in companies carried at equity 2,411 (34) 2,377 – –

Other non-current financial assets 40 27 67 28 28

Total shareholdings and other non-current financial assets 2,451 (7) 2,444 28 28

“Shareholdings in companies carried at equity” decreased by 34 million euro over December

31, 2010.

The following table sets out details of the changes:

Investments accounted for using the equity method - Millions of euro Total

Balance at December 31, 2010 2,411

Changes during the period

– acquisitions and capital increases –

– measurement at equity (18)

– dividends received from shareholdings carried at equity (14)

– sales –

– other changes –

– reclassifications (2)

Total changes during the period (34)

Balance at September 30, 2011 2,377



68

The changes taking place, amounting to a total decrease of 34 million euro, refer to the

investees accounted for using the equity method for 18 million euro, in particular Transalpina

di Energia S.r.l., Edipower S.p.A., PremiumGas S.p.A., Ergosud S.p.A. and Dolomiti Energia

S.p.A., the receipt of dividends for 14 million euro, the reclassification of the investment in

Servizi Valdisotto S.p.A., which has merged into the new company Azienda Energetica

Valtellina e Valchiavenna S.p.A., to “Available-for-sale financial assets” for 1 million euro, and

to the reclassification of the investment in Coges S.p.A. to “Non-current assets held for sale”

for 1 million euro.

“Other non-current financial assets” had a balance of 67 million euro at September 30, 2011, a

rise of 27 million euro over the previous year end. Of this 24 million euro regards the

reclassification from “Non-current assets held for sale” of the convertible bond issued by

Metroweb S.p.A. and subscribed by A2A S.p.A., maturing on November 30, 2013, 2 million euro

relates to the increase, net of the write-down, in the investment in Prva banka Crne Gore A.D.

Podgorica held by EPCG and 1 million euro is due to the reclassification of Servizi Valdisotto

S.p.A. and ASM Sondrio S.p.A., merged into the new company Azienda Energetica Valtellina e

Valchiavenna S.p.A.. This balance sheet item has been accounted for in accordance with IAS 32

and in this respect reference should be made to the section discussing accounting principles

in the financial statements for the year ended December 31, 2010.

For further details of the investment in Prva banka Crne Gore A.D. Podgorica held by EPCG

reference should be made to the paragraph “consolidation procedures”.

4) Deferred tax assets

Millions of euro Balance at Changes Balance at 12 31 2010 in the period 09 30 2011

Deferred tax assets 430 29 459

“Deferred tax assets” amount to 459 million euro, representing an increase of 29 million euro

over December 31, 2010.

The assets arise from charges for provisions, write-downs, depreciation and amortization

recognized by the Group for accounting purposes but deductible for fiscal purposes in future

years.

The Group’s forecasts confirm that sufficient future taxable profits will be available against

which the underlying temporary differences can be utilized.



69

5) Other non-current assets


12 31 2010 09 30 2011

Non-current derivatives 98 39 137 98 137

Other non-current assets 15 4 19 – –

Total other non-current assets 113 43 156 98 137

“Other non-current assets” amount to 156 million euro (113 million euro at December 31, 2010)

and consist of the following:

• 137 million euro relating to “Derivatives” hedging non-current financial items, regarding

mainly Interest Rate Swap (IRS) contracts hedging the risk of an adverse change in interest

rates on long-term bonds. This item has increased by 39 million euro over December 31,

2010 mainly as the result of the measurement at fair value of the financial instruments;

• 19 million euro per “Other non-current assets”, principally relating to guarantee deposits

and to expenditure incurred relating to future years.

Current assets

6) Inventories


Inventories 239 69 308

“Inventories” amount to 308 million euro (239 million euro at December 31, 2010),

representing a increase of 69 million euro which may be analyzed as follows:

• 4 million euro relating to the increase in materials, which totaled 56 million euro at

September 30, 2011 and 52 million euro at December 31, 2010;

• 63 million euro relating to the increase in fuel stocks, which at the balance sheet date

totaled 222 million euro compared to 159 million euro at December 31, 2010;

• 2 million euro relating to the increase in down payments, which at September 30, 2011

amounted to 9 million euro while the corresponding figure at the end of the previous year

was 7 million euro.



70

7) Trade receivables


Trade receivables 2,416 (470) 1,946

(Bad debt provision) (275) (35) (310)

Total trade receivables 2,141 (505) 1,636

“Trade receivables” amount to 1,636 million euro at September 30, 2011 (2,141 million euro at

December 31, 2010), representing a decrease of 505 million euro due to the following:

• for 523 million euro a decrease in trade receivables from customers; this item had a

balance of 1,482 million euro at period end compared to 2,005 million euro at December 31,

2010;

• for 32 million euro to an increase in receivables from the Municipalities of Milan and

Brescia. This item had a balance of 138 million euro at September 30, 2011 (106 million euro

at the end of the previous year);

• for 8 million euro to the decrease in receivables from associates; this item had a balance of

6 million euro at the balance sheet date compared to 14 million euro at December 31, 2010;

• for 6 million euro to the decrease of contracts in progress, which had a balance of 10

million euro (16 million euro at December 31, 2010).

The Group made sales of receivables without recourse to a factoring company during the

period which amounted to 78 million euro. These receivables had been substantially

collected by the factor at the balance sheet date.

The bad debts provision was increased to 35 million euro as the result of accruals of 39 million

euro made during the year, net of utilizations of 4 million euro, made to provide against the

collection risk arising mainly from the current economic situation.

8) Other current assets


Current derivatives 18 24 42

Other current assets 257 120 377

Total other current assets 275 144 419

“Other current assets” had a balance of 419 million euro compared to 275 million euro at

December 31, 2010, representing an increase of 144 million euro, and may be analyzed as

follows:

• an increase of 24 million euro in current derivative instruments which at September 30,

2011 amounted to 42 million euro (18 million euro at December 31, 2010);



71

• an increase of 62 million euro in receivables from the Electricity Sector Equalization Fund

which at September 30, 2011 amounted to 113 million euro and at the end of the previous

year totaled 51 million euro;

• an increase of 4 million euro in advances to suppliers, which at the end of the period

amounted to 8 million euro (4 million euro at December 31, 2010);

• an increase of 63 million euro in VAT receivables which at September 30, 2011 amount to

129 million euro (66 million euro at the end of the previous year);

• an increase of 1 million euro in receivables from personnel (nil at December 31, 2010);

• a decrease in other receivables of 10 million euro which total 96 million euro (106 million

euro at December 31, 2010).

9) Current financial assets

Millions of euros Balance at Changes Balance at of which included in the NFP 12 31 2010 in the period 09 30 2011

12 31 2010 09 30 2011

Other financial assets 47 (36) 11 47 11

Financial assets due from related parties 9 3 12 9 12

Total current financial assets 56 (33) 23 56 23

This item had a balance of 23 million euro at the balance sheet date (56 million euro at

December 31, 2010) and relates to receivables of a financial nature due from associates of 12

million euro and balances due from third parties of 11 million euro.

10) Current tax assets


Current tax assets 18 (8) 10

“Current tax assets” amount to 10 million euro (18 million euro at December 31, 2010)

representing an decrease of 8 million euro over the previous year-end.

11) Cash and cash equivalents


12 31 2010 09 30 2011

Cash and cash equivalents 132 (11) 121 132 121



72

“Cash and cash equivalents” amounted to 121 million euro at September 30, 2011 compared to

132 million euro at the beginning of the year, representing a decrease of 11 million euro.

Bank deposits include accrued interest even if this had not yet been credited at the end of the

period.

12) Non-current assets held for sale


12 31 2010 09 30 2011

Non-current assets held for sale 82 (43) 39 2 2

“Non-current assets held for sale” had a balance of 39 million euro at September 30, 2011 and

refer to the following:

• for 6 million euro to the goodwill relating to BAS-SII S.p.A.;

• for 31 million euro to the assets of BAS-SII. S.p.A.;

• for 2 million euro to the assets relating to certain businesses of the Ecodeco Group.

The change over the period, a decrease of 43 million euro, is due to the following:

• for 24 million euro to the reclassification to “Investments and other non-current financial

assets” of the convertible bond issued by Metroweb S.p.A. and wholly underwritten by

A2A S.p.A.;

• for 17 million euro to the sale of the investment in the associate Metroweb S.p.A., of which

14 million euro relates to the carrying amount of the investment and 3 million euro to the

receipt of the interest previously capitalized on the convertible bond;

• for 4 million euro to the decrease arising from the sale of the investments in Autostrade

Lombarde S.p.A., Autostrade Centropadane S.p.A. and Stradivaria S.p.A.;

• for 2 million euro to an increase in the assets of BAS-SII S.p.A..



73

EQUITY AND LIABILITIES

Equity

Equity, which at September 30, 2011 amounted to 4,612 million euro (4,845 million euro at

December 31, 2010), is set out in the following table:


Equity pertaining to the Group:

Share capital 1,629 – 1,629

(Treasury shares) (61) – (61)

Reserves 1,625 10 1,635

Group net income for the year 308 (308) –

Group net income for the period – 114 114

Total Group equity 3,501 (184) 3,317

Minority interests 1,344 (49) 1,295

Total equity 4,845 (233) 4,612

The overall change in equity, a reduction of 233 million euro, is due to the distribution of the

dividend, net income for the period of 114 million euro, to the measurement under IAS 32 and

39 of the cash flow hedge derivatives, to the valuation of the put option on the shares of Delmi

S.p.A. and to the change in minority interests.

13) Share capital

“Share capital” amounts to 1,629 million euro and consists of 3,132,905,277 ordinary shares

each of nominal value 0.52 euro.

14) Treasury shares

“Treasury shares” amount to 61 million euro, unchanged compared to December 31, 2010, and

relate to 26,917,609 own shares held by the parent A2A S.p.A..

15) Reserves


Other reserves 1,625 10 1,635



74

“Reserves”, which amount to 1,635 million euro (1,625 million euro at December 31, 2010),

consist of the legal reserve, the extraordinary reserve arising on consolidation and the

retained earnings of subsidiaries. This item also includes the cash flow hedge reserve, which

relates to the measurement at the end of the period of the derivatives satisfying the

requirements for hedge accounting.

The other reserves also include the effect of applying paragraph 23 of IAS 32 to the put options

on the shares of Delmi S.p.A. agreed between A2A S.p.A. and Società Elettrica Altoatesina

S.p.A. (SEL). As discussed in the section “Consolidation policies and procedures”, the

difference between the present value of the strike price of these put options and the carrying

amount of the minority interests is deducted from Group equity (if positive) or added to

Group equity (if negative). The effect of the put options on the shares of Delmi S.p.A. led to a

positive change of 6 million euro in Group equity at September 30, 2011.

16) Net profit for the period

This amounts to 114 million euro and represents the result for the period.

17) Minority interests


Minority interests 1,344 (49) 1,295

“Minority interests” amount to 1,295 million euro (1,344 million euro at December 31, 2010)

and represent the portion of capital, reserves and net income attributable to minority

shareholders.

The decrease for the period of 49 million euro regards the following:

• the allocation of the portion attributable to minority shareholders amounting to 33 million

euro, of which minus 22 million euro relating to the share of the result attributable to the

minority shareholders of Delmi S.p.A., minus 17 million euro attributable to the minority

shareholders of the EPCG Group and plus 6 million euro attributable to the minority

shareholders of Plurigas S.p.A. and A2A Alfa S.r.l.;

• negative adjustments of 16 million euro relating to the changes during the period of the

components of equity attributable to the minority shareholders of the EPCG Group and

Delmi S.p.A. and Plurigas S.p.A..



75

A dividend of 298 million euro was approved in 2011, equivalent to 0.096 euro per share, of

which 186 million euro has already been distributed and 112 million euro has yet to be

distributed.

The value of equity at September 30, 2011 is lower than the stock market capitalization. This is

caused by the situation through which the global economic system has been going over the

past few years.

LIABILITIES

Non-current liabilities

18) Non-current financial liabilities


12 31 2010 09 30 2011

Non-convertible bonds 2,170 74 2,244 2,170 2,244

Due to banks 1,477 (196) 1,281 1,477 1,281

Due to other providers of finance 66 (21) 45 66 45

Finance lease payables 23 (9) 14 23 14

Total non-current financial liabilities 3,736 (152) 3,584 3,736 3,584

“Non-current financial liabilities”, which amount to 3,584 million euro (3,736 million euro at

December 31, 2010), decreased by 152 million euro.

More specifically, “Non-convertible bonds” are four bonds issued by the Group as follows:

• a ten-year bond with a nominal value of 500 million euro issued on May 28, 2004 at a

nominal fixed rate of 4.875%. Its carrying amount of 498 million euro is calculated at

amortized cost;

• a thirty-year bond issued in yen on August 10, 2006 at a fixed rate of 5.405%. Its carrying

amount of 98 million euro is calculated at amortized cost;

• a ten-year bond with a nominal value of 500 million euro issued on October 30, 2003 at a

nominal fixed rate of 4.875%. As a result of electing for the fair value option on transition to

IAS/IFRS the fair value of this bond at September 30, 2011 was 505 million euro;

• a seven year bond with a nominal value of 1,000 million euro issued on October 27, 2009

at a nominal fixed rate of 4.50% which qualifies for fair value hedge accounting. As a

result, this financial instrument (bond) is measured at amortized cost adjusted by the

change in the fair value of the underlying risk. Its value at September 30, 2011 was 1,070

million euro.



76

The end-of-period measurement of the fair value and amortized cost of the non-convertible

bonds led to a decrease of 21 million euro in “Non-current financial liabilities”.

Interest of 73 million euro had accrued on the bonds at September 30, 2011.

The different accounting treatment used for the four bonds is the result of the different

options selected during the stage of transition to IAS/IFRS by the companies merged on

January 1, 2008.

“Due to banks” decreased by 196 million euro over the period. This was mainly due to the use

of new long-term loan facilities. The consolidation of the EPCG Group contributed by 44

million euro.

The total of 45 million euro “Due to other providers of finance” decreased by 21 million euro

over December 31, 2010 as the result of the reclassification of the portion falling due within

twelve months to current.

“Finance lease payables” amount to 14 million euro, while at December 31, 2010 they

amounted to 23 million euro.

19) Deferred tax liabilities


Deferred tax liabilities 493 1 494

Deferred tax liabilities arise from capital gains that have been realized but are deferred on an

installment basis for fiscal purposes and from differences between the bases of tangible and

intangible assets for accounting and fiscal purposes, including those resulting from the

consolidation process and from accounting for finance leases and financial instruments under

international accounting standards.



77

20) Employee benefits

The balance on this item amounted to 275 million euro at September 30, 2011 (276 million euro

at December 31, 2010) and changed as follows during the period:

Millions of euro Balance at Provisions Utilizations Other Balance at 12 31 2010 changes 09 30 2011

Employees' leaving entitlement 147 16 (9) (10) 144

Other employee benefits 129 – (6) 8 131

Total employee benefits 276 16 (15) (2) 275

21) Provisions for risks, charges and liabilities for landfills

Millions of euro Balance at Provisions Utilizations Other Balance at 12 31 2010 changes 09 30 2011

Provisions for risks, charges and liabilities for landfills 460 30 (28) 3 465

These provisions totaled 465 million euro at September 30, 2011 (460 million euro at the

previous year end). Accruals of 30 million euro were made which mainly relate to provisions

for disputes in course with certain social security bodies and local authorities and for litigation

with personnel and third parties. Utilizations of 28 million euro mainly regard the amount used

for payments made during the period, while other changes totaled 3 million euro.

22) Other non-current liabilities


12 31 2010 09 30 2011

Other non-current liabilities 152 – 152 – –

Non-current derivatives 25 (2) 23 25 23

Total other non-current liabilities 177 (2) 175 25 23

The decrease of 2 million euro in “Other non-current liabilities” is mainly due to the valuation

of the non-current derivatives connected with the fair value adjustment recognized in the

period.



78

Current liabilities

23) Trade payables and other current liabilities


Advances 23 (7) 16

Payables to suppliers 1,427 (319) 1,108

Total trade payables 1,450 (326) 1,124

Payables to social security institutions 36 (11) 25

Other current liabilities 351 93 444

Current derivatives 17 15 32

Total other current liabilities 404 97 501

Total trade payables and other current liabilities 1,854 (229) 1,625

“Trade payables and other current liabilities” amount to 1,625 million euro (1,854 million euro

at December 31, 2010), representing an overall decrease of 229 million euro which arises mainly

from a reduction in “Trade payables” partially offset by an increase in “Other current

liabilities” and “Current derivatives”. The consolidation of the EPCG Group had an effect of 40

million euro.

“Other current liabilities” include 112 million euro as the amount due to shareholders for the

non-recurring dividend approved in general meeting on June 15, 2011, which will be paid in

November 2011.

“Other current liabilities” include an amount of 11 million euro as the effect arising from the

application of a tax transparency agreement entered into by the parent A2A S.p.A. with an

associate.

24) Current financial liabilities

Millions of euro Balance at Changes Balance at included in the NFP 12 31 2010 in the period 09 30 2011

12 31 2010 09 30 2011

Due to banks 390 190 580 390 580

Due to other providers of finance 43 1 44 43 44

Finance lease payables 12 – 12 12 12

Financial payables to related parties 1 – 1 1 1

Financial payables to disposal subsidiaries 2 – 2 2 2

Total current financial liabilities 448 191 639 448 639



79

“Current financial liabilities” amount to 639 million euro, compared to 448 million euro at

December 31, 2010. The increase of 191 million euro is mainly due to an increase in “Due to

banks” arising from the use of new revolving credit lines expiring within twelve months. The

consolidation of the EPCG Group had an effect of 8 million euro.

25) Tax liabilities


Tax liabilities 56 (25) 31

“Tax liabilities” amount to 31 million euro (56 million euro at December 31, 2010), representing

a decrease of 25 million euro.

This item includes the positive effect arising from the application of a tax transparency

agreement entered into by the parent A2A S.p.A. with an associate.

26) Liabilities directly associated with non-current assets held for sale


Liabilities directly associated with non-current assets held for sale 16 3 19

The balance on this item amounted to 19 million euro at September 30, 2011, of which 17

million euro regards the liabilities connected with BAS-SII S.p.A. and 2 million euro relates to

the Ecodeco Group in respect of the liabilities connected with certain businesses held for sale.



80

27) Net debt(pursuant to CONSOB Communication no. DEM/6064293 of July 28, 2006)

The following table provides details of net debt.

Millions of euro Note 09 30 2011 12 31 2010

Bonds - non-current portion 18 2,244 2,170

Bank loans - non-current portion 18 1,281 1,477

Amounts due to other providers of finance - non-current portion 18 45 66

Finance leases - non-current portion 18 14 23

Other non-current liabilities 22 23 25

Total medium/long-term debt 3,607 3,761

Non-current financial assets with related parties 3 (5) (6)

Non-current financial assets 3 (23) (22)

Other non-current assets 5 (137) (98)

Total medium/long-term financial receivables (165) (126)

TOTAL NON-CURRENT NET DEBT 3,442 3,635

Bank loans - current portion 24 580 390

Amounts due to other providers of finance - current portion 24 44 43

Finance leases - current portion 24 12 12

Current financial liabilities with related parties 24 1 1

Financial payables to companies held for sale 24 2 2

Total short-term debt 639 448

Other current financial assets 9 (11) (47)

Current financial assets with related parties 9 (12) (9)

Financial receivables in assets held for sale 12 (2) (2)

Total short-term financial receivables (25) (58)

Cash and cash equivalents 11 (121) (132)

TOTAL CURRENT NET DEBT 493 258

NET DEBT 3,935 3,893

Net debt


81

Changes in the consolidation scope over September 30, 2010

There has been a change in the consolidation scope during the nine months ended September

30, 2011 compared to the previous year due to the sale of the investments in Metroweb S.p.A..

EPCG was consolidated on a line-by-line basis for the nine months ended September 30, 2011,

while for the nine months ended September 30, 2010 it was consolidated on a “one-line” basis.

The comparative figures for the items of the income statement relating to revenues and

operating expenses and financial management for the corresponding period of the previous

year have been reclassified to reflect the application of IFRS 5, leading to the reclassification of

the results of the investment in:

• BAS-SII S.p.A., which until September 30, 2010 was consolidated on a line-by-line basis, to

the item “net result from non-current assets held for sale” following management’s

decision to finalize the sale;

• Metroweb S.p.A. which was previously accounted for using the equity method, to the item

“net result from non-current assets held for sale” following management’s decision to

finalize the sale; applying IFRS 5 also led to the reclassification of the financial income

arising from the bond held by Metroweb S.p.A..

Notes to the income statement


82

28) Revenues

Revenues for the period totaled 4,351 million euro (4,040 million euro for the nine months

ended September 30, 2010), representing an increase of 311 million euro.

The key items of this balance were as follows:

Revenues - Millions of euro 09 30 2011 09 30 2010

Revenues from sales of goods 3,691 3,468

Revenues from services 578 473

Revenues from long-term contracts 7 18

Total revenues from sales of goods and services 4,276 3,959

Other operating income 75 81

Total revenues 4,351 4,040

“Revenues from sales of goods and services” amounted in total to 4,276 million euro (3,959

million euro in the corresponding period of the previous year), of which 202 million euro

relates to the consolidation of the EPCG Group, representing an increase of 317 million euro.

This increase is due to increased sales revenues of 223 million euro, a rise in services income of

105 million euro and a decrease of 11 million euro in revenues from long-term contracts.

“Other operating income” amounted to 75 million euro, of which 1 million euro relating to the

consolidation of the EPCG Group, representing a decrease of 6 million euro compared to the

nine months ended September 30, 2010.

Further details of the main items are as follows:

Revenues from sales of goods and services - Millions of euro 09 30 2011 09 30 2010

Sale and distribution of electricity 2,448 2,227

Sale and distribution of gas 1,002 1,005

Sale of heat 127 122

Sale of materials 1 -

Water and utilities sold to civil customers 32 33

Hedging gains on operating derivatives 1 -

Hedging losses on operating derivatives (1) (1)

Sale of emission certificates and allowances 59 61

Connection contributions 22 21

Total revenues from sales 3,691 3,468

Services to customers 578 473

Total revenue from services 578 473

Revenues from long-term contracts 7 18

Total revenues from sales of goods and services 4,276 3,959

Other operating revenues 75 81

Total revenues 4,351 4,040



83

Trading margin

The following table sets out the results arising from the trading portfolio; these figures relate

to trading in electricity, gas and environmental certificates.

Millions of euro Note 09 30 2011 09 30 2010

Trading margin

Revenues 28 662 546

Operating expenses 29 (654) (546)

Total trading margin 8 -

29) Operating expenses

“Operating expenses” amounted to 3,278 million euro (2,990 million euro in the

corresponding period of the previous year), of which 158 million euro relating to the

consolidation of the EPCG Group, representing an increase of 288 million euro.

Details of the main components are as follows:

Operating expenses - Millions of euro 09 30 2011 09 30 2010

Costs for raw materials and consumables 2,439 2,235

Service costs 616 544

Total costs for raw materials and services 3,055 2,779

Other operating expenses 223 211

Total operating expenses 3,278 2,990

“Costs for raw materials and services” amounted to 3,055 million euro (2,779 million euro for

the nine months ended September 30, 2010), of which 144 million euro relating to the

consolidation of the EPCG Group, representing an increase of 276 million euro.

This increase is due to the following:

• an increase of 167 million euro in the purchase of raw materials and consumables, due to

increased costs for the purchase of power and fuel of 157 million euro, an increase in the charges

relating to the purchase of emission certificates and allowances of 4 million euro, a decrease in

the cost of purchases of materials of 4 million euro, an increase in the purchase of water of 1

million euro and the net effect of 9 million euro arising from hedging gains and losses on

operating derivatives; the consolidation of the EPCG Group contributed for 122 million euro;

• an increase of 72 million euro in costs for delivery, subcontracted work and services, of

which 22 million euro relates to the consolidation of the EPCG Group;

• a positive change of 37 million euro in stocks of fuels and materials.



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The following table sets out details of the more significant components:

Expeses of raw material and consumables - Millions of euro 09 30 2011 09 30 2010

Purchases of power and fuel 2,436 2,279

Purchases of materials 55 59

Purchases of water 3 2

Hedging losses on operating derivatives 6 9

Hedging gains on operating derivatives (12) (24)

Purchases of emission certificates and allowances 18 14

Total cost of raw materials and consumables 2,506 2,339

Costs for delivery, subcontracted work and services 616 544

Total service costs 616 544

Change in inventories of fuels and materials (67) (104)

Total cost of raw materials and services 3,055 2,779

Other operating expenses 223 211

Total operating expenses 3,278 2,990

30) Labour costs

Excluding capitalized costs, personnel costs for the nine months ended September 30, 2011

amounted to 414 million euro (371 million euro for the nine months ended September 30,

2010), of which 38 million euro relates to the consolidation of the EPCG Group, representing

an increase of 43 million euro.

“Labour costs” may be analyzed as follows:

Labour costs - Millions of euro 09 30 2011 09 30 2010

Wages and salaries 273 242

Social security charges 102 90

Severance indemnities 17 17

Other costs 22 22

Total Labour costs 414 371

The A2A Group had an average workforce of 11,884 during the nine months ended September

30, 2011, of whom 2,739 work for the EPCG Group. The increase in personnel costs is

attributable to the increase in the average workforce as a result of the change in consolidation

scope and the increase in costs resulting from the rises in wages and salaries provided by

employment agreements.



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31) Gross operating income

As a result of the above movements, consolidated “Gross operating income” for the nine

months ended September 30, 2011 amounted to 659 million euro (679 million euro for the nine

months ended September 30, 2010), of which EPCG Group contributed 7 million euro.

Further details may be found in the section “Results by sector”.

32) Depreciation, amortization, provisions and write-downs

“Depreciation, amortization provisions and write-downs” totaled 388 million euro for the

nine months ended September 30, 2011 (343 million euro for the corresponding period of the

previous year), of which 39 million euro relates to the consolidation of the EPCG Group,

representing an increase of 45 million euro.

The following table provides details of the individual items:

Depreciation, amortization, provisions and write-downs - Millions of euro 09 30 2011 09 30 2010

Amortization of intangible assets 61 61

Depreciation of tangible assets of which: 257 229

– 1. ordinary depreciation 218 184

– 2. depreciation of assets held under concession (freely trasferrable) 39 45

Total depreciation and amortization 318 290

Provisions for risks and charges 30 18

Write-down of receivables included in current assets 39 35

Other write-downs of fixed assets 1 –

Total depreciation, amortization, provisions and write-downs 388 343

More specifically, “Depreciation and amortization” totaled 318 million euro (290 million euro

in the corresponding period of the previous year), representing an increase of 28 million euro.

Excluding the consolidation of the EPCG Group, depreciation and amortization would have

amounted to 291 million euro, essentially unchanged compared to the nine months ended

September 30, 2010.

“Provisions for risks and charges” amounted to 30 million euro (18 million euro for the nine

months ended September 30, 2010) and relate to provisions made in the period for disputes

in course with certain social security bodies and accruals for pending litigation.

“Write-down of receivables included in current assets” amounted to 39 million euro (35

million euro for the nine months ended September 30, 2010). The prudent accrual for the

period is affected by the persistence of a generally difficult economic situation making it

difficult for businesses and individuals to respect their obligations within the agreed terms.



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For conservative reasons, therefore, adjustments have been made to the estimated

recoverable value of outstanding receivables, especially for those companies which selling to

the end customer are most exposed to insolvency risk.

“Other write-downs of fixed assets” amounting to 1 million euro regard certain write-downs

made by the Ecodeco group.

33) Net operating income

“Net operating income” amounted to 271 million euro (336 million euro for the nine months

ended September 30, 2010), of which 32 million euro of expenses relate to the EPCG Group.

34) Financial balance

“Financial balance” closed with net financial expense of 133 million euro (79 million euro for

the nine months ended September 30, 2010), including the positive contribution of 7 million

euro arising from the consolidation of the EPCG Group.

Details of the more significant items are as follows:

Financial balance -Millions of euro 09 30 2011 09 30 2010

Financial income 23 10

Financial expense (132) (145)

Portion of income and charges when shareholdings are carried at equity (24) 56

Total financial balance (133) (79)

“Financial income” amounted to 23 million euro, of which 11 million euro relates to the

consolidation of the EPCG Group, representing an increase of 13 million euro over the nine

months ended September 30, 2010 mainly due to the positive effect of the change in the fair

value of the financial derivative contracts on the revolving credit lines.



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“Financial expense”, which amounted to 132 million euro, decreased by 13 million euro over

the nine months ended September 30, 2010 and may be analyzed as follows:

• costs of 123 million euro from financial liabilities (114 million euro for the nine months

ended September 30, 2010) detailed as follows:

Exspenses on financial liabilities - Millions of euro 09 30 2011 09 30 2010

Interest on bond loans 76 76

Interest charged by bank 28 23

Interest on loans from Cassa Depositi e Prestiti 1 1

Interest on finance lease 1 1

Other financial expense 17 13

Total expenses on financial liabilities 123 114

• charges on financial derivatives of 6 million euro (31 million euro for the nine months

ended September 30, 2010). The decrease is mainly due to the change in the fair value of

the bond of 500 million euro maturing in 2013, accounted for using the fair value option

method, partially adjusted by the derivatives on the 1,000 million euro bond;

• financial brokerage fees of 3 million euro relating entirely to the consolidation of the EPCG

Group.

The “Portion of income and charges when shareholdings are carried at equity” was negative

for 24 million euro (positive for 56 million euro for the nine months ended September 30,

2010). This item mainly consists of the effects of the results of the valuations of the

investments in Transalpina di Energia S.r.l., Dolomiti Energia S.p.A., Edipower S.p.A., Acsm-

Agam S.p.A., PremiumGas S.p.A. and Ergosud S.p.A..

35) Other non-operating income and expense

“Other non-operating income and expense” closed with a net balance of 5 million euro (nil for

the nine months ended September 30, 2010) and relates to the expenses incurred by the EPCG

Group.



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36) Income taxes

Income taxes -Millions of euro 09 30 2011 09 30 2010

Current taxes 121 130

Deferred tax income (32) (20)

Deferred tax expense 4 (22)

Total income taxes 93 88

Taxes for the period, calculated on the basis of current accounting standards and acceptable

consolidation criteria, have been calculated as follows:

• current taxes for the period of 121 million euro relating to IRES corporate income tax, the

“Robin Hood tax” and IRAP regional production tax;

• deferred tax income of 32 million euro;

• deferred tax expense of 4 million euro.

Paragraphs 5 and 6 of article 23 of Decree Law no. 98/2011 converted with amendments into Law

no. 111 of July 15, 2011, published in Official Journal no. 164 of July 16, 2011, introduce an increase

in the IRAP tax rate from 3.90% to 4.20% for companies acting as concessionaires other than

those in the construction industry or involved in the management of motorways and tunnels

Further, article 7 of the Decree Law of August 13, 2011, converted with amendments into Law no.

148 of September 14, 2011, introduced significant changes to the “Robin Hood tax”.

In particular as far as the A2A Group is concerned:

• electricity and gas distribution are liable to the IRES surcharge from 2011; these activities

were previously excluded;

• the rate charged for the “Robin Hood” tax has been increased from 6.5% to 10.5% for the

period from 2011 to 2013.

37) Net result from non-current assets held for sale

There was a positive balance of 41 million euro on this item for the nine months ended

September 30, 2011, which relates mainly to the sale of the investments in Metroweb S.p.A. and

CESI.

38) Group net profit for the period

The Group’s consolidated profit, net of minority interests of positive 33 million euro

(negative 23 million euro for the nine months ended September 30, 2010), amounted to 114

million euro (436 million euro for the nine months ended September 30, 2010).



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39) Earnings per share

01 01 2011 01 01 2010 09 30 2011 09 30 2010

Earnings (loss) per share (euro)

– basic 0.0368 0.1404

– basic from operating activities 0.0236 0.0484

– diluted 0.0368 0.1404

– diluted from operating activitie 0.0236 0.0484

Weighted average number of shares in circulation for the calculation of earnings (loss) per share

– basic 3,105,987,497 3,105,987,497

– diluted 3,105,987,497 3,105,987,497

Earnings per share


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40) Consob Communication DEM/6064293 of july 28, 2006

There were no non-recurring transactions during the period.

Consob Communication DEM/6064293 of july 28, 2006


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Millions of euro 09 30 2011 12 31 2010

Guarantee deposits received 451 402

Guarantees given 1,297 1,214

Guarantee deposits received

Guarantee deposits received from subcontractors and performance bonds received amount

in total to 451 million euro (402 million euro at December 31, 2010).

Guarantees given and commitments with third parties

These amount to 1,297 million euro (1,214 million euro at December 31, 2010) and relate to

sureties and deposits pledged as guarantees of obligations assumed with third parties.

Collateral pledged

The convertible bond issued by Metroweb S.p.A. and subscribed by A2A S.p.A., having a

nominal value of 24 million euro, has been pledged to the banks financing Metroweb S.p.A..

The shares of Edipower S.p.A. owned by A2A S.p.A., having a value of 398 million euro, have

been pledged to a syndicate of banks against the loans granted by them.

Guarantees and commitmentswith third parties


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Other commitments and risks

As is normal for transactions of such size and duration, take or pay clauses are included in the

natural gas import agreements of Plurigas S.p.A.. These are clauses which require the

purchaser to pay for quantities not withdrawn with respect to a pre-determined threshold if

this is for reasons not foreseen in the agreement, except for the possibility under certain

conditions to recover, over the contract term, the volume already partially paid for but not

withdrawn.

Group companies hold third party assets under concession having a value of 147 million euro.


Guarantees and commitments with third parties

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1) Significant subsequent events

Reference should be made to the specific paragraph of this interim report on operations for a

discussion of subsequent events.

2) Information relating to treasury shares

At September 30, 2011 A2A S.p.A. held 26,917,609 treasury shares, equal to 0.859% of its share

capital of 3,132,905,277 shares, unchanged compared to the end of the previous year. No

treasury shares were held through subsidiaries, finance companies or nominees at

September 30, 2011.

3) Information relating to non-current assets held for sale anddiscontinued operations (IFRS 5)

“Non-current assets held for sale” and “Liabilities directly associated with non-current assets

held for sale” consist of balances relating to the Ecodeco Group, and in particular assets

belonging to certain businesses held for sale, together with the assets and the liabilities of

BAS-SII S.p.A..

For further details reference should be made to note 12 to the balance sheet.

Other information


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The following table sets out the main information regarding the assets and liabilities of the

mentioned investments and businesses.

Figures at september 30, 2011

Assets and liabilities of the BAS-SII Ecodeco Totalicompanies held for sale S.p.A. GroupMillions of euro

Non-current assets 24 – 24

Current assets 13 2 15

Total assets 37 2 39

Non-current liabilities 4 – 4

Current liabilities 13 2 15

Total liabilities 17 2 19

BAS-SII S.p.A. had an effect of 1.3 million euro on the result.

4) Update of the main pending legal and tax disputes

EC infringement procedure

On June 5, 2002, the European Commission published Decision no. 2003/193/EC declaring that

the three-year exemption from income tax (under article 3.70 of Law no. 549/95 and article 66.14

of Decree Law no. 331/1993, converted into Law no. 427/93) and the advantages deriving from

loans granted pursuant to article 9-bis of Decree no. 318/1986, converted into Law no.488/96, to

public majority-owned companies formed under Law no. 142/90 were incompatible with EC law,

since they were deemed to represent “State aid” which is prohibited under article 87.1 of the EC

Treaty. The Commission did not however consider the tax exemption on business contributions

under article 3.69 of Law no. 549/95 to be “State aid”.

This decision was notified on June 7, 2002 to the Italian State, which appealed against it to the

Court of Justice. Subsequently, by order of the Court of Justice dated June 8, 2004, the case

was transferred to the Court of First Instance with reference number T-222/04, following the

expansion of that court's functions by the Treaty of Nice.

In July 2002, the Commission communicated the decision to the companies concerned, which

appealed against this to the Court of First Instance of the European Community on September

30, 2002, pursuant to article 230.4 of the EC Treaty. Further appeals against this decision have

also been filed by other public sector commercial companies and by Confservizi.


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The Italian State did not ask the Court of Justice to suspend execution of the Commission's

June 2002 decision so as not to prejudice the resolution of merit in the event of a refusal. In

fact, it is rare for the Court to concede a stay of execution, above all in matters regarding

“State aid”.

The decision is therefore fully effective and binding on the Italian State, which is obliged to

recover the aid granted.

On the invitation of the Commission and while continuing to pursue action to overturn the

decision, the Italian State therefore activated a recovery procedure. This process has involved

the preparation of a survey questionnaire to identify the public sector commercial companies

that have benefited from the above tax exemption and from loans granted by Cassa Depositi e

Prestiti in the years under consideration.

The Italian State's recovery initiatives continued with the predisposition of an amendment to

the EC law, which was approved by the Senate on April 13, 2005 (article 27, Law no. 62 of April 18,

2005). The measure envisages detailed recovery procedures based on ordinary tax rules to

adjust any recovery to the effective existence of recoverable aid (considering the specific

circumstances of each position and bearing in mind any outstanding disputes with the tax

authorities). In particular, this measure envisaged certain declarations on the part of the

taxpayer and presumed certain official acts specifying the application methods and guidelines

for a correct evaluation of cases of non-application. The guidelines were then amended to make

them more precise by article 1.133 of Law no. 266 of March 23, 2006 (Finance Law 2006).

Subsequently, following Italy's condemnation by the Court of Justice for the delay in

recovering the "aid" (Sentence June 1, 2006, case C – 207/05), Decree Law no. 10 of February

15, 2007 (converted into Law no. 46 of April 6, 2007) made further amendments to the existing

recovery procedures.

In this connection, new instructions were issued for the implementation of European

Commission Decision no. 2003/193/EC with a view to the recovery of aid equivalent to the

unpaid taxes and related interest resulting from application of the tax exemption regime

envisaged in article 3.70 of Law no. 549 of December 28, 1995 and article 66.14 of Decree Law

no. 331 of August 30, 1993, converted with amendments into Law no. 427 of October 29, 1993.

In the first half of 2007 the Tax Revenue Office sent notices to AEM S.p.A. and ASM S.p.A. -

pursuant to Decree no. 10/2007 - in the form of a "communication-injunction" concerning the

alleged “State aid” enjoyed during the moratorium period.

On April 30, 2009, the Tax Revenue Office notified five further assessments in connection with

the position of the former AEM S.p.A. and the former ASM S.p.A. pursuant to article 27, Decree


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Law no. 185 of November 29, 2008, as converted with amendments into Law no. 2 of January

28, 2009, for approximately 64 million euro including interest.

Decree no. 135 of September 25, 2009 (article 19) introduced new instructions regarding the

recovery of the aid mentioned, essentially involving (i) the possible notification of further

repayment assessments, (ii) the irrelevance for recovery purposes of any realized capital

gains. As a result, on October 2, 2009, the company received six further assessments from the

competent offices for the recovery of amounts additional to those already claimed totaling

approximately 220 million euro.

On this basis, the Tax Revenue Office activated the recovery procedure by means of a fiscal

type assessment without offering any possibility to defer or suspend payment.

On the merits, the guidelines for recovery can be found in Day Order no. 901972/071 of the

Chamber of Deputies, which was approved at the session held on January 14, 2009. In the

guidelines, it is explained that the recovery "cannot take the form of a simple tax assessment,

without any specific criteria; instead, it has to determine if and how much aid has to be

recovered, clarifying in particular that it is recoverable only if actually enjoyed and verifying

case by case whether the companies have actually made use of illegitimate “State aid” that has

altered the principles of free competition and a company’s freedom of establishment". In line

with this concept, "those resources that have already been involved in forms of

reimbursement" have to be considered "excluded from the recovery measure".

In exercising the powers granted, the Tax Revenue Office should therefore have identified, in

the specific circumstances, the actual enjoyment of illegitimate “State aid” that has not already

been reimbursed.

Given that the lawsuits involving the merging company AEM S.p.A. (now A2A S.p.A.) and the

merged company ASM S.p.A. are the subject of separate proceedings at the Court of First

Instance of the European Community and have different positioning in relation to the

“communication-injunction" and the assessments, the two situations are explained separately

below for the sake of clarity.

Former AEM S.p.A. (now A2A S.p.A.)

In the action promoted by AEM S.p.A., on January 6, 2003 the Commission filed an objection

claiming that it could not accept the appeal. AEM promptly replied before the legal

deadline. The Court arranged the meeting concerning the objection claiming that it could

not accept the appeal on its merit by order dated August 5, 2005. On March 15, 2006, AEM

filed a brief in relation to the judgment pending before the Court of First Instance. On

February 28, 2008, the Court of First Instance communicated to AEM its intention to


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combine (only for the oral phase) the various lawsuits being brought by AEM S.p.A,

Confservizi, other public sector commercial companies and the Italian State, asking for the

opinions of the parties concerned.

On March 6, 2008, AEM S.p.A. communicated to the Court that it would welcome a move to

combine the various lawsuits and, apparently, the other appellants also responded in the same

way. The final hearing was held on April 16, 2008, and by a ruling dated June 11, 2009 the Court

of First Instance declared that the appeal presented by AEM S.p.A. was admissible but rejected

it on merit - as for those presented by the other appellants - taking the view that the measure in

question constituted “State aid” that was prohibited under article 87.1 of the EC Treaty,

therefore confirming the decision of the Commission. AEM S.p.A. impugned this sentence on a

timely basis before the European Court of Justice. On July 14, 2011 an oral hearing was held

before the Court of Justice on the appeal lodged by A2A S.p.A. and the other former municipal

utilities; the Court has reserved the right to decide.

With reference to article 27 of Law no. 62 of April 18, 2005, AEM S.p.A. has carefully complied

with the obligations placed on the former municipal utilities that are contained in the above-

mentioned recovery regulations and related enabling instructions.

For completeness, it should be noted that on October 27, 2005 the Tax Revenue Office visited

the head office of AEM S.p.A. to acquire the accounting documentation necessary to check the

correctness of the figures declared in the tax returns filed in accordance with art. 27 of Law no.

62. The visit was merely to ascertain and finalize the amount of any taxes that were to be

reimbursed. AEM S.p.A. provided the inspectors with an ample statement as to how the tax

returns had been compiled. Even if all possible forms of legal protection failed, it was deemed

reasonable to assume that the Italian government's recovery actions would have involved

revoking the benefits granted in different ways, depending on the public service sectors

concerned. In particular, it was assumed that such action would have taken account of the

actual degree of competition during the effective period of the measures being contested

and, therefore, of the extent to which it may have been distorted.

In this regard, the appeal made by AEM S.p.A. explained that, during the 1996-1999 period

examined by the Commission, the company operated in sectors such as electricity and gas

that were not open to competition and in which AEM S.p.A. did not take part in any tenders for

the provision of the related services (an observation that was subsequently repeated to the

Court of Justice).

In the light of the uncertainty regarding the outcome of the appeals and the ways in which the

Commission's Decisions would be applied, the company believed it possible, but not probable,

that it risks having to return all of the aid received if the result of the entire appeal procedure


Other information

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turns out to be negative: consequently, no provisions were made for this matter in any of its

financial statements up to December 31, 2006. This decision took account of objective

uncertainties as to the possibility of making a sufficiently reasonable estimate of the charges

that would be borne by AEM S.p.A. as a consequence of the above decision.

Lastly, the majority of the profits distributed by AEM S.p.A. during the tax moratorium

period were paid to the Municipality of Milan, which is part of the Public Administration.

AEM S.p.A. did not receive any assisted loans from Cassa Depositi e Prestiti under the laws

mentioned during the period considered by the Commission.

On March 30, 2007, the Milan Tax Revenue Office notified four assessments, or

"communication-injunctions" under Decree Law no. 10/2007 – relating to the alleged aid used

during the periods 1996, 1997, 1998 and 1999.

The amounts requested in these assessments, totaling 4.8 million euro inclusive of interest,

were based on the company's declaration made in July 2005, except for the disallowance of

the effect of applying the so-called "tombstone" tax amnesty under Law no. 289/2002.

Pursuant to Decree Law no. 10/2007 the amounts established but not paid over are subject to

forcible collection via inclusion on the tax roll; the rules do not permit any extended payment

terms or suspensions, not even in the event of appeal.

Having taken note of these communications, considered Decree Law no. 10/2007 and related

conversion law and checked that the amounts requested agree with those originally declared,

the company decided on April 27, 2007 to pay the amounts requested.

As a result of the above, the amounts paid were included in the 2007 accounts under

“Financial expenses” and “Other non-operating expenses”.

In any case the arguments presented by the company before the European Union jurisdiction

against the Decision of the EU Commission of June 5, 2002 remain valid; the same arguments

have been represented before the Court of Justice. If the actions taken before the European

Union jurisdiction are successful, all the amounts paid by the company ought to be

reimbursed since the concept of aid recovery would not be valid. The company prudently

decided to appeal against these communication-injunctions to the competent tax jurisdiction.

The Provincial Tax Commission of Milan - Section 21 rejected these appeals in ruling no. 8 of

January 25, 2008 and the sentence that establishes the amount of the recoverable aid is now

definitive.

On April 30, 2009, the Tax Authorities notified three assessments, issued under article 24 of

Decree no. 185/2008, for the recovery of alleged “State aid” that conflicts with EC legislation

and the earlier decision of the European Commission. Appeals against these assessments


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were filed with the Milan Provincial Tax Commissioners. The oral hearing took place on

September 19, 2011 and the appeals were all rejected, subject to combination, by means of

sentence no.222/09/11. The company will appeal against this sentence on a timely basis.

Based on current law, the amount requested, namely a total of 23 million euro, had to be paid

within thirty days of notification of the provision and accordingly A2A S.p.A. made the

payment on May 8, 2009.

As mentioned, on October 2, 2009 the Tax Revenue Office notified four assessments issued

under article 19 of Decree no. 135/2009 for the further recovery of alleged “State aid” to the

former AEM S.p.A. that has been stated to conflict with EC legislation.

Having paid a total of 184 million euro on October 22, 2009 - to avoid the charges involved in

being entered on the tax rolls and the accrual of further interest - the company appealed

against these notices before the Milan Provincial Tax Commission which - after meeting in

connection with those relating to ASM S.p.A. - discussed the merit of the case on January 19,

2010 and upheld the appeal with sentence no. 137/01/10.

Following this sentence, A2A S.p.A. requested the Tax Revenue Office to return the sums paid

as a refund of the alleged "State aid" but has yet to receive a reply.

On April 9, 2010 an appeal was lodged against this sentence by the Regional Department of the

Tax Revenue Office of Lombardy and by the Tax Revenue Office - Milan 1 Office.

Former ASM S.p.A. (merged into A2A S.p.A. since January 1, 2008)

As regards ASM's S.p.A.’s position, the company has also impugned the decision before the

Court of First Instance in Luxembourg with an appeal filed on its own account on January 2,

2003 and "ad adiuvandum" in support of AEM S.p.A. and AMGA S.p.A..

ASM moreover considered that the European Commission's decision no. 2003/293/EC of July

5, 2002 was not applicable because of the particular nature of its situation: during the period

under consideration the services provided by ASM S.p.A. in its areas of operations were not

open to the market or free competition.

On January 6, 2003 the Commission filed an objection claiming that it could not accept the

appeal. ASM S.p.A. promptly replied before the legal deadline. The Court set the meeting

concerning the objection claiming that it could not accept the appeal on the merit by order

dated August 5, 2005.

On February 28, 2008 the Court of First Instance communicated to ASM S.p.A its intention to

combine (only for the oral phase) the various lawsuits being brought by ASM S.p.A.,

Confservizi, other majority-held public sector commercial companies and the Italian State,


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asking for the opinions of the parties concerned. ASM S.p.A. communicated to the Court that

it would welcome such a move to combine the various lawsuits.

The final hearing was held on April 16, 2008, and by a ruling dated June 11, 2009 the Court of

First Instance declared that the appeal presented by AEM S.p.A. was admissible, but rejected it

on merit - as for those presented by the other appellants - taking the view that the measure in

question constituted “State aid” that was prohibited under art. 87.1 of the EC Treaty, therefore

confirming the decision made by the Commission. This sentence was impugned before the

European Court of Justice and on July 14, 2011 an oral discussion was held before that court;

the court has reserved the right to decide.

In accordance with the request contained in article 27 of Law no. 62 of April 18, 2005 the companies

of the ASM Group involved in the recovery procedure (ASM S.p.A., also on behalf of the merged BAS

S.p.A. and Azienda Servizi Valtrompia S.p.A) sent the declaration required by article 27 of said law for

each of the periods affected by the tax moratorium.

BAS Bergamo, which was merged with effect from May 18, 2005, and Azienda Servizi

Valtrompia S.p.A had negative taxable income during the years in which the moratorium

applied and so it is probable that no tax will be due.

In April 2007 ASM S.p.A. received notification of the communication-injunction under article

1 of Legislative Decree no. 10/2007 from the Brescia Tax Revenue Office for the periods 1998

and 1999.

Based on the opinion of its tax advisors and experts in EC law, ASM S.p.A. pointed out to the

Brescia Tax Revenue Office that the communication-injunction that it had received was

contrary to the provisions of this decree both in content and in amount.

At the same time ASM S.p.A. appealed to the Brescia Court for this injunction to be declared

null and void; it also asked for a court order suspending payment.

On May 23 the Tax Revenue Office acknowledged that ASM S.p.A.'s arguments were correct

and cancelled the communication-injunction to pay. In any case the arguments presented by

the company before European jurisdiction against the Decision of the Commission of June 5,

2002 remain valid; the same arguments are being re-proposed before the Court of Justice.

In the light of the uncertainty regarding the outcome of the appeals and the ways in which the

Commission's Decisions would be applied, the company believes it possible, but not probable,

that it risks having to return all of the aid received if the result of the entire appeal procedure

turns out to be negative: consequently no provision has been made for this matter in the

financial statements.


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While waiting for the question to be decided, the shareholders' meeting of ASM S.p.A. has

resolved not to consider distributable an amount of 13 million euro representing a portion of the

available reserves formed during the period of the "tax moratorium".

On April 30, 2009 the Tax Revenue Office notified two assessments, issued under article 24 of

Decree Law no.185/2008, for the recovery of alleged “State aid” to the former ASM S.p.A.

stated to be in conflict with EC regulations. Appeals against these assessments have been filed

with the Milan Provincial Tax Commissioners. The oral hearing took place on September 19,

2011 and the appeals were all rejected, subject to combination, by means of sentence

no.222/09/11. The company will appeal against this sentence on a timely basis.

Under current regulations the amount requested, a total of 41.6 million euro, had to be paid

within thirty days of the provision being notified and accordingly A2A S.p.A. made the payment

on May 8, 2009.

As mentioned on October 2, 2009 the Tax Authorities notified four assessments, issued under

art. 19 of Decree Law no. 135/2009, for the further recovery of alleged “State aid” to the

former ASM S.p.A. stated to be in conflict with EC regulations.

Having paid a total of 35.8 million euro on October 22, 2009 - to avoid the charges involved in

being entered on the tax rolls and the accrual of further interest - the company appealed

against these notices before the Milan Provincial Tax Commission, which - after meeting with

ASM S.p.A. - discussed the merit of the case on January 19, 2010 and upheld the appeals with

sentence no. 137/01/10.

Following this sentence A2A S.p.A. requested the Tax Revenue Office to return the sums paid

as a refund of the alleged "State Aid" but has yet to receive a reply.

On April 9, 2010 an appeal was lodged against this sentence by the Regional Department of the

Tax Revenue Office of Lombardy and by the Tax Revenue Office - Milan 1 Office.

* * *

Ruling on the appeal proposed by the Tax Authority by way of sentence 137/01/10 concerning

the positions of the former AEM S.p.A. and the former ASM S.p.A.

Following the proposal received, A2A S.p.A. appealed and filed counter-arguments and

subsequent pleading.

The Tax Revenue Office’s appeal was discussed on July 5, 2010 before the Regional Tax

Tribunal, which upheld it.


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The company filed an appeal to the supreme court on a timely basis, specifying the

inconsistencies in the appeal court’s ruling; the date of this hearing has not been set yet.

Consul Latina S.r.l. / BAS S.p.A. (now A2A S.p.A.)

The purchase of the investment in HISA by BAS S.p.A. was made through a local consultant,

Consul Latina S.r.l..

Given that the wording of the contract was not totally clear and the fact that BAS S.p.A. on its

own did not buy 100% of HISA, BAS S.p.A. did not pay the fee due to Consul Latina S.r.l. which

in 1998 initiated legal action for payment.

The lawsuit is still in underway with various procedural objections, some recent, such as the

fact that all court proceedings after May 18, 2005 were declared null and void for lack of right

of attorney, a problem that has subsequently been resolved.

In the appeal ref. EXP 82218, Sentence no. 3697/3000 dated May 9, 2008, Consul Latina S.r.l.

requested that the proceedings be declared null and void given that the lawyers had no

powers and claimed damages due to a delay in the filing of documents by BAS S.p.A. in 2008;

the court rejected all these claims, recognizing that ASM took over from BAS.

The judge also rejected the appeal ref. EXP 90779, Sentence 5317534 dated May 20, 2005, in

which Consul Latina S.r.l. claimed that the lawyer Mr. De Florio had no powers of

representation at the hearing held in August 2005 due to the merger of BAS S.p.A. into ASM

S.p.A..

On November 10, 2008, Consul Latina S.r.l. attempted to file a new claim against BAS, EXP

095148, requesting information about Enerfin S.r.l. in liquidation, designed to find out if ASM

S.p.A. was still a shareholder and, if it had sold the investment, the sales price. It appears that

the way in which Consul Latina S.r.l. notified this request was considered inadequate by the

Court.

On the basis of information received from the lawyer, Mr De Florio, according to Consul Latina

S.r.l. the amount payable on May 10, 2007 was $1,872,000, calculated as capital of $720,000 plus

interest of 1% from April 1999.

As of that date a possible offer by ASM S.p.A. to settle the dispute for $400,000 was not

considered acceptable.

In a more recent communication (November 18, 2008), the lawyer recalled that the

coefficient to be applied to the value of the principal to understand the sum due by BAS S.p.A.


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in the event of losing the lawsuit was 27.22%. He also confirmed that, over the last two years,

the interest rate applicable to commercial settlements had remained unaltered at 1.55%.

In May 2009 the lawyers filed new documents but without outcome.

On November 16, 2009 the judge condemned A2A to pay a fine of 300 pesos per day from May

6, 2009 for not having provided the information requested about the sale on that date; the

lawyers appealed immediately against this sentence and for this reason no fine has yet been

paid.

Despite waiting to read the sentence, at the end of September 2011 the lawyers

communicated that the Court of Appeal had upheld the appeal without any costs arising for

A2A S.p.A..

In the lawyers' opinion the sentence will be quashed; if this does not happen, the fine accruing

up to February 2010, the date of the last deed deposited as part of the appeal, amounts to

$22,265.

In February 2010, A2A S.p.A. renewed its mandate with the Garrido law firm to identify a

solution for settling the original lawsuit brought by Consult Latina and to take the necessary

steps to revoke the pledge filed by Consul Latina S.r.l. on HISA's subsidiaries.

In this respect only at the end of September 2011 did the lawyers mention, moreover without

documenting its terms, a settlement proposed by Consul Latina S.r.l. for an amount of $3.9

million. The company has communicated that it is unwilling to accept this, confirming that it

would accept a figure of up to $0.75 million.

The international rogatory notification was sent on July 30, 2010 with the request that A2A

S.p.A. be formally questioned about the interrogatories formulated by the Buenos Aires

Court; the hearing was held on September 17, 2010. The evidence will be sent the Buenos Aires

appeal court for its judgment.

The lawyers representing A2A S.p.A. believe that the testimony provided by A2A S.p.A. is

positive but are unable to estimate a date for the issuing of a sentence nor are they able to

forecast the outcome of the litigation.

The company is represented by the legal firm Garrido of Buenos Aires.

ENEL/AEM Elettricità S.p.A. (now A2A Reti Elettriche S.p.A., a subsidiary of A2A

S.p.A.)

By means of a writ served in 2001, ENEL requested annulment of the decision made by the

Board of Arbitrators appointed in accordance with Decree no. 79 of March 16, 1999 (the so-


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called "Bersani Decree"), which set at 820 billion lire the price to be paid to ENEL for the sale

to AEM Elettricità S.p.A. (now A2A Reti Elettriche S.p.A.) of the power distribution business in

the municipalities of Milan and Rozzano. AEM Elettricità S.p.A. asked for ENEL’s request to be

rejected as the arbitrators' decision could not be considered manifestly unfair or erroneous

within the meaning of article 1349 of the Italian Civil Code. AEM Elettricità S.p.A. in turn filed a

counter-claim asking for ENEL to be sentenced to pay compensation for the damages caused

by the delay with which ENEL implemented the sale of the business, as imposed by the law.

In AEM Elettricità S.p.A’s opinion, the judge would only be able to change the arbitrators'

decision if it appeared to be "manifestly unfair or erroneous", as also confirmed by an expert

witness's report which the judge has ordered.

The Court-appointed expert witness carried out a detailed review of the situation, making

numerous adjustments, and in the end established a figure of 66 million euro as the upper

value of the business, net of the damages which the expert recommended should be awarded

to AEM Elettricità S.p.A..

In a sentence filed on June 9, 2008, the Milan Court set a new price for the business based on

the indications of the expert witness (990.8 billion lire) and rejected the claim for damages

made by AEM Elettricità S.p.A. According to the Court, the difference between the expert

witness's valuation and that carried out by the Board of Experts was such as to make the latter

manifestly unfair. In other words, the Judge believed that he could fully trust the conclusions

reached by the expert witness appointed by him, even though some of the choices made

appeared to be the result of exercising in a different way the technical discretion that is

inherent in valuations, leading to a very different result from that reached by the Board of

Experts. The Judge also based his decision on certain affirmations made by the expert witness

regarding the "inappropriate nature" of certain parameters used by the Board of Experts.

Considering therefore that the price established by the Board of Experts was unfair, the Judge

also rejected the claim made by AEM Elettricità S.p.A. for damages caused by the delay in

transferring the business. In fact, according to the Judge, ENEL was justified in not

transferring the business as the price was unfair.

There are various objections that can be made to this sentence.

To start with, the assumption is not accepted that the price established by the Board of

Experts was affected by errors, or that it was unfair. The Board consisted of illustrious

professors with years of acknowledged experience in company valuations, so the fact that the

Judge simply “replaced” their calculation with the one performed by the expert witness is

totally unsatisfactory. From another standpoint, there appears to be no justification for

rejecting the request for damages because of the delayed transfer of the business, given that


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ENEL could quite easily have handed it over - as indeed it did - while at the same time asking for

a fairness review of the price set by the Board of Experts. A2A S.p.A. appealed against the

Court sentence with a writ served on October 23, 2008; the hearing for the statement of the

conclusions was planned for April 5, 2011. Subsequently, with a writ served on May 28, 2009,

Enel sued A2A S.p.A, based on this sentence by the Milan Court (which was not a sentence of

condemnation), asking that A2A should be condemned to pay 88,244,342 euro plus interest at

the legal rate and a monetary revaluation from October 31, 2002. At the first hearing of this

case on November 24, 2009, the plaintiff waived the injunction and the parties are now

waiting for the above appeal to go ahead.

An agreement was negotiated with the counterpart during 2009 allowing any costs to be paid

in installments to eliminate the risk that the Company may have to pay a sizeable amount all at

the same time.

When preparing the 2009 annual report, it was decided in the interests of prudence to

maintain the book value of 88 million euro recognized for goodwill already disclosed as a

balance sheet asset for the business transferred, booking a contra-entry to a provision for

risks and charges (under liabilities) of the same amount and recognizing ancillary charges of

24 million euro in the same way.

As the result of the need to reorganize the rolls, the case has been rescheduled and the hearing

for the statement of the conclusions, originally planned for April 5, 2011, has been deferred to

September 18, 2012.

Investigation into gas meters

There is a nationwide investigation pending at the Public Prosecutor's Office in Brescia

concerning the way that gas consumption is measured. This investigation involves a number

of A2A Group companies and certain of their directors and managers. The alleged offence is

fraud as well as other matters. The investigation was initiated by the Milan Judicial Authority

but then transferred to Brescia for a question of territorial jurisdiction.

With a ruling issued on January 12, 2011 by the Public Prosecutor's Office, on February 7, 2011

notification was issued as to the conclusion of the preliminary investigation at A2A Energia

S.p.A. and A2A Reti Gas S.p.A., whilst A2A S.p.A. is still awaiting notification.

All physical persons involved in the investigation received a copy of the aforementioned

notification.


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A2A S.p.A./ Mr. Buzzi

Mr. Buzzi sued AEM S.p.A. (now A2A S.p.A.) before the Milan Court by a writ served on May 24,

2001.

Mr. Buzzi challenged before the Milan Court the resolutions by which the shareholders'

meeting approved the financial statements and authorized the sale by AEM S.p.A. to e.Biscom

S.p.A. of the 30.8% stake then held by AEM S.p.A. in Fastweb S.p.A. with the simultaneous

purchase by AEM S.p.A. of the interest of 33% held by e.Biscom S.p.A. in Metroweb S.p.A. and

the subscription of a bond.

AEM S.p.A. appeared at the hearing on November 19, 2003, filing a defense statement.

The appearance hearing was held on April 20, 2004 and the conciliation hearing was held on

November 9, 2004. The parties' legal counsel exchanged statements in accordance with

articles 183.5 and 184 of the code of civil procedure. Mr. Buzzi's counsel asked the Judge to

admit evidence from witnesses, to request an expert witness's report and to order the

acquisition "of the appraisal carried out at the time by Morgan Stanley on the valuation of

Fastweb S.p.A. and Metroweb for the purposes of the share exchange between e.Biscom

S.p.A. and AEM S.p.A. and collateral transactions and Metroweb S.p.A.'s financial

statements at December 31, 2002 and December 31, 2003”. AEM S.p.A.'s defense counsel

opposed this and at the hearing of February 28, 2005 the investigating judge dismissed Mr.

Buzzi's requests. Considering that the case was ready for a final decision, he then set April

4, 2006 as the date for the hearing at which the conclusions would be heard.

With a sentence filed on June 7, 2007, the Judge of the Milan Court rejected the plaintiff's

requests, sentencing him to pay the legal expenses.

Mr. Buzzi appealed against this decision by the Court with a writ served on July 10, 2008. The

first hearing of the appeal was scheduled for December 9, 2008; the hearing for the statement

of the conclusions was postponed to April 5, 2011 for the clarification of the conclusions.

Despite being unable to predict the outcome of the appeal, there does not appear to be a

considerable risk that the judgment of the Court of First Instance will be reformulated.

The decision of the Court will most likely be issued in late 2011 or early 2012.

Arbitration initiated by Ecovolt for violation of the Quotaholders’ Agreement for the

Investment in Ostros Energia S.r.l. (now in liquidation)

On May 25, 2009 the minority quotaholders of Ostros Energia S.r.l. (now in liquidation)

initiated arbitration proceedings under a settlement clause contained in the Investment


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Agreement signed with ASM S.p.A. on January 30, 2007, with a view to establishing a breach of

the agreement by A2A S.p.A. for failing to finance the development of Ostros Energia S.r.l.

(now in liquidation) and not complying with the provisions of article 2.5 of the Agreement.

These matters were first examined by the parties towards the end of 2008 and legal opinions

were obtained.

The Board of Arbitration is made up of Prof. N. Irti, Prof. G. Sbisà and Prof. M. Cera. During the

first meeting on March 4, 2010, convened to make the obligatory attempt at reconciliation, the

board took note of the absence of the parties as the conditions did not exist for a settlement

and scheduled the hearing to cross-examine the parties for April 26, 2010, to this end inviting

their legal representatives or informed persons with right of attorney to attend. The board

also established November 20, 2010 as the deadline to conclude the arbitration proceedings.

Following the aforementioned cross-examination hearing the board issued order no. 6309/20

on June 3, 2010 requesting the Chamber of Arbitration to appoint an expert assessor to qualify

the difference between the projects mentioned in the January 31, 2007 Investment

Agreement, in particular the San Biagio project and those included in the Baltic agreement.

In an order of the Board of Arbitrators of July 1, 2010, Deutsches Windenergie GmbH Institute

Branch DeEI Italia was appointed as expert assessor; subsequently, the Board scheduled a

hearing for September 23 to confirm the arbitration question and determine the dates when

the appraisal would commence (October 15, 2010) and when the final report would be due

(January 10, 2011), and also to allow the parties involved to appoint their own expert advisors.

At this hearing, A2A S.p.A. appointed the firm D’Apollonia as its expert advisor and Ecovolt

appointed Prof. Zaninelli.

On September 28, the Chamber of Arbitration notified that the expert which it had appointed

with the above order had withdrawn from the case.

In a letter dated October 13, 2010, the Chamber of Arbitration gave notice of order 1611/21

issued on October 12, 2010 in which Prof. Villacci of the University of Sannio was appointed as

the new expert. On December 23, 2010, the expert made an application to the Arbitrators to

obtain an extension of the deadline established for the for the filing of the expert’s report until

February 25, 2011. The deadline has been further extended to April 6, 2011.

Following the filing of the expert’s report the panel established a deadline for the parties to file

their respective briefs; the last brief was filed on June 24, 2011. The board has invited to the

parties to reach a settlement; the exchange of correspondence in that sense has not altered

the positions of the parties.


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The arbitration panel has requested an extension of the terms for filing the verdict which has

been set as May 20, 2012 and has called a hearing on October 6 in the presence of the experts

as well as the lawyers.

The company is represented by the legal firm Chiomenti.

Arbitration initiated by S.F.C. S.A. and Eurosviluppo Industriale S.p.A. against A2A

S.p.A. and E.ON Europa S.L. for alleged non-fulfillment of the private deed for the

purchase of the shares of Eurosviluppo Industriale S.p.A., now ERGOSUD S.p.A. (no.

4011)

On May 2 and May 3, 2011 respectively the Milan Arbitration Chamber sent A2A S.p.A. (the

holder of an interest of 50% in the share capital of Ergosud S.p.A.) and E.ON Europa S.L. (a

former shareholder of Ergosud – the investment is currently held by E.ON Italia S.p.A.) a

request for arbitration in which Société Financiere Cremonese S.A. in conjunction with

Eurosviluppo Industriale S.p.A. initiate an arbitration procedure against such companies,

requesting (i) ascertainment as to non-fulfillment by E.ON Europa S.L. and A2A S.p.A. of the

obligations assumed in the agreements of December 16, 2004, October 15, 2004 and July 25,

2007 inter partes and (ii) by virtue of the effect, that they be condemned to the payment of

the remaining part of the price for the sale of the shares making up the whole share capital of

Ergosud S.p.A., amounting to 10,000,000 euro, as well as compensation for the damages

suffered by Société Financiarie Cremonese S.A. and Eurosviluppo Industriale S.r.l. from the

double standpoint of the consequential loss or damage and loss of profits in the amount of

126,496,496 euro, save better specification, plus damages for the stoppage at the worksite,

interest and revaluation.

E.ON Europa and A2A S.p.A. have duly appeared before the court calling for the request to be

rejected in full and by cross-claim calling for the counterparts to be condemned to pay

compensation for the damages suffered by the defendants as the result of the numerous

examples of contractual non-fulfillment, quantified initially in the amount of 30,500,000 euro,

or alternatively in the greater or lesser sum considered equitable, quantified also pursuant to

article 1226 of the Italian Civil Code, plus interest, ex article 1283 of the Italian Civil Code and

monetary revaluation, ex article 1224 of the Italian Civil Code.

On September 7, 2011 the Chamber of Arbitration declared that the arbitration was

suspended due to the failure of the claimant to pay the court’s fees.

The lawyers of A2A S.p.A. and E.ON. are verifying the possibility of taking the arbitration ahead

only for the counter-claim, without therefore needing to take over the payment of the

claimant’s costs.


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If this way of proceeding is not possible the arbitration process could be extinguished.

The company is represented by the legal firms Chiomenti and Simmons & Simmons.

Consorzio Eurosviluppo Scarl / Ergosud S.p.A. and A2A S.p.A. – Civil Court of Rome

On May 27, 2011 Consorzio Eurosviluppo Industriale S.p.A. served a writ on Ergosud S.p.A. and

A2A S.p.A. with the following claims: (i) compensation for damages, of both a contractual and

extra-contractual nature, jointly, or alternatively exclusively and separately, in the amount of

35,411,997 euro (of which 1,065,529 euro as the residual portion of its share of the expenses);

(ii) compensation for damages for the stoppage at the worksite and the failure to return the

areas of pertinence to the Consortium.

In the filing of appearance Ergosud S.p.A. and A2A S.p.A. will call for the request to be rejected

in full because it is unfounded in its merit and in its substance, and will point out: (i) the lack of

the right of the Consortium to institute proceedings as it is currently in a state of bankruptcy,

(ii) the lack of the right of the Consortium to institute proceedings for the damages allegedly

suffered by Fin Podella at the item “anticipation of program contract” for 6,153,437 euro and

the damages allegedly suffered by Conservificio Laratta S.r.l. for 359,000 euro.

The first hearing has been arranged for October 30, 2011.

This case has been assigned to the Second Civil Section of the Court, Single Judge Lorenzo

Pontecorvo. The first appearance hearing has been arranged for November 30, 2011.

At that hearing Ergosud S.p.A. and A2A S.p.A. will not be able to make any counter-claims as

that is the competence of the Bankruptcy Judge.

The company is represented by the legal firm Simmons & Simmons.

* * *

The following information is provided in connection with the principal fiscal litigation.

A2A S.p.A. – Assessments for IRES, IRAP and VAT purposes for tax year 2005

The Regional Department of the Lombardy tax office in Milan notified A2A S.p.A (formerly

ASM Brescia S.p.A.) on December 23, 2010 of IRES, IRAP and VAT tax assessments for tax year

2005 as a result of a general tax audit carried out in 2008 by the Brescia 2 tax office into that

year.

These assessments are based on the Regional Department's claim that the company has not

fulfilled its direct tax and VAT obligations; on this basis, additional IRES, IRAP and VAT

payments are claimed as well as penalties and interest amounting to a total of 3.3 million euro.


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Appeals against each of these assessments have been filed with the relevant Tax

Commissioners.

On the same date, the Regional Department served notice of IRES assessments (level 2 notice)

for tax year 2005 on A2A S.p.A. as the consolidating company of Aprica S.p.A. and A2A Reti Gas

S.p.A..

The sum demanded was paid concerning the notice served as the consolidating company of

A2A Reti Gas S.p.A., thereby definitively closing the case.

The notice served as the consolidating company of Aprica S.p.A. is, however, the subject of an

appeal as part of the dispute currently in course for the level I notice, received in 2010 for the

same reasons regarding Aprica S.p.A..

A2A Trading S.r.l. - Assessments for VAT Green Certificates regarding 2004 and 2005

- 2006

On December 23, 2009 the Milan Tax Revenue Office served A2A Trading S.r.l. with a VAT tax

assessment concerning tax year 2004. This notice cited the company's failure to invoice

taxable transactions and required the company to pay additional VAT as well as penalties and

interest amounting to a total of 3.3 million euro.

In particular, under this assessment the Tax Revenue Office served a penalty on A2A Trading

S.r.l. for not having invoiced the tollee (Edipower) for the Green Certificates allegedly

transferred between the two.

After appropriate examination, which also included the other tollers, it was considered that

the Tax Revenue Office's conclusions could not be accepted. In fact under tolling

arrangements tollers are on the one hand the owners of the raw materials, including fuel,

that they supply to the tollees to produce electricity, and on the other are the "ab origine"

owners of the electricity produced. The delivery of Green Certificates by tollers to tollees

can in no way be considered to be the transfer of title of such.

A2A Trading S.r.l. has therefore not committed any breach of regulations and accordingly no

provision has been made in the financial statements for this matter.

For the same reasons on December 16, 2010, the Milan Tax Revenue Office served notice of a

VAT tax assessment concerning tax year 2005 and on October 31, 2011 served notice of a VAT

tax assessment concerning tax year 2006, requiring the company to pay additional VAT as well

as penalties and interest amounting to 4.8 million euro and 8.9 million euro. In the same way as

for 2004, A2A Trading S.r.l. did not breach any regulations in 2005 or 2006 either and

accordingly no provision has been made in the financial statements for this matter.


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A2A Trading S.r.l. has lodged an appeal with the relevant bodies against the notices for 2004

and 2005, requesting that the claim for additional taxes be fully annulled and will file an appeal

for 2006 within the terms of law.

On October 27, the litigation regarding 2004 was discussed before the Milan Provincial Tax

Provision; the outcome of this is not known at the present date.

Following the request for documentation relating to the Green Certificates regarding the

same tolling agreement for tax years 2007 to 2010 and for access to the company, on October

28, 2011 the Italian Finance Police - Milan Unit - notified their report which contains the same

alleged offences of failing to invoice taxable transactions in 2007, 2008 and 2010.

A2A Reti Elettriche S.p.A. - registration tax assessment for adjustments to the

value of the goodwill relating to the sale of the “protected categories” business to

A2A Energia S.p.A.

On February 16, 2010, the Milan 3 Office of the Tax Revenue Office served notice of the

correction and settlement of registration tax due on the sale of the "protected categories"

business from Aem Elettricità S.p.A. (now A2A Reti Elettriche S.p.A.) to Aem Energia S.p.A.

(now A2A Energia S.p.A.) on February 1, 2008. In an assessment notice, the tax office

contested the figure disclosed for “goodwill” and as a result the corresponding registration

tax payable. The company attempted to reach a settlement but since no agreement was

reached the assessing office has challenged the notice served by lodging an appeal.

A2A Reti Gas S.p.A. - General IRES/IRAP/VAT audit for tax year 2007

On February 24, 2010 the Tax Revenue Office (Brescia 2 Office) commenced a general tax

audit of A2A Reti Gas S.p.A. (previously Asm Reti S.p.A.) for IRES, IRAP and VAT purposes for

tax year 2007. This audit was completed on April 29, 2010.

Significant violations were found, mainly regarding direct taxation.

To date assessment notices have been served for 2005, 2006, 2007 and 2008.

The company communicated its acceptance on February 21, 2011 for 2005, on May 25, 2011 for

2006 and on June 6, 2011 for 2008.

On June 30, 2011 the company made an application for settlement concerning the assessment

notice for 2007.


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Aprica S.p.A. - General IRES/IRAP/VAT audit for tax year 2007

On January 10, 2011 the Tax Revenue Office (Brescia 2 Office) commenced a general tax audit

of Aprica S.p.A. for IRES, IRAP and VAT purpose for tax year 2007. The audit was completed on

February 8, 2011.

Significant violations were found, mainly regarding direct taxation.

On September 14, 2011 an assessment notice was served which contains the same findings

that emerged during the audit.

The company will make an application for settlement within the term of 60 days from the date

of the notification.

A2A S.p.A. (merging company of AMSA Holding S.p.A.) – Assessments for VAT

purposes for tax years 2001 to 2005

In early 2006, the Italian Finance Police - Lombardy Regional Unit, Milan - carried out an audit

of AMSA Holding S.p.A. (now A2A S.p.A.) for VAT purposes for tax years 2001 to 2005.

The audit ended with the issue of a final report contesting the legitimacy of the ordinary VAT

rate applied by suppliers in place of the special rate for waste disposal and plant

maintenance, as well as the subsequent deduction made after the invoices issued for these

services were duly paid.

The report was followed by formal notices of assessment from the Tax Revenue Office (Milan

3 Office) for each year audited; appeals were then lodged with the Provincial Tax Commission

within the term provided by law.

The appeals for 2001 and for 2004 and 2005 were discussed on January 25, 2010 and on

February 17, 2010 respectively, with a favorable outcome for the company in all cases..

The outcomes of the 2002 and 2003 disputes were also favorable for the company but the Tax

Revenue Office lodged an appeal against both sentences. The appeal for 2002 was discussed

on November 30, 2010, and on February 23, 2011 the Milan Regional Tax Commission issued its

ruling, revising the initial sentence and upholding the Tax Revenue Office’s appeal on almost all

counts with the exception of the hazardous waste category. The company will file an appeal

with the Supreme Court for 2002, while for 2003 it has submitted its counter-arguments to

the Tax Revenue Office’s appeal and a discussion has been arranged on this matter for

November 7, 2011.


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Plurigas S.p.A. - Duty audit for tax years 2009, 2010 and 2011

On May 25, 2011 the Finance Police - Milan Tax Unit - began a tax audit into Plurigas S.p.A. in

connections with duty for the tax years 2009, 2010 and 2011 limited to the date of access.

This audit was completed on October 20, 2011 and a tax audit report was prepared in which

irregularities in the compilation of the annual returns for the consumption of natural gas for

2009 and 2010 were noted together with the allegedly incorrect compilation of Intrastat lists

for 2010.

ECODECO S.r.l. – Assessment for VAT purposes for tax years 2006 and 2007

On July 5 and 6, 2010 the Milan Tax Revenue Office served VAT tax assessment notices for the

years 2006 and 2007 contesting the reduced VAT rates applied to the disposal of waste

derived fuel (WDF). This claim was accompanied by a demand for additional VAT of 472,302

euro (plus penalties and interest) for 2006 and 496,458 euro(plus penalties and interest) for

2007.

Ecodeco S.r.l. has lodged an appeal with the appropriate authorities for both tax assessment

notices.

Following receipt of the demand notice from Equitalia, for the portion relating to the failure to

bill VAT, regarding 50% of the tax plus interest and penalties (94,128 euro for 2006 and 96,547

euro for 2007), being the portion payable pending sentence, the company made payment in

October 2011.

ASRAB S.r.l. - Assessments for IRES and IRAP purposes for tax year 2004

On December 21, 2009 the company was served notices of IRES and IRAP tax assessments for

tax year 2004 contesting certain items of amortization and depreciation charged against

taxable income along with costs relating to "assignment rights" which the company pays each

year to Co.s.r.a.b.. The claim was accompanied by a demand for additional IRES of 314,937

euro (plus penalties and interest) and additional IRAP of 40,561 euro (plus penalties and

interest).

The company lodged an appeal with the Milan Provincial Tax Commission on May 20, 2010. The

Commission upheld the request made by the company to suspend proceedings and in May

2011 upheld the appeal, cancelling the assessment notice relating to the costs for "assignment

rights".


Other information

114


On March 9, 2011 the company was served notices of IRES and IRAP tax assessments contesting

certain items of amortization and depreciation charged against taxable income along with costs

relating to “assignment rights” which the company pays each year to Co.s.r.a.b.. The claim was

accompanied by a demand for additional IRES of 456,136 euro (plus penalties and interest) and

additional IRAP of 58,744 euro (plus penalties and interest).

The company lodged an appeal with the Provincial Tax Commission (CTP) of Biella on May 20,

2011. On September 5, 2011 the Biella Commission suspended execution of the assessment

subject to receiving a guarantee, represented by a surety policy for 50% of the disputed

amount. This policy was lodged with the Biella Tax Revenue Office on September 28, 2011.


The company was served notices of IRES and IRAP tax assessments between June 10 and 17, 2011

contesting certain items of amortization and depreciation charged against taxable income along

with costs relating to “assignment rights” which the company pays each year to Co.s.r.a.b.. The

claim was accompanied by a demand for additional IRES of 646,490 euro (plus penalties and

interest) and additional IRAP of 83,265 euro (plus penalties and interest).

The company lodged an appeal against these assessments with the Biella Provincial Tax

Commission on October 18, 2011.


ECODECO S.r.l. and ASRAB S.r.l., were served notices of IRES and IRAP tax assessments

between October 21 and 24, 2011 contesting certain items of amortization and depreciation

charged against taxable income along with costs relating to “assignment rights” which the

companies pay each year to Co.s.r.a.b.. The claim was accompanied by a demand for additional

IRES of 815,407 euro (plus penalties and interest) and additional IRAP of 105,014 euro (plus

penalties and interest).

The company will lodge an appeal against these assessments.

ECODECO S.r.l. - Assessments for IRES, IRAP and VAT purposes for tax year 2007

On August 17, 2011 the company was served notices of IRES and IRAP tax assessments which

challenge the deductibility of a charge to the provision for risks and charges and make a

demand for additional IRES of 206,322 euro (plus penalties and interest) and IRAP of 26,572

euro (plus penalties and interest).


Other information

115

In addition the company has been served notices of VAT tax assessments which challenge the

recoverability of value added tax due to the failure to apply the deductibility of the tax on a pro-

rata basis, with the resulting demand for additional taxes of 284,173 euro (plus penalties and

interest).

The company will lodge an appeal against these assessments.

5) Environmental certificates as contingent assets

The Group had an excess of environmental certificates (Emission Allowances, Green

Certificates, and White Certificates) at September 30, 2011.


Other information

116

0.4Attachments to the notesto the Interim report onoperations

Name Registered office Currency Sharecapital

(thousands)

Consolidation areaA2A Reti Gas S.p.A. Brescia Euro 442,000A2A Reti Elettriche S.p.A. Brescia Euro 520,000AMSA S.p.A. Milan Euro 52,179A2A Calore & Servizi S.r.l. Brescia Euro 150,000Selene S.p.A. Brescia Euro 3,000A2A Servizi alla Distribuzione S.p.A. Brescia Euro 300A2A Energia S.p.A. Milan Euro 520A2A Trading S.r.l. Milan Euro 1,000Partenope Ambiente S.p.A. Brescia Euro 120A2A Logistica S.p.A. Brescia Euro 250A2A Ciclo Idrico S.p.A. Brescia Euro 70,000Ecodeco S.r.l. Milan Euro 7,469Aspem Energia S.r.l. Varese Euro 2,000A2A Montenegro d.o.o. Podgorica (Montenegro) Euro 300Mincio Trasmissione S.r.l. Brescia Euro 10Aprica S.p.A. Brescia Euro 204,698A2A Coriance S.a.s. Noisy Le Grand (Francia) Euro 32,562Assoenergia S.p.A. in liquidation Brescia Euro 126Abruzzoenergia S.p.A. Gissi (Ch) Euro 130,000Retragas S.r.l. Brescia Euro 34,495

Aspem S.p.A. Varese Euro 174Varese Risorse S.p.A. Varese Euro 3,624Montichiariambiente S.p.A. Brescia Euro 1,500Ostros Energia S.r.l. in liquidation Brescia Euro 350Camuna Energia S.r.l. Cedegolo (Bs) Euro 900A2A Alfa S.r.l. Milan Euro 100Plurigas S.p.A. Milan Euro 800SEASM S.r.l. Brescia Euro 700Proaris S.r.l. Milan Euro 1,875Delmi S.p.A. Milan Euro 1,466,868Ecofert S.r.l. S. Gervasio Bresciano (Bs) Euro 1,787Elektroprivreda Cnre Gore AD Niksic (EPCG) Niksic (Montenegro) Euro 958,666EPCG d.o.o. Beograd Belgrade (Serbia) Dinar RSD 35Zeta Energy d.o.o. Danilovgrad (Montenegro) Euro 12,240Investments held for saleBAS-SII S.p.A. Bergamo Euro 17,166

For investments in the subsidiaries of the Ecodeco Group refer to attachment 3.For investments in the subsidiaries of the Coriance Group refer to attachment 4.

1 - List of companies included in theconsolidated financial statements


118


List of companies included in the consolidated financial statements

% Stake Shareholder Valuation methodconsolidated held

Group %shareholding

at09 30 2011

100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% Aspem S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation100.00% 100.00% A2A S.p.A. Line-by-line consolidation

99.99% 99.99% A2A S.p.A. Line-by-line consolidation98.08% 98.08% A2A S.p.A. Line-by-line consolidation97.76% 97.76% A2A S.p.A. Line-by-line consolidation

100.00% 100.00% A2A S.p.A. Line-by-line consolidation91.60% 91.60% A2A S.p.A. (87.27%)

A2A Reti Gas S.p.A. (4.33%) Line-by-line consolidation90.00% 90.00% A2A S.p.A. Line-by-line consolidation90.00% 90.00% Aspem S.p.A. Line-by-line consolidation80.00% 80.00% Aprica S.p.A. Line-by-line consolidation80.00% 80.00% A2A S.p.A. Line-by-line consolidation74.50% 74.50% A2A S.p.A. Line-by-line consolidation

70.00% 70.00% A2A Trading S.r.l. Line-by-line consolidation70.00% 70.00% A2A S.p.A. Line-by-line consolidation67.00% 67.00% A2A S.p.A. Line-by-line consolidation60.00% 60.00% A2A S.p.A. Line-by-line consolidation

51.00% 51.00% A2A S.p.A. Line-by-line consolidation47.00% 47.00% A2A S.p.A. Line-by-line consolidation43.70% 43.70% A2A S.p.A. Line-by-line consolidation

100.00% 100.00% EPCG Line-by-line consolidation67.31% 51.00% EPCG Line-by-line consolidation

99.98% 99.98% A2A S.p.A. IFRS5

119


(thousands)

Shareholdings in companies carried at equity

Transalpina di Energia S.r.l. Milan Euro 3,146,000

PremiumGas S.p.A. Bergamo Euro 120

Ergosud S.p.A. Rome Euro 81,448

Ergon Energia S.r.l. in liquidation Milan Euro 600

Metamer S.r.l. San Salvo (Ch) Euro 650

Asm Novara S.p.A. Brescia Euro 1,000

Bergamo Servizi S.r.l. Sarnico (Bg) Euro 10

SET S.p.A. Toscolano Maderno (Bs) Euro 104

e-Utile S.p.A. Milan Euro 1,000

Azienda Servizi Valtrompia S.p.A. Gardone Valtrompia (Bs) Euro 6,000

Ge.S.I. S.r.l. Brescia Euro 1,000

Centrale Termoelettrica del Mincio S.r.l. Ponti s/Mincio (Mn) Euro 11

Serio Energia S.r.l. Concordia s/Secchia (Mo) Euro 1,000

Visano Soc. Trattamento Reflui Scarl Brescia Euro 25

LumEnergia S.p.A. Lumezzane (Bs) Euro 300

Sviluppo Turistico Lago d'Iseo S.p.A. Iseo (Bs) Euro 1,194

ACSM-AGAM S.p.A. Monza Euro 76,619

Edipower S.p.A. Milan Euro 1,441,300

Utilia S.p.A. Rimini Euro 900

Futura S.r.l. Brescia Euro 2,500

Prealpi Servizi S.r.l. Varese Euro 2,250

COSMO Società Consortile a Responsabilità Limitata Brescia Euro 100

Dolomiti Energia S.p.A. Rovereto (Tn) Euro 219,000

Rudnik Uglja Ad Plejvlja Plejvlja (Montenegro) Euro 21,493

Consolidamento Gruppo Ecodeco (1)

Consolidamento Gruppo Coriance (2)

Total shareholdings

(1) For investments in the subsidiaries of the Ecodeco Group refer to attachment 3.(2) For investments in the subsidiaries of the Coriance Group refer to attachment 4.

2 - List of shareholdings incompanies carried at equity


120

Stake Shareholder Book Valuation methodheld value

% at 09 30 2011(thousands)

50.00% Delmi S.p.A. 1,720,487 Equity method

50.00% A2A Alfa S.r.l. 4,241 Equity method

50.00% A2A S.p.A. 86,780 Equity method

50.00% A2A S.p.A. 606 Equity method



50.00% Aprica S.p.A. 214 Equity method



48.86% A2A S.p.A. (48.48%) A2A Reti Gas S.p.A. (0.38%) 3,874 Equity method





33.33% A2A Energia S.p.A. 823 Equity method




20.00% A2A Energia S.p.A. 212 Equity method

20.00% A2A Calore & Servizi S.r.l. 500 Equity method

12.47% Aspem S.p.A. 801 Equity method

52.00% A2A Calore & Servizi S.r.l. 52 Equity method



1,630 See attachment 3

1,643 See attachment 4

2,377,449


List of shareholdings in companies carried at equity

121

Name Registered Currency Shareoffice capital

(thousands)

Consolidation area

Ecodeco S.r.l. Milan Euro 7,469

Ecodeco Hellas S.A. Atene Euro 60

Ecolombardia 18 S.r.l. Milan Euro 658

Ecolombardia 4 S.p.A. Milan Euro 17,727

Sicura S.r.l. Milan Euro 1,040

Sistema Ecodeco UK Ltd Canvey Island Essex (UK) Lst 250

Vespia S.r.l. Torino Euro 10

A.S.R.A.B. S.p.A. Biella Euro 2,582

Nicosiambiente S.r.l. Milan Euro 50

Ecoair S.r.l. Milan Euro 10

Shareholdings in companies carried at equity

SED S.r.l. Robassomero (To) Euro 1,250

Bergamo Pulita S.r.l. Bergamo Euro 10

Tecnoacque Cusio S.p.A. Omegna (Vb) Euro 206

Bellisolina S.r.l. Montanaso (Lo) Euro 52

Total shareholdings

3 -List of companies included inthe consolidated financialstatements of the Ecodeco Group


122


List of companies included in the consolidated financial statements of the

Ecodeco Group

% Stake Shareholder Book Valuation methodconsolidated held value

Group % at 09 30 2011shareholding (thousands)

at 09 30 2011

Line-by-line consolidation

100.00% 100.00% Ecodeco S.r.l. Line-by-line consolidation









50.00% Ecodeco S.r.l. 1,214 Equity method

50.00% Ecodeco S.r.l. 173 Equity method

25.00% Ecodeco S.r.l. 243 Equity method

50.00% Ecodeco S.r.l. – Equity method

1,630

123


(thousands)

Consolidation area

Coriance Sas Noisy Le Grand - France Euro 5,407

Aulnay Energie Services Sas Aulnay-sous-Bois - France Euro 610

Calo Rem Sas Manosque - France Euro 40

Castres Energie Services Sas Castres - France Euro 38

Mebois-Montrond Bois Energie Sas Montrond-Les-Bains - France Euro 40

Andrezieux Boutheon Energie Services Sas Andrezieuz-Boutheon - France Euro 40

Energie Meaux Sas Meaux - France Euro 3,050

Les Mureaux Energie Services Sas Le Mureaux - France Euro 40

Societé Thermique De Villiers Le Bel Gonesse Sas Villiers-Le-Bel - France Euro 150

Blanc Mesnil Energie Services Sas Le Blanc Mesnil - France Euro 40

Chelles Chaleur Sas Chelles - France Euro 369

Drome Energie Services Sas Pierelatte - France Euro 200

Eneriance Sas Toulouse - France Euro 150

Ris Energie Services Sas Ris Orangis - France Euro 38

Societé Thermique De La Doua Sas Villeurbanne - France Euro 40

VLBG Energie Sa Viliers-le-Bel - France Euro 781

Inter Industrie Thermique Sas Nemours - France Euro 60

Sogatherm Sas Chalett sur Loing - France Euro 8

SOFREDITH Société Fresnoise de la Distribution Thermique Sa Fresnes - France Euro 229

Societé Thermique De Salon De Provence Sa Salon De Provence - France Euro 39

SOFREGE Société fresnoise de Géothermique Sas Fresnes - France Euro 1,000

Les Mureaux Bois Energie Sas Le Mureaux - France Euro 150

Societé Thermique De Bondy Sas Bondy - France Euro 300

Shareholding i companies carried at equity

Gennedith Sas Puteaux - France Euro 85

Stade Energie Sas Noisy-le-Grand - France Euro 153

Eriva Sas Montereau - France Euro 100

Societé Thermique de Laval Saint Nicolas Sa Laval - France Euro 472

Via Confort Sas Saint-Etienne - France Euro 1,100

Coge Sante Lille Gie Sant-André-es-Lille - France Euro not available

Total shareholdings

4 - List of companies included inthe consolidated financial statements of the Coriance Group


124


List of companies included in the consolidated financial statements of the

Coriance Group

125

% Stake Shareholder Book Valuation methodconsolidated held value

Group % at 09 30 2011shareholding (thousands)

at09 30 2011

100.00% 100.00% A2A Coriance Sas Line-by-line consolidation

100.00% 100.00% Coriance Sas Line-by-line consolidation






















26.00% Coriance Sas 68 Equity method

50.00% Coriance Sas 1,206 Equity method




34.00% Coriance Sas – Equity method

1,643

Name Stake Shareholder Book held value


Financial assets available for sale (AFS)

Infracom S.p.A. 1.57% A2A S.p.A. 2,011

Immobiliare-Fiera di Brescia S.p.A. 5.52% A2A S.p.A. 1,101

E.M.I.T. S.p.A. 10.00% A2A S.p.A. 1,247

Azienda Energetica Valtellina e Valchiavenna S.p.A. (AEVV) 9.39% A2A S.p.A. 1,846

Others:

A.C.B. Servizi S.r.l. 5.00% A2A S.p.A.

Alesa S.r.l. 5.26% A2A Reti Gas S.p.A.

ANCCP S.r.l. 5.24% A2A Calore & Servizi S.r.l.

AQM S.r.l. 8.18% A2A S.p.A.

AvioValtellina S.p.A. 0.18% A2A S.p.A.

Banca di Credito Cooperativo di Calcio e Covo Società Cooperativa n.s. A2A S.p.A.

Brescia Mobilità S.p.A. 0.25% A2A S.p.A.

Brixia Expo-Fiera di Brescia S.p.A. 9.44% A2A S.p.A.

Cavaglià Sud S.r.l. in liquidation 1.00% Ecodeco S.r.l.

Consorzio DIX.IT in liquidation 14.28% A2A S.p.A.

Consorzio Intellimech n.s. A2A S.p.A.

Consorzio Italiano Compostatori n.s. Ecodeco S.r.l.

Consorzio L.E.A.P. 10.53% A2A S.p.A.

Consorzio Milano Sistema in liquidation 10.00% A2A S.p.A.

Consorzio Polieco n.s. Ecodeco S.r.l.

CSEAB (formerly Cramer S.c.ar.l.) 6.67% A2A S.p.A.

Curdem 4.00% Coriance Sas

5 - List of financial assets availablefor sale


126

Name Stake Shareholder Book held value


Emittenti Titoli S.p.A. 1.85% A2A S.p.A.

Guglionesi Ambiente S.c.a.r.l. 1.01% Ecodeco S.r.l.

INN.TEC. S.r.l. 10.89% A2A S.p.A.

Isfor 2000 S.c.p.a. 4.94% A2A S.p.A.

S.I.T. S.p.A. 0.26% Aprica S.p.A.

Stradivaria S.p.A. n.s. A2A S.p.A.

Tirreno Ambiente S.p.A. 3.00% Ecodeco S.r.l.

Prva banka Crne Gore A.D. Podgorica (*) 24.10% EPCG

Total other financial assets 8,492

Total financial assets available for sale 14,697

(*) Although representing 24.10% of share capital the investment in Prva banka Crne Gore A.D. Podgorica is classified as AFS for thereasons discussed in the section "Consolidation procedures".

Note: A2A S.p.A. took part in the formation of Società Cooperativa Polo dell'innovazione della Valtellina subscribing 5 shares having anominal value of 50 euro.


List of financial assets available for sale

127

0.5Interim report onoperations

The A2A Group operates in the following sectors:

Energy Sector

This sector’s activity is the sale of electricity and natural gas on wholesale and retail electricity

and methane gas markets. The support of the marketing areas is assured by fuel procurement,

electricity generation plant planning and dispatching, portfolio optimization and trading on

domestic and foreign markets.

Heat and Services Sector

This sector’s activity is mainly the sale of heat and electricity produced by cogeneration plants

(mostly owned by the Group). Cogenerated heat is sold through district heating networks.

The sector also provides services, such as managing district heating plants owned by third

parties (heat management services).

Environment Sector

This sector’s activity relates to the whole waste management cycle, which ranges from

collection and street sweeping to the treatment, disposal and recovery of materials and

energy. This sector’s activity includes the recovery of the energy content in waste by means of

waste to energy or biogas plants.

Networks Sector

This sector’s activity consists of the technical and operational management of networks for

the transmission and distribution of electricity, the transport and distribution of natural gas

and the management of the entire integrated water cycle (water captation, aqueduct

management, water distribution, sewerage network management, water purification). Also



129

included are activities relating to public lighting, traffic regulation systems, the management

of votive lights in cemeteries and systems design services.

Corporate and Other Services

Corporate services include various activities such as guidance, strategic direction,

coordination and control of industrial operations, as well as services to support business and

operating activities (e.g. administrative and accounting services, legal services, procurement,

personnel management, information technology, telecommunications etc.). Other services

also include video-surveillance, data transmission, telephony and internet access services.



130

The world economy continued to expand during the first nine months of 2011, although its rate

of growth slowed down during the final months. This was also the result of temporary factors

such as the impact of the natural and nuclear disasters in Japan and the constraining effect of

the high prices of raw materials in the main advanced economies. The consequences of the

financial crisis continue to weigh heavily on the intensity of the recovery, especially in the

advanced economies, and in particular are hampering the prospects of a swift pick-up. On the

other hand the emerging economies are still experiencing robust growth, despite the fact this

is falling.

The IMF is forecasting global growth of around 4% for 2011.

The United States economy continued to recover in the first half of 2011, although at a rate

lower than 2010. The prospects for the public finances continue to give cause for concern, as

shown by the downgrading of the country’s sovereign debt by Standard & Poor’s in August in

the light of the uncertainties concerning the future revival path for the country’s public

accounts and continuing political deadlock. In Japan, preliminary figures for growth in GDP

show that the economy is holding up better than market expectations: although falling for the

third consecutive quarter, gross domestic product nevertheless dropped by barely 0.3% over

the previous period. Monthly figures in the United Kingdom point to the persistent weakness

of the economy at the beginning of the third quarter of 2011. A pick-up rate remaining

moderate is likely in the short term, although the steps taken to stimulate the economy

through monetary policy ought to ensure that activity will hold up.

In the other member states of the EU which are not part of the eurozone the economy has

continued to recover in general terms, although at rates which are lower than expectations.

One of the exceptions to this is Sweden, where in real terms GDP has enjoyed a robust

increase thanks to a contribution from both internal and external demand, with the latter

reflecting amongst other things the pick-up in the demand for homes.

Growth has fallen slightly in the Asian emerging countries, although it still remains at a very

high level. In particular industrial production and exports have slowed down compared to the

first few months of the year for reasons which are partially linked to supply difficulties along

the international production chains following the earthquake in Japan.

Macroeconomic scenario


131

Macroeconomic forecasts for the eurozone drawn up in September by the Eurosistema’s

experts point to an annual growth in GDP in real terms of between 1.4% and 1.8% in 2011 and

between 0.4% and 2.2% in 2012. Compared to the June forecasts the ranges have been revised

down for both years as economic forecasts are liable to downward risks in a highly uncertain

situation.

These risks are mainly concerned with the constant tension in certain sectors of the financial

markets at a world level, as well as the potential for this pressure to spread to the real

economy; other risks regard rises in energy prices, protectionist drives and a possible

disorderly correction of international imbalances.

Forecasts for Italy envisage a rise of 1.0% in GDP this year and 1.1% in 2012. The main

contribution to this increase will continue to come from exports; given the simultaneous

increase in imports, foreign trade will have a virtually nil effect on the rise of GDP this year and

a slightly positive effect next year. The pick-up in investments ought to gradually strengthen;

the increase in consumption will stay below that of GDP.

Macroeconomic forecasts for the eurozone drawn up by the ECB’s experts in September

place inflation in a range between 2.5% and 2.7% in 2011 and between 1.2% and 2.2% in 2012.

The risks for the medium-term prospects for price rises are essentially balanced. In both Italy

and the eurozone inflation was 3.0% in September 2011, measured by comparing with the

same month of the previous year; acquired inflation for 2011 was 2.6%.

Money market interest rates fell in the majority of sectors between June 9 and September 7 due

to the revision of short-term interest rate expectations following the renewed tension which

emerged on the financial markets. Earlier, on July 7, the ECB’s governing council had decided to

raise the bank’s reference rate by 25 basis points, taking it to 1.5%. In addition, in response to the

financial crisis, the ECB introduced a wide range of unconventional monetary policy measures,

all of which having the objective of supporting financial intermediation in the eurozone,

encouraging credit flows to families and businesses in the area and easing the transmission

mechanism of monetary policy. After taking the cost of borrowing to a historical low of 0.25% in

the second half of 2008, the Fed continues to maintain it at that level.

During 2011 the euro appreciated in value between January and April while from May it lost

part of the ground it had gained. On September 7 the nominal effective exchange rate of the

single currency measured with respect to the currencies of the 20 most important trading

partners of the area was around 1.5% lower than that at the end of May 2011 and slightly below

the 2010 average. The average exchange rate for the euro for the first nine months of 2011 was

1.41 dollars (source: ECB).


Macroeconomic scenario

132

The tension on the financial markets during the summer months had consequences which

were more in terms of the price volatility rather than the price levels of the oil-based products.

Brent quotations remained high, with average monthly prices exceeding 100 $/bbl from

February. The average price of Brent for the period from January to September 2011 was 111.5

$/bbl (77.9 $/bbl in the same period of 2010).

The trend in Brent prices is due to the uncertainty of the political framework in the whole of

the Arab world, which is influencing expectations relating to the availability of crude oil in the

medium term: despite the downwards revision of demand, the market continues to

experience tension on the supply side, especially as far as the non-OPEC producing countries

are concerned.

In addition, over the past few months, against a strengthening of the dollar against the euro,

the price of Brent has not fallen at all, creating discontinuity in the recent common

movements of the €/$ exchange rate and Brent.

As far as the domestic electricity market scenario is concerned, following the reversal of the

trend which took place during the previous year, electricity volumes traded (purchases/sales)

in Italy in the first nine months of 2011 continued to pick up.

During the first nine months of 2011 there was a demand for electricity of 250.5 TWh,

representing an increase of 1.7% over the previous year’s figure of 246.3 TWh. Total net

production for the first nine months of 2011 (220,014 GWh) represented an increase of 1.9%

over the same period in 2010. Load coverage was guaranteed by national production for 87.2%

and by net imports for the remaining 12.8% (Terna data).

(Net) domestic electricity production was guaranteed as to 75.0% by thermoelectric sources,

17.2% by hydroelectric sources and 4.7% by geo-thermoelectric and wind sources, and for the

remaining 3.1% by photovoltaic sources.

Compared to the same period of the previous year there was a contraction in generation from

hydroelectric sources by 8%; on the other hand there was an increase in production from geo-

thermoelectric (+6.5%) and wind (+6%) sources, from thermoelectric sources (+0.9%) and

from photovoltaic sources (+356.6%).

Performance of the energymarket


133

Net domestic production rose by 1.9% while the foreign balance fell by 4.5%.

The average quotation of the PUN (Base Load Single Nationwide Price) for the period

between January and September 2011 reached a level of 70.0 €/MWh, representing an

increase of 9.1% over the figure for the same period of the previous year (64.1 €/MWh).

During September the PUN picked up considerably and above all rose in the hours of high load

(+21% compared to September 2010). The problems of the connection of the two islands with

the mainland continue to play an important role in the increase of the Base Load Single

Nationwide Price.

Thanks to substantially unchanged generation costs for the combined cycle plants, the

increase in prices on the spot market has driven the spark spread upwards.

Methane gas

On the basis of the figures published by the Ministry for Economic Development for the

natural gas market in Italy, a volume of 55,848 cm of gas was consumed in the first three

quarters of 2011, representing a fall of 4% over the same period in 2010. This drop regarded

thermoelectric consumption (-4%) and civil consumption (-6%), while the only positive figure

is to be found in the rise in industrial usage (+3%). The figure for consumption in the month of

September alone, though, shows an increase compared to the corresponding month in 2010

(+1.6%), thus reinforcing the positive growth trend already noted in August (1.4%).

Imports also fell during the first nine months (by 1.4% amounting to 53,564 million cm), as did

domestic production (-0.9% or 6,183 million cm). Among the entry points to the national grid

the Greenstream gas pipeline remained at a standstill while there was a fall at all the entry

points, offset by the increase in flows at the GNL terminal at Panigaglia (+108.3%) and by flows

at the Gries Pass (the Transitgas gas pipeline was closed in the same period in 2010).

Finally, there was an increase of 66% in stocks due to the intense injection activity carried out

in reserves.

The supply market for gas in Italy was affected in the first nine months of 2011 by significant

events occurring at two of the seven gas import points.

The Transitgas methane pipeline which brings methane into Italy from Northern Europe and

which was closed as the result of a landslip in July 2010 reopened on a provisional basis on

December 24, 2010, and with subsequent extensions continued to be available throughout the

winter without interruption. The rather favorable weather allowed the new course of the

methane pipeline to be built where the landslip occurred. In April 2011 a connection was made


Performance of the energy market

134

between the new course of the methane pipeline that had been built and the rest of the

course; the infrastructure has therefore become available again on a non-provisional basis.

The recent events in Libya led ENI to suspend gas production and close the Greenstream

methane pipeline which brings methane of Libyan origin into Italy (representing around 10%

of total Italian supplies) for safety reasons. The effect of the lack of this infrastructure in

respect of the safety of supplies was mitigated by the imminent end of the winter season, with

stocks being replenished at a level still sufficient to ensure that civil usage was guaranteed and

a structurally long market which characterized the whole of the thermal year in progress. The

lack of availability of the Greenstream infrastructure did not even have any repercussions on

the replenishment of stocks during the summer period, which proceded in line with that of

previous years. At the end of September 96% of the allocated space in storage had been filled.

The events in Libya and in the Middle East in general on the other hand had a significant

indirect effect on the price of gas, connected with the repercussions of oil-based products on

the market: the price of Brent DTD rose from 105 $/bbl to over 120 $/bbl, fluctuating between

125 $/bbl and 105 $/bbl in a highly volatile manner. The approach to the end of the conflict in

Libya together with fears of a further economic recession in the western world at the same

time took the value of Brent at the end of September towards 100 $/bbl. Long-term contract

gas prices which are linked to the international quotations of oil-based products will however

undergo a very significant increase in the final part of the year due to contractual lag.


Performance of the energy market

135


The Energy Sector comprises the following activities:

• Electricity generation: power plant management through a generation pool of

hydroelectric and thermoelectric plants with installed power of 6.5 GW1;

• Energy management: the purchase and sale of electricity and gaseous and non-gaseous

fuels on national and international wholesale markets; the procurement of the fuels

needed to cover the requirements of the thermoelectric plants and customers; the

planning, programming and dispatching of electricity generation plants.

• Sale of electricity and gas: marketing of electricity and gas to the eligible customer

market. Also included is the sale of electricity to customers eligible for “greater

protection”.

In addition to the activities carried on directly by A2A S.p.A. the Energy Sector also includes the

following companies:

(1) Includes 20% of the Edipower plants and the EPCG plants.

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136

Energy

Thermoelectric and hydroelectric plants

Energy Management

Sale of electricity and gas

Consolidated companies of the A2A group

• Abruzzoenergia

• A2A Energia

• A2A Trading

• Plurigas

• Aspem Energia

• EPCG

Recent regulatory changes in the electricity sector

Large hydroelectric concessions

With Law no. 122/2010 the deadline for outstanding concessions was extended for a period of

5 years in order to allow the term for the calling of tenders for the new allocation of these

concessions to be respected.

With the law of December 20, 2010 the Region of Lombardy adopted additional provisions on

the subject, in view of the expiry of certain of the outstanding concessions in the relative local

area.

With Resolution no. 1205 of December 29, 2010 the Regional Council initiated

implementation of the above provisions, activating the “temporary continuation” by A2A

S.p.A. of the use of the shunting and hydroelectric plants of Stazzona, Lovero and Grosotto,

which notwithstanding the above-mentioned provisions of State legislation were considered

expired at December 31, 2010.

A2A S.p.A. and other operators have appealed against the provision at the High Court of Public

Waters.

On February 23, 2011, the Council of Ministers resolved to challenge certain of the clauses

adopted before the Constitutional Court on the basis that these are prejudicial to State

jurisdiction.

It is however not possible to ascertain what effect this proceeding may have in this respect

given that the regime relating to the extension of the outstanding concessions has not been

challenged by the government.

With a note of March 15, 2011, the European Union provided communication to the Italian

government as to the issue of a notification of a default letter against the Republic of Italy for

the request for clarifications regarding the provisions as per Law no. 122/2010, stating its belief

in this respect that the means by which an extension to the concessions provided therein is

given may represent a breach of freedom of establishment regulations as per article 49 of the

TFEU.

The infringement procedure is expected however to be dismissed following sentence no.

205/2011 (published on July 13, 2011), in which the Constitutional Court upheld an appeal

lodged by the Region of Liguria concerning these issues, stating that:

• the provisions of Law no. 122/10 aimed at extending large hydroelectric concessions (for

periods of 5 and 7 years) are unlawful as they are inconsistent with constitutional

provisions regarding the separation of State and regional jurisdiction (the subject is under

regional legislative jurisdiction);

• the legislation stating that the provisions in question shall remain operative “ ….. until

other legislative measures are introduced by the regions to the extent of their jurisdiction


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137

….. ” (the ‘transferability’ clause) is unlawful as “ ….. the need to fill a gap in legislation in

applying basic State principles, for the time required to issue regional laws, does not exist

in real terms …. ”.

Further details may be found in the discussion on this matter to be found in the section

relating to Legislative and Regulatory Risk.

Remuneration of production capacity

The provisional mechanism for remunerating production capacity established by Resolution no.

48/04 of the Authority provides for the recognition of a set fee to entities which make

production capacity available for the needs of balancing the system, against the fulfillment of

the commitment to make production capacity available on high and medium critical days,

together with an additional fee to be paid when the actual revenues earned by the individual

producer on the electricity markets are, on an annual basis, lower than a reference level equal to

the revenues which the same producer would have earned under the previous administered

regime.

With Resolution ARG/elt no. 166/10 the formula for calculating the additional fee has been

revised, as per article 48 of Attachment A of Resolution no. 111/06.

Since the envisaged method of calculation is of a discriminatory and distorting nature with

respect to the mechanism by which the reference markets work, A2A Trading S.r.l. has lodged

an appeal against the Authority with the Regional Administrative Court (TAR) in order to have

the provision repealed.

In the meantime with Resolution ARG/elt no. 98/11, concluding the numerous consultations

following on the issue, the Authority established the criteria and the conditions for

disciplining the system of remunerating the availability of electricity production capacity

when fully operational.

Pursuant to articles 1 and 2 of Legislative Decree no. 379/03, on the basis of those criteria Terna

must draw up a proposal to discipline the system which will then be submitted for the approval

(by decree) of the Ministry for Economic Development, after consulting with the Authority.

The system thus adopted will replace the regulations currently in force for the transitional

period, starting from the first year in which the standard capacity supply contracts envisaged

by the new regulations are consigned.

Resources essential for the safety of the electricity system

With Resolutions ARG/elt no. 8/11 and ARG/elt no. 110/11 the Authority amended Resolution no.

111/06 on the calculation of the fees to be paid for the plants considered essential for the safety


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138

of the electricity system (whose owners may decide to avail themselves of the ordinary

remuneration method), with specific reference to the offer conditions for the energy

produced by units admitted to the reintegration of costs and to certain methods for

quantifying the variables used in the remuneration mechanism.

Incentives for production from renewable sources

On March 29 Legislative Decree no. 28/2011 became effective, implementing European

Directive 2009/28/EC on the promotion of the use of energy from renewable sources.

The main measures envisaged, though, may only be implemented following the issue of

further ministerial decrees (the majority of which by the Ministry for Economic Development

and the Ministry for the Environment).

Reference should be made to the section discussing Legislative Risk for a summary of the

contents of the regulations adopted.

Bid price of Green Certificates held by the Energy Services Manager(GSE) - 2011

With Resolution ARG/elt no. 5/11, applying the criteria established by Resolution ARG/elt no.

24/08, the Authority determined the bid price of the Green Certificates held by the Energy

Services Manager (GSE) for 2011 to be 66.90 euro/MWh (the price for 2010 was 67.18

euro/MWh in accordance with Resolution ARG/elt no. 3/10).

Emissions Trading

In accordance with EU Directive 2003/87/EC, from January 1, 2005 the operators of plants

which emit CO2 into the atmosphere must hold an authorization issued by the competent

national authority and cover their emissions with equivalent rights, part of which are issued

free of charge on the basis of the Emissions Allocation Plan adopted by each country.

With Decree Law no. 72 of May 20, 2010 urgent measures were adopted for assigning CO2

emission quotas for plants (“new entrants”) which entered use after the adoption of the

National Allocation Plan (PNA) referring to the second period of application of the European

Emissions Trading System (2008-2012).

With Resolution no. 117/10 the Authority established that the credits due to each entitled party

would be calculated annually on the basis of the allowances sent to the Electricity and Gas

Authority (AEEG) by the National Committee responsible for managing Directive 2003/87/EC by


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139

recognizing a valuation for each emission allowance that takes into account the arithmetic average

of the daily price of the EUAs and the volumes traded on the main organized European markets.

As far as 2010 and the following two years are concerned, Resolution no. 16/2010 of the

National Committee responsible for managing Directive 2003/87/EC established that the

allowances to be considered as the basis for the credit due for the Canavese (A2A Calore &

Servizi S.r.l.) plant and the integrated cogeneration heating-cooling plant (Varese Risorse

S.p.A.) were to be 56,285 tonnes and 10,518 tonnes respectively for each year.

With the Determination of April 5, 2011, applying the methodology established in Resolution

ARG/elt no. 77/08, the Authority additionally determined the criteria for the recognition for

2010, pursuant to CIP Provision no. 6/92, of the charges deriving from the application of

Directive 2003/87/EC limited to the electricity sold to the Electricity Services Manager (GSE)

as part of destined sale conventions stipulated pursuant to the mentioned provision.

In particular, for the purposes of applying article 5 of resolution ARG/elt no. 77/08 for 2010, the

Authority determined the value of the PFLEX term in 12.30 €/t and the value of the PEUA term

in 14.13 €/t.

With Resolution ARG/elt no. 111/11, the Authority determined the credits due for 2008, 2009 and

2010 to operators of plants or parts of plants recognized as new entrants in the Emissions

Trading System pursuant to article 3, paragraph 1m) of Legislative Decree no. 216 of April 4, 2006.

In particular, this resolution supplements the contents of Resolution ARG/elt no. 38/11, by

which the following was recognized for A2A Group companies:

• credits of 807,126.90 euro for the Canavese plant (A2A Calore & Servizi S.r.l.), to cover the

lack of recognition of allowances for 56,285 tonnes of CO2 valued at 14.34 euro per tonne;

• credits of 150,828.12 euro for the integrated cogeneration heating-cooling plant (Varese

Risorse S.p.A.), to cover the lack of recognition of allowances for 10,518 tonnes of CO2

valued at 14.34 euro per tonne.

With this provision the Authority moreover recognizes, in addition to the amounts due to other

operators, credits of 8,050,030.38 euro for Ergosud S.p.A. for 2010 with reference to the

Scandale combined cycle turbogas plant, to cover the lack of recognition of allowances for

550,795 tonnes of CO2. More specifically, of this total:

• 189,771 tonnes have been valued at 14.34 euro/tonne;

• 361,024 tonnes have been valued at 14.76 euro/tonne.

Presidential Decree no. 157 of July 11, 2011 was published in the Official Journal on September

26, 2011; this legislation adopts the implementation rules for Regulation (EC) no. 166/2006

concerning the establishment of a European Pollutant Release and Transfer Register and

amending Council Directives 91/689/EEC and 96/61/EC.


Energy sector

140

Electricity sales price for owners of plants under the CIP 6/92convention

Law no. 99/09 provided that starting from 2009 the value of the component relating to the

Avoided Fuel Cost (CEC) of the sales price of CIP 6 electricity due to owners of plants forming

part of the convention, to be recognized on account until the annual settlement price is fixed,

should be determined by a decree of the Ministry for Economic Development on the proposal

of the AEEG. In addition, the law clarified that these updates must be carried out on the basis

of the quarterly periods for the recording of the quotations of the products of the basket of

reference of the conventional component relating to the value of natural gas as per Resolution

no. 154/08 of the AEEG.

In February 2011 the Electricity Services Manager (GSE) published the tables for the sales

prices of electricity produced under the CIP 6/92 regime which must be used by producers

who are owners of plants with that convention for valuing electricity sold to the GSE in the first

quarter of 2011.

With the Ministerial Decree of 8 June, on the proposal of the Energy Authority, for the

purpose of determining the 2010 settlement value for the Avoided Fuel cost for plants under

the CIP 6/92 regime, the Ministry for Economic Development quantified the average price of

the fuel for 2010 as per the convention to be 29.05 €/cm (with the Ministerial Decree of July 12,

2010 the price was quantified as 29.59 €/cm for the 2009 settlement).

Green Pricing

With Resolution ARG/elt 104/11, the Authority determined the information which all

renewable sales contracts signed on or after October 1, 2011 with reference to electricity

supplied to end customers on or after January 1, 2012 must include in order for the same

quantity of electricity produced from renewable sources not to be calculated in more than

one green energy contract.

To this end the Authority requires the exclusive use of Guarantees of Origin (GOs) as per

Directive 2009/28/EC and that while waiting for the entry into force of the provisions of

Legislative Decree no. 28/11 the CO-FER certificates as per the Ministerial Decree of July 31,

2009 should be used. Sales companies may in any case use other tools and certificates of a

voluntary nature without altering the fact that every renewable energy sales contract must be

supported by GOs.

Certain changes have then been introduced to the commercial code of conduct as far as the

preparation of promotional and informational material regarding energy offers is concerned,

as well as certain provisions regarding the schedules which the seller is required to publish in

the bill on a four-monthly basis.


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Energy sector

Regulation of the electricity sector in Montenegro

The electricity sector in Montenegro is regulated by the Energy Law (a first Energy Law was

issued in 2003 and new legislation in this respect was issued in 2010 which is currently in

force).

On the basis of this law, in establishing the country’s economic policy the government must also

indicate a strategy for the energy sector. The Energy Regulatory Agency (RAE), an autonomous

and independent body established by the 2003 Energy Law, has the task of regulating the sector

along all the stages of the chain (generation, transmission, distribution and sale to the end

customer) in accordance with the government’s indications and on the basis of the provisions

contained in the Energy Law.

The new law dictates provisions in terms of the functional unbundling (separation of

accounting, separation of management and separation of sensitive commercial information)

of all the activities of the electricity sector; in addition, distribution must be separated from a

corporate standpoint from the other activities managed by the vertically integrated company

by the end of 2011.

At present regulatory periods have a term of one year, despite the fact that the 2010 law

allowed for the possibility of establishing multi-year regulatory periods.

Until 2010 tariffs were determined on the basis of the “Electricity tariff rules” adopted by the

RAE pursuant to the 2003 law. The methodology applied by the RAE is based on a cost-plus

type cost remuneration principle, under which tariffs are established in such a way as to

ensure that the operator’s actual costs are covered, thus guaranteeing remuneration of the

capital invested without however encouraging efficiency in any specific way.

With a decision of December 14, 2010 the RAE established the tariffs to be applied in the first

quarter of 2011, essentially confirming the values approved for 2010 (a provision already

challenged by EPCG).

Recent regulatory changes in the natural gas sector

Upstream gas market

Reorganization of the market and regulations governing the equalization of the

economic merit of natural gas

The deferral to December 1 of the start of the regulations governing the equalization of the

economic merit set up by Resolution ARG/gas no. 81/11 enabled the Electricity Market

Operator (GME) to submit to operators a new version of the proposed regulation for the gas

142


Energy sector

balancing platform (PB-GAS) in view of the dry running of the system to be carried out from

October. The way in which settlements will be disciplined is currently being defined.

The discipline introduced by the Storage Decree

In April 2011 the procedure to allocate new storage capacity as per article 6.5 of Legislative

Decree no. 130/2010 (the “Storage Decree”) went live with the start of the first stage of the

tender procedures for the new storage capacity made available by Stogit amounting in total to

3 billion cm: 2.033 billion cm was assigned to industrial customers (compared to a demand of

over 9 billion cm) and 967 million cm was assigned to SMEs (compared to a demand of over 1

billion cm), at a price of 1.250155 euro/GJ. There is accordingly no capacity available for

thermoelectric customers for thermal year 2011/2012.

Gas supply

Protected economic conditions

The dispute regarding Resolution ARG/gas no. 89/10, approved in June 2010, by which the

AEEG amended the method of updating the price of the supply of gas for the protected service

by applying a reducing coefficient k to the indexed component (a variable fee covering the

costs of provisioning), is still in progress. This revision is however confirmed by resolution

ARG/gas n. 77/11, which establishes an extension to September 30, 2012 of the mechanism

envisaged by Resolution ARG/gas no. 89/10, although the value of the coefficient k has been

slightly increased (from 0.925 to 0.935).

With Resolution ARG/gas no. 71/11, on the basis of the matters contained in Legislative Decree

no. 93/11, the Authority has amended Resolution ARG/gas no. 64/09 and redefined the

perimeter of end customers entitled to the protected service extending it also to non-

domestic customers having an annual consumption of less than 50,000 scm and, independent

of usage, public service activities.

Provisions common to both sectors (electricity and gas)

A commercial code of conduct has been in force since January 1, 2011 which was introduced by

Resolution ARG/com no. 104/10 and which is applicable in the case when a supply contract on

the free market is proposed by any seller to an end customer supplied at low voltage and/or

having a consumption of natural gas not exceeding 200,000 scm/year.

143

Quantitative data-electricity sector

Key quantitative data relating to the energy sector are summarized below.

3rd Qtr 3rd Qtr GWh 09 30 2011 09 30 2010 Change % 2011 2010 2011/2010

SOURCES

3,145 3,182 Net production 8,825 9,311 (486) (5.2%)

2,168 2,120 – thermoelectric production 6,208 6,380 (172) (2.7%)

977 1,062 – hydroelectric production 2,617 2,931 (314) (10.7%)

8,642 9,683 Purchases 27,091 24,447 2,644 10.8%

687 743 – single buyer 2,189 2,400 (211) (8.8%)

3,006 3,067 – exchange 8,528 9,587 (1,059) (11.0%)

3,449 3,045 – foreign markets 11,130 7,866 3,264 41.5%

1,500 2,828 – other purchases 5,244 4,594 650 14.1%

11,787 12,865 TOTAL SOURCES 35,916 33,758 2,158 6.4%

USES

687 743 Protected market sales 2,189 2,400 (211) (8.8%)

4,901 4,361 Sales to eligible customers and wholesalers 14,603 12,391 2,212 17.9%

3,388 4,674 Sales on the exchange 10,024 12,526 (2,502) (20.0%)

2,811 3,087 Sales on foreign markets 9,100 6,441 2,659 41.3%

11,787 12,865 TOTAL USES 35,916 33,758 2,158 6.4%

Note: the sales figures are stated gross of any losses. The quantitative data relating to the EPCG Group are not included.

The Group's electricity output in the period amounted to 8,825 GWh, to which should be

added purchases of 27,091 GWh for a total availability of 35,916 GWh.

Production fell compared with the same period of the previous year.

The drop in thermoelectric production (-172 GWh) was caused by a lower load factor in the

Group’s power stations and the departure of the San Filippo del Mela oil-fired power station

from the tolling agreement with Edipower.

The decrease in hydroelectric production was on the other hand mainly due to the reduced

contribution of the Calabria hydroelectric plants, which in 2010 benefited from greater

hydraulicity.

Purchases of electricity rose by 10.8% over the first nine months of 2010 from 24,447 GWh to

27,091 GWh.

In addition there was an increase in sales on the retail and wholesale markets and a rise in the

quantity of electricity brokered on foreign markets, which more than offset the decrease in

electricity brokered on the Ipex platform.

The subsidiary Elektroprivreda Crne Gore AD Niksic (EPCG) was consolidated on a line-by-line


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144

basis for the period ended September 30, 2011, while for that ended September 30, 2010 it was

consolidated using the “one line” method.

EPCG has an efficient production mix with total installed capacity of 0.9 GW, of which 0.2 GW

is thermoelectric and 0.7 GW is hydroelectric.

The following is a summary of the quantitative data relating to the first nine months of 2011 for

the electricity sector of the EPCG Group:

GWh 09 30 2011

SOURCES

Production 2,064

– thermoelectric production 1,055

– hydroelectric production 1,009

Imports and other sources 1,411

– imports 956

– other sources 32

– EPS (Serbian Electricity Company) 423

TOTAL SOURCES 3,475

USES

Domestic market consumption 2,643

Network losses 479

Other uses 23

Exports 330

TOTAL USES 3,475

Quantitative data-gas sector

3rd Qtr. 3rd Qtr. Millions of cm 09 30 2011 09 30 2010 Change % 2011 2010 2011/2010

SOURCES

1,106 1,092 Procurement 4,046 4,301 (255) (5.9%)

(193) (306) Withdrawals from stock (233) (311) 78 (25.1%)

(7) (6) Internal consumption/GNC (27) (22) (5) 22.7%

906 780 TOTAL SOURCES 3,786 3,968 (182) (4.6%)

USES

135 145 End uses 1,089 1,282 (193) (15.1%)

318 296 Thermoelectric uses 978 938 40 4.3%

6 2 Heat uses 131 133 (2) (1.5%)

447 337 Wholesalers 1,588 1,615 (27) (1.7%)

906 780 TOTAL USES 3,786 3,968 (182) (4.6%)

Quantities are shown in terms of standard cubic metres with an equivalent Gross Calorific Value (GCV) of 38100 MJ on redelivery.


Energy sector

145

Volumes provisioned amounted to 4,046 Mcm in the first nine months of 2011, a decrease of

255 Mcm over the same period of the previous year, mainly due to the mild temperatures

during the first few months of the year.

Economic data

3rd Qtr. 3rd Qtr. Millions of euro 01 01 2011 01 01 2010 Change 2011 2010 09 30 2011 09 30 2010

1,020 900 Revenues 3,417 3,145 272

60 74 Gross operating income 223 265 (42)

5.9% 8.2% % of revenues 6.5% 8.4%

(53) (43) Depreciation, amortization and provisions (167) (140) (27)

7 31 Net operating income 56 125 (69)

0.7% 3.4% % of revenues 1.6% 4.0%

9 8 Investments 19 24 (5)

The revenues of the Energy Sector amounted to 3,417 million euro in the first nine months of

2011 (3,145 million euro in the nine months ended September 30, 2010), of which 211 million

euro relates to the production and sale of electricity by the EPCG Group.

Gross operating income of 223 million euro fell by 42 million euro compared to the first nine

months of 2010: the decrease of 65 million euro in the margin in the electricity subsector was

only partially offset by the increase of 23 million euro in the margin in the gas subsector.

As already seen in the first six months of 2011, the result in the electricity subsector is mainly

due to a decrease in hydroelectric production which was affected by the lower hydraulicity at

the Calabria hydroelectric plants, the departure from the regulated boundary of the tolling

agreement with Edipower S.p.A. for the San Filippo del Mela power station in Sicily, which led

to the deconsolidation of the results of this at a gross operating income level, and the loss by

the Monfalcone thermal electric power station of its essentiality requisites.

Sales activity unit margins also fell, although these remained positive, as did the result on the

environmental certificate market (with particular reference to the fall in sales of green

certificates).

The Montenegro consolidated company EPCG made a positive contribution of 2 million euro

representing a decrease of 11 million euro compared with the first half of 2011.

In the gas subsector the effects of the decrease in quantities sold as the result of the

particularly mild weather and those arising from the reduction in tariffs regulated by the


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146

protected market were more than offset by the positive effects of renegotiating gas

procurement agreements at the start of the fourth quarter of 2010.

Depreciation, amortization and provisions totaled 167 million euro (140 million euro for the

nine months ended September 30, 2010). Compared with the first nine months of 2010, this

item includes depreciation, amortization and provisions of 26 million euro relating to the

electricity sector of the EPCG Group.

As a result of the above changes, net operating income amounted to 56 million euro (of which

-24 million euro relates to the electricity sector of the EPCG Group), a decrease of 69 million

euro compared to the first nine months of 2010.

Capital expenditure totaled 19 million euro and mainly regarded extraordinary maintenance at

the Timpagrande hydroelectric plant (modernization and replacement of turbine

components for 3.2 million euro) and the Satriano hydroelectric plant (2.2 million euro mainly

due to the rebuilding of the reservoir and the Cardinale intake), as well as the other

hydroelectric plants in Calabria and the Valtellina (2.4 million euro) and the thermoelectric

plant at Gissi (2.0 million euro).

In addition extraordinary maintenance was carried out on the thermoelectric plants at

Cassano D’Adda (1.5 million euro), Monfalcone (3.5 million euro mainly relating to work to

adjust groups 1 and 2) and Ponti sul Mincio (1.9 million euro).


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147

The Heat and Services Sector comprises the activities of cogeneration, district heating and

the sale of heat, as well as other activities relating to heat management and facility

management services. The following is a brief description of these activities:

• Cogeneration and district heating: production, distribution and sale of heat,

production and sale of electricity, as well as operation and maintenance activities on the

cogeneration plants and district heating networks.

• Heat and other services: management of heating plants owned by third parties.

The companies listed below form part of the Heat and Services Sector:

Heat and services sector


148

Heat and services

Cogeneration plants

District heating networks

Sale of heat and other services


• A2A Calore & Servizi

• Proaris

• Gruppo Coriance

• Varese Risorse

Recent regulatory changes in the cogeneration sector

High-yield cogeneration incentives

Incentives measures for high-yield cogeneration (HYC) were introduced by the decree of

September 5, 2011, pursuant to the provisions of Law no. 99/09 (the Development Law).

In particular it is recalled that Legislative Decree no. 20/07, implementing European provisions

relating to this combined method of producing electricity and heat, established that for the

whole of 2010 all cogeneration plants within the meaning of Resolution no. 42/02 (having IRE

and LT indices above the thresholds provided therein) qualify as high-yield cogeneration

plants and that access to the system of White Certificates was envisaged for production of this

nature.

In addition the Development Law provided a ten-year term for the support regime, on the

basis of the primary energy savings achieved, including with respect to energy consumed

internally, applicable to new power entering service (as the result of new constructions or the

refurbishment of existing plants) after the date of issue of the law (and therefore after August

15, 2009).

Further, the provisions of Legislative Decree no. 20/07 were supplemented with the decree of

August 4, 2011, with the aim of defining the criteria for qualifying as an HYC from January 1,

2011.

The incentive additionally provides that these plants shall be entitled to White Certificates:

• for a period of 10 years for solely production plants in the above cogeneration regimes;

• for a period of 15 years for the above plants connected to district heating networks.

The certificates granted in this way:

• may be used by operators liable to energy efficiency restrictions to fulfill their quota

obligations;

• may be transferred (bilaterally) to obliged operators;

• may be withdrawn by the GSE at the request of the plant owner at an administered price

(in this case they will then not be transferrable to obliged operators but will be accounted

for as part of the national energy saving quantity objectives).

Moreover the number of White Certificates recognized on the basis of the primary energy

savings achieved by the initiative is increased through the use of a coefficient (K) which is

different for each of the five power bands, to take account of the various average yields of the

plants and the development potential of small and medium cogeneration.

The measure may only be accumulated with guarantee funds, tax relief and other capital

grants.



149

Finally specific legislation is envisaged which will determine the incentives also for the

refurbishment of existing plants and plants entering service after April 1, 1999 and before

Legislative Decree no. 20/07, which will be entitled to receive 30% of the incentives provided

for new plants for a period of five years, pursuant to the provisions of Legislative Decree no.

28/2011 which introduces the Third Energy Package Directive for the production of

renewables into Italian law.

Key quantitative and economic data of the sector are reported below.

Quantitative data

3rd Qtr. 3rd Qtr. GWht 09 30 2011 09 30 2010 Change % 2011 2010 2011/2010

SOURCES

65 55 Plants at: 1,033 1,062 (29) (2.7%)

– – – Lamarmora 304 327 (23) (7.0%)

1 – – Famagosta 82 86 (4) (4.7%)

6 7 – Tecnocity 45 48 (3) (6.3%)

27 24 – Coriance plants 368 380 (12) (3.2%)

31 24 – Other plants 234 221 13 5.9%

75 74 Purchases from: 783 820 (37) (4.5%)

15 15 – Third parties 303 316 (13) (4.1%)

60 59 – Other sectors 480 504 (24) (4.8%)

140 129 TOTAL SOURCES (*) 1,816 1,882 (66) (3.5%)

USES

140 129 Sales to end customers 1,816 1,882 (66) (3.5%)

140 129 TOTAL USES 1,816 1,882 (66) (3.5%)

(*) net of losses.Note:– The figures refer to district heating alone. Sales relating to heat management are not included.– The quantities of heat purchased from the Environment Sector are included as purchases.

There was a fall of 3.5% in the sale of heat to end customers mainly due to the mild

temperatures experienced during the winter months.

For the above reasons a total of 1,033 GWht of heat was produced, a decrease of 2.7%

compared to the first nine months of 2010. A similar fall took place in the quantity of heat

purchased from Group companies (Amsa S.p.A. and Aprica S.p.A.) and from third parties.



150

Economic data


29 25 Revenues 245 223 22

(10) (9) Gross operating income 38 30 8

(34.5%) (36.0%) % of revenues 15.5% 13.5%

(11) (10) Depreciation, amortization and provisions (35) (37) 2

(21) (19) Net operating income 3 (7) 10

(72.4%) (76.0%) % of revenues 1.2% (3.1%)

30 22 Investments 61 47 14

Revenues amounted to 245 million euro in the period (223 million euro in the nine months

ended September 30, 2010).

Gross operating income amounted to 38 million euro, an increase of 8 million euro over the

first nine months of 2010 and in line with the results of the first half of 2011. The increase in

margins arising from new connections was partially offset by the decrease in volumes sold as

a result of the mild temperatures experienced during the first few months of the year. Also

contributing to the rise in margins was the recognition of energy efficiency credits relating to

prior year initiatives on the Brescia district heating networks and the good performance of the

French subsidiary Coriance.

Depreciation, amortization and provisions amounted to 35 million euro, a decrease of 2 million

euro compared to the same period of the previous year.

As a result of these changes, net operating income closed at 3 million euro (a rise of 10 million

euro over the first nine months of 2010).

Capital expenditure of 61 million euro during the nine months involved the development of the

district heating networks in the Milan and Bergamo areas (18 million euro), extraordinary

maintenance on the networks in the Brescia and Varese areas (5 million euro) and

development and extraordinary maintenance at the cogeneration plants in the Milan, Brescia,

Bergamo and Varese areas (10 million euro). Development investments were also made by the

Coriance Group (28 million euro), mainly relating to the construction of the biomass

cogeneration plant at Drome.



151

The Environment Sector comprises the activities relating to the entire waste management

cycle. These activities are briefly described below:

• Collection and street sweeping:cleaning streets and collecting refuse for

transportation to its destination.

• Treatment: an activity that is carried out in dedicated centers to recover or transform the

waste in order to make it suitable for the recovery of materials, incineration and energy

recovery or disposal in landfills.

• Disposal: this involves the final disposal of urban and special waste in combustion plants

or landfills, where possible recovering energy through waste to energy plants or the use of

biogas.

The Environment Sector consists of the following companies:

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152

Environment

Collection and street sweeping

Treatment

Disposal and energy recovery


• Ecodeco Group

• Amsa

• Aprica

• Montichiariambiente

• Ecofert

• Partenope Ambiente

• Aspem S.p.A.

Recent regulatory changes in the environment sector

At the end of July 2010 the government issued the implementing regulation for the provisions

contained in article 23-bis (concerning local public services of economic importance) of Law

no. 133/08 (2), as amended by Decree Law no. 135/09 (“community obligations”) converted by

Law no. 166/09.

In addition, the community obligations Decree Law introduced an amendment to the

transitional period during which mandates which are outstanding and do not derive from

public procedures for water and waste management services remain in force.

As the result of the referendum held in Italy on June 12 and 13, 2011, article 23-bis of Law no.

133/08 is in the process of being repealed.

Further details in this respect may be found in the section Risks and uncertainties.

Consolidated Environment Law

Decree no. 152 of April 3, 2006 "Regulations on environmental matters" (as subsequently

amended and supplemented, most recently by Legislative Decree no. 205/10 which dictated

measures implementing Directive 2008/98/EC on waste) acts as the reference legislation for

the waste sector and was revised during 2008 by the "Unified Amendment". This provision

(the Consolidated Law) ratifies the repeal of Legislative Decree no. 22 of February 5, 1997, the

“Ronchi Decree”, which until then had been the national framework legislation on this subject.

Certain regulatory technical rules required for carrying out collection and transfer services

currently remain in force from the preceding legislative framework on a transitional basis until

the rules implementing the Consolidated Law are issued.

Of particular interest in the changes made to the framework law by Decree no. 205/10 is the

regulation regarding the new ways of classifying waste, which call for ecotox tests to be

carried out to determine whether the waste is hazardous or non-hazardous.

(2) Converting into law, with amendments, Decree Law no. 112 of June 25, 2008 on urgent provisions for economic development,simplification, competitiveness, the stabilization of the public finances and tax equalization.


Environment sector

153

Waste tracking control system

With the Ministerial Decree of December 17, 2009, subsequently amended and supplemented

by the Ministerial Decrees of February 15, July 9, September 28 and December 22, 2010, a

Waste tracking control system (Sistri) has been set up, run by the Carabinieri Unit for the

Protection of the Environment, to enable the special waste chain to be computerized at a

national level (and that of urban waste for the Campania region).

The system simplifies the procedures and formalities which are the responsibility of sector

operators, reducing the costs incurred by businesses, and manages a complex and variegated

process in an innovative and efficient way, with guarantees for increased transparency,

knowledge and the prevention of illegal acts.

With Law no. 148/2011, which became effective on September 17, 2011, parliament reinstated

the Sistri which had been repealed by the “anti-crisis decree law”, deferring its definitive

operational date to February 9, 2012.

Province of Brescia Provincial Waste Management Plan

The Province of Brescia Provincial Waste Management Plan was approved with Decree no.

9/661 of October 20, 2010 of the Council of the Lombardy Region; this proposes measures

having the objective of reducing the per capita production of waste and improving

differentiated collection (which is planned to reach 65% of the waste produced by 2016,

consistent with European requirements in this respect).

Key quantitative and economic data of the sector are reported below.

Quantitative data

3rd Qtr. 3rd Qtr. 09 30 2011 09 30 2010 Change % 2011 2010 2011/2010

214 217 Waste collected (Kton) (*) 706 719 (13) (1.8%)

618 634 Waste disposed of (Kton) 1,953 2,032 (79) (3.9%)

272 277 Electricity sold (GWh) 903 883 20 2.3%

84 81 Heat sold (GWht) (**) 556 583 (27) (4.6%)

(*) Waste collected in the Municipalities of Milan, Brescia, Bergamo and Varese.(**) Quantities at the plant entrance.

In the first nine months of the year the quantity of waste collected amounted to 706 thousand

tonnes, substantially in line with 2010.

On the other hand the decrease in the amount of waste disposed of compared to the first nine

months of 2010 (-3.9%) was caused by a reduction in transfers to industrial waste landfills,


Environment sector

154

amongst other things as the result of the new acceptance criteria established by the

legislation which came into effect at the end of 2010 and a fall in the transfer of urban waste.

The increase in the quantity of electricity sold (+2.3%) over the same period of the previous

year was due to the rise in the production in the waste to energy plants.

The reduced production of heat (-4.6%) was essentially the result of lower quantities

requested by the Heat Sector.

Economic data


192 180 Revenues 610 575 35

64 61 Gross operating income 216 202 14

33.3% 33.9% % of revenues 35.4% 35.1%


33 39 Net operating income 135 134 1

17.2% 21.7% % of revenues 22.1% 23.3%

12 10 Investments 23 40 (17)

The Environment Sector earned revenues of 610 million euro in the period (575 million euro in

the nine months ended September 30, 2010).

Gross operating income closed at 216 million euro, an increase of 14 million euro over the same

period of 2010, with the third quarter showing an increase over the previous year. This positive

performance is basically due to an increase in the contribution made by the waste to energy

plants managed by the Group.

Depreciation, amortization and provisions amounted to 81 million euro, representing an

increase of 13 million euro over the same period of the previous year.

As a result of these changes net operating income amounted to 135 million euro, in line with

the first nine months of 2010.

Capital expenditure during the period totaled 23 million euro and related mainly to collection

vehicles and containers (9 million euro) and maintenance and development work on waste to

energy plants (5 million euro), treatment plants and landfills (7 million euro).


Environment sector

155

The Networks Sector comprises the activities regulated by sector Authorities, namely the

management of the electricity and gas networks and the integrated water cycle. These

activities are briefly described below:

• Electricity networks: the transmission and distribution of electricity.

• Gas networks: the transport and distribution of natural gas.

• Integrated water cycle: water captation, aqueduct management, water distribution,

sewerage and water purification.

• Other services: activities relating to public lighting, traffic regulation systems, the

management of votive lights and systems design services.

The Networks Sector includes the following companies:

Networks sector


156

Networks

Electricity networks

Gas networks

Integrated water cycle


• A2A Reti Elettriche

• A2A Reti Gas

• A2A Ciclo Idrico

• EPCG

• Mincio Trasmissione

• Camuna Energia

• Retragas

• Seasm

• Aspem S.p.A.

• A2A Servizi alladistribuzione

Recent regulatory changes in the distribution sector

Legislative Decree no. 28/11 became effective on March 29, 2011, implementing European

Directive 2009/28/EC on the promotion of the use of energy from renewable sources.



and the Ministry for the Environment), for which half-monthly deadlines are planned starting

from the effective date of the legislation.

Natural gas distribution

Allocation and performance of the distribution service

With respect to the natural gas distribution service, in safeguarding the provisions of

Legislative Decree no. 164/2000 and article 46-bis of Decree Law no. 159 of October 1, 2007,

converted with amendments into Law no. 222 of November 29, 2007 regarding the

distribution of natural gas, Law no. 99/2009, the “Development Law”, defines the new

“Minimum Territorial Ambits” for which tenders will be called to allocate the service to the

Ministry for Economic Development, in conjunction with the Ministry for Regional Affairs,

after consulting with the Combined Conference and the Electricity and Gas Authority.

On March 31, 2011 the Decree of the Ministry for Economic Development dated January 19,

2011 was published in the Official Journal; this identifies 177 Minimum Territorial Ambits and

provides details by region in attachment 1.

Nevertheless, the precise identification of the individual municipalities making up each

Minimum Territorial Ambit is deferred to a subsequent decree of the Ministry for Economic

Development, “attachment 2”, which will be adopted in conjunction with the Ministry for

Regional Affairs and is to be communicated to the Combined Conference. Publication of this

decree in the Official Journal is expected shortly.

The criteria followed for identifying the municipalities included in each individual Ambit

envisage a maximum of 50 municipalities for Ambits with more than 50,000 effective

customers; in addition, municipalities fed by the same distribution plant will be included in the

same Ambit. Account will also be taken of population density and the specifics of the area.

In respect of the possibility of calling new tenders before this discipline is completed, by

means of Legislative Decree no. 23 of June 1, 2011 (Third Energy Package) the legislator has

specified that all tenders for which by the effective date of this law a tender notice has been

published in the case of an open procedure or invitation letters have been sent in the case of a


Networks sector

157

restricted procedure may be carried out on the basis of the procedures applicable at the date

on which they were called, provided that such documents include the criteria for evaluating

the offer and the repayment amount for the outgoing operator.

On the other hand from June 29, 2011, the date on which the decree became effective, tenders

not included in these cases must be carried out exclusively for Territorial Ambits as per article 46-

bis of Law no. 222 of 2007 and on the basis of the criteria referred to therein, to be issued shortly.

In respect of the criteria for the tenders for the allocation of the distribution service, said

article 46-bis establishes that the Ministry for Economic Development, in conjunction with

the Ministry for Regional Affairs, after consulting with the Combined Conference and on the

basis of the opinion of the Electricity and Gas Authority, shall identify the “criteria for the

tender and the valuation of the offer for allocating the gas distribution service”. The criteria to

be used for this purpose are, in addition to the economic conditions, the benefits for

consumers, the quality and safety standards and the soundness of the investment and

development plan. At the present time the opinion of the State Council is awaited together

with the signatures of the competent ministers.

Finally, the Ministerial Decree dated April 21, 2011 has been published which concerns

provisions for regulating the social effects connected with the new means of allocating gas

distribution concessions, the “Social Clause” measure.

This decree, drawn up by the Ministry for Economic Development and the Ministry for

Employment and Social Policies, contains regulations to safeguard the jobs of the personnel

of the outgoing distribution company following the awarding of the service to another

company, together with a series of obligations for the latter company.

The protection envisaged for the company’s employees consist in the fact that they will be

immediately directly transferred to the company taking over, with a guarantee of the

employment conditions they previously enjoyed of an economic nature and those relating to

length of service schemes of which they are members.

Suitable lay-off schemes will be applied for those members of staff who on the basis of the

above-mentioned conditions turn out to be in excess to needs, leaving unaltered the

possibility of being rehired should the new company seek additional personnel within two

years of the date of the tender.

Distribution tariffs

With Resolution ARG/gas no. 159/08 (Consolidated Text on the regulation of the quality and

tariffs of services for the Distribution and measurement of Gas for the regulatory period 2009-

2012 (TUDG): approval of part II “Tariff Regulation for services for the Distribution and

measurement of Gas for the regulatory period 2009-2012” (RTDG)), the Authority established


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158

a compulsory tariff, separated into six tariff areas and applicable for the calendar year, as

coverage of the costs relating to the distribution, measurement and marketing service.

The tariff regime envisages remuneration of the net invested capital at a rate of 7.6% for

distribution and 8% for measurement.

Operating costs are updated by applying a price cap. The price cap applied to distribution

operating costs is differentiated by company size.

Since analyses showed that the level of net invested capital at a national level, determined on the

basis of the definitive data acquired for the first year of the regulatory period in course, exceeded

the value recognized to the same companies with reference to thermal year 2007-2008 by more

than 5%, a graduality mechanism has been introduced. As a result, the restrictions of the

companies have been reduced by the percentages provided by article 17 of the RTDG.

With Resolution ARG/gas no. 235/110 the Authority has updated the compulsory tariffs for the

natural gas distribution and measurement services for 2011 and the tariff options for the

distribution and measurement of gas other than natural gas by means of channeled networks,

and has initiated a proceeding for re-exercising tariff regulation powers in accordance with

sentences nos. 6912, 6914, 6915 and 6916 of the Lombardy Regional Administrative Court

(TAR), Section III, dated October 11, 2010, by which the following have been cancelled:

• the reduction of 10% in the tariff restriction for the previous regulatory period for

operators who do not supply the data requested, either wholly or in part;

• the missing estimate of the “volume effect”, namely the exclusion of the possibility to

recover in the tariff the negative meteorological effect occurring during the last two years

of the second regulatory period;

• the estimate of a productivity recovery coefficient, the “X-factor”, constant for the whole

term of the third regulatory period.

The lack of alignment between tariff receipts and the restriction on revenues, as possibly

recalculated, will be compensated by equalization mechanisms.

Gas Quality

With Resolution ARG/gas no. 93/11 the Authority established the starting levels and the tendential

levels for safety recovery for 2010-2012 for each provincial ambit of A2A Reti Gas S.p.A..

The established levels have been calculated on the basis of the information sent to the

Authority and the value of the indicators for the 2008-2009 reference period.

Distribution of other gases

With Resolution ARG/Gas no. 114/11, the Authority approved the tariff options for 2010 and

2011 for services for the distribution and measurement of gas other than natural gas for

certain distribution companies.


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159

Electricity distribution

Distribution service tariff regime

With Resolution no. 348/07 the Authority adopted the Integrated Text (TIT) of the provisions

for the regulation of the transmission, distribution and measurement of electricity for the

third regulatory period (2008-2011).

The provision provides for a general equalization regime and a specific company-based

equalization regime, ensuring that changes in the costs incurred by companies due to external

factors are covered.

For the purposes of calculating tariff levels:

• the recognized return on capital invested is established as 7.0% for the distribution

service, including the related marketing activities, and 7.2% for the measurement service;

• in respect of the portion of the tariff components covering operating costs, the provision

establishes an annual productivity increase target (the “X-factor”) in order that the

increased recoveries in efficiency already achieved by companies in the second regulatory

period, as identified at an average national level, equal to 1.9% for distribution and 5.0% for

the measurement service, may be transferred to end customers within eight years for

transmission and distribution and within six years for the measurement service;

• with regard to annual updates, the depreciation charge is excluded from the sphere of

application of the price cap.

Specific company equalization

With Resolution ARG/elt no. 118/11, pursuant to the provisions of the TIT, the Authority

updated the Company Specific Correction factor for 2009 for revenues admitted for covering

distribution costs regarding A2A Reti Elettriche S.p.A., fixing this at 0.1353. As a result the

Equalization Fund will pay the operator the corresponding equalization amount on the

settlement of the amounts previously recognized as advances for the same year, pursuant to

Resolution ARG/elt no. 87/09.

Measurement equalization

With Resolution ARG/elt no. 74/11, as amended by Resolution ARG/elt no. 97/11, the Authority

approved the results of the equalization of measurement service revenues for 2009 and the

settlements for the equalization of measurement service revenues for 2008 (amounts already

recognized with Resolution ARG/elt no. 40/10), recalculated following the communication of

various adjustments. A2A Reti Elettriche S.p.A. therefore paid an equalization amount of 6.18

million euro into the Electricity Sector Settlement Fund.


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160

Investments in Smart Grids

With Resolution ARG/elt no. 12/11, the Authority published the classification list of the projects

admitted to incentive treatment as per paragraph 11.4 d) of the TIT.

In particular, the investments relating to the pilot projects presented by A2A Reti Elettriche

S.p.A. consisting of automation, protection and control systems for medium voltage active

networks (smart grids) relating to the Lambrate Primary cabin (Milan) and the Gavardo

Primary cabin (Brescia ambit) were classified in first and third places.

For new investments relating to pilot projects consisting of automation, protection and

control systems for medium voltage active networks (smart grids), paragraph 11.4 of the TIT

provides for the recognition of an increase in the remuneration rate for invested capital,

amounting to 2%, for 12 years.

Penalty for breaching Authority provisions on withdrawal point data

Closing the proceeding initiated with Resolution VIS no. 171/09, with resolution VIS no. 15/11 the

Authority inflicted a penalty of 302,000 euro on A2A Reti Elettriche S.p.A. for breaching

provisions on managing the data regarding the points of withdrawal and aggregation of

withdrawal measurements for the dispatch of electricity, as per Resolutions no.168/03 and no.

111/06.

Electric cars

With Resolution ARG/elt no. 96/11 the Authority recognized an incentive for the installation of

public charging points for electric vehicles for the e-moving pilot project presented by A2A

S.p.A..

Regulation of the electricity sector in Montenegro

Reference should be made to the specific paragraph of the Energy Sector for details of the

regulation of the electricity sector in Montenegro.

Provisions common to the two sectors (gas and electricitydistribution)

Energy efficiency

The decree of the Ministry for Economic Development of December 21, 2007 revised and

updated the decrees of the Minister of Productive Activities and the Minister of the Environment

of July 20, 2004, which required distributors of electricity and natural gas who on December 31,


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161

2001 served at least 100,000 end-customers to comply with specific energy saving objectives

based on the energy distributed. In order to achieve these objectives, distributors must develop

energy saving projects in compliance with the provisions of Law no. 239/04 (Marzano Law) and

the related implementation instructions, especially in matters concerning post-meter activity.

The 2007 decree establishes new reference objectives for the three-year period 2010 – 2012.

On March 29, the new legislative decree implementing European Directive 2009/28/EC on the

promotion of the use of energy from renewable sources became effective.



and the Ministry for the Environment).

Tariff grant

The unit tariff grant recognized for each year (t+1) obligatory after 2008 is defined by the

Authority by November 30 of the previous year (t).

The tariff grant recognized for achieving the energy savings objectives for 2011, laid down in

Resolution EEN no. 16/10 (as amended by Resolution EEN no. 17/10), is worth 93.68 euro/tonne

of oil equivalent (toe) saved.

Energy saving objectives for 2011

With Resolution EEN no. 18/10, the Authority established the specific objectives for primary

energy savings in 2011 for the distributors of gas and electricity. The objectives set for the

obligated distributors of the A2A Group are shown in the following table:

Distributor Objective 2011 (toe)

A2A Reti Elettriche S.p.A. 144,103

A2A Reti Gas S.p.A. 144,162

Achievement of energy saving objectives for 2010

Pursuant to Resolution no. 98/06 as subsequently amended and supplemented, the two

obligated distributors of the A2A Group requested the cancellation of the following energy

efficiency credits for 2010:

Distributor Obligation Obligation 2010 2009

A2A Reti Elettriche S.p.A. 89,371 1,946

A2A Reti Gas S.p.A. 101,694 1,636


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162

Both distributors fulfilled the specific energy saving objective for 2010, as established by

Resolution EEN no. 25/09 as amended and supplemented by Resolution EEN no. 1/10, as to 84%

of the total obligation. Pursuant to the Ministerial Decree of December 21, 2007, the shortage

for meeting the obligation for 2010 must be made good by 2012.

In addition, the distributors arranged for the cancellation of the credits corresponding to the

part of the energy saving obligation for 2009, not compensated on the cancelation of the

objective for that year.

Provisions concerning accounting and functional separation(unbundling)

With Resolution no. 11/07, partially amended by Resolutions no. 253/07 and ARG/com no. 57/10,

the Authority issued an Integrated Text on administrative and accounting unbundling for

companies operating in the electricity and gas sectors, modifying the current rules

(established by Resolutions no. 310/01 and no. 311/01).

This resolution introduces the requirement for vertically integrated groups to unbundle from

a functional standpoint the distribution of electricity and gas, the transmission of electricity

and the transport of gas from the activities it carries on in the free market. The purpose is to

ensure neutrality in the management of these infrastructures and to prevent discrimination in

the access to commercially sensitive information and cross-transfers of resources between

segments of the various sectors (this latter objective is more directly pursued through the

provisions regarding accounting unbundling).

On the basis of the legislation, the activities subject to functional unbundling have been given

decision-making and organizational autonomy by assigning the administration to an

"Independent Manager".

In implementing the provisions adopted by the AEEG with Determination no. 6/10 of the

Director of the Tariff Department, A2A Reti Elettriche S.p.A., A2A Reti Gas S.p.A. and Azienda

Servizi Valtrompia S.p.A. have carried out the requirements of the TIU for 2010 and 2011, while

the Independent Managers of Retragas S.r.l., Mincio Trasmissione S.r.l. and Seasm S.r.l. were

appointed during the first half of 2011.

Legislative changes regarding the “Robin Hood Tax”

Law no. 148 of September 14, 2011, converting with amendments Decree Law no. 138 of August

13, 2011 on additional urgent measures for financial stability and growth (the “Mid-August

Budget”), was published in Official Journal no. 215 of September 16, 2011.


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163


Networks sector

164

Amongst the other measures, this legislation amends the existing provisions for the “Robin

Hood Tax” (paragraph 16 of article 81 of Decree Law no. 112/2008 converted by Law no.

133/2008), providing, from the current year, for an increase in the additional IRPEF personal

income tax payable (which rises to 10.5%), an extension of the scope of those required to pay

this tax to operators involved in the distribution, transportation and transmission of

electricity and natural gas and a reduction in the exemption ceilings: operators are now liable

to the Robin Hood tax if they earned revenues exceeding 10 million euro in the prior tax year

and had taxable income exceeding 1 million euro. As regards the A2A Group, as a result of these

changes the two distributors A2A Reti Elettriche S.p.A. and A2A Reti Gas S.p.A. are now liable

to the tax (in addition to those companies which qualified previously).

Integrated water service

With Decree Law no. 225 of December 29, 2010 (the “Thousand extensions decree”) provision

was made for the general extension to March 31, 2011 of certain legal regimes - having expiry

prior to March 15, 2011.

The conversion into law of Decree Law no. 2 of January 25, 2010 in fact provided for the

abolition of the Optimum Territorial Ambit Authorities and gave the regions the task of

assigning (possibly to new entities) the functions exercised by the Optimal Territorial Ambit

Authorities in accordance with the principles of subsidiarity, differentiation and suitability.

With Regional Law no. 21 of December 27, 2010, the Region of Lombardy required the

functions exercised by the Ambit Authorities to be assigned to the provinces. The Decree of

the Prime Minister of March 25, 2011 entitled “Additional extension of terms relating to the

Ministry for the Environment and the Protection of Land and Sea” established December 31,

2011 as the end of the term for the suppression of the Ambit Authorities and completion of the

subsequent formalities.

With Decree Law no. 70 of May 13, 2011 (published in Official Journal no. 110 of May 13, 2011),

converted by Law no. 106 of July 12, 2011, the National Agency for the Regulation and

Supervision of matters concerning water was established (article 10, paragraph 11 and

following).

As a result of the referendum held on June 12 and 13, 2011, decrees of the President of the

Republic were published in Official Journal no. 167 of July 20, 2011 declaring that the legislation

to which the referendum related was repealed as from July 21, 2011.

As a consequence, therefore, legislation on integrated water services is liable to change during

the year.

Further details in this respect may be found in the section relating to risks.

Optimal Territorial Ambit Province of Brescia

Details of tariffs for 2011 were approved at the Consortium general meeting on December 21,

2010; these are applicable, for the various uses, in the municipalities belonging to the Ambit.

The municipalities of the Brescia Ambit have been subdivided into three tariff areas.

In addition, the amount of the restricted portion of the water purification tariff applicable to

users lacking a purification service was approved.

Quantitative data

3rd Qtr. 3rd Qtr. 09 30 2011 09 30 2010 Change % 2011 2010 2011/2010

2,859 2,850 Electricity distributed (GWh) 8,615 8,468 147 1.7%

140 138 Gas distributed (Mcm) 1,295 1,430 (135) (9.4%)

– – Gas supply points (Number) (*) 1,255,821 1,255,821 – –

41 45 Gas transported (Mcm) 267 294 (27) (9.2%)

18 17 Water distributed (Mcm) 51 51 – –

(*) Number of supply points used by the AEEG to determine admitted revenues for 2009 and 2010.

Electricity distributed in the period totaled 8,615 GWh, representing an increase of 1.7% over

the same period of 2010 which arose mainly from a pick-up in consumption by industrial

customers.

The quantities of gas distributed totaled 1,295 Mcm, 9.4% down on the first nine months of the

previous year. This trend was essentially due to the mild temperatures experienced during the

first few months of 2011 which had an adverse effect on the demand for gas for heating

purposes.

For the same reasons the amount of gas transported amounted to 267 Mcm (294 Mcm for the

nine months ended September 30, 2010).

The water distributed of 51 Mcm was in line with the same period of the previous year.

The electricity distribution network management activities of the EPCG Group, acquired in

September 2009 and consolidated on a line-by-line basis from the year ended December 31,

2010, are also included in A2A’s Network Sector. Overall EPCG owns 18,500 km. of electricity

network at low and medium voltage.

The electricity distributed in Montenegro in the period was as follows:

EPCG 09 30 2011

Electricity (GWh) 1,899


Networks sector

165

Economic data


167 165 Revenues 514 466 48

71 89 Gross operating income 199 206 (7)

42.5% 53.9% % of revenues 38.7% 44.2%

(29) (26) Depreciation. amortization and provisions (82) (78) (4)

42 63 Net operating income 117 128 (11)

25.1% 38.2% % of revenues 22.8% 27.5%


The Networks Sector had revenues of 514 million euro in the first nine months of 2011 (466

million euro in the nine months ended September 30, 2010). The increase of 48 million euro is

mainly due to the contribution of the networks sector of the EPCG Group (50 million euro).

Gross operating income closed at 199 million euro (206 million euro for the nine months

ended September 30, 2010), of which 8 million euro relating to the networks sector of the

EPCG Group.

Activities for managing the networks for the distribution and transportation of gas closed

with a gross operating income of 79 million euro in the first nine months of 2011, a rise over the

same period of the previous year (75 million euro in the nine months ended September 30,

2010). As already noted for the half year, this increase is mainly due to the increase in the

revenues admitted by the Electricity and Gas Authority, arising in particular from the

application of graduality mechanisms.

Electricity distribution activities closed with a gross operating income of 112 million euro for

the period (of which 8 million euro attributable to the EPCG Group), a decrease of 6 million

euro over the first nine months of 2010; the third quarter of 2010 had benefited from non-

recurring items of around 20 million euro relating to the “company specific equalization”

following the determination by the Electricity and Gas Authority of the company specific

correction factor for the III regulatory period (2008-2011).

Gross operating income for the water sector, amounting to 3.4 million euro, fell over the

same period of the previous year (8.7 million euro in the nine months ended September 30,

2010). This decrease was mainly the result of settlements relating to previous years.

Depreciation, amortization and provisions amounted to 82 million euro (78 million euro in the

nine months ended September 30, 2010); of this 15 million euro relates to the networks sector

of the EPCG Group.


Networks sector

166

As a result of these changes, net operating income amounted to 117 million euro (128 million

euro in the first nine months of 2010).

Capital expenditure made in the Milan and Brescia areas in the nine months ended September

30, 2011 amounted to 85 million euro and regarded:

• as far as electricity distribution is concerned, development and maintenance work on

plant and in particular the connection of new users, maintenance on secondary cabins, the

extension and refurbishment of the medium and low voltage network and the

maintenance and upgrading of primary plants (34 million euro);

• in the gas distribution area, development and maintenance work on plant relating to the

connection of new users and the replacement of medium and low pressure piping and gas

meters (36 million euro);

• in the integrated water cycle, work carried out on the water transportation and

distribution network and the sewerage networks (12 million euro).


Networks sector

167

The following is a brief description of the activities carried out by this sector:

• Corporate (1): direction, coordination and control activities, such as business

development, strategic direction, planning and control, financial management and the

coordination of the Group's activities; central services to support business and operating

activities (e.g. administrative and accounting services, legal services, procurement,

personnel management, information technology, communication services, etc.) provided

by the parent company under specific intercompany service agreements.

• Other services: activities relating to video-surveillance, data transmission, telephony and

internet access services.

In addition to the activities carried out directly by A2A S.p.A., this area also includes the

following companies:

(1) This includes the General Manager's Office (Corporate and Market Area), the General Manager's staff (Technical and OperationsArea) and the staff of the Office of the Chairman of the Management Board and the Chairman of the Supervisory Board.

Other services and corporatesector


168

Other services andcorporate

Other services

Corporate


• Selene

• Aspem S.p.A.

• A2A Logistica

• EPCG

Economic data


57 53 Revenues 170 162 8

(2) (7) Gross operating income (16) (23) 7

(3.5%) (13.2%) % of revenues (9.4%) (14.2%)


(12) (11) Net operating income (39) (43) 4

(21.1%) (20.8%) % of revenues (22.9%) (26.5%)


The Other Services and Corporate Sector earned revenues of 170 million euro in the first nine

months of 2011, of which 9 million euro relating to the services sector of the EPCG Group.

The gross operating loss amounted to 16 million euro of which 3 million euro related to the

EPCG Group.

After depreciation, amortization and provisions, there was a net operating loss of 39 million

euro.

Capital expenditure for the period amounted to 16 million euro and mainly related to

investments in information systems (13.4 million euro) and telecommunications networks (1.5

million euro).


Other services and corporate sector

169

Business results for the fourth quarter of the year will be characterized by a continuing

negative economic situation in the electricity area, whose effects will be partially offset by the

good performance of the gas area, the Heat & Services Sector and the Environment Sector.

The performance of the subsidiary EPCG (fully consolidated for the first time in the 2010

financial statements) will be significantly reduced on an annual basis due to the significant

drop in hydroelectric production and the fall in tariffs in April-November, despite the fact that

these are expected to increase considerably in December.

Considering that 2010 benefits from an increase in one-off positive effects of around 20

million euros when compared with the present period, gross operating income for 2011 is

expected to close between 5% and 10% lower than 2010.

Outlook for operations


170

The A2A Group has a risk assessment and reporting process based on the Enterprise Risk

Management method of the Committee of Sponsoring Organizations of the Treadway

Commission (COSO report), whose purpose is to make business risk management an integral

and systematic part of management processes.

In particular, A2A has defined a risk model that takes account of the Group's characteristics, its

multi-business vocation and the sector to which it belongs; it has also commenced a process

of self-assessment of risks which directly involves management.

This process accompanies the monitoring of commodity price risk which is already

consolidated practice for the Group. This risk is looked after centrally by the parent company,

which has the task of managing it and monitoring the way it evolves.

Set out below is a description of the main risks and uncertainties to which the Group is

exposed, considering the sectors in which it operates and the specific aspects of its business

model.

Risks connected with the external environment

Commodity price risk (energy risk management)

Commodity price risk, namely the market risk linked to changes in the price of energy raw

materials such as electricity, natural gas, coal and fuel oil as well as the by-products of these

materials, is handled as part of the Risk Management Organizational Unit.

Risk Management has the objective of stabilizing the cash flows generated by the asset

portfolio and outstanding contracts through the use of derivative financial instruments, to

ensure there is economic and financial equilibrium in the Group.

More specifically, the market risk linked to fluctuations in energy commodity prices and the

exchange rates associated with these are managed centrally by means of a netting process

applied to the entire exposure of the Group's portfolio, which is constantly monitored.

Risks and uncertainties


171

Each year the Management Board of A2A S.p.A. defines the commodity risk limits for the

Group.

Consistent with the Group’s Energy Risk Policy, the Risk Committee ensures compliance with

these limits and where necessary defines the hedging strategies designed to bring risk within

the set limits.

Interest rate risk

Interest rate risk is connected with medium-long term loans and has a different effect

depending on whether the loan bears interest at a fixed or floating interest rate. If interest is

payable at a floating rate then the interest rate risk is on the cash flows, while if interest is

payable at a fixed rate then the interest rate risk is on the fair value.

The interest rate risk management policy that has been adopted is designed to reduce any

losses arising from a fluctuation in interest rates in the floating rate case to a minimum by

converting these to fixed rates or arranging collar contracts, and to reduce the increased cost

of the fixed rate over the floating rate (“negative carry”) to a minimum.

A structured model has been developed internally to analyze and manage interest rate risk.

The method used to calculate the exposure to this risk is based on the Montecarlo method,

which enables the effect that fluctuations in interest rates have on future cash flows to be

calculated. Under this methodology at least ten thousand scenarios are simulated for each key

variable, on the basis of the volatilities and correlations associated with them, using market

rate forward curves for future levels. In this way a probability distribution of the results is

obtained from which the worst case scenario and best case scenario are extrapolated using a

99% confidence level.

Liquidity risk

The Group is currently not exposed to short-term liquidity risk, having 1,980 million euro of

committed lines of credit available at the balance sheet date of September 30, 2011. In the

fourth quarter of 2010, A2A S.p.A. agreed new committed lines having terms ranging from 5 to

7 years. These new lines replaced the committed lines expiring mainly in 2011, increasing

availability in the medium to long term. These lines are used to satisfy temporary liquidity

requirements.

In addition, the Group has medium-long term facilities, forming part of agreements but not

yet used, totaling 253 million euro.



172

Default risk and covenants

In October 2003 and in May 2004, A2A S.p.A. issued two bond loans each having a nominal

value 500 million euro and a 10-year maturity. In 2009, the Company issued a bond loan of 1

billion euro maturing in November 2016.

There is a credit rating clause in the agreement with the EIB for the loan originally of 100

million euro repayable in 2012 (a rating lower than BBB), for the loan originally of 100 million

euro repayable in 2014-2016 (a rating lower than BBB), for the loan originally of 200 million

euro repayable in 2023 (a rating lower than BBB), for the loan originally of 200 million euro, of

which 150 million euro is repayable in 2025 (a rating lower than BBB) and 50 million euro

repayable in 2026 (a rating lower than BBB) and in the agreement with CSA for a bond loan in

yen repayable in 2036 and the related cross-currency swap contract ("put right" with a rating

lower than BBB-).

There is a credit rating clause in the agreement for the A2A S.p.A. loan of 85 million euro,

brokered by EIB, which bears floating rate interest and is repayable in June 2018; more

specifically, the company has undertaken to maintain an investment grade rating throughout

the whole term of the loan.

If that commitment is not met there are balance sheet, income statement and financial

covenants linked to the debt/equity ratio, the debt/gross operating income ratio and the gross

operating income/financial expenses ratio. The company calculates these ratios every twelve

months on the basis of its consolidated financial statements in order to review the covenants.

The A2A Group has stipulated a number of committed lines of credit with various financial

institutions for a total of 2,950 million euro (of which 2,835 million euro stipulated by A2A

S.p.A.) which are not subject to any covenants.

As regards the bond loans, the above-mentioned loans and the committed lines of credit

contain (i) negative pledge clauses under which A2A S.p.A. undertakes not to set up collateral

guarantees on the assets of A2A S.p.A. and those of its directly held subsidiaries over and

above a specific threshold; (ii) cross default/acceleration clauses which entail immediate

reimbursement of the loans in the event of serious non-performance; and (iii) clauses that

provide for immediate repayment in the event of declared insolvency on the part of certain

directly held subsidiaries.

A2A S.p.A. has undertaken not to give up control over Delmi S.p.A. for certain committed lines

of credit and for all lines to reserve the same treatment for the lending banks as that due to

creditors under other unsecured loan agreements (pari passu).

In addition, the loan of the subsidiary Abruzzoenergia S.p.A. is secured by a mortgage of up to

264 million euro.



173

As matters currently stand there is no default on the part of companies of the A2A Group nor

a breach of any of the covenants mentioned above.

Legislative and regulatory risk

The Group operates in a highly regulated sector. As a consequence, one of the risk factors of

the business is the constant and not always predictable evolution of the legislative and

regulatory situation for the electricity and natural gas sectors, as well as for the sectors

relating to the management of the water cycle and environmental services.

In order to deal with these risk factors the Group has adopted a policy of monitoring and

managing legislative risk by having various levels of control, in order to mitigate the impact of

this to the extent this is possible. This involves collaborative dialogue with the institutions and

with the bodies which govern and regulate the sector, active participation in trade

associations and the work groups set up at these entities and a detailed review of changes in

legislation and the provisions issued by the sector Authority.

It also involves constant dialogue with the business units affected by legislative changes in

order to assess the potential effects in full.

The main topics involved in current changes in legislation are as follows:

• the rules governing the terms and conditions of large hydroelectric concessions;

• the evolution in the rules of CIP 6/92 conventions;

• the rules on the regulation of local public services, particularly in light of the amendments

and additions made to article 23-bis of Law no. 133/08 on the duration of the transitional

period for current mandates, as per article 15 of Law no. 166/2009 referred to above as

subsequently repealed following the referendum of June 2011 and replaced by article 4 of

Decree Law no. 138/11, converted into law with amendments by Law no. 148/11;

• the evolution of the rules for the Green Certificates market.

Large hydroelectric concessions

The 2006 Finance Law provided for a 10-year extension of large concessions regarding water

for hydroelectric use in exchange for adequate investment in the modernization of the

installations. (This 10-year extension was based on paragraphs 6, 7 and 8 of article 12 of

Legislative Decree no. 79/99, the "Bersani Decree"). Sentence no. 1/2008 of the Constitutional

Court declared that part of the law was illegitimate as it violated constitutional provisions

regarding the jurisdiction of regions over energy matters with respect to the State. This

sentence by the Court led to a situation where it was no longer possible to extend the



174

concessions, although it did not entirely reinstate the rules contained in article 12 of the

Bersani Decree (paragraphs 3 and 5 remain repealed, paragraph 2 has been repealed and

paragraph 1 has been replaced by the first part of paragraph 483 of article 1 of the 2006

Finance Law). According to the sentence of the Constitutional Court, the determination of the

tender parameters (minimum organizational and financial requisites for operators,

parameters for the increase in power and energy generated) by the Ministry for Economic

Development will also have to provide for the suitable involvement of the regions which can be

achieved through the Joint Conference.

Article 15, paragraph 6 of Decree Law no. 78/2010 (the Budget Decree Law), published in the

Official Journal of May 31, intervened on this matter by raising the bases for the calculation of

the extra fees payable on large hydroelectric concessions (article 15, paragraph 6).

With an amendment to the text, in view of the conversion of the decree into law which was

carried out at the end of July by means of Law no. 122/2010, the above legislation was

supplemented by additional provisions concerning the duration of outstanding concessions,

in turn declared illegitimate by sentence no. 205/2011 of the Constitutional Court published on

July 13, 2011.

The following matters are highlighted in particular with respect to the provisions introduced

by Law no. 122/2010:

• from January 1, 2010 the municipalities and consortia of mountain catch basins receive

from the holders of large hydroelectric concessions the extra fees as per articles 1 and 2 of

Law no. 925 of 1980, updated respectively in the amounts of 28 and 7 euro for each kW of

nominal power, without prejudice to the methods of additional updating in force;

• the Ministry for Economic Development, in conjunction with the Ministry for the

Environment and subject to agreement with the Joint Conference, must determine by

means of a measure of its own the minimum organizational and financial requisites, the

parameters and the timing regarding the tender procedure;

• if at expiry date of the outstanding concessions as extended the procedure to identify the

concessionaire has not yet been completed, the outgoing concessionaire shall continue in

management, with unchanged conditions, until the party to whom the tender is awarded

takes over;

• the amounts received by the Municipalities and the State pursuant to the provisions of

the 2006 Finance Law prior to sentence no. 1 of the Constitutional Court of January 2008

shall be kept on a definitive basis by the bodies which received them;

• the concessions and related plant which are governed by international conventions shall

remain exclusively subject to the legislation of the State, including for the purpose of the

ratification of any agreement modifying the respective regime; with respect to A2A S.p.A.,

this provision is applicable to the concession held by the Spoel, the governance of which



175

derives from an international convention between the Republic of Italy and the Swiss

Confederation.

By means of the Regional Law of December 20, 2010, published in the Official Bulletin of the

Lombardy Region of December 27, 2010, the Region of Lombardy has adopted additional

provisions on the subject, in view of the expiry of certain of the outstanding concessions.

Temporary continuation of use

More specifically, the Regional Council may, solely for concessions expiring up to December

31, 2015, permit the granting of the concession to the outgoing concessionaire to continue on

a temporary basis for the time required to complete the assignment procedures and for

periods which in any case do not exceed five years.

For the period of the temporary continuation of the concession, the outgoing concessionaire is

required to carry out the following:

• to pay the region an additional fee (of an amount not currently quantified) with respect to

the fee and extra fee and free of charge sale of energy already established;

• to observe the additional technical and economic usage conditions required by the

regional council through its resolution;

• to carry out at its own expense any ordinary and extraordinary maintenance required

to ensure the full efficiency of the assets and works and to notify the regional council

of the program of interventions to be realized.

Expiry of the mandate

On the expiry of the mandate, the region acquires title to the works and plant subject to the

concession, in order to contribute them, within 6 months of that date, in ownership to special-

purpose companies with non-transferable wholly-owned public capital which are controlled

by the region, and in which local authorities and/or their forms of aggregation participate,

without charge, in an amount of not less than 30%. The industrial usage of the works and plant

will then be entrusted to third parties by means of publicly open competitive procedures or

alternatively to mixed public and private companies held by the mountain province having

territorial jurisdiction (provided the selection of the private shareholder is made by means of

a competitive procedure whose object is the quality of the shareholder and the assignment of

specific operational tasks connected with industrial management and the investment of the

private shareholder is between 40% and 60% of share capital, and on condition that if the

provinces of reference do not fall within the parameters established by the 2007 Finance Law

and referred to by Law no. 122/2010 then they have 50% of their territory at least 500 meters

above sea level).



176

Use of infrastructure and plant

In order to use the infrastructure and the plant, the mandated party will obtain access to the

assets owned by the special-purpose company against payment of a fee in part fixed

(determined on the basis of the average annual nominal power of the plant) and in part

variable (in proportion to the production achieved, valued on the basis of the results of the

power markets).

With Resolution no. 1205 of December 29, 2010 the Regional Council initiated the “temporary

continuation” by A2A S.p.A. of the use of the shunting and hydroelectric plants of Stazzona,

Lovero and Grosotto.

A2A S.p.A. and other operators have appealed against the measure at the High Court of Public

Waters.

On February 23,2011, the Council of Ministers resolved to challenge certain of the clauses

adopted before the Constitutional Court on the basis that these are prejudicial to State

jurisdiction. In its appeal to the High Court, A2A also requested the judge to raise a question of

constitutional illegitimacy incidentally concerning the regional legislation regarding the

“temporary continuation of use” which has not been challenged by the government.

With a note of March 15, 2011, the European Union provided communication to the Italian

government as to the issue of a notification of default letter against the Republic of Italy,

requesting clarifications regarding the provisions as per Law no. 122/2010 and stating its belief

in this respect that the means by which an extension to the concessions provided therein is

given may represent a breach of freedom of establishment regulations as per article 49 of the

TFEU.

The infringement procedure is expected however to be dismissed following sentence no.

205/2011 (published on July 13, 2011) in which the Constitutional Court upheld an appeal

lodged by the Region of Liguria concerning these issues, stating that:

• the provisions of Law no. 122/10 aimed at extending large hydroelectric concessions (for

periods of 5 and 7 years) are unlawful as they are inconsistent with constitutional

provisions regarding the separation of State and regional jurisdiction (the subject is under

regional legislative jurisdiction);

• the legislation stating that the provisions in question shall remain operative “ ….. until

other legislative measures are introduced by the regions to the extent of their jurisdiction

….. ” (the ‘transferability’ clause) is unlawful as “ ….. the need to fill a gap in legislation in

applying basic State principles for the time required to issue regional law does not exist in

real terms …. ”.



177

Evolution of the rules of the CIP 6/92 conventions

Law no. 99/2009 (the "Development Law") establishes that the Ministry for Economic

Development has the responsibility for defining the criteria for updating the Avoided Fuel

Cost and that mechanisms be proposed to producers for the early termination of the CIP 6/92

conventions in order to reduce the costs of maintaining these arrangements.

This regulation was introduced by a decree of December 2, 2009, which applies solely to plants

fed by process or residual fuels or by energy recoveries, or similar types fed by fossil fuels, and

by a decree of August 2, 2010 on the early termination of the CIP 6/92 conventions for

approximately 2,000 MW of similar plant fed by fossil fuels.

Both decrees describe the method of calculating the fees due in the case of the continuation

of the conventions through to their expiry date and the fees to be paid in the case of early

termination, entrusting the Energy Services Manager (GSE) with the task of checking - as an

essential condition for termination - that the difference between the two is positive and thus

leads to a saving for consumers in absolute terms.

The categories of plant for which as of today provisions have been issued implementing the

rules contained in the Development Law therefore do not include plants fed by renewable

sources or by waste, for which the implementation of the provision will be carried out by

means yet to be established following further assessments by the Energy Services Manager,

the Ministry for Economic Development and the Electricity and Gas Authority.

Regulation of local public services

After the government adopted the regulation implementing the provisions of article 23-bis of

Law no. 133/08 with the issue of Presidential Decree no. 168/10, completing the legislation

originally planned, and after Decree Law no. 70/11 as converted with amendments by Law no.

106/11 innovated the legislation regarding participation in tenders for subsidiaries of listed

companies, the subject of local public services having economic importance was affected by

the first question of the law-repealing referendum of June 12 and 13, 2011, as per Presidential

Decree no. 113 of July 18, 2011 and then article 4 of the subsequent Decree Law no. 138/11, as

converted with amendments by Law no. 148/11.

Article 4 of Decree Law no. 138/11 (effective on August 13, 2011) as converted by Law no.

148/2011 (effective on September 17, 2011) contains a reform of the provisions regarding local

public services, which as far as the Group is concerned undoubtedly affects waste

management (the integrated water service, the natural gas distribution service and the

electricity distribution service are in fact excluded from the scope of this law).



178

The legislation requires local authorities to assess the extent to which local public services

having economic importance (“local public services”) may be run on a competitive basis by

liberalizing all economic activities as compatible with the features of universality and

accessibility of the service, limiting the allocation of exclusive rights to the situation where on

the basis of a market analysis free private economic initiative is not suitable for ensuring the

provision of a service which responds to the community’s needs.

This assessment must the carried out for the first time within twelve months from the date on

which Decree Law no. 138/11 becomes effective and then on a periodic basis according to the

respective regulations of the local authorities. The assessment must in any case be carried out

before assigning the management of the services and the renewal of this. The resolutions

adopted by the local authorities must also be provided to the Italian antitrust authority for the

purpose of its annual report to parliament.

Local authorities must initially determine, where necessary, the requirements for a public

service, providing for any economic compensation due to the companies providing that

service and taking account of the revenues deriving from the tariffs and within the limits of the

available budget for the specific purpose. If a local authority intends to assign exclusive rights,

the allocation of the management of the services must be made in favor of businessmen or

companies in any form, including those wholly publicly owned (unless specifically prohibited

by law) which have been identified by a publicly open competitive procedure.

In addition, the law dictates provisions relating to the means by which tenders should be set

up, including the specific case when the object of the procedures is at the same time the

capacity as shareholder, to whom a participation of not less than 40% must be contributed,

and the allocation of specific operational dues connected with the management of the

service.

The management of the networks may be assigned to private entities without prejudice to

their public ownership. On the expiry of the term for the management of the local public

service or in the event of early transfer, the previous manager shall transfer the business

assets and necessary pertinences, to the extent that they may not be duplicated at

sustainable social cost, to the manager taking over for the continuation of the service, as

identified by the transferor, free of charge and free from any encumbrances. If on

transferring the management the business assets being transferred have not been fully

depreciated , the manager taking over shall pay the previous manager an amount (specified

in the tender) equal to the original book value not yet depreciated net of any public grants

directly relating to these assets. The provisions contained in sector legislation shall not be

prejudiced and any different agreements reached by the parties before the effective date of

this decree shall remain valid.



179

Specifically regarding any assignments granted to Group companies, the transitional regime

for assignments does not comply with the requirements of the decree in particular, as

provided by article 23-bis, namely that direct appointments assigned at October 1, 2003 to

companies having a public investment which are already listed on the stock market at that

date and to companies controlled by these pursuant to article 2359 of the Italian civil code

cease at the expiry date provided in the service contract, on condition that the public

investment reduces, also gradually, by means of a publicly open procedure or forms of private

placement with qualified investors and industrial operators, to a holding not exceeding 40% at

June 30, 2013 and 30% at December 31, 2015; if that is not the case, the appointments will

cease, without extension and without the need for a suitable resolution by the appointing

body, on June 30, 2013 and December 31, 2015 respectively.

Companies, their subsidiaries and parents and subsidiaries of the same parent, including

those not belonging to member states of the European Union, which manage, in Italy or

abroad, de facto or by the provisions of law, of an administrative deed or under a local public

service contract by virtue of a direct appointment or of a non-openly public procedure or as

the result of procedures having as their object the capacity of the shareholder and the

assignment of specific operating duties connected with the management of the service, as

well as entities entrusted with the management of the networks, the plants and the other

assets of the local authorities, if separate from the provision of the services, may not acquire

the management of additional services or management in other territorial locations, nor may

they carry out services or activities for other public or private bodies, either directly or

through their parents or other companies controlled by them or in which they hold

investments or by taking part in tenders.

The prohibition holds for the whole of the term of management and does not apply to

companies listed on regulated markets or companies directly controlled by these pursuant to

article 2359 of the Italian civil code, or to the shareholder selected by procedures having as

their object the capacity as shareholder and the assignment of specific operating duties

connected with the management of the service.

The entities which are the direct assignees of local public services may however take part

anywhere in Italy in the first tender following the cessation of the service which is carried out

by a publicly open competitive procedure whose object is the services provided by them.

The assignment procedures already in progress at the date the decree becomes effective are

not prejudiced.

Concerning possible market developments, it is recalled that article 4 envisages that where

local authorities are required to recognize exclusive rights, a possibility as stated at the

beginning, of a residual nature and which must be motivated, the organizational tools available



180

are assignment to a third party selected by means of a publicly open procedure, assignment to

a mixed company whose shareholder carrying out functional activities has the prerequisites

and has been selected in compliance with the requirements detailed in paragraph 12 and

assignment to in-house companies only on the condition that the annual fee is less than

900,000,000 euro.

Article 4 includes much of the discipline contained in Presidential Decree no. 168/10 which is

no longer applicable following the repeal of article 23-bis; mention has already been made of

the regulations concerning the transfer of the assets, but it is worthwhile remembering that

the matters regarding incompatibility, the formation of judging commissions and the

specific rules which in-house and mixed companies must abide by on the question of

procurement and personnel selection are once again provided for.

The outcome of the consultation concerning referendum question no. 2, as stated in

Presidential Decree no. 166 of July 18, 2011, has on the other hand led to the repeal of article

154, paragraph 1 of Legislative Decree no. 152 of 2006 (reported below), restricted to the

following section:

• “The tariff represents the fee for the integrated water service and this shall be calculated

by taking into account the quality of the water service and the service provided, the

necessary works and adjustments, the extent of the costs for managing the works, the

adequacy of the remuneration of the capital employed and the costs for managing the

protected areas, and a share of the running costs of the Ambit Authority, in order that full

coverage of the investment and running costs is assured in accordance with the cost

recovery principle and in accordance with the principle of “who pollutes pays”. All the

portions of the tariff for the integrated water service have the nature of a fee”.

For the purpose of determining the tariff for the integrated water service, therefore, the

normalized method will continue to apply. This method is dictated by the Ministerial Decree of

August 1, 1996, legislation delegated by article 13 of Law no. 34/96 and which provides for the

remuneration of employed capital until the legislator issues the decree envisaged by article

154.

In this respect, it should also be noted that also in the event of a generalized application of the

principles contained in the Water Framework Directive (2000/60/EC), at article 9 this latter

establishes the principle of the “recovery of costs for water services”, which must be pursued

starting from an economic analysis (Annex III) which considers an estimate of the investments

connected with meeting long term supply and demand.

Finally, it should be noted that the inter-ministerial decrees that must be issued to implement

article 154 of Legislative Decree no. 152/06 must take into account the repeal required by the

181



referendum and hence regulate the tariff in consideration of all the additional factors also

present in paragraph 1:

• quality of the water resource;

• quality of the service provided;

• necessary works and adjustments;

• running costs for the works;

• costs for managing protected areas;

• share of the functioning costs of the AATOs (which are shortly expected to be replaced by

other bodies).

Natural Gas and Electricity Distribution

As far as the distribution of electricity is concerned, article 1, paragraph 2 c) of Law no. 239/04

states that concessions are granted for electricity distribution on the basis of the

requirements of law, while at article 9 the Bersani Legislative Decree (no. 79/99) identifies the

Ministry for Economic Development as the body granting the local concession, comprising

one or more municipalities.

With respect to the natural gas distribution service, in safeguarding the provisions of

Legislative Decree no. 164/2000 and article 46-bis of Decree Law no. 159 of October 1, 2007,

converted with amendments into Law no. 222 of November 29, 2007 regarding the

distribution of natural gas, Law no. 99/2009, the “Development Law”, defines the new

“Minimum Territorial Ambits” for which tenders will be called to allocate the service to the

Ministry for Economic Development, in conjunction with the Ministry for Regional Affairs,

after consulting with the Combined Conference and the Electricity and Gas Authority.

On March 31, 2011 the Ministry for Economic Development decree dated January 19, 2011 was

published in the Official Journal; this identifies 177 Minimum Territorial Ambits and provides

details by region in attachment 1.

Nevertheless, the precise identification of the individual municipalities making up each

Minimum Territorial Ambit has been deferred to a subsequent decree of the Ministry for

Economic Development, “attachment 2”, which will be adopted in conjunction with the

Ministry for Regional Affairs and is to be communicated to the Combined Conference. As

planned, this communication was made in September 2011 and its publication in the Official

Journal is currently awaited.

The criteria followed for identifying the municipalities included in each individual Ambit envisage

a maximum of 50 municipalities for Ambits with more than 50,000 effective customers; in

addition, the metal interconnection of the plants is safeguarded and account is taken of

population density and the specifics of the area.

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In respect of the blocking of tenders, article 24, paragraph 4 of Legislative Decree no. 93 of June

1, 2011 (Third Energy Package), published in the Official Journal on June 28, 2011, specifies that

all the tenders for which by the effective date of the above-mentioned legislative decree a

tender notice has been published in the case of an open procedure or invitation letters have

been sent in the case of a restricted procedure, may be carried out on the basis of the

procedures applicable at the date on which they were called, provided that such documents

include the criteria for evaluating the offer and the repayment due to the outgoing operator.

On the other hand tenders not included in these cases must, from June 29, 2011, the date on

which the above-mentioned decree became effective, be carried out exclusively for Territorial

Ambits as per article 46-bis of Law no. 222 of 2007 and on the basis of the criteria referred to

therein, to be issued shortly.

In respect of the criteria for the tenders for the allocation of the distribution service, article

46-bis establishes that the Ministry for Economic Development, in conjunction with the

Ministry for Regional Affairs, after consulting with the Combined Conference and on the basis

of the opinion of the Electricity and Gas Authority, shall identify the “criteria for the tender

and the valuation of the offer for allocating the gas distribution service”. The criteria to be

used for this purpose are, in addition to the economic conditions, the benefits for consumers,

the quality and safety standards and the soundness of the investment and development plan.

Publication of the regulation is awaited.

Finally, the Ministerial Decree dated April 21, 2011 has been published in the Official Journal no.

102 of the ordinary series of May 4, 2011, becoming effective the following day; this concerns

provisions for regulating the social effects connected with the new means of allocating gas

distribution concessions, the “Social Clause” measure.

This decree, drawn up by the Ministry for Economic Development and the Ministry for

Employment and Social Policies, contains regulations to safeguard the jobs of the personnel of

the outgoing distribution company following the awarding of the service to another company,

together with a series of obligations for this latter company.

The incoming operator is required to hire at least a number of employees not exceeding the

sum of the staff at the plants forming part of the tender and a portion of the personnel with

central functions supporting distribution and measurement. The protection envisaged for

employees with the above hiring requirement consists in the fact that they will be immediately

directly transferred to the company taking over, with guarantees being made of their previous

employment conditions of an economic nature and long-term service schemes of which they

are members. Suitable lay-off schemes will be applied for those members of staff who on the

basis of the above-mentioned conditions turn out to be in excess to needs, without prejudice

to the possibility of being rehired should the new company seek additional personnel within

two years of the date of the tender.

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Evolution of the market rules regarding Green Certificates and legislation regarding

the encouragement of production from renewable sources

On March 29, 2011 the Legislative Decree implementing Directive 2009/28/EC on the

promotion of the use of energy from renewable sources became effective; this had already

been available in draft form since December 2010 and was subsequently submitted for

review by the parliamentary committees.

Certain aspects of the draft proposed in December were amended during the subsequent

review.

The main measures adopted by the decree, though, may only be implemented following the

issue of further ministerial decrees (the majority of which by the Ministry for Economic

Development and the Ministry for the Environment) with six-monthly deadlines, starting from

the effective date of the legislation.

Reform of mechanisms to encourage renewable sources - Reference provisions when

fully operational

The decree requires that production from renewable sources for plants entering use after

December 31, 2012 should be incentivated by:

• recognizing a feed-in tariff for plants of up to 5 MW of installed power (this threshold will

vary on the basis of the characteristics of the various renewable sources used);

• Dutch auction mechanisms run by the GSE for plants having installed power exceeding the

above limits.

The feed-in tariff will be attributed exclusively to the production of new plants, including

those built following complete reconstruction, upgraded plants, limited to the additional

production available, and hybrid power plants, limited to the portion of energy produced from

renewable sources.

The incentive will additionally be allocated, “for power quotas”, to the production of plants

which have been fully or partially refurbished, up to a maximum of 25% for partial

refurbishment and 50% for total refurbishment. The two portions can increase to 80% and

90% (respectively in the cases of partial and total refurbishment) for plants fuelled by

biomasses, including those fuelled by the biodegradable fraction of waste.

Reform of mechanisms to encourage renewable sources - Transition to the regime

Production from renewable sources for plants entering use by December 31, 2012 will be

encouraged with the existing mechanisms. For the Green Certificate mechanism a gradual

reduction of the required portion is however envisaged, which will fall to zero by 2015, as well

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as the repeal of the reference legislation (as per article 11 of the Bersani Decree) starting from

2016, after which therefore producers from renewable sources will no longer receive the

Certificates.

From 2012 to 2015 the GSE will withdraw the certificates issued for production from

renewable sources and left unsold at a price of 78% of that established by paragraph 148 of

article 2 of the 2008 Finance Law. Over the same period of time the GSE will additionally

withdraw the unsold certificates issued for production from cogeneration sources

connected with district heating at the average price of the certificates on the market

during 2010.

Electricity imported from January 1, 2012 will not be liable to the requirement to purchase Green

Certificates only if it forms part of national energy saving objectives.

The implementation decrees for the incentive mechanisms planned when everything is fully

operational (feed-in tariffs and Dutch auctions) will govern the transition from the old to the

new incentive mechanism, in particular as far as the right to use the Green Certificates for

years after 2015 is concerned.

Guarantee of origin

The decree requires that by the means envisaged by article 1, paragraph 5 of Decree Law no. 73

of June 18, 2007 (completing the liberalization of the sale of electricity), converted with

amendments into Law no. 125 of August 3, 2007, the method for the issue, recognition and use

of the guarantee that the electricity has been produced from renewable sources should be

updated in compliance with the provisions of article 15 of Directive 2009/28/EC.

From January 1, 2012, electricity suppliers will only be able to use that guarantee to attest to

the portion/quantity of energy from renewable sources included in their energy mix.

Support regimes for the production of thermal energy from renewable sources for

energy efficiency

The decree provides for incentives for measures increasing energy efficiency and producing

thermal energy from renewable sources by means of the following support regimes:

a) contributions valid for natural gas tariffs for small-sized measures;

b) the issue of White Certificates for all measures which do not fall amongst those

included at the previous point.

a) Incentive is given to small-sized measures for the production of thermal energy from

renewable sources and increasing energy efficiency carried out after December 31, 2011.

With the aim of ensuring a fair remuneration of the investment, the incentive is

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proportional to the energy savings produced by the measures and its term may not

exceed ten years staring from the date of completion of the measure.

b) Consistent with the provisions of article 7 of Legislative Decree no. 115 of May 30, 2008, the

means are established by which the obligations of the distribution companies as per article

9.1 of Legislative Decree no. 79 of 1999 and article 16.4 of Legislative Decree no. 164 of 2000

tie in with the national energy efficiency objectives.

The decree links the period of entitlement to Green Certificates to the useful life of the

measure and envisages that the energy savings realized by efficiency measures for the

electricity and gas networks may form part of reaching the obligations of the distribution

companies without the issue of White Certificates.

Third Energy Package

On June 29, 2011, following publication in the Official Journal, Legislative Decree no. 93/2011

came into force implementing the Third Energy Package Directives 2009/72/EC, 2009/73/EC

and 2008/92/EC regarding community legislation on the internal electricity and natural gas

markets, a community procedure on the transparency of the price of gas and electricity for

the end industrial user and the repealing of Directives 2003/54/EC and 2003/55/EC.

The following is a summary of the main provisions of interest which have to be implemented

by the Regulator.

Provisions concerning accounting and functional unbundling

The provisions dictated by the decree for the two sectors concerning functional unbundling

for distribution activities in substance follow those already in force, as contained in AEEG

Resolution no. 11/04.

The decree dictates measures concerning accounting unbundling only for the gas sector, but

in this case too these relate to provisions already implemented pursuant to Resolution no.

11/07.

Further provisions relating to the natural gas sector – protection of end customers

The suitability of all customers is confirmed and categories of “vulnerable” end customers are

identified (domestic customers, hospitals, nursing homes, retirement homes and similar

institutions, as well as civil and non-civil customers with a usage not exceeding 50,000 cm a

year), for whom there is the requirement to assure supply with the highest safety level, also at

critical times.

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For these customers, additionally, the AEEG will continue on a transitional basis to determine the

reference points.

In addition to the last resort service, if these customers find themselves without any supply

and lacking the requirements for activating such service (FUI), the distributor will guarantee

the balancing of its network in relation to withdrawal at that point for the period when

physical disconnection is not possible, in accordance with the terms and conditions

established by the AEEG, which has to ensure that the distribution company receives

adequate remuneration for the service provided (in addition to the costs it incurs).

The Electricity and Gas Authority has incorporated the above provisions in its regulations by

means of Resolutions ARG/gas no. 71/11 and no. 99/11 respectively.

In addition a period of up to three weeks is envisaged for satisfying requests for a change of

supplier, with the additional clarification that the switch-over must begin from the first day of

the month.

Further provisions relating to the natural gas sector - unbundling of transportation activities

The AEEG is required to start up a certification procedure for each company owning a

transportation network which at the same date also acts as an operator.

The procedure should be concluded within four months of notification and provide

authorization for companies which are the owners of infrastructure to perform

transportation activities, as operators of transport systems.

It is additionally planned for the operators of transport systems to be certified by the

Authority by March 3, 2012.

In addition, by March 3, 2012 vertically integrated groups other than the major transport

company which are owners of gas transportation companies may decide whether to separate

the company from an ownership standpoint or whether to propose an independent system

operator to the Ministry for Economic Development.

In addition, the smaller regional transportation companies who are owners of gas pipelines as

per the decree of the Industry Ministry of September 29, 2005, used mainly for the

transportation of natural gas, may not apply the above provisions.

Further provisions relating to the electricity sector – protection of end customers

The regulation confirms the suitability of all end customers and takes up the measures already

adopted by means of Law no. 125/07 to confirm their framework of reference (the setting up

of markets for greater protection and safeguarding).

In addition, the three week term for the activation of a new supply as the result of the switch-

over is also introduced for the sale of electricity (the regulation is consistent with the

provisions introduced for natural gas).



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Further provisions relating to the electricity sector – retail markets

The provisions as per article 41 require the communication and branding policies relating to

sales to customers on the free market or to customers on the greater protection markets not

to create confusion between the businesses or between the companies performing such

activities.

In particular, commercially sensitive information concerning each activity must be disclosed

in a non-discriminatory way.

Finally, it is stated that in the case where a single company performs both activities, the AEEG

should adopt the provisions required to prevent that company from obtaining a competitive

advantage from the availability of the data relating to the same user, both as far as end

customers are concerned and “from the standpoint of the assessments which the Authority

makes as to the quality of the service”, with respect to a corporate structure in which the two

activities are entrusted to different companies within the same group.

Powers of the Electricity and Gas Authority

Note is made in particular in this respect of the provision by which a company receiving

sanction measures from the AEEG may propose commitments which serve to pursue the

interests protected by the regulations for which the violation is raised in the most effective

manner.

In this respect with Resolution ARG/com no. 136/11 the AEEG initiated a procedure for the

adoption of the new regulation disciplining the sanction process for which it is responsible

and the procedural means for assessing these commitments.

Process risks

Business interruption risk

All of the Group's sectors of activity involve managing production sites which are

technologically and operationally complex (electric power stations, waste disposal plants,

cogeneration plants, distribution networks, etc.), where a breakdown or accidental damage

could lead to a lack of availability and in turn to financial losses and possibly harm to the

Group's reputation due to the interruption of the services provided.

These risks are linked to a variety of factors which, in the case of certain plants, could

moreover be accentuated by changes in the competitive context and in the markets of

reference. While the risk of unavailability of the plants may be considered an inherent part of

the business and one that is impossible to eliminate entirely, A2A S.p.A. sets up preventive risk



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mitigation strategies in all of its sectors to reduce the probability of such risks occurring and

action strategies aimed at limiting any impact.

Safeguarding the Group's assets involves adopting procedures of scheduled maintenance and

periodic revision of the plants and networks and keeping these constantly updated with

respect to best practice; it also involves providing specific training courses for technical

personnel, including regarding the operating procedures currently in force. The Group also

makes widespread use of instruments for the control and remote control of technical

parameters capable of permitting adequate monitoring and timely detection of any anomalies

as well as having a back-up of the components needed to guarantee operational continuity,

where possible.

Improvements designed to further mitigate the risk of business interruption continued

during 2011. These measures regarded the Group’s assets, by means of steps geared towards

plants and networks of a critical nature, the development of interconnections between

transmission networks to avoid congestion risks and the start-up of the pooling of critical

spare parts for the plants, and the continuous updating of the procedural documentation

supporting operations in order to manage the main operational processes safely.

When new production sites are acquired specific steps are taken to facilitate these being

brought into line with Group standards in terms of maintenance, control and personnel

training methods.

Finally, the Group takes out insurance to cover any direct and indirect damages which may

arise from other types of risk.

ICT infrastructure

The activities of the A2A Group are managed through complex ICT systems which support the

main business processes: operational, administrative and commercial. Possible risk factors

include the inadequacy of such systems compared to business needs, possible "downtime"

making them unavailable and the inadequate handling of the aspects linked to the integrity and

confidentiality of information. These risk factors are mitigated by controls governed by the

Information & Communication Technology Department.

In 2011, the Group continued to integrate and consolidate its ICT systems, also in the light of

changes in corporate structures.

The Group has continued to rationalize its outsourced ICT services, periodically revising the

tasks assigned to the service companies with respect to the key skills maintained internally, in

order to have increasingly efficient operational support at its disposal.



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In order to mitigate the potential risk of business interruption for processes that are

considered strategic, the Group is equipped with hardware/software back-up facilities to

ensure continuity of service in the event of a breakdown.

Given the importance of the activities that are carried out every day on the Italian Power

Exchange, particular attention is given to protecting the systems interfacing with the market;

these systems have in fact been duplicated and are subject to specific management and

maintenance procedures to ensure their stability.

The Group also has a disaster recovery system that ensures service and data continuity at an

alternative ICT centre. The efficiency of this system is tested periodically. The Group has now

completed the system for mutual recovery between the ICT centers in Milan and Brescia,

providing better protection against the risk of potential interruptions.

Data confidentiality and security are subject to specific controls by the Group, both through

internal policies and by means of tools to segregate access to information, as well as by

specific contractual agreements with any third parties who may have to access the

information handled.

In particular, work has initiated that is aimed at checking the alignment between the

organizational role model and the segregation of duties technical role model implemented in

the systems. Consistent with this work, it is planned to gradually adopt identity management

and access control tools designed to ensure an increasingly effective control over the

processing of data critical for the business.

Environmental risk

The risks associated with events that impact the environment or the health of the population

living in the areas of influence of the Group's activities (for example for the disposal of

production waste, emissions from production processes, waste collection and disposal

management) are the subject of increasingly close attention by public regulators and ever

more stringent legislation.

The Group pays constant attention to the prevention of such risks, and in particular has

adopted a policy document entitled "Policy for the Quality, Environment and Safety of the A2A

Group", which is now the instrument that lays down the Group's approach to such questions.

This document, which is widely distributed both internally and externally, explains the values

which underlie the Group's operations and which the Quality, Environment and Safety

Department is committed to spreading and sharing as guidance for the day-to-day work of all

concerned.



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The purpose of the Quality, Environment and Safety Department is also to provide top

management with support in establishing company policy in these areas, and it checks that

this is implemented properly in compliance with the rules applicable in all areas and internal

processes.

Operational implementation of the policy takes place through the use of an Environmental

Management System (EMAS) in the Group entities that are more exposed to both direct and

indirect potential environmental impact. This system provides for a program of progressive

extension and upgrading to the standards of ISO14001 certification for the Group's main

activities having a greater impact on the environment, as well as the management of EMAS

certification for the Group's main plants.

For the purpose of arriving at a single model, measures which are at the completion stage are

currently being taken which will allow all the operating companies of the Group to make

reference to a single, integrated Quality, Environment and Safety system by the end of 2011.

The Quality, Environment and Safety Department has also set up organizational control units,

which among other things carry out periodic environmental analyses and audits to detect and

prevent conduct that does not comply with the environmental procedures established for all

of the Group’s operating companies.

In the perspective of having a constant evolution of the systems controlling environmental

risk, the Group joined the ARPA (Regional Agency for the Protection of the Environment)

Lombardy Project in 2010, whose purpose is to improve the efficiency of the system for

controlling the more significant emissions, also in the light of technical developments in the

sector, by connecting all the Emission Monitoring Systems (SMEs) to a single control

centre.

The A2A Group has taken out insurance against damage from both accidental and gradual

pollution in order to cover any residual environmental risk.

Each year the Group also publishes a Sustainability Report which reports key data and

information on environmental aspects in order to encourage the circulation of these among

the public. Starting in 2010, the Sustainability Report is certified by the auditors, who attest

that it is in compliance with the Sustainability Reporting Guidelines issued by the Global

Reporting Initiative.

Health and safety risk

The Group operates in a heterogeneous business context characterized by a strong

technology element and the presence of personnel at its plants and throughout its territory.



191

Certain Group activities are, by their nature, more exposed to the risk of “typically work-

related” accidents linked to the operational services in the territory and the performance of

technical services and activities at the plants.

Through the Quality, Environment and Safety Policy (which provides for a program to

upgrade the personnel safety management system to comply with ISO 14001 and OHSAS

18001 standards), the prevention measures adopted aim for a "zero risk" objective,

encouraging a constant rise in the level of safety in the workplace.

A central Prevention and Protection Service has been set up as part of the Quality,

Environment and Safety Department in order to harmonize the objectives of safety and

protection in Group companies and to monitor that these standards are also being followed

by contractors at both the prequalification stage and the execution stage at worksites.

Control sections have then been set up at the various Group companies, coordinated by A2A

S.p.A.'s Safety Unit, which among other things carry out specific inspections to monitor

compliance with the procedures for implementing legislation on prevention and protection

and workers' health and safety as well as personnel update training.

There is also a program of employee health surveillance, conducted with the aid of a team of

doctors located in the various areas who carry out periodic assessments on the state of health

of personnel.

A system of monitoring, recording and reporting accidents has been set up to assist in the

process of constantly improving safety, together with an after-the-event analysis to identify

any causes and undertake corrective and mitigating action. A process is currently taking place

to manage this accident monitoring system by computer with the aim of making the analysis

and resolution of the causes of accidents in the Group even more efficient and of creating a

tool that can provide employees and collaborators with information about matters regarding

health and safety in the workplace and make them more aware of these.



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0.6Certification by theManager in charge ofpreparing accountingdocuments

194

The manager in charge of preparing the corporate accounting documents ofA2A S.p.A., Stefano Micheli, declares pursuant to article 154-bis, paragraph 2 ofthe Consolidated Finance Law (Legislative Decree no. 58/1998) that theaccounting information contained in this interim report on operations atSeptember 30, 2011 corresponds to the underlying documents, the books ofaccount and the accounting entries.

Milan, November 10, 2011

Manager in charge of preparing thecorporate accounting documents

Stefano Micheli

Certification by the Manager incharge of preparing accontingdocuments pursuant to article154-bis, paragraph 2 of LegislativeDecree no. 58/1998


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