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As filed with the Securities and Exchange Commission on June 30, 2003



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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 20-F


o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR


x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended: December 31, 2002
1-14970
(Commission file number)


ENEL-Società per Azioni


(Exact name of registrant as specified in its charter)ENEL S.p.A.
(Translation of registrants name into English)Italy
(Jurisdiction of incorporation or organization)Viale Regina Margherita 137
Rome, Italy
(Address of principal executive offices)


Securities registered or to be registered pursuant to Section 12(b) of the Act.

|                    |  |                                          
|------------------- |  | -----------------------------------------
|Title of each class |  | Name of each exchange
on which registered

|                                                |  |                         
|----------------------------------------------- |  | ------------------------
|American Depositary Shares                      |  | New York Stock Exchange 
|Ordinary shares with a par value of Euro 1 each |  | New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)


Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

None

(Title of Class)


Indicate the number of outstanding shares of each of the issuers classes
of capital or common stock as of the close of the period covered by the annual
report.

6,063,075,189 Ordinary Shares

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

|        |  |  |  |        |  | 
|------- |  |  |  | ------ |  | 
|Yes   þ |  |  |  | No   o |  | 

Indicate by check mark which financial statement item the registrant has
elected to follow.

|            |  |  |             |  | 
|----------- |  |  | ----------- |  | 
|Item 17   o |  |  | Item 18   þ |  | 



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|* |  | Not for trading, but only in connection with the registration of the American
Depositary Shares
|- |  | -----------------------------------------------------------------------------------------------



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TABLE OF CONTENTS



|                                                |                                                                                       |                                                           |  |  |  |  |  | 
|----------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------- |  |  |  |  |  | 
|PRESENTATION OF FINANCIAL AND OTHER INFORMATION
|GLOSSARY OF SELECTED ELECTRICITY TERMS         
|PART I                                         
|                                                | Item 1. Identity of Directors, Senior Management and Advisors                        
|                                                | Item 2. Offer Statistics and Expected Timetable                                      
|                                                | Item 3. Key Information                                                              
|                                                |                                                                                       | The Enel Group                                           
|                                                |                                                                                       | Selected Consolidated Financial Data                     
|                                                |                                                                                       | Exchange Rates                                           
|                                                |                                                                                       | Risk Factors                                             
|                                                |                                                                                       | Forward-Looking Statements                               
|                                                | Item 4. Information on the Company                                                   
|                                                |                                                                                       | History And Development Of The Company                   
|                                                |                                                                                       | Business                                                 
|                                                |                                                                                       | Regulatory Matters                                       
|                                                |                                                                                       | Properties, Plants and Equipment                         
|                                                | Item 5. Operating and Financial Review and Prospects                                 
|                                                |                                                                                       | The Electricity Market under the New Regulatory Framework
|                                                |                                                                                       | Overview                                                 
|                                                |                                                                                       | Outlook                                                  
|                                                |                                                                                       | Results of Operations                                    
|                                                |                                                                                       | Inflation                                                
|                                                |                                                                                       | U.S. GAAP Reconciliation                                 
|                                                |                                                                                       | Liquidity and Capital Resources                          
|                                                |                                                                                       | Trend Information                                        
|                                                | Item 6. Directors, Senior Management and Employees                                   
|                                                |                                                                                       | Directors                                                
|                                                |                                                                                       | Senior Management                                        
|                                                |                                                                                       | Board of Statutory Auditors                              
|                                                |                                                                                       | Executive Compensation                                   
|                                                |                                                                                       | Share Ownership                                          
|                                                |                                                                                       | Employees                                                
|                                                | Item 7. Major Shareholders and Related Party Transactions                            
|                                                |                                                                                       | Major Shareholders                                       
|                                                |                                                                                       | Related Party Transactions                               
|                                                | Item 8. Financial Information                                                        
|                                                |                                                                                       | Consolidated Financial Statements                        
|                                                |                                                                                       | Other Financial Information                              
|                                                |                                                                                       | Significant Changes                                      
|                                                | Item 9. The Offer and Listing                                                        
|                                                |                                                                                       | Markets and Price Range of ADSs and Ordinary Shares      
|                                                | Item 10. Additional Information                                                      
|                                                |                                                                                       | Stock Option Plan                                        
|                                                |                                                                                       | By-Laws                                                  
|                                                |                                                                                       | Material Contracts                                       
|                                                |                                                                                       | Exchange Controls                                        
|                                                |                                                                                       | Taxation                                                 
|                                                |                                                                                       | Documents On Display                                     
|                                                | Item 11. Quantitative and Qualitative Disclosure About Market Risk                   
|                                                |                                                                                       | Price Risk Management and Market Risk Information        
|                                                | Item 12. Description of Securities Other than Equity Securities                      
|PART II                                        
|                                                | Item 13. Defaults, Dividends Averages and Delinquencies                              
|                                                | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|                                                | Item 15. Controls and Procedures                                                     
|                                                | Item 16. [Reserved]                                                                  
|PART III                                       
|                                                | Item 17. Financial Statements                                                        
|                                                | Item 18. Financial Statements                                                        
|                                                | Item 19. Exhibits                                                                    
|SIGNATURES                                     
|Index to Exhibits                              
|EXHIBIT 1.1                                    
|EXHIBIT 3.1                                    
|EXHIBIT 99.1                                   



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TABLE OF CONTENTS

|                                                |                                                               |                                                           |                                             |    |     |     | 
|----------------------------------------------- | ------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------------- | -- | --- | --- | 
|PRESENTATION OF FINANCIAL AND OTHER INFORMATION |                                                               |                                                           | 1                                           |   
|GLOSSARY OF SELECTED ELECTRICITY TERMS          |                                                               |                                                           | 2                                           |   
|PART I                                          |                                                               |                                                           | 4                                           |   
|                                                | Item 1. Identity of Directors, Senior Management and Advisors |                                                           |                                             | 4  |    
|                                                | Item 2. Offer Statistics and Expected Timetable               |                                                           |                                             | 4  |    
|                                                | Item 3. Key Information                                       |                                                           |                                             | 4  |    
|                                                |                                                               | The Enel Group                                            |                                             |    | 4   |    
|                                                |                                                               | Selected Consolidated Financial Data                      |                                             |    | 4   |    
|                                                |                                                               | Exchange Rates                                            |                                             |    | 7   |    
|                                                |                                                               | Risk Factors                                              |                                             |    | 8   |    
|                                                |                                                               | Forward-Looking Statements                                |                                             |    | 16  |    
|                                                | Item 4. Information on the Company                            |                                                           |                                             | 17 |    
|                                                |                                                               | History and Development of the Company                    |                                             |    | 17  |    
|                                                |                                                               | Business                                                  |                                             |    | 19  |    
|                                                |                                                               |                                                           | Overview                                    |    |     | 19  | 
|                                                |                                                               |                                                           | Strategy                                    |    |     | 23  | 
|                                                |                                                               |                                                           | The Enel Group                              |    |     | 26  | 
|                                                |                                                               | Regulatory Matters                                        |                                             |    | 62  |    
|                                                |                                                               |                                                           | Overview of Regulation in the Energy Sector |    |     | 62  | 
|                                                |                                                               |                                                           | Electricity Regulation                      |    |     | 62  | 
|                                                |                                                               |                                                           | Gas Regulation                              |    |     | 77  | 
|                                                |                                                               |                                                           | Telecommunications Regulation               |    |     | 79  | 
|                                                |                                                               |                                                           | Water Regulation                            |    |     | 81  | 
|                                                |                                                               |                                                           | Environmental Matters                       |    |     | 81  | 
|                                                |                                                               | Properties, Plants and Equipment                          |                                             |    | 88  |    
|                                                | Item 5. Operating and Financial Review and Prospects          |                                                           |                                             | 89 |    
|                                                |                                                               | The Electricity Market under the New Regulatory Framework |                                             |    | 89  |    
|                                                |                                                               | Overview                                                  |                                             |    | 91  |    
|                                                |                                                               | Outlook                                                   |                                             |    | 97  |    
|                                                |                                                               | Results of Operations                                     |                                             |    | 100 |    
|                                                |                                                               |                                                           | 2002 compared with 2001                     |    |     | 101 | 
|                                                |                                                               |                                                           | 2001 compared with 2000                     |    |     | 111 | 
|                                                |                                                               | Inflation                                                 |                                             |    | 121 |    
|                                                |                                                               | U.S. GAAP Reconciliation                                  |                                             |    | 121 |    
|                                                |                                                               | Liquidity and Capital Resources                           |                                             |    | 128 |    
|                                                |                                                               | Trend Information                                         |                                             |    | 133 |    

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|         |                                                                                       |                                                     |                   |     |     |     | 
|-------- | ------------------------------------------------------------------------------------- | --------------------------------------------------- | ----------------- | --- | --- | --- | 
|         | Item 6. Directors, Senior Management and Employees                                    |                                                     |                   | 133 |    
|         |                                                                                       | Directors                                           |                   |     | 133 |    
|         |                                                                                       | Senior Management                                   |                   |     | 136 |    
|         |                                                                                       | Board of Statutory Auditors                         |                   |     | 138 |    
|         |                                                                                       | Executive Compensation                              |                   |     | 139 |    
|         |                                                                                       | Share Ownership                                     |                   |     | 141 |    
|         |                                                                                       | Employees                                           |                   |     | 141 |    
|         |                                                                                       |                                                     | Employee benefits |     |     | 143 | 
|         | Item 7. Major Shareholders and Related Party Transactions                             |                                                     |                   | 144 |    
|         |                                                                                       | Major Shareholders                                  |                   |     | 144 |    
|         |                                                                                       | Related Party Transactions                          |                   |     | 145 |    
|         | Item 8. Financial Information                                                         |                                                     |                   | 146 |    
|         |                                                                                       | Consolidated Financial Statements                   |                   |     | 146 |    
|         |                                                                                       | Other Financial Information                         |                   |     | 146 |    
|         |                                                                                       |                                                     | Legal Proceedings |     |     | 146 | 
|         |                                                                                       |                                                     | Dividend Policy   |     |     | 147 | 
|         |                                                                                       | Significant Changes                                 |                   |     | 149 |    
|         | Item 9. The Offer and Listing                                                         |                                                     |                   | 150 |    
|         |                                                                                       | Markets and Price Range of ADSs and Ordinary Shares |                   |     | 150 |    
|         | Item 10. Additional Information                                                       |                                                     |                   | 152 |    
|         |                                                                                       | Stock Option Plan                                   |                   |     | 152 |    
|         |                                                                                       | By-Laws                                             |                   |     | 155 |    
|         |                                                                                       | Material Contracts                                  |                   |     | 170 |    
|         |                                                                                       | Exchange Controls                                   |                   |     | 170 |    
|         |                                                                                       | Taxation                                            |                   |     | 171 |    
|         |                                                                                       | Documents on Display                                |                   |     | 175 |    
|         | Item 11. Quantitative and Qualitative Disclosure About Market Risk                    |                                                     |                   | 175 |    
|         |                                                                                       | Price risk management and market risk information   |                   |     | 175 |    
|         | Item 12. Description of Securities Other than Equity Securities                       |                                                     |                   | 179 |    
|PART II  |                                                                                       |                                                     | 179               |    
|         | Item 13. Defaults, Dividends Averages and Delinquencies                               |                                                     |                   | 179 |    
|         | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds |                                                     |                   | 179 |    
|         | Item 15. Controls and Procedures                                                      |                                                     |                   | 179 |    
|         | Item 16. [Reserved]                                                                   |                                                     |                   | 179 |    
|PART III |                                                                                       |                                                     | 179               |    
|         | Item 17. Financial Statements                                                         |                                                     |                   | 179 |    
|         | Item 18. Financial Statements                                                         |                                                     |                   | 179 |    

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| |                   |  |  |     |  |  | 
| | ----------------- |  |  | --- |  |  | 
| | Item 19. Exhibits |  |  | 181 | 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless we indicate otherwise, the financial information contained in this
annual report is prepared in accordance with Italian GAAP, which are the
accounting principles prescribed by Italian law and supplemented by the
accounting principles issued by the Consiglio Nazionale dei Dottori
Commercialisti e dei Ragioneri (National Board of Chartered Accountants) and,
to the extent such requirements or principles are silent on particular issues
and not at variance, by those standards laid down by the International
Accounting Standards Board (I.A.S.B.). These principles are described in note
2 to our consolidated financial statements included in this annual report.
These principles differ in certain respects from generally accepted accounting
principles in the United States or U.S. GAAP. We describe these differences in
note 23 to our consolidated financial statements. Unless indicated otherwise,
any reference in this annual report to our consolidated financial statements is
to the consolidated financial statements (including the notes to the
consolidated financial statements) included in this annual report.

We publish our consolidated financial statements in euro. In this annual
report, unless we specify otherwise or the context otherwise requires:



| |  | References to dollars, $ and U.S. dollars are to United States dollars;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | References to lire, lira or Lit. are to Italian lire; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| 
| |  | References to , euro or Euro are to the euro, the single currency established for participants in the third stage of
the European Economic and Monetary Union, or EMU, commencing January 1, 1999. The Republic of Italy is a participant in
EMU. From January 1, 1999 through December 31, 2001, the lira existed solely as a subdivision of the euro and the euro
existed in electronic form only. During such period, non-cash transactions were conducted in either euro or lire. Euro
notes and coins were circulated for the first time on January 1, 2002. Beginning as of March 1, 2002, only euro notes and
coins are legal tender in Italy and the other participating member states and the lira has ceased to exist.

To facilitate a comparison, the consolidated financial statements included
in Item 18 and all other lire-denominated financial data for periods prior to
January 1, 2001 included in this annual report have been restated from lire to
euro at the fixed rate as of December 31, 1998 established by the European
Central Bank of Lit.1,936.27 = Euro 1.00.

For convenience only and except where we specify otherwise, we have
translated certain Euro figures into dollars at the rate of Euro 1.00 =
$1.0485, the noon buying rate in The City of New York for cable transfers in
foreign currencies as announced by the Federal Reserve Bank of New York for
customs purposes (the noon buying rate) on December 31, 2002, the date of the
most recent balance sheet included in this annual report. By including
convenience currency translations in this annual report, we are not
representing that the euro amounts actually represent the dollar amounts shown
or could be converted into dollars at the rates indicated. On June 24, 2003,
the noon buying rate for euro was $1.1498 = Euro 1.00. For information about
the rate of exchange between the dollar and the euro since January 1, 1999, you
should read Item 3. Key InformationExchange Rates.

In this annual report, Enel and the Company refer to ENEL S.p.A. and
the terms Enel Group, Group, we, us and our refer to ENEL S.p.A.,
together with its consolidated subsidiaries. All references to Italy or the
State are to the Republic of Italy. All references to the Treasury
Ministry or the Treasury are to the Ministry of Economy and Finance and its
predecessor, the Ministry of the Treasury, Budget and Economic Planning of the
Republic of Italy. All references to the Industry Ministry are to the
Ministry of Productive Activities and its predecessor, the Ministry of
Industry, Commerce and Handcrafts of the Republic of Italy, all references to
the Environment Ministry are to the Ministry of the Environment of the
Republic of Italy, all references to the Energy Authority
are to the Authority for Electric Energy and Gas of the
Republic of Italy, all references to the Communications Authority are to
the Authority for the

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Guarantee of Communications of the Republic of Italy, and
all references to the Antitrust Authority are to the Antitrust Authority of
the Republic of Italy. All references to the Gestore della Reteare to the
Gestore della Rete di Trasmissione Nazionale S.p.A., a company owned by the
Treasury Ministry that manages Italys national electricity transmission grid.

We use a number of terms related to the electricity industry in this
annual report. We have explained some of these terms in the following
Glossary of Selected Electricity Terms included in this annual report.




GLOSSARY OF SELECTED ELECTRICITY TERMS

The following explanations are not technical definitions, but they should
assist you in understanding some of the terms used in this document.

|                           |  |                                                                                                                                                                                                                                                                                                
|-------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Average thermal efficiency |  | A measure of the efficiency of a thermal generating
plant in converting sources of energy such as fuel oil
into electricity. Average thermal efficiency is
expressed as the amount of electricity actually
produced in kWh as a percentage of the kWh equivalent
of the energy source consumed.
|                           |  |                                                                                                                                                                                                                                                                                                
|Combined Cycle Gas Turbine |  | A type of generating plant that produces electricity
through both gas turbines and steam turbines.
Conventional boilers or other generators recover and
use the heat exiting from gas turbines.                                                                                                
|                           |  |                                                                                                                                                                                                                                                                                                
|Co-generation              |  | The simultaneous generation of steam and electricity,
typically where the need arises for industrial
purposes.                                                                                                                                                                                 
|                           |  |                                                                                                                                                                                                                                                                                                
|Generating unit            |  | An electric generator together with the turbine or
other device which drives it.                                                                                                                                                                                                               
|                           |  |                                                                                                                                                                                                                                                                                                
|Gigawatt (GW)              |  | 1,000,000,000 watts (1,000 megawatts).                                                                                                                                                                                                                                                         
|                           |  |                                                                                                                                                                                                                                                                                                
|Gigawatt hour (GWh)        |  | One gigawatt of power supplied or demanded for one hour.                                                                                                                                                                                                                                       
|                           |  |                                                                                                                                                                                                                                                                                                
|Installed capacity         |  | The maximum power which could be produced continuously
throughout a prolonged period of operation. All
equipment is assumed to be fully operational.                                                                                                                                           
|                           |  |                                                                                                                                                                                                                                                                                                
|Kilovolt (kV)              |  | 1,000 volts.                                                                                                                                                                                                                                                                                   
|                           |  |                                                                                                                                                                                                                                                                                                
|Kilovolt ampere (kVA)      |  | 1,000 volts ampere.                                                                                                                                                                                                                                                                            
|                           |  |                                                                                                                                                                                                                                                                                                
|Kilowatt (kW)              |  | 1,000 watts.                                                                                                                                                                                                                                                                                   
|                           |  |                                                                                                                                                                                                                                                                                                
|Kilowatt hour (kWh)        |  | One kilowatt of power supplied or demanded for one hour.                                                                                                                                                                                                                                       
|                           |  |                                                                                                                                                                                                                                                                                                
|Megawatt (MW)              |  | 1,000,000 watts (1,000 kilowatts).                                                                                                                                                                                                                                                             
|                           |  |                                                                                                                                                                                                                                                                                                
|Megawatt hour (MWh)        |  | One megawatt of power supplied or demanded for one hour.                                                                                                                                                                                                                                       
|                           |  |                                                                                                                                                                                                                                                                                                
|Megavolt ampere (MVA)      |  | 1,000,000 volts ampere.                                                                                                                                                                                                                                                                        
|                           |  |                                                                                                                                                                                                                                                                                                
|NOx                        |  | Oxides of nitrogen.                                                                                                                                                                                                                                                                            
|                           |  |                                                                                                                                                                                                                                                                                                
|Orimulsion                 |  | Abbreviation of Orinoco emulsion, which is a fossil
fuel from the Orinoco river basin in Venezuela
consisting of very fine bitumen dispersed in water.
Orimulsion emits the same amount of CO2 as fuel                                                                                       

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|                   |  |                                                                                                                           
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------
|                   |  | oil of equivalent energy value.                                                                                           
|                   |  |                                                                                                                           
|SO2                |  | Sulfur dioxide.                                                                                                           
|                   |  |                                                                                                                           
|Substation         |  | Equipment which switches and/or changes or regulates
the voltage of electricity in a transmission and
distribution system.
|                   |  |                                                                                                                           
|Terawatt (TW)      |  | 1,000,000,000,000 watts (1,000 gigawatts).                                                                                
|                   |  |                                                                                                                           
|Terawatthour (TWh) |  | One terawatt of power supplied or demanded for one hour.                                                                  
|                   |  |                                                                                                                           
|Thermal unit       |  | A generating unit which uses combustible fuel as the
source of energy to drive an electric generator.                     
|                   |  |                                                                                                                           
|Volt               |  | The basic unit of electric force analogous to water
pressure in pounds per square inch.                                   
|                   |  |                                                                                                                           
|Voltampere         |  | The basic unit of apparent electrical power.                                                                              
|                   |  |                                                                                                                           
|Watt               |  | The basic unit of active electrical power.                                                                                

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PART I




Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.




Item 2. Offer Statistics and Expected Timetable

Not applicable.




Item 3. Key Information




The Enel Group

We are the principal electricity operator in Italy, with the leading
position in the generation, distribution, sale and transmission of electricity.
Our net electricity production in 2002 was 145.1 TWh (including 8.0 TWh
generated by Eurogen and 5.7 TWh generated by Interpower, the generating
companies that we sold in May 2002 and January 2003, respectively). Our net
production decreased by 14%, or by 24 TWh, in 2002 as compared to 2001,
primarily as a result of the divestiture of Elettrogen and Eurogen, which took
place in September 2001 and May 2002, respectively. Based on data provided by
the Gestore della Rete, we estimate that our production (including production
by Eurogen and Interpower) represented 54% of Italian net production during
2002. We estimate that, in terms of the volume of electricity sold in the year
2002, we were one of the largest electric utilities in Europe. According to
Bloomberg, based on market capitalization, Enel was the largest publicly traded
electric utility in Europe. Based on revenues, we were one of the largest
industrial groups in Italy, with operating revenues of Euro 29,977 million, or
approximately $31,431 million, in 2002. We earned net income of Euro 2,008
million, or $2,105 million, in 2002.

The Republic of Italy, through the Treasury Ministry, currently owns
approximately 68% of Enels shares, having sold approximately 32% of the
Companys shares in the initial public offering in 1999 as part of the
privatization and liberalization of the Italian electricity market. Our
current senior management team has focused on preparing to face the challenges
posed by market deregulation by capitalizing on our expertise in the
electricity and gas sectors and by seeking new opportunities for growth in
Italy and abroad. With this intent, we intend to focus on our core energy
business, achieve cost leadership in the generation, distribution and sale of
electricity and gas, and make customer care a high priority. In addition, we
will continue to evaluate strategically relevant international opportunities,
both in new markets and in our existing markets, such as Spain and, in the area
of renewable energy, in North and Central America. We now view our
telecommunications activities solely as a financial investment.




Selected Consolidated Financial Data

You should read the following selected consolidated financial data
together with Item 5. Operating and Financial Review and Prospects and our
consolidated financial statements and notes thereto included elsewhere in this
annual report.

Our consolidated financial statements and the notes thereto included
herein have been prepared in accordance with Italian GAAP, which differ in
certain important respects from U.S. GAAP. For an explanation and
quantification of such differences, see notes 23, 24 and 25 to our consolidated
financial statements included herein.

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|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|------------------------------------------ |  | ----------------------------------------------- | ------ | ------------ |  | ---- | ------ | ---- |  | ---- | ------ | ------- |  | - | ------ | - |  | - | ------ | - |  | --------- | ------ | -
|                                           |  | As of December 31,                             
|                                           |  |                                                
|                                           |  | 1998                                            |        | 1999         |  | 2000 |        | 2001 |  | 2002 |        | 2002(2)
|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |        
|                                           |  | (euro in millions, except per share amount) (1) |        | (dollars    
|                                           |  |                                                 |        | in millions,
|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  | except   
|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  | per share
|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  | amounts) 
|Consolidated Statement of Income
Data      |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Amounts in accordance with Italian
GAAP:   |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Operating revenues                         |  |                                                | 20,549 |              |  |     | 20,960 |      |  |     | 25,109 |         |  |  | 28,781 |   |  |  | 29,977 |   |  | $         | 31,431 |  
|Operating expenses:                        |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Depreciation and amortization              |  |                                                 | 3,117  |              |  |      | 3,203  |      |  |      | 3,459  |         |  |   | 4,459  |   |  |   | 4,477  |   |  |           | 4,694  |  
|Other                                      |  |                                                 | 12,472 |              |  |      | 12,372 |      |  |      | 16,897 |         |  |   | 20,844 |   |  |   | 22,620 |   |  |           | 23,717 |  
|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Total operating expenses                   |  |                                                 | 15,589 |              |  |      | 15,575 |      |  |      | 20,356 |         |  |   | 25,303 |   |  |   | 27,097 |   |  |           | 28,411 |  
|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Operating income                           |  |                                                 | 4,960  |              |  |      | 5,385  |      |  |      | 4,753  |         |  |   | 3,478  |   |  |   | 2,880  |   |  |           | 3,020  |  
|Financial income (expense)                 |  |                                                 | (764   | )            |  |      | (584   | )    |  |      | (648   | )       |  |   | (1,110 | ) |  |   | (1,178 | ) |  |           | (1,235 | )
|Equity losses(3)                           |  |                                                 |       |              |  |      | (227   | )    |  |      | (458   | )       |  |   | (85    | ) |  |   | (59    | ) |  |           | (62    | )
|Extraordinary income (expense)(4)          |  |                                                 | (468   | )            |  |      | (547   | )    |  |      | 192    |         |  |   | 2,318  |   |  |   | 736    |   |  |           | 771    |  
|Income before taxes                        |  |                                                 | 3,727  |              |  |      | 4,027  |      |  |      | 3,839  |         |  |   | 4,601  |   |  |   | 2,379  |   |  |           | 2,494  |  
|Income taxes                               |  |                                                 | 1,514  |              |  |      | 1,683  |      |  |      | 1,649  |         |  |   | 649    |   |  |   | 608    |   |  |           | 637    |  
|Net income (after minority interest)       |  |                                                | 2,213  |              |  |     | 2,345  |      |  |     | 2,188  |         |  |  | 4,226  |   |  |  | 2,008  |   |  | $         | 2,105  |  
|                                           |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Earnings per share(5)                      |  |                                                | 0.18   |              |  |     | 0.19   |      |  |     | 0.18   |         |  |  | 0.70   |   |  |  | 0.33   |   |  | $         | 0.35   |  
|Number of shares outstanding
(in millions) |  |                                                 | 12.126 |              |  |      | 12.126 |      |  |      | 12.126 |         |  |   | 6.063  |   |  |   | 6.063  |   |  |           |       |  
|Amounts in accordance with U.S.
GAAP(6):   |  |                                                 |        |              |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Operating revenues                         |  |                                                | 20,539 |              |  |     | 21,053 |      |  |     | 26,432 |         |  |  | 28,781 |   |  |  | 30,604 |   |  | $         | 32,088 |  
|Depreciation and amortization              |  |                                                 | 2,956  |              |  |      | 3,064  |      |  |      | 3,485  |         |  |   | 4,478  |   |  |   | 4,069  |   |  |           | 4,267  |  
|Operating income (7)                       |  |                                                 | 4,486  |              |  |      | 5,102  |      |  |      | 4,065  |         |  |   | 3,641  |   |  |   | 4      |   |  |           | 5      |  
|Income before taxes (7)                    |  |                                                 | 3,746  |              |  |      | 4,228  |      |  |      | 3,125  |         |  |   | 3,965  |   |  |   | 1,373  |   |  |           | 1,441  |  
|Net income (after minority interest)       |  |                                                 | 1,823  |              |  |      | 2,295  |      |  |      | 1,841  |         |  |   | 3,688  |   |  |   | 1,399  |   |  |           | 1,467  |  
|Earnings per share(5)                      |  |                                                | 0.15   |              |  |     | 0.19   |      |  |     | 0.15   |         |  |  | 0.61   |   |  |  | 0.23   |   |  | $         | 0.24   |  



---

|See notes on next page.
|-----------------------

5



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##### Table of Contents



|                                                    |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|--------------------------------------------------- |  | ---------------------- | ------ | ----------- |  | ---- | ------ | ---- |  | ---- | ------ | ------- |  | - | ------ | - |  | - | ------ | - |  | --------- | ------ | -
|                                                    |  | As of December 31,    
|                                                    |  |                       
|                                                    |  | 1998                   |        | 1999        |  | 2000 |        | 2001 |  | 2002 |        | 2002(2)
|                                                    |  |                        |        |             |  |      |        |      |  |      |        |        
|                                                    |  | (euro in millions) (1) |        | (dollars in
|                                                    |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  | millions)
|Consolidated Balance Sheet Data                     |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Amounts in accordance with
Italian GAAP:            |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Fixed assets, net                                   |  |                       | 39,089 |             |  |     | 37,914 |      |  |     | 35,744 |         |  |  | 35,004 |   |  |  | 37,533 |   |  | $         | 39,353 |  
|Current assets                                      |  |                        | 6,524  |             |  |      | 6,193  |      |  |      | 9,456  |         |  |   | 11,902 |   |  |   | 14,464 |   |  |           | 15,165 |  
|Total assets                                        |  |                        | 46,780 |             |  |      | 45,017 |      |  |      | 49,633 |         |  |   | 63,190 |   |  |   | 67,019 |   |  |           | 70,269 |  
|Current liabilities                                 |  |                        | 11,275 |             |  |      | 10,796 |      |  |      | 15,621 |         |  |   | 19,164 |   |  |   | 21,916 |   |  |           | 22,979 |  
|Short-term debt(8)                                  |  |                        | 5,412  |             |  |      | 3,481  |      |  |      | 6,406  |         |  |   | 7,107  |   |  |   | 8,371  |   |  |           | 8,777  |  
|Long-term debt(9)                                   |  |                        | 8,780  |             |  |      | 8,760  |      |  |      | 7,984  |         |  |   | 16,072 |   |  |   | 17,172 |   |  |           | 18,005 |  
|Shareholders equity                                |  |                        | 18,530 |             |  |      | 17,577 |      |  |      | 18,312 |         |  |   | 20,966 |   |  |   | 20,772 |   |  |           | 21,779 |  
|Amounts in accordance with U.S.
GAAP(6):            |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Fixed assets, net                                   |  |                       | 38,714 |             |  |     | 37,709 |      |  |     | 37,403 |         |  |  | 36,035 |   |  |  | 38,304 |   |  | $         | 40,162 |  
|Total assets                                        |  |                        | 46,821 |             |  |      | 45,341 |      |  |      | 54,535 |         |  |   | 63,799 |   |  |   | 66,423 |   |  |           | 69,645 |  
|Short-term debt(8)                                  |  |                        | 5,412  |             |  |      | 3,481  |      |  |      | 6,406  |         |  |   | 7,107  |   |  |   | 8,371  |   |  |           | 8,777  |  
|Long-term debt(9)                                   |  |                        | 8,780  |             |  |      | 8,760  |      |  |      | 10,301 |         |  |   | 16,072 |   |  |   | 17,172 |   |  |           | 18,005 |  
|Shareholders equity                                |  |                        | 17,965 |             |  |      | 16,989 |      |  |      | 17,438 |         |  |   | 19,467 |   |  |   | 18,526 |   |  |           | 19,425 |  
|Consolidated Cash Flow Data                         |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Amounts in accordance with Italian
GAAP:            |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Net cash provided by operating
activities           |  |                       | 7,875  |             |  |     | 6,978  |      |  |     | 4,900  |         |  |  | 6,164  |   |  |  | 4,793  |   |  | $         | 5,025  |  
|Net cash used in investing activities               |  |                        | (2,975 | )           |  |      | (2,351 | )    |  |      | (3,429 | )       |  |   | (8,666 | ) |  |   | (4,206 | ) |  |           | (4,410 | )
|Net cash (used in) provided by
financing activities |  |                        | (3,626 | )           |  |      | (5,571 | )    |  |      | (1,510 | )       |  |   | 2,598  |   |  |   | (774   | ) |  |           | (811   | )
|Amounts in accordance with U.S.
GAAP(6):            |  |                        |        |             |  |      |        |      |  |      |        |         |  |   |        |   |  |   |        |   |  |           |        |  
|Net cash provided by
operating activities           |  |                        | 7,935  |             |  |      | 7,010  |      |  |      | 4,937  |         |  |   | 5,554  |   |  |   | 3,815  |   |  |           | 4,000  |  
|Net cash used in investing activities               |  |                        | (3,035 | )           |  |      | (2,383 | )    |  |      | (3,468 | )       |  |   | (8,707 | ) |  |   | (4,241 | ) |  |           | 4,447  |  
|Net cash (used in) provided by
financing activities |  |                        | (3,626 | )           |  |      | (5,571 | )    |  |      | (1,509 | )       |  |   | 3,249  |   |  |   | 239    |   |  |           | 250    |  

|                                             |  |                    |        |      |  |      |        |      |  |      |        |  |  |  |        |      |  |  |        |     
|-------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | ---- |  |  | ------ | ----
|                                             |  | As of December 31,
|                                             |  |                   
|                                             |  | 1998               |        | 1999 |  | 2000 |        | 2001 |  | 2002
|                                             |  |                    |        |      |  |      |        |      |  |     
|Operating Data (unaudited)                   |  |                    |        |      |  |      |        |      |  |      |        |  |  |  |        |      |  |  |        |     
|Gross installed capacity (GW)                |  |                    | 58.9   |      |  |      | 59.4   |      |  |      | 58.9   |  |  |  | 52.0   | (10) |  |  | 45.3   | (14)
|Domestic generation (TWh)(11)                |  |                    | 179.5  |      |  |      | 178.8  |      |  |      | 182.5  |  |  |  | 169.1  | (12) |  |  | 145.1  | (13)
|Domestic sales to final customers (TWh) (11) |  |                    | 226.2  |      |  |      | 230.5  |      |  |      | 222.9  |  |  |  | 206.0  |      |  |  | 194.3  |     
|Customers (millions)                         |  |                    | 29.3   |      |  |      | 29.7   |      |  |      | 29.8   |  |  |  | 29.8   |      |  |  | 28.8   |     
|Employees                                    |  |                    | 84,938 |      |  |      | 78,511 |      |  |      | 72,647 |  |  |  | 72,661 |      |  |  | 71,204 |     



---

|(1)  |  | Lira amounts relating to the fiscal years 1997 to 2001 have been translated
into euro amounts at the fixed rate of Lit. 1,936.27 = Euro1.00.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  |  | We have translated euro amounts into dollar amounts at the noon buying rate
for euro on December 31, 2002 of Euro1.00 = $ 1.0485.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(3)  |  | Under Italian GAAP, for the year ended December 31, 1999 and 2000, we
accounted for our investment in WIND Telecomunicazioni S.p.A., or WIND,
the lead company of our telecommunications segment, under the equity
method of accounting. We have consolidated WIND on a line-by-line basis
since January 1, 2001. We used the cost method of accounting in previous
periods. You should read note 2 to our consolidated financial statements
for a discussion of our consolidation principles. For purposes of U.S.
GAAP, we have consolidated WIND since January 1, 2000.                                                                                                                                                                                                                                                                                                                                                                              
|(4)  |  | You should read note 23 to our consolidated financial statements for a
discussion of the different criteria used under Italian GAAP and U.S. GAAP
for determining what constitutes an extraordinary item.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(5)  |  | We calculate earnings per share by dividing our consolidated net income
by the number of ordinary shares outstanding during each period. Prior to
our initial public offering in November 1999, all of our ordinary shares
were owned by the Treasury Ministry. Following the offering, and at
December 31, 2002, the Treasury Ministry owned approximately 68% of our
ordinary shares. You should consider that our share capital was Lit.
12,126,150,379,000 (corresponding to Euro 6,262,634,018) divided into
12,126,150,379 shares with a par value of each share of Lit. 1,000
(corresponding to Euro 0.52) until July 9, 2001, the date on which both
the re-denomination of our share capital in Euro and the one-for-two
reverse stock split became effective. As a result of the re-denomination
and the reverse stock split, our share capital is now Euro 6,063,075,189,
divided into 6,063,075,189 shares, each with a par value of Euro 1.
|(6)  |  | For information concerning differences between Italian GAAP and U.S. GAAP
that are relevant to our consolidated financial statements, you should
read notes 23, 24 and 25 to our consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(7)  |  | Operating income under U.S. GAAP in 2000, 2001 and 2002 is affected by
the different treatment under U.S. GAAP of extraordinary contributions to
the national pension system (Euro 577 million, Euro 523 million and Euro
446 million, respectively). In 2002 it also includes the writedown of
goodwill related to WIND for an amount of Euro 2,336 million. See note 23
to our consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(8)  |  | Includes current portion of long-term debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(9)  |  | Excludes current portion of long-term debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(10) |  | Including 7,346 MW owned by Eurogen, the generating company that we sold
in May 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(11) |  | For the period beginning on January 1 of each year and ending as of such
date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(12) |  | Including 12.2 TWh generated by Elettrogen and Valgen before they were
divested during 2001, and 20.9 TWh generated by Eurogen.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(13) |  | Including 8.0 TWh generated by Eurogen before it was divested in May 2002,
and 5.7 TWh generated by Interpower.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(14) |  | Including 3.0 GW of capacity of Interpower.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

6



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##### Table of Contents






Exchange Rates

The following table shows, for the periods indicated, information
concerning the exchange rate between the U.S. dollar and the euro. Amounts for
1998 (before the adoption of the euro) have been calculated based on the noon
buying rates for the Italian lira, converted into euro at the offered fixed
conversion rate of Euro1 = Lit. 1936.27 and expressed in dollars per euro.
These rates are provided solely for your convenience. We do not represent that
the euro could be converted into U.S. dollars at these rates or at any other
rate.

The column of averages in the table below shows the averages of the
relevant exchange rates on the last business day of each month during the
relevant period. The high and low columns show the highest and lowest exchange
rates on any business day during the relevant period.

|                         |  |               |        |         |  |      |        |     |  |  |        |  |  |  |        | 
|------------------------ |  | ------------- | ------ | ------- |  | ---- | ------ | --- |  |  | ------ |  |  |  | ------ | 
|                         |  | End of period |        | Average |  | High |        | Low
|                         |  |               |        |         |  |      |        |    
|U.S. dollars per euro(1) |  |               |        |         |  |      |        |     |  |  |        |  |  |  |        | 
|Year:                    |  |               |        |         |  |      |        |     |  |  |        |  |  |  |        | 
|1998                     |  |               | 1.1707 |         |  |      | 1.1147 |     |  |  |        |  |  |  |        | 
|1999                     |  |               | 1.0070 |         |  |      | 1.0588 |     |  |  |        |  |  |  |        | 
|2000                     |  |               | 0.9388 |         |  |      | 0.9207 |     |  |  |        |  |  |  |        | 
|2001                     |  |               | 0.8901 |         |  |      | 0.8909 |     |  |  |        |  |  |  |        | 
|2002                     |  |               | 1.0485 |         |  |      | 0.9495 |     |  |  |        |  |  |  |        | 
|Month ended:             |  |               |        |         |  |      |        |     |  |  |        |  |  |  |        | 
|December 31, 2002        |  |               |        |         |  |      |        |     |  |  | 1.0485 |  |  |  | 0.9927 | 
|January 31, 2003         |  |               |        |         |  |      |        |     |  |  | 1.0861 |  |  |  | 1.0361 | 
|February 28, 2003        |  |               |        |         |  |      |        |     |  |  | 1.0875 |  |  |  | 1.0708 | 
|March 31, 2003           |  |               |        |         |  |      |        |     |  |  | 1.1062 |  |  |  | 1.0545 | 
|April 30, 2003           |  |               |        |         |  |      |        |     |  |  | 1.1180 |  |  |  | 1.0621 | 
|May 30, 2003             |  |               |        |         |  |      |        |     |  |  | 1.1853 |  |  |  | 1.1200 | 



---

|(1) |  | Based on the Noon Buying Rate for the euro for the periods indicated.
|--- |  | ---------------------------------------------------------------------

Our ordinary shares are quoted in euro on Telematico, the Italian
automated screen-based trading market managed by Borsa Italiana. Our American
Depositary Shares, or ADSs, are quoted in U.S. dollars and traded on the New
York Stock Exchange.

The fixed conversion rate between the euro and the lira established on
December 31, 1998 was Lit.1,936.27 = Euro 1.00.

On June 24, 2003 the noon buying rate for the euro was $1.1498 = Euro 1.00.

7



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##### Table of Contents






Risk Factors

You should carefully consider the risks described below and all of the other
information in this document. If any of the risks described below actually
occurs, our business, financial condition or results of operations could be
materially adversely affected and the trading price of our ordinary shares or
ADSs could decline.

Risks Relating to Our Energy Business

We must overcome regulatory challenges to implement our new strategy

Regulatory changes implemented in Italy as part of the general
liberalization of the electricity market in the past few years have led to
increased competition and placed limits on the size of our power generation and
other businesses. Even so, in 2002, our new management team made a strategic
decision to move away from the diversification strategy we had been pursuing in
recent years to refocus on our core energy business.

As regards our electricity business, by law, since January 1, 2003, no
single company or group may generate and/or import more than 50% of the total
of imported and domestically produced electricity in Italy. As a result of
this limit, we were required to sell not less than 15,000 MW of our generating
capacity by January 1, 2003, which we achieved through the sale of Elettrogen
S.p.A., Eurogen S.p.A. and Interpower S.p.A., three generating companies we
call the Gencos (see Item 4. Information on the CompanyDisposal of the
Gencos). As a result of these sales, which occurred between September 2001
and January 2003, we expect to generate approximately 39% of the total amount
of electricity generated and imported in Italy in 2003. In addition, based on
data from the Gestore della Rete, we estimate that our market share in the sale
of electricity in Italy decreased from 92% in 1999 to 67% in 2002, and we
expect our market share to continue to decline in the coming years as
liberalization progresses. As a consequence of our disposal of the three
Gencos, our operating profits have declined, and will continue to do so as a
result of the increased competition and regulatory constraints on our market
share, unless we are able to offset the decrease in sales volumes of our
generation business through improved efficiency, increased sales in other areas
of our business or international expansion.

Our entry into the gas sector also exposes us to risks relating to market
regulation. Italian regulations enacted in May 2000 have sought to introduce
competition into the Italian natural gas market through the liberalization of
the import, export, transport, dispatching, distribution and sale of gas.
However, we cannot predict whether or when these regulations will result in a
fully liberalized market, or how the natural gas market will develop under
these conditions. For example, on January 1, 2003, the gas market was supposed
to have been completely liberalized, with sellers able to freely determine
prices for all customers. However, the Energy Authority, which retained the
right to control prices for certain, mainly residential, customers after that
date, imposed a price freeze with respect to those customers at the levels that
were in place on December 31, 2002, and is still establishing regulations to
govern activities on the free market (such as sales regulations, network codes
and provider-switching procedures).

In this environment, our strategy is to seek both to be the cost leader in
the generation of electricity and the distribution and sale of electricity and
gas in Italy and to provide high quality customer service. If we are unable to
implement this strategy, or are otherwise unable to adapt our core energy
businesses to meet these regulatory challenges, it may have a material adverse
effect on our business prospects, financial condition and results of
operations.

We face increasing competition in the electricity market.

For many years we had virtually no competition in the markets for the
generation, transmission and distribution of electricity in Italy. The
increase in competition under the new

8



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##### Table of Contents



electricity market structure called for
by the Bersani Decree, a law enacted in 1999 with the intent of liberalizing
the Italian electricity market, may materially adversely affect our results of
operations and financial condition by further reducing our market share,
revenues and/or profits. Under the new structure, the number of customers able
to purchase electricity on the free market will continue to increase each year
as consumption thresholds determining eligibility drop, until all customers
become eligible, in 2004 for non-household users and in 2007 for individual
consumers.

Our competitors in the generation business include independent power
producers and municipal utilities. In addition, our disposal of the Gencos has
exposed us to increasing competition from other operators of electricity
generating capacity, including Italian and international power companies. In
sales of electricity on the free market, we also face competition from
suppliers and wholesalers that are intensive users of electricity and may
resell to other end users the electricity that they purchase. We expect that
competition will increase further due to:



| |  | An increase in bilateral contracts between our competitors and final customers;                                                                                                                 
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The introduction of the pool market, on which prices will be determined by competitive bidding;                                                                                                 
| 
| |  | Regulations limiting each operators access to international electricity sources to a maximum percentage of available
interconnection capacity; and                                             
| 
| |  | The construction of new generation facilities by our competitors and the development of new interconnection lines that
would increase the volume of electricity that might be imported in Italy.

For a more complete description of the regulation of the industry and the
way we expect it to affect the electricity market, you should read Item 4.
Information on the CompanyRegulatory MattersElectricity Regulation.

Future regulation could have a significant adverse effect on our energy
businesses and their profitability.

The laws, regulations and policies of the European Union and the Italian
government significantly affect our revenues and profits and the way we conduct
our business. The regulatory framework for both the Italian electricity and
natural gas markets has changed significantly in recent years as a result of
legislation designed to liberalize these markets and create more competition.
Future regulation by the European Union or the Italian government may require
significant changes in our business or otherwise affect our business in ways
that we cannot predict. For example, the Italian Parliament is currently
examining a bill that includes several regulatory changes to the current
structure of the electricity industry. If this bill is adopted, our subsidiary
Terna S.p.A., as owner of the national transmission network, could be merged
with the national transmission network operator, the Gestore della Rete. The
bill envisions the subsequent privatization of the merged entity, which would
own and manage the Italian transmission network, and would place a limit on our
ability to own shares in the privatized entity. Any new regulations that cause
us to restructure or otherwise change our business may have a material adverse
effect on our business prospects, results of operations and financial
condition. You should read Item 4. Information on the CompanyRegulatory
Matters for a detailed discussion of these regulatory changes.

Significant increases in fuel prices or disruptions in our fuel supplies could
have a negative effect on our business.

Our thermal generating plants use fuel oil, natural gas and coal to
generate electricity. Increases in energy prices, therefore, have a direct
effect on our operating costs. Both the cost and availability of fuel are
subject to many economic and political factors and events occurring throughout
the world that we can neither control nor accurately predict. While the
government-set tariffs we charge on the regulated market include a component
intended to compensate us for changes in the cost of fuel, the expected
introduction of the pool market and the anticipated increase in the
number of

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consumers who qualify to participate in the free market will increase risks
relating to fuel price fluctuations.

In addition, our use of natural gas has increased in recent years, and can
be expected to continue to increase in the near future, particularly as we
convert plants to combined cycle technology. In 2002, approximately
34.4% of the
electricity we produced was generated by plants using natural gas. A
significant portion of the natural gas we currently use depends on direct
supplies from Algeria and Nigeria. Security concerns associated with this
imported supply add an element of uncertainty regarding our continued ability
to procure sufficient quantities of natural gas.

If there are substantial increases in the price of the fuels we use to
generate electricity that we are unable to pass on to our customers, or if
adequate supplies of fuel become unavailable in the future, our results of
operations and financial condition may be materially adversely affected.

We may not be able to realize the benefits of acquisitions in our gas
distribution business.

A significant part of our strategy going forward is to develop and
increase our natural gas distribution activities. As part of this strategy, we
have acquired a number of natural gas distributors with operations in various
Italian regions during the past three years, including Camuzzi Gazometri
S.p.A., or Camuzzi Gazometri, one of the largest alternative gas distributors
in Italy. We are in the process of integrating these several entities into one
gas distribution company in order to improve the efficiency of our operations.
There can be no assurance that we will be able to realize potential synergies,
cost savings or other benefits expected from their integration.

Our expansion outside of Italy subjects us to risks associated with local
market conditions.

We have in recent years expanded our operations overseas. We have
operations in the renewable energy sector in North and Central America, and in
2002, we entered Spains electricity market through the acquisition of Electra
de Viesgo, a Spanish electricity generation and distribution company. In 2003,
we entered the Bulgarian market with our acquisition of a controlling stake in
Entergy Power Holding Maritza BV, which through a subsidiary owns a power
generation plant in Bulgaria. We also agreed to acquire a controlling stake in
the renewable energy operations of Spains Union Fenosa, as well as a 50% stake
in a combined cycle generation facility Union Fenosa is currently constructing.
We will continue to evaluate opportunities abroad and may expand our
investments in these countries or in new markets. Our acquisition of
businesses outside of Italy requires us to become familiar with new markets and
competitors, and exposes us to local economic, regulatory and political risks.
Operating internationally also may subject us to risks related to currency
exchange rate fluctuations, foreign investment restrictions or restrictions on
remittances by local subsidiaries. Depending on the circumstances, unfavorable
developments in one or more of these areas in a foreign country in which we
have operations could adversely affect our business prospects, financial
condition and results of operations.

New regulations may limit our ability to recover fully our stranded costs.

Our stranded costs mainly consist of costs resulting from governmental
requirements imposed in the past on the design and operation of our generation
plants. In particular, because of governmental policies, we built most of our
plants to ensure a high degree of flexibility in the type of fuel that they
could use. The Industry Ministry and the Treasury Ministry determined which
costs were to be considered as recoverable stranded costs and established a
system to recover them. Under that system, we were to be permitted to recover
a significant portion of our stranded costs between 2000 and 2006. However, a
law enacted in April 2003 has narrowed the type of stranded costs that we will
be able to recover after January 1, 2004 to those incurred in connection with
our imports of liquefied natural gas from Nigeria. This law also provides that
our recoverable stranded costs for the 2000-2003 period will be determined
under parameters to be set by the Industry Ministry and the Treasury Ministry,
after consultation with the Energy Authority. We cannot predict how the
Industry Ministry

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and Treasury Ministry will calculate these costs, or whether
the amounts we will be permitted to recover, if any, will be sufficient to
reimburse us for costs actually incurred. You should read Item 4.
Information on the CompanyRegulatory MattersElectricity RegulationThe new
tariff structureStranded costs for a more detailed description of the
stranded costs recovery plan.

Recent acquisitions have resulted in an increase in our level of indebtedness,
and may result in credit rating downgrades or otherwise affect our financial
condition.

Recent acquisitions have had and will continue to have a significant
effect on our results of operations and financial condition. Our acquisition
of Infostrada, Italys second-largest provider of fixed-line telephone services
in 2001, has had a negative impact on our results through the amortization of
Euro 7,631 million in goodwill that arose from the transaction, and the
indebtedness incurred to finance the acquisition has negatively affected our
financial condition. In addition, in March 2003, we agreed to pay Wireless
Services Belgium SA, a subsidiary of France Télécom, Euro 1,330 million for
its 26.6% stake in WIND Telcomunicazioni S.p.A., or WIND. After the
announcement of the transaction, Standard & Poors Rating Services changed the
outlook on our long-term debt from stable to negative, and Moodys Investors
Service changed the outlook for all of its ratings on our debt from stable to
negative, although both agencies confirmed their rating of A+ and A1,
respectively, for our long-term debt. Credit rating downgrades would increase
our borrowing costs. Our net financial debt at March 31, 2003, was Euro 22,831
million. If we incur additional indebtedness to finance future acquisitions,
or if such transactions generate significant amounts of goodwill or result in
the downgrade of our credit ratings, it could have a material adverse effect on
financial condition and our results of operations.

We have had to increase investments and may incur additional costs to comply
with regulations on the quality of electricity service.

In Italy, we are subject to regulations on quality-of-service standards
for electricity companies, particularly with regard to service continuity, or
the frequency and duration of interruptions in service. In connection with the
continuity standards, the Energy Authority has put in place a system of bonuses
and penalties, under which entities that exceed the quality standards for
continuity of service earn bonus payments from the Energy Authority, and
entities that do not meet these standards must pay fines.

In order to comply with these regulations and provide our electricity
services in accordance with the quality-of-service standards, we invested
approximately Euro 1,820 million from 2000 through 2002, and have in place a
plan requiring expenditures of approximately Euro 2,910 million in the period
2003-2007 to enhance the quality of our service. We cannot be sure that our
planned levels of capital expenditures will be adequate to ensure our
compliance with existing quality of service targets, including those with
respect to continuity of service, or whether our results of operations may
be adversely affected by our failure to meet these targets, or by any
penalties we might be required to pay as a result of any such failure.

Our core energy businesses and other activities are subject to numerous
environmental regulations that could significantly affect our results of
operations and financial condition.

Our core electricity and gas businesses and other activities, such as
power-related engineering and construction and telecommunications, are subject
to extensive environmental regulation under Italian law, including laws adopted
to implement European Union regulations and directives and international
agreements on the environment. Environmental regulations affecting our
business primarily relate to air emissions, water pollution, waste disposal and
electromagnetic fields. The principal air emissions deriving from
fossil-fueled electricity generation are sulfur dioxide (SO2), nitrogen oxides
(NOX), carbon dioxide (CO2) and particulate matters such as dust and ash. A
primary focus of environmental regulation applicable to our business is to
reduce these emissions.

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We incur significant costs to comply with environmental regulations
requiring us to implement preventive or remediation measures, although in some
cases we may benefit from a reimbursement mechanism provided by law. In
addition, expressions of public concern about environmental problems may result
in even more stringent regulation in the future. Environmental regulatory
measures:



| |  | May take such forms as emission limits, taxes or required remediation measures; and                                                  
|- |  | -------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | May influence our policies in ways that affect our business decisions and strategy, such as by discouraging our use of
certain fuels.

We spent a total of Euro 352 million (including environmental taxes) in
2002 on measures to minimize the impact of our operations on the environment,
including measures to comply with applicable law. Major expenditures include
capital expenditures to limit SO2 and NOx emissions in generation and to
install underground cables in our distribution network. We also incurred
approximately Euro 580 million in 2002 in additional fuel costs to comply with
environmental regulations.

In addition, we are parties to a significant number of legal proceedings
relating to environmental matters. The aggregate amounts of damages that we
may be required to pay and the aggregate costs of remediation or preventive
measures we may be required to implement following final adjudications in these
proceedings may be significant.

You should read Item 4. Information on the CompanyRegulatory
MattersEnvironmental Matters and Item 8. Financial InformationOther
Financial InformationLegal Proceedings for a more complete discussion of
environmental matters. See also We may incur significant capital expenditures
to comply with legislation on electromagnetic fields; we may not be fully
reimbursed for these capital expenditures, below.

Risks Relating to Our Other Businesses

We may be unable to divest our non-core businesses on acceptable terms.

We intend to divest certain of our non-core businesses, such as Enel Real
Estate S.p.A. We also may dispose of all or part of our telecommunications
operations at some point in the future. Although these planned divestments
generally fit into our strategy of focusing on our core energy business, there
can be no assurance that we will be able to sell these assets in accordance
with our own timetable, if at all, or that any sales will be made on favorable
terms. Our inability to dispose of
these businesses on acceptable terms could have a material adverse effect
on our business strategy and financial condition.

WINDs ability to offer competitive services depends on the use of rapidly
changing technologies, which are unproven and can require significant
expenditures.

The telecommunications industry is subject to rapid technological change,
which puts pressure on existing participants and new entrants to develop new or
advanced fixed-line, mobile or Internet technologies that are unproven and may
not provide the expected advantages over existing technologies. We cannot
predict the effect of these technological changes on WIND or its ability to
provide competitive services.

For example, in late 2000, WIND made an initial payment of Euro 2,066
million in order to acquire a UMTS license from the Italian government for the
provision of third generation mobile telephony services. WIND will be required
to make substantial investments during the next several years in order to build
out its UMTS network and develop related services and products, as well as
paying an additional Euro 361.5 million in respect of its license over the next
nine years. UMTS technology and UMTS-related services, however, are not yet
fully tested. If UMTS technology is not

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developed on a timely basis, or if it
does not deliver the anticipated advantages over current services or gain
widespread acceptance, WINDs results of operations could be materially and
adversely affected.

In 2001, WIND entered into two syndicated credit facilities for a total
amount of Euro 7,000 million. As of December 31, 2002, Euro 5,865 million were
outstanding on these two facilities. Under these facilities, the availability
of funds and changes in applicable interest rates are conditioned upon the
maintenance by WIND of certain financial ratios within certain levels, and WIND
would be considered in default and required to make repayments if such ratio
levels are not maintained.

WIND expects that competition for resources and infrastructure needed to
develop new telecommunications technologies will intensify. As new
technologies develop, WIND may be placed at a competitive disadvantage and
competitive pressures may force it to implement these new technologies at a
substantial cost. Any inability by WIND to implement these new technologies on
a timely basis, penetrate new markets in a timely manner in response to
changing market conditions or customer requirements, or any failure by new or
enhanced services offered by WIND to achieve a significant degree of market
acceptance, could have a material adverse effect on WINDs business prospects,
operating results and financial condition.

WIND faces increasing competition.

The Italian and EU telecommunications sector is highly competitive and we
expect competition to increase.

In fixed-line telephony, WIND competes primarily with Telecom Italia, the
incumbent operator that historically held a monopoly for fixed-line services in
Italy and continues to hold a significant majority of the overall market for
fixed-line services. WIND also competes with a number of other fixed-line
operators that, like WIND, seek to offer customers an alternative to Telecom
Italia.

In its mobile telephone business, WIND faces strong competition ,
particularly from Telecom Italia Mobile and Vodafone Omnitel, the two leading
wireless operators in Italy. WIND expects further competition from 3, a
mobile operator which launched its commercial services at the beginning of 2003
and which, along with Telecom Italia Mobile, Vodafone Omnitel and WIND,
successfully bid for UMTS licenses for third-generation mobile telephony
services in 2000.

WIND also faces significant competition from existing operators in the
Internet and data service areas, and we expect that new competitors will emerge
as these markets continue to evolve and grow.

Telecom Italia, WINDs principal competitor, has greater financial
resources, more developed infrastructure and a larger market share than WIND.
In order to compete effectively with existing competitors and any new entrants,
WIND may be required to reduce its tariffs further and make additional capital
expenditures to develop its services; subsequent reductions in revenues or
increases in costs could have a material adverse impact on WINDs operating
results and financial condition.

WIND relies on agreements with other fixed-line and mobile telephone carriers
to provide telephone services.

WIND depends on its interconnection agreement with Telecom Italias
network to provide indirect access for its fixed-line telephone services and on
its ability to lease lines from Telecom Italia in order to provide direct
access for certain of WINDs largest corporate clients. WIND also relies on
interconnection and roaming agreements with other telephone operators,
including international carriers, in order to expand the scope and range of its
telephony services. WINDs ability to operate its networks and offer services
to its customers may be adversely affected if the access to the network of
Telecom Italia or any of the other carriers with which WIND has such an
agreement is offered

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solely on economic terms that do not make it financially
attractive for WIND to offer direct access to their customers.

WIND may not be able to expand its fixed-line business as planned if it does
not implement access to the local loop on a timely basis.

WIND is
offering direct access to its network to fixed-line customers as a result of
the unbundling of the local loop, a process whereby Telecom Italia is required
to give alternative carriers such as WIND access to the local loop, Telecom
Italias last-mile connections that include the wires leading to a customers
home or office. Telecom Italia has begun to offer other operators access to
the local loop under conditions established by the Communications Authority.

Any delay in the expansion of WINDs access to Telecom Italias local loop
may adversely affect its operations and results. WIND may also be adversely
affected if the economic terms and conditions at which access to the local loop
is offered do not make it financially attractive for WIND to offer direct
access services to its customers.

WINDs ability to build out its network is dependent on its receipt of licenses
and government authorizations.

WIND requires government licenses and authorizations for rights of way to
build out its networks. We cannot assure you that WIND will be able to obtain
new licenses or authorizations or renew those that expire, in which case WIND
will have to alter its plans for the development of the network. WIND may be
also adversely affected if other telecommunications operators obtain licenses
and authorizations on more favorable terms.

We have made significant capital investments in developing WINDs
telecommunications business and expect that we will continue to be required to
do so. We incurred a substantial amount of debt and made significant
expenditures in connection with WINDs purchase of a third generation UMTS
mobile license and our acquisition of Infostrada.

Other Risks Relating to Our Businesses

We may incur significant capital expenditures to comply with legislation on
electromagnetic fields; we may not be fully reimbursed for these capital
expenditures.

In 2001, the Italian parliament passed a law intended to protect the
general public and workers against alleged potential long-term health effects
of exposure to electromagnetic fields generated by both low frequency
infrastructures, including electricity transmission and distribution lines and
substations, and high-frequency infrastructures, including the transmission
stations that WIND uses to provide mobile telephone services. The law provides
for the adoption and implementation of programs to bring existing electricity
transmission and distribution lines, substations and high frequency
infrastructures into compliance with electromagnetic exposure requirements to
be set by the Italian government. If the Italian government were to set limits
that are stricter than those currently in effect, we could be required to
upgrade, move or make other changes to some of our mobile telephony
infrastructure or our existing electricity lines and transmission and
distribution facilities. This process would increase our costs. Although with
respect to electricity transmission and distribution lines and substations, the
law requires the Energy Authority to set criteria, terms and conditions for the
recovery of the costs that the owners would bear in implementing any required
restructuring, any actual reimbursements we would receive may be lower than our
actual costs. Our results and financial condition may be adversely affected as
a consequence. You should read Item 4. Information on the CompanyRegulatory
MattersEnvironmental Matters for a more detailed description.

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If the Italian government reduces early retirement pensions, it will be more
expensive for us to continue our plan of voluntary workforce reduction.

Our ability to improve labor productivity and reduce the aggregate number
of our employees may be affected by changes in government regulation. Beginning
in 1996, we have reduced our headcount substantially, primarily through
voluntary measures such as by providing incentives for early retirement and
through attrition. In recent years, a number of Italian political figures have
proposed plans for significant reform of the national pension system. Any
substantial reform of the current system may reduce the availability of early
retirement pension benefits. If this occurs, it may be more expensive for us
to continue our plan of voluntary headcount reduction.

Risks relating to Enels Ordinary Shares and ADSs

The Treasury Ministry is Enels majority shareholder and will continue to
control important actions of the Company.

The Treasury Ministry holds approximately 68% of Enels outstanding share
capital and therefore controls the Company.

As long as the Treasury Ministry holds a majority of Enels ordinary
shares, it will have the right to:



| |  | Control a number of important actions that the Company takes, including the power to block capital increases and other
amendments to Enels by-laws;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Elect the chairman of the board of directors and all but one-fifth of the other directors; and                                                      
| 
| |  | Appoint a member and an alternate member to Enels board of statutory auditors.                                                                     

The special powers of the Italian government may limit Enels shareholders
ability to benefit from a premium in connection with a change of control
transaction.

The Italian privatization law and Enels by-laws confer upon the Italian
government, acting through the Treasury Ministry (which will act after
consultations with and in agreement with the Industry Ministry), certain
special powers with respect to the Companys business and actions by its
shareholders. These powers may permit the government to influence the
Companys business regardless of the level of its shareholding. The Government
may review the scope and duration of the Treasury Ministrys special powers
starting in September 2004.

The Treasury Ministry may directly appoint one member of Enels board of
directors and the chairman of the board of statutory auditors, in addition to
the directors and statutory auditors elected by the Treasury Ministry in its
capacity as a shareholder. In addition, the Treasury Ministry has veto power
over:



| |  | Whether any investor acquiring 3% or more of Enels share capital has the right to vote at the Companys shareholders
meetings. Should the Treasury Ministry exercise this veto power,
these investors must sell their shareholding in Enel within one
year;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Whether shares that are subject to shareholders agreements covering 5% or more of Enels share capital may be voted at the
Companys shareholders meetings; and                                                                                            
| 
| |  | Major corporate actions involving
the Company, such as a merger or a demerger.                                                                                                                                                                               

As a result, Enel may not enter into change of control transactions
without the approval of the Treasury Ministry, in agreement with the Industry
Ministry. This may limit Enels shareholders ability to benefit from a
premium in connection with a change of control transaction.

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The value of the ordinary shares or ADSs may be adversely affected by sales of
substantial amounts of ordinary shares by the Treasury Ministry or the
perception that such sales could occur.

The Treasury Ministry may sell additional portions of its shareholding in
Enel at any time and has announced that it intends to do so in the future.
There are no minimum ownership or similar requirements under Italian law that
would limit sales of additional shares by the Treasury Ministry. Sales of
substantial amounts of Enels ordinary shares in the public market by the
Treasury Ministry, or the perception that such sales could occur, could
adversely affect the market price of Enels ordinary shares and American
Depositary Shares, or ADSs, and Enels ability to raise capital through equity
offerings.

The dollar value of dividends Enel pays in respect of the Companys ordinary
shares and ADSs will be affected by the euro/dollar exchange rate.

Enel pays cash dividends in euro; as a result, exchange rate movements may
affect the U.S. dollar amounts that investors receive from the depositary if
they hold ADSs. The price of Enels ordinary shares is quoted in euro.
Exchange rate movements may also affect the U.S. dollar price of the ADSs and
the U.S. dollar equivalent of Enels ordinary share price.

If you hold ADSs rather than ordinary shares it may be difficult for you to
exercise some of the rights of a shareholder.

It may be more difficult for you to exercise the rights of a shareholder
if you hold ADSs than it would be if you directly held ordinary shares. For
example, if Enel offers new shares and you have the right to subscribe for a
portion of them, the depositary is allowed, in its own discretion, to sell for
your benefit that right to subscribe for new shares instead of making it
available to you. Also, in some cases you may not be able to vote by giving
instructions to the depositary on how to vote for you.




Forward-Looking Statements

This annual report includes forward-looking statements. We have based
these forward-looking statements on our current expectations and projections
about future events. These forward-looking statements regard, among other
things:



| |  | Anticipated trends in our businesses, including trends in demand for electricity;                                                                                                                                                            
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Our ability to implement successfully our cost reduction program;                                                                                                                                                                            
| 
| |  | Our intention to develop our gas business or expand our core businesses;                                                                                                                                                                     
| 
| |  | Changes in our regulatory environment and expectations on how the new regulations will be implemented;                                                                                                                                       
| 
| |  | The impact of changes in electricity tariffs;                                                                                                                                                                                                
| 
| |  | The remuneration of our generation activities based on competitive electricity prices rather than tariffs following the
introduction of the pool market, which we currently expect to occur in early 2004;                                   
| 
| |  | The development of our telecommunications business, including the fact that we currently view our interest in WIND as a
financial investment, and changes in the market environment, technology and regulation that may affect this business;
| 
| |  | Our intention to divest certain non-core businesses; and                                                                                                                                                                                     
| 
| |  | Future capital expenditures and investments.                                                                                                                                                                                                 

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The forward-looking statements
included in this annual report are subject to risks, uncertainties and
assumptions about our company. Our actual results of operations may differ
materially from the forward-looking statements as a result of, among other
things, the risk factors described under Risk Factors. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise occurring after the
date of this annual report. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this annual report might
not occur.




Item 4. Information on the Company




History and Development of the Company

We were established in December 1962 as a state-owned entity (Ente
Nazionale per lEnergia Elettrica) through the nationalization of approximately
1,250 private power companies in Italy. Our principal objective following the
nationalization was to provide low cost electricity to support the development
of the country. We believe that we have accomplished the purpose for which we
were established. In 1962, of a total population of 51 million, about 2
million Italians did not have electricity, and the country had only
approximately 300,000 kilometers of high, medium and low tension electricity
lines. Electricity now reaches virtually the entire Italian population, and at
September 2000, the most recent date for which complete data is available, the
country had about 1,095,700 kilometers of transmission and distribution lines.

In 1992, we ceased to operate as a public entity and were transformed into
a joint stock company, Enel S.p.A.

On April 1, 1999, the Bersani Decree took effect. This decree began the
transformation of the Italian electricity market from a highly regulated market
to liberalized one, in which energy prices charged by generators will
eventually be fully determined by competitive bidding. Beginning in October
1999, as required by the Bersani Decree, we formed separate subsidiary
companies, to each of which we assigned the responsibility (and related assets,
liabilities and personnel) for one of our significant businesses.

In November 1999, Enel completed an initial public offering of
3,848,802,000 shares, representing a sale of 31.74% of the Companys share
capital. The gross proceeds of the initial public offering were Euro 16,550
million. As a result of the initial public offering, Enels ADSs were listed
on the New York Stock Exchange and Enels shares were listed on the Mercato
Telematico Azionario, or Telematico, the Italian screen-based trading market
managed by Borsa Italiana S.p.A.

Since 1999, we have expanded our operations in the gas sector through the
acquisition of several independent gas distributors. We have also expanded our
energy operations abroad through the acquisition of two power producers
specializing in renewable resources  CHI Energy, Inc., a U.S. corporation, in
December 2000, and Energia Global International, LLC (or EGI), which operates
in Central and South America, in 2001  as well as through the purchase in 2002
of Electra de Viesgo S.L. (Viesgo), a Spanish company with electricity
generation and distribution operations. As required by Italian legislation, we
have at the same time disposed of approximately 15,000 MW of our generating
capacity through the sale of Elettrogen S.p.A. in September 2001, Eurogen
S.p.A. in May 2002, and Interpower S.p.A. in January 2003; we have also been
forced to sell several municipal distribution networks as part of the
liberalization of the market.

We have also invested in telecommunications, starting in 1997, when we
along with our initial partners, France Télécom and Deutsche Telekom, formed
our telecommunications subsidiary, WIND. Our initial stake in WIND was 51%,
which increased to 73.4% following Deutsche Telekoms exit from the joint
venture in July 2000 and our purchase and contribution to WIND of
Infostrada, which was merged into WIND as of January 1, 2002. In March
2003, we agreed to acquire the 26.6% stake in WIND held by Wireless Services
Belgium SA, a subsidiary of France Télécom,

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becoming WINDs sole shareholder.
Closing of this transaction is expected to occur in early July 2003.

In 2002, we reorganized our operations into six business divisions in
order to increase the focus of our activities on the market and to better
control costs and enhance synergies among our various subsidiaries. The new
divisions are: Generation and Energy Management; Sales, Infrastructure and
Networks; Transmission; Telecommunications; Services and Other Activities and
Corporate.

The Generation and Energy Management Division is responsible for our
operations related to the production of electricity and the procurement of fuel
for electricity generated. Our key subsidiaries in this division include Enel
Produzione S.p.A., the divisions lead company, in energy generation; Enel
Green Power S.p.A. (previously called E.R.G.A. S.p.A.), for generation of
energy from renewable resources; Elettroambiente S.p.A., which specializes in
waste-to-energy generation; Viesgo Generaciòn S.L. a Spanish power generation
company; CHI Energy, Inc. and EGI, which generate power from renewable
resources in the Americas; and Enel Trade S.p.A. (previously called Enel F.T.L.
S.p.A.), which purchases fuel for all of our generating operations and is
active in the fuel trading and logistics sector.

Our Sales, Infrastructure and Networks Division comprises two business
units, which operate as independent units under the umbrella of Enel
Distribuzione, S.p.A., the divisions lead company. The Infrastructure and
Networks business unit operates mainly through Enel Distribuzione, S.p.A.,
which distributes electricity in Italy; Electra de Viesgo Distribuciòn S.L., a
Spanish company which primarily distributes and sells electricity on the
regulated market in Spain; and three gas distribution companies in Italy, which
we plan to merge into a single entity by the end of 2003. The Sales business
unit sells electricity and gas and provides electricity-related services. Our
key subsidiaries in this area include Enel Distribuzione S.p.A., which sells
electricity on the regulated market in Italy; Enel Energia S.p.A. (previously
called Enel Trade S.p.A.), which sells electricity on the free market in Italy;
Enel Gas S.p.A., which resells natural gas to end users in Italy; So.l.e.
S.p.A., which offers public lighting services; and Enel.si S.p.A. which offers
electricity systems-related services and beyond the meter products and
services, such as consulting and sale of electricity equipment.

Terna S.p.A., our wholly owned subsidiary, constitutes our Transmission
Division and owns approximately 94% of Italys national electricity grid.

Our Telecommunications Divisions operations are carried out by WIND, and
the Services and Other Activities Division includes our other non-core business
operations, such as, among others, Enel Real Estate S.p.A. (previously called
SEI S.p.A.), which provides commercial real estate management services;
Enelpower S.p.A., which provides power-related engineering and construction
services; and Enel.it S.p.A., our group-wide information technology unit. See
BusinessOverview for a listing and description of our principal
subsidiaries.

Enel S.p.A. constitutes our Corporate division and, as the parent company,
defines the strategic objectives for the Enel Group and coordinates the
activities of all of these divisions. In addition, Enel manages finance
operations and insurance risk coverage for all Group companies (in the case of
finance operations, other than WIND) and provides assistance and guidelines on
organizational, industrial relations, accounting, administrative, tax and legal
issues.

For a description of our capital expenditures in each of the last three
fiscal years, please refer to BusinessThe Enel GroupCapital Investment
Program.

Enel S.p.A. is a società per azioni, or a joint stock company whose
capital is represented by shares, incorporated under the law of Italy. Enels
statuto, or bylaws, provide that the duration of the Company is until December
31, 2100. Enels registered office is at Viale Regina Margherita 137, Rome,
Italy. Enels main telephone number is +39 06 8305.1. Individual investors
may reach our

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retail investors team at telephone number +39 06 8305 2081, while
institutional investors may reach our investor relations team at telephone
number +39 06 8305 7008. Enel is represented in the United States by our
subsidiary CHI Energy Inc., whose name we expect to be changed into
Enel North America Inc., located at 680 Washington Boulevard, Stamford, CT
06901.




Business

Overview

We are the principal electricity company in Italy, with the leading
position in the generation, distribution, sale and transmission of electricity.
Our net electricity production in 2002 was 145.1 TWh (including 8.0 TWh
generated by Eurogen and 5.7 TWh generated by Interpower, the generating
companies that we sold in May 2002 and January 2003, respectively). Our net
production decreased by 14%, or by 24 TWh, in 2002 as compared to 2001,
primarily as a result of our sale of Elettrogen and Eurogen, which took place
in September 2001 and May 2002, respectively. Based on data provided by the
Gestore della Rete, we estimate that our production (including production by
Eurogen and Interpower) represented 54% of Italian net production during 2002.
We estimate that, in terms of the volume of electricity sold in the year 2002,
we were one of the largest electric utility in Europe. According to
Bloomberg, based on market capitalization, we were the largest publicly traded
electric utility in Europe. Based on revenues, we were one of the largest
industrial companies in Italy, with operating revenues of Euro 29,977 million,
or approximately $31,431 million, in 2002. We earned net income of Euro 2,008
million, or $2,105 million, in 2002.

Our Generation and Energy Management Division includes electricity
operations in Italy and abroad. We are the largest producer of electricity in
Italy through Enel Produzione S.p.A., our primary generating company, Enel
Green Power S.p.A., which specializes in producing electricity from renewable
resources, and Elettroambiente S.p.A., which specializes in the conversion of
waste to energy. As of December 31, 2002, we had 586 generating plants
(excluding plants owned by Interpower, which we sold in January 2003),
consisting of thermal, hydroelectric, geothermal and other renewable resources
facilities, which, based on data provided by the Gestore della Rete, we
estimate represented approximately 53% of the total gross installed capacity in
Italy as of December 31, 2002. In 2002, 75.5% of our net production was from
thermal plants, 21.1% was from hydroelectric plants and the remaining 3.4% was
from geothermal and other renewable resources plants. We no longer own or
operate any nuclear plants. As explained in more detail below, Italian
legislation designed to liberalize the electricity market required us to
dispose of approximately of 15,000 MW of our generating capacity by the end of
2003. We have already met this requirement through the disposal of three
companies formed for this purpose that we called the Gencos, Elettrogen S.p.A.,
Eurogen S.p.A. and Interpower S.p.A., which own generating plants having an
aggregate net installed capacity of approximately 15,000 MW. We completed the
sales of Elettrogen, Eurogen. and Interpower in September 2001, May 2002 and
January 2003, respectively. In 2002, this division also included the
distribution activities of Electra de Viesgo Distribuciòn SL. Starting from
January 1, 2003, such activities are included in our Sales, Infrastructures and
Networks division.

At the same time, we have been expanding our Generation and Energy
Management operations outside of Italy. Our largest operation abroad is
through Viesgo Generaciòn S.L. (which until 2002 was a subsidiary of Electra
de Viesgo S.L.), an electricity generation company in Spain, with a gross installed
capacity of 2,365 MW, which we acquired on January 8, 2002. On March 5, 2003,
we executed an agreement with Entergy Power Development Corporation for the
purchase of 60% of the share capital of Entergy Power Holding Maritza BV, a
Dutch company, with the option to acquire the remaining 40% if certain
conditions are met. Entergy Power Holding Maritza BV holds 73% of
Maritza East III Power Company AD, a Bulgarian company with a generating
plant with a capacity of 840 MW.

In 2002, this division had revenues of Euro 11,777 million, of which Euro
10,854 million came from domestic operations and Euro 923 million came from our
international operations. This

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compares to revenues of Euro 12,631 million in
2001 or, excluding Elettrogen, Eurogen and Valgen S.p.A., a hydroelectric
generating company we sold in 2001, Euro 11,490 million.

Through Enel Distribuzione S.p.A. in our Infrastructure and Networks
business unit, we are the largest electricity distributor in Italy. At
December 31, 2002, our distribution network consisted of a total of 1,063,010
km of lines, mostly medium and low voltage, and 407,751 primary and secondary
transformer substations, with a total transformer capacity of 151,336 MVA. As
described in more detail below, Italian legislation has required us to dispose
of our distribution networks in certain municipalities. Our Infrastructure and
Networks area also includes our gas distribution operations, which in 2002 were
carried out through Enel Distribuzione Gas S.p.A., GE.AD S.p.A. and Camuzzi
Gazometri, which we acquired in May 2002. These companies, which we intend to
merge into one unit by the end of 2003, provided us with access to an aggregate
of approximately 1.7 million natural gas customers as of December 31, 2002.
Starting from January 1, 2003, this division also includes the distribution
activities of Electra de Viesgo Distribuciòn S.L., which were part of the
international operations of our Generation and Energy Management division in
2002. Through Electra de Viesgo Distribuciòn S.L., we operate a 24,500
kilometer distribution network and sell electricity to approximately 510,000
end users in Spain.

We are also the largest supplier of electricity in Italy through Enel
Distribuzione S.p.A. and Enel Energia S.p.A. in our Sales area. In 2002, we
sold electricity to approximately 23 million households, or approximately 90%
of all households in Italy. We distributed and sold approximately 163.9 TWh of
electricity on the regulated market in 2002, of which approximately 23% went to
industrial customers, 32% went to customers in the commercial and other
services sector, 34% went to residential customers, 8% went to other
distributors or was exported, and 3% went to the agricultural sector. We also
distributed a total of 94.0 TWh of electricity and sold approximately 30.3 TWh
of electricity to consumers who meet consumption thresholds that permit them to
participate in the free market, or Eligible Customers. Consumers not meeting
these thresholds are called Non-Eligible Customers. See Regulatory
MattersElectricity Regulation for additional information on the electricity
market. Enel Gas S.p.A. (formerly Enel Vendita Gas S.p.A.), also in this area,
resells natural gas to end users.

In 2002, the Sales, Infrastructure and Networks Division had revenues of
Euro 20,586 million, compared to Euro 22,206 million in 2001.

Through Terna S.p.A. in our Transmission Division, we continue to own
approximately 94% of the transmission assets of Italys national electricity
grid, and we are the sole owner of Italys network of high voltage 380 kV
lines. However, as a part of the liberalization of the Italian electricity
sector, we were required to transfer responsibility for the management and
control of the national transmission grid and responsibility for electricity
dispatching to the Gestore della Rete, a company now wholly owned by the
Treasury Ministry. The transmission system that we own and that the Gestore
della Reteoperates carries almost all the electricity transmitted to
distribution networks for sale in Italy. As of December 31, 2002, that
transmission system consisted of a total of approximately 37,583 km of lines
and 275 primary transformer stations. Our revenues at this division in 2002
were Euro 828 million, compared to Euro 793 million in 2001.

The following table shows selected operating data for our electricity
operations in Italy for each of the past five years. Net production equals
gross production of electricity less consumption by units generating
electricity and mechanical and electrical losses in production.

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|                                                                        |  |      |       |      |  |      |       |      |  |      |       |  |  |  |       |     |  |  |       |    
|----------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | --- |  |  | ----- | ---
|                                                                        |  | 1998 |       | 1999 |  | 2000 |       | 2001 |  | 2002
|                                                                        |  |      |       |      |  |      |       |      |  |     
|Gross installed
capacity at period
end (GW)                             |  |      | 58.9  |      |  |      | 59.4  |      |  |      | 58.9  |  |  |  | 52.0  |     |  |  | 45.3  | (2)
|Net production (TWh)                                                    |  |      | 179.5 |      |  |      | 178.8 |      |  |      | 182.5 |  |  |  | 169.1 | (1) |  |  | 145.1 | (3)
|Electricity sold to
final customers and
to municipal
distributors (TWh) |  |      | 226.2 |      |  |      | 230.5 |      |  |      | 222.9 |  |  |  | 206.0 |     |  |  | 194.3 |    
|Electricity
customers at year
end (millions)                            |  |      | 29.3  |      |  |      | 29.7  |      |  |      | 29.8  |  |  |  | 29.8  |     |  |  | 28.8  |    



---

|(1) |  | Including 12.2 TWh generated by Elettrogen and Valgen before they were
divested.                  
|--- |  | --------------------------------------------------------------------------------------------------
|(2) |  | Including 3.0 GW of capacity at Interpower.                                                       
|(3) |  | Including 8.0 TWh generated by
Eurogen before it was divested and 5.7 TWh generated by
Interpower.

The Telecommunications Division comprises WIND. As of March 31, 2003, WIND
provided integrated fixed-line, mobile telephony and Internet services to a
customer base in Italy comprising approximately 16.4 million fixed and mobile
customer lines, and approximately 13.3 million registered users for its
Internet access services. WINDs revenues in 2002 were Euro 3,921 million,
compared to Euro 3,176 million in 2001.

Our Services and Other Activities Division includes, among other
businesses, our real estate, engineering and construction and information
technology services, as well as our water and reinsurance activities. In 2002,
this division had revenues of Euro 2,874 million, compared to Euro 2,321
million in 2001.

The following chart sets forth our principal business units and the main
companies through which we conduct these businesses.

|                                               |  |                                                                      |  |               |       |            |  |            |     |       |  | 
|---------------------------------------------- |  | -------------------------------------------------------------------- |  | ------------- | ----- | ---------- |  | ---------- | --- | ----- |  | 
|                                               |  |                                                                      |  |               |       |            |  |            |     | Group
|                                               |  |                                                                      |  |               |       | Country of |  | Percentage
|Name                                           |  | Principal Business                                                   |  | Incorporation |       | Ownership 
|Enel S.p.A                                     |  | Holding Company                                                      |  |               | Italy |            |  |            |     |      
|                                               |  | Generation and Energy Management                                     |  |               |       |            |  |            |     |      
|Enel Produzione
S.p.A                          |  | Power generation                                                     |  |               | Italy |            |  |            | 100 | %    
|Enel Trade S.p.A
(formerly ENEL
F.T.L. S.p.A.) |  | Fuel trading and logistics                                           |  |               | Italy |            |  |            | 100 | %    
|Enel Green Power S.p.A                         |  | Power generation from renewable geothermal and alternative resources |  |               | Italy |            |  |            | 100 | %    
|CHI Energy Inc.                                |  | Power generation from renewable resources                            |  |               | U.S.A |            |  |            | 100 | %    
|Energia Global
International LLC               |  | Power generation from renewable resources                            |  |               | U.S.A |            |  |            | 100 | %    

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|                                                |  |                                                                           |  |               |  |            |       |            |  |       |  | 
|----------------------------------------------- |  | ------------------------------------------------------------------------- |  | ------------- |  | ---------- | ----- | ---------- |  | ----- |  | 
|                                                |  |                                                                           |  |               |  |            |       |            |  | Group
|                                                |  |                                                                           |  |               |  | Country of |       | Percentage
|Name                                            |  | Principal Business                                                        |  | Incorporation |  | Ownership 
|Enel Logistica
Combustibili S.p.A               |  | Fuel Logistics                                                            |  | Italy         |  |            | 100   | %         
|Conphoebus S.p.A                                |  | Renewable energy related services                                         |  | Italy         |  |            | 100   | %         
|Elettroambiente
S.p.A                           |  | Power generation from waste products                                      |  | Italy         |  |            | 70.48 | %         
|Viesgo Generaciòn SL                            |  | Power generation                                                          |  | Spain         |  |            | 100   | %         
|                                                |  | Sales, Infrastructure and Networks                                        |  |               |  |            |       |            |  |      
|Enel Distribuzione S.p.A                        |  | Electricity distribution, and electricity sales to Non-Eligible Customers |  | Italy         |  |            | 100   | %         
|Enel Energia S.p.A
(formerly Enel
Trade S.p.A.) |  | Sales of electricity to Eligible Customers                                |  | Italy         |  |            | 100   | %         
|So.l.e. S.p.A                                   |  | Public and art lighting                                                   |  | Italy         |  |            | 100   | %         
|Enel.si S.p.A                                   |  | Electricity systems-related services                                      |  | Italy         |  |            | 100   | %         
|Enel Distribuzione Gas S.p.A                    |  | Natural gas distribution                                                  |  | Italy         |  |            | 100   | %         
|Deval S.p.A                                     |  | Electricity distribution and sales to Non-Eligible Customers              |  | Italy         |  |            | 51    | %         
|Camuzzi Gazometri S.p.A                         |  | Natural gas distribution; waste management                                |  | Italy         |  |            | 99.29 | %         
|Enel Gas S.p.A                                  |  | Sales of natural gas                                                      |  | Italy         |  |            | 100   | %         
|GE.AD S.p.A                                     |  | Natural gas distribution                                                  |  | Italy         |  |            | 100   | %         
|Electra de Viesgo
Distribuciòn SL               |  | Electricity distribution and sales                                        |  | Spain         |  |            | 100   | %         
|                                                |  | Transmission                                                              |  |               |  |            |       |            |  |      
|Terna S.p.A                                     |  | Transmission of electric power                                            |  | Italy         |  |            | 100   | %         
|                                                |  | Telecommunications                                                        |  |               |  |            |       |            |  |      
|WIND
Telecomunicazioni
S.p.A                    |  | Telecommunications and Internet services                                  |  | Italy         |  |            | 73.4  | %         
|                                                |  | Services and Other activities                                             |  |               |  |            |       |            |  |      
|Enel.Hydro S.p.A                                |  | Design, construction and management of water distribution networks        |  | Italy         |  |            | 100   | %         
|Enel Real Estate
S.p.A                          |  | Commercial real estate management and general services                    |  | Italy         |  |            | 100   | %         

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|                       |  |                                                                            |  |               |  |            |       |            |  |       |  | 
|---------------------- |  | -------------------------------------------------------------------------- |  | ------------- |  | ---------- | ----- | ---------- |  | ----- |  | 
|                       |  |                                                                            |  |               |  |            |       |            |  | Group
|                       |  |                                                                            |  |               |  | Country of |       | Percentage
|Name                   |  | Principal Business                                                         |  | Incorporation |  | Ownership 
|Dalmazia Trieste
S.p.A |  | Residential real estate management                                         |  | Italy         |  |            | 100   | %         
|Enelpower S.p.A        |  | Engineering and development of generation and transmission systems         |  | Italy         |  |            | 100   | %         
|Enel.it S.p.A          |  | Information technology and infrastructure related to transmission services |  | Italy         |  |            | 100   | %         
|Enel.factor S.p.A      |  | Factoring                                                                  |  | Italy         |  |            | 80    | %         
|Enel.Re.Ltd            |  | Reinsurance                                                                |  | Ireland       |  |            | 99.99 | %         
|APE Gruppo Enel S.p.A  |  | Personnel administration and related services                              |  | Italy         |  |            | 100   | %         
|Sfera S.p.A            |  | Professional training services                                             |  | Italy         |  |            | 100   | %         

Strategy

We are preparing to face the challenges posed by market deregulation by
capitalizing on our expertise in the electricity and gas sectors and by seeking
new opportunities for growth in Italy and abroad. With this intent, we have
identified three strategic objectives:



| |  |  | focusing on our core energy business;                                                         
| | - |  | ----------------------------------------------------------------------------------------------
|
| |  |  | achieving cost leadership in the generation, distribution and
sale of electricity and gas; and
|
| |  |  | making customer care a high priority.                                                         

Our
priority now is to refocus the Groups activities, moving from the
diversification strategy we had been pursuing in recent years, in order to
concentrate our resources in those businesses in which we possess the
experience, technology and know-how to create value. As part of this
refocusing, in July 2002 we adopted a new organizational structure in order to
streamline and manage more effectively our operations. Each of our new
divisions has its own strategy to help us achieve our objectives. In
addition, we will continue to evaluate strategically relevant international
opportunities, both in new markets and in our existing markets, such as Spain
and, in the area of renewable energy, in North and Central America.

We now view our telecommunications activities solely as a financial
investment.

Generation and Energy Management

The strategic objectives of this division are:



| |  |  | In generation, to have the lowest generation costs in Italy.
We aim to achieve this goal by reducing our fuel costs through the
conversion of generating capacity to combined cycle gas turbine
technology and by improving the fuel mix we use to generate
electricity by increasing our use of low-cost fuels such as
orimulsion and coal, while continuing to comply with applicable
environmental requirements. This improvement should also reduce
fluctuations in our overall fuel costs. We also aim to reduce our
operating costs to
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   |  | achieve international best practice levels by
2005 by adopting tailored maintenance programs to reduce maintenance
costs.                                                                                                                                 
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In fuel procurement, keeping natural gas procurement costs
low through supply diversification by tapping the Liquefied Natural
Gas (LNG) market.                                                                                                          
|
| |  |  | Continuing to seek opportunities for growth, particularly by
developing our renewable energy operations and by evaluating
acquisitions in power generation and distribution in Europe. The
strategic criteria we use in evaluating such opportunities are:



| |  |  | Geography and macroeconomic climate: We look at
countries or regions where we already operate, like the Iberian
peninsula, as well as at countries where we see synergies with
our current operations. In line with this strategy:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                
| | --------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                      | on March 5, 2003, we entered into an agreement
with Entergy Power Development Corporation to acquire a 60%
stake in Entergy Power Holding Maritza BV, a Dutch company
with power generation operations in Bulgaria; and                                                                                                                                                        
| |                                                                                                                       |                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                      | on June 16, 2003, we agreed to acquire an 80%
interest in the renewable energy operations of Spains Union
Fenosa, as well as a 50% stake in a combined cycle generation
facility Union Fenosa is currently constructing. These
transactions remain subject to regulatory approval. See The
Enel GroupGeneration and Energy ManagementInternational
Generation Operations.
|
| | We also look for countries with attractive and sustainable economic
fundamentals and a stable regulatory environment.



| |  |  | Profitability: We seek to make investments that we
believe will begin to be accretive to our earnings in the short
term.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

Sales

Italy has made significant progress in its transition toward fully
liberalized markets for the sale of electricity and gas. By the end of 2003,
based on current and pending legislation, we expect that approximately 64% of
electricity customers will be eligible to purchase electricity on the free
market. We also expect that by the end of 2003 or early 2004, the regulatory
framework will be in place for the full liberalization of sales of natural gas.
See Regulatory Matters.

Based on data received from the Gestore della Rete, we estimate that, as a
result of the liberalization, our share of the market for electricity sales has
decreased from 92% in 1999 to 67% in 2002, and we expect this share to decline
further in coming years as liberalization progresses. In this context, our
goal is to retain the leading market share and to defend margins by identifying
and targeting the most profitable customers. This will require an effective
combination of marketing and sales tools to compete in each segment. In
particular, we are:



| |  | investing Euro 150 million in a customer relationship management
system being rolled out in the first half of 2003, and improving our
customer contact centers and Internet tools; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | providing customers on the free market the opportunity to purchase
electricity and natural gas from the same provider, an opportunity few
of our competitors are able to provide.     

In the market for the sale of gas, we aim to expand our operations and to
improve our margins. Our goal is both to increase our customer base, which was
1.7 million customers in 2002, and our volume sold, which was approximately
4.0 billion cubic meters in 2002. To increase our business, we plan to expand
the customer base of the operations we have acquired in recent years by

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leveraging the ENEL brand name and providing high quality customer service. We
also plan to participate in tenders for expiring concessions and make
additional acquisitions, if appropriate. To improve margins, we will focus our
efforts on retail consumers and on small business customers, which we believe
represent the more profitable segments of the market.

Networks and Infrastructure

In our electricity distribution business, we plan to respond to the
challenges of deregulation by pursuing operating efficiency while providing
high quality customer service. To achieve this goal:



| |  | We have implemented a cost-cutting program supported by an intensive
benchmarking analysis, which has identified a number of opportunities
for cost reductions. Between January 1, 2003, and the end of 2005,
excluding expenditures on our Telemanagement remote metering system,
we plan to reduce our cash cost (defined as operating costs
(excluding amortization and depreciation) plus capital expenditures)
per customer by approximately 15%.                                                                                                                                                                                              
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We are reducing investment and maintenance costs associated with
network management, principally by centralizing procurement processes
and improving these processes through extensive use of e-business
platforms, and by optimizing our investment program.                                                                                                                                                                                                                                                                                                                                                                                         
| 
| |  | We seek to continue meeting performance quality targets set by the
Energy Authority. We have consistently outperformed these targets,
and have been granted Euro36 million in bonus payments for our
performances in 2000 and 2001 in connection with the Energy
Authoritys continuity-of-service performance targets. See
Regulatory MattersElectricity RegulationThe new tariff
structureQuality of service regulation. We will seek to qualify for
additional bonus payments in the future.                                                                                                                                                 
| 
| |  | We are implementing the roll-out of our Telemanagement system for
remote metering. This project, which started in the second half of
2001, involves the system-wide replacement of approximately 30 million
traditional mechanical electricity meters with digital meters, or
Telemeters, incorporating sophisticated technology. We believe that
this project will provide us with operating advantages, including
greater flexibility in remotely assisting our final customers, greater
precision in measuring customer electricity consumption, and lower
costs through the reduced need for physical measurement of consumption
by our personnel.

In gas distribution, our focus is on integrating the several gas companies
we have acquired in the past three years into a single entity that will operate
more efficiently, reducing overhead, optimizing capital investment and
strengthening their position in the market. We began this consolidation in
2002, and expect to complete the restructuring in 2003 through the merger into
a single entity of Enel Distribuzione Gas S.p.A., Camuzzi Gazometri S.p.A and
GE.AD S.p.A. As in electricity distribution, our target here is to reduce our
cash cost per customer by approximately 15% by 2005. We hope to realize
additional operational savings from synergies between our electricity and gas
distribution businesses.

Transmission

In our transmission division, we intend to continue implementing our
restructuring program to reduce costs and capital expenditures and increase
efficiency, with the goal of reducing operating expenses. However, we may be
required to reduce our interest in Terna if a bill currently being considered
in Parliament is enacted. See Regulatory Matters and Item 3. Key
InformationRisk FactorsRisks Relating to Our Energy BusinessFuture
regulation could have a significant adverse effect on our energy businesses and
their profitability.

Telecommunications

We no longer view our telecommunications activities, held through WIND, as
potentially synergistic with our energy activities, but rather as a financial
investment. To this end, we agreed in

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March 2003 to acquire the 26.6% stake in
WIND controlled by Wireless Services Belgium SA, a subsidiary of France
Telecom, since as sole shareholder we expect to increase our flexibility in
maximizing the value of this investment. Closing of this transaction is
expected to occur in early July 2003. We expect to continue to support WIND
until it achieves financial independence, which we expect to be by the end of
2004. We expect that this commitment will require us to invest up to Euro
1,000 million in new equity during this period.

Services and Other Activities

In line with our strategic objective of focusing on our core energy
business, Enels board has authorized the disposal of certain non-core
subsidiaries, including Enel Real Estate S.p.A., of which we are currently
negotiating the sale.

The Enel Group

Italian Electricity Demand

Demand for electricity in Italy has grown at an average annual rate of
approximately 2.7% during the past five years. The following table shows the
annual rate of growth in Italys GDP in real terms and the annual rate of
growth in electricity demand for the years indicated.

|                                |  |      |     |      |  |      |     |      |  |      |     |             |  |  |     |   |  |  |     |   |  |               |     |  
|------------------------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ----------- |  |  | --- | - |  |  | --- | - |  | ------------- | --- | -
|                                |  |      |     |      |  |      |     |      |  |      |     |             |  |  |     |   |  |  |     |   |  | Compound     
|                                |  |      |     |      |  |      |     |      |  |      |     |             |  |  |     |   |  |  |     |   |  | Annual Growth
|                                |  |      |     |      |  |      |     |      |  |      |     |             |  |  |     |   |  |  |     |   |  | Rate         
|                                |  | 1998 |     | 1999 |  | 2000 |     | 2001 |  | 2002 |     | 1998 - 2002
|                                |  |      |     |      |  |      |     |      |  |      |     |            
|Growth in real GDP(1)           |  |      | 1.8 | %    |  |      | 1.6 | %    |  |      | 3.1 | %           |  |  | 1.8 | % |  |  | 0.4 | % |  |               | 1.7 | %
|Growth in electricity demand(2) |  |      | 2.9 | %    |  |      | 2.3 | %    |  |      | 4.2 | %           |  |  | 2.3 | % |  |  | 1.8 | % |  |               | 2.7 | %

Sources:

(1)  Istat Reports for 1998, 1999, 2000, 2001 and 2002, including revisions to
certain historical data made in 2001.

(2)  Enel, Statistical Data about Energy in Italy, for 1998 data, and the
Gestore della Retefor 1999, 2000, 2001 and 2002 data.


Electricity demand grew by 1.8% in 2002, after having grown by 2.3% in
2001 and by 4.2% in 2000. The decrease in the annual rate of growth in
electricity demand in 2001 and 2002 reflected the slower growth of the Italian
economy in those years. The International Monetary Fund, in its April 2003
World Economic Outlook, forecast Italian GDP growth of 1.1% in 2003 and 2.3% in
2004.

Per capita electricity consumption is lower in Italy than in a number of
other leading industrialized countries. On the basis of data provided by the
Gestore della Rete, we calculate that in 2002, electricity consumption in Italy
was approximately 5,100 kWh per capita, compared to 4,928 kWh in 2001. As
differences in the industrial or commercial and service sectors among countries
not related to individual electricity use can distort comparisons of overall
per capita production, we prefer
to use per capita residential electricity use as our basic comparative
measure. The following table compares per capita residential electricity
consumption in Italy with that of other countries in the European Union for
2001, the most recent year for which complete data is available.

26



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|               |  |               |       |             |  |                   |       |             |  |            |       | 
|-------------- |  | ------------- | ----- | ----------- |  | ----------------- | ----- | ----------- |  | ---------- | ----- | 
|               |  |               |       |             |  |                   |       |             |  | Per Capita
|               |  |               |       |             |  | Residential       |       | Residential
|               |  | Inhabitants   |       | Consumption |  | Consumption      
|               |  |               |       |             |  |                  
|               |  | (in millions) |       | (TWh)       |  | (kWh/inhabitants)
|France         |  |               | 58.8  |             |  |                   | 133.0 |             |  |            | 2,261 | 
|United Kingdom |  |               | 59.7  |             |  |                   | 112.6 |             |  |            | 1,885 | 
|European Union |  |               | 576.4 |             |  |                   | 654.9 |             |  |            | 1,740 | 
|Germany        |  |               | 82.1  |             |  |                   | 133.6 |             |  |            | 1,626 | 
|Spain          |  |               | 39.4  |             |  |                   | 48.2  |             |  |            | 1,220 | 
|Italy          |  |               | 57.7  |             |  |                   | 62.9  |             |  |            | 1,089 | 



---

|Source: Enel, based on data established by Enerdata  World Energy database 
February 2002.
|--------------------------------------------------------------------------------------------

We believe that a reason per capita electricity consumption is lower in
Italy than in the other countries of the European Union indicated in the table
above is that in the past the tariff structure established by government
regulation in Italy discouraged high-volume residential use. Please refer to
Regulatory MattersElectricity RegulationThe new tariff structure for a
more detailed discussion of tariffs.

The table below
shows peak capacity demand, net available capacity at the winter peak load (net
of plants in conservation or unavailable due to environmental retrofitting),
import capacity under contract between us and foreign producers and our reserve
margin in the period indicated. Reserve margin represents the total of net
available capacity and guaranteed capacity under contract less peak capacity
demand.

|                       |                              |  |                                 |      |      |  |      |      |   |  |      |      |  
|---------------------- | ---------------------------- |  | ------------------------------- | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                       |                              |  | 2000                            |      | 2001 |  | 2002
|                       |                              |  |                                 |      |      |  |     
|                       |                              |  | (Gigawatts, except percentages)
|Peak capacity demand   |                              |  | 49.0                            |      |      |  | 52.0 |      |   |  | 52.6 |     
|Net available capacity |                              |  | 56.6                            |      |      |  | 55.9 |      |   |  | 55.4 |     
|Import capacity        |                              |  | 6.3                             |      |      |  | 6.5  |      |   |  | 7.0  |     
|Reserve Margin         |                              |  | 13.9                            |      |      |  | 10.4 |      |   |  | 9.8  |     
|                       | As % of peak capacity demand |  |                                 | 28.4 | %    |  |      | 19.9 | % |  |      | 18.6 | %



---

|Source: Enel, based on data provided by the Gestore della Rete.
|---------------------------------------------------------------

Generation and Energy Management

We are the largest producer of electricity in Italy through our Generation
and Energy Management Division, which includes Enel Produzione, our primary
generating company, and Enel Green Power, which specializes in producing
electricity from renewable resources. The Generation and Energy Management
Division also includes CHI Energy, EGI and Viesgo Generaciòn, our international
generation operations, as well as our fuel procurement and trading activities,
which are conducted primarily through Enel Trade. Unless otherwise specified,
all operating data furnished in this section excludes data for the Gencos.

Domestic operations  generating facilities

At December 31, 2002, Enel Produzione and Enel Green Power together
operated a total of 586 generating plants. Our generating facilities include
thermal plants, which burn fossil fuels, hydroelectric plants, geothermal
plants and other facilities that generate electricity from renewable resources.
At December 31, 2002, these plants had a total gross installed capacity of
42.3 GW, representing approximately 53% of the total gross installed capacity
in Italy. Excluding electricity

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produced by Elettrogen, Eurogen and
Interpower, which we sold in September 2001, May 2002 and January 2003,
respectively, our net electricity production in 2002 increased 1.8% from 2001
to a total of 131.4 TWh. When these assets are included, our net electricity
production in 2002 decreased to 145 TWh, or by 14% from 2001, of which 8.0 TWh
were generated by Eurogen before it was divested in May. In 2002, Interpower,
the generating company we sold in January 2003, generated 5.7 TWh, or
approximately 4% of our net electricity production for the year.

We estimate that our net electricity production in 2002, excluding
electricity produced by Eurogen and Interpower,represented 48.6% of Italian
production during the year.

The following table shows the gross installed capacity at December 31,
2002, and the net production in 2002 for the Italian electricity sector as a
whole. Independent power producers include industrial companies that produce
electricity for their own use and for sale to third parties. Imports include
electricity purchased from foreign producers on the spot market or under annual
or long-term contracts. Pumped storage consumption refers to the use of
electricity by pumped storage hydroelectric plants to pump water to elevated
areas for use at a later time to generate electricity.

|                                          |                                                            |  |                 |      |                |  |            |       |         |  |               |       |  
|----------------------------------------- | ---------------------------------------------------------- |  | --------------- | ---- | -------------- |  | ---------- | ----- | ------- |  | ------------- | ----- | -
|                                          |                                                            |  | At December     |      |                |  |            |       |         |  |              
|                                          |                                                            |  | 31,2002         |      | 2002          
|                                          |                                                            |  |                 |      |               
|                                          |                                                            |  |                 |      |                |  |            |       |         |  | Percentage of
|                                          |                                                            |  | Gross Installed |      |                |  |            |       | Italian
|                                          |                                                            |  | Capacity        |      | Net Production |  | Production
|                                          |                                                            |  |                 |      |                |  |           
|                                          |                                                            |  | (GW)            |      | (TWh)          |  |            |       |        
|Enel                                      |                                                            |  | 42.3            | (1)  |                |  | 131.4      | (2)   |         |  | 48.6          |      
|Independent power producers               |                                                            |  | 34.4            |      |                |  | 126        |       |         |  | 46.5          |      
|Municipal utilities                       |                                                            |  | 2.9             |      |                |  | 13.0       |       |         |  | 4.9           |      
|                                          |                                                            |  |                 |      |                |  |            |       |         |  |               |      
|                                          | Total gross installed capacity and
net production in Italy |  |                 | 79.6 |                |  |            | 270.4 |         |  |               | 100.0 | %
|                                          |                                                            |  |                 |      |                |  |            |       |         |  |               |      
|Total net imports into Italy              |                                                            |  |                 |      |                |  | 50.6       |       |         |  |               |      
|Total pumped storage consumption in Italy |                                                            |  |                 |      |                |  | 10.6       |       |         |  |               |      
|                                          |                                                            |  |                 |      |                |  |            |       |         |  |               |      
|                                          | Total demand in Italy                                      |  |                 |      |                |  |            | 310.4 |         |  |               |       |  



---

|Source: ENELs estimates, based on data provided by Gestore della Rete.
|-----------------------------------------------------------------------
|                                                                       
|(1)                                                                    
|(2)                                                                    
|                                                                       
|                                                                       

The following table shows certain statistics about our domestic generating
facilities, broken down by type of plant at December 31, 2002 and for the year
2002. The table does not take into account data relating to Eurogen and
Interpower, the generating companies we divested in May 2002 and January 2003,
respectively. The weighted average age of the plants does not take into
account refurbishments or upgrades after initial construction. The forced
outage factor represents the amount of electricity that was not produced during
the period because of unplanned outages, expressed as a percentage of the
maximum theoretical amount of electricity that could have been produced during
the period.

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|                               |       |  |                      |      |         |  |            |  |            |  |            |  |           |  |      |       |   |  |     |   | 
|------------------------------ | ----- |  | -------------------- | ---- | ------- |  | ---------- |  | ---------- |  | ---------- |  | --------- |  | ---- | ----- | - |  | --- | - | 
|                               |       |  | At December 31, 2002 |      | 2002   
|                               |       |  |                      |      |        
|                               |       |  |                      |      |         |  | Weighted   |  |            |  |            |  |           |  |      |       |   |  |    
|                               |       |  | Gross                |      | Average |  |            |  |            |  | Percentage |  | Forced   
|                               |       |  | Installed            |      | Age of  |  | Net        |  | of our Net |  | Outage    
|                               |       |  | Capacity             |      | Plant   |  | Production |  | Production |  | Factor    
|                               |       |  |                      |      |         |  |            |  |            |  |           
|                               |       |  | (GW)                 |      | (years) |  | (GWh)      |  |            |  |            |  | (percent)
|Thermal                        |       |  | 27.2                 |      |         |  | 19         |  |            |  | 99,265     |  |           |  | 75.5 | %     |   |  | 4.3 | %
|Hydroelectric                  |       |  | 14.3                 |      |         |  | 36         |  |            |  | 27,745     |  |           |  | 21.1 | %     |   |  | 0.5 | %
|Geothermal and other renewable |       |  | 0.8                  |      |         |  | 8          |  |            |  | 4,435      |  |           |  | 3.4  | %     |   |  | 5.2 | %
|                               |       |  |                      |      |         |  |            |  |            |  |            |  |           |  |      |       |   |  |     |  
|                               | Total |  |                      | 42.3 |         |  |            |  |            |  |            |  |           |  |      | 100.0 | % |  |     |   | 
|                               |       |  |                      |      |         |  |            |  |            |  |            |  |           |  |      |       |   |  |     |  

We have no plans to construct new plants or add significant amounts of
generating capacity, other than from renewable resources, in the near term.
Instead, we have focused our investment plans on our existing generating
plants. You should read Capital Investment ProgramGeneration and Energy
Management for a more detailed discussion of these plans.

Thermal production

In Italy, at December 31, 2002, we owned 45 thermal plants with an
aggregate gross installed capacity of 27.2 GW, or approximately 64% of our
gross installed capacity at that date. In 2002, our thermal net production was
99,265 GWh, or approximately 75% of our net production for the year.

All our thermal plants consist of two or more generating units and most
have a standardized design, with the generating units being of one of three
types: steam-condensing units, gas turbine units and internal combustion units.
Steam-condensing units consist of closed-cycle plants in which water is
transformed into steam and used in a turbine to generate electricity. Steam is
turned back into water through a cooling process using sea or river water.
Gas-turbine units burn natural gas to drive a turbine and generate electricity.
Internal combustion units use diesel engines to generate electricity. In
addition to those conventional thermal plants, we own two combined cycle gas
turbine. At December 31, 2002, approximately 75% of the gross installed
capacity of our thermal plants consisted of steam-condensing units,
approximately 13% of that capacity was represented by gas-turbine units and
approximately 12% was represented by combined cycle technology units. Internal
combustion units represented a minimal part of our thermal gross installed
capacity.

Each of our conventional thermal generating units is designed to operate
using one or more kinds of fuel. Single fuel units use either petroleum
products or coal but not both, dual fuel units can use petroleum products and
either natural gas or coal, while triple fuel units can use petroleum products,
coal and either natural gas, orimulsion or lignite. In 2002, single fuel
units, the vast majority of which are petroleum powered, generated
approximately 80% of our net production from thermal plants and represented
approximately 73% of the gross installed capacity of these plants at year end.
Dual fuel units accounted for approximately 20% of our net production from
thermal plants and approximately 27% of our gross installed capacity of these
plants at December 31, 2002. The average thermal efficiency, or the ratio of
useful energy produced to the energy consumed to produce it, of our thermal
plants improved by more than 2 percentage points in the period from 2000
through 2002, to approximately 38% at December 31, 2002.

In 1997, we began converting a number of our conventional thermal plants
into combined cycle plants, generally by installing one or more gas turbines
and replacing conventional boilers with heat recovery steam boilers used to
drive existing steam turbines. Converting plants to combined cycle generation
increases efficiency and reduces emissions. We plan for our new combined cycle
plants to have an expected average thermal efficiency of approximately 56%, in
line with the average thermal efficiency at our existing combined cycle plants.

Our original plan for combined cycle conversions covered a total of 14,200
MW of gross installed capacity. However, through the sale of the Gencos, we
disposed of approximately 9,460

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MW of such capacity, leaving approximately
4,740 MW of gross installed capacity to be converted. We expect to convert
approximately 4,000 MW to combined cycle technology by the end of 2003. We
currently estimate the average costs of conversion over the course of the
project to be approximately Euro 320,000 per MW of gross installed capacity, or
a total of approximately Euro 1,600 million through 2005, not including
investments in plants owned by the Gencos. At December 31, 2002, we had spent
approximately Euro 1,200 million of this total, not including investments in
the plants owned by the Gencos, and had completed the conversion of plants for
approximately 1.4 GW of our gross installed capacity to combined cycle
technology.

In addition to our combined cycle conversion program, we are planning to
upgrade an additional 4,700 MW of gross installed capacity by:



| |  | converting a fuel oil plant to orimulsion technology;           
|- |  | ----------------------------------------------------------------
| 
| |  | converting a fuel oil plant to clean coal technology; and       
| 
| |  | upgrading the coal-burning technology of an existing coal plant.

We have
an ongoing program of refurbishment and maintenance of our plants, on
which we invested Euro 35 million in 2002, an amount in line with our expenditures
in 2001 and 2000, excluding expenditures on the Gencos. We plan to invest a
similar amount in each of the next five years.

We have made significant investments since 1990 to improve the
environmental standards of our thermal plants and to comply with the emission
thresholds established by applicable environmental laws and regulations. These
measures have included installing desulfurization and denitrogenation units and
upgrading burners and units for the treatment of waste water and ash resulting
from the electricity generation process. Installation of desulfurization and
denitrogenation units increases our flexibility to use different types of fuel,
including lower-cost fuels such as high sulfur fuel oil and orimulsion, while
maintaining compliance with emission restrictions.

Our environmental capital expenditures for conventional thermal
generation, excluding amounts spent on the Gencos, amounted to approximately
Euro 46 million in 2002. In previous years, these amounts had represented an
increasing percentage of our total capital investments related to generation.
However, in 2003, we expect these expenditures will decrease to approximately
Euro 17 million as a result of the completion of our major environmental
investment program. You should read Regulatory MattersEnvironmental
Matters for a discussion of the environmental laws and regulations affecting
our generation operations.

We operate a number of thermal plants located in state-owned coastal or
fluvial areas pursuant to concessions from the Italian government. These
concessions, for which we pay an annual fee of approximately Euro 6.0 million,
expire at various times through 2020, depending on their individual terms.
Should any of these concessions expire without being renewed, we would be
required to transfer to the government the real estate assets and permanent
fixtures that are located in the areas under concession, which have an
aggregate net book value of Euro 71.2 million at December 31, 2002.

Hydroelectric production

At December 31, 2002, we had 495 hydroelectric plants in Italy with an
aggregate gross installed capacity of 14.3 GW, or approximately 34% of our
gross installed capacity at that date. In 2002, our hydroelectric net
production was 27,745 GWh, or approximately 21% of our net production for the
year.

We classify our hydroelectric plants with reservoirs by fill-in rate,
which represents the time required for a plants reservoir to fill from empty
based on normal water flow. Pondage plants have

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fill-in rates ranging from two
to 400 hours and reservoir plants have fill-in rates exceeding 400 hours. We
also have run-of-river and pumped storage hydroelectric plants.

In 2002, pondage plants generated approximately 28% of our net
hydroelectric production and represented approximately 19% of our gross
installed hydroelectric generation capacity at year end, while run-of-river
plants accounted for approximately 25% of our net production from hydroelectric
plants and approximately 12% of our gross installed hydroelectric generating
capacity. Pumped storage (including mixed pumped storage) plants generated
approximately 33% of our net hydroelectric production in 2002, and represented
approximately 52% of our gross installed hydroelectric generating capacity,
with reservoir plants accounting for the remaining approximate 14% of our net
hydroelectric production and 17% of our gross installed hydroelectric capacity
in the same periods.

We invested Euro 32 million in 2002 to refurbish our hydroelectric plants
(excluding expenditures on the Gencos), in line with amounts spent in 2000 and
2001, and we plan to invest similar amounts in each of the next five years.
Our hydroelectric plants generate electricity from water streams in the public
domain under licenses from the Italian government. These licenses expire in
2029 and are subject to renewal. Under the Bersani Decree, the Provincial
Authorities of Trento and Bolzano, which enjoy special autonomous status under
Italian law, may impose earlier license termination dates for hydroelectric
plants in these areas, and, if any of these licenses expire without being
renewed, we will have to transfer the affected hydroelectric plants to the
governmental authority granting the license. The Provincial Authorities of
Trento and Bolzano have set a termination date for the licenses they have
granted of 2010. Our hydroelectric plants in these provinces have an aggregate
gross installed capacity of 1,990 MW.

Production from geothermal and other renewable resources

Through our subsidiary Enel Green Power S.p.A. (previously called ERGA
S.p.A.), we are one of the worlds leading producers of energy from renewable
resources, and one of the few companies that combines significant experience in
multiple technologies, including geothermal, wind and solar energy, with its
own engineering and project development capabilities. Enel Green Power also
operates substantially all of our smaller hydroelectric plants.

At December 31, 2002, we had 33 geothermal power plants with an aggregate
installed capacity of 707 MW. In 2002, our geothermal net production was 4,382
GWh, or 3% of our net production for the year.

We also generate electricity from other forms of renewable resources,
including solar photovoltaic systems and wind energy. At December 31, 2002, we
operated eight wind farms with an aggregate gross installed capacity of about
60 MW and three photovoltaic solar grid connected power plants with an
aggregate gross installed capacity of 3.5 MW. Together, these plants accounted
for 53 GWh of our net production in 2002.

Most of Enel Green Powers revenues come from long-term sale agreements
under the CIP 6 regime (see Purchased Power for a description of this
regime) and from sales at regulated tariffs of energy produced by its small
hydroelectric plants. Enel Green Power has also begun to sell electricity on
the free market through Enel Trade. We expect that the demand for energy
produced from renewable resources will increase as a result of provisions in
the Bersani Decree requiring producers to supply a specified amount of
electricity generated from qualifying new renewable resources, as well as the
introduction of a regime of tradable green certificates to be issued by the
Gestore della Rete, for which a number of Enel Green Powers projects have
qualified.

To comply with the new regulatory requirements, we can either produce
electricity from qualifying renewable resources ourselves, or we can purchase
green certificates from other qualified producers or the Gestore della Rete.
Based on our production for 2002, the Bersani Decree will

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require us to provide
approximately 2.0 TWh of electricity from renewable resources in 2003, a slight
increase from the 1.9 TWh we were required to provide in 2002, based on our
2001 production (in each case excluding production by the Gencos). In 2002, we
generated 0.3 TWh of energy from new qualifying renewable resources, and
purchased green certificates for the remaining 1.6 TWh at a cost of
approximately Euro 2.5 million. We expect to generate approximately 0.7 TWh of
electricity from new qualifying renewable resources in 2003, and to purchase
the remaining 1.3 TWh. We have started a capital investment program in order
to reach a level of qualifying production from renewable resources of
approximately 1.9 TWh by 2005, which we believe will permit us to meet the
regulatory requirements (given the expected decline in our share of total
generation in Italy), and, upon further development, may enable us to sell
green certificates to the market in 2006. This program entails an additional
increase in our renewable capacity (hydro, wind and geothermal) of about 0.6 GW
by 2007.

We expect to increase our installed capacity for production from renewable
resources by 149 MW by the end of 2003 through the development of additional
wind plants.

Fuel

We use fuel oil, natural gas, coal, orimulsion and other fuels in
operating our thermal generation plants; we do not use significant amounts of
fuel in operating our hydroelectric, geothermal or other renewable resource
plants. Italy has small reserves of fossil fuels. As a consequence, we depend
on imported oil, natural gas and coal for a large proportion of our energy
needs. We attempt to maintain secure and flexible fuel supplies by diversifying
our geographic sources of fuel and the types of fuel we purchase.

In 2002, our fuel costs for thermal production, including fuel transport
and excluding the Gencos, were Euro 3,651 million and constituted approximately
69% of our total operating expenses. In 2001, our fuel costs for thermal
production, including fuel transport and excluding the Gencos, were Euro 3,761
million and constituted approximately 69% of our total operating expenses.

Prior to July 1997, the electricity tariff structure did not directly
affect our choice of fuels, as it included a thermal reimbursement element
through which our actual fuel costs were effectively passed on to electricity
customers. However, since July 1997, the tariff structure has contained an
energy reimbursement component that is calculated with reference to an index of
weighted average fuel prices and a consumption index based on the efficiencies
expected to be obtained from the fuels comprising the fuel price index.
Accordingly, we have sought to use a mix of fuels less expensive in the
aggregate than the fuels comprising the weighted index and to generate energy
more efficiently than the efficiency levels assumed in the calculation of the
heat rate used in the Energy Authoritys consumption index. This new tariff
structure also includes incentives to reduce production from thermal plants and
to increase the use of renewable resources.

Once the pool market is introduced, the tariff and fuel cost reimbursement
structure will be replaced by a market price for electricity generation, and we
will have an incentive to reduce all costs, including fuel costs, to compete on
the market. You should read Regulatory MattersElectricity Regulation for a
discussion of the new and former tariff structures.

The following table provides a breakdown of our net electricity production
in Italy for the periods indicated by primary energy source utilized. Other
thermal energy sources include lignite, light distillate and derived gases.
Data for 2002 represents production by Enel Produzione and Enel Green Power,
and excludes production by Eurogen and Interpower.

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|                      |               |  |                         |         |            |  |             |       |            |  |             |         |            |  |       |       |   |  |        |         |  |  |    |       |  
|--------------------- | ------------- |  | ----------------------- | ------- | ---------- |  | ----------- | ----- | ---------- |  | ----------- | ------- | ---------- |  | ----- | ----- | - |  | ------ | ------- |  |  | -- | ----- | -
|                      |               |  | Year ended December 31,
|                      |               |  |                        
|                      |               |  | 2000                    |         | 2001       |  | 2002       
|                      |               |  |                         |         |            |  |            
|                      |               |  | Net                     |         |            |  |             |       | Net        |  |             |         |            |  | Net   |       |   |  |       
|                      |               |  | electricity             |         | Percentage |  | electricity |       | Percentage |  | electricity |         | Percentage
|                      |               |  | produced                |         | of total   |  | produced    |       | of total   |  | produced    |         | of total  
|                      |               |  |                         |         |            |  |             |       |            |  |             |         |           
|                      |               |  | (GWh)                   |         |            |  |             |       | (GWh)      |  |             |         |            |  | (GWh) |       |   |  |       
|Oil                   |               |  | 58,960                  |         |            |  | 32.3        | %     |            |  | 49,261      |         |            |  | 29.1  | %     |   |  | 33,949 |         |  |  | 26 | %    
|Natural gas           |               |  | 52,148                  |         |            |  | 28.6        |       |            |  | 46,481      |         |            |  | 27.5  |       |   |  | 36,082 |         |  |  | 22 |      
|Coal and orimulsion   |               |  | 29,919                  |         |            |  | 16.4        |       |            |  | 32,381      |         |            |  | 19.1  |       |   |  | 29,234 |         |  |  | 28 |      
|Other                 |               |  | 364                     |         |            |  | 0.2         |       |            |  | 197         |         |            |  | 0.1   |       |   |  | 00     |         |  |  | 0  |      
|                      |               |  |                         |         |            |  |             |       |            |  |             |         |            |  |       |       |   |  |        |         |  |  |    |      
|                      | Total thermal |  |                         | 141,391 |            |  |             | 77.5  |            |  |             | 128,320 |            |  |       | 75.9  |   |  |        | 99,265  |  |  |    | 76    |  
|Hydroelectric         |               |  | 36,692                  |         |            |  | 20.1        |       |            |  | 36,516      |         |            |  | 21.6  |       |   |  | 27,745 |         |  |  | 21 |      
|Geothermal            |               |  | 4,415                   |         |            |  | 2.4         |       |            |  | 4,239       |         |            |  | 2.5   |       |   |  | 4,382  |         |  |  | 3  |      
|Wind and photovoltaic |               |  | 29                      |         |            |  | 0.0         |       |            |  | 31          |         |            |  | 0.02  |       |   |  | 53     |         |  |  | 0  |      
|                      |               |  |                         |         |            |  |             |       |            |  |             |         |            |  |       |       |   |  |        |         |  |  |    |      
|                      | Total         |  |                         | 182,527 |            |  |             | 100.0 | %          |  |             | 169,106 |            |  |       | 100.0 | % |  |        | 131,445 |  |  |    | 100.0 | %
|                      |               |  |                         |         |            |  |             |       |            |  |             |         |            |  |       |       |   |  |        |         |  |  |    |      



---

|Source: Enel.
|-------------

In 2002, the approximate percentages of our net electricity produced by
the thermal generation represented by each of the following fuels was
approximately:



| |  | 37% natural gas;                     
|- |  | -------------------------------------
| 
| |  | 34% fuel oil; and                    
| 
| |  | 29% coal, orimulsion and other fuels.

We estimate that by 2007, once we have completed our plant conversion
programs, these percentages will be approximately:



| |  | 47% natural gas;                     
|- |  | -------------------------------------
| 
| |  | 6% fuel oil; and                     
| 
| |  | 47% coal, orimulsion and other fuels.

Our policy is to diversify our sources of fuel supplies and to increase
our use of less expensive fuels, such as orimulsion and coal, as well as fuels
that have less impact on the environment when consumed, such as natural gas.
However, generation using coal and orimulsion generally results in higher
emissions levels compared to those other fuels. Our ability to increase use of
these fuels is dependent on our ability to comply with restrictions on
emissions established by national and European Union authorities.

In January 1999, the Italian government introduced a carbon tax based on
fossil fuel consumption in accordance with applicable European Union
directives. Under the current Italian implementing legislation, the amount of
the tax was initially scheduled to increase on an annual basis from 1999
through 2005, but was frozen for the years 2000, 2001 and 2002 at the level for
1999. On the basis of current forecasts of future fuel prices, we believe that
application of the carbon tax as currently formulated could have a significant
impact on the economic viability of our oil-fired plants by the year 2005,
should the tax rates then reach their maximum levels. As part of an initiative
to address the impact of the carbon tax, we have proposed that the Italian
government adopt a different method for calculating the tax which would apply
an equal amount of tax per unit of CO2 output, without regard for the type of
fuel used to produce the energy in question. We believe that such a policy
would produce the targeted reductions in CO2 emissions without creating
unequal burdens on certain types of generating facilities, particularly oil
fired and baseload plants.

We manage our fuel supply by entering into term contracts for base
quantities and supplementing these contracts with purchases of fuel on spot
markets both in Italy and abroad. Our

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long-term fuel contracts, primarily for
the purchase of natural gas, will require us to pay an average of approximately
Euro 2,220 million per year over the next five years, based on current prices.

Since June 2000, our subsidiary Enel Trade has been responsible for the
purchase and sale of fuel for all of our domestic generating operations,
including the Gencos (for which it continues to purchase fuel on a contractual
basis), for our gas operations in the Italian market, and for a portion of the
requirements of our Spanish subsidiary Viesgo. Enel Trade also engages in fuel
trading, as well as the supply and development of related shipping, logistical
and risk management services. In 2002, Enel Trade purchased an aggregate
volume of 39.7 million tons of oil and oil equivalents, including crude oil and
petroleum products, coal and natural gas, of which 11.4 million where for
trading purposes only, compared to 34.6 million tons in 2001.

Fuel oil

We are among the worlds largest purchasers of fuel oil. The following
table shows the amount of fuel oil supplied to our generation companies that we
purchased from domestic and foreign suppliers in each of the periods indicated.
Domestic suppliers include suppliers whose headquarters are in Italy, including
Agip, a division of the Italian state-controlled energy group Eni S.p.A., while
foreign suppliers include suppliers and refiners outside of Italy and traders
of primarily non-Italian sources of oil.

|                   |                          |  |                         |      |      |  |      |      |  |  |     |     | 
|------------------ | ------------------------ |  | ----------------------- | ---- | ---- |  | ---- | ---- |  |  | --- | --- | 
|                   |                          |  | Year ended December 31,
|                   |                          |  |                        
|                   |                          |  | 2000                    |      | 2001 |  | 2002
|                   |                          |  |                         |      |      |  |     
|                   |                          |  | (in millions of tons)  
|Domestic suppliers |                          |  | 4.1                     |      |      |  | 4.0  |      |  |  | 2.4 |    
|Foreign suppliers  |                          |  | 9.5                     |      |      |  | 7.1  |      |  |  | 6.9 |    
|                   |                          |  |                         |      |      |  |      |      |  |  |     |    
|                   | Total fuel oil purchased |  |                         | 13.6 |      |  |      | 11.1 |  |  |     | 9.3 | 
|                   |                          |  |                         |      |      |  |      |      |  |  |     |    

As of December 31, 2002, we purchased approximately 59% of our fuel oil on
the spot market, approximately 20% under contracts ranging in term from one to
twelve months and approximately 21% under multi-year contracts. All purchases
made on the basis of term contracts are indexed to market prices.

The following table shows the amounts of fuel oil with low, mid and high
sulfur content that we purchased in each of the periods indicated.

|                   |  |                         |      |      |  |      |      |  |  |  |     | 
|------------------ |  | ----------------------- | ---- | ---- |  | ---- | ---- |  |  |  | --- | 
|                   |  | Year ended December 31,
|                   |  |                        
|                   |  | 2000                    |      | 2001 |  | 2002
|                   |  |                         |      |      |  |     
|                   |  | (in millions of tons)  
|Fuel oil purchased |  |                         |      |      |  |      |      |  |  |  |     | 
|Low sulfur         |  |                         | 3.7  |      |  |      | 2.7  |  |  |  | 3.8 | 
|Mid sulfur         |  |                         | 9.1  |      |  |      | 8.1  |  |  |  | 5.2 | 
|High sulfur        |  |                         | 0.8  |      |  |      | 0.3  |  |  |  | 0.3 | 
|                   |  |                         |      |      |  |      |      |  |  |  |     | 
|Total              |  |                         | 13.6 |      |  |      | 11.1 |  |  |  | 9.3 | 
|                   |  |                         |      |      |  |      |      |  |  |  |     | 

Natural gas

We purchase most of our natural gas under long-term, take-or-pay
contracts. The price of natural gas under these contracts is generally tied to
market prices for fuel oil. In 2002, we purchased 15.3 billion cubic meters of
natural gas, of which 9.7 billion cubic meters was used for our thermal
production operations. Eni S.p.A., the main Italian gas supplier and
transporter, supplied approximately 39% of this natural gas.

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To meet our need for gas, in 2002 we continued to purchase large volumes
under our supply contract with Sonatrach, the Algerian gas producer, obtaining
approximately 29% of the natural gas we purchased in 2002 pursuant to our
Algerian gas contract.

In 1992, we entered into a 20-year take-or-pay contract with NLNG, a
Nigerian joint venture, for the supply of 3.5 billion cubic meters of liquified
natural gas per year, commencing in October 1999. However, due to
environmental concerns, a once-planned Italian regasification facility has
never been constructed. As a result, we are unable to import liquified natural
gas, and instead, in 1997, entered into a swap agreement with Gaz de France and
related transportation arrangements with Eni whereby Gaz de France takes the
liquefied natural gas supplied by NLNG under the contract and provides us with
equivalent volume of non-liquefied gas. We obtained approximately 22% of the
natural gas we purchased in 2002 pursuant to our Nigerian gas contract. You
should read Regulatory MattersElectricity RegulationThe new tariff
structureStranded costs for a discussion of current regulations, which are
expected to continue to provide us with a reimbursement of part of the cost of
the NLNG contract.

Of the remaining 10% of the gas we purchased, Italian company Edison
S.p.A. supplied approximately 4% and we purchased approximately 6% on a spot
basis in the national and international markets.

Coal and orimulsion

In 2002, our net production of electricity from coal and orimulsion was
approximately 29.2 TWh, compared to a total of 25.0 TWh in 2001.

In 2002, we purchased 18.2 million tons of coal, virtually all of which
was imported, principally from South Africa, South America, the Far East and
Eastern Europe. Approximately 12.2 million tons of coal purchased in 2002 were
used by our generating companies. The remaining 6 million tons were sold on
the market by Enel Trade.

In 2002, we purchased 2.5 million tons of orimulsion. Approximately 60%
of the orimulsion purchased in 2002 was supplied to Enel Produzione, while the
remaining 40% was supplied to Endesa Italia (formerly Elettrogen).

Purchased power

In 2002, we purchased approximately 82.4 TWh of power from domestic and
foreign producers to fulfill our legal and regulatory obligations, to diversify
our sources of electricity, and to reduce our costs. Of this purchased power,
18.7 TWh were purchased by the Generation and Energy Management Division.
Included in the aggregate amount of power purchased is power purchased from the
Gencos, our former subsidiaries, each of which entered into a contract with us
upon its divestiture initially requiring it to sell us, and obliging us to
purchase, all the power they generate for distribution on the regulated market.
These contracts are subject to modification should regulatory or other changes
so require, and will terminate with the advent of the Single Buyer, the Gestore
della Rete-owned entity that will be responsible for purchasing electricity on
the pool market on behalf of regulated consumers. See Regulatory
MattersElectricity RegulationThe Single Buyer for additional information on
the Single Buyer.

Since 1992, Regulation 6/92 of the Comitato Interministeriale Prezzi, an
Italian governmental committee, required us to purchase all of the production
of domestic producers of electricity that use renewable resources, or CIP 6
Producers, provided that the related production capacity had been
constructed with our prior approval. We have made our purchases from CIP
6 Producers under a standard 15-year contract established by a 1992 ministerial
decree. This contract has required us to purchase all of this capacity at a
price equal to our avoided cost, including the avoided cost of

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production
(plant operations and maintenance) and fuel, plus certain incentives for the
first eight years of this contract.

In order to increase the volume of electricity available on the free
market, the Industry Ministry issued a decree in November 2000 that transferred
all energy produced from renewable resources under the CIP 6 regime to the
Gestore della Reteas of January 1, 2001. The Gestore della Reteis in turn
making this energy available for sale to Eligible Customers in the free market.

We purchase power from outside Italy through annual and long-term
electricity supply contracts and on the spot market. Our long-term purchase
contracts include contracts entered into to secure electricity supplies after
we stopped generating electricity from nuclear power in 1988.

The table below sets forth the amount of electricity we imported in Italy
under long-term and annual contracts and by spot purchases during each of the
years in the period indicated.

|                    |               |  |      |      |      |  |       |      |  |  |      |      | 
|------------------- | ------------- |  | ---- | ---- | ---- |  | ----- | ---- |  |  | ---- | ---- | 
|                    |               |  | 2000 |      | 2001 |  | 2002 
|                    |               |  |      |      |      |  |      
|                    |               |  |      |      |      |  | (TWh) |      |  |  |     
|Long-term contracts |               |  | 20.8 |      |      |  | 20.9  |      |  |  | 21.7 |     
|Annual contracts    |               |  | 3.6  |      |      |  | 3.4   |      |  |  | 0.4  |     
|Spot purchases      |               |  | 0.7  |      |      |  | 0.8   |      |  |  | 0.4  |     
|                    | Total imports |  |      | 25.1 |      |  |       | 25.1 |  |  |      | 22.5 | 
|                   
|Source: Enel.      

The Italian electricity grid is interconnected to foreign networks through
15 international transmission lines. We believe these lines are currently
operating at full capacity.

In order to increase competition in the market for imported energy, the
Energy Authority has established that no single importer may use more than 5%
of the total interconnection capacity of the Italian network or, if demand for
imports from any given country exceeds the interconnection capacity with that
country, 10% of that interconnection capacity, in both cases excluding from the
calculation capacity covered by long-term contracts in force at February 19,
1997. You should read Regulatory MattersElectricity RegulationThe new
tariff structure for a discussion of these rules and their effect on us.

Under the new electricity market framework, after the Single Buyer becomes
operational, we may continue to purchase power from third parties inside and
outside Italy through Enel Energia, which acts as our supplier to Eligible
Customers.

Waste-to-energy

We formed Elettroambiente S.p.A. in January 1996 to support our
environmental protection activities and our waste management, combustion and
disposal business. Elettroambiente is developing industrial waste management
systems and technology to recycle urban solid waste through thermal generation.

In September 2001, Elettroambiente acquired Powerco, an Italian producer
of energy derived from waste, landfill gas and biomass, for total consideration
of Euro 18 million. As part of this transaction, Italgest Energia S.p.A., an
Italian company active in the waste-to-energy sector, acquired a 29.5% stake in
Elettroambiente. In December 2002, 20 months after the acquisition, because of
difficulties encountered in Powercos business, we sold Powerco for Euro 3
million, after having acquired from Powerco licenses to operate approximately
43 MW of CIP 6-qualified plants on favorable terms.

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Elettroambiente currently holds a 40% shareholding in a 14 MW biomass
plant in Calabria, in Southern Italy, and, in partnership with Enel Produzione
and other local operators, recently won a public tender held by the regional
authorities in Sicily for the building and operation of both a 50 MW and a 30
MW waste-to-energy power plant in Sicily.

Disposal of the Gencos

In order to increase competition in the Italian electricity generation
market, the Bersani Decree provided that after January 1, 2003, no single
company or group may generate or import in aggregate more than 50% of the total
amount of electricity generated and imported in Italy. Accordingly, we were
required to dispose of no less than 15,000 MW of our net generating capacity by
that date in order to reduce our market share to an allowable level. In August
1999, the Italian government approved our plan to dispose of plants
representing approximately 27% of our generating capacity at that date (15,057
MW of our net installed capacity, which is equivalent to 16,067 MW of our gross
installed capacity).

As part of this plan, in October 1999 we transferred to the Gencos the
generating plants we selected for disposal, together with the management teams
and employees needed to operate these plants. We subsequently divested each of
the Gencos through a separate auction process in transactions with an aggregate
value of approximately Euros 8,200 million, as follows:



| |  | On September 20, 2001, we sold 100% of the share capital of Elettrogen
(now called Endesa Italia S.r.l.) to a consortium formed by Endesa
S.A., ASM Brescia S.p.A. and Banco Santander Central Hispano S.A. for
total final consideration of Euro 3,585 million, including Euro 2,687
million in cash and the assumption of Euro 898 million in debt;                                                                                                                                                                                        
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | On May 31, 2002, we sold 100% of the share capital of Eurogen (now
part of Edipower S.p.A.) to Edipower S.p.A., a consortium formed by
Edison S.p.A., AEM S.p.A., AEM Torino S.p.A., Aar e Ticino SA di
Elettricità (Atel), Unicredito Italiano S.p.A., Interbanca S.p.A. and
Albojo Limited for total final consideration of Euro 3,731 million,
including Euro 2,980 million in cash and the assumption of Euro 751
million in debt; and                                                                                                   
| 
| |  | On January 29, 2003, we sold 100% of the share capital of Interpower
(now called Tirreno Power S.p.A.) to a consortium of bidders including
Italian consortium Energia Italiana, Electrabel S.A. and ACEA S.p.A.
for Euro 853 million, including Euro 535 million in cash (which may
increase or decrease as a result of the application of the price
adjustment mechanism provided by the agreement) and the assumption of
Euro 318 million in debt. With the sale of Interpower, we completed
the disposals mandated by the Bersani Decree.

The following table provides certain selected operating and financial data
for Interpower at December 31, 2002, and for the year then ended, and for
Eurogen at May 31, 2002 (the last date on which we owned it) and for the period
between January 1, 2002, and May 31, 2002. The financial data included in the
table has been prepared on the basis of Italian GAAP. Financial data related
to Eurogen has not been audited.

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|                                                      |  |               |       |              |  |  |       | 
|----------------------------------------------------- |  | ------------- | ----- | ------------ |  |  | ----- | 
|Operating
data                                        | 
|                                                      |  | Interpower    |       | Eurogen     
|                                                      |  | Dec. 31, 2002 |       | May 31, 2002
|Gross installed capacity of all plants (MW)           |  |               | 2,961 |              |  |  | 7,346 | 
|Gross installed capacity of thermal plants (MW)       |  |               | 2,898 |              |  |  | 6,580 | 
|Gross installed capacity of hydroelectric plants (MW) |  |               | 63    |              |  |  | 766   | 
|Net production 2002 (TWh)                             |  |               | 5.7   |              |  |  | 8.0   | 
|Number of employees                                   |  |               | 880   |              |  |  | 1,738 | 
|Total number of plants                                |  |               | 20    |              |  |  | 52    | 
|Number of thermal plants                              |  |               | 3     |              |  |  | 6     | 
|Number of hydroelectric plants                        |  |               | 17    |              |  |  | 46    | 

|                   |  |  |                     |   |                    |  |       |  | 
|------------------ |  |  | ------------------- | - | ------------------ |  | ----- |  | 
|Financial Data     | 
|                   |  |  | Year ended Dec. 31, |   | January 1- May 31,
|(millions of euro) |  |  | 2002                |   | 2002              
|Operating revenues |  |  | 332                 |   |                    |  | 507   | 
|Operating income   |  |  | (6                  | ) |                    |  | 79    | 
|Net income         |  |  | (51                 | ) |                    |  | 26    | 
|Total net assets   |  |  | 356                 |   |                    |  | 1,031 | 

The generation assets we transferred to the Gencos broadly reflect the
technological features, mix of fuels consumed and geographical distribution of
the generation assets that we have retained. We transferred plants
representing 9,460 MW of the 14,200 MW of thermal production capacity covered
by our approved plan to convert fuel burning plants to combined cycle
technology.

The Gencos operate relatively more base load plants, which tend to operate
on a continuous basis, than mid-merit plants, which we use principally to cover
increases in demand for electricity during higher demand periods. As a result,
our share of the total amount of electricity generated in Italy has declined by
more than the percentage decline in our total gross installed capacity
resulting from the disposals. With the completion of our disposal of the
Gencos, our gross installed capacity has decreased to approximately 53% of
total Italian gross installed capacity from approximately 66% in 2001 and 57%
in 2002, and we expect to generate approximately 49% of the total amount of
electricity generated and imported in Italy in 2003.

International Generation Operations

On January 8, 2002, we acquired 100% of the outstanding shares of Electra
de Viesgo S.L. (Viesgo), a Spanish electricity company with generation and
distribution company subsidiaries, from Endesa S.A. for total consideration of
Euro 2,070 million, including Euro 1,920 million in cash and the assumption of
Euro 150 million in debt. Viesgo Generaciòn S.L., the generation company,
operates 7 thermal plants and 6 hydroelectric plants in Spain with an aggregate
gross installed capacity of approximately 2,365 MW.

In addition, on June 16, 2003, Enel agreed to purchase an 80% interest in
Union Fenosa Energias Especiales (UFEE), the renewable energy operations of
Spains third-largest utility, Union Fenosa, for Euro 168 million. UFEE, which
produces predominantly wind and hydro power, has 281 MW of installed capacity
already in operation, 157 MW currently under construction and an additional 324
MW planned for the 2004-2007 period, as well as an additional 874 MW of
capacity scheduled to be built after 2007. Enel also agreed to purchase for
Euro 158.5 million a 50% interest
in a combined cycle generation facility Union Fenosa is currently
constructing at Palos de la Frontera

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in southern Spain. The Palos de la
Frontera plant is expected to include three units with capacity of
approximately 400 MW each, and to be phased into operation in 2005. These
transactions remain subject to regulatory approval.

We also have generation operations in the United States through CHI
Energy, a North American independent power producer specializing in renewable
resources, and in Central and South America through Energia Global
International, Ltd. (EGI), another power producer specializing in renewable
resources. Both of these companies are owned by Enel Green Power. At December
31, 2002, CHI Energy operated 85 power plants in the United States and three in
Canada with an aggregate gross installed capacity of 335 MW and a net
production in 2002 of approximately 893 GWh. In 2002, CHI Energy increased its
gross installed capacity by 80 MW, primarily reflecting an increase in its
generating capacity from wind. At December 31, 2002, EGI operated two
hydroelectric plants and a wind plant in Costa Rica, as well as two
hydroelectric plants in Chile, with an aggregate gross installed capacity of
160 MW and net production in 2002 of approximately 771 GWh.

Sales, Infrastructure and Networks

Our Sales, Infrastructure and Networks Division comprises two business
units, the Sales unit and the Infrastructure and Networks unit, which operate
as independent units under the umbrella of Enel Distribuzione, S.p.A., the
divisions lead company. The division distributes and sells electricity in
Italy in both the regulated and the free markets, provides electricity-related
services and distributes and sells natural gas to end users in Italy.

Electricity companies

We operate in the electricity market through the following companies:



| |  | Enel Distribuzione, which owns the electricity distribution network serving the free and regulated markets and sells
electricity on the regulated market;                                                     
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Deval, a subsidiary in which we own a 51% interest, which engages in similar activities in the Valle dAosta Region;                                                                                          
| 
| |  | Enel Energia, which sells electricity on the free market;                                                                                                                                                     
| 
| |  | Electra de Viesgo Distribuciòn S.L., which operates our distribution activities in Spain (such activities were part of the
international operations of our Generation and Energy Management division in 2002);
| 
| |  | So.l.e. S.p.A., which provides public and art lighting services; and                                                                                                                                          
| 
| |  | Enel.si, which provides electricity-related services.                                                                                                                                                         

On January 1, 2003, Enel Energia transferred to Enel Trade its business
unit conducting electricity sales to large electricity users and electricity
wholesalers, in order to focus Enel Energias own activities on the segment of
the free market comprising customers with an annual electricity consumption of
less than 100 GWh.

Distribution and sales of electricity on the regulated market

We own and operate the principal electricity distribution network in
Italy. We use the term distribution to refer to the transport of electricity
from the transmission network to end users. Enel Distribuzione, our wholly
owned subsidiary, holds all of our distribution assets and operations. Its
main responsibilities consist in operating and maintaining the distribution
network, distributing electricity to end users and selling electricity on the
regulated market.

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The following table sets forth the volumes of electricity transported to
the free market, and transported to (and sold on) the regulated market by Enel
Distribuzione and Deval.

|                                |  |                 |         |      |  |      |         |  |  |  |         | 
|------------------------------- |  | --------------- | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                |  | At December 31,
|                                |  |                
|                                |  | 2000            |         | 2001 |  | 2002
|                                |  |                 |         |      |  |     
|Transported to free market      |  |                 | 45,200  |      |  |      | 76,845  |  |  |  | 94,043  | 
|Transported to regulated market |  |                 | 201,067 |      |  |      | 179,048 |  |  |  | 163,950 | 
|Total                           |  |                 | 246,267 |      |  |      | 255,893 |  |  |  | 257,993 | 

Growth in distribution of electricity to end users is closely related to
economic growth in Italy. In 2000, the Italian economy experienced moderate
growth, particularly in the industrial and service sectors. In 2001 and 2002,
however, the growth of Italian economy was limited due to the general slowing
of the world economy.

We have focused on reducing operating costs in our distribution and sales
operations. In particular, we have reduced the number of employees involved in
these operations by approximately 18% over the past three years, and by 30%
from December 31, 1998 to December 31, 2002. The following table shows the
number of this divisions employees at the dates indicated:

|                       |  |                 |        |      |  |      |        |  |  |  |        | 
|---------------------- |  | --------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                       |  | At December 31,
|                       |  |                
|                       |  | 2000            |        | 2001 |  | 2002
|                       |  |                 |        |      |  |     
|Distribution employees |  |                 | 44,072 |      |  |      | 38,296 |  |  |  | 36,103 | 

Electricity distribution network

The table below sets forth certain information about our primary and
secondary distribution networks at December 31, 2002.

|           |                                |       |             |         |        |       |           |         |       |             |           |          |             |  |       |         |  |  |  |         |  |  |  |        | 
|---------- | ------------------------------ | ----- | ----------- | ------- | ------ | ----- | --------- | ------- | ----- | ----------- | --------- | -------- | ----------- |  | ----- | ------- |  |  |  | ------- |  |  |  | ------ | 
|           |                                |       |             |         |        |       | Insulated |         | Bare  |             |           |          |             |  |       |         |  |  |  |         | 
|           |                                |       | Underground |         | Aerial |       | Aerial    |         | Total |             | Number of |          | Transformer
|Type       |                                | Lines |             | Lines   |        | Lines |           | Lines   |       | Substations |           | Capacity
|           |                                |       |             |         |        |       |           |         |       |             |           |         
|           |                                |       | (km)        |         | (km)   |       | (km)      |         | (km)  |             |           |          |             |  | (MVA)
|Primary:   |                                |       |             |         |        |       |           |         |       |             |           |          |             |  |       |         |  |  |  |         |  |  |  |       
|           | High voltage lines
(40-150 kV) |       |             | 366     |        |       |           |         |       |             |           | 19,950   |             |  |       | 20,316  |  |  |  |         |  |  |  |        | 
|           | Primary substations            |       |             |         |        |       |           |         |       |             |           |          |             |  |       |         |  |  |  | 1,976   |  |  |  | 87,026 | 
|Secondary: |                                |       |             |         |        |       |           |         |       |             |           |          |             |  |       |         |  |  |  |         |  |  |  |       
|           | Medium voltage lines
(1-30 kV) |       |             | 117,022 |        |       |           | 6,230   |       |             |           | 208,803  |             |  |       | 332,055 |  |  |  |         |  |  |  |        | 
|           | Low voltage lines              |       |             | 210,580 |        |       |           | 370,327 |       |             |           | 129,731  |             |  |       | 710,639 |  |  |  |         |  |  |  |        | 
|           | Secondary substations          |       |             |         |        |       |           |         |       |             |           |          |             |  |       |         |  |  |  | 405,775 |  |  |  | 64,310 | 

Our replacement and construction of distribution lines and substations are
subject to Italian regulatory limitations on environmental and aesthetic
grounds, including recently enacted legislation on electromagnetic fields that
may make it more difficult to build new transmission and distribution lines and
substations in the future and may require removing existing transmission and
distribution lines and substations. You should read Item 3. Key
InformationRisk FactorsOther Risks Relating to Our
BusinessWe may incur
significant capital expenditures to comply with legislation on electromagnetic
fields; we may not be fully reimbursed for such capital expenditures and
Regulatory MattersEnvironmental MattersElectromagnetic fields for a more
detailed description
of the environmental laws and regulations affecting our distribution
operations and the risks they pose for our business.

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Consolidation of electricity distribution network

In some cases, a single municipality has historically been served both by
our distribution network and the distribution network of a municipal utility.
The Bersani Decree provided that a single distribution license would be issued
for each municipality in Italy, thereby creating an incentive for the
consolidation of such multiple distribution networks. Specifically, the
Bersani Decree provided that any distribution company owned or partly owned by
a municipality and serving at least 20% of the customers in that municipality
had until March 31, 2001 to request that we sell our distribution network in
that municipality to it. As a consequence, we have been forced to sell a
significant number of these networks in the past few years.

The most significant of these transactions in 2002 occurred effective
October 31, when we sold our local distribution networks for the Milan and
Rozzano municipalities, which served about 385,000 customers and sold
approximately 3.1 TWh of electricity per year, to AEM Milano for Euro 424
million. As of December 1, 2002, we sold our local distribution networks for
the Verona and Grezzana municipalities, which served about 90,000 customers and
sold approximately 476 GWh of electricity per year, to AGSM Verona for Euro 108
million.

We had previously sold our network in Trieste to A.C.E.GA.S. in March
2000, in Parma to A.M.P.S. in December 2000, in Rome and Formello to ACEA in
July 2001, and in Turin to AEM Torino in December 2001. These networks, which
served approximately 1 million clients and had an annual sales volume of
approximately 6.5 TWh, were sold for aggregate consideration of approximately
Euro 884 million.

We have also sold the distribution networks of another 26 small
municipalities, mainly in 2001 and 2002, which served an aggregate of 23,395
customers, for aggregate consideration of approximately Euro 58 million, while
at the same time acquiring the distribution networks of 48 other small
municipalities, serving an aggregate of approximately 14,300 clients, for
aggregate consideration of Euro 13 million. Negotiations are currently pending
regarding our sale of the distribution networks of 41 small municipalities and
our acquisition of the distribution networks of another 85 small
municipalities. The Bersani Decree also provided that if we had not agreed by
September 30, 2000, on a sale price with any municipality that had timely
requested to purchase a distribution network from us, the price would be
decided by an arbitration panel. Eight such municipalities still have requests
for price arbitration pending; 67 such requests have already been dismissed.
We do not believe these pending transactions will involve material amounts of
consideration, or that they will have a material effect on our revenues or the
number of customers we serve.

The distribution networks that we have sold are more profitable than our
average distribution network, mainly because distribution in metropolitan areas
has lower costs because of the high customer concentration. The Energy
Authority has indicated that it intends to put in place an equalization system
that may compensate for some or all of the comparative disadvantages of
distributors serving non-urban areas.

The Bersani Decree also contemplates the consolidation of our distribution
networks with those of distribution companies (owned or partly owned by a
municipality) that serve at least 100,000 customers in municipalities adjoining
those where our networks are located. Pursuant to these provisions, certain
municipal distribution companies, including those in Milan, Rome, Trieste,
Modena and Brescia, have expressed an interest in purchasing our electricity
distribution networks in adjoining municipalities. We believe that, under the
Bersani Decree, any such sale may not occur without the agreement of all
parties concerned.

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Other acquisitions and divestitures

In June 2001, we sold to the Regional Authority of Valle dAosta a 49%
interest in Deval S.p.A., a distribution company which owns and operates
approximately 4,100 km of electricity distribution lines and serves
approximately 118,800 customers in that region.

In January 2002, we acquired Electra de Viesgo S.L. (Viesgo), a Spanish
company with electricity generation and distribution subsidiaries. Electra de
Viesgo Distribuciòn S.L., the Viesgo subsidiary which distributes and sells
electricity on the regulated market in Spain, has a 24,500 km distribution
network and serves approximately 510,000 clients mainly in Northern Spain, and
had an annual sales volume in 2002 of approximately 4.4 TWh.

Sales to Regulated Electricity Market

The regulated market for electricity sales consists of:



| |  | All Non-Eligible Customers, or customers who do not meet the
consumption threshold for participation in the free market; and                                                                                                                                                                                   
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Those Eligible Customers, or customers who meet the consumption
threshold for participation in the free market, that choose not to
participate in it. Eligible Customers may choose to remain within the
regulated market for a period of four years from the date on which
they qualify as Eligible Customers.

The consumption threshold for qualification as an Eligible Customer, which
is set by regulation, is decreasing over time, reducing the number of customers
who must buy electricity on the regulated market. The consumption threshold
decreased significantly on January 1, 2002, so that individual end users and
consortia of companies with annual consumption of 9 GWh or more of electricity
became eligible to participate in the free market. On April 29, 2003, the
consumption threshold took another significant drop, to 0.1 GWh per year, which
has resulted in approximately 60% of our electricity customers becoming
eligible to participate in the free market. See Regulatory
MattersElectricity RegulationRegulatory frameworkEligible and Non-Eligible
Customers for further information.

We supply electricity to four main classes of regulated market end users:
industrial, commercial, household and agricultural users. As of December 31,
2002, we served approximately 23 million households, or approximately 90% of
all households in Italy. The following table sets forth the amount of
electricity that we sold by class of customer in each of the periods indicated.

|                               |  |       |       |       |  |       |       |  |  |  |       | 
|------------------------------ |  | ----- | ----- | ----- |  | ----- | ----- |  |  |  | ----- | 
|                               |  | 2000  |       | 2001  |  | 2002 
|                               |  |       |       |       |  |      
|                               |  | (TWh) |       | (TWh) |  | (TWh)
|                               |  |       |       |       |  |      
|Industrial                     |  |       | 77.0  |       |  |       | 52.2  |  |  |  | 37.3  | 
|Commercial and other services  |  |       | 55.5  |       |  |       | 56.6  |  |  |  | 52.5  | 
|Household                      |  |       | 55.2  |       |  |       | 54.8  |  |  |  | 56.4  | 
|Agricultural                   |  |       | 4.7   |       |  |       | 4.6   |  |  |  | 4.7   | 
|                               |  |       |       |       |  |       |       |  |  |  |       | 
|Total                          |  |       | 192.4 |       |  |       | 168.2 |  |  |  | 150.9 | 
|Other distributors and exports |  |       | 8.7   |       |  |       | 10.8  |  |  |  | 13.0  | 
|                               |  |       |       |       |  |       |       |  |  |  |       | 
|Total                          |  |       | 201.1 |       |  |       | 179.0 |  |  |  | 163.9 | 
|                               |  |       |       |       |  |       |       |  |  |  |       | 

In 2000 and 2001, our sales to industrial users and to households
decreased mainly due to the liberalization of the electricity market and our
sale of certain municipal distribution networks as required by the Bersani
Decree. In 2002, as a result of the drop in the consumption threshold
described above, the decrease in sales involved not only industrial users but
also commercial customers. The consumption of electricity by agricultural
users has been generally stable during the
periods shown, with only minor fluctuations due to weather conditions.
The migration of customers

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from the regulated to the free market has not had a
significant negative effect on our margins on the transport and sale of
electricity as we distribute to both the regulated and the free markets, and
the sales component of electricity tariffs has relatively less weight than the
distribution component in the calculation of our overall margins.

In 2002, we estimate that Enel sold approximately 67% of the electricity
consumed in Italy in 2002, including electricity sold by Enel Energia on the
free market.

Customer service

Providing high-quality customer service is an important part of our
commercial strategy. In recent years, Enel Distribuzione has reorganized its
sales network to change the manner in which customer relations are managed. We
have expanded our customer services to provide customers with access to us
through a number of different channels, and we have introduced specialized
departments to manage relations with corporate and individual customers. Among
other things, we have a customer call center, targeted primarily at individual
consumers, and provide a self-service area through our Internet portal. The
call center is supported by both a national documentation center located in
Southern Italy, which receives, processes and electronically files all
contractual documentation, and by a national printing center, which prints and
distributes all correspondence with customers. As of December 31, 2002, our
customer service network also included approximately 1,450 QuiEnel retail
locations, Enel.sis distribution and sales network, 148 retail locations
managed directly by Enel Distribuzione, and 220 key account managers dedicated
to mid-size business customers.

We have also introduced several initiatives to improve customer
satisfaction. We launched Contowatt, in 1997, and CartaWatt, in 2001, two
services which allow customers the use of direct debits from bank accounts and
credit cards, respectively, to pay their bills. In addition, in 2001 we
introduced (in partnership with American Express) a co-branded credit card,
which provides a special membership reward program.

Quality of service targets

The Energy Authority has issued guidelines setting targets for electricity
service continuity (based on minutes of service interruptions per year) and
quality (such as waiting time for appointments). The Energy Authority has also
instituted a system in connection with quality targets for continuity of
service, or lack of service interruptions, whereby it grants bonuses to
companies that exceed these targets and imposes penalties on companies that
fail to meet them. See Regulatory MattersElectricity RegulationThe new
tariff structureQuality of service regulation.

Because we exceeded our continuity of service targets in 2000 and 2001,
the Authority granted Enel Distribuzione a Euro 36 million bonus, which was
paid in 2002, including Euro 4 million with respect to 2000 and Euro 32 million
with respect to 2001. In 2002, we continued to make improvements in the
continuity of service we provide, with our average duration of service
interruptions decreasing by 17% to 103 minutes from 125 minutes in 2001. We
believe our investments in customer service-related initiatives are sufficient
to allow us to continue to comply with or exceed the quality thresholds set by
the Authority.

We remain in litigation with the Energy Authority regarding the accuracy
of information we provided to the Authority regarding service interruptions in
1998 and 1999 in three southern regions. In 2002, the Lombardy Regional
Administrative Court (TAR) granted an appeal filed by Enel Distribuzione
declaring extinguished our obligations arising from a Euro 46.5 million fine
imposed by the Authority, after we paid the Authority a reduced amount of Euro
52,000, as permitted by
applicable law. The Authority has since appealed the ruling of the
Lombardy TAR to the Italian State Council, the highest administrative court.
This appeal is still pending.

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Sales of electricity to the free market

The Bersani Decree established targets for 2000 and 2002 for the
percentage of electricity Eligible Customers would be able to purchase on the
free market of 35% and 40% of total Italian electricity consumption,
respectively. These targets were achieved, both in 2000 and by 2002, since if
Eligible Customers had made all of their electricity purchases on the free
market in 2002, the level of free market purchases would have equaled 56% of
total Italian electricity consumption. However, actual free market purchases
in 2001 and 2002 were lower than these targets, primarily as a result of
limitations on the volume of electricity available on the free market.
According to our internal estimates, total Italian electricity consumption on
the free market in 2002 was 93.5 TWh, or only 32% of total Italian electricity
consumption for the year. The list of Eligible Customers is publicly available
and included 13,714 Eligible Customers (including qualifying consortia) as of
March 31, 2003.

Enel Energia sold 30.3 TWh of electricity to 4,308 Eligible Customers
during 2002, an increase of approximately 13% from the 26.9 TWh sold in 2001.
In particular, we experienced significant growth (+48%) in medium voltage
consumption, due to an increase in the number of customers associated in
cooperatives, while we experienced a reduction of 8% of sales in high voltage
consumption since these high-consumption consumers are able to purchase
electricity from other suppliers.

As required by the Bersani Decree, we formed Enel Energia in 1999 to focus
on marketing and supplying electricity to Eligible Customers. The progressive
liberalization of the Italian electricity market requires that Enel Energia
provide our larger customers with increasingly flexible and competitive
services that go beyond providing a reliable supply of electricity.

As part of our marketing efforts, we have implemented a series of customer
initiatives including:



| |  | specially tailored contract terms for different types of customers;                       
|- |  | ------------------------------------------------------------------------------------------
| 
| |  | special pricing policies for customers depending on consumer profile and hours of use; and
| 
| |  | value-added services such as energy monitoring and management.                            

Under the new organizational structure put in place in 2002, Enel
Energias operations in the free electricity market currently focus only on
sales to low-consumption customers. The number of these potential customers
increased significantly on May 1, 2003, when the consumption threshold
determining eligibility to participate in the free market dropped to 0.1 GWh
per year from 9 GWh previously.

Public and art lighting

So.l.e. S.p.A. operates our public lighting services in Italy and abroad.
So.l.e. targets the general market for public lighting, as well as the market
for customized lighting systems for monuments, public squares, churches and
other landmarks and public spaces. So.l.e. offers both indoor and outdoor
lighting systems, and provides maintenance services for the systems and the
related electricity plants.

In 2002, So.l.e. built lighting systems for third parties with an
aggregate value of approximately Euro 39 million, an increase of approximately
26% from Euro 31 million in 2001. In addition, So.l.e. in 2002 signed
contracts for approximately 164,000 public lighting points throughout
Italy. As of December 31, 2002, So.l.e. managed approximately 1.8 million
public lighting sites in 5,690 client municipalities. In the first half of
2003, So.l.e. entered into contracts with a total value of approximately Euro
27 million to build lighting systems for third parties.

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Electricity systems-related services

We formed Enel.si S.p.A. in March 1999 to offer our clients construction
and maintenance services for their electricity systems and operation and
maintenance services for small co-generation power plants and photovoltaic
plants through franchise stores established in local areas. Enel.si franchises
draw on the technical capabilities of the Enel Group to assist clients in
optimizing their use of electricity, as well as to offer them consulting and
personnel training services.

In 2002, 250 new Enel.si local sales and service franchises were opened,
bringing the total number at December 31, 2002, to 610. We plan to increase
our franchising network to approximately 2,500 stores over the next few years.
Enel.si also developed the product range available in its stores in 2002,
focusing on three main lines of products aimed at providing comfort, safety and
energy savings.

Gas

We operate in the gas market through the following companies:



| |  | Enel Distribuzione Gas, GE.AD. and Camuzzi Gazometri, which each
distribute gas. We plan to merge these three into one company by the
end of 2003; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Enel Gas, which sells natural gas to end users.                                                                                                       

As of January 2003, as a result of our internal reorganization, Enel
Energia no longer provides natural gas to end users, and the major clients we
served during 2002 are currently served by Enel Gas.

The Italian natural gas market is also undergoing a process of
liberalization. Under current legislation, the natural gas market was supposed
to have been completely liberalized as of January 1, 2003, with sellers able to
freely set prices to all customers. However, the Energy Authority retains the
right to control prices for those customers that qualified as Gas Non-Eligible
Customers until January 1, 2003, and imposed a price freeze with respect to
such customers at the levels that were in place on December 31, 2002. Please
see Regulatory Matters Gas Regulation  Gas Eligible and Non-Eligible
Customers  for a definition of Gas Non-Eligible Customers. The Energy
Authority has delayed the full liberalization of the market while it solicits
public comment on proposed regulations to govern free market activities (such
as sales regulations, network codes and provider-switching procedures). Please
refer to Regulatory MattersGas Regulation for a more detailed discussion of
gas regulation in Italy.

Until the conditions are in place for the development of full market
liberalization, we believe that the most effective way for us to build our gas
business is through acquisitions of other distributors or client bases. We
believe that building our gas distribution activities offer us opportunities
for potential synergies, including, for example, the ability to schedule and
perform gas and electric network maintenance and upgrades in the same area at
the same time and the ability to use call centers for both gas and electricity
customers, as well as certain competitive advantages, including potential cost
savings from economies of scale.

We have acquired several gas distribution companies with operations in
various Italian regions over the past three years. These acquisitions include
those of the Colombo Gas Group in 2000, So.ge.gas S.p.A. and Agas S.p.A. in
2001, and Camuzzi Gazometri in 2002. Together, our
acquisitions of gas companies have provided us with access to an aggregate
of approximately 1.7 million natural gas customers as of June 2003.

In November 2001, we merged twenty previously acquired gas companies into
Enel Distribuzione Gas S.p.A. In January 2002, the sales activities of Enel
Distribuzione Gas S.p.A. were spun off into Enel Gas S.p.A. (formerly Enel
Vendita Gas S.p.A.), a newly incorporated company. In

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December 2002, Plenia
S.p.A., a former sales company of Camuzzi Gazometri, was merged into Enel Gas
S.p.A. In January 2003, the sales activities of GE.AD and Enel Energia, (with
the exception of the customers that are still served by Enel Trade) were
contributed to Enel Gas S.p.A.

In May 2002, we acquired 98.58% of the outstanding shares of Camuzzi
Gazometri from Mill Hill Investments for a consideration of Euro 1,043 million,
consolidating our position as the second-largest operator in Italian gas
distribution market, second only to the incumbent provider, according to a
study of the Italian gas industry by Mediocredito Centrale in March 2002. In
acquiring Camuzzi Gazometri, we acquired both significant gas distribution
assets and Camuzzi Gazometris waste management operations. We intend to
dispose of Camuzzi Gazometris waste management operations.

In 2002, we distributed more than 3 billion cubic meters of gas to
approximately 1.7 million customers, representing approximately 11% of the
Italian market. Of this, Camuzzi Gazometri distributed 1.6 billion cubic
meters of gas to more than 937,000 customers (representing approximately 6% of
the Italian market), with the rest distributed by our smaller distribution
subsidiaries . Camuzzi Gazometri operates through approximately 11,000 km of
network, principally located in Northern Italy and in the region of Puglia. In
addition, Enel Energia sold 1.8 billion cubic meters of natural gas in 2002, a
significant increase from the 336,000 cubic meters sold in 2001.

We will continue actively to consider the acquisition of other companies
involved in gas distribution. Furthermore, we are the second-largest importer
of natural gas in Italy and may in the future consider alternative uses for the
gas that currently serves as an energy source for our electricity generating
plants.

Competition in the Electricity and Gas Markets

Electricity generation.Historically, we have not faced competition in our
electricity generation business. In 2002, we accounted for approximately 54%
of domestic electricity production. We also purchased approximately 43% of the
electricity imported into Italy, and also purchased electricity produced by
independent power producers, electricity generated by industrial producers in
excess of their own consumption and electricity produced from renewable
resources under the CIP 6 regime. In accordance with the Bersani Decree, we
transferred our long-term purchase contracts with independent power producers
under the CIP 6 regime to the Gestore della Rete in January 2001.

The following table shows our estimates of gross installed capacity in
Italy by category of producer at the dates indicated.

|                                      |  |                 |      |      |  |      |      |      |  |      |      |  |  |  |      |  |  |  |      |    
|------------------------------------- |  | --------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- |  |  |  | ---- | ---
|                                      |  | At December 31,
|                                      |  |                
|                                      |  | 1998            |      | 1999 |  | 2000 |      | 2001 |  | 2002
|                                      |  |                 |      |      |  |      |      |      |  |     
|                                      |  | (GW)           
|Enel                                  |  |                 | 58.9 |      |  |      | 59.4 |      |  |      | 58.9 |  |  |  | 52.0 |  |  |  | 45.3 | (1)
|Independent and other
power producers |  |                 | 13.1 |      |  |      | 13.9 |      |  |      | 16.5 |  |  |  | 24.0 |  |  |  | 31.4 |    
|Municipal utilities                   |  |                 | 2.9  |      |  |      | 2.9  |      |  |      | 2.9  |  |  |  | 2.9  |  |  |  | 2.9  |    
|Total                                 |  |                 | 74.9 |      |  |      | 76.2 |      |  |      | 78.3 |  |  |  | 78.9 |  |  |  | 79.6 |    



---

|(1) |  | Including 3 GW of Interpower
|--- |  | ----------------------------

As a result of the limitation on the production and import of electricity
imposed by the Bersani Decree, we were required to sell plants with a total
installed net capacity of at least 15.0 GW by January 1, 2003. In order to
comply with the requirement, we created and sold the Gencos after transferring
an aggregate of approximately 16.0 GW of gross installed capacity to them.
With the

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completion of our disposal of the Gencos in January 2003, our gross
installed capacity has decreased to approximately 53% of total Italian gross
installed capacity from approximately 66% in 2001 and 57% in 2002, and we
expect to generate approximately 49% of the total amount of electricity
generated in Italy in 2003.

The disposal of the Gencos has exposed us to increasing competition from
other generating capacity operators on the open market. We expect that our
competitors will also include domestic independent power producers, municipal
utility companies and any foreign operators that export electricity to the
Italian market or acquire Italian generation assets. In addition, up through
2002, other producers were authorized to build about 10 GW of new generating
capacity in Italy.

The three current leading independent electricity generators in Italy are
Edison, Endesa Italia and Eni. Edison has a reported 9.7 GW of generation
capacity (including its share of the capacity of Eurogen as one of Eurogens
shareholders), Endesa Italia has a reported net generation capacity of 5.4 GW
and Eni has a reported 2.4 GW of generation capacity.

The main municipal electricity companies are AEM S.p.A., ACEA S.p.A. and
AEM Torino S.p.A. They are each publicly traded, but remain majority-owned by
the relevant municipality. AEM S.p.A. has approximately 1.1 GW of generation
capacity, ACEA S.p.A. through Acea-Electrabel Produzione S.p.A. (a joint
venture in the electricity generation business with Electrabel SA) has
approximately 1.7 GW (including their share in Interpowers generating capacity
as participants in the consortium that acquired that Genco) and AEM Torino
S.p.A. has approximately 0.5 GW of capacity. In addition to their core
electricity business, these companies offer gas and/or water services.

We believe that in 2002 we imported pursuant to long-term contracts
approximately 42.9% of the electricity imported into Italy. Pursuant to the
Bersani Decree, we may be required to transfer all or part of these contracts,
which represent a total of approximately 21.7 TWh of electricity, to the Single
Buyer. The remaining electricity that we will be permitted to import will be
made available for sales to Eligible Customers. However, all of that
transmission capacity is currently used and allocated according to the rules
established by the Energy Authority. You should read Generation and Energy
ManagementPurchased power for a discussion of these rules.

Electricity sales to Eligible Customers.We expect significant competition
to result from the opening of the market to Eligible Customers, who are free to
choose the supplier of their electricity. Enel Energias competitors in sales
to Eligible Customers are independent power producers, importers, wholesalers
and brokers. Since 2001, competition in the free market has increased as a
result of our disposal of the Gencos, and the government-mandated addition to
the free market of approximately 39 TWh of CIP 6 electricity produced from
renewable resources, which the Gestore della Rete is selling to operators or
directly to Eligible Customers. We expect competition in the free market to
increase further in 2003 as a result of restrictions imposed by the Energy
Authority on individual operators access to international electricity sources.
These restrictions will reduce our access to electricity imports, while
increasing the access of other market operators.

Gas sales. In our gas business, we compete mainly with Eni, the incumbent
operator that historically held a monopoly for gas distribution activities in
Italy and continues to hold a significant majority of the overall market for
such activities. According to a study of the Italian gas industry published by
Mediocredito Centrale in March of 2002, we are the second-largest operator in
the Italian gas distribution market, following our acquisition of Camuzzi
Gazometri.

The Italian gas market is currently going through a process of
liberalization. Until 2002, Italian regulation distinguished between customers
with gas consumption of more than 200,000 cubic meters per year, which were
free to choose their supplier of natural gas, or Gas Eligible Customers, and
customers that were below these consumption levels, or Gas Non-Eligible
Customers. See Regulatory MattersGas RegulationGas Eligible and
Non-Eligible Customers. From January

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1, 2003, both Gas Eligible and Gas Non-Eligible customers were to be
permitted to purchase gas on the free market. However, the Energy Authority
has imposed a freeze on prices to Gas Non-Eligible customers at the levels in
place on December 31, 2002. The Energy Authority is also currently soliciting
public comment on proposed regulations to govern free market activities (such
as sales regulations, network codes and provider-switching procedures). We
expect that once these policies are finalized and adopted by the Energy
Authority, which we believe will be in the second half of 2003 or in early
2004, the conditions will be in place for free competition to develop in the
gas market. See Regulatory MattersGas Regulation  for a discussion of the
regulation of the gas market.

Seasonality of electricity and gas consumption

Electricity and gas consumption in Italy is somewhat seasonal. Since use
of artificial light is highest in the winter, electricity and gas consumption
peaks during the winter months. Nevertheless, increased use of air
conditioning has rendered less significant the difference in electricity demand
during winter versus summer months, and increased use of gas for industrial
production has rendered less significant the difference in gas demand during
winter versus summer months. Electricity and gas consumption is particularly
low in August, the traditional vacation period in Italy.

Transmission

Through Terna, in our Transmission Division, we continue to own
substantially all of the Italian national transmission grid. We use the term
transmission to refer to the transportation of electricity on high and very
high voltage interconnected networks from the plants where it is generated (or,
in the case of imported energy, from the points of acquisition) to distribution
systems.

Terna is responsible within the Group for the management, maintenance and
development of the national transmission grid, based on guidelines provided by
the Gestore della Rete.

The transmission system in Italy is undergoing significant changes as a
result of the Bersani Decree. You should read Regulatory MattersElectricity
Regulation for a more detailed discussion of these changes. As contemplated
by the Bersani Decree:



| |  | In June 1999, the Industry Ministry issued a decree formally defining
the Italian national transmission grid. The decree determined all of
our 380 kV and 220 kV transmission lines and approximately 50% of our
150 kV and 132 kV transmission lines to be part of the national
transmission grid.                              
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In August 1999, we transferred dispatching and national grid
management and related assets and liabilities to a wholly owned
subsidiary called the Gestore della Rete.                                                                                                                                                           
| 
| |  | In April 2000, we transferred the shares of the Gestore della Reteto
the Treasury free of charge.                                                                                                                                                                                                                                
| 
| |  | In December 2002, the Industry Ministry issued a decree that enlarges
the Italian national transmission grid and provided for Ternas
annexation of about 950 km of lines and 18 transformer stations
formerly owned by Enel Distribuzione S.p.A. and other companies
belonging to our Generation and Energy Management Division.

Under the Bersani Decree, owners of the various assets that comprise the
national transmission grid, including Terna, operate and maintain those assets
pursuant to guidelines issued by the Gestore della Rete. In accordance with
this decree, in December 2002, Terna and the Gestore della Retesigned a
service contract relating to the operation of the transmission grid. The
general framework of the contract had been established by governmental decree
on December 22, 2000, and provides for the following arrangements:

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|  |  |                                                                               |  |   |  |                                                                                   
|- |  | ----------------------------------------------------------------------------- |  | - |  | ----------------------------------------------------------------------------------
|  |  | Gestore della Rete                                                            |  |   |  | Terna                                                                             
|  |  |                                                                               |  |   |  |                                                                                   
| |  | Is responsible for safety,
reliability and efficiency of
transmission network |  |  |  | Owns and operates the transmission
network under the terms of the service
contract
| 
| |  | Manages power flows                                                           |  |  |  | Operates through a
remotely controlled system                                     
| 
| |  | Approves network maintenance                                                  |  |  |  | Executes maintenance instructions                                                 
| 
| |  | Determines network upgrades                                                   |  |  |  | Executes network upgrades                                                         
| 
| |  | Evaluates third-party connection requirements                                 |  |   |  |                                                                                   

Terna earns revenue from a fee per kWh transported that distributors and
suppliers pay to us through the Gestore della Rete. The Energy Authority
determines that fee, which is designed to cover our operating expenses,
depreciation and a specified rate of return on our assets.

The following table provides certain data about our transmission network
as of December 31, 2002.

|                             |                       |        |      |        |  |  |         |        | 
|---------------------------- | --------------------- | ------ | ---- | ------ |  |  | ------- | ------ | 
|Type of facility             |                       | Number |      | Length
|                             |                       |        |      |       
|                             |                       |        |      |        |  |  | (km)(1)
|Primary transformer stations |                       |        | 275  |        |  |  |        |       
|Transformers                 |                       |        | 554  |        |  |  |        |       
|Busbar connections           |                       |        | 3678 |        |  |  |        |       
|                             | 380kV lines           |        |      |       |  |  |         | 10,062 | 
|                             | 220kV lines           |        |      |       |  |  |         | 10,115 | 
|                             | 150kV and 132kV lines |        |      |       |  |  |         | 17,406 | 
|Total lines                  |                       |        |     |        |  |  | 37,583  |       
|                             |                       |        |      |        |  |  |         |       



---

|(1) |  | Length in kilometers refers to circuit line length.
|--- |  | ---------------------------------------------------

In 2002, we put 7 new transformer stations into service and repowered 12
other stations. As a result, our aggregate transformer capacity increased by
1,987 MVA up to 101,493 MVA.

Our transmission network is connected to the distribution network through
275 primary transformer stations, typically transforming electricity from
380/220 kV to 150/132 kV.

Our transmission lines make use of rights of way granted by local
authorities in areas where the facilities are located. In addition, we have
rights of eminent domain over private property. We are required to compensate
landowners for any exercise of these rights.

Our transmission network also connects the Italian electricity grid to the
grids of neighboring countries through six 380 kV international lines and nine
220 kV international lines.

On July 9, 2002, we completed construction and put in service a 400 kV
direct current transmission line to Greece with 500 MW capacity. This line is
207 km long, with 163 km of submarine cable. The aggregate capital expenditure
for the project was approximately Euro 340 million, of which our share was Euro
263 million; Athens Public Power Corporation, the Greek state-owned electricity
utility, provided the balance. The European Union has committed structural
adjustment funds to reimburse the parties for 40% of the aggregate capital
expenditures relating to the project.

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In addition to the maintenance contracts we are directly assigned to
manage, in January 2003, Terna won in competitive bidding contracts from the
Gestore della Retewith an aggregate value of Euro 4 million to construct three
new transformer stations in Sardinia by the end of 2004.

The regulated distribution fees that Terna earns are also based on the
availability of its transmission network. The following table shows the
availability reported for each of the periods indicated.

|                     |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|-------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                     |  | Year ended December 31,
|                     |  |                        
|                     |  | 1999                    |      | 2000 |  | 2001 |      | 2002
|                     |  |                         |      |      |  |      |      |     
|Network availability |  |                         | 98.0 | %    |  |      | 97.8 | %    |  |  | 98.0 | % |  |  | 98.3 | %



---

|Source: Enel.
|-------------

In 1998, we began to implement a program aimed at reducing the operating
costs of, and capital expenditures on, our electricity transmission system.
This program was focused on rationalizing the operations and maintenance of our
transmission lines and transformer stations, simplifying technical
specifications, reducing our personnel costs and the purchasing costs of major
components, and reviewing our project planning and capital expenditure
programs.

We have continued to implement the program aimed at reducing the operating
costs we launched in 1998, through the development of a new remotely managed
and controlled system, the full deployment of a new organizational structure
based on centralized management, and of a SAP management information system. In
addition, we have recently implemented the Monitor and Business Intelligence
project, an e-maintenance platform to monitor the operation and maintenance of
Ternas transmission grid, using particular tools that allow Terna to evaluate
the condition of components of the system and to decide if and when to provide
maintenance to any component.

To diversify the revenue base of our transmission segment, we have begun
to sell maintenance, long-distance metering and monitoring and related
engineering and operating services to third parties which own or utilize high
voltage power systems, including other electric companies, municipal utilities
and large industrial plants. In 2002, we sold such services with an aggregate
value of Euro 12 million. We also intend to offer these services to customers
outside of Italy.

As of June 2001, Terna agreed to assume responsibility for the operation
and maintenance of approximately 21,000 km of high voltage lines that are part
of Enel Distribuziones network. Under this agreement, 455 employees were
transferred to Terna from Enel Distribuzione.

Telecommunications

Overview

We conduct our telecommunications and Internet service activities through
WIND S.p.A. Since launching its services in 1999, WIND S.p.A. has become one
of the leading providers of mobile and fixed-line telephony, Internet and data
transmission services in Italy. WIND operates throughout Italy with its own
network infrastructure and has rapidly developed its transmission backbone by
leasing fiber optic cables from us.

We formed WIND as a joint venture in 1997 along with our initial partners,
France Télécom and Deutsche Telekom. Our stake in WIND initially was 51%, with
France Télécom and Deutsche Telekom holding a 24.5% stake each. Following
Deutsche Telekoms exit at the end of July 2000, our stake rose to 56.6% and
France Télécoms share grew to 43.4%. We subsequently purchased Infostrada, a
fixed line telecommunications and Internet company, and contributed it to WIND,
effective July 30, 2001. This contribution increased our stake in WIND to
73.4%. Infostrada was merged into WIND effective on January 1, 2002. In March
2003, we agreed to acquire France

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Télécoms remaining 26.6% stake in WIND. We expect this transaction to
close at the beginning of July 2003.

We no longer view our telecommunications activities, held through WIND, as
potentially synergistic with our energy activities, but rather as a financial
investment. We believe that as sole shareholder of WIND we will increase our
flexibility to maximize the value of this investment. We expect to support
WIND until it achieves financial independence and that this will require us to
invest no more than 1 billion in new equity.

The acquisitions of Infostrada and certain assets of Blu

On March 29, 2001, Enel Investment Holding BV, a Dutch company fully owned
by us, acquired from Mannesman Investment BV (an indirect, wholly owned
subsidiary of Vodafone Group plc), 100% of the capital stock of Infostrada, one
of Italys leading alternative providers of fixed-line telecommunications
services and the operator of one of Italys leading Internet portals at the
time. The purchase price of the shares, amounting to Euro 7,250 million, was
paid in full on the same date. As provided for in the share acquisition
agreement, we also paid Mannnesman Investment Euro 132 million in respect of a
receivable it has previously renounced in favor of Infostrada. Moreover, on
the same date, Enel Investment Holding BV paid Vodafone Euro 821.2 million that
Infostrada owed Vodafone, and became a creditor of Infostrada for this amount.
In addition, in connection with the acquisition, we incurred certain ancillary
costs amounting to approximately Euro 375 million.

Effective July 30, 2001, we contributed all the shares of Infostrada to
WIND in exchange for new shares issued in connection with a reserved capital
increase. Effective January 1, 2002, Infostrada was merged into WIND.

On October 4, 2002 WIND acquired certain assets from Blu S.p.A., one of
the four Italian mobile operators active at the time. The acquisition took
place in the context of the winding-up of Blu, for a purchase price totaling
Euro 140 million.

The assets purchased from Blu included Blus entire customer base (1.9
million mobile lines, approximately 700,000 of which were active at the time of
the acquisition), the Blu trademark and logo, certain network and information
technology assets, radio sites, sales points, a call center and a number of
part time and full time employees (in the aggregate, equivalent to 540 full
time employees). Effective April 1, 2003, WIND sold to Telecom Italian Mobile
S.p.A., the network and information technology assets acquired from Blu in
October 2002. The total consideration for this sale was Euro 20 million.

In addition, in the context of the winding-up of Blu, each of WIND,
Telecom Italian Mobile S.p.A. and Vodafone Omnitel S.p.A. were assigned, at no
charge, 5 MHZ of the 15 MHZ of GSM/GPRS transmission frequencies originally
assigned to Blu.

The
Italian Communications Market1

Italy is one of the largest telecommunications markets in Europe, with a
population of approximately 57 million people, utilizing an aggregate of
approximately 54 million mobile telephone lines and approximately 27 million
fixed lines, as of December 31, 2002. WIND uses the number of lines as the
primary measure of its customer base and growth, as some of its customers have
more than one line for mobile, fixed or Internet services. For mobile services,
the number of lines represents the number of Subscriber Identity Module, or
SIM, cards sold. For Internet services, the number of lines is equal to the
number of registered users. As of December 31, 2002, WIND had an aggregate of



---

1          Data related to the Italian communications market presented in this section
are based on WINDs estimates, except where otherwise indicated.


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approximately 16.1 million fixed and mobile telephone lines and
approximately 12.4 million Internet registered users.

Mobile Services

The Italian mobile telephone market, one of the largest in Europe,
continued to expand in 2002, to approximately 54 million lines at December 31,
2002, from approximately 51 million lines at the end of 2001.

As of December 31, 2002, Telecom Italia Mobile S.p.A. had approximately
25.3 million lines, accounting for approximately 47% of the Italian total,
while Vodafone Omnitel S.p.A. had more than 19 million lines, or approximately
35% of the total. As of the same date, WIND had approximately 8.7 million
lines, or approximately 16% of the total market for Italian mobile telephony,
compared to 7.9 million lines, or a market share of approximately 15.5%, at the
end of 2001.

Fixed telephony services

As of December 31, 2002, the total number of lines operated by alternative
fixed-line carriers in Italy (i.e.,carriers other than Telecom Italia S.p.A.)
totaled approximately 11 million, with a net increase of approximately 1
million since the beginning of the year. At the same date, WIND had
approximately 7.4 million fixed lines. Other major alternative carriers
include Tele2, Tiscali and Albacom, which focuses on the corporate market.
Competition in the fixed-line telephony market is expected to evolve with the
expanded availability of carrier pre-selection and the unbundling of the local
loop. Please refer to Regulatory MattersTelecommunications for a detailed
discussion of the unbundling of the local loop.

Internet Services

In 2002, the number of registered Internet users in Italy increased by
approximately 30%, reaching a total of approximately 34 million as of December
31, 2002. WIND had approximately 12.4 million registered users as of December
31, 2002, or approximately 36% of the market. Other internet service providers
include, among others, TIN.it and Tiscali, each with a market share of
approximately 20% at the end of 2002.

Customer Base

Since its launch, WIND has been successful in rapidly increasing its
customer base. As of March 31, 2003, WIND operated approximately 29.7 million
lines.

WIND uses the number of lines as the primary measure of its customer base
and growth, as many of its customers have more than one line for mobile, fixed
or Internet services. As of March 31, 2003 WIND had approximately:



| |  |  | 9 million mobile lines, represented by the number of
Subscriber Identity Module, or SIM, cards sold, an increase of
approximately 1.1 million lines since December 31, 2001;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 7.4 million fixed lines, an increase of approximately 0.4
million lines since December 31, 2001; and                                                                        
|
| |  |  | 13.3 million registered Internet users, an increase of
approximately 4.3 million users since December 31, 2001.                                                             

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Products and Services

WIND offers a number of mobile and fixed-line telephony products, Internet
and other value-added services to corporate and residential customers. WIND
also currently provides the Enel Group with most of its key telephony and other
telecommunications services under an outsourcing contract entered into
following the Enel Groups contribution of its telecommunications division to
WIND in 1999.

Mobile Telephony. WIND offers a wide range of mobile telephony products
and services including several tariff plans for mobile telephone users and
products that integrate mobile with fixed-line and Internet services.

Fixed-line Telephony.WIND offers fixed-line telephony services to
business and residential customers using either carrier selection, where
customers dial a predefined access code, to select WINDs network for local,
long distance and international calls on a per call basis, or carrier
pre-selection where WIND arranges with Telecom Italia for automatic switching
to its network without requiring an access code.

Costs of fixed-line telephony services are generally calculated on the
basis of the type and length of calls made, however, WIND also offers customers
calling plans tailored to the type of consumer and its patterns of usage.

WIND also offers business customers national toll-free and shared-toll
services. It also sells prepaid and magnetic strip telephone cards and offers
carrier and termination services in Italy to other national and international
carriers.

Internet.WIND offers a full array of Internet and data transmission
services to both business and residential customers. Among other things, WIND
manages Libero, a leading Italian portal, and offers high speed Internet access
using ADSL, or Asymmetric Digital Subscriber Line technology, or HDSL, or High
Bit-rate Digital Subscriber Line advanced services, both of which allow high
speed data transmission and Internet navigation.

Network Access.WIND provides its integrated fixed-line telephony, data
transmission and Internet services to residential and corporate customers using
several access methods:



| |  | Indirect Access. For its customers, WIND offers indirect access to
its fixed voice and Internet services through either carrier selection
or carrier pre-selection.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Direct Access: WIND is also able to offer direct access to its network
for its largest corporate customers through microwave links, direct
fiber optic connections or dedicated lines leased from Telecom Italia.
In 2001, following the initial steps in the unbundling of the local
loop that allow alternative carriers to have access to Telecom
Italias local network, WIND began to expand the availability of
direct access to other customers in very limited areas and continued
to do so in 2002 as the unbundling process progressed. Where the
unbundling of the local loop is fully operational WINDs customers are
no longer required to pay fixed-line access fees to Telecom Italia and
WIND is also able to collect interconnection fees for calls
originating on another operators network and terminating on WINDs
network. As of March 31, 2003, the unbundling of the local loop was
operational in a number of areas through 449 unbundling sites,
covering approximately 27% of the Italian population. As of the same
date, a total of 316,000 WIND customers had requested direct access to
the WIND network through those sites, 118,000 of whom had already been
connected to the WIND network as of that date.

WIND offers mobile services through its national dual band GSM-900 and
GSM-1800 digital mobile network and roaming agreements with other Italian
mobile operators. In 2001, WIND

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began offering its customers GPRS, the new mobile technology that provides
greater bandwidth for data transmission and Internet access.

Network Infrastructure and Licenses

Since WIND began its operations, it has focused on developing its
technical infrastructure, as well as entering into agreements with other
telecommunications operators in order to expand its reach and enhance coverage.
WIND uses a common system management software, referred to as its Intelligent
Network, for its fixed-line and mobile networks, allowing it to provide
integrated telephony and other value-added services to its customers. WINDs
network infrastructure provides high-capacity transmission capabilities, covers
most of the domestic territory and allows the delivery of new and innovative
services.

As of March 31, 2003, WINDs network infrastructure included:



| |  | A 18,300 km fiber optic transmission backbone using Synchronous Digital Hierarchy, or SDH, and Wavelength Division
Multiplexing, or WDM technology, the European standard for high speed digital transmission;
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Metropolitan Area Networks in the main Italian cities, including Rome, Milan, Turin, Naples, Florence, Genoa, Bologna and
Palermo, comprising 2,240 km of underground cables;                                 
| 
| |  | A national voice switched network comprising 58 fixed switches and 50 mobile switches;                                                                                                                        
| 
| |  | A packet switched data network comprising 192 Internet Protocol and data transmission points of presence for data
transmission; and                                                                           
| 
| |  | A GSM/GPRS mobile network covering approximately 98% of the Italian population.                                                                                                                               

WIND leases inactive, or dark, fiber on its national backbone from us
under a renewable 15-year contract that became effective in 1999. Under that
contract, WIND paid us a total initial consideration of Euro 108.4 million, and
has been paying an additional Euro 45.1 million per year in annual fees since
2000; the annual lease fee can be adjusted in 2006 if market prices for fiber
optic cable increase or decrease by more than 10%.

WIND has also entered into a number of non-exclusive interconnection and
roaming agreements with other Italian and with international telecommunications
operators. Interconnection agreements allow one operator to make use of
another operators network in order to have the necessary connections to
terminate a call originating in that operators network, whereas roaming
agreements allow one mobile operator to have its customers calls hosted by
another mobile operators networks in geographical areas which its network does
not cover. WINDs roaming agreements include terms designed to ensure that
WIND customers receive seamless connections, full access to their subscribed
services and complete mobile network coverage.

WIND has also begun offering direct access to its fixed-line customers
following the unbundling of the local loop, a process whereby Telecom Italia is
required to give alternative carriers access to Telecom Italias last-mile
connections that include the wires leading to a customers home or office. As
of March 31, 2003, WIND had installed 449 fully operational local loop
unbundling sites, covering 27% of the Italian population. You should read
Regulatory MattersTelecommunications for a detailed discussion of the
unbundling of the local loop.

WIND has obtained a number of important licenses and authorizations needed
to build its business, including a license to provide mobile telephone services
in Italy using digital GSM-1800 and GSM-900 technology and one of the five
licenses to provide third-generation UMTS services in

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Italy auctioned by the Italian government. The purchase price for WINDs
UMTS license totals Euro 2,427.3 million, of which Euro 2,138 million has
already been paid and the remainder is to be paid over the next eight years.
The UMTS license became effective January 1, 2002 and expires on December 31,
2022. The process by which the Italian government sold UMTS licenses is the
subject of ongoing investigations by the public prosecutor for Rome and the
Antitrust Authority, as well as other pending legal challenges. Although no
assurance can be given as to the outcome of these proceedings, WIND does not
believe that any of these proceedings will have a material adverse impact on
its ability to offer UMTS services.

Customer Care and Marketing

Since beginning operations in 1999, WIND has focused on creating customer
care systems that are accessible and convenient to use, including an integrated
billing system for fixed-line and mobile phone telephone customers and a system
that allows WINDs corporate clients to pay bills, order supplies or obtain
information electronically.

WIND seeks to keep its pricing and billing policies for its fixed-line and
mobile services as transparent and user-friendly as possible and markets its
services and products through a multi-channel commercial distribution network
with over 4,200 points of sale, including dealers, independent agents, business
partners and distributors.

Environmental and other regulatory matters

Because of its relatively recent start-up of operations, WIND has been
able to take advantage of recently developed technologies in the implementation
of its quality and safety standards. Depending on the installation context,
WIND deploys different network infrastructure elements in order to achieve
radiation emission ranges lower than the minimum levels required by applicable
Italian regulations, which are themselves more than 50% lower than the minimum
radiation emission levels set by a number of other European countries. In
addition, all plans for WINDs base transceiver stations include a report on
electromagnetic emissions that is submitted to the relevant public authorities.
However, if the Italian government were to set limits on electromagnetic
emissions that are stricter than those currently in effect, we could be
required to upgrade, move or make other changes to our mobile telephony
infrastructure. You should read Item 3. Key InformationRisk FactorsOther
Risks Relating to our BusinessesWe may incur significant capital expenditures
to comply with legislation on electromagnetic fields; we may not be fully
reimbursed for these capital expenditures.

WIND, like other telecommunications providers in Italy, is subject to
regulation by both the Italian government and the European Union. You should
read Regulatory MattersTelecommunications for a discussion of the
regulatory framework in which WIND operates.

Services and Other Activities

Real estate and other services

We conduct our commercial real estate management activities through Enel
Real Estate S.p.A. (previously called SEI S.p.A.). Enel Real Estate is
responsible for managing our commercial real estate assets, renovating,
restructuring and maintaining buildings for commercial use and providing
building cleaning, maintenance, security, canteen and other services to both
Group companies and third parties. Enel Real Estate is also focusing on
reducing the costs of our real estate portfolio, on leasing property and on
actively managing vacant spaces.

In the second half of 2002, we retained Lazard Real Estate and Schroeder
Salomon Smith Barney as financial advisors to aid us in soliciting offers from
potential investors for the acquisition of Enel Real Estate.

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In December 1999, we transferred certain residential and industrial real
estate assets having a value of approximately Euro 367 million to
Dalmazia-Trieste S.p.A., a company wholly owned by the Enel Group. We currently
expect Dalmazia-Trieste to dispose of residential assets with a net book value
of Euro 289 million as of December 31, 2002 over the next several years. At
December 31, 2002, we owned real estate (net of the assets transferred to
Dalmazia-Trieste) with an approximate net book value of Euro 1,780 million as
of December 31, 2002, consisting mainly of office buildings and other
commercial properties.

In December 2000, Enel Real Estate sold to American Continental Properties
Institutional Investors, for approximately Euro 140 million, its 51% interest
in Immobiliare Foro Bonaparte, to which it had previously contributed Euro 520
million of real estate assets and a mortgage loan secured by the assets equal
to approximately 50% of their value, as well as related personnel.

In May 2001, Enel Real Estate sold to Deutsche Bank Real Estate, for
approximately Euro 41 million, its 51% interest in Immobiliare Rio Nuovo, to it
had previously had contributed approximately Euro 436 million of real estate
assets, a mortgage loan secured by the assets, equal to approximately two
thirds of their value, a subordinated debt of approximately Euro 67 million and
related personnel. In March 2002, we sold the remaining 49% interest in
Immobiliare Rio Nuovo to Deutsche Bank Group for Euro 44 million.

In September 2001, Enel Real Estate established Leasys S.p.A., a joint
venture with Fidis S.p.A. (a company of the Fiat Group), to which it
transferred its car rental activities. Enel Real Estate owns 49% of the new
company.

In July 2002, Enel Real Estate acquired from Mitsubishi Electric Europe,
for Euro 200,000, its 50% interest in Conphoebus Technology Services, the
parties former joint venture. Conphoebus Technology Services was then merged
into Enel Real Estate.

Engineering and contracting

We conduct our engineering, procurement and construction, or EPC,
operations through Enelpower S.p.A. We formed Enelpower in 1999 by
transferring to it the resources, capabilities and expertise of our thermal
power plant and transmission line engineering and contracting division.
Enelpower operates  directly or through its subsidiaries  as an engineering
and contracting company and supplier of integrated power systems on a turnkey
basis. During the last 34 years, our engineering and construction operations
designed and built power plants with a total of 52,000 MW of gross generating
capacity, and installed or constructed almost all of the electricity
transmission and distribution facilities built in Italy. In January 2001,
Enel.Hydro contributed all of its EPC activities related to hydroelectric power
plants to Enelpower, thereby concentrating all our power generation EPC
expertise in a single entity. In addition to serving as the primary EPC
contractor for our Generation and Energy Management Division, Enelpower
provides EPC services to third parties.

During 2002, as part of the re-organization of the Enel Groups
activities, Enelpower has redefined its corporate mission. In particular,
while Enelpower will complete international projects in which it is already
involved; it will no longer pursue opportunities outside of Italy, in order to
focus on serving the Italian market.

In 2002 and the first part of 2003, Enelpowers major achievements included:



| |  | In May 2002, Enelpower was awarded an EPC contract for the construction of a 1,140 MW power plant at Torrevaldaliga Sud by
Interpower, one of the former Gencos;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In May 2002, Enelpower was awarded a contract by Enel Produzione for the repowering of a 375 MW power plant at Termini
Imerese;                                 

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| |  | In June 2002, Enelpower was awarded an EPC contract for the repowering of a 380 MW power plant at Cassano dAdda by AEM
Milan;                                                                                     
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In June 2002, a 760 MW combined cycle power plant located in La Spezia was completed;                                                                                                                              
| 
| |  | In July 2002, Enelpower was awarded an EPC contract for the conversion to combined cycle technology of two sections of the
Tavazzano and Montanaso 1,140 MW power plant by Endesa Italia (formerly Elettrogen); and
| 
| |  | In the first quarter of 2003, Enelpower was awarded two contracts for the modernization of two hydroelectric power plants
at Zevio and Gallicano by Enel Produzione.                                               

In 2002, Enelpower earned approximately 60 % of its revenues from projects
granted by parties not belonging to the Enel Group. We expect this percentage
to reach approximately 72 % in 2003 in part as a consequence of the
deconsolidation of all of the former Gencos.

On June 6, 2003, the Tribunal in Milan, upon request of the public
prosecutor, ordered the arrest of the former chief executive officer and a
former senior executive of Enelpower for alleged crimes, including
embezzlement, fraud, corruption and false statements to shareholders, in
connection with certain transactions carried out by Enelpower in the Middle
East and Italy. None of the individuals charged to date are currently employed
by Enel. Please see Item 8. Financial InformationOther Financial
InformationLegal Proceedings. Enel and Enelpower intend to seek any damages
caused to them by any violations committed by former officers of Enelpower,
should such violations be proved as a result of the pending investigation.

Information technology

Enel.it S.p.A., which we formed in October 1999, designs new tools and
services to support development of our new products and to enhance the
efficiency and effectiveness of our information technology systems.

During 2001 and 2002, Enel.it has implemented an integrated SAP
information management system in many of the Groups companies, which by the
end of 2003 is expected to be implemented in all the companies belonging to the
Group. In 2002, Enel.it completed the implementation of our new customer
service system, which integrated our 25 nationwide call centers, making them
reachable through a single call-in number and permitting them to manage more
than 40 million calls per year. In addition, Enel Distribuzione in 2002
continued implementing the roll-out of the Telemanagement system for remote
metering. This project, which started in the second half of 2001, involves the
system-wide replacement of approximately 30 million traditional mechanical
electricity meters with digital meters, or Telemeters, incorporating
sophisticated technology

Enel.it has three central data processing centers with five mainframes and
with a total data processing capacity of 5.0 billion instructions per second,
as well as more than 56,000 workstations, 1,600 local area networks, 5,600
servers and one wide area network.

Together with WIND and Enel Distribuzione, Enel.it has continued to
develop the Power Line Communication project for the transmission of data
signals through the electricity distribution system, so as to offer
Internet-based and other on-line services, as well as indoor communications
technology services, to our customers. We are currently running a pilot
program using this technology involving 2,300 customers. Enel.it is also
advising other companies of the Group on possible uses and enhancements of
their websites, including the implementation of e-commerce portals.

According to the new core-business oriented strategy of the Group, Enel.it
is now focusing its activities providing services to other Group companies.

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Water

We operate our water business mainly through our wholly owned subsidiary
Enel.Hydro S.p.A.. Enel.Hydro participates in several consortia that hold
minority interests in entities that have been awarded contracts for the supply
of water in certain geographical areas. Each of these projects is still in a
start-up phase and not yet operational. Of these projects, the most
significant are the following:



| |  |  | A consortium, in which we hold a 60% participation, which
holds a minority interest in an entity that was awarded a 40-year
contract to provide water to an area in Sicily with approximately
1.5 million residents.  
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A consortium, in which we hold a 45% participation, which
holds a minority interest in an entity that was awarded a 30-year
concession to provide water to an area in Calabria with
approximately 2 million residents.
|
| |  |  | A consortium, in which we hold a 45% participation, which
holds a minority interest in an entity that was awarded a 30-year
contract to provide water to an area in Campania with approximately
1.5 million residents.
|
| |  |  | A consortium, in which we hold a 23% participation, which
holds a minority interest in an entity, that was awarded a 30-year
contract to provide water to an area in Lazio with approximately 1.1
million residents.  

Research and development

We maintain our own research and development program to provide
technological innovations to our businesses. The objective of our research and
development activity is to improve the efficiency and capacity, and innovate
and expand the service offerings, of our core energy businesses, as well as to
reduce their environmental impact. We develop new products and processes
internally and also acquire technology in the market which we then customize
for our own purposes.

During the past three years, we have conducted research and development
activities mainly to improve the efficiency of our generation plants and our
transmission and distribution networks, to minimize the environmental impact of
electricity generation, and to develop innovative technologies so as to deliver
new services through our network infrastructure. We conduct our research and
development activities mainly through Enel Produzione, Enel.Hydro and Enel
Green Power. We also conduct research and development activities through CESI
S.p.A., which was one of our consolidated subsidiaries until 2002, and in which
we currently hold a 40.92% participation. CESI S.p.A. is dedicated mainly to
the testing of electrical and electronic equipment and to research on new
electrical systems, plants, components and applications thereof.

Research and development programs involved about 1,000 of our employees in
2002. Our expenditures on research and development were approximately Euro 100
million for 2002, Euro 100 million for 2001 and Euro 124 million for 2000.

We historically have conducted and funded research for the national
electricity system. CESI has become responsible for system research following
the transfer to it of all related resources of Enel S.p.A. A system charge
included in electricity tariffs is targeted for the financing of system
research activities. We expect to reduce our shareholding in CESI over time.

Personnel administration

In January 2001, we formed APE Gruppo Enel S.p.A., a wholly owned company
that manages personnel payrolls, pension funds and social security funds and
provides related administration services for the Enel Group, as well as
offering similar services to third parties. As of December 31, 2002, the
company had 896 employees of its own, and provided services to a total of
approximately 64,500 employees, of which 3,836 belonged to companies outside
the Enel Group.

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Professional training services

Sfera S.p.A., which we formed in 1999, is responsible for providing
professional training services to our employees. In 2001, Sfera launched an
integrated remote training system for employees of our Group (Enel Distance
Learning System), reaching 28,000 registered users at the end of 2002. In
2002, Sfera developed a total of 64,000 full-time equivalent classroom days
of instruction.

Venture capital

In 2000 and 2001, we directed some funds towards venture capital
activities, focusing on minority investments in companies in the
telecommunications, information technology and new technologies businesses.
However, in line with our new strategy of focusing on our core energy
businesses, in 2002 we divested part of these activities, and we intend to
divest most of the remaining part of these activities in the near future. As
of March 31, 2003, our venture capital activities had an aggregate book value
of Euro 19 million.

Factoring

In May 2000, we established Enel.factor S.p.A., a captive factoring
company 80% owned by us and 20% owned by Meliorbanca, an Italian bank.
Enel.factor began operations in October 2000 and engages in the factoring of
receivables owned by third parties against companies of our group. In 2002,
Enel.factor registered a turnover of Euro 2,197 million, the number of
customers at the end of the year amounted to 311.

Capital Investment Program

Outlook and capital investments

We have summarized in the table below our capital expenditures on tangible
assets by division during each of 2000, 2001 and 2002 . During such period, we
have not incurred capital expenditures with respect to activities of our
Corporate division. The table includes expenditures made on the Gencos during
these years.

|                                   |       |  |                    |       |      |  |       |       |  |  |       |       | 
|---------------------------------- | ----- |  | ------------------ | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                   |       |  | 2000               |       | 2001 |  | 2002 
|                                   |       |  |                    |       |      |  |      
|                                   |       |  | (millions of euro)
|Generation and Energy Management   |       |  | 571                |       |      |  | 828   |       |  |  | 1,032 |      
|Sales, Infrastructure and Networks |       |  | 1,358              |       |      |  | 1,366 |       |  |  | 1,855 |      
|Telecommunications                 |       |  | 936                |       |      |  | 1,185 |       |  |  | 1,550 |      
|Transmission                       |       |  | 190                |       |      |  | 173   |       |  |  | 178   |      
|Others                             |       |  | 299                |       |      |  | 531   |       |  |  | 494   |      
|                                   |       |  |                    |       |      |  |       |       |  |  |       |      
|                                   | Total |  |                    | 3,354 |      |  |       | 4,083 |  |  |       | 5,109 | 
|                                   |       |  |                    |       |      |  |       |       |  |  |       |      

We incurred total capital expenditures in our core electricity and gas
distribution businesses, including expenditures related to the Gencos, of
approximately Euro 2,887 million in 2002, and we expect to incur capital
expenditures of approximately Euro 3,000 million in 2003 and approximately Euro
3,600 million in 2004. We expect to reduce the amount of investment on
tangible assets in our Telecommunications Division to Euro 660 million in 2003,
and Euro 380 million in 2004.

Generation and Energy Management

Domestic Operations.In 1997, we began to implement a strategic plan
designed to improve operating efficiency in our generation activities with the
goal of reducing costs to the levels of the most efficient European and
American generators of electricity. In implementing the plan, we have
rationalized our allocation of capital expenditures by, among other things,
switching to when needed maintenance from planned maintenance programs. We
have also focused on reducing our fuel costs by improving sourcing, logistics
and the mix of fuels we consume.

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In 2002, our capital expenditures (excluding expenditures on the Gencos)
were Euro 865 million, an increase of Euro136 million, or 19%, from 2001,
primarily reflecting the ongoing implementation of our conversion program of
certain thermal generation plants to combined cycle technology, involving total
gross installed capacity of approximately 4.7 GW. In particular, we have spent
approximately Euro 1,200 million since this program started in 1998 through the
end of 2002, and we plan to spend a further Euro 400 million by 2005 in order
to complete this program.

In addition to the combined cycle technology conversions, we have begun an
investment program to convert two oil fired thermal plants to burn lower-cost
fuels such as coal and orimulsion, and to upgrade the technology at an existing
coal plant to improve its efficiency. The total gross installed capacity
involved in these projects is approximately 4.7 GW, and we expect to make
approximately Euro 2,200 million in capital expenditures by 2007 to complete
these projects.

We also continued implementing a strategic plan begun in 2001 to increase
investment in renewable generation resources (wind, hydroelectric, geothermal)
to allow us to comply with the regulations requiring us to provide a specified
amount of green energy each year. We expect this program, on which we spent
approximately Euro 67 million in 2002 and on which we plan to invest Euro 855
million in the 2003-2007 period, to permit us to be self-sufficient in meeting
the requirements regarding the production of qualified renewable energy by 2005
(given the expected decline in our share of total generation in Italy), at
which time we believe we will no longer have to purchase green certificates
to make up for a shortfall in our own production. In 2002, we generated 0.3
TWh of energy from new qualifying renewable resources, out of the 1.9 TWh we
were required to produce, and we expect to produce 0.7 TWh of the 2.0 TWh we
are required to produce for 2003. If we achieve the goals set under this
investment program, we expect that beginning in 2006 we will be producing more
qualifying renewable energy than required, and that we will be able to sell the
rest to other power producers in the form of green certificates.

International Operations.In 2002 Enels international operations included
the Viesgo Group, based in Spain, CHI Energy Inc. in the United States and EGI,
which operates in Central and South America.

The Viesgo Group, which we acquired on January 8, 2002, has two main
operating companies, one in generation and one in distribution. In 2002,
Viesgo Generaciòn made capital expenditures of approximately Euro 11 million to
improve the capacity, efficiency and production at its 13 power plants, which
at the end of 2002 had gross installed capacity of 2,365 MW. In 2003, Viesgo
Generaciòn will begin to implement a program to convert certain of its
conventional thermal generation plants to combined cycle technology, and
expects to spend approximately Euro 41.1 million on this program in 2003. The
distribution company, Viesgo Distribuciòn, made capital expenditures of Euro
43.9 million in 2002, primarily to upgrade its distribution grid in compliance
with regulatory requirements.

In 2002, CHI Energy spent approximately Euro 7 million on capital
expenditures, or approximately 85% less than it spent in 2001. This decrease
was primarily due to the fact that CHI Energy increased its capacity in 2002
mainly through the acquisition of projects from third parties, while in 2001 it
focused more on developing additional capacity at its existing generation
facilities. At EGI, capital expenditures in 2002 were approximately Euro 19
million, an increase from approximately Euro 6 million spent in the latter half
of 2001 following our acquisition of EGI in June of that year,and were
primarily devoted to increasing installed capacity at its generating
facilities. As of December 31, 2002, EGIs facilities had gross installed
capacity of 160 MW, compared to 144 MW at the end of 2001. In 2003, CHI Energy
expects to make capital expenditures of Euro 2.6 million, primarily on
maintenance of its existing facilities, while EGI expects to spend
approximately Euro 28 million.

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Sales, Infrastructure and Networks

Capital expenditures in tangible assets for Sales, Infrastructure and
Network divisions rose to Euro 1,855 million from Euro 1,366. Capital
expenditures on our electricity distribution networks rose from Euro 1,339
million in 2001 to Euro 1,680 million in 2002. This increase was primarily
attributable to our investment in the Telemanagement integrated remote metering
system. In 1999, Enel Distribuzione began a project for the development of a
digital meter to replace the 30 million analog meters currently installed. In
June 2000, we signed an agreement with Echelon Corporation of the U.S. that
will allow us to use Echelons LonWorks network control technology in our
digital meter project. We also purchased 3,000,000 newly issued shares of
Echelons common stock (representing approximately 8% of Echelons outstanding
shares, at the time) for a total of $130.9 million. We have agreed to hold the
shares through at least September 2003. The installation of the new meters is
expected to be completed in 2005. The project, which we expect will entail
total investments of approximately Euro 2,000 million, is intended to create an
integrated system able remotely to manage metering, communications and
electricity supply contracts, allowing for a significant reduction in operating
costs and more effective monitoring of fraud. We intend to explore the
possibility of using the Telemanagement system to develop a more advanced
metering system that would allow us to tailor prices to patterns of customer
electricity consumption. In 2002, we installed approximately 5.7 million new
meters, at a cost of approximately Euro 361 million.

We also continued to invest in our distribution network in 2002 to improve
the quality of our service, in line with guidelines provided by the Energy
Authority. For a discussion of these guidelines, please see Regulatory
MattersElectricity RegulationThe new tariff structureQuality of service
regulation.

We plan to invest approximately Euro 8,000 million, financed mainly
through our cash flow, between 2003 and 2007 on our distribution business.
Future planned investments in the Telemanagement integrated system total
approximately Euro 1,600 million. Other network investments will target
improving service quality, with the goal of exceeding targets established by
the Energy Authority, as well as improving load factor and plant safety.

We have also made significant investment in developing our gas business.
In May 2002, we finalized the acquisition of a 98.58% participation in the
capital of Camuzzi Gazometri for Euro 1,043 million. The operation allowed the
Enel Group to become the second largest gas distributor in Italy. We plan to
invest in developing our gas distribution networks. The investments are mainly
for new pipelines built either as a consequence of customers requests or as
part of our business development policies. We also intend to invest in
improving our service levels and plant safety. We also plan significant
capital expenditures in information technology in the 2003-2007 period, in
particular on a new more customer-friendly billing system. In addition, we
plan to implement an internal resource planning software to improve the
efficiency of both our distribution activity and our accounting system. We
also expect to make investments in order to better support customer
relationships and sales activity.

Transmission.

Capital expenditures in our transmission segment rose to Euro 178 million
in 2002 from Euro 173 million in 2001.

Telecommunications.

We have made significant investments in developing our telecommunications
business. In March 2001, we acquired 100% of the capital stock of Infostrada,
one of Italys leading alternative providers of fixed-line telecommunications
services and the owner and operator of one of Italys leading Internet portals,
for Euro 7,250 million. Please see BusinessThe Enel
GroupTelecommunicationsThe acquisitions of Infostrada and certain assets of
Blu in Item 4 for

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further details on the transaction. In 2002, we incurred total capital
expenditures in tangible assets in our telecommunications business of Euro
1,550 million, and we expect to incur expenditures of approximately Euro 660
million (Euro 800 million including intangible assets) in 2003 and Euro 380
million (Euro 580 million including intangible assets) in 2004.

Services and Other Activities.

With respect to our other non-core businesses, we incurred total capital
expenditures of approximately Euro 494 million in 2002 and expect to incur
total capital expenditures in all those businesses of approximately Euro 450
million in 2003 and Euro 330 million in 2004.




Regulatory Matters

Overview of Regulation in the Energy Sector

The Industry Ministry and the Energy Authority share responsibility for
overall supervision and regulation of the Italian energy sector, comprising
both electricity and gas.

The Industry Ministry is responsible for establishing the strategic
guidelines for the energy sector and for ensuring the safety and economic
soundness of the electricity and gas sectors.

The Energy Authority is responsible for:



| |  | Setting and adjusting tariffs on the basis of general criteria established by law;                                                                                                                                                                                            
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Advising the Industry Ministry on the structuring and administration of licensing and authorization regimes for the
energy sector;                                                                                                                                            
| 
| |  | Ensuring the quality of services provided to customers;                                                                                                                                                                                                                       
| 
| |  | Overseeing the separation of utility companies into distinct units for accounting and management purposes; and                                                                                                                                                                
| 
| |  | Otherwise protecting the interests of consumers. For this purpose, the Energy Authority has the authority to
mediate disputes and preside over arbitration proceedings between utilities and consumers, and to impose fines and
other sanctions for violations of regulations.

Electricity Regulation

Prior to April 1999, the regulatory framework for the Italian electricity industry:



| |  | gave ultimate authority for the generation, transmission and distribution of electricity to the Italian government,
which licensed such activities to us and to municipal electricity utilities;                   
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | restricted power generation to authorized producers and restricted other electricity producers to using their
production only for their own consumption, for sales to affiliated companies, or for sales to us; and
| 
| |  | provided that each year the Energy Authority determined electricity tariffs based on a cost-plus system.                                                                                                         

The regulatory framework for the Italian electricity sector has changed
significantly as a result of an EU directive issued in December 1996, commonly
referred to as the Electricity Directive, that requires EU member states to
liberalize their electricity sectors. In particular, the Electricity Directive
sought to liberalize the market for electricity by providing for the separation
of generation, transmission and distribution activities and introducing
competition in generation activities. In addition, each EU member state must
ensure that a specified percentage of its electricity market (as established
yearly by the EU Commission) is open to competition.

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On April 1, 1999, the Bersani Decree, which implemented the principles
contained in the Electricity Directive, became effective in Italy. It began
the transformation of the electricity sector from a highly regulated industry
to one in which energy prices charged by generators will eventually be
determined by competitive bidding. The Bersani Decree, among other things,
required that distribution companies servicing the same municipality
consolidate their networks. It also provided for a gradual liberalization of
the electricity market so that customers whose annual consumption of
electricity exceeded specified amounts would be able to contract freely with
power generation companies, wholesalers or distributors to buy electric power.

The Energy Authority has also replaced the cost-plus system for setting
electricity tariffs with a new price-cap tariff methodology. Under the
price-cap methodology, tariffs are reduced by a fixed percentage each year.
This system creates incentives for operators to improve efficiency and
gradually passes on savings to final customers.

The EU Commission and Council have agreed to amend the Electricity
Directive to further liberalize the electricity market at the EU level. When
enacted, the amended Directive would, among other things, enable all
non-household consumers to freely choose their supplier by 2004, irrespective
of consumption levels, introduce new definitions of public service obligations
and security of supply, and facilitate cross-border transactions in
electricity.

Regulatory framework

The Bersani Decree established a general regulatory framework for the
Italian electricity industry that has gradually introduced free competition in
power generation and sales to consumers meeting certain consumption thresholds
while maintaining a regulated monopoly structure for power transmission,
distribution and sales to other consumers. In particular, the Bersani Decree
and the subsequent implementing regulations:



| |  | liberalized, as of April 1, 1999, the generation, import and export of electricity;                                                                                                                                                                                                                                                                                                                                                                                   
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | liberalized the sale of electricity to consumers meeting certain consumption thresholds, or Eligible Customers, who may
negotiate supply agreements directly with any domestic or foreign producer, wholesaler or distributor of electricity, and
provided that other consumers, or Non-Eligible Customers, would have to purchase electricity from the distributor serving
the area in which they are located and pay tariffs determined by the Energy Authority;
| 
| |  | provided that after
January 1, 2003, no electricity company will be allowed to produce or import more than 50% of the total
of imported and domestically produced electricity in Italy in order to increase competition in power generation; as a
result of this limit, we were required to sell not less than 15,000 MW of our generating capacity by January 1, 2003;                                                                                               
| 
| |  | provided for the establishment of the Single Buyer, a central purchaser of electricity from producers on behalf of all
Non-Eligible Customers;                                                                                                                                                                                                                                                                                                                        
| 
| |  | provided for the creation of the Borsa dellEnergia Elettrica, or pool market for electricity, in which producers,
importers, wholesalers, distributors, the Gestore della Rete, other Eligible Customers and the Single Buyer will
participate, with prices being determined through a competitive bidding process;                                                                                                                                                  
| 
| |  | provided for the creation of the Gestore del Mercato, or Market Operator, charged with managing the pool market;                                                                                                                                                                                                                                                                                                                                                      
| 
| |  | provided that the transmission and distribution of electricity are reserved to the Italian government and performed by
licensed operators, and in this respect:                                                                                                                                                                                                                                                                                                       



| |  |  | provided that management and operation of the
national transmission network is licensed to an independent
system operator, the Gestore della Rete, with owners
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |   |  | of the transmission network such as ourselves retaining
ownership of the network assets; and                                                                                
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | established a new licensing regime for
electricity distribution and provided incentives for the
consolidation of electricity distribution networks within each
municipality.

Generation

The Bersani Decree liberalized the regime for the generation of electric
power. In order to increase the level of competition in the market, the
Bersani Decree provided that, by January 1, 2003:



| |  | Neither we nor any other generation company would be permitted to
produce or import more than 50% of the total amount of electricity
produced or imported in Italy.                                                                                                                           
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We would have to sell not less than 15,000 MW of our gross installed
generating capacity, so as to reduce our market share. We complied
with this requirement through disposal of the three Gencos. Please
refer to BusinessThe Enel GroupDisposal of the Gencos for further
information.

In 2002, the Italian Parliament approved a temporary measure streamlining
the authorization procedures relating to the construction of new power
generation plants and the renovation and expansion of existing plants, while a
permanent procedure is considered by Parliament along with other energy sector
reforms. This temporary measure expires on December 31, 2003.

Promotion of renewable resources

In order to promote the generation of electricity from renewable
resources, the Bersani Decree provided that, starting in 2001, all companies
introducing more than 100 GWh of electricity generated from conventional
sources into the national transmission network in any year must, in the
following year, introduce into the national transmission network an amount of
electricity produced from newly qualified renewable resources equal to at least
2% of the amount of such excess over 100 GWh, net of co-generation,
self-consumption and exports. This electricity from renewable resources may be
produced directly, purchased from other producers or purchased from the Gestore
della Rete. Renewable resources include geothermal and hydroelectric energy
sources. The electricity generated from those resources must be from
generating capacity installed after April 1, 1999, the date the Bersani Decree
became effective. Electricity generated from qualifying renewable resources
will be certified by means of tradable green certificates issued by the
Gestore della Rete.

In addition, the Bersani Decree directs the Gestore della Reteto dispatch
electricity into the national transmission network in the following order of
priority: first, energy produced from qualified renewable resources, then that
from co-generation and finally electricity produced from domestic fuel sources
that the government seeks to favor. We plan to meet the specified thresholds
for producing renewable resource electricity through the establishment of new
plants and through the purchase of green certificates or any additional
electricity from other plants using renewable resources. In particular, we
plan to establish three new geothermal plants and 25 new wind plants, and to
increase output from our existing hydroelectric plants, up to a level of 189
GWh. Please refer to BusinessThe Enel GroupProduction from geothermal and
other renewable resources for information on our production from renewable
resources.

An EU Directive issued in September 2001 requires member states to comply
with specified targets of production from renewable energy resources. In
particular, the Directive requires that by 2010, a share equal to 22% of total
electricity consumed in the EU must be from renewable energy resources, with
member states being obliged to set national targets accordingly. The target
for Italy has been set at 25%. Member states must adopt legislation to
implement this Directive by October 2003.

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Hydroelectric power

Under the Bersani Decree, all of our licenses for the generation of
electricity from large bodies of water, which had originally been granted to us
for an indeterminate period of time, will now expire in April 2029. In
addition, the Bersani Decree automatically extended to December 31, 2010 the
term of all hydroelectric licenses for the generation of electricity from large
bodies of water that were granted to other electricity producers and were
scheduled to expire before such date. All hydroelectric licenses expiring
after December 31, 2010 retain their original expiration date. After the
expiration of any licenses we hold, we may bid for new licenses, which will
have a duration of 30 years. A law issued in August 2000 states that
hydroelectric licenses for the generation of electricity from small bodies of
water, which had also previously been granted for an indefinite term, will also
expire in 2029. The Bersani Decree also provides that the Provincial
Authorities of Trento and Bolzano and the Regional Authority of Valle dAosta,
which enjoy special autonomous status under Italian law, may reduce the
duration of hydroelectric licenses in their jurisdiction to less than thirty
years. Pursuant to a governmental decree of 1999, all of our hydroelectric
licenses for the provinces of Trento and Bolzano, as well as all licenses held
by other electricity producers in the same provinces which expire before
December 31, 2010, will now expire on December 31, 2010, and, from that date,
will be granted for 30-year periods. Finally, certain of our hydroelectric
licenses were transferred to the Gencos pursuant to a law enacted in November
2000.

In June 2001, we sold to the Regional Authority of Valle dAosta all our
hydroelectric plants in that region and a 49% interest in our distribution
subsidiary in that region.

Imports

The volume of electricity that can be imported into Italy is limited by
the capacity of transmission lines that connect the Italian network with those
of other countries, currently a maximum of approximately 6,150 MW per year. A
bill currently being considered in the Italian Parliament would provide
incentives to the development of new transmission infrastructures.

In 2002, we controlled approximately 2,600 MW of the total import capacity
pursuant to long-term contracts between us and foreign producers and
wholesalers. In order to address the allocation of the remaining capacity, the
Bersani Decree authorizes the Energy Authority to set terms and conditions on
import capacity, taking into account a fair allocation between Eligible and
Non-Eligible Customers if import demand exceeds total interconnection capacity.
In November 2002, the Energy Authority established the criteria for the
allocation of import quotas for the year 2003. This allocation mechanism
considers the total interconnection capacity available at the borders with
France and Switzerland (the north-west pool) and Austria and Slovenia (the
north-east pool) separately. Interconnection capacity is allocated on a
pro-rata basis; in addition, in no case may a single importer hold more than
10% of the interconnection capacity available in any given pool. The Energy
Authority and the French energy authority have agreed that they will jointly
decide how to allocate the interconnection capacity in the north-west pool.

Eligible and Non-Eligible Customers

One of the most important features of the new regulatory framework
established by the Bersani Decree is the distinction between Eligible Customers
and Non-Eligible Customers. All customers that do not qualify as Eligible
Customers are considered Non-Eligible Customers.

As of January 1, 2002, Eligible Customers consisted of:



| |  | Customers whose annual consumption of electricity at a single delivery point in the previous year
(including electricity produced by them) was at least 9 GWh;              
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Consortia of business customers whose aggregate annual consumption of electricity meets the
thresholds indicated above, but only if each member of such group or consortium:

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| |  |  | had in the previous year annual consumption of at least 1 GWh, and                                            
| | - |  | --------------------------------------------------------------------------------------------------------------
|
| |  |  | is located in the same municipality as, or in a
contiguous municipality with, other members of the consortium;



| |  | Entities outside Italy that have the right to choose freely their supplier of electricity with respect to electricity
consumed outside of Italy;
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The local distribution company that serves the provinces of Trento and Bolzano;                                                                 
| 
| |  | Local distribution companies only with respect to electricity distributed by them to other Eligible Customers; and                              
| 
| |  | Electricity wholesalers only with respect to electricity sold
by them to other Eligible Customers.                                              

Customers whose annual consumption of electricity in the previous year was
at least 1 GWh at each delivery point and 40 GWh in the aggregate have also
qualified as Eligible Customers since January 1, 2002.

The Industry Ministry may lower the consumption thresholds required for
customers to qualify as Eligible Customers in order to meet the above-mentioned
targets or to accelerate the development of competition. To this end, a law
enacted in March 2001 lowered eligibility thresholds to include among the
Eligible Customers those customers whose annual consumption of electricity in
the prior year exceeded 0.1 GWh at a single delivery point. This threshold
became effective on April 29, 2003.

Eligible Customers may negotiate supply agreements directly with any
domestic or foreign producer, wholesaler or distributor of electric power.
Wholesalers, including our subsidiary Enel Energia, may buy electricity from
any producer (or on the pool market once it is in operation) for resale to
Eligible Customers. Once the pool market begins to operate, Eligible Customers
will still be able to negotiate contracts directly with producers rather than
participating in the pool market if so authorized by the Energy Authority.

Non-Eligible Customers may purchase electricity only from the distribution
company serving the geographic area in which they are located. The tariffs
applicable to residential Non-Eligible Customers and tariff limits applicable
to other Non-Eligible Customers are established by the Energy Authority and are
intended to be the same throughout Italy for each category of customers. In
addition to the price of electricity, both Eligible and Non-Eligible Customers
also pay transmission fees and system charges as set by the Energy Authority.
You should read Electricity RegulationThe new tariff structure for a
discussion of tariffs and tariff limits.

Eligible Customers may choose to remain subject to the regime and tariff
structure applicable to Non-Eligible Customers for a period of two years from
the date they first qualify as Eligible Customers. This period may be extended
by an Eligible Customer for two additional years. Until the pool market for
electricity becomes operational, Eligible Customers may also make such an
election for a period shorter than two years, but once having done so, must
become Eligible Customers at the end of that period.

The EU Commission and Council have agreed to amend the Electricity
Directive to further liberalize the electricity market at the EU level. When
enacted, the amended Directive would, among other things, enable all
non-household consumers to freely choose their supplier by 2004, irrespective
of consumption levels, introduce new definitions of public service obligations
and security of supply, and facilitate cross-border transactions in
electricity.

The Bersani Decree established targets with regard to the percentage of
electricity that may be purchased by Eligible Customers that were 35% and 40%
of total Italian electricity consumption for

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2000 and for 2002, respectively. Each
of these targets has been
achieved. In 2002, if Eligible Customers had made all of their
purchases on the free market, the percentage of electricity purchases
made on the free market by
Eligible Customers would have been equal to 56%. However, actual sales in 2001 and 2002
were lower than these targets, primarily as a result of limitations on the volume of
electricity available on the free market.

The list of Eligible Customers is publicly available and included 13,714
Eligible Customers (including qualifying consortia) as of March 31, 2003.

On January 1, 2001, all energy produced from renewable sources under the
CIP 6 regime was transferred to the Gestore della Rete. The Gestore della Rete
in turn is making this energy available for sale to Eligible Customers in the
free market by means of an auction system. We formerly had been required to
purchase substantially all of the electricity produced under the CIP 6 regime
at fixed prices. Please refer to Purchased power for a more detailed
discussion of these contracts.

The Single Buyer

The Single Buyer is a joint stock company formed in November 1999 and
wholly owned by the Gestore della Rete. It is responsible for ensuring the
efficient, adequate and non-discriminatory supply of electricity to
Non-Eligible Customers. The Single Buyer is expected to become operational
together with the pool market, following the enactment of a decree by the
Industry Ministry. Electricity distribution companies, including us, may take
stakes of up to 10% in the Single Buyer, although the Gestore della Retemust
remain the majority shareholder.

The Single Buyer will be responsible for purchasing electricity on the
pool market or, if so authorized by the Energy Authority, directly from
producers on the basis of periodic estimates of future electricity demand and
Industry Ministry guidelines. The Single Buyer will also be responsible for
selling such electricity to distribution companies for supply to Non-Eligible
Customers and may buy back and resell any excess energy directly on the pool
market. In order to satisfy demand from Non-Eligible Customers at peak
periods, the Single Buyer will be able to contract with producers for reserve
capacity.

Until the Single Buyer begins operations, electricity distributors will
continue to purchase electricity from generating companies for supply to
Non-Eligible Customers. Under the Bersani Decree, the pool market was
scheduled to begin operating on January 1, 2001. However, as a result of
delays in the implementation of the new system, the pool market is currently
expected to begin limited operations during the second half of 2003 and then in
full by January 1, 2004. During the period in which the pool market has only
limited operations, electricity sold will be only for supply to Non-Eligible
Customers.

If the Single Buyer begins operations before the pool market is
established, it will negotiate contracts with various producers and thereby
seek to satisfy the estimated demand from Non-Eligible Customers for the
transition period at a minimum aggregate price.

The total payments by the Single Buyer to electricity producers (plus its
own operating costs) will need to match the total revenues it earns from
Non-Eligible Customers under the regulated tariff structure. As a consequence,
the tariffs may need to be readjusted from time to time to reflect the prices
actually paid by the Single Buyer, as well as other factors.

The Italian Parliament is currently considering a bill that would provide
for the merger of the Single Buyer into the Gestore della Rete. If it is
enacted, this new law will entrust the task of ensuring efficient, adequate and
non-discriminatory supply of electricity to Non-Eligible Customers to the local
distribution companies, on the basis of certain directives set forth by the
Energy Authority.

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Pool Market Regulations

The Bersani Decree provides for the creation of the Borsa dellEnergia
Elettrica, or pool market for spot trading electricity, to be administered by
an independent entity that will serve as the Market Operator. The Market
Operator, a joint-stock company wholly owned by Gestore della Rete, was set up
in June 2000 in accordance with the requirements of the Bersani Decree. The
Market Operator is responsible for organizing and managing the Italian
electricity market, according to transparency and objectivity principles, so as
to promote competition between producers and to ensure an adequate availability
of power reserve.

In May 2001, the Industry Ministry, acting in consultation with the Energy
Authority, approved the regulations for the pool market proposed by the Market
Operator. These regulations provide only a general framework for the
organization of the market, and are to be supplemented by rules adopted by the
Market Operator with the approval of the Industry Ministry, acting in
consultation with the Energy Authority. In January 2002, the Market Operator
submitted a set of rules to the Industry Ministry, the approval of which is
still pending.

Under the regulations, transactions between producers and Eligible
Customers will take place in different markets in order to ensure a steady
supply of electricity. In particular, sellers and buyers will submit bids and
offers for electricity to be supplied on the day following the transaction in
the day-ahead market under the supervision of the Market Operator. The
Market Operator will be responsible for matching electricity demand and supply
and consequently, for the definition of power injection (supply) and withdrawal
(demand) schedules. Variations in the schedules agreed upon in the day-ahead
market will be negotiated through an adjustment market. Network congestion
resulting from transactions negotiated on the day ahead market and the
adjustment market will be managed through the congestion management market
where sellers and buyers can submit bids and offers to increase or decrease the
volume of energy to be supplied or withdrawn. Reserve capacity will be
guaranteed by a special market where the Gestore della Retewill buy
electricity when needed from certain power plants previously identified by
Gestore della Reteas power plants that will ensure the availability of reserve
power. Finally, balancing of supply and demand due to deviations from actual
power injection and withdrawal schedules defined in the markets will be carried
out through a balancing market.

The rules proposed by the Market Operator would establish a registry of
the operators admitted to the pool market and the requirements for admission,
as well as granting the Market Operator power to decide on new admissions. The
rules would also establish procedures for submitting and clearing bids and
offers and settling transactions, including payment methods and guarantees.

The pool market is currently expected to begin limited operations during
the second half of 2003 and then in full by January 1, 2004. During the period
in which the pool market has only limited operations, electricity sold will be
only for supply to Non-Eligible Customers.

Transmission

As noted, we use the term transmission to refer to the transportation of
electricity on high and very high voltage interconnected networks from the
plants where it is generated or, in the case of imported energy, from the
points of acquisition to distribution systems. As part of the implementation
of the Bersani Decree, the Industry Ministry has determined that the national
electricity transmission network includes all of our very high voltage lines
(380/220 kV) and approximately 50% of our high voltage lines (150/132 kV).

The Bersani Decree provided that the transmission of electricity is
reserved to the Italian government, but delegated the management and operation
of the national electricity transmission network to the Gestore della Rete,
under a license issued by the Industry Ministry. The Bersani

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Decree required
the owners of assets included in the national electricity transmission network
to transfer to the Gestore della Retethe right to manage and operate those
assets. The Gestore della Retemay, subject to the authorization of the
Industry Ministry, authorize third parties to operate limited portions of the
network pursuant to service agreements.

In August 1999, we transferred our electricity dispatching and national
transmission network management operations to the Gestore della Rete, which at
that time was a subsidiary of ours. In April 2000, pursuant to the Bersani
Decree, we transferred ownership of the Gestore della Reteto the Treasury at
no cost. The Gestore della Reteoperates pursuant to strategic and operational
guidelines established by the Industry Ministry in January 2000. The Gestore
della Retehas responsibility for the planning, operation and control of the
national electricity transmission network, with a mandate to ensure the
efficiency, adequacy and safety of Italys electricity supply and equal access
to the network for all producers and consumers of electricity. As noted above,
the Gestore della Retemust give priority for transmission to electricity
generated from renewable resources and co-generation in accordance with
guidelines issued by the Energy Authority. For a discussion of our
arrangements with those producers, you should read The Enel Group 
Generation and Energy Management  Purchased power.

The Gestore della Reteenters into service agreements with the owners of
transmission assets based on a model agreement approved by the Industry
Ministry. These agreements regulate the payment of fees and the performance of
the obligations concerning the maintenance and upgrading of the national
electricity transmission network, and include fees for services supplied by the
owners of the network prior to the date of the agreement.

In addition, the Bersani Decree liberalized third-party access to power
transmission and distribution networks as of April 1, 1999. The Gestore della
Reteand distributors must grant free access to such networks to generators and
importers of electricity for the purpose of supplying energy to Eligible
Customers, subject to payment of the tariffs established by the Energy
Authority. Since January 1, 2002, Eligible Customers are able to obtain access
to the network by contracting with distributors under tariff option schemes
that make the cost of transport equal for all customers. For a discussion of
these tariff options, you should read   The new tariff structure.

The Italian Parliament is currently considering a new bill that would
provide for the transfer of the property of the network assets to the Gestore
della Reteand the privatization of the Gestore della Rete.

Distribution of Electricity

As noted, we use the term distribution to refer to transportation of
electricity from the transmission network to end users of electricity.

The principal effects of the Bersani Decree on distribution were:



| |  | The formal adoption of a licensing regime applicable to the distribution of electricity; and
|- |  | --------------------------------------------------------------------------------------------
| 
| |  | The promotion of the consolidation of electricity distribution activities.                  

Requirements

The Bersani Decree required distribution companies to provide service to
all customers who request it, subject to payment of applicable tariffs and to
compliance with technical and safety
requirements. In addition, the Bersani Decree required distribution
companies serving more than 300,000 customers to distribute electricity to
Non-Eligible Customers through separate companies that have such activity as
their exclusive purpose. We began operating a separate subsidiary, Enel
Distribuzione, for this purpose in October 1999.

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Consolidation of the distribution industry

The Bersani Decree sought to promote the consolidation of the Italian
electricity distribution industry by providing for the issuance of only one
distribution license within each municipality and establishing procedures to
consolidate distribution activities under a single operator in municipalities
where both we and a local distribution company were engaged in electricity
distribution. The decree asked operators with distribution networks in the
same municipality to submit joint consolidation proposals to the Industry
Ministry by March 31, 2000; these proposals were considered to be approved
unless the Industry Ministry objected within 60 days.

If a joint proposal for the consolidation of networks in the same
municipality was not submitted, or was not approved by the Industry Ministry,
any local distribution companies owned or partly owned by a municipality that
served at least 20% of the electricity customers of that municipality could
request, by March 31, 2001, that we sell to it our distribution assets in that
municipality at a price to be determined by agreement between us and the
relevant local distribution company. To date, we have sold our local
distribution network in 35 municipalities and we expect to sell another 41
distribution networks.

In addition, substantially all of the other qualifying distribution
companies in municipalities with co-existing networks have made requests to
purchase our networks in these cities, including the municipally owned
utilities in Milan and Verona. For more details on these agreements and the
consolidation process, please refer to   Business  The Enel Group 
Sales, Infrastructure and Networks  Electricity Companies  Consolidation of
electricity distribution networks.

The Bersani Decree provided that if we had not agreed on a sale price with
any of the parties who had made a timely request to purchase a distribution
network by September 30, 2000, the price would be determined by an arbitration
panel using accepted valuation methodologies that take into account market
prices. The panels consist of one person nominated by each of the parties and
a third person nominated by the President of the court having jurisdiction over
the geographic area in which the local distribution company is located. To
date, eight qualifying companies have issued formal requests for price
arbitration that are still pending, and another 67 requests for price
arbitration have been dismissed.

On average, the distribution networks that we have been required to sell
were more profitable than our other distribution networks, mainly because
distribution in metropolitan areas has lower costs. The Energy Authority has
indicated that an equalization system will be put in place that may compensate
us for some or all of the higher costs associated with serving non-urban areas.
However, to date, the equalization system has not yet been established. You
should read Risk Factors  The Bersani Decree requires us to sell a portion
of our distribution networks and our operating profits may decrease as a
consequence for a discussion of the risks we face from this consolidation
process.

Under the Bersani Decree, local distribution companies owned or partly
owned by a municipality that serve at least 100,000 customers may also request
an authorization from the Industry Ministry to submit a joint proposal with us
for the consolidation of their electricity distribution networks with our
networks in adjoining municipalities. Certain distribution companies,
particularly those in Rome, Milan, Trieste, Modena and Brescia, have expressed
their interest in purchasing our electricity distribution networks in adjoining
municipalities. We believe that, under the Bersani Decree, any such sale may
occur only upon the agreement of each of the concerned parties, including
ourselves.

The new tariff structure

A new tariff regime set by the Energy Authority that came into effect on
January 1, 2000, regulates the price paid by Non-Eligible Customers for
electricity, while Eligible Customers pay for electricity at market prices.
Both Eligible and Non-Eligible Customers pay transmission, distribution

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and
system charges as set by the Energy Authority. Prior to January 1, 2002, the
Energy Authority set different prices to cover transmission and distribution
costs for Eligible and Non-Eligible Customers. Effective as of January 1,
2002, the Energy Authority established one set of transport charges for both
Eligible and Non-Eligible Customers that are meant to cover transmission and
distribution costs.

Tariffs for Non-Eligible Customers

Under the new structure, the Energy Authority sets tariffs only for
residential customers. Tariffs for all other classes of Non-Eligible Customers
are set by distributors within certain limits established by the Energy
Authority. The Energy Authority still retains a right of approval.

The limits set by the Energy Authority on tariffs for non-residential
customers are of two types. One limit sets an aggregate maximum amount of
tariff revenues that each distributor will be allowed to receive from all
customers belonging to the same category in a single year. A second limit sets
the maximum amount of tariff revenues that any distributor will be allowed to
receive from a single customer of a given category. If the aggregate limit is
exceeded, the distributor must compensate customers for the amount of the
excess. If the limit is exceeded by less than a set threshold, the distributor
can elect to apply a proportional reduction of tariffs in the following year,
including an additional payment to customers not fully compensated by this
reduction; if the limit is exceeded by more than that threshold, each customer
must be reimbursed in the following year for an amount equal to its
proportionate share of the excess revenues plus an additional payment, if
warranted to ensure that each customer gets its full refund. The threshold,
which was 5% for excess revenues in the years 2000 and 2001, was raised to 10%
by the Energy Authority decision adopted in October 2001 and effective as of
January 1, 2002. We have not exceeded the threshold in any of these years.

Compliance with the individual limit is ensured at the time tariffs are
set by the distributors and approved by the Energy Authority. Within these
limits, each distributor is free to offer tariff options to its customers in
accordance with a trade policy code aimed at ensuring transparency.

In setting tariffs for residential customers and establishing limits on
tariffs for other classes of Non-Eligible Customers, the Energy Authority has
sought to allow the recovery by electricity suppliers of their costs of
supplying electricity, including:



| |  | Operating costs of generation, transmission and distribution activities, including procurement costs, and amortization and
depreciation. In order to be recovered, these costs must be both actually incurred by the electricity companies and
recognized by the Energy Authority;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | An appropriate return on invested capital, including both equity and debt financing; and                                                                                                                                                                                          
| 
| |  | The costs associated with system charges.                                                                                                                                                                                                                                         

Generation costs

The first component of the tariffs reflects the generation costs incurred
by electricity producers. Until the Single Buyer begins to operate, the Energy
Authority determines these costs based on fixed-cost and variable-cost
components of production costs. The fixed-cost component, which is intended to
reflect non-fuel operating costs, is based on an estimate of the average
recognized fixed cost associated with generation plants in Italy. The Energy
Authority established this
value for 2000 and will monitor its relationship to the pool price once
the pool market begins to operate. In January 2001, due to the delay in the
introduction of the pool market, the Energy Authority reduced the fixed cost
component by 20%. In 2002 and 2003, the generation fixed-cost component has
not been changed substantially. In order to ensure a gradual transition to the
new tariff system, the fixed-cost component included in each of 2000 and 2001
an additional cost component of Euro 0.0031/kWh paid as a system charge. This
additional cost component ceased to

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apply as of January 1, 2002. The
variable-cost component of the tariffs, which used to be referred to as
Component B, is principally intended to reflect fuel costs associated with
thermal power generation and is included in the generation cost component of
electricity tariffs. An Energy Authority decision issued in November 2002 and
in effect since January 1, 2003, aimed at limiting the impact of oil price
volatility, provides that the fuel cost component is to reflect only changes in
the average price of fuel in a three-month period in excess of 3% of the
average price of fuel in the previous six months The variable cost component of
the tariffs aimed at covering fuel costs decreased on average by 16.4% in 2002
when compared to the level of such component calculated on average for the year
2001, mainly due to a decline in fuel prices.

You should read   Charges payable to the Equalization Fund for a
discussion of this tariff component.

After the Single Buyer begins to operate, the price paid to electricity
producers will be determined by contracts between the Single Buyer and
producers and, once the pool market becomes operational, by the competitive
bidding system on the pool market. Consequently, the generation-cost component
of the tariff for Non-Eligible Customers will reflect the price of electricity
as determined on the competitive generation market. However, the Energy
Authority will monitor this price and will set a price that the Single Buyer
and the pool market will use as a reference price. If the price paid by the
Single Buyer or the price on the pool market differs significantly from the
Energy Authoritys reference price, the Energy Authority may impose its
reference price as the price to be used in calculating the generation cost to
be reflected in the tariffs.

Both the price set for producers before the Single Buyer begins to operate
and the reference price set by the Energy Authority after the Single Buyer
begins to operate will apply to electricity produced by all types of generating
plants. This has resulted in an increase in the relative profitability to us
of:



| |  | Hydroelectric or geothermal generation, since these tariffs include a
component calculated with reference to fuel costs, which hydroelectric
or geothermal plants do not incur; and                                               
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The resale of electricity imported under long-term contracts already
effective as of the date of the entry into force of the Electricity
Directive or February 19, 1997, which may be cheaper than electricity
generated in Italy.

The Energy Authority decided to reduce this potential windfall profit for
hydroelectric or geothermal producers by establishing a new surcharge to be
paid by these producers to the Gestore della Retewith respect to the
electricity sold by them. However, pursuant to the rules on stranded costs
enacted in 2002, the surcharge on hydroelectric and geothermal generation has
been abolished as of January 1, 2002. You should read   Stranded costs for
a more detailed discussion of this surcharge.

Transmission costs

Both Eligible and Non-Eligible Customers other than residential customers
pay transmission fees to distributors on the basis of tariff options proposed
by each distributor and approved by the Energy Authority. Transmission fees
for residential customers are set directly by the Energy Authority as part of
the tariff paid by such customers to distributors.

Pursuant to a decision by the Energy Authority, effective January 1, 2002,
transmission fees collected by distributors from Eligible and Non-Eligible
Customers under any given tariff option reflect:

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| |  | the fee paid by distributors to the Gestore della Retefor the
transportation of electricity on high and very high voltage
interconnected networks from the plants where it is generated (or, in
the case of imported energy, from the points of acquisition) to
distribution systems; plus
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | distribution costs, defined as the costs incurred by distributors for
transportation of electricity through the local distribution network
and for the sales-related services they provide to final consumers;
plus                                                                       
| 
| |  | a specified return on invested capital.                                                                                                                                                                                                                                                   

Distribution costs are calculated on the basis of average costs incurred
by all Italian distributors and, with respect to cost of capital, on the basis
of certified accounts or equivalent accounting documents and are aimed at
covering those costs as well as a specified return on invested capital. All
consumers in the same category pay the same price for the delivery of
electricity regardless of where in Italy they are located. (You should read 
 Tariff categories for a description of these categories). Therefore,
distributors that serve areas where costs are significantly different from the
national average, due to such factors as population density and geography, may
either disproportionately benefit from or not be adequately compensated by the
level of transmission fees set by the Energy Authority. The Energy Authority
has indicated that it will put in place an equalization system to reduce this
inequitable distribution by providing appropriate compensation to disadvantaged
distributors. However, to date, this equalization system has not yet been
established.

Prior to January 1, 2002, the Energy Authority set different prices to
cover transmission and distribution costs for Eligible and Non-Eligible
Customers. As a result of its decision of October 2001, and effective as of
January 1, 2002, the Energy Authority established so-called transport charges
which are equal for both Eligible and Non-Eligible Customers and are meant to
cover transmission and distribution costs. These charges continue to include
transmission and distribution prices to cover the costs of transmission and
distribution as before.

Adjustment of transmission cost components

In order to reduce electricity prices over time based on efficiency
targets set by the Energy Authority, the components of electricity tariffs
relating to the costs of transmission and distribution have been adjusted in
each of 2001, 2002 and 2003 through a price cap mechanism. During this
2001-2003 period, tariffs have reflected an annual decrease in real terms of 4%
in each of the transmission and distribution components of the tariff. Any
improvement in productivity by a distributor in excess of the target level set
by the Energy Authority will increase the distributors profits during the
2001-2003 period. At the end of the period, the Energy Authority will
determine a new base tariff level and the annual percentage decrease in the
transmission and distribution components of electricity tariffs for the
following four-year period, based on the actual increases in productivity
achieved by electricity companies during the 2001-2003 period. The Energy
Authoritys determination will be made on the basis of, among other things, a
mechanism that will allocate any benefits resulting from improvements in
productivity above the target set for the previous period between electricity
companies and consumers. The Energy Authority has indicated that not less than
50% of these benefits will be passed on to consumers.

Implementation of tariff options

In September 2000, we proposed a new set of tariffs for the year 2001
which was approved by the Energy Authority, in line with its parameters and the
price cap mechanism. The new tariff structure allows customers to choose among
more flexible options, with prices decreasing for high
levels of consumption. In particular, for residential customers, we
offered specific new tariffs designed for customers with levels of demand equal
to 4.5 kW as well as 6.6 kW and over. For customers other than residential
users, we offer several tariff options in addition to those established by the
Energy Authority, taking into account variations in seasonal and time-of-day
demand.

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The Energy Authority has also approved the tariffs we proposed for 2002
and 2003, which share the same basic structure.

System charges

The new tariff structure also addresses the need to cover various costs
resulting from public policy-related requirements imposed on the Italian
electricity industry by providing for the following charges:



| |  | Charges concerning the electricity system, which are imposed on both
Eligible Customers and Non-Eligible Customers. These charges, established
by the Industry Ministry, consist of:
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A nuclear surcharge, covering part of the costs
incurred by So.g.i.n., the company to which we transferred our
discontinued nuclear operations, in connection with the
dismantling of nuclear plants and decommissioning of nuclear
fuels; this surcharge is designed to cover substantially all
of such costs when added to the funds that we transferred to
So.g.i.n.;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A surcharge that benefits producers from
renewable resources.                                                                                                                                                                                                                                                                                                           
|
| |  |  | Special surcharges covering the cost of supplying
electricity at mandated discounts to certain customers
(primarily the Italian state-owned railway company and Acciai
Speciali Terni S.p.A., both of which transferred electricity
assets to us as part of the nationalization of the Italian
electricity industry in 1962);                                           
|
| |  |  | Research and development surcharges, covering
related costs; and                                                                                                                                                                                                                                                                                                        
|
| |  |  | Certain stranded costs that have not yet been
recovered. You should read   Stranded costs for a
discussion of these costs and the new rules applicable to
them.                                                                                                                                                                                                      



| |  | Other general interest charges established by the Energy Authority to adjust or
refine the operation of the tariff mechanism (and imposed only on Non-Eligible
Customers), which include adjustments to the equalization mechanism, if and when
implemented, covering possible differences between costs recognized as recoverable
by distributors under the current tariff structure and actual tariff revenues.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Charges recovered through upward adjustments to the price caps, as established by
the Energy Authority (and imposed only on Non-Eligible Customers), which cover:                                                                                                                                                                                                                                                



| |  |  | Incentives for the enhancement of the quality of service;                                                                                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Costs deriving from unforeseeable events, changes
in the regulatory framework or new obligations for universal
service;                                                    
|
| |  |  | Costs deriving from demand-side management
initiatives intended to promote a more efficient use of
resources by electricity customers, including information
campaigns; and
|
| |  |  | Additional recognized costs incurred in
connection with the offer of value-added services in addition
to basic options.                                                    

Stranded costs

Stranded costs are current costs deriving from contractual commitments or
investment decisions that electricity companies:



| |  | undertook for reasons of public policy;
|- |  | ---------------------------------------

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| |  | undertook at a time when the electricity markets were not yet open to competition; and                                   
|- |  | -------------------------------------------------------------------------------------------------------------------------
| 
| |  | could have been recovered in a monopoly regime but cannot be recovered under a regime of competitive electricity pricing.

To facilitate the transition to open electricity markets, the European
Commission has stated that electricity companies should be refunded their
stranded costs provided that:



| |  | they minimize the impact of those costs (and, hence, the amount of the
refund) on their future operations; and         
|- |  | -----------------------------------------------------------------------------------------------------------------------
| 
| |  | they submit an industrial plan demonstrating the long-term
profitability of the activity related to the stranded costs.

Our stranded costs mainly consist of costs resulting from requirements
that were imposed in the past on the design and operation of our generation
plants. In particular, because of governmental policies, we built most of our
plants to ensure a high degree of flexibility in the types of fuel that they
can use.

The Industry Ministry and the Treasury Ministry determine which
costs are to be considered as recoverable stranded costs and have established a
system to recover them. Commitments for investments we undertook prior to
February 19, 1997, relating to generating plants currently in service are
regarded as stranded costs, except for investments in plants that benefit from
the CIP 6 regime and hydroelectric and geothermal plants. You should read  
Business  The Enel Group  Generation and Energy ManagementPurchased power
for a description of the CIP 6 regime. Under a recovery program adopted by the
Industry Ministry in January 2000 and amended in April 2001, we were to be
allowed to recover a significant portion of our stranded costs during the
period from 2000 through 2006. However, a law enacted in April 2003 has
narrowed the type of stranded costs that we will be able to recover after
January 1, 2004 to those incurred in connection with our imports of liquefied
natural gas from Nigeria. This law also provides that our recoverable stranded
costs for the 2000-2003 period, if any, will be determined under parameters to
be set by the Industry Ministry and the Treasury Ministry, after consultation
with the Energy Authority.

In addition, a surcharge on production of hydroelectric and geothermal
power put in place by the January 2000 program has been abolished effective as
of January 1, 2002.

Charges payable to the Equalization Fund.

Revenues from certain tariff components are remitted to and managed by the
Cassa Conguaglio per il Settore Elettrico, or the Equalization Fund, a public
entity charged with redistributing such revenues to the electricity companies
entitled to receive them. These revenues include those deriving from specific
system charges.

Tariff categories

The Energy Authority currently defines six tariff categories of
electricity consumer, which have been in place since January 1, 2002. These
six categories are:



| |  | low-voltage domestic consumers (residential customers);
|- |  | -------------------------------------------------------
| 
| |  | low-voltage public lighting;                           
| 
| |  | other low-voltage end users;                           
| 
| |  | medium-voltage public lighting;                        
| 
| |  | other medium-voltage end users; and                    
| 
| |  | high-voltage end users.                                

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The Energy Authority established a new tariff system for residential
customers that was expected to enter into force in January 2003, but which for
administrative reasons has not yet been implemented. This system will require
that all residential customers pay the same tariff, regardless of their
location. Tariffs for customers in the other five categories will be set by
distributors and may vary within limits set by the Energy Authority. These
limits may differ for each category, but will not reflect differences in
customers location.

The changes in the tariff structure will primarily benefit low voltage
non-residential customers, such as those in the commercial and other services
sectors. We expect that the new tariffs will provide an incentive for these
customers to increase their level of electricity consumption.

The Energy Authority set these new tariffs to reflect the cost of
delivery, reducing or eliminating cross-subsidies between electricity users.
The new tariff structure will abolish subsidies currently applied to
residential customers who only use a small amount of electricity.

Quality of service regulation

Beginning in July 1, 2000, the Energy Authority has issued guidelines
setting targets for electricity service continuity and quality. Continuity of
service is measured by the frequency and total duration in minutes of service
interruptions and is assessed with reference to annual targets set by the
Energy Authority. Quality of service is measured in terms of waiting time for
the performance of the most frequent commercial activities (such as connection
cost estimates, connections, disconnections and reconnections).

The Energy Authority has instituted a system in connection with quality
targets for continuity of service, or lack of service interruptions, whereby it
grants bonuses to companies that exceed these targets and imposes penalties on
companies that fail to meet them.

Distributors that outperform the targets are paid their bonuses through
adjustments to the price cap mechanism. Because we exceeded our continuity of
service targets in 2000 and 2001, the Authority granted Enel Distribuzione a
Euro 36 million bonus, which was paid in 2002, including Euro 4 million with
respect to 2000 and Euro 32 million with respect to 2001. We believe that the
level of revenues expected under the current tariff structure will allow us and
other distributors to cover the costs we need to incur to meet the continuity
and quality of service targets set by the Energy Authority. See   Business
 The Enel Group  Sales, Infrastructure and Networks  Electricity
Companies  Quality of service targets.

Impact of new tariff structure

Average tariff levels declined by 10.4% in 2001 as compared to 2000 and
declined further by approximately 7% in 2002 as compared to 2001. We expect the
average tariff level to increase in 2003 as a result of the impact on the
tariff of higher fuel costs and increased transport charges. The actual impact
of tariff levels on our revenues depends on a number of factors, including the
volume of electricity we sell in the regulated market and the mix of types of
electricity we sell and customers we serve.

Prices of electricity

The table below shows the average price (expressed in euro cent/kWh) and
assuming constant consumption) paid by customers to whom we directly supplied
electricity during the period from January 1998 to January 2003, and summarizes
the impact of the new tariff structure that came into effect in January 2000
and the new tariffs effective January 2003.

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|                             |  |                                  |       |                   |  |      |       |          |  |      |       |      |  |       |       |       |  |       |       |        |  |        |       |        |  |        |       |        |  |   |       |   |  |   |       |  |  |  |      |  |  |  |       | 
|---------------------------- |  | -------------------------------- | ----- | ----------------- |  | ---- | ----- | -------- |  | ---- | ----- | ---- |  | ----- | ----- | ----- |  | ----- | ----- | ------ |  | ------ | ----- | ------ |  | ------ | ----- | ------ |  | - | ----- | - |  | - | ----- |  |  |  | ---- |  |  |  | ----- | 
|                             |  | Average Paid by Direct Customers |       | New tariff impact
|                             |  |                                  |       |                  
|                             |  |                                  |       |                   |  |      |       |          |  |      |       |      |  |       |       |       |  |       |       |        |  |        |       |        |  | %      |       | %      |  | % |       | % |  | %
|                             |  |                                  |       |                   |  |      |       |          |  | Jan- |       |      |  |       |       | Jan-  |  | Jan-  |       | change |  | change |       | change |  | change |       | change
|                             |  | Jan-98                           |       | Jan-99            |  | 2000 |       | Jan-2001 |  | 2002 |       | 2003 |  | 98-00 |       | 00-01 |  | 01-02 |       | 02-03  |  | 98-03 
|                             |  |                                  |       |                   |  |      |       |          |  |      |       |      |  |       |       |       |  |       |       |        |  |       
|Base tariff                  |  |                                  | 6.14  |                   |  |      | 6.15  |          |  |      | 5.50  |      |  |       | 4.80  |       |  |       | 4.88  |        |  |        | 4.96  |        |  |        | -10.4 |        |  |   | -12.7 |   |  |   | -0.6  |  |  |  | 2.3  |  |  |  | -20.5 | 
|Fuel                         |  |                                  | 2.96  |                   |  |      | 2.16  |          |  |      | 3.16  |      |  |       | 5.36  |       |  |       | 4.53  |        |  |        | 4.53  |        |  |        | 6.6   |        |  |   | 69.9  |   |  |   | -28.2 |  |  |  | 17.7 |  |  |  | 53.1  | 
|System charges               |  |                                  | 0.82  |                   |  |      | 0.99  |          |  |      | 1.07  |      |  |       | 0.60  |       |  |       | 1.42  |        |  |        | 1.42  |        |  |        | 31.0  |        |  |   | -43.9 |   |  |   | 111.7 |  |  |  | 11.8 |  |  |  | 74.0  | 
|Taxes                        |  |                                  | 1.63  |                   |  |      | 1.60  |          |  |      | 1.62  |      |  |       | 1.50  |       |  |       | 1.52  |        |  |        | 1.52  |        |  |        | -0.3  |        |  |   | -7.5  |   |  |   | -1.3  |  |  |  | 2.7  |  |  |  | -6.6  | 
|Total                        |  |                                  | 11.55 |                   |  |      | 10.89 |          |  |      | 11.35 |      |  |       | 12.26 |       |  |       | 12.35 |        |  |        | 12.43 |        |  |        | -1.8  |        |  |   | 8.1   |   |  |   | -7.3  |  |  |  | 8.6  |  |  |  | 6.9   | 
|Total % change in real terms |  |                                  |       |                   |  |      |       |          |  |      |       |      |  |       |       |       |  |       |       |        |  |        |       |        |  |        | -5.1  |        |  |   | 4.8   |   |  |   | -9.0  |  |  |  | 5.4  |  |  |  | -4.5  | 

From January 1998 to January 2003, our average price to final customers
(calculated at January of each year) increased by 6.9% in nominal terms, which
corresponds to a decrease of 4.5% in real terms. From January 2002 to January
2003, our average price to final customers (calculated at January of each year)
increased by 8.6% in nominal terms, which corresponds to an increase of 5.4% in
real terms. The increase in nominal terms was above all due to a 17.7% increase
in fuel costs and an 11.8% increase in system charges.

Taxes

Since January 1, 2001, consumers of electricity services are subject to
three indirect taxes, the first two of which are not applicable to residential
customers who qualify for the social protection pricing scheme:



| |  | A state tax for residential uses of Euro 0.0047/kWh) and for other
uses (of Euro 0.0031/kWh excluding users with consumption over 1.2 GWh
per month);
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Additional local taxes that vary from Euro 0.0093/kWh up to a maximum
of Euro 0.0204/kWh; and                                                        
| 
| |  | Value-added tax of 20% for all users with the exception of residential
and industrial customers (who are taxed at a rate of 10%).                    

A previous additional state tax that varied from Euro 0.0023/kWh to Euro
0.0054/kWh was abolished in January 2001.

Gas Regulation

Italian regulations enacted in May 2000 pursuant to EU Directive 98/30
(which mandated the general liberalization of natural gas markets in the member
states) seek to introduce competition into the Italian natural gas market
through the liberalization of the import, export, transport, dispatching,
distribution and sale of gas.

Gas Eligible and Non-Eligible Customers

Current regulations, among other things, permit customers meeting certain
requirements, or Gas Eligible Customers, to have direct access to the natural
gas system and to freely choose their supplier of natural gas.

Until December 31, 2002, Gas Eligible Customers were: (i) customers
consuming more than 200,000 cubic meters per year; (ii) wholesalers and
distributors of natural gas; (iii) electricity producers including producers of
electricity and thermal energy; and (iv) consortia of customers

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consuming in
aggregate more than 200,000 cubic meters per year provided that each member of
the consortium consumes at least 50,000 cubic meters per year. Producers of
gas are considered Gas Eligible Customers with respect to the quantities they
produce. During the same period, customers who did not qualify as Gas Eligible
Customers, or Gas Non-Eligible Customers, were obliged to purchase gas from
distributors operating in their local area. From January 1, 2003, all
customers have become Gas Eligible Customers and therefore most limitations on
contractual freedom ceased. However, customers who were Gas Non-Eligible
Customers as of December 31, 2002, are still subject to certain restrictions on
their freedom to choose the supplier of gas. You should read   Sale and
distribution tariffs for Gas Non-Eligible Customers for a discussion of such
restrictions.

Transport and Storage

Companies engaged in the transport and dispatching of gas must allow
access to third parties who request connection to their networks, provided that
they have enough capacity and that giving such access is economically and
technically feasible. Transport fees are established by the Energy Authority.

Operators of natural gas storage facilities must obtain a concession from
the Industry Ministry and are required to provide storage services to third
parties, upon request, provided that they have enough capacity and that giving
such storage services is economically and technically feasible. In addition,
importers are required to maintain storage reserves equal to 10% of the gas
they import.

Distribution and sale of gas

The term distribution refers to the transport of gas through local
networks for delivery to customer premises. After January 1, 2002, gas
distribution activities may be carried out only by companies that are not
otherwise engaged in the natural gas industry. The sale of gas to end users
may be made only by companies that are not otherwise engaged in the natural gas
industry except as importers, producers or wholesalers.

Restrictions on sale and imports of gas

Sale of gas to end users is made under an authorization granted by the
Industry Ministry, which Enel Trade has obtained. For each year from January
1, 2003, to December 31, 2010, no single operator is allowed to hold a market
share higher than 50% of domestic sales to final customers. In addition, no
single operator is allowed to introduce imported or national gas in the
domestic transmission network for quantities exceeding a specified percentage
of the total, set at 75% in 2003 and decreasing by two percentage points each
year thereafter, to 61% in 2010. The applicable percentage will be calculated
net of quantities of gas consumed by the relevant operator or sold by it to its
controlled or affiliated companies.

Rules governing distribution of gas

Under Italian regulations, distributors operate under concessions awarded
by local authorities pursuant to tender procedures for periods not longer than
12 years. Through service agreements, local
authorities may regulate the terms and conditions for the provision of the
service and the quality objectives to be achieved. The tender are awarded
based on financial terms, quality and safety standards, investment plans and
technological and management skills offered. Distributors are required to
connect to the distribution network any customer who so requests. Existing
concessions including ours will expire at the earliest of their original expiry
date and December 31, 2005, though under certain conditions a concession
expiring before December 31, 2005, may be extended up to another five years.

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Sale and distribution tariffs for Gas Non-Eligible Customers

In December 2000, pursuant to Italian regulations, the Energy Authority
identified tariff criteria that we and other gas distributors and suppliers
must apply in setting tariffs for the distribution and the supply of gas to Gas
Non-Eligible Customers. The tariff criteria for both distribution and supply
include a fixed and a variable component reflecting the balance between fixed
and variable costs incurred by distributors and suppliers, respectively, and
operate to impose a cap on the rates gas distributors and suppliers may charge.
The portion of the variable component relating to the cost of natural gas is
revised for both distributors and suppliers on a bi-monthly basis.

For distributors, the tariff criteria generally take into account average
capital costs, as determined by the Energy Authority based on a sample of
selected operators. However, since June 2002, the Energy Authority has
permitted distributors to set their rates based on actually incurred capital
costs if such costs can be adequately proven.

For suppliers, prices charged to Gas Non-Eligible Customers were supposed
to be freely set from January 1, 2003. However, in November 2002 the Energy
Authority imposed a transitory regime under which suppliers are obliged to
continue to supply former Gas Non-Eligible Customers using the same tariff
criteria they applied as of December 31, 2002.

Telecommunications Regulation

The Communications Authority and the Minister of Communications regulate
all aspects of the fixed-line telephony and mobile telephony services and
Internet markets. Their regulatory powers include licensing, interconnection,
frequency allocation, numbering, universal service obligation, tariff
regulation and rebalancing and arbitration of disputes between carriers.
Current Italian regulations require telecommunications operators to obtain a
license which is granted by the Minister of Communications, to provide
fixed-line voice or mobile telephony, or an authorization to provide data
transmission, Internet services and all other services; an authorization is
considered to have been obtained by the operator upon such operators notice to
the Minister of Communications of its intention to start offering
telecommunications services subject to authorization and unless the Minister of
Communications objects such intention.

Once Italy implements European directives that create a new regulatory
framework for telecommunications, expected in July 2003, fixed-line voice
telephony services and mobile telephony services will no longer be subject to a
license requirement, although existing license holders, including mobile
telephony operators, will continue to operate under existing licenses until
they expire. Under the new framework, all operators will simply need an
authorization from the Communications Authority.

In its Annual Reports since 1998, the Communications Authority has set
forth the following main objectives:



| |  | To promote convergence among mobile telephony, fixed-line telephony, television and Internet services as well as the
development of third-generation wireless and mobile systems;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | To introduce further competition into the Italian telecommunications market;                                                                                                     
| 
| |  | To promote liberalization in the broadcasting and media industry;                                                                                                                
| 
| |  | Easing barriers to entry;                                                                                                                                                        
| 
| |  | Fostering the growth of new markets; and                                                                                                                                         
| 
| |  | Protecting consumers.                                                                                                                                                            

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Interconnection

Telecom Italia, the former monopoly telephone services provider, owns and
operates the largest fixed-line voice telephony network in Italy. As a result,
other operators ability to interconnect with Telecom Italias network
significantly affects their ability to provide fixed-line voice telephony and
other telecommunications services. Currently, Telecom Italia is required to
set interconnection rates subject to Communications Authority approval to
ensure that interconnection rates reflect costs.

Under a law enacted in 2002, Internet service providers are entitled to
enter into interconnection agreements with Telecom Italia and other operators
considered as having significant market power. In a decision issued in July
2002, the Communications Authority established that WIND is an operator having
significant market power with respect to termination of calls onto the numbers
of Internet operators. As a consequence, WIND is under an obligation to enter
into interconnection agreements with operators that so request at rates that
reflect costs. This obligation will be re-examined during the process of
implementing the new European regulatory framework.

The Communications Authority must also approve the interconnection rates
Telecom Italia charges for calls originated on its fixed network and terminated
on mobile networks.

Universal Service

Current regulations allow the Communications Authority to require other
voice telephony operators to compensate Telecom Italia for the costs the former
incumbent provider incurs in connection with its obligation to provide
universal service, defined as a minimum set of services of a given quality,
available to end users regardless of their geographical location and at an
affordable price. In 2000 and 2001, the Communications Authority determined
that Telecom Italia, Infostrada, Telecom Italia Mobile and Vodafone Omnitel
would have to make contributions to the universal service fund established for
the years 1999 and 2000, with total contributions equal to Euro 61.0 million
and Euro 58.9 million for each year respectively. In 2002, the Communications
Authority determined that WIND had to contribute to this fund for an amount
equal to Euro 2.4 million, on the grounds of both WINDs and Infostradas
activities in 2001.

Fixed-line voice telephony

The Communications Authority and the Minister of Communications have
implemented measures to promote competition in the fixed-line voice telephony
services market such as:



| |  | carrier selection, which allows customers to select carriers on a
call-by-call basis for both long-distance and local calls by dialing a
set prefix before making a call;                                    
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | carrier pre-selection, which allows customers to use alternative
carriers networks for all of their local, long-distance, fixed-
to-mobile and international calls without dialing a carrier selection
code;
| 
| |  | number portability, which allows customers to keep the same telephone
number when they change carrier; and                                                                                                   
| 
| |  | unbundling of the local loop of Telecom Italia, which allows competing
carriers access to the so-called last mile, or the wires leading
directly into customers homes or offices.                         

In addition, Telecom Italia is subject to a price cap for fixed-line
telephony services to final customers. As a result, according to the 2002
Communications Authority annual report, Telecom Italias market share in voice
telephony has decreased to 76.8% in 2001. Also, Telecom Italia is required to
offer access to its network so as to enable its competitors to offer high-speed
Internet access or x-DSL services under economic conditions set forth by the
Communications Authority.

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Mobile telephony

Telecom Italia Mobile, Vodafone Omnitel, WIND and 3 are the current
operators in the Italian mobile telephony services market. Pursuant to a
Communications Authority determination adopted originally in 1999 and
subsequently confirmed in 2002 and 2003, Telecom Italia Mobile and Vodafone
Omnitel are operators with significant market power and, as such, must offer
fixed-line operators non-discriminatory and cost-based interconnection rates
for terminating calls originated in the fixed networks.

In October 2000, WIND was awarded one of five government-auctioned
licenses for UMTS, or third-generation mobile services, at the price of Euro
2,427.3 million. The UMTS license became effective on January 1, 2002 for a
term of 15 years, which has been subsequently extended to 20 years.

In 2001, the Communications Authority extended number portability to
mobile telephony. As a result, competition in the mobile market has further
increased.

Internet and electronic commerce

Currently, Internet operators must obtain an authorization to provide
Internet services from the Communications Authority. However, Internet service
providers are not subject to universal service obligations, the tariffs regime
or the other strict regulatory requirements applicable to fixed-line voice
telephony and mobile telephony services operators.

Water Regulation

Italian water regulations place primary control of water resources in the
hands of regional and local public authorities, which have been granted
oversight of regional water resources and aqueducts. Law n. 36 of
1994, the Galli Law, introduced a regulatory framework providing for:



| |  | provincial and municipal authorities ownership of water resources,
with management contracted out to entities such as private companies,
utilities owned by local public entities or other specified entities;
the maximum duration of concessions to the use of water is limited to
30 years;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | division of the national territory into so-called optimal territorial
zones to maximize efficiency in the management of the national water
system as a whole; and                                                                                                                            
| 
| |  | determination of a reference tariff that accounts for costs as well as
provision of a stabilizing mechanism to prevent excessive tariff
increases.                                                                                                                                             

To date, the Galli Law has been implemented in only a few regions of
Italy.

Environmental Matters

Our electricity and other operations are subject to extensive
environmental regulation, including laws adopted by the Italian Parliament or
government to implement regulations and directives adopted by the European
Union and international agreements on the environment.

The principal objective of our environmental policy is to comply with all
relevant legislation and to seek to reduce adverse effects that our activities
may have on the environment. Since 1996, we have issued a public environmental
report on a yearly basis. This year we will start publishing also a
sustainability report, which contains an environmental section. We believe
that environmental performance will represent an increasingly important
competitive factor in a liberalized market.

Environmental regulations affecting our business primarily relate to, air
emissions, water pollution, waste disposal, noise and the clean up of
contaminated sites. The principal air emissions of fossil-fueled electricity
generation are sulfur dioxide (SO2), nitrogen oxides (NOx), and particulate

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matters such as dust and ash. A primary focus of the environmental regulations
applicable to our business is an effort to reduce these emissions. Furthermore,
particular attention has been given to electromagnetic fields and carbon
dioxide (CO2).

You should read   Business  The Enel Group  Generation and Energy
Management  Thermal production for a discussion of our investments to comply
with these regulations.

Electromagnetic fields

In 1992, the Italian government adopted a regulation relating to exposure
to electromagnetic fields, which applies to the extremely low frequency (50 Hz)
used for the transmission, distribution and consumption of electricity. The
government supplemented the regulation with an additional decree in 1995. This
regulation sets:



| |  | Maximum levels of exposure to electromagnetic fields from new and
existing transmission and distribution lines and distribution
substations. Compliance with maximum exposure limits for already
installed lines generally involves increasing the height of towers
carrying lines where necessary. We have submitted to the Environment
Ministry plans to bring into compliance each of our approximately 130
transmission and distribution lines and distribution substations
affected by the regulations. Approximately half of our plans have
already been approved by the Ministry and we are awaiting approval of
the others. We expect to complete implementation of compliance
measures relating to these maximum exposure limits by 2004, as
required under the regulation.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Minimum distances between transmission or high-voltage distribution
lines or substations and residential buildings, office buildings and
similar areas for lines built after the adoption of the 1992
regulation. The minimum distance requirements for transmission and
distribution lines installed after the adoption of the 1992 regulation
result in distances for these lines that exceed what would be required
to comply with the maximum exposure levels. All of our lines
installed after the adoption of the 1992 regulation are in compliance
with the minimum distance requirements.                                                                                                                                                                                   

The regulation on electromagnetic exposure summarized above complies with
the maximum exposure limits set by international organizations such as the
International Radiation Protection Association, the International Non-Ionizing
Radiation Committee and the International Commission on Non-Ionizing Radiation
Protection, and those set by a European Union recommendation issued on July 12,
1999.

In September 1998, the Italian government adopted a regulation setting
limits to exposure to electromagnetic fields generated by high frequency
infrastructure such as the transmission stations that WIND uses to provide
mobile telephone services. This regulation:



| |  | Sets maximum exposure levels;                                                                                                                                                                                                                                                             
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Sets caution levels (for buildings that are occupied for at least
four hours per day) and quality targets to be met by operators;                                                                                                                                                     
| 
| |  | Gives Italian regional authorities the power to regulate the
installation and modification of high-frequency infrastructure to
ensure implementation of the regulation and responsibility for
monitoring compliance with the maximum exposure levels and required
preventive measures; and
| 
| |  | Requires owners of high-frequency infrastructures that do not comply
with the maximum exposure levels and with the preventive measures to
undertake any remediation measures that the regional authorities
require.                                                                       

We believe that WINDs high-frequency infrastructures comply with the
above requirements.

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In February 2001, the Italian Parliament passed a new law on electromagnetic field exposure. The law is
intended to protect the general public and workers against alleged potential
long-term health effects of exposure to electromagnetic fields generated by
both low frequency infrastructures, such as electricity transmission and
distribution lines and substations, and high-frequency infrastructures, such as
the transmission stations that WIND uses to provide mobile telephone services.
The new law may make it more difficult to install new transmission and
distribution lines and substations in the future and may limit WINDs ability
to expand the radio coverage for its operations.

Furthermore, the new law provides for the adoption and implementation of
programs to restructure electricity transmission and distribution lines,
substations and high frequency infrastructures, in accordance with maximum
exposure levels, caution levels and quality targets to be set by the Italian
government. These levels have been established by decrees approved by the
Italian Parliament. We believe that the costs of complying with such levels
will not have a material impact on our results of operations.

In addition, the Bersani Decree requires that the Gestore della Retepay
to the owners of transmission lines consideration for the use of the lines,
which adequately reflects the costs which these owners have incurred to comply
with regulatory requirements. You should read   Business  The Enel Group
 Transmission and   Electricity Regulation  Regulatory
frameworkTransmission for a more detailed discussion of the Gestore della
Reteand Item 3. Key Information  Risk Factors
 Other Risks Relating to our Business for a more detailed
discussion of the risks electromagnetic field-related regulation poses for our
business. You should also read Item 8. Financial Information  Other
Financial Information  Legal Proceedings for a discussion of certain legal
proceedings against us relating to electromagnetic fields.

Principal EU legislation and
international treaties regarding SO2 and NOx

The principal EU directive on air emissions affecting the electricity
industry is the large combustion plants directive, or LCPD. The LCPD requires
each European Union member state to establish and implement a program of
progressive reduction of total SO2 emissions and total NOx emissions from
generation plants licensed before July 1, 1988 and to establish emission limits
for SO2, NOx and particulate matter from individual generation plants licensed
after July 1, 1987. In 2001, new emission limits have been set by a Directive
amending the LCPD. Member States had to implement the provisions of these
Directives by November 2002. In addition, in 2001 the EU issued a directive on
air pollution, whereby it mandated that Member States achieve specified
reduction targets on SO2, NOx, COV and NH3 emissions by 2010. To this end,
Member States are required to establish and implement a program of emission
reduction in order to achieve the targets set in the directive.

The 2001 amendment to the LCPD affects the electricity sector in so far as
it sets more stringent emission limits. However, the impact of the amendment
on our operations is limited due to the fact that Italian legislation
implementing the LCPD had already set more stringent standards that those
required under the original provisions.

Italy is a member of the Helsinki Protocol and the Oslo Protocol, which
require signatory countries to reduce SO2 emissions, and the Sofia Protocol,
which requires signatories to reduce NOx emissions. The requirements under
these protocols have been reflected in Italian law.

Principal Italian legislation regarding SO2 and NOx

Italy implemented the LCPD by a ministerial decree in 1989, which
established strict limits on emissions from new plants and required the gradual
reduction of aggregate emissions from plants licensed prior to July 1, 1988 by
setting 5-year targets. In some cases the limits applicable in Italy are
stricter than those imposed by the protocols and the LCPD. The following
tables show our actual level of SO2 and NOx emission reductions in each of 1993, 1998 and 2000,
and aggregate emission

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reduction targets of the 1989 Italian ministerial decree for 1993, 1998 and 2003. The aggregate SO2 emission reduction target for 2003
is 63%. No target has been set for NOx emission reduction for 2003.

|                                                |  |        |    |        |  |        |    |  
|----------------------------------------------- |  | ------ | -- | ------ |  | ------ | -- | -
|Reductions of NOx emissions against 1980 levels
|                                               
|                                                |  |        |    |        |  | Enels
|Year                                            |  | Target |    | Result
|                                                |  |        |    |       
|1993                                            |  |        | 2  | %      |  |        | 19 | %
|1998                                            |  |        | 30 | %      |  |        | 51 | %
|2000                                            |  |        |   |        |  |        | 64 | %
|2002                                            |  |        |   |        |  |        | 70 | %

In addition, in 1990 Italy established a regulation limiting emissions of
polluting substances from thermal plants licensed before July 1, 1988 that is
stricter than the LCPD and covers a much broader range of pollutants. This
regulation requires that individual existing thermal plants in Italy reduce
emissions to levels similar to those established under the LCPD for individual
plants licensed after July 1, 1988. This regulation also provides a time
schedule for the implementation of environmental compliance measures at
existing plants.

In response to this regulation, we implemented in 1990 a significant
program of environmental measures that affect our entire thermal generation
operation. We submitted this program to the relevant ministries of the Italian
government, including those for industry, environment and health. The program
has been approved and provides for modifications to both physical plant and
operating practices. The following table shows the targets which Italian
regulation provides for the implementation of these environmental compliance
measures for generating facilities and our levels of implementation for the
relevant periods. Both the targets and our results are expressed as
percentages of the total installed thermal capacity of generating facilities
for the periods indicated.

|                |  |        |     |          |  |                   |      |  
|--------------- |  | ------ | --- | -------- |  | ----------------- | ---- | -
|                |  |        |     |          |  | Enels Adopted or
|                |  |        |     |          |  | Planned          
|At December 31, |  | Target |     | Measures
|                |  |        |     |         
|1997            |  |        | 35  | %        |  |                   | 41.5 | %
|1999            |  |        | 60  | %        |  |                   | 62.3 | %
|2002            |  |        | 100 | %        |  |                   | 92.6 | %

We have not reached the target set for 2002 because we have not completed
the conversion of one plant located in Porto Tolle. We expect to complete such
conversion and meet the 100% reduction target as soon as we receive the
approval of the Minister of the Environment needed to complete such conversion.

In 1997, the Italian Parliament imposed a tax on total SO2 and NOx
emissions from thermal plants that have a nominal capacity of greater than 50
MWh. These plants are the same plants as those regulated under the LCPD. In
2000 and 2001, our costs in connection with this tax were approximately Euro
27.3 million and Euro 21.7 million, respectively. In 2002, our costs were
approximately Euro 14.4 million.

CO2 emissions

Both the European Union and Italy are signatories to the Kyoto Protocol,
which was signed under the United Nations Framework Convention on Climate
Change. In accordance with a burden-sharing agreement among EU member states,
Italy has set a target to reduce emissions of CO2 and the other greenhouse gases, or GHGs, listed in the Kyoto Protocol over the
2008-2012 period by 6.5% from their 1990 levels.

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In implementing the Kyoto protocol, on November 19, 1998, the Italian
interministerial committee for economic planning issued the guidelines for
Italian policies and measures for the reduction of GHG emissions in order to
implement the Kyoto Protocol. These guidelines set targets for CO2 and other
GHG emissions to be achieved through measures concerning various sectors of the
Italian economy, including reduction of carbon produced in thermal electricity
generation, increased use of electricity generation from renewable resources
and demand side management to increase the efficiency of energy use.
Furthermore, the guidelines promote certain projects aimed at the development
of so called clean energy. The proposals contained in the guidelines have
facilitated the participation of Italy in the Emission Trading mechanism. As of
2000, we produced approximately 18% of total GHG emissions in Italy.

In July 2000, we signed a voluntary undertaking with the Environment
Ministry and the Industry Ministry. Under this agreement, we undertook to
reduce the annual level of CO2 emissions produced by our plants during the
period between 2002 and 2006 from our level of emissions in 1990. The
undertaking anticipates a number of measures to reduce GHGs emissions,
including employing high-efficiency technologies, such as combined cycle
conversions, promoting the use of renewable resources and developing innovative
generation technologies using biomass. We also expect to take advantage of the
flexibility provided under the Kyoto Protocol for reducing GHGs emissions
through joint projects in industrialized and developing countries and through
the national or international trading of carbon or emission credits.

In January 1999, the Italian government introduced a carbon tax in
accordance with applicable European Union directives. Under the current
Italian implementing legislation, the amount of the tax, which is based on
fossil fuel consumption, was initially scheduled to increase on an annual basis
from 1999 through 2005, but has been frozen for the years 2000, 2001 and 2002
at the level for 1999. The legislation also establishes the possibility of
review or cancellation of the tax if other EU member states have not adopted
similar measures by 2001. On the basis of current forecasts of future fuel
prices, we believe that application of the carbon tax as currently formulated
could have a significant impact on the economic viability of our oil-fired
plants by the year 2005, should the tax rates then reach their maximum levels.
As part of an initiative to address the impact of the carbon tax, we have
proposed that the Italian government adopt a different method for calculating
the tax which would apply an equal amount of tax per unit of CO2 output,
without regard for the type of fuel used to produce the energy in question. We
believe that such a policy would produce the targeted reductions in CO2
emissions without creating unequal burdens on certain types of generating
facilities, particularly oil fired and base load plants. In 2000 and 2001, our
carbon tax liability amounted to approximately Euro 38.0 million and Euro 42.5
million respectively. Carbon tax liability for the year 2002 has remained
unchanged from that in 2001.

PCBs and asbestos

In May 1999, the Italian government adopted a legislative decree
concerning the recovery and disposal of electric transformers and other
equipment containing polychlorinated biphenyls, or PCBs. Pursuant to this
decree, we are delivering all of our equipment containing PCBs to companies
authorized to recover and dispose of such equipment. We are also delivering
waste products containing asbestos to specialized companies authorized to treat
and dispose of asbestos. Such waste products derive from the clean up of our
plants we conduct in accordance with our general maintenance and environmental
clean-up programs.

Water pollution prevention

We are subject to environmental laws and regulations limiting heat and
other characteristics of water discharges from our thermal plants and liquid
waste from our hydroelectric plants. In May 1999, the Italian Parliament
adopted a new law for the prevention of the pollution of fresh and salt water,
which was amended in August 2000. We believe that the legislation does not
affect the operation of our plants, which are already in line with the limits
set by those rules. Similarly, we

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believe that the water treatment facilities
already operating in our generation plants are in line with the new
requirements on liquid waste.

Solid waste management

In February 1997, the Italian government issued a legislative decree
implementing the EU directives on solid waste management. In accordance with
this decree, we increased the level of recycling of our waste.

Site clearance

Italian legislation provides for ground and underground inspections to
evaluate the possible contamination of sites, particularly in areas declared to
be of national interest, using specific chemical, physical and historical
analyses. If sites we own are found to be contaminated, the current regulation
requires that we undertake a program of site clearance and restoration. In
that case, under the new legislation the Italian government may provide
financial support for the restoration of contaminated sites located in areas of
national interest. Based on our environmental compliance practices and the
current regulatory regime, we do not expect to have significant liability
associated with contamination of sites being inspected.

Landscape safeguards

We have taken the following actions to reduce the environmental impact of
our transmission and distribution lines:



| |  | Re-using routes of previous power lines wherever possible;                                                                                                                                                       
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Soliciting proposals internationally for the design of new towers for our transmission lines aimed at reducing the
environmental and aesthetic impact of towers in non-urban areas of particular landscape value;
| 
| |  | Acting to reduce the impact of lines in environmentally sensitive or protected areas;                                                                                                                            
| 
| |  | For medium-voltage lines, placing underground cables in urban areas and aerial cables with low environmental impact in
other areas with specific environmental value; and                                        
| 
| |  | Using aerial insulated cables or underground cables in low voltage networks (at present, we have built approximately
two-thirds of our network in this way).                                                     

We limit our use of underground high-voltage cables to urban areas because
they are significantly more expensive than aerial cables and the process of
installing them may involve significant logistic and environmental problems.
Between 1994 and 2001:



| |  | We added approximately 31,250 km of aerial insulated and underground
medium voltage cables. In 2001, aerial insulated cables and
underground cables represented 37.1% of our medium voltage lines,
compared to 29.8% in 1994; and                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We added approximately 109,000 km of aerial insulated and underground
low voltage cables. In 2001 and 2002, respectively, aerial insulated
cables and underground cables represented 81.2% and 82% of our low
voltage lines, compared to 72.8% in 1994.

Environmental registrations, certifications and authorizations

We have joined EMAS, a European Union initiative to implement a voluntary
environmental management and registration system, which seeks to improve the
level of environmental efficiency and disclosure of European industrial
companies, and includes ISO 14001 certification for registered plants and
assets. Rules concerning EMAS are contained in an EU Regulation issued in
1993. In 2001, the EU passed a new regulation which permitted the utilization
of the EMAS system also for

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assets not used in production. As a consequence, we
started an experimental study in order to adapt the environmental management
and registration system to the high voltage transmission grid.

As of December 2001, 13 of our plants, representing approximately 30% of
our installed generating capacity, have obtained environmental certifications.
All of these 13 plants obtained ISO 14001 certification and eight obtained EMAS
registration.

In August 1999, the Italian government enacted a legislative decree
implementing the 1996 EU directive on the prevention and reduction of
pollution. This legislative decree requires all industrial plants to operate
under a new integrated environmental license by 2007 and make use of the best
techniques available for the prevention and reduction of pollution. The new
license will set pollution limits and will be reviewed every five years or at
any time plants undergo significant renovation. Licenses for EMAS-registered
plans will be reviewed every eight years.

Cost of compliance

The costs of ensuring compliance with applicable environmental regulation
generally consist of costs associated with equipping newly constructed
facilities with required technology or modifying existing facilities to comply
with applicable regulation. In 2001 and 2002, respectively, our environmental
capital expenditures totaled Euro 225 million and Euro 140 million, respectively,
representing 5.5% and 2.5%, respectively, of our total capital expenditures.

Discontinued nuclear operations

Since November 2000, we have not owned any nuclear power plants. We have
not produced electricity from nuclear power plants since 1988.

Following a national referendum in 1987 in which the Italian electorate
expressed its opposition to the use of nuclear power, the Italian government
ordered the interruption of power production from nuclear fuels and we ceased
operations at our four nuclear plants in Italy, which had an aggregate net
installed capacity of 1,500 MW.

In addition to our nuclear power plants, we owned a 33% stake in NERSA, an
electricity generation company that operated a nuclear power plant located in
France. French and German utilities owned the balance of NERSA. In July 1998,
we sold our stake in NERSA. We, however, retained ownership and responsibility
for the decommissioning of our share of the nuclear fuel in the plant.

Pursuant to the Bersani Decree, we have transferred our discontinued
nuclear operations to So.g.i.n., a wholly owned subsidiary. The principal
activity of So.g.i.n. will be the decommissioning of the nuclear plants and of
our share of the nuclear fuel in the NERSA plant in France, including disposal
of nuclear fuel and nuclear waste.

Under the Bersani Decree, we were required to transfer to the Treasury
Ministry all the shares of So.g.i.n. at no cost. The transfer was completed on
November 3, 2000.

Nuclear liability

Italy is a party to the 1960 Paris Convention on Third Party Liability in
the Field of Nuclear Energy and the 1963 Brussels Supplementary Convention.
Italian law implementing the conventions imposes strict liability for claims
relating to nuclear plants and the transportation and storage of nuclear
matter. Strict liability under Italian law means that someone does not need to
be negligent in order to be found liable. The law imposes strict liability for
nuclear accidents only on the entity that is the operator of the plant at the
time of the accident. Consequently, we are not liable for any accident that
may occur after the transfer to the Treasury Ministry of So.g.i.n.s shares on
November

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3, 2000, even if the cause of the accident predates the transfer.
Although we are not aware of any accident that predates the transfer, we will
remain liable for any accident that occurred before the transfer, even if the
damage, or the accident itself, is discovered in the future. The operator of
the plant may claim reimbursement from a third party which has contributed to
the cause of the accident for any sums it may have to pay but only if that
party has accepted liability contractually or is a physical person who has
intentionally caused the damage. Italian law implementing the conventions
imposes a maximum period of ten years from the date of the accident in which
someone claiming damages must bring claims. At the time of our transfer of
So.g.i.n.s shares, we represented to the Treasury that we had performed, on a
regular basis, every required test on our nuclear plants and that we were not
aware, with respect to all nuclear assets owned by So.g.i.n., of any event
which might be the source of civil liability for nuclear operations.

Under the Paris Convention and Italian law, direct liability arising from
nuclear liability claims is limited to five million International Monetary Fund
Special Drawing Rights, or SDRs, per accident. Under Italian law, to the
extent any claim exceeds five million SDRs, someone claiming damages may sue us
for only five million SDRs and must sue the Italian government for the excess
liability up to 175 million SDRs. If the claim is in excess of 175 million
SDRs, that person must sue the signatories to the conventions, but then only
for the excess liability up to 300 million SDRs. However, the Italian
government can claim reimbursement from us for any sums it may have to pay
because of a nuclear accident arising from negligence on our part. On
June 24,
2003, five million SDRs equaled approximately Euro 6.1 million.

A provision of the Italian law implementing the conventions states that
when damage has been caused concurrently by a nuclear accident and the emission
of ionizing radiation, the liability of the person that caused this radiation
is not subject to the limitations described above for damages caused by that
emission. This provision does not fully conform to the conventions because it
does not specify that the ionizing radiation must not independently qualify as
a nuclear accident in order to give rise to unlimited liability. We believe,
however, that the correct interpretation of Italian law implementing the
conventions is that only radiation not classified as a nuclear accident gives
rise to liability outside the limitations described above. We believe all
emissions of radiation originating from within nuclear plants would qualify as
nuclear accidents. As a consequence, because we held nuclear material inside
our plants, we believe that we could only be liable outside the limitations
described above under remote circumstances.




Properties, Plants and Equipment

At December 31, 2002, we had 586 generating plants (excluding plants owned
by Interpower), consisting of thermal, hydroelectric, geothermal and other
renewable resources facilities, most of which were located in Italy. For
further information with respect to our plants, see   Business  The Enel
Group  Generation and Energy Management above. We also own Italys
transmission network of high voltage 380 kV lines, which consisted, at December
31, 2002, of a total of 37,583 km of lines and 275 primary transformer
stations. For a description of such properties and related construction,
expansion and improvement plans see    Business  The Enel Group 
Transmission above. We own the principal electricity distribution network in
Italy, which consisted, at December 31, 2001 of a total of 1,063,010 km of
lines, mostly medium and low voltage, and 407,751 primary and secondary transformer substations. For a description
of such properties and related construction, expansion and improvement plans
see    Business  The Enel Group  Sales, Infrastructure and Networks
above. At December 31, 2002, we owned approximately 18,000 km of fiber optic
cable leased to WIND for the provision of telecommunications services. For a
description of such properties and related construction, expansion and
improvement plans see   Business  The Enel GroupTelecommunications
above. At December 31, 2002, we owned real estate, mainly in Italy, with an
approximate net book value of Euro 1,780 million, consisting mainly of office
buildings and other commercial properties and to a lesser extent residential
real estate. For a description of such properties and related construction,
expansion and improvement plans see   Business  The Enel GroupServices
and Other Activities  Real estate and other services.

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Management believes that our significant properties are in good condition
and that they are adequate to meet our needs.




Item 5. Operating and Financial Review and Prospects




The Electricity Market under the New Regulatory Framework

Our financial results have been and will be affected to a large extent by
developments in the regulatory framework for the Italian electricity market.
In particular, the Bersani Decree has significantly restructured the
electricity market to increase competition and achieve other public policy
goals. The significant changes introduced by the Bersani Decree include:



| |  | Liberalization.The generation, import and export of electricity, as well as the sale of electricity to major consumers of
electricity known as Eligible Customers, have been liberalized as of April 1, 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Maximum market share levels for producers. In order to ensure competition among electricity producers, the Bersani Decree
provides that no single company or group may have more than a 50% market share of the electricity generation and import
market after January 1, 2003. The decree required us to sell at least 15,000 MW of our generating capacity by that date in
order to comply with this requirement. We have met this requirement through the disposal of three companies formed for
this purpose that we called the Gencos, Elettrogen S.p.A., Eurogen S.p.A. and Interpower S.p.A.. We completed the sales of
Elettrogen, Eurogen and Interpower in September 2001, May 2002 and January 2003, respectively.
| 
| |  | Distinction between classes of customers.Electricity customers are classified as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



| |  |  | Eligible Customers are principally high volume users
such as large manufacturing and industrial companies or consortia
that meet specified thresholds of annual electricity consumption.
Under the Bersani Decree, Eligible Customers are free to
purchase electricity either from power producers or from
wholesale suppliers. Sales to Eligible Customers are made on the
basis of contracts between the customer and the producer or
wholesale supplier and are intended to be competitive.                                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Non-Eligible Customers are customers who do not meet
the criteria to be Eligible Customers, such as residential and
small and medium-sized business customers, and as a result are
not eligible to participate in the competitive market.
Non-Eligible Customers must purchase electricity from the
distributor that serves the area in which they are located.
Sales to Non-Eligible Customers, and to Eligible Customers that
choose not to participate in the free market, are regulated by
the Energy Authority, an Italian governmental entity that acts
under the supervision of the Industry Ministry.



| |  | Introduction of a pool market with competitive bidding. A pool market
for the spot trading of electricity at prices to be determined by
competitive bidding among generating companies, importers,
wholesalers, distributors, other Eligible Customers and the Single
Buyer described below is expected to become fully operational at the
beginning of 2004.                                                                                                                                                                                                                                                                                                   
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Creation of a Single Buyer.A state-owned entity referred to as the
Single Buyer is expected to begin operation contemporaneously with the
creation of the pool market. It will be responsible for purchasing
all of the electricity to be supplied to the regulated market.                                                                                                                                                                                                                                                                                                                                                                                   
| 
| |  | New tariff regime.A new tariff regime administered by the Energy
Authority took effect on January 1, 2000, significantly lowering the
fixed tariff components for generation, transmission and distribution.
In 2002 and 2003, reductions in fees also resulted from the
application of the price-cap mechanism to transmission and
distribution charges established by the Energy Authority. Once the
pool market becomes operational, the tariff component for generation
will be periodically adjusted to reflect prices on that market, while
the tariff components for transmission and distribution will continue
to be subject to a system of price-caps.

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| |  | Creation of a system operator for the national transmission network.
In 1999, we transferred our electricity dispatching and national
transmission network grid management operations to the Gestore della
Rete, a separate state-owned entity responsible for those functions.                                                                                                       
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Consolidation of distribution networks.Only one license for the
distribution of electricity is to be granted in each municipality;
distribution companies that now serve the same municipality are
required to consolidate their local networks. As of June 15, 2003, we
have sold, among others, our distribution networks in Milan, Rome,
Turin, Trieste, Verona, Cremona and Parma.

You should read Item 4. Information on the Company  Regulatory Matters
 Electricity Regulation for a more detailed discussion of the new regulatory
and tariff regimes changing the Italian electricity sector and to Item 3. Key
Information  Risk Factors  Risks Relating to Our Energy Business for a
discussion of the principal regulatory risks we face.

The restructuring of the Italian electricity market is still in progress.
The following chart illustrates the expected structure of the electricity
market following the introduction of the Single Buyer and the pool market. We
now expect the Single Buyer and pool market to begin operating at the beginning
of 2004. In the chart, contracts for differences represent swap or similar
arrangements relating to electricity supply among power producers and the
Single Buyer, retail suppliers or Eligible Customers.

(POWER PRODUCERS FLOW CHART)

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Overview

Changes in tariffs and regulation

Most of our operating revenues come from the sale of electricity. The
price of electricity has historically been determined by a system of tariffs.
These tariffs are currently set by the Energy Authority, the independent
regulator for the electricity industry, which acts under the supervision of the
Industry Ministry. Our operating revenues are directly related to the level of
tariffs, except for revenues from sales to Eligible Customers, which currently
represent a relatively minor portion of our revenues from the sale of
electricity. For the years covered by the financial statements included in
this annual report, our revenues from the sale of electricity consisted of:



| |  | electricity sales, which include both revenues derived from sales at
the regulated tariffs, with the actual amount of revenues being
determined by the contracted capacity required by a consumer and on
the amount of electricity the customer actually consumed, and revenues
from direct sales to Eligible Customers based on negotiated contracts;
and
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Equalization Fund contributions that, in 2000, principally related to
our costs for fuel and electricity purchased from third parties. From
January 2001, Equalization Fund contributions for fuel costs and
imported electricity were abolished and a fuel cost component was
included in the tariff.                                                  

From July 1996 through 1999, tariffs remained largely unchanged. However,
a new tariff framework came into effect on January 1, 2000 that resulted in:



| |  | significant reductions in generation, transmission and distribution tariffs in 2000; and                       
|- |  | ---------------------------------------------------------------------------------------------------------------
| 
| |  | the application of global price-cap reductions to transmission and distribution tariffs in 2001, 2002 and 2003.

In addition, a further reduction in generating revenues is expected
following the introduction of the pool market, which is currently expected to
become fully operational at the beginning of 2004.

As a result of the introduction of the price-cap tariff methodology and a
decrease of approximately Euro 0.0052 per kWh in the tariff component aimed at
covering fixed generation costs, average tariff levels declined by 10.4% in
2001, as compared to 2000. Average tariff levels declined further by 7.0% in
2002, as compared to 2001, mainly as a result of a 16.4% decline in the tariff
component aimed at covering fuel costs. We expect the average tariff level to
increase in 2003 as a result of the impact on the tariff of higher fuel costs
and increased transport charges. The actual impact of these tariff reductions
on our revenues depends on a number of factors, including the volume of
electricity we sell in the regulated market and the mix of types of electricity
we sell and customers we serve.

Equalization Fund contributions were paid through the Cassa Conguaglio per
il Settore Elettrico,the Equalization Fund for the Electricity Industry, or
the Equalization Fund. Under the Equalization Fund mechanism in effect from
July 1997 to December 31, 2000:



| |  | We received payments for fuel costs according to an index based on
weighted average industry fuel prices and on a consumption index
related to our efficiency of production. As a result, although we
faced some variation in profits between accounting periods because of
the timing of contribution calculations, our profit levels over time
were generally unaffected by fluctuations in fuel prices or exchange
rates relating to fuel costs.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | We received payments for the cost of imported electricity according to
fuel indices, which were based on the assumed cost of fuel that would
have been used to generate the electricity being
imported. In practice, however, contribution levels were lower than the actual
costs of our imports. As a result, our operating income generated from sales
of imported electricity declined.                                                        

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| |  | We also received payments for electricity purchases
that Regulation 6/92 of the Comitato
Interministeriale Prezzi,an Italian governmental
committee, required us to make from domestic
producers that use renewable resources. These
producers are commonly referred to as CIP 6
Producers.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Equalization Fund contributions for fuel costs and imported electricity
were abolished in January 2001, when an equivalent fuel cost component
calculated in the same manner as the former Equalization Fund contributions for
fuel costs was included in the generation cost component of the electricity
tariff. As a result, this change has had no impact on the Groups results of
operations. Also, on January 1, 2001, all electricity produced under the CIP 6
regime was transferred to the Gestore della Reteto meet demand on the free
market. As a consequence, we have not received any Equalization Fund
contributions for purchases of such electricity since 2000.

Macroeconomic factors

Historically, the level of demand for electricity in Italy has been
closely related to the general level of economic activity in the country. In
recent years, economic growth in Italy has been in line with the European Union
average. For example, from 2000 to 2002, Italys real gross domestic product
or GDP grew at an average annual rate of 1.7%, which was the average annual
rate for the European Union. On the other hand, growth in electricity demand
in Italy has historically exceeded growth in gross domestic product,
principally because electricity consumption has grown faster than total energy
consumption. We estimate that electricity demand in Italy grew at an annual
average of approximately 2.0% from 2000 to 2002.

Interest rates in Italy and the rest of Europe rose in 2000 until the
second half of 2001, when they declined following the general slowdown of the
economy. Interest rates continued to decline in 2002. The weighted average
interest rate on our long-term debt declined from 5.4% as of December 31, 2000
to 4.9% as of December 31, 2001 and 4.6% as of December 31, 2002. Our financing
costs increase or decrease in line with changes in interest rates.

Although we are insulated to a significant extent from the economic effect
of fluctuations in fuel prices through the application of the fuel cost
component of the tariff described above, time lags between our actual purchase
of fuel and the calculation and payment to us of such fuel cost component can
affect our revenues and income. Following the introduction of the pool market
and anticipated increases in the number of consumers qualifying as Eligible
Customers, we will face increased risks relating to fuel price fluctuations,
which we intend to attempt to manage through implementation of our hedging
policy. Please refer to Item 11. Quantitative and Qualitative Disclosure About
Market Risk  Price risk management and market risk information for a more
detailed description of our hedging policy.

Critical accounting policies

The results of operations, as presented above, are based on the
application of Italian GAAP. The application of these principles often requires
management to make certain judgments, assumptions and estimates that may result
in different financial presentations. We believe that certain accounting
principles are critical in terms of understanding our financial statements. We
believe that our most critical accounting policies relate to the following.

Use of estimates.The preparation of financial statements in conformity
with Italian GAAP requires management to make judgments, estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Certain accounting principles require subjective and complex judgments used in the
preparation of financial statements.

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Accordingly, a different financial presentation could result depending on
the judgment, estimates or assumptions that are used. Such estimates and
assumptions, include, but are not specifically limited to: depreciation,
amortization, interest rates, discount rates, future commodity prices,
investment returns, impact of new accounting standards, international economic
policy, future costs associated with long-term contractual obligations and
future compliance costs associated with environmental regulations. Actual
results could materially differ from those estimates or assumptions.

Recoverability of long-lived assets.We periodically review the carrying
value of our long-lived assets held and used and that of assets to be disposed
of, including goodwill and other intangible assets, when events and
circumstances warrant such a review. If the carrying value of a long-lived
asset group is considered impaired, an impairment charge is recorded for the amount
by which the carrying value of the long-lived asset group exceeds its estimated
recovery value, in relation to its use or realization, as determined by
reference to the most recent corporate plans. Management believes that the
estimates of these recovery values are reasonable; however, changes in
estimates of such recovery values could affect the relevant valuations. The
analysis of each long-lived asset group is unique and requires management to use
certain estimates and assumptions that are deemed prudent and reasonable for a
particular set of circumstances.

The above analysis resulted in an impairment charge against the goodwill
related to our telecommunications segment of Euro 1,511 million during
the year ended December 31, 2002.

Realization of deferred tax assets.As of December 31, 2002, we had assets
recorded for tax loss carry-forwards related primarily to our
telecommunications segment. We have recorded our deferred tax assets in an
amount that we believe is more likely than not to be recovered. The
recoverability of the deferred tax assets associated with the tax loss
carry-forwards of such entities are subject to the achievement of future
profitability by the merged entities. While we have considered future taxable
income and used ongoing prudent tax planning strategies in assessing the need
for valuation allowances, should we determine that we would not be able to
realize all or part of our net deferred tax assets in the future, the resulting
adjustment to the deferred tax assets would be charged to income in the period
such determination was made.

In 2002, we reassessed the recoverability of the tax assets recorded for
tax loss carry-forwards in our telecommunications segment upon an estimation of
the future taxable income based on the new business plan. As a result of such
reassessment, we recorded a Euro 269 million write down in deferred tax assets,
corresponding to the portion of tax loss carry-forwards which we estimate we
will not be able to use, given current estimates of future taxable income.

Litigation.We are defendants in a number of legal proceedings incidental
to the generation, transmission and distribution of electricity. Because of the
nature of these proceedings, it is not possible to predict the ultimate
outcomes of certain of these matters, some of which may be unfavorable to us.
However, provisions are made for all significant liabilities where it has been
determined by legal advisors that an unfavorable outcome is probable.

A number of disputes are pending in relation to urban planning, landscape
and environmental matters (mainly related to exposure to electromagnetic
fields) linked to the construction and operation of several of our generating
plants and power lines. The examination of such disputes, also on the basis of
legal advice, leads us to believe that unfavorable outcomes would be a remote
possibility. While the possibility is remote, the risk that a limited number of
cases might have unfavorable outcomes cannot be ruled out, whose consequences
could entail the payment of damages. At the present time, the possible
imposition and magnitude of any such damages are not predictable and therefore,
we have not accrued any liabilities for these disputes.

Allowance for doubtful accounts.The allowance for doubtful accounts
reflects our estimate of losses inherent in our credit portfolio. We have
reserved for expected credit losses, based on past experience with similar
receivables, including current and historical past due amounts, write-offs and

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collections, the careful monitoring of portfolio credit quality and the current
and projected economic and market conditions. We believe that our reserves are
adequate; however, different assumptions or changes in economic circumstances
could result in changes to the allowance for doubtful accounts and therefore
could affect earnings.

Stranded costs.In 2000, we recognized reserves aggregating Euro 117
million related to our recovery of so-called stranded costs. Our individual
companies made an estimate of their recovery requirements according to elements
contained in the Ministerial Decree dated January 26, 2000 and in the Note
issued by the Energy Authority on August 3, 2000. These calculations
represented estimates, as final reference parameters were not given by the
Energy Authority. The individual companies recorded reserves in situations
where actual revenues exceeded the related estimated revenues allowed by the
Energy Authority.

In 2001, a decree of the Industry Ministry and a decision by the Energy
Authority introduced significant changes in the method used to calculate
stranded costs. Based on this new mechanism, stranded costs may be determined
only at the end of the full period considered for the reimbursement (2000 -
2006) and not for each individual fiscal year. In light of these regulatory
changes, the amount accrued to the provision at December 31, 2000 was reversed
and recorded as income in 2001.

A law enacted in April 2003 has narrowed the type of stranded costs that
we will be able to recover after January 1, 2004 to those incurred in
connection with our imports of liquefied natural gas from Nigeria. Also, under
this law, the Industry Ministry and the Treasury Ministry, after consultation
with the Energy Authority, will set the parameters for the calculation of the
stranded costs for the period 2000-2003 that we will be able to recover. The
relevant accounts will reflect revenues associated with the new stranded cost
mechanism once these parameters have been defined and implemented.

Comparability of information

The inter-period comparability of the information presented in this
section is significantly affected by changes in scope of consolidation of the
Group and several other factors that should be considered when reviewing the
performance of the individual segments and of the Group as a whole. The most
significant transactions that resulted in a change in the scope of
consolidation include:



| |  | the consolidation on a line-by-line basis, effective January 1, 2002,
of the companies resulting from the restructuring of Electra de Viesgo
SL and its subsidiaries, or Viesgo, following our acquisition of this
company. Viesgo operates in Spain in the generation and distribution
of electricity;
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the consolidation on a line-by-line basis of Camuzzi Gazometri,
effective July 1, 2002, following our acquisition of this company.
Camuzzi Gazometri operates in natural gas distribution and sales
activities in Italy;                                                                               
| 
| |  | the deconsolidation of Eurogen S.p.A., the second Genco we sold,
effective as of the date of its disposal, May 31, 2002;                                                                                                                                                                               
| 
| |  | the deconsolidation of the activity of the distribution network in the
metropolitan area of Milan, effective November 1, 2002, the date of
its disposal;                                                                                                                                               
| 
| |  | the consolidation on a line-by-line basis of the results of WIND
effective January 1, 2001 and the consolidation on a line-by-line
basis of Infostrada S.p.A. effective March 31, 2001, following our
acquisition of this company;                                                                     
| 
| |  | the consolidation on a line-by-line basis, effective January 1, 2001,
of Enel Distribuzione Gas S.p.A., a company into which in November
2001 we merged twenty gas companies, most of which we acquired in
2001;                                                                                       

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| |  | the deconsolidation of Elettrogen S.p.A., the first Genco we sold,
effective as of the date of its disposal, September 20, 2001;                                                                                          
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the deconsolidation as of the date of their divestiture of the
activities of the distribution networks in the metropolitan areas of
Rome and Formello, effective July 1, 2001, and Turin, effective
December 31, 2001; and
| 
| |  | the deconsolidation of Valgen S.p.A., effective July 1, 2001,
following the divestiture of this company to which we had previously
contributed our generation activities in the Valle dAosta region.                     

Other factors that significantly affect the comparability of information
for the period presented include



| |  | the major changes which the Italian electricity sector is currently
undergoing and which significantly affect our electricity activities,
as described in more detail in   The Electricity Market under the
New Regulatory Framework above. These changes, include, but are not
limited to, changing tariff rates and the inclusion, effective January
1, 2001, of a fuel cost component in the tariff following the
abolition of the Equalization Fund contributions for fuel costs; and                                                                                                                                                                                                                                                                               
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the fact that currently, most of the revenues and costs recorded by
our Generation and Energy Management, Sales, Infrastructure and
Networks and Corporate segments arise from inter-segment transactions,
reflecting our integrated structure and leading position in each of
the core segments of the Italian electricity market. Pursuant to
applicable regulations, since January 1, 2000, transfer prices for
these transactions have been based on market prices. Once the Single
Buyer and pool market begin to operate, however, we expect that the
majority of operating revenues and costs for each segment will involve
third parties. This change will further reduce the comparability of
our segment information for 2001 and 2002 with that in future periods.

Prior to January 1, 2001, the reporting currency of Enel and its
consolidated subsidiaries was Italian lira. To facilitate a comparison, the
consolidated financial statements and all other lira-denominated financial data
for periods prior to January 1, 2001, presented have been restated from Italian
lira to euro at the fixed rate as of December 31, 1998 established by the
European Central Bank of Lit. 1,936.27 = Euro1.00. The comparative balances for
prior years now reported in euro depict the same trends as would have been
presented had the Group continued to report such amounts in Italian lira. The
consolidated financial statements and other financial data for periods prior to
January 1, 2001 may not be comparable to that of other companies reporting in
euro if those companies had restated from a reporting currency other than
Italian lira.

Business segments

In 2002, our new management team made a strategic decision to move away
from the diversification strategy we had been pursuing in recent years to
refocus on our core energy business. To support this strategy, in July 2002,
we reorganized our operations into six business divisions in order to increase
the focus of our activities on the market and to better control costs and
enhance synergies among our various subsidiaries. The new divisions are:
Generation and Energy Management; Sales, Infrastructure and Networks;
Transmission; Telecommunications; Services and Other Activities and Corporate.
Each division has its own management structure, headed by a senior manager who
reports directly to the Chief Executive Officer of Enel S.p.A.. Our Corporate
division includes Enel S.p.A., which as the parent company, defines the
strategic objectives for the Enel Group and coordinates the activities of the
other divisions. The parent company also manages finance operations and insurance risk coverage for all Group companies (in the
case of finance operations, other than WIND) and provides assistance and
guidelines on organizational, industrial relations, accounting, administrative,
tax and legal issues.

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In line with this new approach to managing our business, we have
identified reportable segments corresponding to the following divisions:

Generation and Energy Management.This segment corresponds to the division
that is responsible for our electricity generation and fuel procurement
operations, as well as fuel trading and risk management activities. This
division generates operating revenues mainly from the sale of electricity to
our Sales, Infrastructure and Networks Division, to the Gestore della Reteand
to other operators in the domestic electricity market, as well as through fuel
trading. The division, which procures fuel for all of the companies of the
Group, also sells natural gas to our Sales, Infrastructure and Networks
Division. By law, we were required to sell 15,000 MW of our generating
capacity, which we did through the sales of Elettrogen, Eurogen and Interpower,
in September 2001, May 2002 and January 2003, respectively. This division also
includes our international operations in electricity generation and, only in
2002, the distribution activities of Viesgo in Spain. Beginning in 2003,
Viesgos distribution activities are reported as part of our Sales,
Infrastructure and Network segment; these activities accounted for
approximately 3% of operating revenues, 4% of operating expenses and 2% of
operating income of the Generation and Energy Management segment in 2002. The
main companies in this division include the following: in Italy, Enel
Produzione (thermal and hydroelectric generation), Enel Green Power
(geothermal, hydroelectric and wind power generation), and Enel Trade (fuel
procurement and trading, risk management); abroad, Viesgo Generacion SL in
Spain and CHI Energy and EGI in the Americas.

Sales, Infrastructure and Network.This segment corresponds to the
division that includes our electricity and gas network operations and carries
out sales of electricity and gas sales on the free and regulated markets in
Italy and abroad. It also provides public and art lighting services and
electricity systems-related services. Operating revenues at this division
derive primarily from fees for transport of electricity and gas on our
distribution networks, the sale of electricity to Eligible and Non-Eligible
Customers and the sale of natural gas to end users. The divisions
electricity-related activities are carried out primarily through Enel
Distribuzione (sale of electricity on the regulated market and transport of
electricity on our distribution network), Enel Energia (sale of electricity to
Eligible Customers), So.l.e (public and art lighting) and Enel.si (electricity
systems-related services). The divisions natural gas operations are carried
out primarily through Enel Distribuzione Gas, Camuzzi Gazometri and GE.AD
(ownership and management of the networks) and Enel Gas (sales). We expect to
merge Enel Distribuzione Gas, Camuzzi Gazometri and GE.AD into a single entity
by the end of 2003.

Transmission.Our transmission segment includes the operations of Terna.
Terna owns approximately 94% of Italys national electricity transmission grid.
Under our new structure, Terna derives its operating revenues from the
transportation of electricity on the portion of the national transmission grid
that is owned by Terna, but operated by the Gestore della Rete.

Telecommunications.Our Telecommunications segment includes the operations
of WIND. For the period from April 1, 2001, our Telecommunications segment
also includes the operations of Infostrada, which we acquired in March 2001 and
merged into WIND effective January 1, 2002, and certain assets of Blu S.p.A.
that we acquired in October 2002. Our telecommunications activities include
the offer of mobile telecommunications services, fixed-line telephony services,
Internet and other telecommunications related services.

We formed WIND as a joint venture in 1997. Our stake in WIND initially
was 51%, with France Télécom and Deutsche Telekom holding 24.5% each. As a
result of Deutsche Telekoms exit at the end of July 2000, our stake increased
to 56.6% and France Télécoms share grew to 43.4%. Effective July 30, 2001, we contributed all the shares of Infostrada to
WIND, which resulted in an increase in our stake in WIND to 73.4%, while France
Télécoms stake decreased to 26.6%. On March 20, 2003 we signed an agreement to
become the sole shareholder in WIND by acquiring Wireless Services Belgium
SAs shares for total consideration of Euro 1,330 million. Closing of this
transaction is expected to occur in early July 2003.

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We did not consolidate WINDs results of operations in 2000 under Italian GAAP, as we accounted for WIND on
the equity method because of the existence of significant control restrictions
provided for by the shareholders agreement in place until July 2000. For U.S.
GAAP purposes only, we consolidated WINDs results beginning in August 2000
because of the elimination of certain restrictions on our control as a result
of a July 2000 amendment to the shareholders agreement following Deutsche
Telekoms exit from the venture. Since January 1, 2001, we have consolidated
WIND on a line-by-line basis under both Italian GAAP and U.S. GAAP. For the
purposes of comparing our 2001 results with those for 2000, we have prepared
certain unaudited selected financial data on a consolidated Italian GAAP basis
that estimate (i) what our results would have been for the period from January
1, 2000, through December 31, 2000, had we fully consolidated of WIND for that
period and (ii) what our results would have been for the period from April 1,
2000, through December 31, 2000, had we fully consolidated Infostrada during
that period.

Corporate. We consider Enel S.p.A., the parent company of the Enel Group,
as a separate reportable segment because it engages in limited fuel procurement
and electricity purchasing activities. We are reducing these activities as a
result of regulations governing the electricity sector and the reorganization
of our corporate structure in 2002. Effective January 1, 2001, title to
contracts for the acquisition of electricity from domestic producers that had
been held by Enel S.p.A. were transferred to the Gestore della Retepursuant to
new regulations. Consequently, in 2001 and 2002, corporate purchases of
electricity consisted only of electricity imports. Enel S.p.A. sells
electricity purchased from third parties to the Sales, Infrastructure and
Networks Division at prices established by the Energy Authority. Fuel purchase
contracts that had been held by Enel S.p.A. were gradually transferred to Enel
Trade, of our Generation and Energy Management Division, which transfer was
completed in the second half of 2002. Until 2001, Enel S.p.A. also sold
purchased fuel at cost to the Generation and Energy Management Division. Enel
S.p.A., as the parent company, defines the strategic objectives for the Enel
Group and coordinates the activities of these divisions. In addition, Enel
S.p.A. manages finance operations and insurance risk coverage for all Group
companies (in the case of finance operations, other than WIND) and provides
assistance and guidelines on organizational, industrial relations, accounting,
administrative, tax and legal issues.

Services and Other Activities.This division includes non-core business
operations, including Enelpower S.p.A., which provides power-related
engineering and contracting services; Enel Real Estate S.p.A., which provides
commercial real estate management services; and Enel.it S.p.A., our group-wide
information technology unit, our research and development activities and other
minor businesses.




Outlook

We expect that the ongoing liberalization of the Italian electricity
sector will materially affect our financial condition and results of operations
over the next several years. Factors likely to have the most significant
impact include:



| |  | The new tariff structure effective from January 1, 2000, and the
price-cap mechanism established by the Energy Authority;                                                                                                                                
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The introduction of the pool market (which is expected to become fully
operational at the beginning of 2004), which introduction will cause
our generation activities to be remunerated based on competitive
electricity prices rather than tariffs;     
| 
| |  | Our exposure to increased competition resulting from the construction
of new generation facilities by our competitors and the development of
new interconnection lines that would increase the volume of electricity that might be imported in Italy; and
| 
| |  | The profitability of our telecommunications business.                                                                                                                                                                                                    

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You should read Item 4.
Information on the CompanyBusinessThe Enel Group, Item 4. Information on
the CompanyRegulatory Matters and Item 3. Key InformationRisk Factors for
a more detailed discussion of these changes to our business.

We believe that in 2003 we will produce less electricity than in 2002, due
to the increase in production by independent power producers, our sale of
Eurogen and Interpower, and increased sales by importers. We also expect that
in 2003 our sales of electricity to Non-Eligible Customers will decrease due to
the ongoing liberalization of the market. However, we expect that the impact of
any such decrease will be offset to some extent by increased sales to Eligible
Customers through Enel Energia, as well as increased fees paid by third parties
for transport of power on our network.

We will seek to reduce our costs significantly over the next several years
in order to offset the impact of tariff reductions as well as to improve our
operating margins. We expect that declining personnel costs resulting from
headcount reductions, primarily due to attrition and early retirements, will be
a major source of these cost reductions. Our goal is to reduce our total
headcount by at least 8,600 between December 31, 2002 and the end of 2006,
equivalent to approximately 12% of our workforce of 71,204 persons at December
31, 2002. This estimate includes reductions resulting from the divestiture of
certain non-core subsidiaries, retirements of personnel and early retirements
spurred by incentives. In this regard, we have already reduced our total
number of employees by 25.4% between the end of 1996 and the end of 2002,
notwithstanding the increase of the number of employees in our
Telecommunications segment due to the consolidation of WIND and the acquisition
of Infostrada, which together accounted for 8,428 employees at December 31,
2001 and 8,602 employees at December 31, 2002. We also expect to reduce our
costs by reducing our fuel costs for thermal generation through the conversion
of generating capacity to combined cycle gas turbine technology and the
improvement of the fuel mix we use, and by adopting maintenance tailored to
reduce maintenance costs. Finally, we expect to achieve cost-reductions in our
domestic electricity distribution business by implementing a cost-cutting
program aimed at reducing procurement costs and by reducing investment and
maintenance costs associated with network management, principally by
centralizing procurement processes and improving these processes through
extensive use of e-business platforms.

In addition, following the introduction of the Single Buyer, we will sell
the electricity we produce to the Single Buyer, and purchase electricity back
from the Single Buyer in order to distribute it to our customers. As a result,
on a consolidated basis, our operating revenues and costs will both increase
because we will record revenues from sales to the Single Buyer and from sales
to end users of electricity and record costs relating to both the generation of
electricity and the purchase of electricity from the Single Buyer. We expect
that these increases in costs and revenues will largely offset each other, and
that these changes will therefore not have a significant effect on our
operating income.

As part of our required restructuring under the Bersani Decree:



| | We transferred to the Gestore della Rete: 614 employees, assets
with an aggregate book value of approximately Euro 60.4 million
(net of technical depreciation) and liabilities in an aggregate
amount of approximately Euro 40.8 million, all relating to our
transmission network. We transferred all of the shares of the
Gestore della Reteto the Treasury Ministry without charge on April
1, 2000. The results of the Gestore della Reteare therefore not
included in our consolidated results for 2000.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| | We transferred all of our discontinued nuclear operations to
So.g.i.n. S.p.A. and have transferred all of the shares of
So.g.i.n. to the Treasury Ministry free of charge. As a result,
So.g.i.n. is not included in our consolidated results for 2000.                                                                                                                                                                                                                                                       
| 
| | We sold all of the outstanding shares of Elettrogen (now called
Endesa Italia S.r.l.) for total final consideration of Euro 3,585
million, including Euro 2,687 million in cash and theassumption of Euro 898 million in debt on September 20, 2001. We sold all
of the outstanding                                                                                                                                                                                                                           

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| | shares of Eurogen (now part of Edipower S.p.A.) for total
final consideration of Euro 3,731 million, including Euro 2,980 million in
cash and the assumption of Euro 751 million in debt, on May 31, 2002. We
sold all of the outstanding
shares of Interpower (now called Tirreno Power
S.p.A.) for total consideration of Euro 853 million, including Euro 535
million in cash (this cash component, and therefore the total consideration,
may increase or decrease as a result of the application of the price
adjustment mechanism provided by the agreement) and the assumption of Euro
318 million in debt, on January 29, 2003.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

You should read Item 4. Information on the CompanyBusinessThe Enel
GroupGeneration and Energy ManagementDisposal of the Gencos for detail on
the Gencos and their disposal. Intercompany purchases and sales of energy
between the Gencos and the other members of the Enel Group have been based on
market prices since January 1, 2000. As separate legal entities, since their
formation in 1999, Elettrogen, Eurogen and Interpower have maintained
individual management, financial reporting and legal personnel and related
resources that simply were not needed when they were completely integrated with
the Enel Group. Most purchasing and procurement decisions for inputs other
than fuel, which had previously been made on a Group-wide or regional basis,
have been made by the Gencos individually. In addition, since their formation,
Elettrogen, Eurogen and Interpower have made their own production decisions on
the basis of instructions from the Gestore della Rete, with a concomitant
effect on their revenues. Moreover, we expect that the ongoing liberalization
of the Italian electricity market will only accentuate these differences in
future years. However, our operating profits will decline as a result of the
disposal of the Gencos unless we are able to offset the decrease in sales
volumes of our generation business in Italy through improved efficiencies,
diversification of our operations or international expansion. We continued to
fully include the results of the Gencos in our consolidated results until the
date of their disposal.

The proceeds we derive from any disposal of assets will increase our cash
flow and return on equity, thus offsetting to some extent the negative impact
on cash flow and operating results deriving from the liberalization of the
market.

Acquisition of Infostrada

On March 29, 2001, Enel Investment Holding BV, a Dutch company wholly
owned by us, acquired from Mannesman Investment BV (an indirect, wholly owned
subsidiary of Vodafone Group plc) 100% of the capital stock of Infostrada, one
of Italys leading alternative providers of fixed line telecommunications
services and the owner and operator of one of Italys leading Internet portals.
The purchase price for the shares, amounting to Euro 7,250 million, was paid
in full on the same date. As provided for in the share purchase agreement,
Mannesman Investment BV was also repaid by us Euro 132 million representing a
receivable against Infostrada that Mannesman Investment BV had previously
renounced in favor of Infostrada. Moreover, on the same date, Enel Investment
Holding BV paid Vodafone Euro 821.2 million due to Vodafone by Infostrada and
became a creditor of Infostrada for the same amount. In addition, in
connection with the acquisition, we incurred certain ancillary costs amounting
to approximately Euro 375 million.

We originally financed our acquisition of Infostrada with funds that we
obtained under a Euro 10,000 million revolving credit facility that we entered
into with a pool of banks in November 2000 and transferred to Enel Investment
Holding BV through an intercompany loan. In June 2001, Enel Investment Holding
BV refinanced a portion of this debt through the issuance of Euro 2,000 million
in medium term notes with a maturity of three years (see Liquidity and
Capital ResourcesCapital resources). We merged Infostrada into WIND
effective January 2002 and integrated the operations of Infostrada and Wind.

Our acquisition of Infostrada will continue to have a significant effect
on our results of operations and financial condition, primarily as a result of
the amortization of goodwill arising from the transaction and the debt incurred
in order to finance the acquisition. The purchase price of Euro

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7,250 million,
and the Euro 132 million paid to Mannesman Investment BV at the time of the
acquisition, are approximately Euro 7,256 million greater than the consolidated
net book value of Infostrada as of March 31, 2001, thus giving rise to an
equivalent amount of goodwill as of such date. In addition, in connection with
the acquisition, we incurred certain ancillary costs amounting to Euro 375
million, which increased the goodwill associated with our purchase of
Infostrada to Euro 7,631 million. Under Italian GAAP, we will have to amortize
this goodwill over a period of 15 years. At December 31, 2002, we had
amortized an aggregate of Euro 890 million of this goodwill. In 2002, we
wrote-down Euro 1,511 million in the value of this goodwill, reflecting
downward revision of expectations of growth of the telecommunications sector
and applying a discounted cash flows approach.

For further detail on the treatment of the goodwill associated with our
purchase of Infostrada, please see note 7 to our consolidated financial
statements for a discussion of treatment under Italian GAAP and note 23 to our
consolidated financial statements for a discussion of the difference in the
treatment of this goodwill under Italian GAAP and U.S. GAAP.




Results of Operations

The following table shows certain financial data for the years ended
December 31, 2000, 2001 and 2002, expressed in each case as a percentage of our
operating revenues:

|                                   |                               |  |                         |       |      |  |       |       |   |  |       |       |  
|---------------------------------- | ----------------------------- |  | ----------------------- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|                                   |                               |  | Year ended December 31,
|                                   |                               |  |                        
|                                   |                               |  | 2000                    |       | 2001 |  | 2002 
|                                   |                               |  |                         |       |      |  |      
|Operating revenues                 |                               |  | 100.0                   | %     |      |  | 100.0 | %     |   |  | 100.0 | %    
|Operating expenses                 |                               |  |                         |       |      |  |       |       |   |  |       |      
|                                   | Personnel                     |  |                         | (14.1 | )    |  |       | (12.9 | ) |  |       | (12.0 | )
|                                   | Fuel for thermal generation   |  |                         | (22.5 | )    |  |       | (18.2 | ) |  |       | (14.2 | )
|                                   | Purchased power               |  |                         | (17.4 | )    |  |       | (12.7 | ) |  |       | (16.0 | )
|                                   | Depreciation and amortization |  |                         | (13.8 | )    |  |       | (15.5 | ) |  |       | (14.9 | )
|                                   | Other operating expenses      |  |                         | (13.3 | )    |  |       | (28.6 | ) |  |       | (33.3 | )
|                                   |                               |  |                         |       |      |  |       |       |   |  |       |      
|Total                              |                               |  | (81.1                   | )     |      |  | (87.9 | )     |   |  | (90.4 | )    
|                                   |                               |  |                         |       |      |  |       |       |   |  |       |      
|                                   | Operating income              |  |                         | 18.9  |      |  |       | 12.1  |   |  |       | 9.6   |  
|Financial expense                  |                               |  | (2.6                    | )     |      |  | (3.9  | )     |   |  | (3.9  | )    
|Equity losses                      |                               |  | (1.8                    | )     |      |  | (0.3  | )     |   |  | (0.2  | )    
|Extraordinary income (expense)     |                               |  | 0.8                     |       |      |  | 8.1   |       |   |  | 2.4   |      
|                                   |                               |  |                         |       |      |  |       |       |   |  |       |      
|                                   | Income before taxes           |  |                         | 15.3  |      |  |       | 16.0  |   |  |       | 7.9   |  
|Income taxes                       |                               |  | (6.6                    | )     |      |  | (2.3  | )     |   |  | (2.0  | )    
|                                   |                               |  |                         |       |      |  |       |       |   |  |       |      
|Income (before minority interests) |                               |  | 8.7                     | %     |      |  | 13.7  | %     |   |  | 5.9   | %    
|                                   |                               |  |                         |       |      |  |       |       |   |  |       |      

In 2002, we changed the composition of our reportable segments (see
OverviewBusiness Segments). Accordingly, in order to present segment
information for the three years ended on December 31, 2002, 2001 and 2000,
respectively, on a comparable basis, we have restated the amounts relating to
reportable segments included in the consolidated financial statements for the
year ending on December 31, 2001, and December 31, 2000, to conform to the 2002
presentation of reportable segment information.

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2002 compared with 2001

Operating revenues

The following table shows the different sources of our operating revenues
for the years ended December 31, 2001 and 2002.

|                                |                                                                                         |                                                                                                               |          |                         |          |      |          |         |          | 
|------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | -------- | ----------------------- | -------- | ---- | -------- | ------- | -------- | 
|                                |                                                                                         |                                                                                                               |          | Year ended December 31,
|                                |                                                                                         |                                                                                                               |          |                        
|                                |                                                                                         |                                                                                                               |          | 2001                    |          | 2002
|                                |                                                                                         |                                                                                                               |          |                         |          |     
|                                |                                                                                         |                                                                                                               |          | (in millions of euro)  
|Electricity sales               |                                                                                         |                                                                                                               |          |                         |          |      |          |        
|                                |                                                                                         | Tariff revenues from sales to Non-Eligible Customers and transport
of electricity on our distribution network |          |                         |  18,807 |      |          |         |  16,244 | 
|                                |                                                                                         | Revenues from sales to Eligible Customers, sales to Gestore della
Reteand international operations            |          |                         | 2,516    |      |          |         | 3,964    | 
|Equalization Fund contributions |                                                                                         |                                                                                                               | 783      |                         |          |      | 187      |        
|Total                           |                                                                                         |                                                                                                               |  22,106 |                         |          |      |  20,395 |        
|                                |                                                                                         |                                                                                                               |          |                         |          |      |          |         |          | 
|Other revenues:                 |                                                                                         |                                                                                                               |          |                         |          |      |          |        
|                                | Telecommunications services                                                             |                                                                                                               |          |  2,817                 |          |      |          |  3,642 |         
|                                | Reimbursement of costs for customer connections, inspections and
repositioning services |                                                                                                               |          | 591                     |          |      |          | 645     |         
|                                | Other (1)                                                                               |                                                                                                               |          | 3,267                   |          |      |          | 5,295   |         
|Total other revenues            |                                                                                         |                                                                                                               | 6,675    |                         |          |      | 9,582    |        
|                                |                                                                                         |                                                                                                               |          |                         |          |      |          |         |          | 
|Total operating revenues        |                                                                                         |                                                                                                               |  28,781 |                         |          |      |  29,977 |        
|                                |                                                                                         |                                                                                                               |          |                         |          |      |          |         |          | 



---

|(1)     Other mainly includes revenues from our engineering and contracting, gas
distribution, fuel trading, public and art lighting, franchising, and research
and development operations other than reimbursements and sales of materials.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our consolidated operating revenues for 2002 increased by Euro 1,196
million, or 4.2%, compared to 2001. The increase was primarily due to an
increase of Euro 2,907 million, or 43.6%, in other revenues. This factor was
partially offset by a Euro 1,711 million decrease in revenues from electricity
sales and Equalization Fund contributions.

In 2002, our revenues from electricity sales and Equalization Fund
contributions decreased by Euro 1,711 million, or 7.7%, as compared to 2001.
The decline was primarily due to a decrease of Euro 2,563 million, or 13.6%, in
tariff revenues from sales to Non-Eligible Customers and transport of
electricity on our distribution network, which reflected a 8.4% decline in the
total volume of electricity sold and a 16.4% decline in the tariff component
aimed at covering thermal fuel costs. This decline was only partially offset
by a 22.4% increase in the volume of electricity for the domestic free market
transported on our distribution network. The decline in revenues from
electricity sales and Equalization Fund contributions was also attributable to
a decrease of Euro 596 million, or 76.1%, in Equalization Fund contributions
that reflected mainly the abolition, effective January 1, 2002, of the Euro
0.0031 per kWh tariff component for generation of electricity to be sold to
Non-Eligible Customers.

The decline in tariff revenues from sales to Non-Eligible Customers and
transport of electricity on our distribution network and in Equalization Fund
contributions was only partially offset by an increase in revenues from sales
to Eligible Customers, sales to Gestore della Reteand international
operations. In 2002, such revenues increased by Euro 1,448 million, or 57.6%,
of which Euro 804 million were attributable to the first time consolidation of
Viesgo, Euro 400 million were attributable to increased sales to other
operators (in Italy) and the Gestore della Rete,Euro 121
million were attributable to revenues from electricity trading, and Euro
64 million were attributable to

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revenues resulting from our activities to hedge
risks related to the changes in the tariff component aimed at covering fuel
costs.

In 2002, total other revenues increased by Euro 2,907 million, or 43.6%.
This increase was due to an increase in revenues from businesses other than
electricity and telecommunications, which rose by Euro 2,028 million, or 62.1%,
an increase in revenues from telecommunications services, which rose by Euro
825 million, or 29.3%, and an increase in revenues from reimbursements of our
costs for customer connections, inspections and repositioning services, which
rose by Euro 54 million, or 9.1%. The increase in revenues from businesses
other than electricity and telecommunications was attributable to revenues from
fuel trading activities, which rose by Euro 796 million, natural gas
distribution and sales, which rose by Euro 569 million, engineering and
contracting, which rose by Euro 466 million, minor activities (information
technology, real estate, public and art lighting, etc.) which increased by
approximately Euro 90 million, and electricity transmission activities, which
rose by Euro 21 million.

The following table shows our operating revenues for each of our business
segments for the periods presented.

|                                   |       |  |                         |         |      |  |         |         | 
|---------------------------------- | ----- |  | ----------------------- | ------- | ---- |  | ------- | ------- | 
|                                   |       |  | Year ended December 31,
|                                   |       |  |                        
|                                   |       |  | 2001                    |         | 2002
|                                   |       |  |                         |         |     
|                                   |       |  | (in millions of euro ) 
|Generation and Energy Management   |       |  | 12,631                 |         |      |  | 11,777 |        
|Sales, Infrastructure and Networks |       |  | 22,206                  |         |      |  | 20,586  |        
|Transmission                       |       |  | 793                     |         |      |  | 828     |        
|Telecommunications                 |       |  | 3,176                   |         |      |  | 3,921   |        
|Corporate                          |       |  | 3,980                   |         |      |  | 1,973   |        
|Services and Other Activities      |       |  | 2,321                   |         |      |  | 2,874   |        
|Eliminations                       |       |  | (16,326                 | )       |      |  | (11,982 | )      
|                                   |       |  |                         |         |      |  |         |        
|                                   | Total |  |                         | 28,781 |      |  |         | 29,977 | 
|                                   |       |  |                         |         |      |  |         |        

Generation and Energy Management.In 2002, operating revenues of our
Generation and Energy Management segment, prior to eliminations, decreased by
Euro 854 million, or 6.8%, as compared to 2001. The decrease was primarily
attributable to changes in the scope of consolidation (mainly related to the
deconsolidation of Elettrogen, Valgen and Eurogen), which we estimate had a
negative impact on the total of approximately Euro 1,600 million. The decrease
also reflected a 16.4% decline in the tariff component aimed at covering fuel
costs and the abolition of the Euro 0.0031 per kWh tariff component for
generation of electricity to be sold on the regulated market. We estimate that
the negative effect of these two factors on the revenues of this segment for
2002 resulted in a decrease of approximately Euro 1,300 million. The negative
impact of these factors on the revenues of our Generation and Energy Management
segment was partially offset by an increase of approximately Euro 700 million
in revenues from sales of fuel, primarily due to the sale of fuel to Elettrogen
and Eurogen, and an increase of approximately Euro 500 million in revenues from
sales of natural gas to the Sales, Infrastructure and Networks segment. The
total also reflected an increase of Euro 30 million in revenues from sales made
in the U.S. market. Finally, the revenues of our Generation and Energy
Management segment reflected the first time consolidation of Viesgo, which had
Euro 825 million in revenues in 2002.

Sales, Infrastructure and Networks.In 2002, operating revenues of our
Sales, Infrastructure and Networks segment, prior to eliminations, decreased by
Euro 1,620 million, or 7.3%, as compared to 2001. The decrease was primarily
due to a Euro 2,251 million or 10.3%, decrease in revenues from the electricity
operations of this segment, which decrease was only partially offset by an
increase of Euro 631 million, or 144.1%, in revenues from the distribution and
sales of natural gas that reflected
the acquisition and first time consolidation of Camuzzi Gazometri. The
decrease in revenues from electricity operations was attributable primarily to
lower revenues from sales on the domestic regulated market and transport of
electricity on our distribution network, which revenues decreased by

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Euro 2,563 million, or 13.6%. The decrease reflected an 8.4% decline in the volume of
electricity sold (reflecting lower sales to Non-Eligible Customers and the
disposal of certain municipal distribution networks), and a 16.4% decline in
the tariff component aimed at covering thermal fuel costs. The decrease in
revenues from sales on the domestic regulated market and transport of
electricity on our distribution network was only partially offset by a Euro 121
million increase in revenues from trading of electricity on international
markets and a Euro 67 million increase in revenues from connection fees,
franchising, and public and art lighting activities. Our 2002 revenues from
electricity operations also included Euro 85 million attributable to transport
fees for electricity transported in the previous year that the Gestore della
Reteattributed to us in 2002.

Transmission.In 2002, operating revenues of our Transmission segment,
prior to eliminations, increased by Euro 35 million, or 4.4%, as compared to
2001, due to a Euro 21 million increase in revenues attributable to higher
tariffs, and a Euro 14 million increase in revenues from fees for maintenance
services related to the high-voltage lines owned by Enel Distribuzione.

Telecommunications.In 2002, operating revenues of our Telecommunications
segment, prior to eliminations, increased by Euro 745 million, or 23.5%, as
compared to 2001, of which Euro 464 million was due to increased traffic on our
network. Also, we estimate that approximately Euro 280 million of the increase
was attributable to the inclusion of a full years results of the former
Infostrada operations following their merger into WIND. In 2001, these
operations had only been consolidated for the last nine months of the year.

Corporate.In 2002, operating revenues of our Corporate segment, prior to
eliminations, decreased by Euro 2,007 million, or 50.4%, as compared to 2001,
of which Euro 1,687 million was attributable to the transfer of agreements for
the purchase of fuel to Enel Trade and Euro 153 million was attributable to the
lower price at which imported electricity was sold to Enel Distribuzione.

Services and Other Activities.In 2002, operating revenues in our Services
and Other Activities segment, prior to eliminations, increased by Euro 553
million, or 23.8%, as compared to 2001, primarily due to an increase of Euro
520 million in revenues from engineering and contracting that was attributable
to increased activities with third parties (Euro 450 million) and with
companies of our group (Euro 70 million). The increase was also due to a Euro
71 million increase in revenues from our information technology activities,
primarily in connection with the implementation of a SAP information management
system. The positive impact of these factors was partially offset by a Euro 68
million decrease in revenues from our real estate business attributable to
reduced activities. Of the segments total of Euro 2,874 million in operating
revenues, Euro 1,621 million was attributable to engineering and contracting,
Euro 523 million to information technology services, and Euro 491 million to
real estate and related services. Approximately 55% of such revenues were
generated by transactions carried out with companies of the Group.

Eliminations.Eliminations in operating revenues primarily relate to
intersegment sales (primarily of fuel and electricity) and services (primarily
engineering and contracting). In 2002, these eliminations decreased by Euro
4,344 million, or 26.6%, as compared to 2001, mainly reflecting the transfer of
the agreements for the purchase of fuel from our Corporate segment to our
Generation and Energy Management segment and the decline in the tariff
component aimed at covering thermal fuel costs, which decline resulted in lower
revenues from sales from our Generation and Energy Management segment to our
Sales, Infrastructure and Networks segment.

Operating expenses

The following table shows a breakdown of our operating expenses for each
of the periods presented:
103Table of Contents

|                            |       |                        |        |                         |       |      |        |          |        |  
|--------------------------- | ----- | ---------------------- | ------ | ----------------------- | ----- | ---- | ------ | -------- | ------ | -
|                            |       |                        |        | Year ended December 31,
|                            |       |                        |        |                        
|                            |       |                        |        | 2001                    |       | 2002
|                            |       |                        |        |                         |       |     
|                            |       |                        |        | (in millions of euro)  
|Operating expenses:         |       |                        |        |                         |       |      |        |         
|Personnel                   |       |                        | 3,722 |                         |       |      | 3,589 |         
|Fuel for thermal generation |       |                        | 5,249  |                         |       |      | 4,255  |         
|Purchased power             |       |                        | 3,649  |                         |       |      | 4,802  |         
|Other operating expenses:   |       |                        |        |                         |       |      |        |         
|                            |       | Services and rentals   |        |                         | 5,633 |      |        |          | 5,710  |  
|                            |       | Materials and supplies |        |                         | 2,349 |      |        |          | 4,212  |  
|                            |       | Provisions             |        |                         | 599   |      |        |          | 504    |  
|                            |       | Other                  |        |                         | 577   |      |        |          | 721    |  
|                            |       | Capitalized expenses   |        |                         | (934  | )    |        |          | (1,173 | )
|                            |       |                        |        |                         |       |      |        |         
|                            | Total |                        |        |  20,844                |       |      |        |  22,620 |       
|                            |       |                        |        |                         |       |      |        |         

Our consolidated operating expenses for 2002 increased by Euro 1,776
million, or 8.5%, as compared to 2001. Expressed as a percentage of operating
revenues, operating expenses increased from 72.4% in 2001 to 75.5% in 2002.
The increase in our operating expenses was mostly due to a Euro 1,863 million
increase in expenses for material and supplies (of which Euro 1,232 million was
attributable to increased purchase costs for natural gas and fuels for
distribution and trading activities, and Euro 631 million to increased costs
for materials for our engineering and contracting activities and for other
construction performed by our Sales, Infrastructure and Networks segment), and
a Euro 1,153 million increase due to higher volumes of purchased power. The
negative effects of these factors were only partially offset by a Euro 994
million decrease in costs for fuel for thermal generation reflecting the
deconsolidation of Elettrogen and Eurogen, and by a Euro 239 million increase
in capitalized expenses.

Personnel costs decreased by Euro 133 million, or 3.6%, as compared to
2001, primarily due to a 6.8% decline in the average number of employees. The
decline in headcount was mainly due to early retirements spurred by incentives
and, to a lesser extent, reflected the deconsolidation of Elettrogen and
Eurogen. These factors were partially offset by a 3.7% increase in the average
cost per employee mainly attributable to increased compensation introduced by
the new collective agreement for the electricity industry.

Costs for fuel for thermal generation in 2002 decreased by Euro 994
million, or 18.9%, as compared to 2001, primarily due to a decrease of 13.7% in
the volume of electricity produced from thermal sources, reflecting the
deconsolidation of Elettrogen and Eurogen. The decrease in costs for fuel for
thermal generation was also attributable to the decline of market prices for
coal and natural gas and to the depreciation of the U.S. dollar (the currency
in which most of our fuel purchases are denominated) against the euro. These
factors were only partially offset by an additional Euro 184 million of costs
for fuel for thermal generation attributable to the first time consolidation of
Viesgo.

Purchased power costs in 2002 increased by Euro 1,153 million, or 31.6%,
as compared to 2001, reflecting a 21.2% increase in volumes purchased,
primarily due to purchases made by our Sales, Infrastructure and Networks
segment from Elettrogen and Eurogen after their disposal and by Viesgo in the
Spanish electricity pool market. The increase in average purchase cost per
unit is attributable to a decline of the percentage of total power purchased
represented by the power purchased abroad (where prices are usually lower than
in Italy).

Services and rentals costs in 2002 increased by Euro 77 million, or 1.4%
as compared to 2001, primarily due to a Euro 252 million increase in costs for
services with respect to our increased engineering and contracting activities,
and a Euro 243 million increase reflecting the inclusion of a full years
results of the former Infostrada operations following their merger into WIND.
The increase in services and rentals costs also reflected an aggregate Euro 62
million increase attributable to the first time consolidation of Viesgo and
Camuzzi Gazometri, a Euro 35 million increase in charges paid

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to the Gestore della Retewith respect to increased fees to access the network, a Euro 16
million increase in fees paid for the use of water to local authorities, and an
aggregate increase of Euro 16 million attributable to increased costs for
several other services. These factors were partially offset by a Euro 253
million decrease in the surcharge paid to the Gestore della Retewith respect
to the generation of hydroelectric or geothermal electricity as a result of a
21.8% decline in hydroelectric production and a 16.4% decline in the tariff
component aimed at covering thermal fuel costs on the basis of which the
surcharge is calculated, by a Euro 164 million decrease attributable to the
deconsolidation of Elettrogen, Eurogen and Valgen, and by an approximately Euro
130 million decrease reflecting lower costs for interconnection and roaming in
our telecommunications activities.

Materials and supplies costs in 2002 increased by Euro 1,863 million, or
79.3% , as compared to 2001, primarily due to a Euro 804 million increase in
costs for supplies of fuel for trading activities mainly attributable to fuel
purchased for resale to Elettrogen and Eurogen after their disposal, a Euro 631
million increase in costs for materials for our engineering and contracting
activities, and a Euro 428 million increase in costs for supplies of natural
gas mainly attributable to the first time consolidation of Camuzzi Gazometri.

Provisions in 2002 decreased by Euro 95 million, or 15.9%, as compared to
2001. The overall reduction reflected decreases of Euro 59 million in
write-downs of fixed-assets and receivables recorded by our Telecommunications
segment, and Euro 36 million in other provisions for risks and charges.

Other costs in 2002 increased by Euro 144 million, or 25.0%, as compared
to 2001, primarily due to a Euro 195 million increase in costs for the purchase
of green certificates. Please refer to Item 4. Information on the
CompanyRegulatory MattersElectricity RegulationRegulatory
frameworkPromotion of renewable resources. Such increase was only partially
offset by a Euro 44 million decrease in contributions paid by WIND with respect
to telecommunications concessions.

Capitalized expenses in 2002 increased by Euro 239 million, or 25.6%, as
compared to 2001, primarily reflecting capital improvements of our plants,
equipment and electricity distribution networks.

The following table shows a breakdown of our operating expenses by
business segment for each of the periods presented.

|                                   |  |                         |          |      |  |  |          |  
|---------------------------------- |  | ----------------------- | -------- | ---- |  |  | -------- | -
|                                   |  | Year ended December 31,
|                                   |  |                        
|                                   |  | 2001                    |          | 2002
|                                   |  |                         |          |     
|                                   |  | (in millions of euro)  
|Generation and Energy Management   |  |                         |  8,698  |      |  |  |  8,994  |  
|Sales, Infrastructure and Networks |  |                         | 19,100   |      |  |  | 17,269   |  
|Transmission                       |  |                         | 324      |      |  |  | 310      |  
|Telecommunications                 |  |                         | 3,345    |      |  |  | 3,444    |  
|Corporate                          |  |                         | 3,642    |      |  |  | 1,805    |  
|Services and Other Activities      |  |                         | 1,976    |      |  |  | 2,726    |  
|Eliminations                       |  |                         | (16,241  | )    |  |  | (11,928  | )
|                                   |  |                         |          |      |  |  |          |  
|Total                              |  |                         |  20,844 |      |  |  |  22,620 |  
|                                   |  |                         |          |      |  |  |          |  

Generation and Energy Management.In 2002, operating expenses for our
Generation and Energy Management segment (which primarily consist of fuel
costs, fees paid to the Gestore della Rete,and personnel and maintenance costs
for our power plants), prior to eliminations, increased by Euro 296 million, or
3.4%, as compared to 2001. This increase was primarily due to an aggregate
increase of Euro 1,200 million in costs for purchases of fuel for our trading
activities (including the resale of fuel to Elettrogen and Eurogen) and of
natural gas for resale to our Sales, Infrastructure and Network segment. The
increase also reflected Euro 640 million in costs attributable to the first
time consolidation of Viesgo, a Euro 164 million increase in costs for this
segments purchase of green

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certificates, a Euro 35 million increase in charges
paid to the Gestore della Reteand a Euro 16 million increase in fees for the
use of water. These factors were partially offset by the deconsolidation of
Elettrogen, Valgen and Eurogen, which we estimate resulted in a reduction in
costs of approximately Euro 1,170 million, a Euro 293 million decrease in costs
for fuel for thermal generation, a Euro 253 million decrease in costs for
hydroelectric surcharge and a Euro 65 million decrease in costs for personnel.

Sales, Infrastructure and Networks.In 2002, operating expenses for our
Sales, Infrastructure and Networks segment (which primarily consist of
purchases of power and natural gas and costs associated with running our
distribution network), prior to eliminations, decreased by Euro 1,831 million,
or 9.6%, as compared to 2001. This decrease was primarily due to a Euro 2,317
million decrease in costs for purchased power, reflecting a 8.4% decline in
volumes of electricity sold on the domestic regulated market and the reduction
in the fuel cost component of the tariff paid to purchase electricity. The
decrease was also due to a Euro 134 million decrease in costs for personnel
employed in the domestic electricity activities. These factors were partially
offset by the first time consolidation of Camuzzi Gazometri, which we estimate
accounted for an increase in costs of approximately Euro 554 million (of which
Euro 428 million related to costs for purchases of gas), an increase of Euro 50
million in expenses in our franchising and public and art lighting activities
and an increase of Euro 27 million in accruals for provisions for risks and
charges.

Transmission.In 2002, operating expenses for our Transmission segment,
prior to eliminations, decreased by Euro 14 million, or 4.3%, as compared to
2001, primarily due to lower costs for services.

Telecommunications.In 2002, operating expenses for our
Telecommunications segment, prior to eliminations, increased by Euro 99
million, or 3.0%, as compared to 2001. We estimate that an increase of
approximately Euro 291 million (of which Euro 243 million relates to costs for
services) was attributable to the inclusion of a full years results of the
former Infostrada operations following their merger into WIND. The overall
increase was also due to a Euro 45 million increase in interconnection costs
due to increased traffic volumes. These factors were partially offset by a
Euro 175 million decrease in roaming costs due to the development of our mobile
telecommunication network, which reduced our need to access to other operators
networks, and a Euro 59 million decrease reflecting lower write-downs of
tangible assets and trade receivables in 2002.

Corporate.In 2002, operating expenses for our Corporate segment, prior
to eliminations, decreased by Euro 1,837 million, or 50.4%, as compared to
2001, primarily due to a Euro 1,689 million decrease in costs for purchases of
fuel resulting from the transfer of the agreements for the purchase of fuel to
Enel Trade. The overall decrease also reflected a Euro 53 million decrease in
accruals for pension benefits to our retired managers, and a Euro 50 million
decrease in costs for services.

Services and Other Activities.In 2002, operating expenses in our
Services and Other Activities segment, prior to eliminations, increased by Euro
750 million, or 38.0%, as compared to 2001, primarily due to a Euro 763 million
increase in costs in our engineering and contracting operations, reflecting an
increased level of activity, and a Euro 85 million increase in expenses in our
information technology service business in connection with the implementation
of a SAP information
management system. These factors were only partially offset by an
approximately Euro 100 million decrease in costs for our real estate business
reflecting a reduced level of activity.

Eliminations.Eliminations for operating expenses principally consist of
the elimination of intersegment electricity and fuel purchases and costs for
the provision of intersegment services. In 2002, the decrease of Euro 4,313
million, or 26.6%, was in line with the corresponding amount relating to
operating revenues.

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Depreciation and amortization

The following table shows depreciation and amortization for each of our
business segments for each of the periods presented:

|                                   |  |                         |         |      |  |  |         | 
|---------------------------------- |  | ----------------------- | ------- | ---- |  |  | ------- | 
|                                   |  | Year ended December 31,
|                                   |  |                        
|                                   |  | 2001                    |         | 2002
|                                   |  |                         |         |     
|                                   |  | (in millions of euro)  
|Generation and Energy Management   |  |                         |  1,363 |      |  |  |  1,315 | 
|Sales, Infrastructure and Networks |  |                         | 1,580   |      |  |  | 1,217   | 
|Transmission                       |  |                         | 240     |      |  |  | 247     | 
|Telecommunications                 |  |                         | 1,068   |      |  |  | 1,496   | 
|Corporate                          |  |                         | 2       |      |  |  | 4       | 
|Services and Other Activities      |  |                         | 206     |      |  |  | 198     | 
|                                   |  |                         |         |      |  |  |         | 
|Total                              |  |                         |  4,459 |      |  |  |  4,477 | 
|                                   |  |                         |         |      |  |  |         | 

Depreciation and amortization for 2002 increased by Euro 18 million, or
0.4%, as compared to 2001, mainly as a result of a Euro 428 million increase in
our Telecommunications segment that was partially offset by a Euro 363 million
decrease in our Sales, Infrastructure and Networks segment and a Euro 48
million decrease in our Generation and Energy Management segment.

Depreciation and amortization for our Generation and Energy Management
segment decreased by Euro 48 million, or 3.5%, as a result of the
deconsolidation of Elettrogen, Valgen and Eurogen, which we estimate resulted
in a decrease of Euro 179 million, partially offset by an increase of Euro 122
million attributable to the first time consolidation of Viesgo. Depreciation
and amortization for our Sales, Infrastructure and Networks segment decreased
by Euro 363 million, or 23.0%, primarily due to a Euro 407 million decrease
mainly attributable to the fact that, until December 31, 2001, connection fees
paid by Non-Eligible Customers were recorded as revenues as well as being
partially reflected in an increase of the depreciation of capital investments
on the distribution network. As a result of the state of completion attained
by our distribution network, starting from 2002, connection fees are no longer
deemed to be associated with the development of such network and are no longer reflected in the
depreciation of capital investments, but rather are included in revenues as connections are made. This factor was partially offset by a
Euro 44 million increase in depreciation and amortization for the gas
activities as a result of the first time consolidation of Camuzzi Gazometri.
Depreciation and amortization for our Telecommunications segment increased by
Euro 428 million, or 40.1%, as compared to 2001, reflecting a Euro 244 million
decrease in depreciation related to capital expenditures for the development of
our telecommunications network. Also, we estimate that the inclusion of a full
years results of the former Infostrada operations following their merger into
WIND, was responsible for an increase in depreciation and amortization of
approximately Euro 184 million, of which Euro 127 million represented the
amortization of the goodwill associated with the acquisition of Infostrada.

Operating income

The following table shows operating income for each of our business
segments for the periods presented:

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|                                   |  |                         |         |      |  |  |         |  
|---------------------------------- |  | ----------------------- | ------- | ---- |  |  | ------- | -
|                                   |  | Year ended December 31,
|                                   |  |                        
|                                   |  | 2001                    |         | 2002
|                                   |  |                         |         |     
|                                   |  | (in millions of euro)  
|Generation and Energy Management   |  |                         |  2,570 |      |  |  |  1,468 |  
|Sales, Infrastructure and Networks |  |                         | 1,526   |      |  |  | 2,100   |  
|Transmission                       |  |                         | 229     |      |  |  | 271     |  
|Telecommunications                 |  |                         | (1,237  | )    |  |  | (1,019  | )
|Corporate                          |  |                         | 336     |      |  |  | 164     |  
|Services and Other Activities      |  |                         | 128     |      |  |  | (50     | )
|Eliminations                       |  |                         | (74     | )    |  |  | (54     | )
|                                   |  |                         |         |      |  |  |         |  
|Total                              |  |                         |  3,478 |      |  |  |  2,880 |  
|                                   |  |                         |         |      |  |  |         |  

Operating income decreased by Euro 598 million, or 17.2%, as compared to
2001, primarily due to a Euro 1,102 million decrease in income in our
Generation and Energy Management segment. The overall decrease also reflected
a Euro 178 million decrease in income in the Services and Other Activities
segment and a Euro 172 million decrease in income in the Corporate segment.
These factors were only partially offset by a Euro 574 million increase in
income in Sales, Infrastructure and Networks, a Euro 218 million increase in
income in our Telecommunications segment, and a Euro 42 million increase in
income in our Transmission segment.

Generation and Energy Management.In 2002, operating income of our
Generation and Energy Management segment, prior to eliminations, decreased by
Euro 1,102 million, or 42.9%, as compared to 2001. This decrease was due to a
Euro 931 million decrease in operating income earned from the sale of
electricity that reflected lower tariffs, a 21.8% decline in hydroelectric
production, and increased costs for the purchase of green certificates. This
decrease also reflected the deconsolidation of Elettrogen, Eurogen and Valgen,
which we estimate resulted in a decrease of approximately Euro 256 million.
These factors were only partially offset by a Euro 85 million increase in
operating income attributable to the first time consolidation of Viesgo.

Sales, Infrastructure and Networks.In 2002, operating income of our
Sales, Infrastructure and Networks segment, prior to eliminations, increased by
Euro 574 million, or 37.6%, as compared to 2001. This increase was mainly due
to lower depreciation and amortization of Euro 363 million, a Euro 178 million
increase in operating income earned from sales and distribution of electricity,
and a Euro 33 million increase due to the first time consolidation of Camuzzi
Gazometri.

Transmission.In 2002, operating income of our Transmission segment,
prior to eliminations, increased by Euro 42 million, or 18.3%, as compared to
2001, primarily due to higher tariff and fee revenues.

Telecommunications.In 2002, the operating loss of our Telecommunications
segment, prior to eliminations, decreased by Euro 218 million, or 17.6%, as
compared to 2001, reflecting a higher volume of activity. An increase in
revenues reduced the operating loss of the sectors core operations by Euro 424
million, though the effect of this on the total was partially offset by the
effect of the inclusion of a full years results of the former Infostrada
operations following their merger into WIND, which we estimate increased the
segments operating losses by approximately Euro 206 million.

Corporate.In 2002, operating income of our Corporate segment, prior to
eliminations, decreased by Euro 172 million, or 51.2%, as compared to 2001,
mainly due to the decline in the price at which this segment sold imported
electricity to our Sales, Infrastructure and Networks segment.

Services and Other Activities.In 2002, the operating loss of our
Services and Other Activities segment, prior to eliminations, was Euro 50
million, as compared to operating income of Euro 128 million in 2001. This
decrease was primarily due to a Euro 243 million decrease in operating income
from our engineering and contracting business attributable to losses incurred
with respect to certain international operations. This factor was partially
offset by a Euro 73 million increase in operating income from our real estate
and related services business.

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Eliminations.Eliminations for
operating income mainly related to income from our engineering and contracting
activities resulting from transactions with companies in our Generation and
Energy Management segment. In 2002, the decrease of Euro 20 million, or 27.0%,
was due to lower income from these activities.

Financial expense

Net financial expense increased by Euro 68 million, or 6.1%, from Euro
1,110 million in 2001 to Euro 1,178 million in 2002, primarily due to an
increase in our average net financial debt from Euro 20,743 million in 2001 to
Euro 23,386 million in 2002. The total increase in our average net financial
debt reflected primarily our capital expenditures in 2002 and the financing of
our acquisition of Viesgo and Camuzzi Gazometri, which increased our financial
debt, and the use of some of the proceeds from our divestiture of Eurogen for
repayments, which reduced our financial debt.

Equity losses

The Euro 59 million charge recorded in 2002 consisted primarily of
write-downs in the value of investments in other companies, of which Euro 24
million related to our holdings in Echelon Corporation and Euro 31 million to
venture-capital investments. The decrease of Euro 26 million in the total
charge as compared to 2001 reflected mainly a reduction in the amount of such
write-downs, as compared to 2001.

Extraordinary income (expense)

We recorded net extraordinary income of Euro 736 million in 2002, as
compared to Euro 2,318 million in 2001.

Extraordinary income for 2002 principally consisted of:



| |  |  | A capital gain on the disposal of Eurogen of Euro 2,313 million;                                                                                                                                                                                  
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Capital gains on the disposal of the distribution networks in
the municipalities of Milan and Verona totaling Euro 459 million;                                                                                                                   
|
| |  |  | Adjustments in income taxes with respect to previous years
for a total of Euro 64 million, resulting primarily from the
re-calculation of the rates applicable to capital gains related to
the sale of certain assets of our real estate business;
|
| |  |  | Adjustments in interconnection fees and other items relating
to our Telecommunications segment, totaling Euro 46 million;                                                                                                                         
|
| |  |  | Adjustments and extraordinary gains attributable to the
reimbursement of certain regulatory charges paid in prior years,
which were recorded by Viesgo and totaled Euro 34 million;                                                               

This extraordinary income was partially offset by extraordinary expenses
that principally consisted of



| |  |  | A write-down of Euro 1,511 million in the value of goodwill
relating to our Telecommunications segment, reflecting a
reassessment of the value of our telecommunications business;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Charges connected with early retirement incentives totaling Euro 291 million;                                                                                                     
|
| |  |  | A write-down of Euro 94 million in the value of a discontinued geothermal plant;                                                                                                  
|
| |  |  | Adjustments, write-downs and other items relating to our
Telecommunications segment, totaling Euro 92 million;                                                                    

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| |  |  | A write-down of Euro 58 million in the value of generation
plants with respect to the decommissioning of such plants in view of
their conversion to combined-cycle gas turbine technology;                                               
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A write-down of Euro 49 million in the value of parts of
plants in connection with engineering and contracting projects in
South America that are no longer expected to be realized due to the
adverse economic conditions in the region.
|
| |  |  | An adjustment of Euro 41 million in the capitalized cost for
extraordinary contributions due following the suppression of the
Electricity Sector Employee Pension Fund, as a result of reductions
in personnel;                          
|
| |  |  | Adjustments and accruals recorded by Viesgo totaling Euro 39
million.                                                                                                                                                                    

You should read note 23 to our consolidated financial statements for a
discussion of the different criteria used under Italian GAAP and U.S. GAAP for
determining what constitutes an extraordinary item.

Income taxes

The following table shows a breakdown of our income taxes for the periods
indicated.

|                                                                                            |       |   |                         |     |      |   |      |     | 
|------------------------------------------------------------------------------------------- | ----- | - | ----------------------- | --- | ---- | - | ---- | --- | 
|                                                                                            |       |   | Year ended December 31,
|                                                                                            |       |   |                        
|                                                                                            |       |   | 2001                    |     | 2002
|                                                                                            |       |   |                         |     |     
|                                                                                            |       |   | (in millions of euro)  
|Income taxes:                                                                               |       |   |                         |     |      |   |      |    
|Current and deferred taxes                                                                  |       |  | 1,338                   |     |      |  | 881  |    
|Release of deferred tax
provision following freeing-up
of accelerated depreciation
reserves |       |   | (603                    | )   |      |   | (60  | )  
|Tax incentives on capital
expenditure (Tremonti-bis Law)                                    |       |   | (86                     | )   |      |   | (213 | )  
|                                                                                            | Total |   |                        | 649 |      |   |     | 608 | 
|                                                                                            |       |   |                         |     |      |   |      |    

The total tax charge for 2002 was Euro 608 million, which was Euro 41
million, or 6.3%, lower than the charge for 2001. The decrease reflected
primarily a Euro 457 million decrease in current and deferred taxes due to the
decrease in income.

The decrease was also attributable to the positive impact of the tax
incentive regime applicable to capital investments made in 2001 and 2002.
Pursuant to this regime, net capital investments made in excess of the amount
corresponding to the average amount of such investments made in prior years
were partially deductible from taxable income. In 2002, the benefit resulting
from this incentive increased by Euro 127 million as compared to 2001. The
decrease in total tax charges also reflected a Euro 60 million release, in
2002, of the provision for deferred taxes accrued at December 31, 2001.
Italian tax law enables companies to apply an asset depreciation regime
different from the one applicable for accounting purposes. Companies are
entitled to accelerate the tax depreciation of assets insofar as they create
two special reserves. Whereas one reserve must account for the accelerated
depreciation, the other reserve accounts for the deferred taxes (calculated by
applying the standard corporate tax rate) which will be due on the portion of
depreciation resulting from the financial statements, but already deducted for
tax purposes in prior periods, once the accelerated depreciation period is
over. The Italian Budget Law for 2003 reconfirmed a regime (already available
in 2002 with respect to the 2001 tax period) whereby companies had the option
to release reserves for accelerated depreciation by paying immediately a tax
of 19% in lieu of the tax accrued in the deferred taxes reserve at the standard
corporate tax rate. As a result of such release, the provisions for deferred
taxes were reduced for an amount corresponding to the difference between the

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standard corporate tax and the 19% substitute tax levied on the portion of the
accelerated depreciation reserves released.

In 2002, our tax rate applicable to ordinary income, net of the effects of
the extraordinary items, was equal to approximately 47%, relatively unchanged
as compared to 2001.

Net income

Net income decreased by Euro 2,218 million, or 52.5%, from Euro 4,226
million in 2001 to Euro 2,008 million in 2002. This decrease was primarily due
to a Euro 1,582 million decline in net extraordinary income reflecting a
write-down of Euro 1,511 million in the value of goodwill relating to our
Telecommunications segment, and a Euro 598 million decrease in operating
income.

2001 compared with 2000

Operating revenues

The following table shows the different sources of our operating revenues
for the years ended December 31, 2000 and 2001.

|                                     |                                                                                                               |   |        |                         |  |      |        |        |  | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------- | - | ------ | ----------------------- |  | ---- | ------ | ------ |  | 
|                                     |                                                                                                               |   |        | Year ended December 31,
|                                     |                                                                                                               |   |        |                        
|                                     |                                                                                                               |   |        | 2000                    |  | 2001
|                                     |                                                                                                               |   |        |                         |  |     
|                                     |                                                                                                               |   |        | (in millions of euro)  
|Electricity sales                    |                                                                                                               |   |        |                         |  |      |        |       
|                                     | Tariff revenues from sales to Non-Eligible
Customers and transport of electricity on our
distribution network |   |       | 11,683                  |  |      |       | 18,807 | 
|                                     | Revenues from Sales to Eligible Customers, sales
to Gestore della Reteand international operations            |   |        | 1,298                   |  |      |        | 2,516  | 
|Equalization Fund contributions for: |                                                                                                               |   |        |                         |  |      |        |       
|                                     | Fuel costs                                                                                                    |   |        | 5,367                   |  |      |        |       | 
|                                     | Electricity imports, electricity purchases and other                                                          |   |        | 4,410                   |  |      |        | 783    | 
|                                     |                                                                                                               |   |        |                         |  |      |        |       
|Total                                |                                                                                                               |  | 22,758 |                         |  |     | 22,106 |       
|                                     |                                                                                                               |   |        |                         |  |      |        |        |  | 
|Other revenues:                      |                                                                                                               |   |        |                         |  |      |        |       
|                                     | Telecommunications services                                                                                   |   |       |                        |  |      |       | 2,817  | 
|                                     | Reimbursement of costs for customer connections,
inspections and repositioning services                       |   |        | 633                     |  |      |        | 591    | 
|                                     | Other (1)                                                                                                     |   |        | 1,718                   |  |      |        | 3,267  | 
|                                     |                                                                                                               |   |        |                         |  |      |        |       
|Total other revenues                 |                                                                                                               |   | 2,351  |                         |  |      | 6,675  |       
|                                     |                                                                                                               |   |        |                         |  |      |        |       
|Total operating revenues             |                                                                                                               |  | 25,109 |                         |  |     | 28,781 |       
|                                     |                                                                                                               |   |        |                         |  |      |        |        |  | 



---

(1)    Other mainly includes revenues from our engineering and contracting, gas
distribution, fuel trading, public and art lighting , franchising, and research
and development operations other than reimbursements and sales of materials.


Our consolidated operating revenues for 2001 increased by Euro 3,672
million, or 14.6%, compared to 2000. The increase in our operating revenues
was primarily due to the consolidation of
our telecommunications companies that were not consolidated in 2000, as
described in more detail in OverviewBusiness Segments. The increase in our
operating revenues was also due to an increase in other revenues. We estimate
that our revenues would have increased by approximately Euro 2,021 million, or
7.6%, if we had consolidated WIND for the period from January 1, 2000

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through December 31, 2000, and had owned and consolidated Infostrada for the period
from April 1, 2000 through December 31, 2000.

In 2001, our revenues from electricity sales and Equalization Fund
contributions decreased by Euro 652 million, or 2.9%. The decline was
primarily attributable to lower tariffs for electricity sold on the regulated
market, which decreased on average by approximately 10.4% due to the
introduction of the price-cap tariff methodology and the decrease of
approximately Euro 0.0052 per kWh in the tariff component aimed at covering
fixed production costs. The decrease in revenues from electricity sales and
Equalization Fund contributions also reflected a 7.2% decline in the total
volume of electricity sold in both the regulated and free markets. Finally, as
of January 1, 2001, Equalization Fund contributions no longer include
reimbursement for fuel costs, as a component aimed at covering fuel costs is
now included in the tariff. In 2001, the tariff component aimed at covering
fuel costs grew on average by approximately 12.5%.

The effect on our revenues of the lower electricity tariffs and lower
volume of electricity sold was only partially offset by the introduction, in
January 2001, of a single price for electricity, which applies also to sales of
hydroelectric and geothermal electricity and which includes a component
relating to variable production costs that was previously covered by
Equalization Fund contributions only with respect to the generation of thermal
electricity.

In 2001, total other revenues increased by Euro 4,324 million, or 183.9%,
of which Euro 2,817 million was attributable to the first-time consolidation of
our telecommunications companies. The increase also reflected higher revenues
from businesses other than electricity and telecommunications, which rose by
Euro 1,507 million, or 64.1%, primarily due to higher sales to third parties by
our fuel trading, engineering and contracting and gas distribution activities.

The following table shows our operating revenues for each of our business
segments for the periods presented.

|                                   |       |   |                         |        |      |   |         |        | 
|---------------------------------- | ----- | - | ----------------------- | ------ | ---- | - | ------- | ------ | 
|                                   |       |   | Year ended December 31,
|                                   |       |   |                        
|                                   |       |   | 2000                    |        | 2001
|                                   |       |   |                         |        |     
|                                   |       |   | (in millions of euro)  
|Generation and Energy Management   |       |  | 11,623                  |        |      |  | 12,631  |       
|Sales, Infrastructure and Networks |       |   | 14,070                  |        |      |   | 22,206  |       
|Transmission                       |       |   | 771                     |        |      |   | 793     |       
|Telecommunications                 |       |   |                        |        |      |   | 3,176   |       
|Corporate                          |       |   | 9,800                   |        |      |   | 3,980   |       
|Services and Other Activities      |       |   | 1,654                   |        |      |   | 2,321   |       
|Eliminations                       |       |   | (12,809                 | )      |      |   | (16,326 | )     
|                                   |       |   |                         |        |      |   |         |       
|                                   | Total |   |                        | 25,109 |      |   |        | 28,781 | 
|                                   |       |   |                         |        |      |   |         |       

Generation and Energy Management.In 2001, operating revenues of our
Generation and Energy Management segment, prior to eliminations, increased by
Euro 1,008 million, or 8.7%, as compared to 2000. The increase was primarily
attributable to a Euro 643 million increase in revenues from our fuel trading
activities, as the volume of those activities continued to increase following
their commencement in 2000. The increase also reflected Euro 365 million in
revenues from generation activities mainly due to the introduction, in January
2001, of a single price for electricity, which applies also to sales of
hydroelectric and geothermal electricity and which includes a component
relating to variable production costs that was previously covered by the
Equalization Fund contributions only with respect to the generation of thermal
electricity, and to higher revenues from
the fuel component of the tariffs paid in the first months of 2001, which
reflected high fuel costs in the last quarter of 2000. In 2001, revenues of
our Generation and Energy Management segment also included non-recurring
revenues of Euro 431 million, of which Euro 314 million related to the receipt
of CIP 6 contributions accrued in past years and Euro 117 million resulted from
the release of a provision created in 2000 to cover potential liability for
stranded costs that we believe will not accrue

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under the new method to
calculate stranded costs introduced by the Ministerial Decree and the Energy
Authoritys decision issued in 2001. The positive impact of these factors was
partially offset by a decline of 7.4% in net domestic generation, primarily
attributable to the sale of Elettrogen and Valgen during 2001, and a decrease
of approximately Euro 0.0052 per kWh in the tariff component aimed at covering
fixed production costs.

Sales, Infrastructure and Networks.In 2001, operating revenues of our
Sales, Infrastructure and Networks segment increased, prior to eliminations, by
Euro 8,136 million, or 57.8%, as compared to 2000, primarily due to the new
tariff structure which, starting on January 1, 2001, includes a component aimed
at covering fuel costs, which had been previously been the subject of
Equalization Fund contribution paid to the Generation and Energy Management
segment. Revenues from sales to Eligible Customers increased by Euro 701
million, or 55.9%, reflecting an increase of approximately 28.3% in the volume
of electricity sold and an increase of approximately 21.3% in revenues per unit
that reflected the higher fuel component of the tariff and higher sales of
medium-voltage electricity. The positive impact of these factors was partially
offset by the effect of the price-cap tariff methodology introduced in 2001,
which reduces electricity tariffs by a fixed percentage each year, and a
reduced total volume of electricity sold on the regulated market, which
decreased by 11.0%, as compared to 2000. The increase in revenues from this
segment also reflected a Euro 359 million increase in revenues from sales of
natural gas that was attributable to the acquisition of several gas
distributors in the first half of 2001.

Transmission.In 2001, operating revenues of our Transmission segment,
prior to eliminations, increased by Euro 22 million, or 2.9%, as compared to
2000, due primarily to the increased scope of the segments activities
following the transfer of responsibility for the maintenance of our high
voltage distribution network from Enel Distribuzione. Revenues from fees to
access the national transmission network were Euro 709 million and relatively
unchanged as compared to 2000.

Telecommunications.In 2001, the Telecommunications segment, prior to
eliminations, recorded operating revenues of Euro 3,176 million, of which Euro
2,256 million was attributable to WIND and Euro 920 million was attributable to
Infostrada for the nine month period from the date of the acquisition to the
end of the year. As compared to the unaudited selected financial data we
prepared for comparison purposes only for the year 2000, telecommunications
revenues increased by Euro 1,040 million or 48.0% from Euro 2,136 million.

Corporate.In 2001, operating revenues of our Corporate segment, prior to
eliminations, were Euro 3,980 million, of which Euro 3,542 million was
attributable to intra-Group sales of fuel and electricity and Euro 243 million
to revenues from assistance and consulting services provided to companies of
the Group. As compared to 2000, corporate revenues decreased by approximately
Euro 5,820 million, or 59.4%, primarily as a result of the transfer of the
contracts for the purchase of electricity from national producers to the
Gestore della Rete,effective January 1, 2001, and the transfer of most of the
fuel purchase contracts to our Generation and Energy Management segment.

Services and Other Activities.In 2001, revenues from our Services and
Other Activities segment, prior to eliminations, increased by Euro 667 million,
or 40.3%, as compared to 2000, primarily due to a Euro 561 million increase in
revenues from our engineering and contracting activities, of which Euro 406
million was attributable from engineering and contracting services provided to
third parties. The increase also reflected an approximately Euro 100 million
increase in revenues from information technology activities attributable to the
implementation of our SAP information management system.

Eliminations.Eliminations in operating revenues primarily relate to
intersegment sales (primarily of fuel and electricity) and services (primarily
engineering and contracting) and increased by Euro 3,517 million, or 27.5%, as
compared to 2000, mainly as a result of the new tariff mechanism, under which
distribution companies pay to generation companies the full price of the

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electricity sold, including the components that were covered by Equalization
Fund contributions in 2000.

Operating expenses

The following table shows a breakdown of our operating expenses for each
of the periods presented:

|                            |       |                        |       |                         |       |      |       |        |       |  
|--------------------------- | ----- | ---------------------- | ----- | ----------------------- | ----- | ---- | ----- | ------ | ----- | -
|                            |       |                        |       | Year ended December 31,
|                            |       |                        |       |                        
|                            |       |                        |       | 2000                    |       | 2001
|                            |       |                        |       |                         |       |     
|                            |       |                        |       | (in millions of euro)  
|Operating expenses:         |       |                        |       |                         |       |      |       |       
|Personnel                   |       |                       | 3,531 |                         |       |     | 3,722 |       
|Fuel for thermal generation |       |                        | 5,644 |                         |       |      | 5,249 |       
|Purchased power             |       |                        | 4,373 |                         |       |      | 3,649 |       
|Other operating expenses:   |       |                        |       |                         |       |      |       |       
|                            |       | Services and rentals   |       |                         | 2,453 |      |       |        | 5,633 |  
|                            |       | Materials and supplies |       |                         | 848   |      |       |        | 2,349 |  
|                            |       | Provisions             |       |                         | 534   |      |       |        | 599   |  
|                            |       | Other                  |       |                         | 392   |      |       |        | 577   |  
|                            |       | Capitalized expenses   |       |                         | (878  | )    |       |        | (934  | )
|                            |       |                        |       |                         |       |      |       |       
|                            | Total |                        |      | 16,897                  |       |      |      | 20,844 |      
|                            |       |                        |       |                         |       |      |       |       

Our consolidated operating expenses for 2001 increased by Euro 3,947
million, or 23.3%, as compared to 2000. Expressed as a percentage of operating
revenues, operating expenses increased from 67.3% to 72.4%. The increase in
our operating expenses was primarily due to the consolidation of
telecommunications companies that were not consolidated in 2000, which
accounted for operating expenses (net of intragroup transactions) of Euro 3,185
million in 2001. The Telecommunications segments operating expenses in 2001
related primarily to costs for services and rentals (Euro 2,337 million), costs
for personnel (Euro 297 million) and costs for material and supplies (Euro 287
million). The increase in our operating expenses also reflected higher costs
for services and rentals and for materials and supplies in segments other than
our Telecommunications segment; these costs increased by Euro 1,144 million and
Euro 1,214 million, respectively. Other costs in segments other than our
Telecommunications segment also increased by Euro 56 million due to higher
indirect and local taxes and charges related to the establishment by the Energy
Authority of a system of bonuses and penalties to enhance the quality of
service provided by electricity companies. The negative effects of these
factors were partially offset by certain cost reductions in segments other than
our Telecommunications segment, including reductions in costs for purchased
power, which decreased by Euro 724 million, costs for fuel for thermal
generation, which decreased by Euro 395 million, provisions, which decreased by
Euro 132 million, and costs for personnel, which decreased by Euro 106 million.
Finally, following WINDs consolidation our consolidated operating expenses no
longer include costs related to payments to WIND in consideration of
telecommunication services provided to our Group; these costs amounted to Euro
301 million in 2000.

Personnel costs in 2001 were Euro 3,722 million, of which Euro 297 million
were attributable to our Telecommunications segment. Personnel costs in
segments other than our Telecommunications segment decreased by approximately
Euro 106 million, or 3.0%, partially due to a decrease of approximately 7.0% in
the average number of employees in these segments. The decline in headcount
was primarily attributable to the disposal of Elettrogen and certain municipal
electricity distribution
networks and to early retirements spurred by incentives. The impact of
these factors on personnel costs was only partially offset by the negative
impact of certain payments that we were required to make under the new
collective bargaining agreement that came into effect as of July 24, 2001.

Costs for fuel for thermal generation in 2001 were Euro 5,249 million,
having declined by Euro 395 million, or 7.0%, primarily due to a decrease of
9.2% in the volume of electricity produced

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from thermal sources, the effect of
which was only partially offset by the higher average purchase price of coal
and the appreciation of the US dollar (the currency in which most of our fuel
purchases are denominated) against the Euro.

Purchased power costs in 2001 were Euro 3,649 million, having declined by
approximately Euro 724 million, or 16.6%, notwithstanding a 2.8% increase in
the volume of energy purchased during the year, reflecting lower unit costs for
electricity acquired at direct auctions held by the Gestore della Rete.

Services and rentals costs in 2001 were Euro 5,633 million, of which Euro
2,337 million were attributable to our Telecommunications segment (net of
intragroup transactions). Services and rentals costs in segments other than
our Telecommunications segment increased by Euro 1,144 million, or 46.6%, due
primarily to a Euro 638 million increase in the surcharge paid to the Gestore
della Retewith respect to the generation of hydroelectric or geothermal
electricity. Please refer to Item 4. Information on the CompanyRegulatory
Matters Tariffs for Non-Eligible Customers. Services and rentals costs in
segments other than our Telecommunications segment also increased as a result
of an increase of approximately Euro 155 million in costs for electricity
transport due to higher volumes of electricity sold to Eligible Customers, an
increase of approximately Euro 120 million in the cost of external services
used in our engineering and contracting activities, which grew significantly
during the year, and a Euro 90 million increase in leases and rental expenses
due to the transfer of some of our real estate and motor vehicle leasing
activities to affiliated companies.

Materials and supplies costs in 2001 were Euro 2,349 million, of which
approximately Euro 287 million were attributable to our Telecommunications
segment. Materials and supplies costs in segments other than our
Telecommunications segment increased by approximately Euro 1,214 million, or
143.2%, primarily due to approximately Euro 883 million in additional costs for
fuel acquired for trading activities and gas acquired for distribution, as well
as Euro 296 million in additional costs for materials mostly used in our
engineering and contracting operations, which grew significantly during the
year.

Provisions in 2001 were Euro 599 million, of which approximately Euro 197
million were attributable to our Telecommunications segment. Provisions in
segments other than our Telecommunications segment decreased by Euro 132
million, or 24.7%, primarily due to the release of a provision of Euro 117
million created in 2000 to cover potential liability for stranded costs that we
now believe will not accrue under the new method to calculate stranded costs
introduced by the Ministerial Decree and the Energy Authoritys decision issued
in 2001.

Other costs in 2001 were Euro 577 million, of which approximately Euro 129
million were attributable to our Telecommunications segment. Other costs in
segments other than our Telecommunications segment increased by Euro 56
million, or 14.3%, due primarily to higher indirect and local taxes and charges
related to the establishment by the Energy Authority of a system of bonuses and
penalties to enhance the quality of service provided by electricity
distribution companies.

Capitalized expenses in 2001 were Euro 934 million, of which approximately
Euro 54 million were attributable to our Telecommunications segment.
Capitalized expenses in segments other than our Telecommunications segment were
relatively unchanged as compared to 2000.

The following table shows a breakdown of our operating expenses by
business segment for each of the periods presented.

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|                                   |  |                         |         |      |  |   |         |  
|---------------------------------- |  | ----------------------- | ------- | ---- |  | - | ------- | -
|                                   |  | Year ended December 31,
|                                   |  |                        
|                                   |  | 2000                    |         | 2001
|                                   |  |                         |         |     
|                                   |  | (in millions of euro)  
|Generation and Energy Management   |  |                        | 7,835   |      |  |  | 8,698   |  
|Sales, Infrastructure and Networks |  |                         | 10,930  |      |  |   | 19,100  |  
|Transmission                       |  |                         | 305     |      |  |   | 324     |  
|Telecommunications                 |  |                         |        |      |  |   | 3,345   |  
|Corporate                          |  |                         | 9,305   |      |  |   | 3,642   |  
|Services and Other Activities      |  |                         | 1,274   |      |  |   | 1,976   |  
|Eliminations                       |  |                         | (12,752 | )    |  |   | (16,241 | )
|                                   |  |                         |         |      |  |   |         |  
|Total                              |  |                        | 16,897  |      |  |  | 20,844  |  
|                                   |  |                         |         |      |  |   |         |  

Generation and Energy Management.Operating expenses for the Generation
and Energy Management segment (which primarily consist of fuel costs (for both
thermal generation and trading activities), prior to eliminations, access fees
to the national transmission network, and personnel and maintenance costs for
our production plants, increased by Euro 863 million, or 11.0%, in 2001 as
compared to 2000. The increase was due primarily to a Euro 638 million
increase in the surcharge paid to the Gestore della Retewith respect to the
generation of hydroelectric or geothermal electricity, and to a Euro 630
million increase in purchases of fuel for trading activities. Please refer to
Item 4. Information on the CompanyRegulatory Matters Tariffs for
Non-Eligible Customers. The negative impact of this factor was partially
offset by a decrease of Euro 250 million in fuel costs for power generation due
to a decline in consumption, and by the sale of Elettrogen, which we estimate
resulted in reduction of costs amounting to approximately Euro 180 million.

Sales, Infrastructure and Networks.Operating expenses for our Sales,
Infrastructure and Networks segment (which primarily consist of purchased power
and costs associated with running our distribution network), prior to
eliminations, increased by Euro 8,170 million, or 74,7%, in 2001 as compared
with 2000. The increase was primarily attributable to the fact that the
segments costs for purchasing power on the regulated market rose by
approximately Euro 7,197 million due to the new tariff which, starting on
January 1, 2001, includes a component aimed at covering fuel costs, which had
been previously covered by Equalization Fund contributions paid to the
generation segment. The increase in operating expenses in this segment also
reflected an increase of Euro 700 million in the costs for purchased power that
was attributable to higher volumes of power that we sold on the free market in
2001, and an increase of approximately Euro 330 million in operating costs at
our national gas operations following the acquisitions of several gas
distributors during that year. These factors were partially offset by a
decrease in personnel costs of approximately Euro 100 million due to reductions
in headcount.

Transmission.In 2001, operating expenses for our Transmission segment,
prior to eliminations, increased by Euro 19 million, or 6.2%, as compared to
2000, primarily as a result of its increased scope of activities following the
transfer from Enel Distribuzione of the maintenance of our high voltage
distribution network.

Telecommunications.Operating expenses for our Telecommunications
segment, prior to eliminations, totaled Euro 3,345 million in 2001, of which
Euro 2,463 million represented costs for services and rentals, Euro 297 million
represented costs for personnel, and Euro 287 million represented costs for
materials and supplies. As compared to the unaudited selected financial data
we prepared for the year 2000, telecommunications expenses increased by
approximately Euro 599 million, or 21.8%, from Euro 2,746 million.

Corporate.Operating expenses of our Corporate segment, prior to
eliminations, decreased in 2001 by Euro 5,663 million, or approximately 61.0%.
This decrease was primarily due to a decrease of Euro 5,695 million in costs
for purchases of fuel and electricity due to the transfer of the contracts

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for
the purchase of electricity from national producers to the Gestore della Rete
effective January 1, 2001, and the transfer of most of our fuel purchase
contracts to our Generation and Energy Management segment. In addition, costs
for personnel decreased by approximately Euro 59 million in 2001 as compared to
2000. Costs for services and rentals in our Corporate segment increased by
approximately Euro 43 million in 2001 as compared to 2000.

Services and Other Activities.In 2001, operating expenses for our
Services and Other Activities segment, prior to eliminations, increased by Euro
702 million, or 55.1%, as compared to 2000, of which Euro 546 million was
attributable to an increased level of activity at our engineering and
contracting business. The increase also reflected an increase of approximately
Euro 150 million in operating expenses of our information technology activity
as a result of the implementation of our SAP information management system.

Eliminations.Eliminations for operating expenses principally consist of
the elimination of intersegment electricity and fuel purchases and costs for
the provision of intersegment services. The increase of Euro 3,489 million, or
27.4%, was in line with the corresponding amount relating to operating
revenues.

Depreciation and amortization

The following table shows depreciation and amortization for each of our
business segments for each of the periods presented:

|                                   |  |                         |       |      |  |   |       | 
|---------------------------------- |  | ----------------------- | ----- | ---- |  | - | ----- | 
|                                   |  | Year ended December 31,
|                                   |  |                        
|                                   |  | 2000                    |       | 2001
|                                   |  |                         |       |     
|                                   |  | (in millions of euro)  
|Generation and Energy Management   |  |                        | 1,409 |      |  |  | 1,363 | 
|Sales, Infrastructure and Networks |  |                         | 1,631 |      |  |   | 1,580 | 
|Transmission                       |  |                         | 229   |      |  |   | 240   | 
|Telecommunications                 |  |                         |      |      |  |   | 1,068 | 
|Corporate                          |  |                         | 7     |      |  |   | 2     | 
|Services and Other Activities      |  |                         | 183   |      |  |   | 206   | 
|                                   |  |                         |       |      |  |   |       | 
|Total                              |  |                        | 3,459 |      |  |  | 4,459 | 
|                                   |  |                         |       |      |  |   |       | 

Depreciation and amortization for 2001 increased by Euro 1,000 million, or
28.9% as compared to 2000, primarily as a result of the first time
consolidation of our telecommunications companies. Depreciation and
amortization for our Telecommunications segment during the year totaled 1,068
million, of which Euro 382 million related to the amortization of the Euro
7,631 million in goodwill associated with our acquisition of Infostrada in
March 2001. Under Italian GAAP, amortization is recorded on a straight-line
basis over a period of 15 years, with the amount recorded in 2001 relating to
the nine months from the date of the acquisition to the end of the year.
Depreciation and amortization in segments other than our Telecommunications
segment decreased by Euro 68 million or 2.0% as compared with 2000, primarily
due to an aggregate decline of Euro 91 million in the electricity sector,
reflecting increased efficiency in the implementation of our investments.
This factor was partially offset by an increase of Euro 23 million in
depreciation and amortization in other activities, mainly due to the
development of our information technology activities.

Operating income

The following table shows operating income for each of our business
segments for the periods presented:

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|                                   |  |                         |       |      |  |   |        |  
|---------------------------------- |  | ----------------------- | ----- | ---- |  | - | ------ | -
|                                   |  | Year ended December 31,
|                                   |  |                        
|                                   |  | 2000                    |       | 2001
|                                   |  |                         |       |     
|                                   |  | (in millions of euro)  
|Generation and Energy Management   |  |                        | 2,379 |      |  |  | 2,570  |  
|Sales, Infrastructure and Networks |  |                         | 1,509 |      |  |   | 1,526  |  
|Transmission                       |  |                         | 237   |      |  |   | 229    |  
|Telecommunications                 |  |                         |      |      |  |   | (1,237 | )
|Corporate                          |  |                         | 488   |      |  |   | 336    |  
|Services and Other Activities      |  |                         | 197   |      |  |   | 128    |  
|Eliminations                       |  |                         | (57   | )    |  |   | (74    | )
|                                   |  |                         |       |      |  |   |        |  
|Total                              |  |                        | 4,753 |      |  |  | 3,478  |  
|                                   |  |                         |       |      |  |   |        |  

Operating income decreased by Euro 1,275 million, or 26.8%, in 2001 as
compared to 2000, primarily due to the first time consolidation of our
telecommunications companies. Our Telecommunications segment recorded an
operating loss of Euro 1,237 million in 2001, reflecting the significant level
of their expenses and investments incurred as they develop their businesses.
Operating income of segments other than our Telecommunications segment
decreased by approximately Euro 38 million, or 0.8% or as compared to 2000,
primarily due to decreases in the operating income of our Corporate and
Services and Other Activities segments.

Generation and Energy Management. In 2001, operating income of our
Generation and Energy Management segment, prior to eliminations, increased by
Euro 191 million, or 8.0%, as compared to 2000, primarily due to non-recurring
income of Euro 431 million, of which Euro 314 million related to the receipt of
CIP 6 contributions related to past years and Euro 117 million to our reversal
of a provision for potential liability for stranded costs, which we now believe
will not accrue under the new method to calculate stranded costs introduced by
the Ministerial Decree and the Energy Authoritys decision issued in 2001. The
increase also reflected a decrease of Euro 46 million in depreciation, an
increase of Euro 36 million in income from fuel trading operations and an
increase of Euro 10 million in income from international activities. The
positive impact of these factors was partially offset by a decrease of Euro 280
million in operating income earned from sales of electricity that reflected
lower tariffs and lower volumes of electricity generated, and the disposal of
Elettrogen in September 2001, which reduced the sectors operating income for
the year by approximately Euro 70 million.

Sales, Infrastructure and Networks.In 2001, operating income of our
Sales, Infrastructure and Networks segment, prior to eliminations, increased by
Euro 17 million, or 1.1%, as compared to 2000, primarily due to lower
depreciation of Euro 77 million. The increase also reflected a Euro 8 million
increase in operating income from the gas distribution activities as a result
of the acquisition of several gas distributors. These factors were partially
offset by a decrease of Euro 47 million in connection fees and a decline in
other ancillary revenues.

Transmission.In 2001, operating income of our Transmission segment,
prior to eliminations, decreased by Euro 8 million, or 3.4%, as compared to
2000, mainly due to higher depreciation for new lines which came into operation
in 2001.

Telecommunications.In 2001, our Telecommunications segment, prior to
eliminations, recorded an operating loss of Euro 1,237 million, of which Euro
572 million was attributable to operating losses at WIND and Euro 245 million
was attributable to those at Infostrada for the nine month period from the date
of the acquisition to the end of the year. In each case, the operating losses
reflected the high level of expenses incurred by our telecommunications
companies in line with their business plans. The segments overall operating
loss in 2001 also reflected Euro 420 million in amortization of goodwill,
primarily that associated with our acquisition of Infostrada (Euro 382 million)
and our acquisition of a portion of the interest previously held in WIND by
Deutsche Telekom (Euro 38 million). As compared to the selected financial data
we prepared for the year 2000,
the operating loss of the Telecommunications segment decreased by
approximately Euro 216 million or 14.9% from estimated losses of Euro 1,453
million in 2001, of which Euro 401 million was attributed to amortization of
goodwill.

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Corporate. In 2001, operating income of our Corporate segment, prior to
eliminations, decreased by Euro 152 million, or 31.1% , as compared to 2000
mainly as a result of the transfer of the contracts for the acquisition of
electricity from domestic producers to the Gestore della Rete.

Services and Other Activities.In 2001, operating income of our Services
and Other Activities segment, prior to eliminations, decreased by Euro 69
million, or 35.0%, as compared to 2000. This decrease was primarily due to a
decrease of Euro 52 million in operating income from our real estate and
services operations following the contribution of certain activities to
unconsolidated joint ventures.

Eliminations.Eliminations for operating income mainly related to income
from our engineering and contracting activities resulting from transactions
with companies in our Generation and Energy Management segment. In 2001, the
increase of Euro 17 million, or 29.8%, was due to higher income from these
intersegment activities.

Financial expense

Net financial expense increased by Euro 462 million, or 71.3%, from Euro
648 million in 2000 to Euro 1,110 million in 2001, mainly due to the first time
consolidation of our telecommunications companies, as well as an increase in
our average net financial debt from Euro 12,466 million in 2000 to Euro 20,743
million in 2001 that was attributable to our financing of the acquisition of
Infostrada and companies in the gas distribution and renewable resources
generation sectors.

Equity losses

The Euro 85 million charge recorded in 2001 consisted primarily of
write-downs in the value of investments in other companies, of which Euro 56
million related to our holdings in Echelon Corporation, Euro 10 million to
certain interests held by CHI Energy, and Euro 17 million to venture-capital
investments. The decrease of Euro 373 million in the total charge as compared
to 2000 reflects the fact that the 2000 result included Euro 420 million
representing our share of equity losses and goodwill amortization in WIND,
which is now consolidated.

Extraordinary income (expense)

We recorded net extraordinary income of Euro 2,318 million in 2001, as
compared to Euro 192 million in 2000.

Extraordinary income for 2001 principally consisted of:



| |  |  | A capital gain on the sale of Elettrogen of Euro 1,900 million;                                                                                                                                                                                                                                                                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Euro 501 million relating to electricity supplied in the last
part of 2000 but billed in 2001 applying the tariff valid until the
end of 2000, which did not include a fuel cost component. We
recorded this item as extraordinary income to retain comparability
between revenues and costs related to the sale of electricity in
2001;
|
| |  |  | Capital gains on the disposal of generation plants located in
the Valle dAosta region and of 49% of Deval totaling Euro 444
million;                                                                                                                                                                                                   
|
| |  |  | Capital gains on the disposal of the distribution networks in
the municipalities of Rome and Turin, totaling Euro 391 million;                                                                                                                                                                                                          
|
| |  |  | Capital gains on the disposal of other assets totaling Euro
87 million; and                                                                                                                                                                                                                                                             
|
| |  |  | The receipt of Euro 40 million relating to the settlement of
outstanding contributions from the Equalization Fund relating to
previous years.                                                                                                                                                                                           

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This extraordinary income was partially offset by
extraordinary expenses that principally consisted of:



| |  |  | A write-down of Euro 443 million due to our early replacement
of analog meters with new digital meters;                                                                                                      
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A write-down of Euro 224 million in the value of plants and
an accrual of expected costs for decommissioning, as a result of the
conversion of certain of our generating plants to combined-cycle
technology;
|
| |  |  | Incentives paid to participants in early retirement programs
totaling Euro 190 million;                                                                                                                      
|
| |  |  | Charges connected with the integration of WIND and
Infostradas businesses, totaling Euro 125 million;                                                                                                       
|
| |  |  | Capital losses on disposal of assets and other extraordinary
write-downs totaling Euro 76 million.                                                                                                           

You should read note 23 to our consolidated financial statements for a
discussion of the different criteria used under Italian GAAP and U.S. GAAP for
determining what constitutes an extraordinary item.

Income taxes

The following table shows a breakdown of our income taxes for the periods
indicated.

|                                                                                            |       |   |                         |       |      |   |       |     | 
|------------------------------------------------------------------------------------------- | ----- | - | ----------------------- | ----- | ---- | - | ----- | --- | 
|                                                                                            |       |   | Year ended December 31,
|                                                                                            |       |   |                        
|                                                                                            |       |   | 2000                    |       | 2001
|                                                                                            |       |   |                         |       |     
|                                                                                            |       |   | (in millions of euro)  
|Income taxes:                                                                               |       |   |                         |       |      |   |       |    
|Current and deferred taxes                                                                  |       |  | 1,797                   |       |      |  | 1,252 |    
|Adjustments made to deferred
and prepaid taxes in accordance
with new corporate tax rates   |       |   | (148                    | )     |      |   |      |    
|Release of deferred tax
provision following freeing-up
of accelerated depreciation
reserves |       |   |                        |       |      |   | (603  | )  
|                                                                                            |       |   |                         |       |      |   |       |    
|                                                                                            | Total |   |                        | 1,649 |      |   |      | 649 | 
|                                                                                            |       |   |                         |       |      |   |       |    

The total tax charge for 2001 was Euro 649 million, which was Euro 1,000
million or 60.6% lower than the charge for 2000. This decrease was primarily
due to a Euro 603 million reduction in the provisions for deferred taxes
attributable to the introduction, by the Italian Budget Law for 2002, of a
regime whereby companies had the option to release reserves for accelerated
depreciation by paying immediately a tax of 19% in lieu of the tax accrued in
the deferred taxes reserve at the standard corporate tax rate. As a result of
such release, the provisions for deferred taxes were reduced for an amount
corresponding to the difference between the standard corporate tax and the 19%
substitute tax levied on the portion of the accelerated depreciation reserves
released. Please see 2002 compared with 2001Income taxes for additional
information. The decrease also reflected the consolidation of WIND and
Infostrada, which recorded prepaid taxes for an aggregate amount of Euro 350
million in 2001 calculated on losses that may be carried-forward for tax
purposes. Finally, the decrease in the total tax charge was also due to the
reduction from 37% to 36% of Italian corporate tax (IRPEG) rate, and the
reversal of the difference between deferred taxes accrued on capital gains
related to the sale of assets and businesses sold in 2001, and the 19%
substitute tax, applicable to such capital gains pursuant the Italian Budget
law for 2002.

In 2001, our tax rate applicable to ordinary income, net of the effects of
the first-time consolidation of telecommunications companies and extraordinary
items, was equal to approximately 47%, relatively unchanged as compared to
2000.

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Net income

Net income increased by Euro 2,038 million, or 93.1%, from Euro 2,188
million in 2000 to Euro 4,226 million in 2001. This increase was primarily due
to the increase of Euro 2,126 million in net extraordinary income that largely
related to capital gains on divestments, including Elettrogen, and the decrease
of Euro 1,000 million in income taxes. The increase also reflected the
decrease of Euro 373 million in equity losses, and the increase of Euro 276
million in net losses attributed to third parties, each of which was primarily
due to the first-time consolidation of our telecommunications companies. The
positive effects of these factors were partially offset by the decrease of Euro
1,275 million in operating income and the increase of Euro 462 million in net
financial expense, as explained in more detail above.




Inflation

The tariffs for sales of electricity in effect over the periods covered by
the financial statements included in this annual report were not adjusted for
inflation. Inflation in Italy was 2.6% in 2000, 2.7% in 2001 and 2.5% in 2002.
As a result, the real value of tariffs decreased over time.




U.S. GAAP Reconciliation

We have prepared our consolidated financial statements in accordance with
accounting principles prescribed by Italian law and supplemented by the
accounting principles issued by the Consiglio Nazionale dei Dottori
Commercialisti e dei Ragionieri, or Italian GAAP, which differ in certain
respects from U.S. GAAP. The principal differences between Italian GAAP and
U.S. GAAP, as applied to our consolidated financial statements, relate to the
following:



| |  |  | Fixed assets and related depreciation;        
| | - |  | ----------------------------------------------
|
| |  |  | Capitalized interest and related depreciation;
|
| |  |  | Customers connection fees;                   
|
| |  |  | Unbilled revenues;                            
|
| |  |  | Pension and employee termination accounting;  
|
| |  |  | Other post retirement benefits accounting;    
|
| |  |  | Social Security withholdings and contribution;
|
| |  |  | Derivatives;                                  
|
| |  |  | Advertising and start-up costs;               
|
| |  |  | Software;                                     
|
| |  |  | Goodwill, write-down and related amortization;
|
| |  |  | Italian pension system obligation;            
|
| |  |  | Accounting for income taxes;                  
|
| |  |  | Investment in equity securities; and          
|
| |  |  | Extraordinary income and expenses.            

You should read note 23 to our consolidated financial statements for a
more detailed discussion of the principal differences between Italian GAAP and
U.S. GAAP that affect our consolidated financial statements. Note 24 to our
consolidated financial statements for a reconciliation of net income and
shareholders equity between Italian GAAP and U.S. GAAP and note 25 to our consolidated financial statements for additional U.S. GAAP disclosures.

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Our consolidated net income under U.S. GAAP was approximately Euro 1,841
million in 2000, Euro 3,688 million in 2001 and Euro 1,399 million in 2002, as
compared to consolidated net income under Italian GAAP of Euro 2,188 million in
2000, Euro 4,226 million in 2001 and Euro 2,008 million in 2002. Our
shareholders equity under U.S. GAAP was Euro 17,438 million at December 31,
2000, Euro 19,467 million at December 31, 2001, and Euro 18,526 million at
December 31, 2002, as compared with shareholders equity under Italian GAAP of
Euro 18,312 at December 31, 2000, Euro 20,966 million at December 31, 2001 and
Euro 20,772 at December 31, 2002.

The differences between U.S. GAAP and Italian GAAP also have an impact on
operating income at the segment level. The differences result primarily from
property-related adjustments, different classifications of extraordinary
expenses goodwill impairment, and recognition of revenues related to customers connection fees. In addition, beginning in 2000, the extraordinary contribution to
the national pension system represents a pre-tax reconciliation difference of
Euro 577 million in 2000, Euro 523 million in 2001 and Euro 446 million in
2002. You should read Item 6. Directors, Senior Management and
EmployeesEmployeesEmployee benefits for a discussion of these contributions.

Operating income by segment for 2000 under U.S. GAAP approximates Euro
2,273 million from Generation and Energy Management, Euro 933 million from
Sales, Infrastructure and Network, Euro 213 million from Transmission, Euro 659
million from Corporate, and Euro 364 million from Services and Other
Activities, as compared to 2000 operating income under Italian GAAP of Euro
2,379 million from Generation and Energy Management, Euro 1,509 million from
Sales, Infrastructure and Network, Euro 237 million from Transmission, Euro 488
million from Corporate, and Euro 197 million from Services and Other
Activities.

Operating income by segment for 2001 under U.S. GAAP approximates Euro
2,873 million from Generation and Energy Management, Euro 1,233 million from
Sales, Infrastructure and Network, Euro 212 million from Transmission, Euro 330
million from Corporate, and Euro 360 million from Services and Other
Activities, as compared to 2001 operating income under Italian GAAP of Euro
2,570 million from Generation and Energy Management, Euro 1,526 million from
Sales, Infrastructure and Network, Euro 229 million from Transmission, Euro 336
million from Corporate, and Euro 128 million from Services and Other
Activities. Our Telecommunications segment reported an operating loss of
approximately Euro 1,293 million under U.S. GAAP in 2001, as compared to an
operating loss of Euro 1,237 million under Italian GAAP.

Operating income by segment for 2002 under U.S. GAAP approximates Euro
1,166 million from Generation and Energy Management, Euro 1,452 million from
Sales, Infrastructure and Network, Euro 234 million from Transmission and Euro
158 million from Corporate, as compared to 2002 operating income under Italian
GAAP of Euro 1,468 million from Generation and Energy Management, Euro 2,100
million from Sales, Infrastructure and Network, Euro 271 million from
Transmission, and Euro 164 million from Corporate. Our Telecommunications
segment reported an operating loss of approximately Euro 2,839 million under
U.S. GAAP in 2002, as compared to an operating loss of Euro 1,019 million under
Italian GAAP. Our Services and Other Activities segment reported an operating
loss of approximately Euro 113 million under U.S. GAAP in 2002, as compared to
an operating loss of Euro 50 million under Italian GAAP.

Critical accounting policies under U.S. GAAP

In addition to the critical accounting policies discussed above under
Overview Critical Accounting Policies, management considers that the
following critical accounting policies in the reconciliation of net income and
shareholders equity between Italian GAAP and U.S. GAAP require reliance upon
significant judgments, estimates and assumptions.

Recoverability of goodwill.For US GAAP, we adopted the provisions of
Statement of Financial Accounting Standard SFAS No. 142 (FASB 142), Goodwill
and Other Intangible Assets,

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as of January 1, 2002, which did not result in
any impairment as of that date. SFAS 142 requires that goodwill and intangible
assets with indefinite useful lives no longer be amortized and that goodwill be tested for impairment at least
annually (and between annual tests when certain triggering events occur) using
a two-step approach at the reporting unit level. Reporting units may be tested
at different times during the year. The first step involves comparing the fair
value of the reporting unit to its book value, including goodwill and
intangible assets. The determination of fair value of each reporting unit is
based on the present value of future cash flows and requires significant
judgment. If the fair value of the reporting unit is less than its book value,
a second step is required to be performed which compares the implied fair values to the
book values of the reporting units goodwill. The
implied fair value of the goodwill is the difference between the fair value of
the reporting unit and the net fair values of the recognized and unrecognized intangible identifiable assets and
liabilities of the reporting unit. The fair value of intangible assets with
indefinite lives is determined based on expected discounted future cash flows.
If the fair value of goodwill and other intangible assets with indefinite lives
are less than their book values, the differences are recorded as impairment
charges. With regards to our telecommunications reporting unit, the annual
impairment test, which was performed at June 30, 2002, resulted in us recording
impairment charges of Euro 2,336 million relating to goodwill.

Pension
and other post-retirement benefits. Certain or our employees are
covered under pension plans, which allow for retirement benefits based upon
compensation and years of service, and certain employees are also covered under
other postretirement benefit plans.

Several statistical and judgmental factors which attempt to anticipate
future events are used in calculating the expense and liability related to the
plans. These factors include assumptions about the discount rate, the rate of
future compensation increases and health care cost trends. In addition, our
actuarial consultants also use subjective factors such as withdrawal and
mortality rates in making relevant estimates. The actuarial assumptions used
may differ materially from actual results due to changing market and economic
conditions, higher or lower withdrawal rates, longer or shorter life spans of
participants and changes in the actual costs of health care. These differences
may have a significant impact on the amount of pension and other
post-retirement benefit expenses recorded.

Accounting for derivatives.In 1998, the Financial Accounting Standards
Board (FASB), issued SFAS 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS 133 was later amended by SFAS 137 and 138
(collectively referred to as SFAS 133). For U.S. GAAP purposes only, we use
the criteria in SFAS 133, as amended and interpreted, to determine if certain
contracts must be accounted for as derivative instruments. The rules for
determining whether a contract meets the criteria for derivative accounting are
numerous and complex. As a result, significant judgment is required to
determine whether a contract requires derivative accounting, and similar
contracts can sometimes be accounted for differently.

The types of contracts we currently account for as derivative instruments
are interest rate swaps and locks, foreign currency exchange contracts, call
options and swaps. We do not account for electric capacity, gas supply contracts, or purchase orders for numerous supply items
as derivatives.

If a contract must be accounted for as a derivative instrument, the
contract is recorded as either an asset or a liability in the financial
statements at the fair value of the contract. Any difference
between the recorded book value and the fair value is reported either in
earnings or in other comprehensive income depending on certain qualifying
criteria. The recorded fair value of the contract is then adjusted quarterly to
reflect any change in the market value of the contract.

In order to value the contracts that are accounted for as derivative
instruments, we use a combination of market quoted prices and mathematical
models. Option models require various inputs, including forward prices,
volatilities, interest rates and exercise periods. Changes in forward prices or
volatilities could significantly change the calculated fair value of the call
option contracts. The models

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we used have been tested against market quotes to
ensure consistency between model outputs and market quotes.

For derivative instruments to qualify for hedge accounting under SFAS 133,
the hedging relationship must be formally documented at inception and be highly
effective in achieving offsetting cash flows or offsetting changes in fair
value attributable to the risk being hedged. If hedging a forecasted
transaction, the forecasted transaction must be probable. If a derivative
instrument used as a cash flow hedge is terminated early because it is probable
that a forecasted transaction will not occur, any gain or loss as of such date
is immediately recognized in earnings. If a derivative instrument used as a
cash flow hedge is terminated early for other economic reasons, any gain or
loss as of the termination date is deferred and recorded when then forecasted
transaction affects earnings.

Recoverability of intangible assets and other long-term assets.Under
U.S. GAAP, in order to test the recoverability of intangible assets and other
long term assets, we apply SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. We estimate the useful lives of intangible and
other long-term assets based on the nature of the asset, historical experience
and the terms of any related supply contracts. We test for impairment by
comparing the sum of the future undiscounted cash flows expected to be received
or derived from an asset or a group of assets to their carrying value. If the
carrying value exceeds the future undiscounted cash flows, the impairment is
measured using an estimation of the assets fair value, primarily using a
discounted cash flow method. The identification of indicators of impairment,
the estimation of future cash flow and the determination of fair values for
assets or groups of assets require management to make significant judgments
concerning the identification and validation of impairment indicators, expected
cash flows and appropriate discount rates. A significant change to these
assumptions could impact the estimated useful lives or valuation of intangible
and other long-term assets resulting in a change to amortization expense and
impairment charges.

New U.S. GAAP accounting standards

In addition to the critical accounting policies discussed above under
Overview Critical Accounting Policies and  Critical Accounting Policies
under U.S. GAAP, our future U.S. GAAP results will be affected by a number of
new accounting standards that have been recently issued.

Business combinations, goodwill and other intangible assets.In July
2001, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS
142 Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 141 also specifies the types of acquired intangible assets that
must be recognized and reported separately from goodwill and those acquired
intangible assets that must be included in goodwill. SFAS 142 requires that
goodwill no longer be amortized, but instead tested for impairment at least
annually. SFAS 142 also requires recognized intangible assets with a definite
useful life to be amortized over their respective estimated useful lives and
reviewed for impairment in accordance with SFAS 144 (see below). Any recognized
intangible asset determined to have an indefinite useful life will not be
amortized, but instead tested for impairment in accordance with SFAS 142 until
its life is determined to no longer be indefinite.

We fully adopted the provisions of SFAS 141 and SFAS 142 as of July 1,
2001, and January 1, 2002, respectively. These statements require that goodwill
acquired in a business combination completed after June 30, 2001, and any
intangible asset determined to have an indefinite useful life acquired after
June 30, 2001, should not be amortized. We amortized goodwill acquired in
business combinations completed before July 1, 2001, and intangible assets with
indefinite useful lives acquired before July 1, 2001, until December 31, 2001.

SFAS 142 required us to evaluate our existing intangible assets and
goodwill and to make any necessary reclassifications in order to conform to the
new separation requirements at the date of

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adoption. We reassessed the
estimated useful lives and residual values of our intangible assets and
determined that no adjustments regarding amortization periods were necessary.

In connection with the transitional impairment evaluation, SFAS 142
required us to perform an assessment of whether there is an indication that
goodwill is impaired as of January 1, 2002. To accomplish this, we (1)
identified our reporting units, (2) determined the carrying value of each
reporting unit by assigning the assets and liabilities, including the existing
goodwill and intangible assets, to those reporting units, and (3) determined
the fair value of each reporting unit. We determined there was no indication
that goodwill had been impaired as of January 1, 2002. Accordingly, no
transitional goodwill impairment charge was necessary. As a result of the
annual impairment test performed at June 30, 2002, on the telecommunications
reporting unit, an impairment charge was recorded against goodwill of about
Euro 2,336 million.

Accounting for asset retirement obligations.In June 2001, the FASB
issued SFAS 143, Accounting for Asset Retirement Obligations. The statement
applies to legal obligations associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the assets useful
life. The liability is changed at the end of each period to reflect the
passage of time (i.e. accretion expense) and changes in the estimated future
cash flows underlying the initial fair value measurement. SFAS 143 is
effective for our fiscal year commencing January 1, 2003. We expect the
adoption of this standard will have no material impact on our financial
position, results of operations or cash flows.

Accounting for the impairment or disposal of long-lived assets.FASB 144,
Accounting for Impairment or Disposal of Long-lived Assets, was issued by the
FASB in October 2001, and supersedes SFAS No. 121. The accounting model for
long-lived assets to be disposed of by sale applies to all long-lived assets,
including discontinued operations, and replaces the provisions of APB Opinion
No. 30 for the disposal of segments of a business. SFAS No. 144 requires that
those long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating losses that
have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued
operations to include all components of an entity with operations that can be
distinguished from the rest of the entity, and which components will be
eliminated from the ongoing operations of the entity in a disposal transaction.
The adoption of SFAS No. 144, effective January 1, 2002, did not have a
material impact on our consolidated financial statements.

Extinguishment of debt.On April 22, 2002, the FASB issued SFAS No. 145
Rescission of FASB Statements Nos 4, 44 and 64, Amendment of SFAS No. 13 and
Technical Corrections. The principal change is that gains or losses from
extinguishments of debt will no longer be classified as extraordinary items as
they were under SFAS No. 4. The provisions of SFAS No 145 are effective for
fiscal years beginning after May 15, 2002, except for the provisions relating
to the amendments of
SFAS 13, which had been adopted for transactions occurring subsequent to
May 15, 2002. The full adoption of SFAS No. 145, effective January 1, 2003,
did not have a material impact on our financial position, results of operations
or cash flows.

Accounting for exit or disposal activities.In July 2002, the FASB issued
SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities.
The statement requires that a liability for costs associated with exit or
disposal activities be recognized in the period in which the costs are
incurred. Under current accounting guidance, a liability can be recognized when
management has committed to an exit plan. The requirements under SFAS 146 are
effective

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prospectively for exit or disposal activities initiated after
December 31, 2002. The adoption of this statement will affect our accounting
for exit and disposal activities initiated after December 31, 2002.

Stock based compensation.In December 2002, the FASB issued SFAS 148,
Accounting for Stock-Based Compensation  Transition and Disclosure  an
amendment of FASB Statement No. 123. SFAS 148 amends SFAS 123, Accounting for
Stock-Based Compensation to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 requires more prominent
disclosures in annual financial statements about the method of accounting used
for stock-based employee compensation and the effect of the method used on
reported results. The disclosure provisions of FASB 148 are effective for
fiscal years ending after December 15, 2002 and have been incorporated into our
consolidated financial statements and accompanying footnotes. We have elected
to continue to follow APB 25, which uses an intrinsic value based approach to
measure compensation expense.

Certain aspects of revenue arrangements.In November 2002, the Emerging
Issues Task Force (EITF) reached consensus on EITF Issue 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. This Issue addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. In some arrangements, the
different revenue-generating activities (deliverables) are sufficiently
separable, and there exists sufficient evidence of their fair values to
separately account for some or all of the deliverables (that is, there are
separate units of accounting). In other arrangements, some or all of the
deliverables are not independently functional, or there is not sufficient
evidence of their fair values to account for them separately. This Issue
addresses when and, if so, how an arrangement involving multiple deliverables
should be divided into separate units of accounting. This Issue does not change
otherwise applicable revenue recognition criteria. The provisions of this Issue
become effective for revenue arrangements entered into in fiscal periods
beginning after June 15, 2003. We are currently determining the impact of the
adoption of EITF 00-21 on our consolidated financial statements.

Guarantors accounting and disclosure.In November 2002, the FASB issued
FASB Interpretation (FIN) 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others  an interpretation of FASB statements 5, 57, and 107 and rescission of
FASB Interpretation 34. This Interpretation elaborates on the disclosure to be
made by a guarantor in its financial statements regarding obligations under
certain guarantees that it has issued. FIN 45 also clarifies that a guarantor
is required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation due to the issuance of the guarantee. Disclosure
requirements are effective for financial statements of periods ending after
December 15, 2002. The initial recognition and measurement provisions are
effective on a prospective basis for guarantees issued or modified after
December 31, 2002. We do not believe that the adoption of FIN 45 will have a
material impact on our financial position, results of operations, or cash
flows.

Variable interest entities.In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities  an interpretation of ARB No.
51, which clarifies the application of the consolidation rules to certain
variable interest entities. FIN 46 established a new multi-step model for the
consolidation of variable interest entities when a company has a controlling
financial interest based either on voting interests or variable interests.
Consolidation based on variable interests is
required by the primary beneficiary if the equity investors lack essential
characteristics of a controlling financial interest or if the equity investment
at risk is not sufficient for the entity to finance its activities without
additional subordinated financial support from other parties. The primary
beneficiary of a variable interest entity is the party that absorbs a majority
of the entitys expected losses, receives a majority of its expected residual
returns, or both, as a result of holding variable interests. FIN 46 also
provides disclosure requirements related to investments in variable interest
entities, whether or not those entities are consolidated. The requirements of
FIN 46 apply in the first fiscal year or interim period beginning after June
15, 2003 to variable interest entities in which an enterprise holds a variable
interest that is acquired before February 1, 2003. Also, certain disclosure
requirements apply to all financial statements issued after January 31, 2003,
regardless of when the

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variable interest entity was established. In connection with our adoption of FIN 46, we are still evaluating the underlying circumstances in order
to determine if a securitization vehicle with which WIND entered into
a transaction in 2002 qualifies as a variable interest entity and should
therefore be consolidated for U.S. GAAP purposes. See Note 4 for additional
details on this transaction and the related accounting treatment.
Were we to conclude that consolidation of the entity for U.S. GAAP
purposes as of December 31, 2002 was appropriate, there would be no
material effect on either our consolidated net income for the year then ended
or on our consolidated shareholders equity at that date under U.S.
GAAP. We have not identified any other entities which could be
qualified as variable interest entities.

Gains and losses on energy trading contracts.On October 25, 2002, the
EITF reached a consensus on Issue 02-3, Recognition and Reporting of Gains and
Losses on Energy Trading Contracts Under EITF Issues No. 98-10 and No. 00-17,
that changed the accounting for certain energy contracts:



| |  |  | EITF 02-3 prohibits the use of mark-to-market accounting for
any energy-related contracts unless they are derivatives. Any
contracts subject to EITF 02-3 must be accounted for on the accrual
basis if they are not derivatives. This change applies immediately to new
contracts executed after October 25, 2002 and was applied to all
then, existing non-derivative energy-related contracts beginning
January 1, 2003.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We are required to report the impact of initially applying
EITF 02-3 as the cumulative effect of a change in accounting
principle effective January 1, 2003.                                                                                                                                                                                                                                                               
|
| |  |  | The EITF minutes on Issue 02-3 indicate that an entity should
not record unrealized gains or losses at the inception of derivative
contracts unless the fair value of the contracts is evidenced by
observable market data.                                                                                                                                                                                                

EITF
02-3 requires us the recording of a non-cash, cumulative effect adjustment to convert
non-derivative mark-to-market contracts to accrual accounting no later than
January 1, 2003. We did not mark-to-market any non-derivative
contract.

Amendment to derivative instruments and hedging activities.On April 30,
2003, the FASB issued FASB Statement No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, to address
(1) decisions reached by the Derivatives Implementation Group, (2) developments
in other Board projects that address financial instruments, and (3)
implementation issues related to the definition of a derivative.

SFAS 149 has multiple effective date provisions depending on the nature of
the amendment to SFAS 133. We are currently evaluating the impact of adopting
SFAS 149 on our financial statements.

Financial instruments with characteristics of both liabilities and equity.
On May 15, 2003, the FASB issued FASB Statement No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or as an asset in some circumstances). Many of
those instruments were previously classified as equity. This statement is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities. It is to be implemented by reporting the
cumulative effect of a change in an accounting principle for financial
instruments created before the issuance date of the SFAS 150 and still existing
at the beginning of the interim

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period of adoption. Restatement is not
permitted. We are currently evaluating the impact of adopting SFAS 150 on our
consolidated financial statements.




Liquidity and Capital Resources

Liquidity

Our primary source of liquidity is cash generated from operations. Net
cash provided by operating activities was Euro 4,793 million in 2002, as
compared to Euro 6,164 million in 2001. The decrease of 22.2% as compared to
2001 was primarily attributable to the fact that in 2001 we recovered
contributions from the Equalization Fund related to prior years for an
aggregate of approximately Euro 1,600 million.

Cash used in investing activities was Euro 7,984 million in 2002, as
compared to Euro 13,559 million in 2001. The decrease of Euro 5,575 million, or
41.1%, was primarily due to a Euro 6,470 million decrease in expenditures for
acquisitions. Our acquisition expenditures in 2002 principally comprised our
payment of an aggregate of Euro 2,152 million for Viesgo and Camuzzi Gazometri,
whereas in 2001 we spent a total of Euro 8,640 million for the acquisition of
Infostrada and a number of minor gas distributors, as well as for advance
payments related to the acquisition of Viesgo and Camuzzi Gazometri. The impact
of the reduced level of acquisition expenditures was only partially offset by a
Euro 999 million increase in capital expenditures that primarily consisted of
expenditures related to the conversion of some of our power plants to
combined-cycle technology, our digital meter project and the development of our
telecommunications network. We met our financial requirements for the year
primarily through Euro 4,793 million of cash generated by our operations and
Euro 3,778 million generated by divestments, including the disposal of Eurogen
for Euro 2,980 million, the disposal of certain municipal distribution networks
for a total of Euro 550 million and the advance received on our disposal of
Interpower for Euro 55 million.

At December 31, 2002, our outstanding long-term debt, including current
maturities, was Euro 18,292 million, as compared to Euro 16,639 million at
December 31, 2001, reflecting increased borrowing to meet our financial
requirements in 2002. The increase of Euro 1,653 million, or 9.9%, was
primarily due to new loans (for a total principal amount of Euro 2,411 million)
including a total of Euro 1,762 million drawn down by WIND from two syndicated
credit facilities and a Euro 300 million loan extended by the European
Investment Bank to Enel Green Power. See Capital resources. The overall
increase in long-term debt also reflected an increase of Euro 309 million
attributable to acquisitions, including Euro 200 million in floating rate
listed bonds issued by Camuzzi Finance SA. and guaranteed by Camuzzi Gazometri
Repayments during the year totaling Euro 1,029 million, primarily reflecting
payments at maturity, reduced the amount of the overall increase in outstanding
long-term debt.

At December 31, 2002, our outstanding short-term debt was Euro 7,251
million, as compared to Euro 6,540 million at December 31, 2001. The increase
of Euro 711 million, or 10.9%, was due to an increase of Euro 1,167 million in
funds drawn down from our revolving credit lines and loans with
an 18-month maturity, and to the issuance of new commercial paper in an
outstanding amount of Euro 840 million. The impact of these factors was
partially offset by a Euro 1,083 million decrease attributable to the increased
repayment of short-term financing, and a Euro 213 million decrease reflecting
the changes in the scope of consolidation.

You should read note 10 to our consolidated financial statements for a
further discussion of our long-term and short-term debt.

Capital resources

At December 31, 2002, our net financial position, which is our principal
measure of liquidity and consists of cash at banks and marketable securities,
factoring receivables and other finance

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receivables less short-term debt and
long-term debt (including current maturities), was Euro 24,467 million,
comprising a net long-term financial position of Euro 18,292 million (including
current maturities) and a net short-term financial position of Euro 6,175
million. The increase of Euro 2,537 million, or 11.6%, as compared to Euro
21,930 million at December 31, 2001, reflected a Euro 2,770 million increase in
our net outstanding long-term and net short-term financial position, net of
currency differences, which accounted for a total of Euro 28 million, and the
effect of changes in the scope of consolidation, which accounted for a total of
Euro 205 million.

The following table details our net financial position as at December 31,
2001 and 2002, and provides a reconciliation of this non-GAAP measure to cash
at banks and marketable securities the most directly comparable GAAP measure
appearing in our consolidated statements of cash flows. The parenthetical
references to notes following particular line items in the table are to the
specific notes to our consolidated financial statements included in Item 18
where these line items are presented in greater detail.

|                                                         |  |                       |         |      |  |  |         |  
|-------------------------------------------------------- |  | --------------------- | ------- | ---- |  |  | ------- | -
|                                                         |  | At December 31,      
|                                                         |  |                      
|                                                         |  | 2001                  |         | 2002
|                                                         |  |                       |         |     
|                                                         |  | (in millions of euro)
|Cash at banks and marketable securities (note 2)         |  |                       | 587     |      |  |  | 400     |  
|Factoring receivables (note 4)                           |  |                       | 644     |      |  |  | 676     |  
|Other finance receivables                                |  |                       | 18      |      |  |  |        |  
|                                                         |  |                       | 1,249   |      |  |  | 1,076   |  
|Short-term debt(note 10):                                |  |                       |         |      |  |  |         |  
|Bank loans                                               |  |                       |         |      |  |  |         |  
|- 18-month loans                                         |  |                       | (500    | )    |  |  | (700    | )
|- Use of revolving credit lines                          |  |                       | (2,421  | )    |  |  | (3,388  | )
|- Other short-term bank debt                             |  |                       | (2,985  | )    |  |  | (1,719  | )
|Total bank loans                                         |  |                       | (5,906  | )    |  |  | (5,807  | )
|Commercial paper                                         |  |                       | (604    | )    |  |  | (1,444  | )
|Other short-term financial loans                         |  |                       | (30     | )    |  |  |        |  
|Total short-term debt                                    |  |                       | (6,540  | )    |  |  | (7,251  | )
|                                                         |  |                       |         |      |  |  |         |  
|Net short-term financial position                        |  |                       | (5,291  | )    |  |  | (6,175  | )
|Long-term debt (including current maturities)
(note 10): |  |                       |         |      |  |  |         |  
|Bank loans                                               |  |                       | (8,695  | )    |  |  | (10,401 | )
|Bonds                                                    |  |                       | (7,406  | )    |  |  | (7,543  | )
|Other loans                                              |  |                       | (538    | )    |  |  | (348    | )
|                                                         |  |                       |         |      |  |  |         |  
|Total Long-Term Debt (including current
maturities)      |  |                       | (16,639 | )    |  |  | (18,292 | )
|                                                         |  |                       |         |      |  |  |         |  
|Net Financial Position                                   |  |                       | (21,930 | )    |  |  | (24,467 | )
|                                                         |  |                       |         |      |  |  |         |  

We maintain committed lines of credit for Euro 6,488 million (Euro 2,400
million of which were unused as of December 31, 2002) and uncommitted lines of
credit and other short-term borrowing agreements with banks in Italy with
maximum borrowing limits aggregating approximately Euro 3,001 million as of
December 31, 2002 (Euro 1,792 million of which were unused as of that date).
The weighted average interest rate on our short-term borrowings was
approximately 3.2% as of December 31, 2002. We believe that our bank
facilities, together with our portfolio of cash and cash equivalents, are
sufficient to meet our present working capital needs.

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At December 31, 2002, only 3.2% of our long-term debt (including current
maturities of long-term debt) was denominated in currencies of countries that
are not participating in the euro, including Euro 172 million of long-term debt
which relates to our operating subsidiaries in the U.S. At the same date, 8.8%
of our long-term debt was guaranteed as to principal and interest by the
Italian government. At December 31, 2002, 68.0% of our long-term debt bore
interest at floating rates and 32.0% bore interest at fixed rates. To improve
our mix of floating and fixed-rate obligations, we have entered into certain
interest rate hedging contracts, particularly interest rate swaps, swaptions,
forward rate agreements and collars. Taking these hedging positions into
account, we have estimated that we are exposed to interest rate fluctuations
with respect to approximately 41.0% of our outstanding long-term debt. You
should read Item 11. Quantitative and Qualitative Disclosure About Market
Risk-Price risk management and market risk information for a discussion of
these contracts. Without giving effect to these arrangements, the weighted
average interest rate on our outstanding long-term debt as of December 31, 2002
was approximately 4.6%, as compared to approximately 4.9% as of December 31,
2001.

In 2001, WIND entered into two syndicated credit facilities for a total
amount of Euro 7,000 million. Under such facilities, the availability of funds
and changes in applicable interest rates are conditioned upon the maintenance
by WIND of certain financial ratios within certain levels. As of December 31,
2002, Euro 5,865 million were outstanding under these two facilities.

As part of our program to issue medium-term notes for a maximum aggregate
authorized amount of maximum Euro 7,500 million, in 2000, Enel S.p.A. issued
Euro 750 million of 5.875% fixed rate five-year bonds, and, in
2001, Enel Investment Holding BV, a wholly owned finance subsidiary of Enel S.p.A., issued
Euro 2,000 million of 5 % fixed rate three-year bonds guaranteed by Enel
S.p.A.. As part of the same program, in 2002, Enel S.p.A. issued 11
series of Euro-denominated bonds with an aggregate principal amount of Euro 617 million
and three Japanese Yen-denominated series of bonds with an aggregate principal
amount equivalent to Euro 118 million. The currency risk relating to the
placement of these Japanese Yen-denominated bonds has been hedged through
currency swaps entered into at the date of the issue. As of December 31, 2002,
an aggregate of Euro 3,485 million in notes was outstanding under this program.

In 2002, Enel Green Power entered into a 15-year floating-rate Euro 300
million loan with the European Investment Bank. Such loan is guaranteed by
Enel S.p.A. and its proceeds are to be used to finance investment projects,
including the construction of new plants and the upgrade of existing plants for
the generation of electricity from renewable resources. As of December 31,
2002, an aggregate of Euro 300 million was outstanding under this loan.

At December 31, 2002, a total of Euro 1,444 million was outstanding on
commercial paper issued by our subsidiary Enel Investment Holding BV with the
guarantee of Enel S.p.A., as part of a program with an aggregate authorized
amount of Euro 1,500 million. Of this outstanding amount,
Euro 720 million was denominated in euro, Euro 336 million was denominated
in U.S. dollars, Euro 263 million in U.K. pounds, Euro 30 million in Japanese
yen, and Euro 95 million in Swiss francs. We entered into currency swaps to
hedge foreign exchange risk in connection with the portion of this debt
denominated in currency other than the euro.

In June 2003, Enel S.p.A. issued Euro 750 million of 4.75% fixed rate
fifteen-year bonds and Euro 750 million of 4.25 % fixed rate ten-year bonds.
Both series of bonds are denominated in Euro.

Our borrowing requirements are not seasonal.

We manage our short-term financial needs through our centralized treasury
department, with the goal of optimizing cash flows for all the companies of the
Group on a daily basis. We use short-term borrowings facilities in order to
finance our working capital needs, aiming at ensuring flexible and
cost-effective financing for all companies of the Group.

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The
following table shows the ratings of our short-term debt and
long-term debt according to Standard & Poors and
Moodys Investors Service at May 31, 2003.

|                |  |                           |  |    
|--------------- |  | ------------------------- |  | ---
|Short-term debt |  | Standard & Poors         |  | A-1
|                |  | Moodys Investors Service |  | P-1
|Long-term debt  |  | Standard & Poors         |  | A+ 
|                |  | Moodys Investors Service |  | A1 

Future Liquidity and Capital Resources

The Group has adopted formal policies and decision making processes aimed
at optimizing the Groups overall financial situation and its allocation of
financial funds, cash management processes and financial risk management, as
well as ensuring sustainable levels of indebtedness.

We expect that cash flow from operations and cash received from
divestitures will continue to be the primary source of fund for our capital
expenditures and working capital requirements in 2003. We believe that our cash
flow and available liquid funds and credit lines will be sufficient to meet our
anticipated cash needs.

We expect that the following transactions have had or are likely to have a
significant effect on our liquidity and capital resources in 2003:



| |  | the divestiture of Interpower for total consideration of Euro 853
million (of which Euro 55 million was received as an advance payment
in 2002), including Euro 535 million in cash (this cash component, and
therefore the total consideration, may increase or decrease as a
result of the application of the price adjustment mechanism provided
by the agreement) and the assumption of Euro 318 million in debt;
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | the acquisition of 26.6% of the share capital of WIND from Wireless
Services Belgium SA., a subsidiary of France Télécom, for total
consideration of Euro 1,330 million.                                                                                                                                                                                                                                             

We do not engage in the use of special purpose entities for
off-balance sheet financing or any other purpose which results or may
result in
material assets or liabilities not being reflected in our consolidated
financial statements.

For a discussion of related party transactions, see Item 7. Major
Shareholders and Related Party Transactions Related Party Transactions.

Contractual Obligations

The following tables set forth the contractual obligations of the Group
with definitive payment terms which will require significant cash outlays in
the future, as of December 31, 2002:

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Contractual Obligations

|                                                                                          |  |             |       |          |  |           |       |       |  |       |       |         |  |  |        |  |  |  |        | 
|----------------------------------------------------------------------------------------- |  | ----------- | ----- | -------- |  | --------- | ----- | ----- |  | ----- | ----- | ------- |  |  | ------ |  |  |  | ------ | 
|                                                                                          |  | Less than 1 |       |          |  |           |       |       |  |       |       | After 5 |  |  |        | 
|(in millions of euro)                                                                     |  | year        |       | 1-3 year |  | 4-5 years |       | years |  | Total
|                                                                                          |  |             |       |          |  |           |       |       |  |      
|Long term debt (including current portion)                                                |  |             | 1,120 |          |  |           | 5,344 |       |  |       | 2,150 |         |  |  | 9,678  |  |  |  | 18,292 | 
|Substitute tax due upon the freeing-up of
accelerated depreciation reserves               |  |             | 252   |          |  |           | 119   |       |  |       |      |         |  |  |       |  |  |  | 371    | 
|Payable to Treasury Ministry for UMTS license                                             |  |             | 36    |          |  |           | 72    |       |  |       | 72    |         |  |  | 109    |  |  |  | 289    | 
|Payable to Ferrovie dello Stato for the
lease of Telecommunications Network rights
of way |  |             | 24    |          |  |           | 58    |       |  |       | 70    |         |  |  | 132    |  |  |  | 284    | 
|Commitments to suppliers of fuel                                                          |  |             | 3,516 |          |  |           | 3,733 |       |  |       | 3,858 |         |  |  | 21,953 |  |  |  | 33,060 | 
|Commitments to suppliers of electricity                                                   |  |             | 553   |          |  |           | 1,138 |       |  |       | 1,184 |         |  |  | 1,283  |  |  |  | 4,158  | 
|Operating leases                                                                          |  |             | 224   |          |  |           | 463   |       |  |       | 483   |         |  |  |       |  |  |  | 1,170  | 

We have entered into various fuel supply contracts primarily for the
purchase of fuel oil and natural gas. We expect that our expenditures related
to these commitments will approximate an aggregate of Euro 11,107 million for
the period from January 1, 2003 through December 31, 2007.

We also have unconditional purchase obligations for electric power. Our
aggregate expenditures related to these commitments are expected to total Euro
2,875 million for the period from January 1, 2003 through December 31, 2007.

The following table sets forth other commercial commitments of the Group
with definitive payment terms which will require significant cash outlays in
the future, as of December 31, 2002:

Other Commercial Commitments

|                             |  |  |       | 
|---------------------------- |  |  | ----- | 
|(in millions of euro)        |  |  |       | 
|Lines of credit              |  |  | 5,294 | 
|Commercial paper             |  |  | 1,444 | 
|Guarantees                   |  |  | 14    | 
|                             |  |  |       | 
|Total Commercial Commitments |  |  | 6,752 | 
|                             |  |  |       | 

We do not buy and sell derivative financial instruments for trading
purposes and do not account for commodity contracts at fair value for Italian
GAAP purposes. For a more detailed
discussion of our commodities risk management, please refer to Item 11.
Quantitative and Qualitative Disclosure About Market Risk Price risk
management and market risk information

Commitments

Although the actual amount of our capital expenditures in future periods
will depend on various factors that cannot presently be foreseen, we expect to
make capital expenditures and financial investments of approximately Euro
20,600 million in the period from 2003 to 2007.

Our planned capital expenditures include:

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| |  |  | Approximately Euro 6,200 million in our generation businesses,
including those scheduled to be made by Enel Green Power and Viesgo;                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Approximately Euro 1,100 million in our transmission business;                                                                                        
|
| |  |  | Approximately Euro 2,700 million in our telecommunications business;                                                                                  
|
| |  |  | Approximately Euro 8,200 million in our electricity distribution
business, including approximately Euro 1,700 million for our remote
metering project;
|
| |  |  | Approximately Euro 400 million in our gas distribution business; and                                                                                  
|
| |  |  | Approximately Euro 1,500 million in our information technology, real
estate and research and development activities.                                  

We have made significant capital investments in developing our
telecommunications business. We expect to continue to support WIND until it
achieves financial independence, which we expect to be by the end of 2004. We
expect that this commitment will require us to invest up to Euro 1,000 million
in new equity during this period. We incurred a substantial amount of debt and
made significant expenditures in connection with WINDs purchase of a third
generation UMTS mobile license and our acquisition of Infostrada. You should
read Item 4. Information on the
CompanyBusinessTelecommunicationsInfrastructure and Licences. WIND will be
required to make substantial investments during the next several years in order
to build out its UMTS network and develop related services and products, as
well as paying an additional Euro 289 million in respect of its license by the
end of 2010.




Trend Information

Please refer to Overview and Outlook for information relating to
recent trends in our production, sales, costs and selling prices, as well as
events that are reasonably likely to have a material effect on our net sales,
operating income, profitability, liquidity or capital resources, or that would
cause reported financial information not necessarily to be indicative of future
operating results or financial condition. Please refer to Commitments for a
discussion of our future capital expenditures.




Item 6. Directors, Senior Management and Employees




Directors

Enels board of directors is responsible for the management of the
Companys business. It has the power to take all actions consistent with the
corporate purpose described in the Companys by-laws, except for actions that
by law or under the Companys by-laws may only be taken by the Companys
shareholders. Enels board is elected for a term of up to three years.
Members are eligible for re-election. The board must consist of not less than
three and not more than nine
members. The board was appointed on May 24, 2002 and currently consists
of seven members whose three-year terms are scheduled to expire in 2005.

The chairman and chief executive officer are Enels legal representatives.
The chief executive officer generally has the power to represent Enel within
the scope of the functions delegated to him. For specific actions or
categories of actions, the power to represent the Company can be delegated by
the holder of such power to one of Enels employees or to third parties. On
December 2002, Enels chairman was entrusted with the duties of overseeing the
Companys audit system and participating in the preparation of the Companys
strategy, in both cases in accordance with the chief executive officer.

The quorum for board meetings is a majority of the members in place.
Resolutions are adopted by a majority of votes of those present. A board
meeting may be called by the chairman on

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his or her own initiative, must be
called upon a request of the majority of the boards members or upon request of
the board of statutory auditors (or at least two of its members) and must also
be called upon a request for a meeting for specific purposes of two directors
(or one director when the board is composed of three members).

The board has the power to delegate certain of its powers to one of its
members, and determines the powers and the functions delegated to such person.
Under applicable law and the Companys by-laws, the board may not delegate
certain of its responsibilities, such as the approval of the financial
statements or proposals of increases or reductions of the Companys capital.

On June 26, 2002 Enels board of directors appointed the members of the
Companys compensation committee and internal audit committee. Both
committees, which were originally established in January 2000, are composed of
three non-executive members. The current members of the compensation committee
are Francesco Taranto, Mauro Miccio and Fernando Napolitano. The current
members of the internal audit committee are Piero Gnudi, Franco Morganti and
Gianfranco Tosi. The compensation committee submits to the board of directors
proposals for resolutions concerning the compensation of the chief executive
officer, the directors to which certain powers have been delegated, and senior
executives. The internal audit committee has the authority to evaluate the
activity and periodic reports of both internal and external auditors, and is
primarily concerned with verifying the adequacy of Enels internal controls
system and in turn reporting to the full board of directors.

The Treasury Ministry has confirmed that as long as it remains the
Companys majority shareholder, it intends to continue to participate in the
nomination and election of the board of directors in order to protect its
investment as a shareholder. Under current law, as long as the Treasury
Ministry remains the Companys majority shareholder, the Court of Accounts,
which supervises the financial management of government-owned entities, will
exercise certain powers to protect the financial interests of the Italian
state. For example, the Court of Accounts has the right to inspect the
Companys financial statements and regularly reports its findings to the
President of the Senate and the President of the House of Representatives. In
addition, during this period, a non-voting representative of the Court of
Accounts may attend the meetings of the Companys board of directors and board
of statutory auditors.

The members of the Companys board of directors whose term expired on May
24, 2002, were: Enrico Testa, who was also the chairman of the board of
directors, Francesco Tatò, who was also the chief executive officer, Carlo
Angelici, Giuseppe Morchio, Franco Morganti, Carlo Tamburi and Francesco
Taranto. The names of the seven members of Enels current board of directors,
their current positions and the year when each was initially appointed as
director are set forth in the following table.

|                    |  |                                      |  |                |      | 
|------------------- |  | ------------------------------------ |  | -------------- | ---- | 
|                    |  |                                      |  | Year Initially
|Name                |  | Position                             |  | Appointed     
|                    |  |                                      |  |               
|Piero Gnudi         |  | Chairman                             |  |                | 2002 | 
|Paolo Scaroni       |  | Director and Chief Executive Officer |  |                | 2002 | 
|Mauro Miccio        |  | Director                             |  |                | 2002 | 
|Franco Morganti     |  | Director                             |  |                | 1999 | 
|Fernando Napolitano |  | Director                             |  |                | 2002 | 
|Francesco Taranto   |  | Director                             |  |                | 2000 | 
|Gianfranco Tosi     |  | Director                             |  |                | 2002 | 

We have briefly summarized below the principal business activities,
experience and other principal directorships, if any, of each of the Companys
current directors.

Piero Gnudi. Piero Gnudi gained professional experience holding numerous
positions on the

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board of directors and the board of statutory auditors of
several major Italian companies, including STET S.p.A. (now Telecom Italia
S.p.A.), Eni S.p.A. (the holding company of the Italian state-controlled energy
group), Enichem S.p.A. (a subsidiary of Eni S.p.A.), and Credito Italiano
S.p.A., a major Italian bank. He also served as economic advisor to the
Industry Ministry. In 1994, Mr. Gnudi was appointed to the board of directors
of IRI S.p.A., where he held a number of positions including that of supervisor
of privatizations in 1997, those of chairman of the board of directors and
chief executive officer in 1999, and that of chairman of the IRI Liquidation
Committee from 2000 to 2002. He is currently chairman of the board of directors
of RAI Holding S.p.A. (the holding company of the Italian state-owned
broadcasting group), vice-chairman of Unicredit Banca dImpresa S.p.A., and
director of Unicredito Italiano. He is also a member of the CNEL (National
Council of Economy and Labor), the steering committee of Assonime (an
association of Italian corporations) and the executive committee of the Aspen
Institute. He has been the chairman of the Companys board of directors since
May 2002 and he also sits on the board of directors of several of our group
companies.

Paolo Scaroni. Paolo Scaroni gained executive experience in Italy and
abroad with the Saint Gobain Group, a major manufacturer of glass, ceramics and
other products. From 1985 to 1996, he was vice-chairman of the board of
directors and chief executive officer of Techint S.p.A., an engineering and
construction company. In 1996, he joined the Pilkington group, one of the
worlds largest manufacturers of glass and glazing products, holding the
position of chief executive officer of the parent company until May 2002. He
is also vice-chairman of Sadi S.p.A., member of the board of directors of BAE
Systems and Alliance Unichem Plc., member of the supervisory board of ABN AMRO
Bank N.V., member of the executive committee of Confindustria (the association
of Italian industrialists) and member of the board of the business school of
Columbia University in New York. Mr. Scaroni has been the chief executive
officer and direttore generaleof the Company since May 2002, and he also sits
on the board of directors of several of our group companies.

Mauro Miccio.Mauro Miccio was a member of the board of directors of Ente
Cinema S.p.A. (now Cinecittà Holding S.p.A.), an Italian film production and
distribution company, from 1993 to 1996. Mr. Miccio was also a member of the
board of directors of RAI S.p.A. from 1994 to 1996, chairman of FERPI (the
Italian public relations federation) from 1994 to 2000, chairman of the board
of directors of Cinecittà Multiplex S.p.A. from 1997 to 2000, director of A.S.
Roma from 1997 to 2000 and chief executive officer of Agenzia della Modafrom
1998 to 2001, member of the board of directors of ACEA S.p.A. (the municipal
utility company of Rome) from 2000 to 2002. He is currently chief executive
officer of Eur S.p.A. and member of the steering and executive committees of
the Association of Industrialists in Rome. He is also president of ICI
(Corporate Communication Association). He has been a member of the Companys
board of directors since May 2002.

Franco Morganti. Franco Morganti began his career at Olivetti S.p.A. and
SGS S.p.A. (now ST Microelectronics S.p.A.), and subsequently started his own
business. Since 1974, he has offered
strategic consulting services in the field of telecommunications, for both
the public and private sectors. He was a member of the board of directors of
STET S.p.A. (now Telecom Italia S.p.A.) from 1981 to 1984, and from 1991 to
1997 served as a member of the advisory committee on technology and market
strategies of STET S.p.A. Mr. Morganti has also been vice-chairman of the
Databank Group since 1989. He is currently the vice president of the
International Institute of Communications in London, as well as president of
the ANFOV, an association of multimedia companies. He has been a member of
Enels board of directors since December 1999, and he is also a member of
WINDs board of directors.

Fernando Napolitano.Fernando Napolitano began his career working in the
marketing department at Laben S.p.A. (an aerospace production company in the
Finmeccanica Group), and subsequently worked at Procter & Gamble Italia S.p.A.
In 1990, he joined the Italian office of Booz Allen Hamilton, a consulting
company in the management and technology sector, where he was appointed partner
and vice-president in 1998. He is currently responsible for Booz Allen
Hamiltons Italian operations and actively involved in international projects.
Mr. Napolitano has been a member

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of the committee for surface digital
television at the Ministry of Communications since 2001 and director of the
European Center for Aerospace Research since 2002. He has been a member of the
Companys board of directors since May 2002.

Francesco Taranto. Francesco Taranto began his career with a brokerage
firm in Milan, and subsequently worked (from 1965 to 1982) at Banco di Napoli
S.p.A. He then held numerous managerial positions in companies operating in
the mutual fund sector, becoming head of security management at Eurogest S.p.A.
(from 1982 to 1984), and subsequently becoming general manager of Interbancaria
Gestioni S.p.A. (from 1984 to 1987). Having moved to the Prime Group (where he
worked from 1987 to 2000), he was for a long time the managing director of the
groups holding company. He is currently a member of the board of directors of
Pioneer Global Asset Management S.p.A. (a company of the Unicredito Group) and
Kedrios S.p.A., a company providing services to financial companies. He is
also a member of the corporate governance committee for listed companies
created by Borsa Italiana S.p.A., the Italian stock exchange. He has been a
member of the Companys board of directors since October 2000.

Gianfranco Tosi.Gianfranco Tosi has been a professor of the Polytechnic
Institute of Milan since 1982 and also taught in the University of Lecco in
1992. He extensively published on metallurgy, technology of metals and other
related subjects. He has served as member of the board of directors of several
Italian companies. He has also held several positions in associations
instituted within Confindustria. He was mayor of the city of Busto Arsizio
from 1993 to 2002. He has been a member of the Companys board of directors
since May 2002.




Senior Management

The table below sets forth our executive officers, who are not also
directors, their positions, the year they were appointed to such positions and
their ages as of June 30, 2003:

|                    |  |     |    |                     |  |                                                     |  |            |      |              |  |      |      | 
|------------------- |  | --- | -- | ------------------- |  | --------------------------------------------------- |  | ---------- | ---- | ------------ |  | ---- | ---- | 
|                    |  |     |    |                     |  |                                                     |  |            |      |              |  | Year
|                    |  |     |    |                     |  |                                                     |  | Year       |      | Appointed to
|                    |  |     |    |                     |  |                                                     |  | Joined the |      | Current     
|Name                |  | Age |    | Management Position |  | Group                                               |  | Position  
|                    |  |     |    |                     |  |                                                     |  |           
|Alessandro Bufacchi |  |     | 56 |                     |  | E-Business Development                              |  |            | 2000 |              |  |      | 2000 | 
|Vincenzo Cannatelli |  |     | 50 |                     |  | Head of Sales, Infrastructure
and Networks Division |  |            | 1999 |              |  |      | 2002 | 
|Antonio Cardani     |  |     | 53 |                     |  | Audit                                               |  |            | 2000 |              |  |      | 2000 | 
|Salvatore Cardillo  |  |     | 53 |                     |  | Legal Affairs                                       |  |            | 2000 |              |  |      | 2000 | 
|Gianluca Comin      |  |     | 40 |                     |  | Press and Communications                            |  |            | 2002 |              |  |      | 2002 | 
|Fulvio Conti        |  |     | 55 |                     |  | Chief Financial Officer                             |  |            | 1999 |              |  |      | 1999 | 
|Antonino Craparotta |  |     | 57 |                     |  | Head of Generation and Energy
Management Division   |  |            | 1999 |              |  |      | 2002 | 
|Angelo Delfino      |  |     | 63 |                     |  | Human Resources                                     |  |            | 1997 |              |  |      | 1999 | 
|Alfredo Macchiati   |  |     | 51 |                     |  | Regulatory Relations                                |  |            | 2000 |              |  |      | 2002 | 
|Sergio Mobili       |  |     | 62 |                     |  | Head of Transmission Division                       |  |            | 1967 |              |  |      | 2002 | 
|Tommaso Pompei      |  |     | 61 |                     |  | Head of Telecommunications
Division                 |  |            | 1996 |              |  |      | 2002 | 
|Massimo Romano      |  |     | 44 |                     |  | Public and International Affairs                    |  |            | 1997 |              |  |      | 1999 | 
|Claudio Sartorelli  |  |     | 58 |                     |  | Corporate Affairs                                   |  |            | 1970 |              |  |      | 1996 | 
|Luciana Tarozzi     |  |     | 59 |                     |  | Accounting                                          |  |            | 1965 |              |  |      | 1997 | 
|Salvatore Sardo     |  |     | 50 |                     |  | Purchasing                                          |  |            | 2003 |              |  |      | 2003 | 

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We have briefly summarized below the principal business activities and experience of our executive officers
listed above.

Alessandro Bufacchi. Alessandro Bufacchi held several positions in a
number of Italian computer companies, including Ing. Olivetti & C., where he
served as Vice-President Marketing of Enterprise Computer Division from 1993 to
1996, Wang Global Italia, where he served as head of the New Business
Development department from 1998 to 1999 and Getronics S.p.A., where he served
as head of the Enterprise Systems Division in 1999. He joined the Enel Group in
2000. He has been head of Enels e-business development department since May
2000. He has been also head of the operations department of Enel.it since April
2003.

Vincenzo Cannatelli. Vincenzo Cannatelli in the 1980s worked at STET, an
Italian telecommunications holding company, in Planning and Control. In 1987,
he became General Manager of Elsag S.p.A, of the Finmeccanica Group. He
subsequently served as Managing Director of Elsag Bailey Process Automation.
He joined the Enel Group in 1999 as Managing Director of the Gencos. In 2001,
he became the Chief Executive Officer of Enel Distribuzione, and in July 2002,
he was appointed Chief Operating Officer of each of the two business units in
the Sales, Infrastructure and Network Division. He currently is the Chairman
of Enel Distribuzione, Enel Gas, Enel Distribuzione Gas, So.le, Enel.si and
Enel Energia.

Antonio Cardani. Antonio Cardani served as head of the administration
department of Olivetti S.p.A. from 1994 to 1995. He served as head of
administration and finance department of Telemedia S.p.A. from 1995 to 1997. He
joined Telecom Italia S.p.A. in 1997, where he was responsible for strategic
planning from 1997 to 1998 and for planning and organizational development from
1998 to 2000. He has been head of Enels audit department since 2000.

Salvatore Cardillo. Salvatore Cardillo has served as the General Counsel
of a number of Italian companies, including Aeritalia-Finmeccanica (from 1983
to 1991), Alitalia S.p.A. (from 1991 to 1997), Edison S.p.A., a subsidiary of
Compart Group-Montedison (from 1997 to 1999) and De Agostini S.p.A., a major
Italian publishing company, from 1999 to 2000. He joined Enel in 2000 as
General Counsel, which is the position he still holds.

Fulvio Conti. Fulvio Conti held numerous positions in a number of Italian
companies during the 1990s. He served from 1993 to 1996 as head of the
Montedison-Compart Groups Finance department. He served from 1996 to 1998 as
Chief Financial Officer and General Manager of Ferrovie dello Stato S.p.A. He
held the position of General Manager and Chief Financial Officer of Telecom
Italia S.p.A., where he also held a number of position in the Group companies
in 1998 and 1999. He joined Enel in 1999 and he is currently Enels Chief
Financial Officer and director of a number of our group companies, including
Enel Distribuzione S.p.A., Enel Trade S.p.A., Enelpower S.p.A., Terna S.p.A.,
Enel Produzione S.p.A.

Antonino Craparotta.Antonino Craparotta joined the GE Group in 1975.
From 1985 to 1989 he served as General Manager of one of GEs affiliated
companies in Italy, SADE SADELMI Group. In 1991, he was named Executive Vice
President of Power Generation at ABB Italy, and Managing Director of ABB SAE
SADELMI. In 1997, Mr. Craparotta joined Techint S.p.A. as Executive Vice
President. In 1999, he was named Chief Executive Officer of Enel Produzione
S.p.A.. He is currently the Chief Operating Officer of the Generation and
Energy Management Division.

Angelo Delfino. Angelo Delfino served as head of Olivetti Italia S.p.A.s
human resources department from 1991 to 1996, before joining the Enel Group in
1997. He is currently head of Enels human resources department and director of
a number of group companies, including Enel Distribuzione S.p.A., Enelpower
S.p.A., Enel Produzione S.p.A.

Alfredo Macchiati. Alfredo Macchiati served as head of the research
department at CONSOB, the Italian Securities Exchange Commission from 1994 to
2000 and as head of

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investigation department at the Italian Antitrust Authority before joining
Enel at the end of 2000. He currently serves as head of Enels Regulatory
Affairs department.

Sergio Mobili.Sergio Mobili began his career at Enel in 1967. He has
held a number of positions within our Distribution Division, including heading
the regional distribution departments in two Italian regions (Lombardy and the
Veneto). In 1999, he was named Managing Director of Terna, and he is currently
Head of Transmission Division.

Tommaso Pompei.Tommaso Pompei has held positions at several Italian
companies. Until 1981, he was head of Alitalias Information Technology
Department. From 1982 to 1991, he was Managing Director of Sigma, a company
specializing in the development of value-added services for tourism and
transport. In 1991 and 1992, he served as a consultant to companies including
Olivetti, IBM, CAP Gemini, Finsiel, Pacific Telesis International and STET. In
1992, he became Chief Executive Officer of the Pronto Italia consortium, and in
1994 he became Chief Operating Officer of Italys second mobile telephone
operator (Omnitel Pronto Italia), during its start-up phase, and its Central
Director of Corporate Affairs in 1995. He subsequently moved to the Olivetti
Group, where he was Director of Telecommunications Policy and Strategy and
Chairman of Olivetti Telemedia Holding. He joined the Enel Group in November
1996. He currently is the Chief Executive Officer of our subsidiary WIND and
Head of the Telecommunications Division.

Massimo Romano. Massimo Romano served as head of the Public Affairs
department of the Ilva Group from 1990 to 1994 and as head of the External
Relations department of the Lucchini Group from 1994 to 1997. He joined Enel
in 1997, as head of the public affairs department. In 1999 he became head of
Enels Public and International affairs department, which is the position he
still holds. He is also member of the board of directors of Enel.Hydro S.p.A.

Claudio Sartorelli. Claudio Sartorelli joined Enel in 1970. Since then he
has held a number of positions. He was General Counsel from 1996 to 2000. He
has been head of Enels Corporate Affairs department since 1996 and he
currently serves as secretary of Enels board of directors.

Luciana Tarozzi. Luciana Tarozzi joined Enel in 1965. Since then she has
held a number of positions. She was head of Enels Control and Reporting
department from 1996 to 1997, and became head of Enels Accounting department
in 1997, which is the position she still holds. She is currently also a
director of Enelpower S.p.A., Enel Distribuzione S.p.A. and Enel Produzione
S.p.A.

Gianluca Comin. Gianluca Comin served as head of the public relations
department and communications department at Montedison S.p.A. from 1999 to
2001. He also served as head of the communications department at Telecom
Italia S.p.A from September 2001 to June 2002. He worked as a journalist at
Il Gazzettino, an Italian newspaper, from 1987 to 1999. He is also a member
of the board of directors of Syremont S.p.A., a company in the Montedison
Group. In July 2002, he joined Enel as head of the Press and Communications
department, which is the position he still holds.

Salvatore Sardo. Salvatore Sardo served from 1992 to 1997 as head of
Planning and Control department of Stet S.p.A. After the merger of Stet into
Telecom Italia in 1997, he became head of the Accounting and Control of Telecom
Italia. He served as chairman of Seat Pagine Gialle S.p.A. from 1998 to 2001.
He served as head of Real Estate and General Services department and held
numerous positions in several companies of Telecom Italia Group from 1999 to
January 2003. He joined Enel in February 2003 and he currently serves as head
of Enels Purchasing department.




Board of Statutory Auditors

Pursuant to the Italian Civil Code, in addition to electing the board,
Enels shareholders also elect a board of statutory auditors.

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Statutory auditors remain in office for a three-year term and may be
re-elected for consecutive terms or substituted automatically by an alternate
auditor if they resign or are unable to complete their term. Statutory
auditors may be removed only for cause and with the approval of an Italian
court.

The board of statutory auditors is responsible for reviewing Enels
management and financial reporting and financial condition. In conducting this
review the board of statutory auditors has a duty to the shareholders, to whom
it reports, and to Enel. The role of the board of statutory auditors includes
reviewing the Companys management, and, in particular, ensuring compliance
with applicable law and the Companys by-laws. Furthermore, the statutory
auditors must ensure that Enel maintains adequate organizational structure,
internal controls and administrative and accounting systems.

Enels current board of statutory auditors was appointed in May 2001. The
term of its members will expire in 2004. At that time, new members will be
appointed by the shareholders. The names of the current members, their
positions and the year during which each was initially appointed are set forth
in the following table.

|                  |  |                   |  |                |      | 
|----------------- |  | ----------------- |  | -------------- | ---- | 
|                  |  |                   |  | Year Initially
|Name              |  | Position          |  | Appointed     
|                  |  |                   |  |               
|Bruno De Leo      |  | Chairman          |  |                | 1992 | 
|Gustavo Minervini |  | Auditor           |  |                | 1992 | 
|Franco Fontana    |  | Auditor           |  |                | 2001 | 
|Roberto Ulissi    |  | Alternate Auditor |  |                | 2001 | 
|Francesco Bilotti |  | Alternate Auditor |  |                | 1995 | 

In addition, under Italian securities regulations, the Companys accounts
must be audited by external auditors appointed by the shareholders. The
appointment is communicated to the Commissione Nazionale per le Società e la
Borsa, or CONSOB. As of the fiscal year 2002, the Companys external auditors
for both consolidated and non-consolidated accounts are KPMG S.p.A. Under
Italian securities laws, listed companies may not appoint the same auditors for
more than three consecutive three-year terms. The external auditors issue an
opinion that the Companys financial statements are presented fairly in all
material respects. Their opinion is made available to the Companys
shareholders prior to the annual shareholders meeting.




Executive Compensation

Applicable Italian regulations (Article 78 of CONSOB Regulation No. 11971,
issued on May 14, 1999) require Enel to disclose in the Companys financial
statements the following information regarding the compensation for 2002 of
each of the directors and statutory auditors who served in such year. The
following amounts include compensation paid to such persons by Enels
subsidiaries.

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|                                         |  |                                         |  |              |         |                  |           |              |         |       |           |  |           |     |           | 
|---------------------------------------- |  | --------------------------------------- |  | ------------ | ------- | ---------------- | --------- | ------------ | ------- | ----- | --------- |  | --------- | --- | --------- | 
|                                         |  |                                         |  |              |         | Base             |           | Bonuses and  |         | Other
|Name                                     |  | Positions(s) Held                       |  | Compensation |         | Other Incentives |           | Compensation
|                                         |  |                                         |  |              |         |                  |           |             
|Fees (in euro)                          
|Former Directors                         |  |                                         |  |              |         |                  |           |              |         |       |           |  |           |     |           | 
|Enrico Testa                             |  | Chairman                                |  |              | 90,845  |                  |           |              |         |       |           |  | 310,593   | (1)
|Francesco Tatò                           |  | Managing Directorand direttore generale |  |              | 294,432 |                  |           |              | 650,736 | (2)   |           |  | 1,132,991 | (3)
|Carlo Angelici                           |  | Director                                |  |              | 31,246  |                  |           |              |         |       |           |  |           |    
|Giuseppe Morchio                         |  | Director                                |  |              | 30,936  |                  |           |              |         |       |           |  |           |    
|Carlo Tamburi                            |  | Director                                |  |              | 30,936  | (4)              |           |              |         |       |           |  | 6,870     | (5)
|Current Directors                        |  |                                         |  |              |         |                  |           |              |         |       |           |  |           |     |           | 
|Piero Gnudi                              |  | Chairman                                |  |              | 388,076 |                  |           |              | 112,117 | (6)   |           |  |           |    
|Paolo Scaroni                            |  | Managing Directorand direttore generale |  |              | 424,785 |                  |           |              | 295,361 | (6)   |           |  | 264,777   | (7)
|Mauro Miccio                             |  | Director                                |  |              | 57,953  |                  |           |              |         |       |           |  |           |    
|Franco Morganti                          |  | Director                                |  |              | 89,117  |                  |           |              |         |       |           |  | 74,975    | (8)
|Fernando Napolitano                      |  | Director                                |  |              | 57,953  |                  |           |              |         |       |           |  |           |    
|Francesco Taranto                        |  | Director                                |  |              | 93,821  |                  |           |              |         |       |           |  |           |    
|Gianfranco Tosi                          |  | Director                                |  |              | 57,953  |                  |           |              |         |       |           |  |           |    
|Total compensation of
Directors          |  |                                         |  |              |         |                  | 1,648,053 |              |         |       | 1,058,214 |  |           |     | 1,790,206 | 
|Statutory Auditors                       |  |                                         |  |              |         |                  |           |              |         |       |           |  |           |     |           | 
|Bruno De Leo                             |  | Chairman                                |  |              | 74,112  | (9)              |           |              |         |       |           |  |           |    
|Franco Fontana                           |  | Statutory Auditor                       |  |              | 61,200  |                  |           |              |         |       |           |  |           |    
|Gustavo Minervini                        |  | Statutory Auditor                       |  |              | 61,717  |                  |           |              |         |       |           |  |           |    
|Total compensation of
Statutory Auditors |  |                                         |  |              |         |                  | 197,029   |              |         |       |           |  |           |     |           | 
|                                         |  |                                         |  |              |         |                  |           |              |         |       |           |  |           |     |           | 
|Total compensation
paid(10)              |  |                                         |  |              |         |                  | 1,845,082 |              |         |       | 1,058,214 |  |           |     | 1,790,206 | 
|                                         |  |                                         |  |              |         |                  |           |              |         |       |           |  |           |     |           | 



---

For all positions held in group companies other than in Enel S.p.A., the
compensations of Francesco Tatò, Piero Gnudi and Paolo Scaroni have either been
renounced by them or paid to Enel S.p.A. and included in their base
compensation.




| | 1)  |  | Compensation paid for positions held in the following group
companies: Conphoebus S.p.A. (Chairman), Elettroambiente S.p.A.
(Chairman), Sfera S.p.A. (Chairman), Enel Real Estate S.p.A.
(Chairman), Dalmazia Trieste S.p.A. (Chairman) e WIND (Director).
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2)  |  | Bonus paid in 2002 with respect to achievements of certain group
results in 2001.                                                                                                                                                                         
| | 3)  |  | Compensation paid as direttore generaleand severance payment as
chief executive officer.                                                                                                                                                                  
| | 4)  |  | As required by a directive of the Department of Public Finance of
the Presidenza del Consiglio dei Ministri(Presidency of the Council of
Ministers), Euro 28,921.60 of the base compensation was paid to the
Treasury Ministry.                           
| | 5)  |  | As required by a directive of the Department of Public Finance of
the Presidenza del Consiglio dei Ministri(Presidency of the Council of
Ministers), Euro 5,041 of the compensation paid as director of Wind
were paid to the Treasury Ministry.          
| | 6)  |  | Bonus paid with respect to achievements of certain results in 2002.                                                                                                                                                                                       
| | 7)  |  | Compensation paid as direttore generale.                                                                                                                                                                                                                  
| | 8)  |  | Compensation paid for the positions held in Wind, including that of
Director.                                                                                                                                                                             
| | 9)  |  | As required by a directive of the Department of Public Finance of
the Presidenza del Consiglio dei Ministri(Presidency of the Council of
Ministers), Euro 32,192.47 of the base compensation was paid to the
Treasury Ministry.                           
| | 10) |  | We also granted benefits in kind to Piero Gnudi and Paolo Scaroni
for a total amount of Euro 3,625.                                                                                                                                                       

There are no service contracts entered into by Enels directors with the
Company or any of the Companys subsidiaries providing for benefits upon
termination of employment.

We do not disclose to the Companys shareholders or otherwise make
available public information as to the compensation of the Companys executive
officers.

The aggregate compensation Enel and its subsidiaries paid to all of the
Companys directors, senior managers and statutory auditors identified in this
annual report, excluding pension, retirement or similar benefits, for the year
ended December 31, 2002 was approximately Euro 10.2 million. The aggregate
amount paid or accrued for pension, retirement or similar benefits for the same
directors, statutory auditors and executive officers for the year ended
December 31, 2002 was approximately Euro 939,000.

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In addition, Francesco Tatò, in his capacity as direttore generaleuntil
May 24, 2002, was granted:



| |  | In 2000, 1,100,000 options to purchase the same number of Enels
ordinary shares. Only 616,000 of these options vested, and will be
exercisable in 2003 and 2004 at an exercise price of Euro 8.6.                                                                                                                                                                                                                            
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | In 2001, 2,635,000 options to purchase the same number of Enels
ordinary shares. Only 1,475,600 of these options vested, and will be
exercisable in 2004 and 2005 at an exercise price of Euro 7.272.                                                                                                                                                                                                                        
| 
| |  | In 2002, 3,820,500 options to purchase the same number of Enels
ordinary shares. All these options vested and, consequently, 30% of
these options may be exercised starting in 2003, an additional 30% may
be exercised starting in 2004, and the remaining 40% may be exercised
starting in 2005. The final date for the exercise of all such options
is December 31, 2007. The exercise price of the options is Euro
6.426.

Furthermore, in September 2002, Paolo Scaroni, in his capacity as
direttore generale, was granted 2,503,500 options to purchase the same number
of Enels ordinary shares. All these options vested and, consequently, 30% of
the options may be exercised starting in 2003, an additional 30% starting in
2004 and the remaining 40% starting in 2005. The deadline for the exercise of
all such options is December 31, 2007. The exercise price for the options
granted to him in 2002 is Euro 6.480.

Please refer to Item 10. Additional InformationStock Option Plan for a
complete description of the Companys stock option plan.




Share Ownership

The following table sets forth the number of Enels ordinary shares held
by each of the Companys directors and statutory auditors as of June 10, 2003:

|                                           |        |                                                    |        |        | 
|------------------------------------------ | ------ | -------------------------------------------------- | ------ | ------ | 
|Name of Director or Statutory Auditor      |        | Number of ordinary shares held as of June 10, 2003
|                                           |        |                                                   
|Piero Gnudi                                |        |                                                    | 58,524 | (1)   
|Paolo Scaroni                              |        |                                                    | 20,192 |       
|Franco Morganti                            |        |                                                    | 787    | (2)   
|Francesco Taranto                          |        |                                                    | 10,000 |       
|Bruno De Leo                               |        |                                                    | 525    |       
|Gustavo Minervini                          |        |                                                    | 262    | (3)   
|All other directors and statutory auditors |        |                                                    | 0      |       
|                                           | Total: |                                                    |        | 90,290 | 

| | (1) |  | 40,000 are held by a company controlled by Mr. Gnudi and 18,262 by Mr. Gnudis wife.
| | --- |  | ------------------------------------------------------------------------------------
| | (2) |  | 262 are held by Mr. Morgantis wife.                                                
| | (2) |  | All shares are held by Mr. Minervinis wife.                                        




Employees

As of December 31, 2002, we had 71,204 employees, of whom 891 held
managerial positions. The following table shows the breakdown of employees in
each of our principal segments as of December 31, 2002:

141



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##### Table of Contents



|                                   |                  |           |           |              |              |  |               |     | 
|---------------------------------- | ---------------- | --------- | --------- | ------------ | ------------ |  | ------------- | --- | 
|                                   |                  |           |           |              |              |  | Percentage of
|                                   |                  |           | Number of |              | Total Number
|Division                           |                  | Employees |           | of Employees
|                                   |                  |           |           |             
|Generation and Energy Management   |                  |           | 13,397    |              |              |  | 18.8          |    
|Sales, Infrastructure and Networks |                  |           | 39,489    | (*)          |              |  | 55.5          |    
|Transmission                       |                  |           | 3,106     |              |              |  | 4.4           |    
|Telecommunications                 |                  |           | 8,602     |              |              |  | 12.1          |    
|Other areas                        |                  |           | 6,083     |              |              |  | 8.5           |    
|Holding Company                    |                  |           | 527       |              |              |  | 0.7           |    
|                                   | Total Enel Group |           |           | 71,204       |              |  |               | 100 | 



---

|(*) Including employees of Enel Gas and Enel Trade.
|---------------------------------------------------

In recent years, we have pursued a policy of workforce rationalization,
primarily through attrition, which has resulted in a steady reduction in
employment levels: the number of our employees declined by 20.0%, from 88,957
at December 31, 1997 to 71,204 employees at December 31, 2002.

Based on the current retirement system available to our employees, the
Companys management estimates that the following number of employees will
retire during each of the periods shown:

|     |  |                     |  | 
|---- |  | ------------------- |  | 
|     |  | Estimated number of
|     |  | potential retirees 
|     |  |                    
|2003 |  | Not less than 3,900
|2004 |  | Not less than 1,000
|2005 |  | Not less than 1,800
|2006 |  | Not less than 1,700
|2007 |  | Not less than 2,000

If Italys current system of governmental retirement benefits changes
significantly, we will consider adopting other voluntary measures to reduce
employment levels. These measures may involve increased costs.

The increased use of automated, remote-controlled plants and of advanced
information technology and other rationalization measures has improved our
ability to conduct operations with fewer employees.

The table below shows our employment levels at the dates indicated. The
table does not take into account the employees of our telecommunications
segment during the period from 1996 to 2000, prior to our consolidation of
WIND.

|                                |  |      |        |      |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                |  | 1997 |        | 1998 |  | 1999 |        | 2000 |  | 2001 |        | 2002
|                                |  |      |        |      |  |      |        |      |  |      |        |     
|Employees (other
than managers) |  |      | 87,912 |      |  |      | 84,096 |      |  |      | 77,768 |      |  |  | 71,958 |  |  |  | 71,802 |  |  |  | 70,313 | 
|Managers                        |  |      | 1,045  |      |  |      | 842    |      |  |      | 743    |      |  |  | 689    |  |  |  | 859    |  |  |  | 891    | 
|Total                           |  |      | 88,957 |      |  |      | 84,938 |      |  |      | 78,511 |      |  |  | 72,647 |  |  |  | 72,661 |  |  |  | 71,204 | 

Most of our non-management employees in the electricity sector are members
of labor unions. The principal labor unions are the National Federation of
Energy Workers, to which 33.7% of our employees belong, the Italian Electrical
Companies Federation, to which 29.4% of our employees belong, and the Italian
Union of Chemical, Electrical and Manufacturing Workers, to which 9.4% of our
employees belong. Other employees are members of smaller labor unions, none of
which includes more than 2.0% of our employees.

142



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Typically, we and representatives of the three unions covering the largest
number of our employees negotiate and enter into a single collective bargaining
agreement every four years. Representatives of the smaller unions typically
sign the same agreement at a later date. Under the collective bargaining
agreement, wages and other compensation arrangements are negotiated every two
years.

In July 2001, we signed a collective bargaining agreement for employees in
the electricity industry with the unions, Gestore della Reteand So.g.i.n. The
new collective bargaining agreement for all electric employees also applies to
independent producers and to municipally owned electric utilities.

Under the terms of the collective bargaining agreements currently in
effect, employees covered by the agreement enjoy stability of employment and we
may terminate their employment only when they reach retirement age or for
cause. We believe that we can achieve our workforce rationalization objectives
principally through attrition.

We believe that our relations with the unions are generally satisfactory.
Our employees have the right under Italian law to strike, although the unions
have guaranteed that in such event a minimum level of service will be provided
in each of the generation, transmission and distribution segments. We have
entered into an agreement with our principal labor unions which regulates the
exercise of our employees right to strike. As a consequence, strikes or other
work stoppages have not significantly affected our operations in recent years.

Employee compensation in the past has been almost exclusively based on the
seniority and the position held by each employee. In 1999, we introduced
compensation based on performance for the our senior and junior management,
largely using a management by objective system with certain correction
mechanisms to ensure that compensation does not significantly depart from
market levels. This compensation method applied to approximately 66% of our
management in 2002. For top managers, the variable component of compensation
accounts for approximately 33% of total compensation. Salary incentives based
on sales have also been introduced for account managers of certain companies of
our group.

Employee benefits

We sponsor retirement plans that pay pension benefits as required by
Italian law and our collective bargaining agreements. The costs related with
these plans are expensed as the benefits vest. In addition, our employees are
eligible, upon termination, for severance pay under Italian law. We accrue a
reserve for these employee termination liabilities, net of applicable advances,
over the employees service periods.

Until the end of 1999, most of our employees were enrolled in the
Electricity Fund managed by INPS, the state funded social security system,
which covers pensions, disability pay and accidental death benefits. In 1999,
the Italian Parliament enacted a law that required the government to terminate
industry specific retirement funds, such as the Electricity Fund, and to merge
them into the general retirement fund for Italian workers. The Electricity
Fund was terminated on January 1, 2000 and covered workers have been enrolled
in the general pension fund for Italian employees. We were required to make
extraordinary contributions to the general pension fund in each of 2000, 2001
and 2002 to eliminate the deficit in the Electricity Fund. The net impact of
this change on our cash flow over the three-year period from 2000 to 2002 was
Euro 1,940 million. This impact reflected the effect of lower payments we made
to the national pension system in respect of the family benefits program,
following the January 2000 reduction of 3.72 percentage points in the rate on
which our payments are based. For Italian GAAP purposes, we are expensing the
amounts paid in the years 2000-2002 proportionately over the twenty-year period
between 2000 and 2019. However, for U.S. GAAP purposes, we expensed these
amounts in 2000-2002, during the year that the contributions were due. The
difference between the treatment of these payments under Italian GAAP and U.S.
GAAP
143Table of Contents

therefore had a significant negative effect on our U.S. GAAP results in
each of those three years. See Item 5. Operating and Financial Review and
ProspectsU.S. GAAP Reconciliation.




Item 7. Major Shareholders and Related Party Transactions




Major Shareholders

Prior to Enels initial public offering in November 1999, the Treasury
Ministry was Enels sole shareholder, having become such when Enel became a
joint stock company in July 1992. Before that date, Enel had been a public
statutory body owned by the Italian government. Enels initial public offering
consisted of a total of 3,848,802,000 ordinary shares (corresponding to
1,924,401,000 ordinary shares after the one-for-two reverse stock split
effective July 9, 2001) in the form of ordinary shares and ADSs (each
representing ten ordinary shares, at the time of the offering, and five
ordinary shares after the aforesaid one-for-two reverse stock split). The
offering of the Companys shares was the second-largest in history at the time
and generated gross proceeds of approximately Euro 16,550 million.

As of May 23, 2003, the Treasury Ministry owned 4,097,164,124 of Enels
ordinary shares, or 67.57% of the total number of outstanding ordinary shares.
As of May 23, 2003, no other entity or individual held 2% or more of the
Companys outstanding ordinary shares.

The Treasury Ministry may sell part of Enels shares at any time and has
announced that it intends to sell certain of Enels shares. There are no
minimum ownership or similar requirements under Italian law that would limit
sales of Enels shares by the Treasury Ministry. Sales of Enels ordinary
shares may have a material adverse effect on the price of the ordinary shares
and ADSs.

Within the context of the privatization procedures and regulations under
Italian law, the Treasury Ministry may, as a significant shareholder, ask
Enels board of directors to examine the possibility of dispositions, in whole
or in part, of some entities we control. Enels board would implement any such
transaction solely to enhance value for all shareholders.

The Treasury Ministry has indicated that it intends to continue to
participate in the nomination and election of Enels Board to protect its
investment as a shareholder. Under the 1994 privatization law and a 2000
decree of the President of the Council of Ministers, the Treasury Ministry has
special powers, regardless of the level of its shareholding in Enel, related
to:



| |  | The acquisition of Enels shares by third parties;                                 
|- |  | -----------------------------------------------------------------------------------
| 
| |  | Shareholders agreements;                                                          
| 
| |  | Major corporate changes; and                                                       
| 
| |  | Appointment of one director and the chairman of Enels board of statutory auditors.

In addition, the privatization law provides that Enels by-laws may include:



| |  | Special rules concerning appointments of directors and statutory auditors in order to ensure that minority shareholders are
represented; and
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Limitations on the maximum number of shares that a shareholder, or group of shareholders, other than the Treasury Ministry,
may hold.       

Certain provisions of Enels by-laws, as well as the special powers the
Treasury Ministry retains, are described in more detail in Item 10.
Additional InformationBy-laws.

As of June 10, 2003, 6,063,075,189 ordinary shares were outstanding. As
of the same date, there were 3,163,484 ADSs (equivalent to 15,817,420 ordinary
shares) held by 6 record holders (including the Depository Trust Company).

144



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##### Table of Contents



Since certain of the shares and ADSs were held by brokers or other
nominees, the number of direct record holders in the United States may not be
fully indicative of the number of direct beneficial owners in the United States
or of where the direct beneficial owners of such shares are resident.




Related Party Transactions

As the entity primarily responsible for electricity generation,
transmission and distribution in Italy, we provide services to many other
state-owned entities. The rates earned are comparable to the tariff rates
charged to similar commercial organizations.

Under the current regulatory framework, we are required to enter into
certain transactions with the Gestore della Rete(which is wholly owned by the
Treasury Ministry, Enels majority shareholder). Prices and fees we pay to or
receive from the Gestore della Retein connection with these transactions are
determined by the Energy Authority.

Our Generation and Energy Management division sells all the electricity we
produce under the CIP 6 regime to the Gestore della Rete.The revenues produced
from these sales represented approximately 3% of our group revenues in 2002.
Moreover, our generation companies pay to the Gestore della Retea fee for the
access to the National Transmission System due on the hydroelectric and
geothermal production that does not fall within CIP 6 regime. The amount of
these transactions represents approximately 2% of our operating expenses in
2002. Terna earns revenue from a fee per kWh transported that distributors and
suppliers pay to us through the Gestore della Rete. The revenues relating to
these fees represented approximately 2% of total Group revenues in 2002. Our
Sales, Infrastructure and Networks division purchases electricity from the
Gestore della Reteand pays to the same fees for the use of the national
transmission network. The expenses relating to these price and fees represented
approximately 10% of total operating expenses in 2002.

We purchase fuel for our generation plants and gas for our sales activity
from Eni S.p.A and its subsidiaries, whose largest shareholder is the Treasury
Ministry, which owns approximately 30% of Enis shares. Total purchases from
Eni accounted for approximately 7% of our total operating expenses in 2002.

Total purchases from state-owned companies accounted for approximately 20%
of our total operating expenses in 2002.

No member of the board of directors or board of statutory auditors and no
senior officer (including close members of any such persons families) nor any
enterprise over which any such person is able to exercise a significant
influence has had any interest in any transactions that are or were unusual in
their nature or conditions or are or were material to the Company, and that
were either effected since December 31, 1999 or that were effected during an
earlier period and remain in any respect outstanding or unperformed. Except as
described below, we have not provided any loans or guarantees to or for the
benefit of any such person since December 31, 1999 or that remain outstanding
or unperformed.

We generally provide loans to our employees, including executive officers,
up to the amount of Euro 52,000 per employee. Under this policy, we have
granted loans up to such amount to certain of our executive officers, including
senior officers.

You should read note 22 to our consolidated financial statements for
further details.

145



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##### Table of Contents






Item 8. Financial Information




Consolidated Financial Statements

Please refer to Item 18. Financial Statements of this annual report.




Other Financial Information

Legal Proceedings

We are defendants in a number of legal proceedings incidental to the
generation, transmission and distribution of electricity. Because of the
nature of these proceedings, we are not able to predict their ultimate
outcomes, some of which may be unfavorable to us. However, we do not expect
these proceedings, either individually or in the aggregate, to have a material
adverse effect on our financial position or results of operations.

Our pending legal proceedings include various civil and environmental
claims and disputes relating to the construction and operation of several power
stations, transmission and distribution lines, and other matters that arise in
the normal course of our business. We have established a reserve for
litigation and other contingent liabilities where we consider it probable that
a claim will be resolved unfavorably and where we can reasonably estimate the
potential loss involved. This reserve, which also includes provisions for
other contingencies and uncertainties related to our operations, is included in
other non-current liabilities in the consolidated balance sheets in our
consolidated financial statements, and amounted to Euro 1,181 million at
December 31, 2002, of which Euro 400 million related to legal proceedings.

We have briefly summarized below the most significant proceedings.

Notwithstanding the fact that the relevant infrastructure is, in our
opinion, in compliance with applicable laws, we are currently defendants in
numerous pending proceedings relating to the electromagnetic fields created by
our transmission and distribution lines and in some pending proceedings
relating to electromagnetic energy emanating from substations. In most of the
proceedings, the plaintiffs seek the relocation or removal of lines or
substations that are near to inhabited or occupied residential or office
buildings. In a limited number of proceedings, the plaintiffs also seek
damages based on our alleged non-compliance with regulations setting maximum
exposure levels or minimum distance requirements for lines and substations or
on the alleged health effects of exposure to electromagnetic fields.

Alleged damage as a result of exposure to electromagnetic fields created
by our transmission and distribution lines has also been the subject of certain
criminal proceedings in which we are involved. In June 1999, the criminal
court of Rimini fined us symbolic damages of approximately Euro 1,000 in one
proceeding and transferred the case to the civil court for the quantification
of the physical damage to the individual plaintiff. We have appealed the
decision.

In October 2000, the public prosecutor for the city of Turin initiated an
investigation against a manager and the chief executive officer of Terna, as
well as the former chairman of the Companys board, based on alleged harmful
effects in connection with certain instances of diseases that had occurred in
the province of Piedmont.

In the cases described above, the transmission and distribution lines in
question are in compliance with all applicable laws. Moreover, we believe that
certain of such proceedings have become moot as a result of a new law, enacted
in March 2001, which replaced previous legislation on electromagnetic fields
and introduced measures for the restructuring of the Italian electricity grid.
In
146Table of Contentsany event, if the outcome of the above civil cases is unfavorable to us,
our potential liability would be limited mainly to damages, to the extent
plaintiffs satisfied their burden of proof by demonstrating a causal connection
between electromagnetic fields and the alleged damage. You should read Item 3.
Key InformationRisk FactorsRisks Relating to Our Energy BusinessOur core
energy business and other activities are subject to numerous environmental
regulations that could significantly affect our results of operations and
financial condition and Item 4. Information on the CompanyRegulatory
MattersEnvironmental MattersElectromagnetic fields for a more detailed
discussion of electromagnetic fields.Since 1997, several suppliers of equipment to our distribution division
have brought civil actions against us claiming that we abused our market power
in the Italian electricity distribution sector by imposing contractual terms
and conditions on them. The plaintiffs have sought increases in the
compensation paid to them under supply contracts with us. We are contesting
the suppliers claims. The first three decisions rendered in these cases
upheld our contention that civil courts lack jurisdiction to hear these cases.
In 1995, the Antitrust Authority, prompted by similar claims filed by the same
suppliers, issued an opinion in which it held that our conduct did not
constitute an abuse of market power. Following the withdrawal of the petitions
filed by several suppliers, the aggregate value of the claims currently pending
against us is Euro 163 million.In February 2003, the public prosecutor of Milan seized documentation
relating to certain transactions carried out by Enelpower in the Middle East.
The seizure is part of a criminal proceeding against the former chief executive
officer and a former senior executive of Enelpower and 12 other persons for the
alleged commission of certain crimes, including embezzlement, fraud, corruption
and false statements to shareholders, in connection with certain transactions
carried out by Enelpower in the Middle East and Italy. On March 5, 2003,
Enelpower was notified of the pending investigation and the possible
administrative liability it may incur in relation to the alleged crimes. On
June 6, 2003, the Tribunal in Milan, upon request of the public prosecutor,
ordered the arrest of the former chief executive officer and a former senior
executive of Enelpower on suspicion of such charges. None of the individuals
charged to date are currently employed by Enel. Enel and Enelpower intend to
seek any damages caused to them by any violations committed by former officers
of Enelpower, should such violations be proved as a result of the pending
investigation.In March 2003, the European Commission requested information from the
Italian Government in order to assess whether the capital contributions we made
to WIND from 1998 through October 2002, the loans we granted to WIND or the
terms and conditions of our lease agreement for fiber optic cables with WIND
violated restrictions on state aid to companies. At this stage, we cannot
predict if the European Commission will open a formal investigation of any of
these matters, nor can we predict the eventual outcome of such investigation.In March 2002, the Italian Antitrust Authority started an investigation in
order to assess whether we abused of our dominant position by, inter alia,
including in our form of agreement for the sale of electricity to Eligible
Customers in 2002, certain exclusivity and priority clauses aimed at
discouraging the Eligible Customers changing their supplier of electricity,
therefore hindering the development of the free market. The conclusion of the
investigation is expected to occur in October 2003. At this stage, we cannot
predict the eventual outcome of such investigation.We are currently involved in a contract dispute with Echelon, which
provides the network control technology for the Telemanagement system and in
which we hold an 7.5% interest, regarding a payment of approximately $3
million. Echelon has indicated that if we do not make the payment Echelon
believes it is due, it intends to pursue arbitration of the dispute.Dividend PolicyEnels shareholders are entitled to receive interim or annual dividends
that the Companys board recommends and, in the case of annual dividends, that
the Companys shareholders approve.147Table of ContentsDividends were declared and paid in Italian lire until July 8, 2001. On
July 9, 2001, the re-denomination of the Companys share capital into euro and
a one-for-two reverse stock split became effective, and since then dividends
have been declared and paid in euro. The following table shows the amount in
euro of the Companys dividends per share payable in respect of each of the
fiscal years indicated based on the 12,126,150,379 ordinary shares outstanding
in each of the years from 1998 to 2000, and the Companys dividends per share
based on the 6,063,075,189 ordinary shares outstanding in 2001 and 2002.Prior to the Companys initial public offering in November 1999, the
Treasury Ministry was Enels sole shareholder.

|                                                   |  |                         |      |      |  |      |      |      |  |      |      |  |  |  |      |  |  |  |      | 
|-------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- |  |  |  | ---- | 
|                                                   |  | Year ended December 31,
|                                                   |  |                        
|                                                   |  | 1998                    |      | 1999 |  | 2000 |      | 2001 |  | 2002
|                                                   |  |                         |      |      |  |      |      |      |  |     
|Dividends per ordinary share (in euro)             |  |                         | 0.08 |      |  |      | 0.12 |      |  |      | 0.13 |  |  |  | 0.36 |  |  |  | 0.36 | 
|Dividends per ordinary share (in U.S. dollars) (1) |  |                         | 0.09 |      |  |      | 0.11 |      |  |      | 0.12 |  |  |  | 0.32 |  |  |  | 0.38 | 



---

|(1) |  | We have translated the historical dividend amounts into U.S. dollars
using the noon buying rate for lire, with respect to the years 1998, and
for euro, with respect to the years from 1999 to 2002, in effect on the
respective payment dates. The noon buying rate for euro may differ from
the rate that may be used by the Depositary for the ADSs in order to
convert euro into U.S. dollars for purposes of making payments to holders
of ADSs.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

At the Companys shareholders meeting on September 3, 1999, the Treasury
Ministry, at that time the Companys sole shareholder, approved the
distribution of an extraordinary dividend of Lit. 4,422,000 million (Euro 2,284
million) that was paid to the Treasury Ministry in October 1999.

The dividends that we declared during the period prior to the Companys
initial public offering in November 1999 reflected the Companys status as a
company wholly owned by the Italian government. You should not consider the
Companys dividend pay-out ratio, or amount of dividends paid as a percentage
of the Companys earnings, during this period as indicative of Enels future
dividend pay-out ratio.

At Enels annual shareholders meeting on May 26, 2000, the shareholders
approved the board of directors proposal to pay an aggregate dividend of
approximately Lit. 2,813,000 million (Euro 1,453 million), or Lit. 232 (Euro
0.12) per ordinary share having a par value of Lit. 1,000 (Euro 0.52) each, in
respect of the fiscal year ended December 31, 1999. The amount of the
aggregate dividend was equal to approximately 62% of our consolidated net
income for the year and was paid from June 22, 2000 to holders of record as of
June 19, 2000.

At Enels annual shareholders meeting on May 25, 2001, the shareholders
approved the board of directors proposal to pay an aggregate dividend of
approximately Lit. 3,056,000 million (Euro 1,578 million), or Lit. 252 (Euro
0.13) per ordinary share having a par value of Lit. 1,000 (Euro 0.52) each, in
respect of the fiscal year ended December 31, 2000. The amount of the
aggregate dividend was equal to approximately 72% of our consolidated net
income for the year and was paid from June 21, 2001 to holders of record as of
June 18, 2001.

At Enels annual shareholders meeting on May 24, 2002, the shareholders
approved the board of directors proposal to pay an aggregate dividend of
approximately Euro 2,183 million, or Euro 0.36 per ordinary share having a par
value of Euro 1 each, in respect of the fiscal year ended December 31, 2001.
The amount of the aggregate dividend was equal to approximately 52% of our
consolidated net income for the year and was paid from June 27, 2002 to holders
of record as of June 24, 2002.

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At Enels annual shareholders meeting on May 23, 2003, the shareholders
approved the board of directors proposal to pay an aggregate dividend of
approximately Euro 2,183 million, or Euro 0.36 per ordinary share having a par
value of Euro 1 each, in respect of the fiscal year ended December 31, 2002.
The amount of the aggregate dividend was equal to approximately 109% of our
consolidated net income for the year and was paid from June 26, 2003 to holders
of record as of June 23, 2003.

Italian law allows Enel to pay dividends only out of the Companys
statutory retained earnings, plus the distributable reserves and statutory net
income for the current year, net of the amount to be allocated to the legal
reserve in the subsequent year. Italian law requires companies to contribute 5%
of their net income each year to the legal reserve until the aggregate amount
of this reserve is equal to 20% of the aggregate par value of their issued and
outstanding share capital. As the aggregate amount of Enels legal reserve was
exceeding to such aggregate par value, the Company did not allocate any of its
2002 net income to such a reserve. Enel board will recommend the payment of
any future dividends in light of conditions then existing, including:



| |  | Our financial performance;               
|- |  | -----------------------------------------
| 
| |  | Cash and capital requirements;           
| 
| |  | Any restrictions in financing agreements;
| 
| |  | Prevailing business conditions.          

Enel will pay dividends on ordinary shares represented by ADSs to the
Depositary. The Depositary will convert the dividends into U.S. dollars at the
prevailing rate of exchange, net of conversion expenses of the Depositary and
any applicable Italian withholding tax. The amount of dividends received by
holders of ADSs in U.S. dollars may be affected by fluctuations in exchange
rates. You should read Item 3. Key InformationExchange Rates and Item 3.
Key InformationRisk FactorsRisks Relating to Enels Ordinary Shares and
ADSsThe dollar value of dividends Enel pays in respect of the Companys
ordinary shares and ADSs will be affected by the euro/dollar exchange rate for
a more detailed discussion of the risks of Euro/dollar exchange rate
fluctuations for holders of ADSs.




Significant Changes

In January 2003, we sold 100% of the share capital of Interpower to a
consortium of bidders including Italian consortium Energia Italiana, Electrabel
S.A. and ACEA S.p.A. for a total consideration of Euro 853 million, including
Euro 535 million in cash (the cash component, and therefore the total
considered may increase or decrease as a result of the application of the price
adjustment mechanism provided by the sale and purchase agreement) and the
assumption of Euro 318 million in debt.

In March 2003, in order to become WINDs sole shareholder, we agreed with
Wireless Services Belgium SA, a subsidiary of France Télécom, to acquire its
26.6% stake in WIND for Euro 1,330 million and the assumption of Euro 173
million in debt. In addition, Wireless Services Belgium SA, agreed to waive
its right to increase its participation in WIND up to 44%. Closing of this
transaction is expected to occur in early July 2003.

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Item 9. The Offer and Listing




Markets and Price Range of ADSs and Ordinary Shares

The principal trading market for Enels ordinary shares is the Mercato
Telematico Azionarioor Telematico, the Italian automated screen-based trading
system managed by the Borsa Italiana S.p.A.Enels shares are traded on
Telematico under the symbol ENEL. American Depositary Shares or ADSs (each
representing 5 ordinary shares) are listed on the New York Stock Exchange,
where they are traded under the symbol EN. Citibank, N.A. is Enels
depositary for purposes of issuing the American Depositary Receipts evidencing
the ADSs. Trading in Enels ordinary shares on the Telematico and in Enels
ADSs on the New York Stock Exchange commenced on November 2, 1999.

The following table sets forth, for the periods indicated, the reported
high and low sales prices of the ADSs on the New York Stock Exchange, adjusted
to reflect the effect of the one-for-two reverse stock split, effective on July
9, 2001, on the ADSs.

|                         |                                  |  |              |       |     |  |  |       | 
|------------------------ | -------------------------------- |  | ------------ | ----- | --- |  |  | ----- | 
|                         |                                  |  | ADSs        
|                         |                                  |  |             
|                         |                                  |  | High         |       | Low
|                         |                                  |  |              |       |    
|                         |                                  |  | (in dollars)
|1999                     |                                  |  |              |       |     |  |  |      
|                         | Fourth Quarter (starting Nov. 2) |  |              | 45.23 |     |  |  | 41.13 | 
|2000                     |                                  |  |              |       |     |  |  |      
|                         | First Quarter                    |  |              | 46.00 |     |  |  | 38.63 | 
|                         | Second Quarter                   |  |              | 45.38 |     |  |  | 41.13 | 
|                         | Third Quarter                    |  |              | 44.19 |     |  |  | 36.75 | 
|                         | Fourth Quarter                   |  |              | 39.70 |     |  |  | 35.05 | 
|2001                     |                                  |  |              |       |     |  |  |      
|                         | First Quarter                    |  |              | 38.85 |     |  |  | 30.40 | 
|                         | Second Quarter                   |  |              | 34.72 |     |  |  | 30.06 | 
|                         | Third Quarter                    |  |              | 35.10 |     |  |  | 25.00 | 
|                         | Fourth Quarter                   |  |              | 33.50 |     |  |  | 26.80 | 
|2002                     |                                  |  |              |       |     |  |  |      
|                         | First Quarter                    |  |              | 29.09 |     |  |  | 27.41 | 
|                         | Second Quarter                   |  |              | 30.31 |     |  |  | 28.07 | 
|                         | Third Quarter                    |  |              | 28.60 |     |  |  | 22.60 | 
|                         | Fourth Quarter                   |  |              | 25.85 |     |  |  | 23.70 | 
|December 2002  May 2003 |                                  |  |              |       |     |  |  |      
|                         | December 2002                    |  |              | 25.85 |     |  |  | 24.20 | 
|                         | January 2003                     |  |              | 29.12 |     |  |  | 26.58 | 
|                         | February 2003                    |  |              | 29.64 |     |  |  | 27.44 | 
|                         | March 2003                       |  |              | 29.25 |     |  |  | 26.78 | 
|                         | April 2003                       |  |              | 29.56 |     |  |  | 28.58 | 
|                         | May 2003                         |  |              | 35.00 |     |  |  | 29.84 | 

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The following table sets forth, for the periods indicated, the reported
high and low official sales prices for the ordinary shares on Telematico,
adjusted to reflect the one-for-two reverse stock split, effective on July 9,
2001.

|                         |                                  |  |           |       |     |  |  |       | 
|------------------------ | -------------------------------- |  | --------- | ----- | --- |  |  | ----- | 
|                         |                                  |  | Ordinary 
|                         |                                  |  | Shares   
|                         |                                  |  | High      |       | Low
|                         |                                  |  |           |       |    
|                         |                                  |  | (in Euro)
|1999                     |                                  |  |           |       |     |  |  |      
|                         | Fourth Quarter (starting Nov. 2) |  |           | 8.593 |     |  |  | 7.840 | 
|2000                     |                                  |  |           |       |     |  |  |      
|                         | First Quarter                    |  |           | 9.267 |     |  |  | 7.348 | 
|                         | Second Quarter                   |  |           | 9.357 |     |  |  | 8.499 | 
|                         | Third Quarter                    |  |           | 8.989 |     |  |  | 8.292 | 
|                         | Fourth Quarter                   |  |           | 8.832 |     |  |  | 7.740 | 
|2001                     |                                  |  |           |       |     |  |  |      
|                         | First Quarter                    |  |           | 8.051 |     |  |  | 6.525 | 
|                         | Second Quarter                   |  |           | 7.603 |     |  |  | 6.954 | 
|                         | Third Quarter                    |  |           | 7.811 |     |  |  | 5.650 | 
|                         | Fourth Quarter                   |  |           | 6.873 |     |  |  | 6.079 | 
|2002                     |                                  |  |           |       |     |  |  |      
|                         | First Quarter                    |  |           | 6.663 |     |  |  | 6.137 | 
|                         | Second Quarter                   |  |           | 6.765 |     |  |  | 5.607 | 
|                         | Third Quarter                    |  |           | 5.835 |     |  |  | 4.490 | 
|                         | Fourth Quarter                   |  |           | 5.167 |     |  |  | 4.784 | 
|December 2002  May 2003 |                                  |  |           |       |     |  |  |      
|                         | December 2002                    |  |           | 5.087 |     |  |  | 4.841 | 
|                         | January 2003                     |  |           | 5.471 |     |  |  | 5.058 | 
|                         | February 2003                    |  |           | 5.445 |     |  |  | 5.115 | 
|                         | March 2003                       |  |           | 5.331 |     |  |  | 5.015 | 
|                         | April 2003                       |  |           | 5.432 |     |  |  | 5.227 | 
|                         | May 2003                         |  |           | 5.969 |     |  |  | 5.356 | 

Enels ordinary shares are among the constituents of the MIB 30 Index, the
primary Italian stock market index.

As of June 24, 2003, 6,063,075,189 ordinary shares were outstanding.

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Item 10. Additional Information




Stock Option Plan

In March 2000, Enels board of directors approved an executive stock
option incentive plan, which we refer to as the Plan, for the grant of options
to certain of the Groups senior managers (as identified by the board of
directors at the time of the grant).

The Plan distinguishes between options that, once vested, may be exercised
after the first anniversary of the grant date, or One Year Options, and those
that, once vested, may be exercised only after the third anniversary of the
grant date, or Three Year Options. Of the options granted to each individual
participant in any single year, 20% are One Year Options and the remaining 80%
are Three Year Options.

Options vest if the average reference price of Enels shares on Telematico
over the last three months of the year of the grant is higher than a target
price determined by the board of directors at the time of the grant. The board
sets the Target Price with reference to securities analysts estimates of the
future price of Enels shares. If the Target Price is not met in a given year,
all of the One Year Options and 30% of the Three Year Options granted in that
year do not vest and expire. However, the remaining 70% of the Three Year
Options granted in the year (56% of the Options) may still vest if (i) the
price of Enels shares on Telematico during the year of the grant outperforms a
specified reference index over the same period and (ii) the actual growth in
value of our business, or AGV, during the year of the grant (as determined
using a proprietary formula) exceeds the expected growth for that year, as
determined by the board of directors at the time of the grant. If these
conditions are not met, the remaining 70% of Three Year Options may also vest
if the average reference price of Enels shares on Telematico over the last
three months of the second year following the grant is higher than the Target
Price for the year of the grant, as adjusted for the expected variation of the
price of Enels shares in the following two years, as determined by the board
of directors each year.

One Year Options, if vested, may be exercised from the first to the fourth
year following the grant. Three Year Options, if vested, may be exercised in
the third and fourth year following the grant. In all cases, the options may
only be exercised within fifteen trading days following the shareholders
approval of the financial statements for the preceding fiscal year. The strike
price of the options is set by the board of directors at a date no later than
the date of the grant and cannot be lower than the average reference price of
Enels shares on Telematico during the month preceding the grant. Options are
not transferable, except in certain cases.

Under the Plan, in March 2000, Enels board of directors granted to 144 of
our senior officers, including the Companys former Chief Executive Officer, an
aggregate of 19,690,000 options with respect to an equal number of ordinary
shares. The number of options and the corresponding number of ordinary shares
decreased to 9,845,000 as a result of the one-for-two reverse stock split
effective July 9, 2001. The number of options granted to participating
managers has been determined pursuant to a formula based on the participants
gross salary for the year in question and the value of the Three Year Options,
calculated according to market value indications supplied by primary financial
institutions. The Target Price of Enels stock in respect of the options
granted in 2000 was set at Euro 4.70. Since such Target Price was not met in
2000, all One Year Options and 30% of the Three Year Options did not vest and,
thus expired. However, in the same year, (i) the price of Enels shares on
Telematico outperformed the specified reference index and (ii) the AGV exceeded
the expected rate of growth, as determined by the board of directors at the
time of the grant. As a result, 70% of the Three Year Options (equal to
11,026,400 options with respect to the same number of ordinary shares, and
corresponding to 5,513,200 ordinary shares after the aforesaid one-for-two
reverse stock split) vested and will become exercisable in the periods provided
for by the Plan. The strike price of the options granted in 2000, originally
set at Euro 4.30, is now Euro 8.60 per share as a result of the one-for-two
reverse stock split.

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Under the Plan, in April 2001, Enels board of directors granted to 381 of
our senior officers, including the Companys former Chief Executive Officer, an
aggregate of 68,548,100 options with respect of an equal number of ordinary
shares. The number of options and the corresponding number of ordinary shares
decreased to 34,274,050 as a result of the aforesaid one-for-two reverse stock
split. The number of options granted to participating managers has been
determined pursuant to a formula based on the participants gross salary for
the year in question and the value of the Three Year Options, calculated
according to market value indications supplied by primary financial
institutions. The Target Price of Enels stock with respect to the options
granted in 2001, originally fixed at Euro 4.40, was set at Euro 8.80 as a
result of the one-for-two reverse stock split. The strike price of options
granted in 2001 originally fixed at Euro 3.636 per share, was set at Euro 7.272
as a result of the one-for-two reverse stock split. Since the specified Target
Price was not met in 2001, all One Year Options and 30% of the Three Year
Options did not vest, and thus expired. However, in the same year, (i) the
price of Enels shares on Telematico outperformed the specified reference index
and (ii) the AGV exceeded the expected rate of growth as determined by the
board of directors at the time of the grant. As a result, 70% of the Three
Year Options (equal to 38,386,936 options with respect to the same number of
ordinary shares, and corresponding to 19,193,468 ordinary shares after the
one-for-two reverse stock split effective July 9, 2001) vested and will become
exercisable in the periods provided for by the Plan.

As authorized by Enels shareholders in December 1999, having already
taken into account the one-for-two reverse stock split effective July 9, 2001,
on April 9, 2001, Enels board of directors resolved: (i) to increase Enels
share capital by an amount not to exceed Euro 5,513,200 through the issuance of
a maximum of 5,513,200 new ordinary shares with a par value of Euro 1 each, at
a price per share of Euro 8.60, reserved for issuance upon the exercise of
options granted under the terms of the Plan to Enels executives selected in
March 2000 and (ii) to increase Enels share capital by an amount not to exceed
Euro 34,274,050 through the issuance of a maximum of 34,274,050 new ordinary
shares with a par value of Euro 1 each, at a price per share of Euro 7.272,
reserved for issuance upon the exercise of options granted under the terms of
the Plan to Enels executives selected in April 2001.

In May 2001, Enels shareholders authorized the board of directors to
increase Enels outstanding share capital by an amount not to exceed Euro
60,630,750 in order to permit the issuance (in one or more tranchesover a
five-year period ending in May 2006) of a maximum of 60,630,750 new ordinary
shares with a par value of Euro 1 each to be reserved for issuance upon
exercise of options granted to the Groups senior management by Enels board of
directors under the terms of executive stock option incentive plans to be
approved by the board itself. At the same time, Enels shareholders revoked
the authorization granted to Enels board of directors in December 1999 with
regard to capital increases not yet resolved under such authorization.

In March 2002, Enels board of directors approved an executive stock
option incentive plan for the year 2002, which we call the 2002 Plan, for the
grant of options to certain of the Groups senior managers (as identified by
the board of directors at the time of the grant).

If vested, 30% of the options may be exercised starting in 2003, another
30% starting in 2004, and the remaining 40% starting in 2005. No such options
may be exercised after December 31, 2007. In each year, options may be
exercised only within fifteen trading days following each of (i) the board of
directors approval of preliminary financial data for the preceding fiscal year
on a consolidated basis, (ii) the shareholders approval of the financial
statements for the preceding fiscal year, and (iii) the board of directors
approval of the report relating to the quarter ending September 30. Options
vest if both the Earnings Before Interest, Taxes, Depreciation and
Amortization, or EBITDA, of the Group for the fiscal year 2002 exceeds the
estimated EBITDA as indicated in the budget approved by the board of directors
and the price of Enels shares on Telematico outperforms a specified reference
index over the same period. If any of these conditions is not met, all the
options expire. The strike price of the options is set by the board of
directors and cannot be lower than the average reference
price of Enels shares on Telematico during the month preceding the grant.
The number of options

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granted to participating managers has been determined
pursuant to a formula based on the participants gross salary for the year in
question and the value of an option exercisable in 2005, calculated according
to market value indications supplied by primary financial institutions. In
March 2003, Enels Board of Directors determined that the conditions for all
the options to vest had been satisfied.

Under the 2002 Plan, on March 28, 2002 and September 12, 2002, Enels
board of directors granted to a total of 383 of our senior officers, including
Enels former and current Chief Executive Officer, an aggregate of 41,748,500
options with respect to an equal number of ordinary shares. The strike price
of the options was set at Euro 6.426. However, the strike price for the options
granted to Enels current Chief Executive Officer, Mr. Paolo Scaroni, was
determined with regard to the reference price of Enels shares on Telematico on
the date of his appointment as direttore generale, and was therefore set at
Euro 6.480.

Consequently, as authorized by Enels shareholders in May 2001, on April
10, 2003 Enels Board of Directors resolved to increase the Companys share
capital in order to permit issuance of a maximum total amount of Euro
41,748,500 in connection with the 2002 Plan.

In April 2003 Enels Board of Directors approved an executive stock option
incentive plan for the year 2003, which we call the 2003 Plan, similar to the
2002 Plan.

Under the 2003 Plan, options vest if both the Earning Before Interest,
Taxes, Depreciation and Amortization, or EBITDA, of the Group for the fiscal
year 2003 exceeds the estimated EBITDA as indicated in the budget approved by
the board of directors and the price of Enels shares on Telematico outperforms
a specified reference index over the same period. If any of these conditions
is not met, all the options expire. The strike price of the options is set by
the board of directors and cannot be lower than the average reference price of
Enels shares on Telematico during the month preceding the grant. The number
of options granted to participating managers has been determined pursuant to a
formula based on the participants gross salary for the year in question and
the value of an option exercisable in 2006 calculated according to market value
indications supplied by primary financial institutions.

If vested, 30% of the options may be exercised starting in 2004, an
additional 30% starting in 2005, and the remaining 40% starting in 2006. No
such options may be exercised after December 31, 2008.

In each year, options may be exercised only within fifteen trading days
following each of (i) the board of directors approval of preliminary financial
data for the preceding fiscal year on a consolidated basis, (ii) the
shareholders approval of the financial statements for the preceding fiscal
year, and (iii) the board of directors approval of the report relating to the
quarter ending September 30.

Under the 2003 Plan, on April 10, 2003, Enels board of directors granted
to approximately 550 of our senior officers, including the Companys current
Chief Executive Officer, an aggregate of 47,624,005 options with respect to an
equal number of ordinary shares. The exercise price of the options was set at
Euro 5.240.

In May 2003, Enels shareholders authorized the board of directors to
increase the Companys share capital by an amount not exceeding Euro 47,624,005
in order to permit the issuance (in one or more tranchesover a 5 year period
ending in May 2008) of a maximum of 47,624,005 ordinatory shares with a per
value of Euro 1 each to be reserved for issuance under the 2003 Plan.

On October 15, 2001, the board of directors of Wind approved a stock
option incentive plan for its senior officers. Such plan provides that the
options granted under the plan may be exercised

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inter alia, only if Winds
ordinary shares will be listed on a regulated market on or before September 30,
2003. We do not expect such condition to be satisfied.




By-Laws

The following is a summary of certain information concerning Enels shares
and by-laws (Statuto) and of Italian law applicable to Italian companies whose
shares are listed in a regulated market in the European Union, as in effect at
the date of this annual report. The summary contains all the information that
we consider to be material regarding Enels shares but does not purport to be
complete and is qualified in its entirety by reference to the by-laws or
Italian law, as the case may be.

Italian companies whose shares are listed on a regulated market of the
European Union are principally governed by two sets of rules  the Italian
Civil Code (applicable to all Italian companies), and the Unified Financial Act
(Testo Unico dellIntermediazione Finanziaria, or TUF) of February 24, 1998 and
implementing regulations thereof (applicable to listed companies). In January
2003, the Italian government approved a wide-ranging reform of the corporate
law provisions of the Civil Code, which will come into force on January 1, 2004
(the so-called 2003 corporate law reform). There is some uncertainty as to how
the amendments to the Italian Civil Code should coordinate with the TUF in
areas of conflict or overlap. It is expected that such uncertainties will be
clarified through amendments of the TUF. The following summary includes a
description of certain main provisions introduced by the 2003 corporate law
reform and, where material to Enel, takes into account those areas of
uncertainty.

General

In May 2001, the Companys shareholders approved the re-denomination of
the Companys share capital in Euro and a one-for-two reverse stock split,
effective July 9, 2001. As a result, starting from that date, the issued and
outstanding share capital of the Company consists of 6,063,075,189 ordinary
shares, each with a par value of Euro 1. Before that date, the Companys share
capital consisted of 12,126,150,379 ordinary shares, each with a par value of
Lit. 1,000. In accordance with Italian law, in connection with the
re-denomination, Enels share capital was rounded down by approximately Lit.
386 million (Euro 199,352), which the Company allocated to a special statutory
reserve. All of Enels 6,063,075,189 issued and outstanding ordinary shares,
with a par value of Euro 1, are fully paid, non-assessable and in registered
form.

Enels registered office is in Rome, Italy, at Viale Regina Margherita No.
137 and the Company is registered with the Italian Companies Register held by
the Chamber of Commerce of Rome at No. 00811720580. As set forth in Article 4
of Enels by-laws, its corporate purpose is to acquire and manage equity
holdings in Italian and foreign companies, and to provide such companies with
strategic guidelines regarding their industrial organization and business
activities. Through affiliates or subsidiaries, the Company operates
principally in (i) the electricity industry, including the activities of
production, importation and exportation, distribution and sale, as well as
transmission within the limits of existing legislation; (ii) the energy
industry in general, including the fuel sector, and the field of environmental
protection, as well as in the water sector; (iii) the communication, telematics
and information-technology industries and those of multimedia and interactive
services; and (iv) the network-based services sector (electricity, water, gas,
district heating, telecommunications) and those which, in any case, provide
metropolitan services locally. Enel is generally authorized to take any
actions necessary or useful to achieve the Companys corporate purpose.

Authorization of Shares

Enels board of directors is authorized, for a period of five years from
the shareholders resolution of May 23, 2003, to increase Enels share capital
by a maximum total amount of Euro

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47,624,005 in order to permit the issuance
(in one or more tranchesover a five-year period ending in May 2008) of a
maximum of 47,624,005 new ordinary shares under the terms of the 2003 Plan. At
the same time, Enels shareholders revoked the authorization granted to Enels
board of directors on May 25, 2001 with regard to capital increases not yet
approved under such authorization.

Under the authorization granted to Enels board of directors in 2001, on
April 10, 2003, Enels board of directors resolved: (i) to increase Enels
share capital by payment by a maximum amount of Euro 41,748,500 through the
issue of a maximum number of 41,748,500 new ordinary shares with a par value of
Euro 1 each, of which 39,245,000 at a price of Euro 6.426 and 2,503,500 at a
price of Euro 6.480.

Form and Transfer of Shares

Pursuant to the TUF, Legislative Decree No. 213 of June 24, 1998 (Decree
No. 213) and CONSOB Regulation No. 11768 of December 23, 1998 (Regulation No.
11768), as amended, since January 1, 1999 it is no longer possible for a
shareholder to obtain the physical delivery of share certificates representing
shares of Italian listed companies. Upon full implementation, shares of Italian
listed companies will no longer be represented by paper certificates and the
transfer and exchange of shares will take place exclusively through an
electronic book-entry system. All shares must, accordingly, be deposited by
their owners with an intermediary (each an Intermediary), which is defined by
Regulation No. 11768 as:



| |  | an Italian or EU bank;                                                                                                                                                                 
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | a non-EU bank authorized by the Bank of Italy to operate in the Italian market;                                                                                                        
| 
| |  | Società di Intermediazione Mobiliare, or SIM;                                                                                                                                          
| 
| |  | an EU investment company;                                                                                                                                                              
| 
| |  | a non-EU investment company authorized by CONSOB to provide investment services in Italy;                                                                                              
| 
| |  | an Italian asset management company;                                                                                                                                                   
| 
| |  | a stock broker;                                                                                                                                                                        
| 
| |  | the company which has issued the shares;                                                                                                                                               
| 
| |  | the controlling shareholder of the company which has issued the shares;                                                                                                                
| 
| |  | the Bank of Italy;                                                                                                                                                                     
| 
| |  | an EU or non-EU entity operating a centralized clearing system;                                                                                                                        
| 
| |  | a financial intermediary operating a clearing system governed by art. 69 (2) and 70 of the TUF;                                                                                        
| 
| |  | a financial intermediary registered on the list kept by the Bank of Italy under art. 107 of Legislative Decree No. 385 of
September 1, 1993;                                           
| 
| |  | the Italian Post Office (Poste Italiane S.p.A.);                                                                                                                                       
| 
| |  | Cassa Depositi e Prestiti (a state-owned entity mainly responsible for extending loans to public administration bodies);                                                               
| 
| |  | the Treasury Ministry; and                                                                                                                                                             
| 
| |  | the managers of foreign clearing, settlement and guarantee systems for financial instruments, provided that they are
subject to supervision equivalent to that provided by Italian law.

The Intermediary will in turn deposit the shares with Monte Titoli or with
another company authorized by CONSOB to operate a centralized clearing system.

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To transfer shares under the system introduced by Decree No. 213, owners
of shares are required to give instructions to their Intermediaries. If the
transferee is a client of the transferors Intermediary, the Intermediary will
simply transfer the shares from the transferors account to the account of the
transferee. If, however, the transferee is a client of another Intermediary,
the transferors Intermediary will instruct the company operating a centralized
clearing system to transfer the shares to the account of the transferees
Intermediary, which will then record the shares in the transferees account.

Each Intermediary maintains a custody account for each of its clients
setting out the financial instruments of such client and keeps a record of all
transfers, payment of dividends, exercise of rights attributable to such
instruments, charges or other encumbrances on the instruments. The account
holder or any other eligible party (for example, in the case of a pledge over
the financial instrument, the pledge holder) may submit a request to the
Intermediary for the issue of a certified statement of account. The request
must indicate the quantity of the financial instruments in respect of which the
statement is requested, the rights which the applicant intends to exercise
(and, in the case of rights exercisable at shareholders meetings, the date and
nature of the meeting) and the duration in respect of which the certificates
validity is required. Within three business days from the receipt of such
request, the Intermediary shall issue a certified statement of account that
constitutes evidence of the account holders ownership of the financial
instruments indicated. Once a certificate has been issued, the Intermediary
may not effect any transfer of the corresponding securities until the
certificate expires or is returned.

The new book-entry system commenced operations on October 5, 1998, when
Monte Titoli cancelled all certificates representing listed financial
instruments in its possession and returned them to the issuing companies. At
the same time, Monte Titoli registered the shares in accounts held under the
name of the depositing Intermediaries and gave them and the issuing companies
notice of the registration. The Intermediaries, in turn, registered the shares
in the shareholders accounts. Since January 1, 1999, shareholders of listed
companies have been allowed to exercise their rights only after they have
deposited their share certificates with an Intermediary and authorized it to
deposit the shares with a company operating a centralized clearing system.

As a result of the foregoing, it is not possible for a shareholder to
obtain physical delivery of share certificates representing Enels ordinary
shares. Instead, transfers of shares are possible only using the procedures
described above.

Limitations on shareholdings

Enels by-laws provide that no shareholder, other than the Italian
government, may own ordinary shares representing more than 3% of the Companys
voting share capital. The 3% limit may be cancelled only after a three-year
period from its introduction has expired. This limit does not apply in the
event that it is exceeded as a result of certain types of tender offers as
provided under Italian law.

The limitation on shareholding is calculated taking into account, among
other things, shares owned by:



| |  | Controlling entities and directly or indirectly controlled entities, as well as entities controlled by the same controlling
entity; and
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Affiliated personal entities, including spouses and other closely related personal relatives.                                          

Enels by-laws restrict the ability of any entity to exercise any voting
rights attributable to ordinary shares held or controlled by that entity
representing more than 3% of Enels voting share capital. This restriction does
not apply to any shareholdings held by the Italian state, other state-owned
entities, or other entities controlled by the state or other state-owned
entities. The voting rights

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of each entity to whom this limit on shareholding
applies are reduced correspondingly. In the event that ordinary shares held or
controlled in excess of the 3% threshold are voted, any shareholders
resolution adopted pursuant to this vote may be challenged if the majority
required to approve this resolution would not have been reached without the
vote of ordinary shares exceeding this threshold. Ordinary shares not entitled
to be voted are nevertheless counted for purposes of determining the quorum at
a shareholders meeting. Further limitations on shareholding result from the
special powers of the Treasury Ministry.

Special powers of the Treasury Ministry

The Italian privatization law and the Companys by-laws confer upon the
Italian government, acting through the Treasury Ministry, certain special
powers with respect to our business and actions by Enels shareholders. These
powers may apply regardless of the Treasury Ministrys shareholding in Enel.
The government may review the scope and duration of the Treasury Ministrys
special powers starting from September 2004. In this review, the government
will take into account, among other factors, the liberalization level achieved
by that time in the European energy sector. The Treasury Ministry exercises
these special powers after consultation with, and with the agreement of, the
Industry Ministry.

Enels by-laws reflect the following special powers of the Treasury
Ministry:

Approval of material acquisitions of shares

The Treasury Ministry must approve or disapprove the acquisition of
material interests in Enels share capital. Enels by-laws define material
interests as interests representing 3% or more of the Companys voting share
capital (including ordinary shares held in the form of American Depositary
Shares). This limit is based on the limit currently set by the Treasury
Ministry under the privatization law. If the Treasury Ministry changes this
limit, Enel will amend the Companys by-laws accordingly. Enels board of
directors must file a notice with the Treasury Ministry at the time an acquiror
of a material interest files a request for registration with the register of
shareholders. Approval or disapproval by the Treasury Ministry must be given
within 60 days from the date of this notice. Until the approval is granted, or
in any case after the expiration of the 60-day period without the approval
having been granted, the purchaser may not exercise any rights, including
voting rights, other than economic rights pertaining to the ordinary shares
representing the material interest. In the event the approval is denied by the
Treasury Ministry or the 60-day period has expired without the approval having
been granted, the purchaser must sell the ordinary shares representing the
material interest within one year and may not exercise any rights, including
voting rights, other than economic rights pertaining to these ordinary shares,
in the interim. In the event of failure to comply with this requirement, the
Treasury Ministry may petition the courts to order the forced sale of the
ordinary shares representing the material interest. Holders and beneficial
owners of ADSs are also subject to the 3% limit.

Approval of material shareholders agreements

The Treasury Ministry has the authority to approve or disapprove material
shareholders agreements or other arrangements, which are currently defined in
Enels by-laws as shareholders agreements or other arrangements relating to 5%
or more of Enels voting share capital. However, the Treasury Ministry may
lower this limit in the future. The approval or the disapproval must be given
within 60 days from the date of the notice to be provided to the Treasury
Ministry by CONSOB following the notifications of these material shareholders
agreements or other arrangements to CONSOB. Until the approval is granted, or
in any case after the expiration of the 60-day period without the approval
having been granted, shareholders that are parties to the agreement or other
arrangement may not exercise any rights, including voting rights, other than
economic rights pertaining to the ordinary shares subject to the agreement or
other arrangement. In the event the approval is denied by the Treasury Ministry
or the 60-day period has expired without the approval

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having been granted, the
agreement is deemed ineffective. If the conduct of shareholders during a
shareholders meeting nevertheless supports an inference that the shareholders
are acting pursuant to the terms of such a shareholders agreement or other
arrangement, then any resolutions adopted at that meeting that would not have
been adopted but for the vote of these shareholders may be challenged.

Members of Enels Board of Directors and Board of Statutory Auditors

The Treasury Ministry has the power to appoint one member of Enels board
of directors and the chairman of Enels Board of Statutory Auditors in addition
to the members elected by the Treasury Ministry as a shareholder.

Veto power over material changes

The Treasury Ministry may veto resolutions to dissolve Enel, cause a
significant transfer of its business, merge or demerge, transfer Enels
registered office outside of Italy, change its corporate purpose or eliminate
or modify any of the Treasury Ministrys special powers.

The special powers of the Treasury Ministry reflected in Enels by-laws
have also been introduced into the by-laws of Enel Produzione, Terna and Enel
Distribuzione.

Dividend Rights

The payment by the company of any annual dividend is proposed by the board
of directors and is subject to the approval of the shareholders at the annual
shareholders meeting. Before dividends may be paid out of the companys
unconsolidated net income in any year, an amount equal to 5% of such net income
must be allocated to the companys legal reserve until such reserve is at least
equal to one-fifth of the par value of the companys issued share capital. As
of December 31, 2002, the amount of Enels legal reserve was exceeding such
aggregate par value. If the companys capital is reduced as a result of
accumulated losses, dividends may not be paid until the capital is
reconstituted or reduced by the amount of such losses. The board of directors
may authorize the distribution of interim dividends, subject to certain
statutory limitations.

Dividends are payable to those persons who hold the shares through an
Intermediary on the day preceding the ex-dividend payment date declared by the
shareholders meeting. Dividends not collected within five years from the
dividend payment date are forfeited to the benefit of the Company. Payments in
respect of dividends are distributed through Monte Titoli on behalf of each
shareholder by the Intermediary with which the shareholder has deposited its
shares. Holders of ADSs will be entitled to receive payments in respect of
dividends on the underlying shares through Citibank N.A., as ADR depositary, in
accordance with the deposit agreement relating to the ADRs. See Item 8.
Financial InformationOther Financial InformationDividend Policy.

Voting Rights

Shareholders are entitled to one vote per share, although a slate voting
system applies in case of appointment of members of the board of directors and
of the board of statutory auditors. See Minority Shareholders Rights.

Proxy solicitation is possible. Solicitation can be conducted only by
certain professional investment and financial intermediaries, as well as
certain companies whose sole purpose is to carry out proxy solicitation, on
behalf of a qualified soliciting shareholder. With respect to Enel, a
qualified soliciting shareholder has been defined by CONSOB as one or more
shareholders who own and have owned at least 0.5% of Enels voting capital for
more than six months and who have been registered as shareholders holding at
least 0.5% of Enels voting capital for the same period of time. CONSOB
periodically reconsiders the threshold to qualify as a qualified soliciting
shareholder and could raise such threshold to up to 1% of Enels voting
capital.

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Proxies may be collected by a shareholders association provided that such
association has been formed by notarized private agreement, does not carry out
business activities and is made up of at least 50 individuals, each of whom
owns not more than 0.1% of the companys voting capital. Members of the
shareholders association may, but are not obliged to, grant proxies to the
legal representative of the association, and proxies may also be granted in
respect of only certain of the matters to be discussed at the relevant
shareholders meeting. The association may vote in different manners in
compliance with the instructions expressed by each member who has granted a
proxy to the association.

As a registered shareholder and ADR depositary, Citibank N.A. or its
nominee is entitled to vote the shares underlying the ADSs. The Deposit
Agreement requires Citibank (or its nominee) to accept voting instructions from
owners of ADSs and to execute such instructions to the extent permitted by law.

Board of Directors

Pursuant to Enels by-laws, Enels board of directors must consist of no
less than three and no more than nine members. The board of directors is
elected at a shareholders meeting for a term of up to three years. Members are
eligible for re-election. As to the election of directors, see Minority
Shareholders Rights.

In accordance with Enels by-laws, the board of directors is responsible
for the management of the Companys business. It has the power to take all
actions consistent with the corporate purpose described in the by-laws, except
for the actions that by applicable law or by-laws may only be taken by Enels
shareholders.

The chairman and chief executive officer are Enels legal representatives.
The chief executive officer generally has the power to represent the Company
within the scope of the functions delegated to him. For specific actions or
categories of actions, the power to represent Enel can be delegated by the
holder of such power to one of Enels employees or to third parties.

The quorum for board meetings is a majority of the members in place.
Resolutions are adopted by a majority of votes of those present. A board
meeting may be called by the chairman on his or her own initiative, must be
called upon a request of the majority of the boards members or upon request of
the board of statutory auditors (or at least two of its members) and also must
be called upon a request for a meeting for specific purposes of two directors
(or one director when the board is composed of three members).

The board has the power to delegate certain of its powers to one of its
members, and determines the powers and the functions delegated to such person.
Under applicable law and Enels by-laws, the board may not delegate certain of
its responsibilities, such as the approval of the financial statements or
proposals of increases or reductions of the Companys capital.

Under Italian law, directors having a conflicting interest with the
company regarding a proposed resolution must inform the other directors about
the conflict and abstain from voting on the
resolution. Resolutions adopted in breach of this rule may be challenged
by dissenting or absent directors or the statutory auditors if the required
majority would not have been attained without the vote of the director having a
conflict of interests, and conflicted directors may be held liable for damages
to the company resulting from a resolution adopted in breach of this rule (see
Minority Shareholders Rights).

Pursuant to the 2003 corporate law reform, with effect from January 1,
2004, directors having any interest in a proposed transaction will have to
disclose their interest to the board, even if such interest is not in conflict
with the interest of the company in the same transaction. The interested
director will not be required to abstain from voting on the resolution
approving the transaction, but the

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resolution must state explicitly the reasons
for, and the benefit to the company of, the approved transaction. In the event
that the above mentioned provisions are not complied with or the
transaction would not have been approved without the vote of the
interested director, the resolution may be
challenged by a director or by the board of statutory auditors if the approved transaction is potentially prejudicial to the company. A managing director having any such interest in a proposed
transaction within the scope of his powers will have to solicit prior board
approval of such transaction. Finally, as from January 1, 2004, directors may
be held liable for damages to their company if they illicitly profit from
insider information or corporate opportunities.

Under Italian law, directors may be removed from office at any time by the
vote of shareholders at an ordinary shareholders meeting although, if removed
in circumstances where there was no just cause, such directors may have a claim
for indemnification against the company. Directors may resign at any time by
written notice to the board of directors and to the chairman of the board of
statutory auditors. The board of directors must appoint substitute directors
to fill vacancies arising from removals or resignations, subject to the
approval of the board of statutory auditors, to serve until the next
shareholders meeting, except for the director appointed by the Treasury
Ministry, whose vacancy must be filled in by a substitute director also
appointed by the Treasury Ministry (see -Special powers of the Treasury
Ministry-Members of Enels Board of Directors and Board of Statutory
Auditors). If at any time a majority of the then current members of the board
of directors resign or otherwise cease to be directors, the entire board of
directors will be considered to have lapsed and the remaining members of the
board of directors (or the board of statutory auditors if all the members of
the board of directors have resigned or ceased to be directors) must promptly
call an ordinary shareholders meeting to appoint a new board of directors.

The compensation of directors is determined by shareholders at ordinary
shareholders meetings. The board of directors determines, upon the proposal
of the board compensation committee, the compensation of the chief executive
officer and the directors to which certain powers have been delegated.
Directors are entitled to reimbursement for expenses reasonably incurred in
connection with their functions.

With effect from January 1, 2004, an Italian stock corporation may adopt
one of two different models of corporate governance structure, as an
alternative to the current model based on a board of directors and a board of
statutory auditors. Stock corporations may opt for (i) a one-tier model with a
single board of directors, including an audit committee composed of independent
non-executive directors, or (ii) a two-tier model, including a management
board, which is entrusted with management responsibilities, and a supervisory
board which is entrusted mainly with control and supervisory responsibilities
and, among other functions, appoints and removes the members of the management
board and approves the companys annual financial statements. The adoption of
one of the new corporate governance models requires an extraordinary
shareholders meeting resolution. For the reasons explained above, however, it
remains unclear whether a public company like Enel may opt for either of the
new additional alternatives to the current traditional corporate governance
model or how the provisions relating to those alternatives should be adapted to
apply to public companies.

Statutory Auditors

Under Italian law, in addition to electing the board of directors, the
companys shareholders elect a board of statutory auditors (Collegio
Sindacale). At ordinary shareholders meetings of the company, the statutory
auditors are elected for a term of three years, may be re-elected for
successive terms and may be removed only for cause and with the approval of a
competent court. Each member of the board of statutory auditors must provide
certain evidence that he is in good standing and meets certain professional
standards.

Pursuant to certain provisions of the TUF, the by-laws of listed companies must:

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| |  | specify the number of statutory auditors (not fewer than three) and alternate members (not fewer than two);                                      
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | regulate the appointment of the chairman of the board of statutory auditors;                                                                     
| 
| |  | limit the number of mandates that the statutory auditors may have in other companies; and                                                        
| 
| |  | include clauses ensuring that minority shareholders may elect one statutory auditor (or two if the board is composed of
more than three members).

Enels by-laws currently provide that the board of statutory auditors
shall consist of three statutory auditors and two alternate statutory auditors
(who are automatically substituted for a statutory auditor who resigns or is
otherwise unable to serve). Enels by-laws also provide that the statutory
auditors may not hold the position of statutory auditor in five or more other
listed companies (not counting our subsidiaries). As to the election of
statutory auditors please refer to Minority Shareholders Rights.

The TUF provides further that the board of statutory auditors will be
required to verify that the company (i) complies with applicable law and its
by-laws, (ii) respects the principles of correct administration, (iii)
maintains adequate organizational structure, internal controls and
administrative and accounting systems and (iv) adequately instructs its
subsidiaries to transmit to the company information relevant to the disclosure
obligations of the company.

The companys board of statutory auditors is required to meet at least
once each quarter. In addition, the statutory auditors of the company must be
present at meetings of the companys board of directors and shareholders
meetings and at meetings of the companys executive committee, if any. The
statutory auditors may decide to call a meeting of the shareholders, the board
of directors or the executive committee, ask the directors for information on
the management of the company, carry out inspections and verifications at the
company and exchange information with the companys external auditors. The
board of directors must report to the statutory auditors at least quarterly on
its activities and on the main transactions carried out by the company and its
subsidiaries. Any shareholder may submit a complaint to the board of statutory
auditors regarding facts that such shareholder believes should be subject to
scrutiny by the board of statutory auditors, which must take any complaint into
account in its report to the shareholders meeting. If shareholders
collectively representing 2% of the companys share capital submit such a
complaint, the board of statutory auditors must promptly undertake an
investigation and present its findings and any recommendations to a
shareholders meeting (which must be convened immediately if the complaint
appears to have a reasonable basis and there is an urgent need to take action).
The board of statutory auditors may report to the competent court serious
breaches of the duties of the directors. The companys board of statutory
auditors is also required to notify CONSOB without delay of any irregularities
found during its review activities. CONSOB may report to the competent court
serious breaches of the duties of the statutory auditors of a listed company.

As mentioned in the preceding section, as from January 1, 2004, Italian
stock corporations may depart from the traditional Italian model of corporate
governance structure and opt for two
alternative models neither of which will include a board of statutory
auditors. As also mentioned, however, it remains unclear whether a public
company like Enel may opt for either of the new additional alternatives to the
current traditional corporate governance model or how the provisions relating
to those alternatives should be adapted to apply to public companies.

External Auditors

The TUF requires Italian companies whose shares are listed on regulated
markets of EU Member States to appoint a firm of external auditors that shall
verify (i) during the fiscal year, that the companys accounting records are
correctly kept and accurately reflect the companys activities, and (ii) that
the financial statements correspond to the accounting records and the
verifications conducted by the external auditors and comply with applicable
rules. The external auditors express their opinion

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on the financial statements
in a report that may be consulted by the shareholders prior to the annual
shareholders meeting.

The external auditors are appointed by a resolution taken at the annual
shareholders meeting for a three-year term (which may not be renewed more than
twice). Such appointment must be notified to CONSOB.

On May 2002, KPMG S.p.A., with registered offices at Via Vittor Pisani 25,
Milan, was appointed as Enels external auditor for a three-year period.

Meetings of Shareholders

Shareholders are entitled to attend and vote at ordinary and extraordinary
shareholders meetings. Votes may be cast personally or by proxy.
Shareholders meetings may be called by the companys board of directors (or
the board of statutory auditors) and, must be called if requested by holders of
at least 20% of the issued shares. Shareholders meetings may also be called
if requested by holders of at least 10% of the issued shares. In this latter
case, however, the board of directors may refuse to call the meeting if it
believes that calling such a meeting conflicts with the companys interest; any
dispute arising from such a refusal must be resolved by the competent court.
Shareholders are informed of all shareholders meetings to be held by
publication of a notice in the Italian Official Gazette (Gazzetta Ufficiale) at
least 30 days before the date fixed for the meeting (20 days if the meeting is
called at the request of holders of at least 10% of the companys share capital
and 15 days for meetings convened pending a tender offer launched on the
companys shares). The notice is also published in at least two national daily
newspapers, as recommended by CONSOB.

Shareholders meetings must be convened at least once a year. The annual
unconsolidated financial statements of the company are submitted for approval
to the ordinary shareholders meeting which must be convened within six months
after the end of the financial year to which such financial statements relate.
At ordinary shareholders meetings, shareholders also appoint the external
auditors, approve the distribution of dividends, appoint the board of directors
and statutory auditors, determine their remuneration and vote on any business
matter submitted by the directors.

Extraordinary shareholders meetings may be called to pass upon proposed
amendments to the by-laws, capital increases and reductions, mergers,
spin-offs, dissolutions, issuance of debentures, appointment of receivers and
similar extraordinary actions. The notice of a shareholders meeting may
specify up to two or three meeting dates, respectively, for an ordinary or
extraordinary shareholders meeting; such meeting dates are generally referred
to as calls.

The quorum required for shareholder action at an ordinary shareholders
meeting on first call is at least 50% of the total number of issued shares,
while on second call there is no quorum requirement. In either case,
resolutions may be approved by holders of the majority of the shares present or
represented at the meeting.

The quorum required at an extraordinary shareholders meeting on first,
second and third call is more than 50%, one-third and one-fifth, respectively,
of the issued shares of the company. Resolutions of any extraordinary
shareholders meeting require the approval of at least two-thirds of the
holders of shares present or represented at such meeting.

To attend any shareholders meeting, holders of shares must, at least five
days prior to the date fixed for the meeting on first call, deposit at the
offices of the company or with such agent or bank as may be specified in the
notice of meeting a certified statement of account which evidences their
ownership of the shares in exchange for an admission ticket for the meeting.
Such statements may be obtained by owners of shares through the Intermediary
associated with Monte Titoli (or another centralized clearing institution
authorized pursuant to the TUF). Alternatively, beneficial owners may instruct
the relevant Intermediaries to provide the admission tickets and proxy forms.

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Pursuant to the 2003 corporate law reform, starting from January 1, 2004, the
law will no longer require that a certified statement of account be deposited
prior to the shareholders meeting. However, a resolution adopted by an
extraordinary shareholders meeting may re-introduce such prior-deposit
requirement in Enels by-laws. The by-laws of listed companies, however, may
not require that such deposit occurs earlier than two days before the meeting.

Shareholders may attend the shareholders meeting by proxy. A proxy may be
given only for a single shareholders meeting (including, however, the first,
second and third calls of such meeting) and may be exercised only by the person
expressly named in the applicable form. The person exercising the proxy cannot
be a director, statutory auditor, or employee of the company, or of any of its
subsidiaries or the external auditor.

Proxies may be solicited by an Intermediary (banks or investment
companies, asset management companies and companies having proxy solicitation
as their sole purpose) on behalf of a qualified soliciting shareholder (a
shareholder who owns and has owned at least 0.5% of the companys voting
capital for at least six months and who has been registered with the company as
holder of such shares for the same period of time). Proxies may also be
collected by a shareholders association from among its members provided that
such association has been formed by notarized private agreement, does not carry
out business activities other than those relevant to the purpose of the
association and is made up of at least 50 individuals each of whom owns not
more than 0.1% of the companys voting capital. Members of the shareholders
association may, but are not obliged to, grant proxies to the legal
representative of the association and proxies may also be granted in respect of
only certain of the matters to be discussed at the relevant shareholders
meeting. The association may vote in different manners in compliance with the
instructions given by each member who has granted a proxy to the association.
CONSOB has established provisions which govern the transparency and proper
performance of the solicitation and collection of proxies.

Preemptive Rights

Pursuant to Italian law, holders of shares are entitled to subscribe for
new issuances of shares, debentures convertible into shares and any other
warrants, rights or options entitling the holders to subscribe for shares in
proportion to their holdings, unless such issues are for non-cash consideration
or preemptive rights are waived or limited by a resolution adopted at an
extraordinary shareholders meeting by holders of a majority of the issued
shares. There can be no assurance that the owners of ADSs will be able to
exercise fully any preemptive rights to which the holders of shares are
entitled.

Reports to Shareholders

The Company is required to publish audited annual unconsolidated financial
statements and audited annual consolidated financial statements, all prepared
in conformity with Italian GAAP and in the Italian language. The Company also
produces an annual report to shareholders in the Italian
language which contains a directors report together with audited
financial statements (consolidated and unconsolidated) of the Company.

The Company is required to produce semi-annual and quarterly reports to
shareholders in the Italian language which contain a directors report as well
as unaudited semi-annual and quarterly condensed financial statements of the
Company (consolidated and, in the case of semi-annual statements only,
unconsolidated). The Company is also required to prepare annual reports on
Form 20-F to be filed with the U.S. Securities and Exchange Commission
containing, among other matters, audited consolidated financial statements of
the Company.

Preference Shares and Savings Shares; other Securities

Italian companies are permitted in accordance with Italian law to issue
preference shares or savings shares, if their by-laws provide for such
issuance. Enels by-laws currently do not provide for

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such issuance and would
need to be amended at an extraordinary shareholders meeting to allow the
Company to issue preference shares or savings shares. Preference shares would
typically not be entitled to vote in an ordinary shareholders meeting, but
would be entitled to vote together with the ordinary shares in extraordinary
shareholders meetings and could be entitled to vote in ordinary shareholders
meetings as well if their terms so provided. Savings shares are entitled to
vote in neither ordinary nor extraordinary shareholders meetings. However,
Italian law provides for special meetings of holders of each class of shares
for the approval of resolutions adopted by the shareholders which affect their
rights vis-à-visthe other classes of shares. Preference shares would have
preferential rights to the payment of dividends and to the repayment of capital
in the event of liquidation. Savings shares typically have preferential rights
to the payment of dividends, but the by-laws may provide for different or
additional preferential rights.

Pursuant to the 2003 corporate law reform, starting in 2004, Italian
companies will be permitted to issue other classes of equity securities with
different economic and administrative rights, so-called participation
certificates with limited voting rights, as well as so-called tracking stock,
if their by-laws permit such issuance.

Segregation of Assets and Proceeds

Pursuant to the 2003 corporate law reform, starting in 2004, the board of
directors of an Italian company may resolve to segregate assets of the company
into one or more separate pools. Such pools of assets may have an aggregate
value not exceeding 10% of the shareholders equity of the company. Each pool
of assets must be used exclusively for the carrying out of a specific business
and may not be attached by the general creditors of the company. Similarly,
creditors with respect to such specific business may only attach those assets
of the company that are included in the corresponding pool. Tort creditors, on
the other hand, may always attach any assets of the Company. The board of
directors may issue securities carrying economic and administrative rights
relating to a pool. In addition, financing agreements relating to the funding
of a specific business may provide that the proceeds of such business be used
exclusively to repay the financing. Such proceeds may be attached only by the
financing party and such financing party would have no recourse against other
assets of the company.

Liquidation Rights

Pursuant to Italian law and subject to the satisfaction of the claims of
all creditors, shareholders are entitled to a distribution in liquidation that
is equal to the nominal value of their shares (to the extent available out of
the net assets of the company). Holders of preferred shares, if Enel will issue
any such shares in the future, would be entitled to a priority right to any
such distribution from liquidation. Holders of savings shares, if the Company
will issue any such shares in the future under Enels by-laws, would be
entitled to a priority right to any distribution from
liquidation. Thereafter, all shareholders would rank equally in their
claims to the distribution of surplus assets, if any.

Purchase by the Company of its Own Shares

The Company is permitted to purchase Enels own shares, subject to certain
conditions and limitations provided by Italian law. Such shares may only be
purchased out of profits available for dividends or out of distributable
reserves, in each case as appearing on the latest shareholder-approved
unconsolidated financial statements. In addition, Enel may only repurchase
fully paid-in shares. Such purchases must be authorized by an ordinary
shareholders meeting. The number of shares to be acquired, together with any
shares previously acquired by Enel or any of its subsidiaries may not (except
in limited circumstances) exceed in aggregate 10% of the total number of Enels
shares then issued and the aggregate purchase price of such shares may not
exceed the amount specifically approved by Enels shareholders. Shares held in
excess of such 10% limit must be sold within one

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year of the date of purchase.
Similar limitations apply with respect to purchases of Enels shares carried
out by Groups subsidiaries.

A corresponding reserve equal to the purchase price of such shares must be
created in the balance sheet, and such reserve is not available for
distribution unless such shares are sold or canceled. Shares purchased and held
by Enel may be resold only pursuant to a resolution of Enels shareholders
adopted at an ordinary shareholders meeting. The voting rights attaching to
the shares held by Enel or its subsidiaries cannot be exercised, but the shares
can be counted for quorum purposes at shareholders meetings. Dividends and
other rights, including pre-emptive rights, attaching to such shares will
accrue to the benefit of other shareholders.

The TUF provides that the purchase by a listed company of its own shares
and the purchase of shares of a listed company by its subsidiaries must take
place by way of a public tender offer or on the market, in a manner agreed with
Borsa Italiana, ensuring the equality of treatment among shareholders. Subject
to certain limitations, the foregoing does not apply to shares being purchased
by a company from its employees or from the employees of its controlling
company or subsidiaries.

Enels shareholders authorized Enels board of directors to purchase a
maximum of 155,000,000 ordinary shares (corresponding to approximately 2.55% of
Enels share capital),for an aggregate consideration not exceeding Euro
1,000,000,000. The purchase may occur within eighteen months from the
shareholders resolution of May 24, 2002, and must be made on Telematico in a
manner agreed upon with Borsa Italiana and using Enels distributable reserves.
The purchase price shall not be lower than the par value of each share (Euro
1) and shall not exceed the reference market price of Enels shares recorded on
the day preceding each purchase of share by more than 5%. The board of
directors is also authorized to trade at any time all or part of Enels own
shares.

At the date hereof, Enel does not own, directly or indirectly, any of its
shares.

Notification of the Acquisition of Shares and Voting Rights

Pursuant to Italian securities laws, including the TUF and implementing
CONSOB regulations, any acquisition of any interest in excess of 2% in the
voting shares of a listed company must be notified to CONSOB and the company
whose shares are acquired. The voting rights attributable to the shares in
respect of which such notification has not been made may not be exercised. Any
resolution taken in violation of the foregoing may be annulled if the
resolution would not have been adopted in the absence of such votes.

In addition, any person whose aggregate interest in the voting shares of a
listed company exceeds or falls below 2%, 5%, 7.5%, 10% and successive
percentages being multiples of 5, respectively, of the listed companys voting
share capital, is obliged to notify CONSOB and the
issuer. For the purpose of calculating these ownership thresholds, shares
owned by any person, irrespective of whether the voting rights attributable
thereto are exercisable by such person or by a third party, are taken into
consideration and, except in certain circumstances, account must also be taken
of shares held through, or shares the voting rights of which are exercisable
by, subsidiaries, fiduciaries or intermediaries. For the purpose of calculating
the ownership thresholds of 5%, 10%, 25%, 50% and 75%, shares which: (i) a
person has an option to, directly or indirectly, acquire or sell; and (ii) a
person may acquire further to the exercise of a warrant or conversion right
which is exercisable within 60 days, must also be taken into account. The
notification must be repeated when such person, upon the exercise of the right
referred to in (i) or (ii) above, acquires or sells shares which cause his
aggregate ownership in the listed company to exceed or fall below the relevant
thresholds. Notification must be made (except in certain circumstances) within
five trading days of the event which gives rise to the notification obligation.

Cross ownership of listed companies may not exceed 2% of their respective
voting shares and cross ownership between a listed company and an unlisted
company may not exceed 2% of the voting

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shares of the listed company and 10% of
the voting shares of the unlisted company. If the relative threshold is
exceeded, the company which is the latter to exceed such threshold may not
exercise the voting rights attributable to the shares in excess of the
threshold and must sell the excess shares within a period of 12 months. If the
company does not sell the excess shares, it may not exercise the voting rights
in respect of its entire shareholding. If it is not possible to ascertain which
is the latter company to exceed the threshold, the limitation on voting rights
and the obligation to sell the excess shares will apply to both of the
companies concerned, subject to an agreement to the contrary between the two
companies. The 2% limit for cross ownership in listed companies is increased to
5% on the condition that such limit is only exceeded by the two companies
concerned following an agreement authorized in advance by an ordinary
shareholders meeting of each of the two companies. Furthermore, if a party
holds an interest in excess of 2% of a listed companys share capital, such
listed company or the party which controls the listed company may not purchase
an interest above 2% in a listed company controlled by the first party. In case
of non-compliance, voting rights attributable to the shares held in excess may
not be exercised. If it is not possible to ascertain which is the latter party
to exceed the limit, the limitation on voting rights will, subject to any
different agreement between the two parties, apply to both. Any shareholders
resolution approved in violation of the limitation on voting rights may be
annulled if the resolution would not have been adopted in the absence of such
votes. The foregoing provisions in relation to cross ownership do not apply
when the thresholds are exceeded following a public tender offer aimed at
acquiring at least 60% of a companys ordinary shares or when a controlled
company purchases shares of a controlling company within the limits set forth
in Article 2359 bisof the Italian Civil Code and following the procedures
described under  Purchase by the Company of its Own Shares; however, certain
restrictions on the manner of purchase will apply.

Pursuant to the TUF, agreements among shareholders of a listed company or
of its parent company regarding the exercise of voting rights must be notified
to CONSOB (within 5 days), published in summary form in the press (within 10
days) and filed with the Chamber of Commerce (within 15 days). Failure to
comply with the above rules will render the agreements null and void and the
shares cannot be voted. These rules apply also to shareholders agreements
which:

(i)      require prior consultation for the exercise of voting rights in a
listed company or its controlling company;

(ii)     contain limitations on the transfer of shares or securities which
grant the right to purchase or subscribe shares of the companies mentioned in
(i) above;

(iii)    provide for the purchase of shares or securities mentioned in (ii)
above; or

(iv)    have as their object or effect the exercise (including joint
exercise) of a dominant influence over a listed company or its controlling
company.

Any shareholders agreement of the nature described above may have a
maximum term of three years or, if executed for an unlimited term, can be
terminated by a party upon six months prior notice. In case of a public tender
offer, shareholders who intend to participate in the tender offer may withdraw
from the agreement without notice, such withdrawal being effective only in the
event that the relevant shares are actually sold.

CONSOB regulations specify the method and content of the notification and
publication of the agreements as well as of subsequent amendments thereto. The
regulation also provides that any party to an agreement regarding the exercise
of voting rights or referred to in (i) and (iv) above concerning more than 5%
of the listed companys share capital is obliged to notify CONSOB and the
listed company in question of its overall shareholding in the listed company,
unless such information has already been notified in compliance with other
provisions of the TUF.

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In accordance with Italian antitrust laws, the Antitrust Authority is
required to prohibit any acquisition of control in a company which would create
or strengthen a dominant position in the domestic market or a significant part
thereof and result in the elimination or substantial reduction, on a lasting
basis, of competition, provided that certain turnover thresholds are exceeded.
However, if the turnover of the acquiring party and the company to be acquired
exceed certain higher monetary thresholds, the antitrust review of the
acquisition falls within the exclusive jurisdiction of the European Commission.

Minority Shareholders Rights.

Any shareholder may, within three months, challenge any shareholders
resolution on which he did not vote or in respect of which he dissented on the
basis that it was not adopted in conformity with applicable law or Enels
by-laws. Directors and statutory auditors may also challenge shareholders
resolutions on this basis. Pursuant to the 2003 corporate law reform, as from
January 1, 2004 resolutions which are not adopted in conformity with applicable
law or Enels by-laws may be challenged by absent, dissenting or abstaining
shareholders representing individually or in the aggregate at least 0.1% of
Enels share capital (as well as by the Companys board of directors or board
of statutory auditors). Shareholders not reaching this threshold or
shareholders not entitled to vote at Enels meetings may only claim damages
deriving from the resolution, unless otherwise provided by the Companys
by-laws.

In case of resolutions approving mergers or spin-offs involving the
distribution of unlisted shares, dissenting shareholders may require Enel to
buy back their shares for the average price of such shares over the previous
six months. Pursuant to the 2003 corporate law reform, as from January 1, 2004
dissenting or absent shareholders may require Enel to buy back their shares
also in other circumstances, including, among others, as a result of
shareholders resolutions that approve material modifications of the Companys
purpose or of the voting rights relating to the Companys shares.

Each shareholder may bring to the attention of the board of statutory
auditors facts or acts which are deemed wrongful. If such shareholders
represent more than 2% of Enels share capital, the board of statutory auditors
must investigate without delay and report its findings and recommendations to
the shareholders meeting.

Shareholders representing more than 5% of Enels share capital have the
right to report major irregularities to the relevant court.

In addition, pursuant to the TUF, shareholders representing at least 5% of
the companys share capital and who have been registered for at least six
months in the register of shareholders, may
commence derivative suits before the competent court against directors,
statutory auditors and direttori generaliof the company. The company may waive
or settle the suit unless shareholders holding more than 5% of the share
capital vote against such waiver or settlement. The company will reimburse the
legal costs of such action in the event that the claim is successful and the
court does not award such costs against the relevant directors, statutory
auditors or direttori generali.

Under Italian law, the by-laws of privatized companies that impose a
maximum limit on the number of shares that may be held by any shareholder must
provide for the election of directors and statutory auditors through the voting
list system provided under the privatization law to ensure that minority
shareholders of a company are represented on its board of directors and board
of statutory auditors. Accordingly, Enels by-laws require that members of the
board of directors and board of statutory auditors, except for the director and
the statutory auditor appointed by the Italian government pursuant to its
special powers (see  Special Powers of the Treasury Ministry), be elected on
the basis of candidate lists presented either by the board of directors or by
one or more shareholders, including the Treasury Ministry, representing in the
aggregate at least 1% of Enels share capital having the right to vote at
ordinary shareholders meetings. Such candidate lists must be deposited at
Enels registered office and published in at least three Italian newspapers
having general

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circulation in Italy, two of which must be daily business
newspapers. Publication of the candidate list presented by the board of
directors must occur at least 20 days before the first call of the
shareholders meeting or 10 days in the case of candidate lists proposed by
shareholders. Each shareholder may present or join in the presentation of only
one candidate list and each candidate may appear on only one list.

Under Enels by-laws, the election of the members of the board of
directors, other than the director appointed by the Italian government through
the exercise of its special powers, will proceed as follows:



| |  | Four-fifths of the members to be elected will be drawn out from the
candidate list that receives the majority of votes expressed by the
shareholders in the numerical order in which they appear on the list,
rounded off in the event of a fractional number to the next lower
number; and                                                                                                                                                                                                                                                                                              
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | The remaining board members will be drawn out from the other candidate
lists; for this purpose, the votes obtained by each such list will be
divided by one, two, three and so forth up to the number of directors
to be elected. The numbers obtained through this process are
attributed to the candidates of each list in the order in which such
candidates rank in the list. The candidates of the various lists are
ranked in a single ranking and in decreasing order on the basis of the
numbers attributed to each of them. The candidates with the highest
numbers are elected.

The election of members of the board of statutory auditors is governed by
the same rules, except that the board of directors may not present a candidate
list for the board of statutory auditors, and that, under Italian law, if
Enels by-laws provide that Enels board of statutory auditors consists of four
or more members, at least two of them must be appointed by minority
shareholders. Enels current by-laws provide that the board of statutory
auditors consists of three auditors, of which minority shareholders have the
right to appoint one, and two alternate auditors, of which minority
shareholders have the right to appoint one. The Treasury Ministry has the
right to appoint the chairman of Enels Board of Statutory Auditors (see
Special Powers of the Treasury Ministry).

Tender Offer Rules

Pursuant to the TUF, a public tender offer must be made by any person
that, by reason of its purchases of shares, holds more than 30% of the ordinary
shares of a listed company on an Italian regulated market. The tender offer
must cover all the ordinary shares of the listed company. Similarly, a tender
offer for the entire ordinary share capital of a listed company must be made by
any person who, having more than 30% of the ordinary shares without exercising
majority voting rights at ordinary shareholders meetings, acquires  by way of
acquisition or exercise of subscription or
conversion rights - during a 12-month period more than an additional 3% of
the ordinary shares. The offer must be launched within thirty days from the
date on which the relevant threshold was exceeded, at a price not lower than
the average of the weighted average of the market price for the shares in the
previous twelve months, and the highest price paid for the ordinary shares by
the offeror in the same period.

Under Regulation No. 11971, a purchaser is exempted from the tender offer
obligation when: (i) the purchasers equity interest, as a result of an
acquisition, does not exceed the 30% threshold by more than 3% (provided that
the purchaser commits (a) not to exercise the voting rights pertaining to any
shares exceeding the 30% threshold and (b) to sell any shares exceeding the 30%
threshold within 12 months from the date of purchase); (ii) another person (or
several persons acting jointly) already owns more than 50% of the outstanding
common stock, (iii) the 30% threshold is exceeded as a result of a capital
increase in connection with a debt restructuring plan approved by CONSOB, (iv)
the 30% threshold is exceeded as a result of transfers of shares among related
persons, (v) the 30% threshold is exceeded as a result of the exercise of
preemptive rights, (vi) the 30% threshold is exceeded through mergers or
demergers having an industrial purpose, approved by the shareholders of the
company whose shares would otherwise be the target of the tender offer. The
TUF provides further that the acquisition of an interest above 30% of the
ordinary share capital of a company does not trigger the

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obligation to launch a
100% tender offer if the person concerned has exceeded the threshold as a
result of a public tender offer launched on 60% or more of the ordinary shares
of the company. This provision, however, is available only (i) if the tender
offer has been approved by shareholders of the company holding a majority of
the shares (excluding the offeror and the current majority shareholder), and
(ii) if the offeror (its subsidiaries, controlling person, related companies
and other person connected to it by virtue, inter alia, of shareholders
agreements) has not acquired more than 1% of the ordinary shares of the company
in the preceding 12 months; CONSOB shall ensure compliance with these
conditions before allowing the offer to be launched. After such an offer has
been completed, the offeror nevertheless becomes subject to the duty to launch
an offer for 100% of the ordinary shares if, in the course of the subsequent 12
months, (i) it (or its affiliates) purchases more than an additional 1% of the
ordinary shares of the company, or (ii) if the company approves a merger or
split-up. Finally, the TUF provides that anyone holding 90% or more of the
ordinary shares of a company must launch an offer for the remaining voting
shares unless an adequate distribution is restored so as to ensure proper
trading within a period of four months. Any shareholder holding more than 98%
of the voting shares of a listed company following a tender offer for all such
shares issued by the company, has the right to obtain title to the remaining
shares within four months after the end of the tender offer if it has stated in
the offer document its intention to make such an acquisition at a price set by
a court-appointed expert.

Liability for Mismanagement of Subsidiaries

Pursuant to the 2003 corporate law reform, companies and other entities
that, acting in their own interest or the interest of third parties, mismanage
a company subject to their management and coordination powers are liable to
such companys shareholders and creditors for ensuing damages. Said liability
is excluded if (i) the ensuing damage is fully eliminated, including through
subsequent transactions, or (ii) the damage is effectively offset by the global
benefits deriving in general to the company from the continuing exercise of
such management and coordination powers. Management and coordination powers
are presumed to exist, among other things, with respect to consolidated
subsidiaries.




Material Contracts

Neither we nor any member of our group entered into any material contract,
other than contracts entered into in the ordinary course of our businesses,
during the two years immediately preceding the publication of this document.




Exchange Controls

No exchange control consent is required in Italy for the transfer to
persons outside of Italy of dividends of dividends or other distribution with
respect to, or of the proceeds form the sale of, shares of an Italian company.

However, Italian resident and non-resident investors who transfer,
directly or indirectly (through banks or other intermediaries) into or out of
Italy, cash, investments or other securities in excess of Euro 10,329 must
report all such transfers to the Italian Exchange Office (Ufficio Italiano
Cambi or UIC). In the case of indirect transfers, banks or other
intermediaries are required to maintain records of all such transfers for five
years for inspection by Italian tax and judicial authorities. Non-compliance
with these reporting and record-keeping requirements may result in
administrative fines or, in the case of false reporting or in certain cases of
incomplete reporting, criminal penalties. The UIC is required to maintain
reports for a period of ten years and may use such reports, directly or through
other government offices, to police money laundering, tax evasion and any other
crime or violation.

Individuals, non-profit entities and partnerships that are residents of
Italy must disclose on their annual tax returns all investments and financial
assets held outside Italy, as well as the total

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amount of transfers to, from,
within and between countries other than Italy relating to such foreign
investments or financial assets, even if at the end of the taxable period
foreign investments or financial assets are no longer owned. No such tax
disclosure is required if (i) the foreign investments or financial assets are
exempt from income tax; or (ii) the total value of the foreign investments or
financial assets at the end of the taxable period or the total amount of the
transfers effected during the fiscal year does not exceed Euro 10,329.
Corporate residents of Italy are exempt from these tax disclosure requirements
with respect to their annual tax returns because this information is required
to be discussed in their financial statements.

We cannot assure you that the present regulatory environment in or outside
Italy will continue or that particular policies presently in effect will be
maintained, although Italy is required to maintain certain regulations and
policies by virtue of its membership of the European Union and other
international organizations and its adherence to various bilateral and
multilateral international agreements.




Taxation

The following is a summary of certain United States federal and Italian
tax matters. The summary contains a description of the principal United States
federal and Italian tax consequences of the purchase, ownership and disposition
of ADSs by a holder who is a citizen or resident of the United States or a U.S.
corporation or who otherwise will be subject to United States federal income
tax on a net income basis in respect of the ADSs (a U.S. holder). This
summary does not purport to be a comprehensive description of all of the tax
considerations that may be relevant to a decision to purchase ADSs. In
particular, the summary deals only with beneficial owners who will hold
ordinary shares or ADSs as capital assets and does not address the tax
treatment of a beneficial owner who owns 10% or more of Enels voting shares or
who may be subject to special tax rules, such as banks, tax-exempt entities,
insurance companies or dealers in securities or currencies, or persons that
will hold ADSs as a position in a straddle for tax purposes or as part of a
constructive sale or a conversion transaction or other integrated
investment comprised of ADSs and one or more other investments. Nor does this
summary discuss the treatment of ADSs that are held in connection with a
permanent establishment or fixed base through which a non-resident beneficial
owner carries on or performs personal services in Italy.

The summary is based upon tax laws and practice of the United States and
Italy as in effect on the date of this annual report. Prospective purchasers
and current holders of ordinary shares or ADSs
are advised to consult their own tax advisors as to the U.S., Italian or
other tax consequences of the purchase, beneficial ownership and disposition of
ordinary shares or ADSs, including, in particular, the effect of any state,
local or national tax laws.

For purposes of the summary, beneficial owners of ADSs who are considered
residents of the United States for purposes of the current income tax
convention between the United States and Italy (the Income Tax Convention),
and are not subject to an anti-treaty shopping provision that applies in
limited circumstances, are referred to as U.S. holders. Beneficial owners
who are citizens or residents of the United States, corporations organized
under U.S. law, and U.S. partnerships, estates or trusts (to the extent their
income is subject to U.S. tax either directly or in the hands of partners or
beneficiaries) generally will be considered to be residents of the United
States under the Income Tax Convention. Special rules apply to U.S. holders
that are also residents of Italy. A new tax treaty to replace the current
Income Tax Convention was signed on August 25, 1999, but has not yet been
ratified by Italy. The new treaty would not change significantly the
provisions of the current Income Tax Convention that are discussed below
(except that it would clarify the availability of benefits to certain
tax-exempt organizations). These laws are subject to change, possibly on a
retroactive basis. Unless otherwise stated, this summary assumes that a U.S.
holder is eligible for the benefits of the Income Tax Convention.

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For purposes of the Income Tax Convention and the United States Internal
Revenue Code of 1986, or the Code, holders of American Depositary Receipts
evidencing ADSs will be treated as the beneficial owners of the underlying
ordinary shares represented by those ADSs.

Withholding Tax on Dividends

Italian law provides for the withholding of income tax at a 27% rate on
dividends paid by Italian companies to shareholders who are not residents of
Italy for tax purposes. Accordingly, the amount initially made available to
the Depositary for payment to U.S. holders will reflect withholding at the 27%
rate.

Under domestic Italian law, a non-resident holder of shares of common
stock may recover up to four-ninths of the tax withheld on dividends by
presenting evidence to the Italian tax authorities that income tax has been
fully paid on the dividends in the non-resident holders country of residence
in an amount at least equal to the total refund claimed. Non-resident holders
seeking such payments from the Italian tax authorities have experienced
extensive delays and incurred expenses.

Alternatively, the 27% withholding tax may be reduced pursuant to an
income tax convention between Italy and the non-resident holders country of
residence. Generally, a reduced 15% withholding tax would be levied under the
Income Tax Convention.

Under current Italian law, all shares of Italian listed companies
(including the ordinary shares) must be held in a centralized clearing system
authorized by CONSOB. Under applicable tax provisions, if the ordinary shares
are held through the centralized clearing system managed by Monte Titoli S.p.A.
(Monte Titoli) (the only such system currently authorized in Italy), no
withholding tax on dividends is applied by the Company. Instead of the
withholding tax a substitute tax (imposta sostitutiva) is applied on dividend
distributions to non-resident holders of ordinary shares (or ADSs relating to
such ordinary shares) at a rate equal to the withholding tax that would
otherwise be due. The substitute tax is applied by the resident or
non-resident intermediary with which the ordinary shares are deposited and
which participates in the Monte Titoli system (directly or through a foreign
centralized clearing system participating in the Monte Titoli system). The
procedures to be followed by a non-resident holder in order for the
intermediary with which the ordinary shares are deposited to apply a reduced
rate of tax pursuant to an applicable income tax convention are as follows.
The intermediary must receive (i) a declaration of the non-resident holder that
contains certain data identifying the non-resident holder and indicating the
existence of all the conditions necessary for the
application of the relevant income tax convention and the determination of
the applicable treaty rate of withholding and (ii) a certification by the tax
authorities of the non-resident holders country of residence that the holder
is a resident of that country for purposes of the income tax convention and, as
far as it is known to such authorities, the holder has no permanent
establishment in Italy (which certificate will be effective until March 31 of
the year following submission). If the ordinary shares are deposited with a
non-resident intermediary, such intermediary must appoint as its fiscal
representative in Italy a bank or an investment services company that is
resident in Italy, or the permanent establishment in Italy of a non-resident
bank or investment services company, to carry out all duties and obligations
relating to the application and administration of the substitute tax.

Since the ordinary shares underlying the ADSs will be held by the
custodian in the centralized clearing system managed by Monte Titoli, the
substitute tax regime described above will apply to the ADSs. In order to
enable eligible U.S. holders to obtain a reduction at source or a refund of
withholding tax under the Income Tax Convention, the Company and the Depositary
have agreed to certain procedures. According to such procedures, the
Depositary will send holders of the ADSs certain instructions before the
dividend payment date specifying the documentation required and the deadlines
for submission. The documentation generally will include the holders
declaration and the tax certification specified under points (i) and (ii) in
the preceding paragraph. In order to comply with the documentation described
under point (ii) above, eligible U.S. holders must obtain a certificate of
residence from the U.S. Internal Revenue Service (Form 6166) with respect to
each dividend

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payment, unless a previously filed certification will be
effective on the dividend payment date, and produce it together with a
statement whereby such holder represents to be a U.S. resident individual or
corporation and not to maintain a permanent establishment or a fixed base in
Italy. The time for processing requests for certification by the Internal
Revenue Service normally is six to eight weeks. Accordingly, holders requiring
this certification must submit their requests to the Internal Revenue Service
as soon as possible after receiving instructions from the Depositary. In the
case of ADSs held through a broker or other financial intermediary, the
required documentation must be delivered to such financial intermediary for
transmission to the Depositary. In all other cases, eligible U.S. holders must
deliver the required documentation directly to the Depositary at least five
business days prior to the date set for the payment of dividends.

If the documentation is not provided in the time allotted, or if the
intermediary (i.e., the custodian in the case of the ADSs) determines that the
produced documentation does not satisfy the prescribed requirements or that
applicable law does not permit it to apply directly the reduced Income Tax
Convention rate, the intermediary will withhold tax at the 27% rate on the
dividends paid with respect to ADSs, and eligible U.S. holders will be required
to claim an Income Tax Convention refund of 12% of the dividend (representing
the difference between 27% and the 15% Income Tax Convention rate) directly
from the Italian tax authorities. U.S. residents seeking refunds from the
Italian tax authorities have encountered expenses and extensive delays.

Distributions of profits in kind will be subject to withholding tax. In
that case, prior to receiving the distribution, the holder will be required to
provide the Company with the funds to pay the relevant withholding tax.
Distributions of additional ordinary shares issued upon capitalization of
reserves to beneficial owners with respect to their ADSs that are made as part
of a pro rata distribution to all shareholders of the Company generally will
not be subject to Italian tax. However, such additional shares will reduce the
tax basis of each single share for the calculation of the capital gains tax.

The gross amount of dividends (that is, the amount before reduction for
Italian withholding tax) paid to U.S. holders will be subject to U.S. federal
income taxation as dividend income and will not be eligible for the
dividends-received deduction allowed to domestic corporations. Dividends paid
in lire or euro will be includible in the income of U.S. holders in a U.S.
dollar amount calculated by reference to the exchange rate in effect on the day
the dividends are received by the Depositary. Subject to certain exceptions for
short-term and hedged positions, the U.S. dollar amount of dividends
received by an individual in respect of Enels shares or ADSs after
December 31, 2002 and before January 1, 2009 is subject to taxation at a
maximum rate of 15%. You should consult your own tax adviser regarding the
availability of the reduced dividend tax rate in the light of your own
particular circumstances. If the Depositary converts the lire or Euro into
dollars on the day it receives them, U.S. holders generally must not realize
foreign currency gain or loss in respect of dividend income. A U.S. holder who
receives a treaty refund may be required to recognize foreign currency gain or
loss, which will be treated as ordinary gain or loss, to the extent the amount
of the treaty refund (in dollars) received by the holder differs from the
dollar equivalent of the foreign currency amount of the treaty refund on the
date the dividends were received by the Depositary. The Italian withholding
tax (less any refund to which such holder is entitled under the Income Tax
Convention) will be treated as a foreign income tax which such holders may
elect to deduct in computing their taxable income or, subject to the
limitations on foreign tax credits generally, credit against their United
States federal income tax liability.

Distributions of additional shares to U.S. holders with respect to their
ADSs that are made as part of a pro rata distribution to all of Enels
shareholders generally will not be subject to U.S. federal income tax.

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Tax on capital gains

Italian capital gains tax (CGT) normally is imposed on gains with
respect to the transfer or sale of shares whether held within or outside Italy.
More specifically, a 27% CGT will be levied on gains realized by a
non-resident holder on the disposal of a qualified shareholding. A
qualified shareholding is constituted by ordinary shares or ADSs and/or
rights representing more than five percent of a listed companys total share
capital or more than two percent of its share capital voting in the ordinary
shareholders meeting. However, under domestic law, an exemption applies to
gains realized by holders not resident in Italy on the disposal of
non-qualified shareholdings in an Italian company of shares which are listed
on a regulated market, such as Enels ordinary shares, even when such
shareholdings are held in Italy. A non-qualified shareholding is constituted
by an interest in us which does not reach the thresholds described above.

Furthermore, pursuant to the Income Tax Convention, a U.S. holder will not
be subject to Italian CGT unless such U.S. holder has a permanent establishment
or fixed base in Italy to which the ordinary shares or ADSs are effectively
connected. To this end, U.S. residents selling ordinary shares or ADSs and
claiming benefits under the Income Tax Convention may be required to produce
appropriate documentation establishing that the above mentioned conditions have
been met. Other countries have executed income tax conventions with Italy
providing for a similar treatment of Italian CGT. No CGT will be imposed on the
deposit or withdrawal of shares in return for ADSs.

U.S. holders of ADSs will be subject to U.S. federal income tax on any
capital gains to the same extent as on other gains from the disposition of
stock. The net amount of long-term capital gain recognized by an individual
holder after May 5, 2003 and before January 1, 2009 generally is subject to
taxation at a maximum rate of 15%. The net long-term capital gain recognized by
an individual holder before May 6, 2003 generally is subject to taxation at a
maximum rate of 20%.

A non-U.S. holder will not be subject to U.S. federal income tax on gain
realized on the sale of ADSs unless (i) such gain is effectively connected with
the conduct by the non-U.S. holder of a trade or business in the United States
or (ii) in the case of gain realized by an individual non-U.S. holder, the
non-U.S. holder is present in the United States for 183 days or more in the
taxable year of the sale and certain other conditions are met.

Transfer tax

An Italian transfer tax is normally payable on the transfer of shares in
an Italian company. The transfer tax will not be payable with respect to any
transfers of ordinary shares or ADSs involving non-Italian residents concluded
either on a regulated market or with the intervention of a bank or an
investment services company.

Estate and gift tax

As of October 25, 2001, the Italian estate and gift tax has been abolished
and consequently any transfer of ordinary shares or ADSs occurring by reason of
death or gift as of that date is no longer subject to any Italian estate and
gift tax.

However, should a gift of shares or ADSs for a value exceeding Euro
180,759.91 (the Threshold) occur and the relationship between the donor and
the beneficiary not qualify for the exemption regime applicable to gifts made
in favor of certain family members (e.g., spouse, parents, children,
grandchildren), a registration tax of Euro 129,11 would be due insofar as the
gift agreement is either executed or registered in Italy. The materiality
threshold is increased to Euro 516,456.91 in case the beneficiary is either
underage (i.e., younger than 18) or a person with a handicap recognized
pursuant to applicable law.

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Information reporting and backup withholding

Dividends paid on, and proceeds from the sale or other disposition of,
ADSs paid to a U.S. holder generally may be subject to information reporting
requirements and may be subject to backup withholding unless the holder (i)
establishes that it is a corporation or other exempt holder or (ii) provides an
accurate taxpayer identification number on a properly completed Internal
Revenue Service Form W-9 and certifies that no loss of exemption from backup
withholding has occurred. The amount of any backup withholding from a payment
to a U.S. holder will be allowed as a credit against the holders U.S. federal
income tax liability and may entitle such holder to a refund, provided that
certain required information is furnished to the Internal Revenue Service.

A non-U.S. holder may be required to comply with certification and
identification procedures in order to establish its exemption from information
reporting and backup withholding.




Documents On Display

Enel is subject to the information reporting requirements of the Exchange
Act applicable to foreign private issuers. In accordance therewith,
Enel is required to file reports and other information with the U.S. Securities and
Exchange Commission. In particular, the Company is required to file annual reports on
Form 20-F by electronic means. These materials, including this annual report
on Form 20-F, are available for inspection and copying at the U.S. Securities
and Exchange Commissions public reference facilities in Washington D.C., New
York, New York and Chicago, Illinois. Please call the Commission at
1-800-SEC-0330 for further information on the public reference rooms.




Item 11. Quantitative and Qualitative Disclosure About Market Risk




Price Risk Management and Market Risk Information

We purchase electricity from outside Italy and also purchase fuel in the
international oil and natural gas markets. As a consequence, we are subject to
market risks from changes in foreign
exchange rates and commodity prices. We are also directly subject to
interest rate risks related to our financial indebtedness.

The current system for the reimbursement of fuel costs through tariffs
reduces our commodity price and exchange rate risks from fuel purchases and
imports of electricity. This structure includes a reimbursement component for
fuel costs and imports that is based on, among other things, an index to the
price of a basket of fuels on international markets (which are generally priced
in U.S. dollars). This index is adjusted so that changes in fuel costs and
exchange rate fluctuations are reflected in the levels of reimbursements and,
as a consequence, in tariffs. As a result, our commodity price and exchange
rate exposures for fuel purchases relate mainly to the time lag between our
incurrence of fuel costs and calculation period used to determine the level of
reimbursements.

In response to both the increased volatility of commodities markets in
recent years and the possibility that the Energy Authority will discontinue the
fuel cost reimbursement mechanism after the introduction of the pool market, we
have begun systematically to hedge our foreign exchange and commodity exposure
for fuel purchases arising from the time lag noted above through Enel Trade.

Once the pool market is operational, we will also face the market risk
arising from the possibility that electricity market prices will not entirely
correlate to costs borne by our generation companies. However, we believe this
risk is mitigated by:



| |  |  | The substantial homogeneity of the productive structure
of Italian generation companies; and
| | - |  | --------------------------------------------------------------------------------------------

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| |  |  | The limited import capacity of the Italian electricity
network, arising from the saturation of existing international
transmission lines and the geographical and environmental
obstacles to building new ones.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our exchange rate exposure for electricity imports is principally limited
to imports denominated in Swiss francs. In 2002, approximately 43% of our
electricity imports by value were denominated in Swiss francs. The balance of
our electricity imports are denominated in Euro, and we do not have an exchange
rate risk on these imports as a result. We actively manage the exchange rate
exposure on our accounts payable in Swiss francs.

Almost all of our long-term debt is denominated in euro and as a result is
not subject to exchange rate risk. Exchange rate risk on most of our long-term
debt that is denominated in non-euro currencies is covered by the Republic of
Italy either entirely or within a 5% band. The Republic of Italy covers these
risks pursuant to a program for eligible companies that were financing new
industrial investments as an incentive for economic development. At December
31, 2002, we were fully exposed to exchange rate risk on only Euro 545 million
(including approximately Euro 172 million of U.S. dollar-denominated long-term
debt which relates to our operating subsidiaries in the U.S.) out of a total
Euro 18,292 million in outstanding long-term debt.

Our financial risk manager is responsible for analyzing, monitoring and
controlling our interest rate and foreign exchange risk management activities,
while our treasurer is responsible for executing related financial operations.
Senior management provides these two members of our finance department with
guidance as to the strategic aspects of the management of our debt portfolio.

Our calculation and measurement techniques are generally consistent with
international banking standards established by the Basle Committee. Moreover,
we believe that our policies regarding risk levels are generally significantly
more conservative than those established by the Basle Committee.

Our financial risk manager is responsible for measuring actual risk levels
on the portfolio of financial instruments and monitoring compliance with our
policies.

With respect to commodities risk management, Enel Trade has managed fuel
procurement and logistics for all of our companies since it began operations in
June 2000 (under the name Enel F.T.L.).

Our commodity risk manager is responsible for analyzing, monitoring and
controlling commodity risk management activities. Senior management provides
Enel Trade with guidance on appropriate hedging strategies and monitors the
results of hedging activities, while Enel Trade has responsibility for
identifying and executing commodities-related operations.

We do not buy and sell derivative financial instruments for trading or
speculative purposes.

We have estimated our market risk exposure using sensitivity analysis.
Market risk exposure represents the change in the fair value of financial
instruments, including financial and commodity derivatives, resulting from an
assumed 10% adverse change in market prices or rates. We determined fair value
using pricing models that measure the effect of changes in market prices
according to market practice for each category of financial instrument.

We have used sensitivity analysis to determine the market risk exposure
associated with our debt and with our foreign exchange, interest rate and
commodity derivatives. We have summarized the results of this sensitivity
analysis in the following paragraphs. Actual changes in market prices or rates
may differ from hypothetical changes.

The notional value of a derivative is the contractual amount on the basis
of which the differentials are exchanged. This amount can be expressed either
on a value basis or on a physical

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quantities basis such as tons. Amounts
expressed in a foreign currency are converted into euro by applying the
exchange rate at end of the relevant period.

Foreign exchange risk

As explained above, our principal foreign exchange risk relates to fuel
costs and electricity imports. At December 31, 2002, we also had foreign
exchange risk exposure on Euro 545 million in debt denominated in non-euro
currencies, which represented 3.2% of our total long-term debt outstanding.
Our exposure to foreign currency exchange rates is primarily in respect of U.S.
dollars for fuel purchases and in respect of Swiss francs for electricity
imports.

We use forward exchange contracts and currency options in managing our
foreign exchange risk. At December 31, 2002, we had outstanding forward
exchange contracts and options used to hedge our several exchange risks with an
aggregate notional amount of Euro 2,543 million. The fair value of these
derivatives was negative by Euro 34 million at such date. Assuming a 10%
depreciation of the euro against all the other currencies to which we have
exchange rate exposure, the fair market value of these financial instruments,
including long-term debt exposed to foreign exchange risk, would have increased
by Euro 68 million in 2002 (as compared to a decrease of Euro 12 million in
2001). In addition, we had outstanding euro/U.S. dollar forward exchange
contracts that we used to hedge the foreign exchange risk related to the
repayment of the commercial paper we issued in foreign currency and cash flows
that we expected to generate in foreign currency with an aggregate notional
amount of Euro 1,552 million at December 31, 2002. Such forward contracts are
entered into with respect to the same amount and date of the repayment
obligation or the cash flow that we expect to generate, thus any change in fair
value of these contracts deriving from a possible appreciation or depreciation
of the euro against the U.S. dollar would be fully offset by a corresponding
change in the fair value of the underlying position.

Interest rate risk

Our outstanding total medium-term and long-term debt at December 31, 2002
amounted to Euro 18,292 million, of which Euro 12,366 million, or 68% of the
total, bore interest at floating rates, principally based on Euribor, and Euro
5,926 million, or 32%, bore interest at fixed rates.

To improve the mix of our fixed and floating rate exposures, we have
entered into interest rate hedging contracts, particularly interest rate swaps,
forward rate agreements, collars and swaptions. In interest rate swaps, we
agree with other parties to exchange, at specified intervals, the difference
between interest amounts calculated by reference to the notional principal
amount and the fixed or floating interest rates that we have agreed with the
other parties. An interest rate collar is a combination of options that enables
us to lock our debt cost into a predetermined interest rate range. We
primarily use zero-cost collars that do not require payment of an option
premium. In a forward rate agreement, the parties agree that a certain interest
rate will apply to a certain notional principal amount during a specified
future period of time. Through a swaption, we acquire or sell the option to
enter into an interest rate swap at a certain date in the future.

At December 31, 2002, we had arranged interest rate derivatives with a
notional amount of Euro 8,704 million, of which Euro 7,697 million were
interest rate swaps, Euro 857 million were interest rate collars, Euro 100
million were forward rate agreements, and Euro 50 million were swaptions. The
fair value of these derivatives was negative by Euro 358 million at such date
(Euro 136 million in 2001). You should read note 21 to our financial statements
for a further discussion of the fair value of these derivatives. See also Item
5.U.S. GAAP ReconciliationCritical Accounting Policies under U.S.
GAAPCommitments.

With these contracts in place, the portion of our debt still exposed to
interest rate fluctuations, appropriately weighting the notional value of
interest rate collars, is approximately 41% of our total long-term debt.

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Based on the results of our sensitivity analysis, at December 31, 2002, a
10% decrease in interest rates would have increased the net negative fair value
of our portfolio of financial instruments, including long term debt and
interest rate derivatives, by Euro 147 million (Euro 91 million in 2001).
However, we do not consider such an increase in the net negative fair value to
be a significant risk, because it would affect earnings and cash flow only if
we were to reacquire all or a portion of these instruments on the open market
prior to their maturity.

Effective interest rate risk depends on the likelihood that interest rates
will increase. Because our revenues are not directly linked to interest rates,
our principal interest rate risk is that a general rise in interest rates will
result in a higher interest expense on the unhedged portion of our
floating-rate debt. If interest rates were to increase by 10% over December
31, 2002 levels, our consolidated interest expense, including with respect to
long term debt and interest rate derivatives, would increase by a total of
approximately Euro 18 million per year (Euro 21 million in 2001). Such amount
is the net result of the impact of the increase in interest charges on the
floating rate portion of our outstanding long term debt, partially offset by
positive flows deriving from our hedging contracts.

Commodity price risk

In 2000, we adopted a systematic approach to cover commodity pricing and
currency risk linked to the reimbursement mechanism. Enel Trade entered into
derivatives contracts on commodities in order to fix part of the difference
between cost and contribution received through tariffs.

At December 31, 2001, the notional value of our open contracts was as
follows:



| |  | Futures: Euro 173 million or 7,932 contracts;                      
|- |  | -------------------------------------------------------------------
| 
| |  | Swaps on petroleum indexes: Euro 382 million or 3,656,772 tons; and
| 
| |  | Swaps on gas transmission fees: 1 billion cubic meters per year.   

At December 31, 2001, the fair value of these contracts was positive by Euro 17.4 million.

At December 31, 2002, the notional value of our open contracts was as follows:



| |  | Futures: Euro 354 million or 12,752 contracts;                      
|- |  | --------------------------------------------------------------------
| 
| |  | Swaps on petroleum indexes: Euro 268 million or 2,062,518 tones; and
| 
| |  | Swaps on gas transmission fee: 1 billion cubic meters per year.     

At December 31, 2002 the fair value of these contracts was positive by
Euro 20.9 million.

Positive or negative changes in the fair value of our derivative contracts
on commodities result from an increase or decrease in the price of the
commodities and are offset by opposite negative or positive changes in the
fair value of our revenues-cost margin, which reflects the time lag between
the change in the cost of fuel and the later time in which such change is
reflected by the fuel cost component of the electricity tariff.

The sensitivity analysis shows the effects on the fair value of commodity
derivatives contracts, as determined by a 10% increase or decrease in market
price. Based on the results of our sensitivity analysis, at December 31, 2002,
a 10% increase in commodity price levels would have caused an increase in the
value of our derivative contracts of Euro 50 million (Euro 40 million in 2001),
while a 10% decrease would have caused a concomitant decrease of Euro 50
million (Euro 40 million in 2001).

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In accordance with our accounting policies, we do not account for
commodity contracts at fair value for Italian GAAP purposes. For additional
detail on the volume of such contracts, see Item 5. Operating and Financial
Review ProspectsLiquidity and Capital ResourcesCommitments.




Item 12. Description of Securities Other than Equity Securities

Not applicable.




PART II




Item 13. Defaults, Dividends Averages and Delinquencies

None.




Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable.




Item 15. Controls and Procedures

Within the 90 days prior to the filing date of this report, the Company
carried out an evaluation under the supervision and with the participation of
the Companys management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Companys disclosure controls and procedures. There are inherent limitations
to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of
the controls and procedures. Accordingly, even effective disclosure controls
and procedures can only provide reasonable assurance of achieving their control
objectives. Based upon and as of the date of the Companys evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed in the reports the Company
files or submits under the Exchange Act is recorded, processed, summarized and
reported as and when required. There were no significant changes in the
Companys internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of such controls.




Item 16. [Reserved]




PART III




Item 17. Financial Statements

Not applicable.




Item 18. Financial Statements

Notice on the audit report for 2001 and 2000.The audit firm Arthur
Andersen S.p.A. has been the auditor of Enel S.p.A. and, consequently,
principal auditor to the Group for the fiscal years 2000 and 2001. In May 2002,
KPMG S.p.A. was appointed as our auditor for the three-year period 2002-2004.
During 2002, Arthur Andersen S.p.A. terminated its affiliation with the
Andersen Worldwide network and entered into an agreement to associate with the
Deloitte Touche Tohmatsu international practice, through an agreement with that
networks Italian member firm, Deloitte & Touche S.p.A., and changed its
business name to Deloitte & Touche Italia S.p.A. Deloitte & Touche LLP has
confirmed to the Securities and Exchange Commission that Deloitte & Touche
Italia S.p.A. is qualified to practice before the Commission, having provided
written representation that policies and practices consistent with the
objectives set forth in Appendix K, SECPS §1000.45 have been established.
Deloitte & Touche Italia S.p.A. (as the successor entity to Arthur Andersen
S.p.A.)

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did not participate in the preparation of this report, did not reissue
the Arthur Andersen S.p.A. audit report with respect to the financial
statements for the years ended December 31, 2000 and 2001 included in this
report and did not consent to the inclusion in this report of that audit
report. We include in this Annual Report the report of independent auditors
issued by Arthur Andersen S.p.A. with respect to the financial statements for
the year 2000 and 2001.

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Index to Financial Statements

|                                                                                                                |  |  |      | 
|--------------------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Reports of Independent Auditors                                                                                 |  |  | F-1  | 
|Consolidated Balance Sheet as of December 31, 2000, 2001 and
2002                                               |  |  | F-4  | 
|Consolidated Statements of Income for the years ended
December 31, 2000, 2001 and
2002                          |  |  | F-6  | 
|Consolidated Statements of Changes in Shareholders Equity
for the years ended December 31, 2000, 2001 and
2002 |  |  | F-7  | 
|Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 2001 and
2002                      |  |  | F-8  | 
|Notes to Consolidated Financial
Statements                                                                      |  |  | F-9  | 
|Reports of Other Independent Auditors                                                                           |  |  | F-97 | 




Item 19. Exhibits

Index to Exhibits Filed With This Report

|     |  |                                                                                                                                                                                                                                                                                                                                                             
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1  |  | By-laws of the Company.                                                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                             
|2.1  |  | Deposit Agreement, as amended, among Enel S.p.A. and Citibank N.A., as
Depositary, and the owners of American Depositary Receipts (incorporated
by reference to the Registrants Registration Statement (File No. 333 
6868) on Form F-6 effective as of October 29, 1999 and the Post-effective
Amendment No. 1 to Form F-6 effective as of July 9, 2001).
|     |  |                                                                                                                                                                                                                                                                                                                                                             
|3.1  |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                       
|     |  |                                                                                                                                                                                                                                                                                                                                                             
|99.1 |  | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                   

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REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
ENEL S.p.A.:

We have audited the accompanying consolidated
balance sheet of ENEL S.p.A. (an Italian corporation) and
subsidiaries (the Company) as of December 31, 2002,
and the related consolidated statements of income, changes in
shareholders equity and cash flows for the year then ended.
These financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not
audit the financial statements of certain subsidiaries, which
statements reflect assets representing approximately 15% of total
consolidated assets at December 31, 2002 and revenues
representing approximately 12% of consolidated revenues for the year
ended December 31, 2002. Those statements were audited by other
auditors whose report has been furnished to us and our opinion,
insofar as it relates to the amounts included for those entities, is
based solely on the report of the other auditors. The consolidated
financial statements of the Company for the years
ended December 31, 2001 and 2000, were audited by other auditors
who were a member firm of a worldwide organization that has ceased
operations. Those auditors expressed an unqualified opinion on those consolidated
financial statements, before the restatement described in
Note 25 (e) to the accompanying consolidated
financial statements, in their report dated April 19, 2002.

We conducted our audit in accordance with auditing
standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit and the report of other auditors provide a
reasonable basis for our opinion.

In our opinion, based on our audit and the report
of other auditors, the consolidated
financial statements referred to above present fairly, in all
material respects, the financial position of ENEL S.p.A. and
subsidiaries as of December 31, 2002, and the results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in Italy.

Accounting principles generally accepted in Italy
vary in certain significant respects from accounting principles
generally accepted in the United States of America. The application
of accounting principles
generally accepted in the United States of America would have
affected the results of operations for the year ended
December 31, 2002 and shareholders equity as of that date,
to the extent summarized in Notes 23, 24 and 25 to the consolidated
financial statements.

As discussed above, the 2001 and 2000 consolidated
financial statements of the Company were audited by other auditors.
As described in Note 25 (e), the Company changed the
composition of its reportable segments in 2002, and the amounts
stated in the 2001 and 2000 consolidated
financial statements relating to reportable segments have been
restated to conform to the 2002 composition of reportable segments.
We audited the adjustments that were applied to restate the
disclosures for reportable segments reflected in the 2001 and 2000 consolidated
financial statements. In our opinion, such adjustments are
appropriate and have been properly applied. However we were not
engaged to audit, review or apply any procedures to the 2001 and 2000 consolidated
financial statements of the Company other than with respect to such
adjustments and, accordingly, we do not express an opinion or any
other form of assurance on the 2001 and 2000 consolidated
financial statements taken as a whole.



KPMG S.p.A.

Rome, Italy

May 2, 2003, except with reference to
notes 26 (g) and 26 (h)
to the consolidated
financial statements, for which this report
is dated June 30, 2003

F - 1



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##### Table of Contents



We include the report of independent auditors issued by Arthur Andersen S.p.A.
with respect to the consolidated financial statements as at and for
the year ended December 31, 2001 and 2000. Such
audit report is a copy of the previously issued report dated April 19,
2002, previously issued by Arthur Andersen S.p.A., and has not been reissued by
Deloitte & Touche Italia S.p.A. (the successor entity to Arthur Andersen
S.p.A.). See Notice on the audit report for 2001 and 2000

F - 2



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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

To the Shareholders of 
ENEL S.p.A.:

We have audited the accompanying consolidated balance sheets of ENEL S.p.A. (an
Italian corporation) and subsidiaries (the Company) as of December 31, 2000
and 2001, and the related consolidated statements of income, changes in
shareholders equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of certain subsidiaries, which statements reflect assets
representing approximately 14% of total assets at December 31, 2001 and
revenues representing approximately 10% of consolidated revenues for the period
ended December 31, 2001. Those statements were audited by other auditors whose
reports have been furnished to us and our opinion, insofar as it relates to the
amounts included for those entities, is based solely on the reports of the
other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of ENEL S.p.A. and subsidiaries as of December
31, 2000 and 2001, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in Italy.

The accounting practices used by the Company in preparing the accompanying
consolidated financial statements conform with accounting principles generally
accepted in Italy, but do not conform with accounting principles generally
accepted in the United States (U.S. GAAP). A description of these differences
and a reconciliation of net income and shareholders equity to U.S. GAAP are
set forth in Notes 25 and 26 of the Notes to the Consolidated Financial
Statements.

ARTHUR ANDERSEN S.p.A.

Rome, Italy,
April 19, 2002

F - 3



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ENEL S.p.A. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2001 AND 2002



|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                   |  | 
|-------------------------------------------------- | ---------------------------------- | ------------ | ------- | ------ | ------------------ |  | -------- | ------ | ------ |  | ------- | ------ | ----------------- |  | 
|                                                   |                                    |              |         |        | 2001               |  | 2002     |        | 2002  
|                                                   |                                    |              |         |        |                    |  |          |        |       
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        | (millions of U.S.
|                                                   |                                    |              |         |        | (millions of euro) |  | dollars)
|                                                   |                                    |              | ASSETS  |        |                    |  |          |        |        |  |         |        |                   |  | 
|Current assets:                                    |                                    |              |         |        |                    |  |          |        |        |  |         |       
|                                                   | Cash and cash equivalents (Note
2) |              |         | 587    |                    |  |          | 400    |        |  |         | 419    |                  
|                                                   | Receivables:
(Note 4)              |              |         |        |                    |  |          |        |        |  |         |        |                  
|                                                   | Customers                          |              |         | 6,799  |                    |  |          | 6,924  |        |  |         | 7,260  |                  
|                                                   | Other                              |              |         | 2,381  |                    |  |          | 3,497  |        |  |         | 3,667  |                  
|                                                   | Inventories (Notes 2 and 5)        |              |         | 1,932  |                    |  |          | 3,266  |        |  |         | 3,424  |                  
|                                                   | Accrued income and prepayments     |              |         | 203    |                    |  |          | 377    |        |  |         | 395    |                  
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|                                                   |                                    |              | 11,902  |        |                    |  | 14,464   |        |        |  | 15,165  |       
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|Utility plant (Notes 2 and 6)                      |                                    |              | 77,958  |        |                    |  | 81,832   |        |        |  | 85,801  |       
|Accumulated depreciation (Notes 2 and 6)           |                                    |              | (45,210 | )      |                    |  | (46,741  | )      |        |  | (49,008 | )     
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|                                                   |                                    |              | 32,748  |        |                    |  | 35,091   |        |        |  | 36,793  |       
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|Construction work in progress and advance payments |                                    |              | 2,256   |        |                    |  | 2,442    |        |        |  | 2,560   |       
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|                                                   |                                    |              | 35,004  |        |                    |  | 37,533   |        |        |  | 39,353  |       
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|Other non-current assets:                          |                                    |              |         |        |                    |  |          |        |        |  |         |       
|                                                   | Intangible assets (Notes 2 and
7)  |              |         | 13,913 |                    |  |          | 13,029 |        |  |         | 13,661 |                  
|                                                   | Investments (Notes 2 and
8)        |              |         | 632    |                    |  |          | 385    |        |  |         | 404    |                  
|                                                   | Other (Note
9)                     |              |         | 1,739  |                    |  |          | 1,608  |        |  |         | 1,686  |                  
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|                                                   |                                    |              | 16,284  |        |                    |  | 15,022   |        |        |  | 15,751  |       
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  
|                                                   |                                    | Total Assets |         |        | 63,190             |  |          |        | 67,019 |  |         |        | 70,269            | 
|                                                   |                                    |              |         |        |                    |  |          |        |        |  |         |        |                  

The accompanying notes are an integral part of these consolidated financial
statements.

F - 4



---



##### Table of Contents



ENEL S.p.A. AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2001 AND 2002



|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                   |        | 
|------------------------------------ | ---------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------------ | ------ | -------- | ------ | ----- | ------ |  | ------ | ----------------- | ------ | 
|                                     |                                                                                                      |                                            |        | 2001               |        | 2002     |        | 2002 
|                                     |                                                                                                      |                                            |        |                    |        |          |        |      
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        | (millions of U.S.
|                                     |                                                                                                      |                                            |        | (millions of euro) |        | dollars)
|                                     |                                                                                                      |                                            |        |                    |        |         
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|Current liabilities:                 |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|                                     | Current maturities of long-term debt (Note 10)                                                       |                                            |        | 567                |        |          |        | 1,120 |        |  |        | 1,174             |       
|                                     | Short term debt (Note 10)                                                                            |                                            |        | 6,540              |        |          |        | 7,251 |        |  |        | 7,603             |       
|                                     | Trade accounts payable                                                                               |                                            |        | 6,037              |        |          |        | 6,664 |        |  |        | 6,987             |       
|                                     | Taxes payable                                                                                        |                                            |        | 1,096              |        |          |        | 889   |        |  |        | 932               |       
|                                     | Advances from customers                                                                              |                                            |        | 772                |        |          |        | 1,988 |        |  |        | 2,085             |       
|                                     | Accrued expenses and other current liabilities                                                       |                                            |        | 4,152              |        |          |        | 4,004 |        |  |        | 4,198             |       
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|                                     |                                                                                                      |                                            | 19,164 |                    |        |          | 21,916 |       |        |  | 22,979 |                  
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|Long-term debt (Note 10)             |                                                                                                      |                                            | 16,072 |                    |        |          | 17,172 |       |        |  | 18,005 |                  
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|Other non-current liabilities:       |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|                                     | Reserves for pensions and similar obligations (Note 11)                                              |                                            |        | 430                |        |          |        | 472   |        |  |        | 495               |       
|                                     | Reserves for employee termination indemnities                                                        |                                            |        | 1,418              |        |          |        | 1,415 |        |  |        | 1,484             |       
|                                     | Deferred income taxes (Note 20)                                                                      |                                            |        | 2,581              |        |          |        | 3,104 |        |  |        | 3,254             |       
|                                     | Other (Notes 12 and 21)                                                                              |                                            |        | 2,559              |        |          |        | 2,168 |        |  |        | 2,273             |       
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|                                     |                                                                                                      |                                            | 6,988  |                    |        |          | 7,159  |       |        |  | 7,506  |                  
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|Shareholders equity (Note 13):      |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|                                     | Share capital, euro 1 par value per share (6,063,075,189 shares
authorized, issued and outstandings) |                                            |        | 6,063              |        |          |        | 6,063 |        |  |        | 6,357             |       
|                                     | Legal reserve                                                                                        |                                            |        | 1,453              |        |          |        | 1,453 |        |  |        | 1,524             |       
|                                     | Law 292/93 reserve                                                                                   |                                            |        | 2,215              |        |          |        | 2,215 |        |  |        | 2,322             |       
|                                     | Other reserves                                                                                       |                                            |        | 29                 |        |          |        | 29    |        |  |        | 30                |       
|                                     | Retained earnings                                                                                    |                                            |        | 6,980              |        |          |        | 9,004 |        |  |        | 9,441             |       
|                                     | Net income                                                                                           |                                            |        | 4,226              |        |          |        | 2,008 |        |  |        | 2,105             |       
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|                                     |                                                                                                      |                                            | 20,966 |                    |        |          | 20,772 |       |        |  | 21,779 |                  
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  
|                                     |                                                                                                      | Total Liabilities and Shareholders Equity |        |                    | 63,190 |          |        |       | 67,019 |  |        |                   | 70,269 | 
|                                     |                                                                                                      |                                            |        |                    |        |          |        |       |        |  |        |                  

The accompanying notes are an integral part of these consolidated financial
statements.

F - 5



---



##### Table of Contents



ENEL S.p.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|------------------------------------- | --------------------------------------------- |  | ------------------ | ------ | ------------- |  | ------ | ------ | ---- |  | ------ | ------ | - |  | ------------ | ------ | -
|                                      |                                               |  | 2000
(1)           |        | 2001          |  | 2002   |        | 2002
|                                      |                                               |  |                    |        |               |  |        |        |     
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  | (millions of
|                                      |                                               |  | (millions of euro) |        | U.S. dollars)
|Operating revenues (Notes 2 and 14):  |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |       
|                                      | Sales and services:                           |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|                                      | Energy sales and transport                    |  |                    | 12,981 |               |  |        | 21,323 |      |  |        | 20,208 |   |  |              | 21,188 |  
|                                      | Electricity equalization fund contribution    |  |                    | 9,777  |               |  |        | 783    |      |  |        | 187    |   |  |              | 196    |  
|                                      | Telecommunications services                   |  |                    |        |               |  |        | 2,817  |      |  |        | 3,642  |   |  |              | 3,819  |  
|                                      | Other                                         |  |                    | 2,351  |               |  |        | 3,858  |      |  |        | 5,940  |   |  |              | 6,228  |  
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|                                      |                                               |  | 25,109             |        |               |  | 28,781 |        |      |  | 29,977 |        |   |  | 31,431       |       
|Operating expenses:                   |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |       
|                                      | Personnel (Note 15)                           |  |                    | 3,531  |               |  |        | 3,722  |      |  |        | 3,589  |   |  |              | 3,763  |  
|                                      | Fuel for thermal generation (Note 16)         |  |                    | 5,644  |               |  |        | 5,249  |      |  |        | 4,255  |   |  |              | 4,461  |  
|                                      | Purchased power (Note 16)                     |  |                    | 4,373  |               |  |        | 3,649  |      |  |        | 4,802  |   |  |              | 5,035  |  
|                                      | Depreciation and amortization (Notes 2 and 6) |  |                    | 3,459  |               |  |        | 4,459  |      |  |        | 4,477  |   |  |              | 4,694  |  
|                                      | Services and rentals (Note 17)                |  |                    | 2,453  |               |  |        | 5,633  |      |  |        | 5,710  |   |  |              | 5,987  |  
|                                      | Materials and supplies (Note 16)              |  |                    | 848    |               |  |        | 2,349  |      |  |        | 4,212  |   |  |              | 4,416  |  
|                                      | Provisions                                    |  |                    | 534    |               |  |        | 599    |      |  |        | 504    |   |  |              | 529    |  
|                                      | Other                                         |  |                    | 392    |               |  |        | 577    |      |  |        | 721    |   |  |              | 756    |  
|                                      | Capitalized expenses (Note 2)                 |  |                    | (878   | )             |  |        | (934   | )    |  |        | (1,173 | ) |  |              | (1,230 | )
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|                                      |                                               |  | 20,356             |        |               |  | 25,303 |        |      |  | 27,097 |        |   |  | 28,411       |       
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|Operating income                      |                                               |  | 4,753              |        |               |  | 3,478  |        |      |  | 2,880  |        |   |  | 3,020        |       
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|Financial income (expense) (Note 18): |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |       
|                                      | Financial income                              |  |                    | 150    |               |  |        | 207    |      |  |        | 286    |   |  |              | 300    |  
|                                      | Financial expense                             |  |                    | (798   | )             |  |        | (1,317 | )    |  |        | (1,464 | ) |  |              | (1,535 | )
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|                                      |                                               |  | (648               | )      |               |  | (1,110 | )      |      |  | (1,178 | )      |   |  | (1,235       | )     
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|Equity losses                         |                                               |  | (458               | )      |               |  | (85    | )      |      |  | (59    | )      |   |  | (62          | )     
|Extraordinary income (Notes 2 and 19) |                                               |  | 192                |        |               |  | 2,318  |        |      |  | 736    |        |   |  | 771          |       
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|Income before income taxes            |                                               |  | 3,839              |        |               |  | 4,601  |        |      |  | 2,379  |        |   |  | 2,494        |       
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|Income taxes (Notes 2 and 20)         |                                               |  | 1,649              |        |               |  | 649    |        |      |  | 608    |        |   |  | 637          |       
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|Income before minority interests      |                                               |  | 2,190              |        |               |  | 3,952  |        |      |  | 1,771  |        |   |  | 1,857        |       
|Minority interests                    |                                               |  | (2                 | )      |               |  | 274    |        |      |  | 237    |        |   |  | 248          |       
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  
|                                      | Net income                                    |  |                    | 2,188  |               |  |        | 4,226  |      |  |        | 2,008  |   |  |              | 2,105  |  
|                                      |                                               |  |                    |        |               |  |        |        |      |  |        |        |   |  |              |        |  

The accompanying notes are an integral part of these consolidated financial
statements.

(1)  Amount related to 2000 have restated from Italian Lire to Euro using the fixed rate
of Lire 1,936.27=euro 1 as of January 1, 1999.

F - 6



---



##### Table of Contents



ENEL S.p.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY


FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002



|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|------------------------------------------------------------------------ |  | -------------------------- | ----- | ------- |  | ------- | ----- | -------- |  | -------- | ----- | ------ |  | ----- | -- |  |  |  | ----- | - |  |  | ------ | - |  |  | ------ | -
|                                                                         |  |                            |       |         |  |         |       |          |  | Law      |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  | 
|                                                                         |  | Share                      |       | Legal   |  | 292/93  |       | Other    |  | Retained |       | Net    |  |       |    | 
|                                                                         |  | Capital                    |       | Reserve |  | Reserve |       | Reserves |  | Earnings |       | Income |  | Total
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |      
|                                                                         |  | (millions of euro)        
|Balance at January 1, 2000 (*)                                           |  |                            | 6,263 |         |  |         | 1,253 |          |  |          | 3,117 |        |  |       | 29 |  |  |  | 4,570 |   |  |  | 2,345  |   |  |  | 17,577 |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|Allocation of 1999 net income
to reserves                                |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  | 892   |   |  |  | (892   | ) |  |  |       |  
|Dividends                                                                |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  |      |   |  |  | (1,453 | ) |  |  | (1,453 | )
|Net income for
2000                                                      |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  |      |   |  |  | 2,188  |   |  |  | 2,188  |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|Balance at December 31, 2000                                             |  |                            | 6,263 |         |  |         | 1,253 |          |  |          | 3,117 |        |  |       | 29 |  |  |  | 5,462 |   |  |  | 2,188  |   |  |  | 18,312 |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|Allocation of 2000 net income to reserves                                |  |                            |       |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  | 1,963 |   |  |  | (1,963 | ) |  |  |       |  
|Dividends                                                                |  |                            |      |         |  |         |      |          |  |          | (902  | )      |  |       |   |  |  |  | (451  | ) |  |  | (225   | ) |  |  | (1,578 | )
|Translation of foreign
companies financial
statements and other
changes |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  | 6     |   |  |  |       |   |  |  | 6      |  
|Restatement of the capital
stock in euro and reverse
stock
split         |  |                            | (200  | )       |  |         | 200   |          |  |          |      |        |  |       |   |  |  |  |      |   |  |  |       |   |  |  |       |  
|Net income for
2001                                                      |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  |      |   |  |  | 4,226  |   |  |  | 4,226  |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|Balance at December 31, 2001                                             |  |                            | 6,063 |         |  |         | 1,453 |          |  |          | 2,215 |        |  |       | 29 |  |  |  | 6,980 |   |  |  | 4,226  |   |  |  | 20,966 |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|Allocation of 2001 net income
to reserves                                |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  | 2,043 |   |  |  | (2,043 | ) |  |  |       |  
|Dividends                                                                |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  |      |   |  |  | (2,183 | ) |  |  | (2,183 | )
|Translation of foreign
companies financial
statements and other
changes |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  | (19   | ) |  |  |       |   |  |  | (19    | )
|Net income for
2002                                                      |  |                            |      |         |  |         |      |          |  |          |      |        |  |       |   |  |  |  |      |   |  |  | 2,008  |   |  |  | 2,008  |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|Balance at December 31, 2002                                             |  |                            | 6,063 |         |  |         | 1,453 |          |  |          | 2,215 |        |  |       | 29 |  |  |  | 9,004 |   |  |  | 2,008  |   |  |  | 20,772 |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  
|                                                                         |  | (millions of U.S. dollars)
|Balance at December 31, 2002                                             |  |                            | 6,357 |         |  |         | 1,523 |          |  |          | 2,322 |        |  |       | 30 |  |  |  | 9,441 |   |  |  | 2,105  |   |  |  | 21,779 |  
|                                                                         |  |                            |       |         |  |         |       |          |  |          |       |        |  |       |    |  |  |  |       |   |  |  |        |   |  |  |        |  

The accompanying notes are an integral part of these consolidated financial
statements.

(*) Amounts related to 2000 have been restated from Italian Lire to Euro using
the fixed rate of Lire 1,936.27=euro 1 as of January 1, 1999.

F - 7



---



##### Table of Contents



ENEL S.p.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |        |  
|--------------------------------------------------- | -------------------------------------------------------------- |  | ------------------ | ------ | ------------- |  | ------- | ------ | ---- |  | ------ | ------ | - |  | ------------ | ------ | -
|                                                    |                                                                |  | 2000
(*)           |        | 2001          |  | 2002    |        | 2002
|                                                    |                                                                |  |                    |        |               |  |         |        |     
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  | (millions of
|                                                    |                                                                |  | (millions of euro) |        | U.S. dollars)
|CASH FLOW FROM OPERATING ACTIVITIES:                |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|                                                    | Net income                                                     |  |                    | 2,190  |               |  |         | 3,952  |      |  |        | 1,771  |   |  |              | 1,857  |  
|                                                    | Depreciation and amortization                                  |  |                    | 3,458  |               |  |         | 4,459  |      |  |        | 4,477  |   |  |              | 4,694  |  
|                                                    | Writedowns (revaluations), net                                 |  |                    | 458    |               |  |         | 774    |      |  |        | 1,832  |   |  |              | 1,921  |  
|                                                    | Net changes in reserves for employee termination indemnities   |  |                    | 116    |               |  |         | (76    | )    |  |        | 117    |   |  |              | 123    |  
|                                                    | Net changes in other reserves                                  |  |                    | (22    | )             |  |         | (92    | )    |  |        | 19     |   |  |              | 20     |  
|                                                    | Gain on disposal of assets, net                                |  |                    | (70    | )             |  |         | (3,017 | )    |  |        | (2,772 | ) |  |              | (2,906 | )
|                                                    | Interest income                                                |  |                    | (149   | )             |  |         | (207   | )    |  |        | (286   | ) |  |              | (300   | )
|                                                    | Interest expense                                               |  |                    | 798    |               |  |         | 1,317  |      |  |        | 1,465  |   |  |              | 1,536  |  
|                                                    | Income taxes                                                   |  |                    | 1,649  |               |  |         | 649    |      |  |        | 608    |   |  |              | 637    |  
|(Increase) Decrease:                                |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|                                                    | Inventories                                                    |  |                    | (557   | )             |  |         | (295   | )    |  |        | (1,320 | ) |  |              | (1,384 | )
|                                                    | Accounts receivable                                            |  |                    | (964   | )             |  |         | (1,684 | )    |  |        | 134    |   |  |              | 140    |  
|                                                    | Accrued income, prepayments and other                          |  |                    | (31    | )             |  |         | (13    | )    |  |        | (53    | ) |  |              | (56    | )
|                                                    | Equalization fund receivables                                  |  |                    | (1,675 | )             |  |         | 1,679  |      |  |        | 44     |   |  |              | 46     |  
|                                                    | Trade accounts payables                                        |  |                    | 1,237  |               |  |         | 356    |      |  |        | 1,434  |   |  |              | 1,504  |  
|                                                    | Accrued expenses and other current liabilities                 |  |                    | 144    |               |  |         | 80     |      |  |        | 204    |   |  |              | 214    |  
|                                                    | Interest received                                              |  |                    | 149    |               |  |         | 207    |      |  |        | 286    |   |  |              | 300    |  
|                                                    | Interest paid                                                  |  |                    | (826   | )             |  |         | (1,269 | )    |  |        | (1,436 | ) |  |              | (1,506 | )
|                                                    | Income taxes paid                                              |  |                    | (1,005 | )             |  |         | (656   | )    |  |        | (1,731 | ) |  |              | (1,815 | )
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|Net cash provided by operating activities           |                                                                |  | 4,900              |        |               |  | 6,164   |        |      |  | 4,793  |        |   |  | 5,025        |       
|CASH FLOW FROM INVESTING ACTIVITIES:                |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|                                                    | Investment:                                                    |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |        |  
|                                                    | Capital expenditure (tangibles and intangibles)                |  |                    | (2,579 | )             |  |         | (4,718 | )    |  |        | (5,717 | ) |  |              | (5,994 | )
|                                                    | Unconsolidated subsidiaries                                    |  |                    | (1,169 | )             |  |         | (547   | )    |  |        | (39    | ) |  |              | (41    | )
|                                                    | Investments in consolidated subsidiaries, net of cash acquired |  |                    | (437   | )             |  |         | (8,301 | )    |  |        | (2,339 | ) |  |              | (2,452 | )
|                                                    | Other changes in fixed assets                                  |  |                    | 575    |               |  |         | 7      |      |  |        | 111    |   |  |              | 116    |  
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|                                                    |                                                                |  | (3,610             | )      |               |  | (13,559 | )      |      |  | (7,984 | )      |   |  | (8,371       | )     
|                                                    | Disposals:                                                     |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |        |  
|                                                    | Disposal of businesses                                         |  |                    |       |               |  |         | 4,670  |      |  |        | 3,665  |   |  |              | 3,843  |  
|                                                    | Fixed assets                                                   |  |                    | 181    |               |  |         | 223    |      |  |        | 113    |   |  |              | 118    |  
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|                                                    |                                                                |  | 181                |        |               |  | 4,893   |        |      |  | 3,778  |        |   |  | 3,961        |       
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|Net cash used in investing activities               |                                                                |  | (3,429             | )      |               |  | (8,666  | )      |      |  | (4,206 | )      |   |  | (4,410       | )     
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|CASH FLOW FROM FINANCING ACTIVITIES:                |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|                                                    | Increase in long-term debt                                     |  |                    | 1,447  |               |  |         | 8,384  |      |  |        | 2,411  |   |  |              | 2,528  |  
|                                                    | Repayment of long-term debt                                    |  |                    | (2,554 | )             |  |         | (4,318 | )    |  |        | (1,029 | ) |  |              | (1,079 | )
|                                                    | Change in short-term debt                                      |  |                    | 2,357  |               |  |         | 570    |      |  |        | 924    |   |  |              | 969    |  
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|                                                    |                                                                |  | 1,250              |        |               |  | 4,636   |        |      |  | 2,306  |        |   |  | 2,418        |       
|                                                    | Dividends paid                                                 |  |                    | (1,453 | )             |  |         | (1,578 | )    |  |        | (2,183 | ) |  |              | (2,289 | )
|                                                    | FPE contribution and other pension obligation                  |  |                    | (1,313 | )             |  |         | (651   | )    |  |        | (611   | ) |  |              | (641   | )
|                                                    | Payment of substitute tax on freeing-up of reserves            |  |                    |       |               |  |         |       |      |  |        | (402   | ) |  |              | (421   | )
|                                                    | Minority capital contribution and other minor                  |  |                    | 6      |               |  |         | 191    |      |  |        | 116    |   |  |              | 122    |  
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|Net cash (used in) provided by financing activities |                                                                |  | (1,510             | )      |               |  | 2,598   |        |      |  | (774   | )      |   |  | (811         | )     
|NET CASH FLOW FOR THE YEAR                          |                                                                |  | (39                | )      |               |  | 96      |        |      |  | (187   | )      |   |  | (196         | )     
|CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR  |                                                                |  | 530                |        |               |  | 491     |        |      |  | 587    |        |   |  | 615          |       
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       
|CASH AND CASH EQUIVALENTS AT END OF THE YEAR        |                                                                |  | 491                |        |               |  | 587     |        |      |  | 400    |        |   |  | 419          |       
|                                                    |                                                                |  |                    |        |               |  |         |        |      |  |        |        |   |  |              |       

The accompanying notes are an integral part of these consolidated financial
statements.

(*) Amounts related to 2000 have been restated from Italian Lire to Euro using
the fixed rate of Lire 1,936.27 = euro 1 as of January 1, 1999.

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##### Table of Contents



ENEL S.p.A. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



|(1) |  | GENERAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | ENEL S.p.A. (the Parent) and its subsidiaries (the Subsidiaries or the
Subsidiary Companies), (collectively the Company or the ENEL Group)
are involved in the generation, transmission, distribution and sale of
electricity, providing the majority of the electric service in Italy. ENEL
Group, through WIND, also provides mobile and fixed telecommunications
services. Gas distribution and sale, fuel trading, engineering and
contracting represent the other principal activities of the ENEL Group.
International operations are mainly represented by the generation and
distribution of electricity in Spain, through Viesgo.
|   
|    |  | ENEL S.p.A. is the successor entity to Ente Nazionale per lEnergia
Elettrica, which was established as a public statutory body by the Italian
Parliament in 1962 when the Treasury Ministry nationalized approximately
1,250 private electric companies. In July 1992, the public statutory body
was converted into a joint stock company in accordance with Law No. 359 of
August 8, 1992 which provided for the privatization of the ENEL Group.                                                                                                                                                                                                 

|
|
|

|
|
|
|
|



| |  | On July 31, 2001, Enel Investment Holding BV contributed its 100% interest
in Infostrada S.p.A. to Wind against receipt of shares of WIND
corresponding to 38.7% of the share capital of Wind, after the stock
issuance, increasing ENELs share to 73.42%. For consolidation purposes,
this transaction was treated as reorganization under common control, and
accordingly the assets and liabilities transferred were accounted for at
their carrying values.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents





| |  | In May 2001, ENEL, through its wholly owned subsidiaries Valgen and Valdis,
sold 100% and 49% of the shares of Geval and Deval, respectively, to
Finaosta (a finance company owned by the Valle dAosta Region Authority)
for euro 802 million in cash. Geval owned the business unit relating to the
generation of electricity in the Valle dAosta and Deval the activities
related to sales and distribution of electricity in the same Italian
region. The gain from the sales was euro 444 million, recorded as
extraordinary income in the consolidated financial statements in the year
ended December 31, 2001.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|



| |  | In January 2002, the Company purchased 100% of the share capital of Electra
de Viesgo SL, the holding company of the Viesgo Group, the fourth largest
electricity operator in Spain, at a price of euro 1,920 million. Following
the restructuring of Electra de Viesgo and its subsidiaries, at the end of
2002, activities in power generation and distribution of electricity were
contributed to Viesgo Generacion SL and Electra de Viesgo Distribucion SL,
respectively. The former is controlled by Enel Produzione SpA while the
latter is controlled by Enel Distribuzione SpA. The acquisition was treated
as a purchase, with resulting goodwill in the amount of euro 757 million,
which is being amortized over 20 years (see Note 7).
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On May 31, 2002, the Company sold 100% of the share capital of Eurogen to
Edipower, a consortium led by Edison SpA, at a price of euro 2,980 million.
The gain from the disposal was euro 2,313 million and was recorded as
extraordinary income in the consolidated financial statements in the year
ended December 31, 2002. Effective May 31, 2002, Eurogen
has been deconsolidated.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | On November 12, 2002, the Company agreed to the sale of 100% of the share
capital of Interpower to the Energia Italiana-ACEA-Electrabel consortium at
a price of euro 535 million. The transfer of title to the shares took place
on January 29, 2003.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Bersani Decree requires that a local distribution company owned or
jointly owned by a municipality that serves at least 20% of the electricity
customers of a municipality may request the Company to sell to them its
distribution assets in that municipality at a price to be determined by
agreement between the ENEL Group and that relevant local distribution
company. Under this requirement, in March 2001 and in December 2001, the
Company, through its wholly owned subsidiary Enel Distribuzione, signed
agreements for the sale of its local distribution network to A.C.E.A., the
utility company serving Rome and Formello for euro 568 million and A.E.M.
Torino S.p.A., the utility company serving Turin, for euro 248 million. In
October 2002 and November 2002, distribution networks based in the
municipalities of Milan and Verona were sold for euro 424 million and euro
108 million, respectively. The gains from the sales in aggregate amount to
euro 391 million in 2001, and euro 459 million in 2002, and were recorded
as extraordinary income in the consolidated statements of income.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During 2001, the Company began to consolidate several companies active in
the distribution and sale of gas to the regulated market. The companies
acquired until June 2001 were merged into Enel Distribuzione Gas.
On May 2002, the Company purchased 98.81% of the share capital of Camuzzi
Gazometri SpA, the second largest distributor of natural gas in Italy, at
a price of euro 1,045 million. The acquisition was treated as a purchase,
with resulting goodwill in the amount of euro 597 million, which
is being amortized over 15 years (see Note 7). Camuzzi Gazometri SpA and its
subsidiaries are consolidated effective July 1, 2002.
In 2002, the Company purchased a number of minor gas distributors, which at
the end of the year were merged into GE.AD SpA, a fully owned subsidiary of
Enel Distribuzione Gas. Finally, in order to comply with the current
regulation, the sales activity was spun off from the ownership and
management of the networks and attributed to a separate legal entity, Enel
Gas SpA.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents





|(2) |  | SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
|--- |  | --------------------------------------------------------
|   
|    |  | Basis of Presentation                                   
|    | 

| |  | The Companys consolidated financial statements were prepared from the
accounts of the Parent and the individual financial statements of the
Companys subsidiaries (whether directly or indirectly controlled), in
accordance with accounting principles prescribed by Italian law and
supplemented by the accounting principles issued by the Consiglio
Nazionale
dei Dottori Commercialisti e dei Ragionieri (Italian GAAP). The
financial statements have been reformatted from the original Italian
consolidated financial statement presentation and include certain financial
statement reclassifications and additional disclosures in order to conform
more closely with the form and content of financial statements required by
the United States Securities and Exchange Commission.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|

| |  | The Companys consolidated financial statements are presented in euro.
Amounts related to 2000 have been restated from Italian Lire to euro using
the fixed rate of Lire 1,936.27 equals euro 1 as of January 1, 1999.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|

| |  | Certain reclassifications have
been made to the consolidated financial statements of prior years in
order to conform with the
2002 presentation.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|

| |  | Investments in entities that are not consolidated, when the Company has a
20% to 50% investment, if material, are accounted for under the equity
method. Other investments are recorded at cost, and adjusted if a
permanent impairment in value is present.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As further explained in Note 1, in 2002 the consolidation perimeter changed
as compared to the prior year, due mainly to the disposal of Eurogen and
the acquisition of Viesgo and Camuzzi. Other significant transactions,
which affect the comparability of the financial statements as compared with
previous years, are represented by the acquisition of some minor gas
distributors and the disposal of the electricity distribution networks in
the municipalities of Milan and Verona.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 11



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##### Table of Contents





| |  | Cash and Cash Equivalents                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------
|
| |  | Cash equivalents are comprised of highly liquid temporary investments with
original maturities within three months.
|
| |  | Inventories                                                                                                        



| |  | Inventories are stated at the
lower of cost or market; cost is determined on the basis
of the weighted average cost, and primarily includes fuel stock and other
materials.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|



| |  | If management has evidence that there has been a permanent impairment in the
net value of any specific asset, a write-down is recorded accordingly. The
Company assesses potential impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In making this assessment, the Company groups its assets at
the lowest level of identifiable cash flows that are largely independent of
the cash flows of other utility plant assets. If it is determined that the
fair value of the assets is lower than the corresponding book value, an
impairment change is recorded for the difference. The original value of the
asset, net of depreciation, may be reinstated if the reasons for such a
write-down subsequently cease to exist.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|
|



| |  | The consolidated financial
statements reflect the depreciation of utility
plant on a straight-line basis, using
| |  | ---------------------------------------------------------------------------------------------------------------

F - 12



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##### Table of Contents





| |  | rates reflecting the estimated economic useful life (economic depreciation) of
the related assets. In the statutory financial statements of the Parent and
Subsidiary Companies, as permitted by Italian law, utility plant is
depreciated over prescribed tax lives (fiscal depreciation) which are shorter than
the economic useful lives. The excess amount of depreciation in the
statutory accounts is eliminated in the consolidated financial statements.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As a result of a government law passed in 1986, which was aimed at
providing funds for Enel to offset the cost of building the Italian
electricity infrastructure and other costs of connecting new buildings to
the electricity distribution network, customers requiring a new connection
are obliged to pay a connection fee to the Company.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Prior to January 1, 2002, connection fees were initially recognized in
revenue as assessed, with an offsetting charge to depreciation
expense. Since that date, depreciation expense has been credited such that the connection
fees were effectively recognized in income on a straight-line basis over
the twenty year estimated useful life of the related infrastructure assets.
Deferred connection fees are included in the consolidated balance
sheets in accumulated depreciation. As
a result of the state of capital completion attained by the electricity
distribution network and of the different nature of the related capital
expenditure, increasingly oriented towards improvements in the quality of
service and the safeguard of the environment, starting from January 1,
2002, connection fees paid by Non-Eligible Customers are no longer
attributed by the Company to the development of such network and are no longer reflected
in the depreciation of capital investments for Italian GAAP purposes. The effect of this change to the attributable life of the fees is an
increase in consolidated net income of euro 287 million in 2002 and an
increase in earnings per share of euro 0.05 for the year ending December
31, 2002.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Depreciation expense in the consolidated financial statements
is based on the following estimated economic useful lives:
| |  | ------------------------------------------------------------------------------------------------------------------------

|                              |  |                            |       | 
|----------------------------- |  | -------------------------- | ----- | 
|                              |  | Average years of estimated
|Plant categories              |  | Economic useful life      
|                              |  |                           
|Buildings and associated land |  |                            | 40    | 
|Generating plant:             |  |                            |       | 
|Hydroelectric                 |  |                            | 40    | 
|Thermal                       |  |                            | 20    | 
|Geothermal                    |  |                            | 12    | 
|Other renewable sources       |  |                            | 20    | 
|Transmission lines            |  |                            | 35    | 
|Distribution of electricity:  |  |                            |       | 
|Transformer and substations   |  |                            | 20    | 
|Lines                         |  |                            | 18-20 | 
|Telecommunications:           |  |                            |       | 
|Mobile equipments             |  |                            | 5-6   | 
|Fixed lines appliances        |  |                            | 8     | 
|Cables                        |  |                            | 20    | 

F - 13



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##### Table of Contents





| |  | Intangible assets
| |  | -----------------



| |  | Intangible assets are recorded following the same criteria adopted for
tangible assets. They include the non-amortized balance of investments
whose economic life spans over several years. For acquired intangible assets, including goodwill, amortization is calculated on a
straight-line basis over five years or a different period if deemed to
be more representative of the expected useful life of the assets. The
extraordinary contribution due upon the suppression of the electricity
industry pension fund, pursuant to Law 488, December 23, 1999 (the
2000 Budget Law), has also been recorded under intangible assets.
This balance is amortized over a period of 20 years, as also
permitted under
Italian Law (see Note 7).
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 14



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##### Table of Contents



| |  | Reserve for Employee Termination Indemnities and Other Employee Benefits
| |  | ------------------------------------------------------------------------



| |  | The Companys Italian employees are eligible for severance pay pursuant to
Italian law. The Company accrues a reserve for such employee termination
liabilities, net of applicable advances, over the employees service
periods.                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company also contributes to a management retirement plan that pays
pension benefits, in accordance with Italian law and by agreements with the
trade unions, to managers who retired prior to April 1, 1998. With the
establishment of the FONDENEL Fund, the liabilities related to managers
employed as of April 1, 1998 were transferred to the FONDENEL Fund.
FONDENEL is managed externally and subject to the regulations governed by
Decree No. 14 on April 21, 1993. In the last quarter of 2000, the Company
reached an agreement with the majority of the participants in the
management retirement plan for an early payment of the provision.
|
| |  | Accordingly, the pension benefits liability as of December 31, 2002 relates
solely to those individuals who had retired prior to April 1, 1998 and did
not agree to the early payment in the last quarter of 2000. The reserve
also includes amounts to be paid to existing employees who have worked 35
years with the Company, in accordance with the collective labor contract
and current union agreements.                                                                                                                                                                                                                                              
|
| |  | In addition, Group Companies make contributions to certain employee
associations that provide medical and various other employee benefits to
both current and retired employees. These plans are not administered by the
Companies, and contributions are determined in accordance with the
provisions of negotiated contracts with the trade unions. The Group
Companies expense their contributions to these plans when they are paid.
Such amounts totaled euro 83 million, euro 82 million and euro 79 million
for the years ended December 31, 2000, 2001 and 2002, respectively.                                                                       
|
| |  | The Company grants, under existing contractual obligations, to its
employees hired before July 1, 1996 (working, retired or to their surviving
spouses), an 80% reduction on electricity tariffs (excluding taxes and
duties) within certain consumption limits per year. These discounts are
primarily presented as a reduction in operating revenues in the
accompanying consolidated financial statements.                                                                                                                                                                                                                                                

| |  | Employees of Viesgo are also entitled to certain benefits including a
reduction on electricity tariffs and medical care.
| |  | ------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|
|

| |  | In 2001 the Authority for Electricity and Gas (the Energy Authority) modified in
2001 the previous tariff structure by including in the tariff paid to
distribution companies amounts for the reimbursement of fuel costs which,
until 2000, were paid by the Equalization Fund. Therefore, starting January
1, 2001, revenues from the sale of electricity include components
previously recorded among contributions from electricity Equalization Fund
(see Note 22). In order to ensure comparability between revenues from the
sales of
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15



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##### Table of Contents





| |  | electricity and related costs, otherwise altered by the introduction of
the new tariff
system, starting from January 1, 2001, revenues from the sale of
electricity (which in 2000 were recorded when the customer was billed or
the meter was read) are integrated with estimates of revenues from the
supply of electricity provided after the last meter reading prior to year
end.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Pricing is based on the tariff structure, applicable for the year, as
established by law and the Energy Authority.
| |  | ------------------------------------------------------------------------------------------------------------------

|
|
|

F - 16



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##### Table of Contents



| |  | Statements of Cash Flows
| |  | ------------------------

|
|
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|
|
|
|
|
|

| |  | The following two income taxes are payable by Italian companies:
| |  | ----------------------------------------------------------------

| |  |  | IRPEG (corporate income tax),
payable at respectively 37%, 36% and 36% for the years ended
December 31, 2000, 2001 and 2002. The statutory rate for the year ending December 31, 2003 is 34%.                                   
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | IRAP (regional income tax), payable at a regular tax rate of
4.25% for the years ended December 31, 2000, 2001 and 2002 and
payable at the same rate for 2003. From January 1, 2003, each region
may determine its own tax rate.

| |  | The tax base for IRAP differs significantly from that for IRPEG. In
particular, employee related costs and net interest expense are not
deductible for IRAP purpose.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Deferred tax assets and liabilities are recognized for differences between
the financial reporting and tax bases of assets and liabilities at each
reporting period end. Certain reserves within shareholders equity, totaling
euro 258 million, are subject to taxation upon utilization. Deferred tax
liabilities on such reserves are provided to the extent that such taxation
will result from expected future distributions or other taxable events.
Deferred tax assets, including tax loss carry-forwards, are recognized when
management believes there is reasonable certainty of their realization.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|
|

| |  | Transactions denominated in currencies other than euro are translated to
euro at the exchange rate in effect on the date of the transaction. At
December 31, 2002, assets and liabilities denominated in currencies
different from the euro have been translated into euro at the
exchange rate at the balance sheet date. Foreign currency exchange gains and losses, both
realized and unrealized, are included in income in the period they arise.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17



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##### Table of Contents



| |  | The balance sheet of companies operating in countries not participating
in the European Monetary Union are translated into euro at the exchange
rate applicable at the balance sheet date. Income statement items are
translated into euro at average exchange rates for the year. Differences
arising from the translation into euro of these statements are netted against
retained earnings without any effect on net income. With regards to the Brazilian
subsidiary TSN, it has been deemed appropriate to translate the financial
statements of such subsidiary using the standards and procedures
applicable if the
transactions of the foreign operations had been those of the Parent Company
itself. Property, plant and equipment of this subsidiary, and shareholders equity are
translated at the historical exchange rate, monetary items are translated
at the year-end exchange rate, while the annual average exchange rate is
applied to the income statement items. The foreign exchange difference
arising from the adoption of the above-described method is recorded in the
income statement among financial income and expense for an amount of euro 8
million.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|

| |  | The interest differentials to be received or paid on interest rate swaps,
as well as interest differentials on interest rate collars, are accrued
over the life of the contract. The interest differentials on forward rate
agreements are recognized at the date of settlement of the contract and
accrued over the period hedged. Such interest rate differentials are
recorded in accrued income and prepayments or accrued expenses and other
current liabilities as applicable in the consolidated balance sheets. When
recognized in the consolidated statements of income, the amounts are
classified as financial income (expense).
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Foreign exchange forward contracts are valued at the spot rate at year-end and the
related gains and losses are recorded as financial income (expense). Costs
for options are recognized at the expiry date of the option. Premiums or
discounts are accrued over the life of the contract, and also classified as
financial income (expense) in the consolidated statements of income. With
reference to options, the premiums paid are recorded in the item accrued
income, prepayment and other, on the basis of the maturity of the contract.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|
|
|
|

| |  | The Company records items as extraordinary income and expenses if they
relate to gains or losses on activities which impact the corporate
structure of the Company (such as business re-organization costs, mergers
and acquisitions, write-downs due to reconversions and replacement of
plant and equipment due to new technologies); extraordinary write-downs
of fixed assets and related restatement of original value when the reasons
for asset write-downs subsequently cease to exist; contingent assets or
liabilities from events or transactions that would not reasonably be
expected to recur in the foreseeable future, such as theft or shortage,
natural events or litigation related to non-operating areas (e.g., mergers
and acquisitions) and items regarding previous fiscal years.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 18



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##### Table of Contents



| |  | Environmental costs
| |  | -------------------



| |  | Environmental costs refer to the avoidance, reduction and monitoring of the
environmental impact of production activities. Recurring environmental
costs are recorded in the consolidated statements of income in the
year in which they occur, while costs relating to the extension
of the useful life, increase in capacity and improvement in the safety
of tangible assets are capitalized as part of the cost of the assets
and depreciated over the residual useful lives of the assets.
Provisions for risks and charges are accrued when it is probable or certain
that the cost will be incurred and its amount can be reasonably estimated.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19



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##### Table of Contents



|(3) |  | REGULATION AND RATES
|--- |  | --------------------
|   

| |  | On April 1, 1999, Legislative Decree No. 79/1999 (the Bersani Decree),
implementing the principles contained in the Electricity Directive issued
in 1996 by the European Union, became effective. The Bersani Decree has
commenced the transformation of the electricity sector from a highly
regulated industry to one where energy prices charged by generators will be
eventually determined by competitive bidding. The Bersani Decree also
mandates the consolidation of electricity distribution activities in urban
areas. It further provides for a gradual liberalization of the electricity
market so that customers whose annual consumption of electricity exceeds
specified amounts, together with distributors and wholesalers (all defined
as Eligible Customers) will be able to contract freely with power
generation companies to buy electric power.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Energy Authority has also replaced the cost-plus system for tariffs
with a new price cap tariff methodology. Under the price-cap
methodology, tariffs will be reduced by a fixed percentage each year. This
system creates incentives for operators to improve efficiency and gradually
passes on savings to final customers.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The Bersani Decree establishes a general regulatory framework for the
Italian electricity industry that gradually introduces free competition in
power generation and sales to Eligible Customers while maintaining a
regulated monopoly structure for power transmission, distribution and sales
to Non-Eligible Customers. In particular, the Bersani Decree and subsequent
implementing regulations:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Liberalized, as of April 1, 1999, the generation, import and
export of electricity, as well as the sale of electricity to
Eligible Customers;                                                                                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Provided that, after January 1, 2003, no electricity company
will be allowed to produce or import more than 50% of the total of
imported and domestically-produced electricity in Italy and, in
connection with this limit, mandated that the Company sell not less
than 15,000 MW of its generating capacity by January 1, 2003;                            
|
| |  |  | Distinguished between Eligible Customers, which may negotiate
supply agreements directly with any domestic or foreign producer,
wholesaler or distributor of electricity, and Non-Eligible
Customers, which must purchase electricity from the distributor that
serves the area in which they are located and pay tariffs determined
by the Energy Authority;
|
| |  |  | Provided for the establishment of the Single Buyer, a central
purchaser of electricity from producers on behalf of all
Non-eligible Customers;                                                                                                                                                                                                               
|
| |  |  | Provided for the creation of the Borsa dellEnergia
Elettrica, (Pool Market) for electricity, in which producers,
importers, wholesalers, distributors, the Gestore della Rete, other
Eligible Customers and the Single Buyer will participate, with
prices being determined through a competitive bidding process;                                        
|
| |  |  | Provided for the creation of the Gestore del Mercato,
(Market Operator), charged with managing the pool market;                                                                                                                                                                                                                                            
|
| |  |  | Provided that the transmission and distribution of
electricity are reserved to the Italian government and performed by
licensed operators, and in this respect:                                                                                                                                                                                              

F - 20



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##### Table of Contents



| |  |  | Provided that management and operation of the national
transmission network is licensed to an independent system
operator, the Gestore della Rete, (System Operator) while
owners of the transmission network (including the ENEL Group)
retain ownership of the network assets; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Established a new licensing regime for electricity
distribution and provided incentives for the consolidation of
electricity distribution networks within each municipality.                                                                                                          

| |  | The process of liberalizing the market enacted by the Bersani Decree is
highly complex. Certain of the actions required by the Bersani Decree have
not occurred within the contemplated time periods and it is likely that a
number of the deadlines noted above may not be met.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21



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##### Table of Contents





|(4) |  | RECEIVABLES                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Receivables are stated at their net realizable value and primarily relate
to amounts due for the supply of electricity, gas and services, and also
include amounts to be billed for services rendered prior to year end. The
following table shows a breakdown of receivables as of December 31, 2001
and 2002.

|                                |  |                    |       |      |  |  |        |  
|------------------------------- |  | ------------------ | ----- | ---- |  |  | ------ | -
|                                |  | 2001               |       | 2002
|                                |  |                    |       |     
|                                |  | (millions of euro)
|Electricity, gas and services   |  |                    | 5,733 |      |  |  | 6,076  |  
|Telecommunication services      |  |                    | 1,346 |      |  |  | 1,174  |  
|Allowance for doubtful accounts |  |                    | (280  | )    |  |  | (326   | )
|                                |  |                    |       |      |  |  |        |  
|                                |  |                    | 6,799 |      |  |  | 6,924  |  
|Taxes receivable                |  |                    | 595   |      |  |  | 1,385  |  
|Deferred tax assets             |  |                    | 481   |      |  |  | 729    |  
|Other                           |  |                    | 1,305 |      |  |  | 1,383  |  
|                                |  |                    |       |      |  |  |        |  
|                                |  |                    | 2,381 |      |  |  | 3,497  |  
|                                |  |                    |       |      |  |  |        |  
|                                |  |                    | 9,180 |      |  |  | 10,421 |  
|                                |  |                    |       |      |  |  |        |  



| |  | The increase in receivables for electricity, gas and services is mainly due
to the growth in fuel trading operations, the change in the scope of
activities in the gas distribution and sales sector and higher revenue
realized by the engineering and contracting sector.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|

| |  | The decrease in receivables for telecommunication services is mainly
related to a financing operation comprising the transfer of receivables
(securitization) carried out by WIND in November 2002 for an original
amount of euro 316 million. WIND has participated in this securitization
with a primary third-party bank involving an entity created to manage such
receivables. During 2002, WIND sold to the entity receivables having a face
value of euro 316 million, receiving for these, liquid funds of euro 174
million and euro 142 million in financial notes issued by the entity. The
entity will collect the receivables and will pay the obligations to WIND.
The collection risk related to the receivables remains with WIND,
although subsequent to year end all receivables were collected.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|
|
|
|
|

F - 22



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##### Table of Contents





|(5) |  | INVENTORIES                                                  
|--- |  | -------------------------------------------------------------
|   
|    |  | Inventories as of December 31, 2001 and 2002 were as follows:

|                                          |  |                    |       |      |  |  |       | 
|----------------------------------------- |  | ------------------ | ----- | ---- |  |  | ----- | 
|                                          |  | 2001               |       | 2002
|                                          |  |                    |       |     
|                                          |  | (millions of euro)
|Fuel                                      |  |                    | 537   |      |  |  | 682   | 
|Materials, supplies and other inventories |  |                    | 318   |      |  |  | 444   | 
|Residential buildings held for disposal   |  |                    | 304   |      |  |  | 340   | 
|Contract work in progress                 |  |                    | 707   |      |  |  | 1,731 | 
|Advances                                  |  |                    | 66    |      |  |  | 69    | 
|                                          |  |                    |       |      |  |  |       | 
|Total                                     |  |                    | 1,932 |      |  |  | 3,266 | 
|                                          |  |                    |       |      |  |  |       | 



| |  | The increase in fuel inventories
is primarily due to natural gas for sale to households held in stock
by third parties for distribution in
winter according to needs and, to a lesser extent, to the change in
the scope of consolidation due to the acquisition of Viesgo.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The increase in materials, supplies and other
inventories is mainly due to higher inventories of telephone equipment and
related accessories held for resale by WIND.                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The increase in contract work in progress is primarily due to the
development of activities in the engineering and contracting sector for
contract work acquired internationally. The increase is consistent with
advances paid by customers, recorded under liabilities.

F - 23



---



##### Table of Contents





|(6) |  | UTILITY PLANT                                                                 
|--- |  | ------------------------------------------------------------------------------
|   
|    |  | Net utility plant as of December 31, 2001 and 2002 consisted of the
following:



|                                 |                                    |       |        |                    |        |      |        |        |        | 
|-------------------------------- | ---------------------------------- | ----- | ------ | ------------------ | ------ | ---- | ------ | ------ | ------ | 
|                                 |                                    |       |        | 2001               |        | 2002
|                                 |                                    |       |        |                    |        |     
|                                 |                                    |       |        | (millions of euro)
|Utility plant, gross:            |                                    |       |        |                    |        |      |        |       
|Generating Plant:                |                                    |       |        |                    |        |      |        |       
|                                 | Hydroelectric                      |       |        | 8,299              |        |      |        | 8,201  |       
|                                 | Thermal                            |       |        | 19,566             |        |      |        | 17,587 |       
|                                 | Geothermal and renewable resources |       |        | 1,679              |        |      |        | 1,914  |       
|Transmission Line                |                                    |       | 6,303  |                    |        |      | 6,590  |       
|Distribution Electricity Network |                                    |       | 32,525 |                    |        |      | 34,727 |       
|Distribution Gas Network         |                                    |       | 783    |                    |        |      | 2,564  |       
|Telecommunication Networks       |                                    |       | 3,105  |                    |        |      | 4,484  |       
|Land and Buildings               |                                    |       | 3,069  |                    |        |      | 3,380  |       
|Other                            |                                    |       | 2,629  |                    |        |      | 2,385  |       
|Construction in progress         |                                    |       | 2,256  |                    |        |      | 2,442  |       
|                                 |                                    |       |        |                    |        |      |        |        |       
|                                 |                                    | Total |        |                    | 80,214 |      |        |        | 84,274 | 
|Accumulated Depreciation:        |                                    |       |        |                    |        |      |        |       
|Generating Plant:                |                                    |       |        |                    |        |      |        |       
|                                 | Hydroelectric                      |       |        | 3,341              |        |      |        | 3,392  |       
|                                 | Thermal                            |       |        | 10,848             |        |      |        | 9,848  |       
|                                 | Geothermal and renewable resources |       |        | 892                |        |      |        | 1,014  |       
|Transmission Line                |                                    |       | 3,045  |                    |        |      | 3,264  |       
|Distribution Electricity Network |                                    |       | 23,649 |                    |        |      | 24,694 |       
|Distribution Gas Network         |                                    |       | 265    |                    |        |      | 877    |       
|Telecommunication Networks       |                                    |       | 770    |                    |        |      | 1,236  |       
|Land and Buildings               |                                    |       | 849    |                    |        |      | 935    |       
|Other                            |                                    |       | 1,551  |                    |        |      | 1,481  |       
|                                 |                                    |       |        |                    |        |      |        |        |       
|                                 |                                    | Total |        |                    | 45,210 |      |        |        | 46,741 | 
|Utility plant, net:              |                                    |       |        |                    |        |      |        |       
|Generating Plant:                |                                    |       |        |                    |        |      |        |       
|                                 | Hydroelectric                      |       |        | 4,958              |        |      |        | 4,809  |       
|                                 | Thermal                            |       |        | 8,718              |        |      |        | 7,739  |       
|                                 | Geothermal and renewable resources |       |        | 787                |        |      |        | 900    |       
|Transmission Line                |                                    |       | 3,258  |                    |        |      | 3,326  |       
|Distribution Electricity Network |                                    |       | 8,876  |                    |        |      | 10,033 |       
|Distribution Gas Network         |                                    |       | 518    |                    |        |      | 1,687  |       
|Telecommunication Networks       |                                    |       | 2,335  |                    |        |      | 3,248  |       
|Land and Buildings               |                                    |       | 2,220  |                    |        |      | 2,445  |       
|Other                            |                                    |       | 1,078  |                    |        |      | 904    |       
|Construction in progress         |                                    |       | 2,256  |                    |        |      | 2,442  |       
|                                 |                                    |       |        |                    |        |      |        |        |       
|                                 |                                    | Total |        |                    | 35,004 |      |        |        | 37,533 | 
|                                 |                                    |       |        |                    |        |      |        |        |        | 

F - 24



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##### Table of Contents





| |  | As of December 31, 2002, utility plant includes assets to be relinquished,
primarily hydroelectric, with a net book value of approximately euro 3,000
million. Italian law (Decree 79/99 applying European Commission Directive
92/62 regarding the electricity market) established the expiration date for
concessions relating to large reservoirs managed and operated by the
Company. The concessions will expire thirty years after the decree
became effective, thus in 2029. Moreover, Law n. 340 dated November 24, 2000,
extended to 2020 concessions regarding State property used for thermal
generation activities. At such dates, all water catchment plant, control
equipment, high pressure pipes and drainage pipes must be transferred to
the State in good working order if the concession is not renewed.
Therefore, the depreciation of the assets to be relinquished has been
calculated on the basis of the lower between the length of the concession
and the residual useful life of the assets.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The same decree also provides the possibility for the autonomous provinces
of Trento and Bolzano to choose a different expiry date for hydroelectric
concessions, that has been fixed in 2010.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The expiration of concessions for hydroelectric plants of the Viesgo
companies varies between 2032 and 2065.
| |  | ------------------------------------------------------------------------------------------------------------
|
| |  | The following reflects changes in utility plant (millions of euro):                                         

|                           |                                 |  |                |        |          |  |              |     |                |  |                |      |          |  |                   |        |                |  |                |       |  |  |       |     |  |  |        |      |                   |  |              |      |   |  |        |       | 
|-------------------------- | ------------------------------- |  | -------------- | ------ | -------- |  | ------------ | --- | -------------- |  | -------------- | ---- | -------- |  | ----------------- | ------ | -------------- |  | -------------- | ----- |  |  | ----- | --- |  |  | ------ | ---- | ----------------- |  | ------------ | ---- | - |  | ------ | ----- | 
|                           |                                 |  | December 31,   |        |          |  |              |     |                |  |                |      |          |  |                   |        | December 31,   |  |                |       |  |  |       |     |  |  |        |      |                   |  | December 31,
|                           |                                 |  | 2000           |        |          |  |              |     |                |  |                |      |          |  |                   |        | 2001           |  |                |       |  |  |       |     |  |  |        |      |                   |  | 2002        
|                           |                                 |  |                |        |          |  |              |     |                |  |                |      |          |  |                   |        |                |  |                |       |  |  |       |     |  |  |        |      |                   |  |             
|                           |                                 |  |                |        |          |  |              |     |                |  |                |      |          |  | Reclass. retirem. |        |                |  |                |       |  |  |       |     |  |  |        |      | Reclass. retirem. |  |              |      |  
|                           |                                 |  | Net book value |        | Addition |  | Depreciation |     | and other mov. |  | Net book value |      | Addition |  | Depreciation      |        | and other mov. |  | Net book value
|                           |                                 |  |                |        |          |  |              |     |                |  |                |      |          |  |                   |        |                |  |               
|Generating Plant:          |                                 |  |                |        |          |  |              |     |                |  |                |      |          |  |                   |        |                |  |                |       |  |  |       |     |  |  |        |      |                   |  |              |      |   |  |        |      
|                           | Hydroelectric                   |  |                | 5,628  |          |  |              | 136 |                |  |                | (276 | )        |  |                   | (530   | )              |  |                | 4,958 |  |  |       | 45  |  |  |        | (258 | )                 |  |              | 64   |   |  |        | 4,809 | 
|                           | Thermal                         |  |                | 10,345 |          |  |              | 367 |                |  |                | (913 | )        |  |                   | (1,081 | )              |  |                | 8,718 |  |  |       | 425 |  |  |        | (816 | )                 |  |              | (588 | ) |  |        | 7,739 | 
|                           | Geothermal and other renewables |  |                | 831    |          |  |              | 21  |                |  |                | (101 | )        |  |                   | 36     |                |  |                | 787   |  |  |       | 103 |  |  |        | (107 | )                 |  |              | 117  |   |  |        | 900   | 
|Transmission line          |                                 |  | 3,243          |        |          |  | 21           |     |                |  | (224           | )    |          |  | 218               |        |                |  | 3,258          |       |  |  | 161   |     |  |  | (229   | )    |                   |  | 136          |      |   |  | 3,326  |      
|Distribution network       |                                 |  | 9,944          |        |          |  | 1,104        |     |                |  | (1,423         | )    |          |  | (231              | )      |                |  | 9,394          |       |  |  | 1,548 |     |  |  | (1,089 | )    |                   |  | 1,867        |      |   |  | 11,720 |      
|Telecommunication networks |                                 |  |               |        |          |  | 949          |     |                |  | (388           | )    |          |  | 1,774             |        |                |  | 2,335          |       |  |  | 1,239 |     |  |  | (552   | )    |                   |  | 226          |      |   |  | 3,248  |      
|Land and buildings         |                                 |  | 2,699          |        |          |  | 29           |     |                |  | (83            | )    |          |  | (425              | )      |                |  | 2,220          |       |  |  | 124   |     |  |  | (64    | )    |                   |  | 165          |      |   |  | 2,445  |      
|Other                      |                                 |  | 1,028          |        |          |  | 145          |     |                |  | (222           | )    |          |  | 127               |        |                |  | 1,078          |       |  |  | 208   |     |  |  | (218   | )    |                   |  | (164         | )    |   |  | 904    |      
|Construction in progress   |                                 |  | 2,026          |        |          |  | 1,311        |     |                |  |               |      |          |  | (1,081            | )      |                |  | 2,256          |       |  |  | 1,256 |     |  |  |       |      |                   |  | (1,070       | )    |   |  | 2,442  |      
|                           |                                 |  |                |        |          |  |              |     |                |  |                |      |          |  |                   |        |                |  |                |       |  |  |       |     |  |  |        |      |                   |  |              |      |   |  |        |      
|Total                      |                                 |  | 35,744         |        |          |  | 4,083        |     |                |  | (3,630         | )    |          |  | (1,193            | )      |                |  | 35,004         |       |  |  | 5,109 |     |  |  | (3,333 | )    |                   |  | 753          |      |   |  | 37,533 |      
|                           |                                 |  |                |        |          |  |              |     |                |  |                |      |          |  |                   |        |                |  |                |       |  |  |       |     |  |  |        |      |                   |  |              |      |   |  |        |      



| |  | Reclassifications, retirements and other movements include the effect of
the change in the Groups structure in 2002 for the following:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the acquisition of the Viesgo companies, resulting in an increase of
euro 1,421 million;           
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | the acquisition of Camuzzi and minor gas companies,
resulting in an increase of euro 1,145 million;

F - 25



---



##### Table of Contents





| |  |  | the disposal of Eurogen, which resulted in the deconsolidation of
fixed assets amounting to euro 1,469 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------



|    |  | The amount also includes current divestments of euro 175 million and write
downs totaling euro 173 million.                                                                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Write downs relate almost entirely to a discontinued geothermal plant (euro
94 million) and to generation plants to be converted to combined-cycle
technology (euro 58 million).
|   
|(7) |  | INTANGIBLE ASSETS                                                                                                                                                               
|   
|    |  | Intangible assets as of December 31, 2001 and 2002 were as follows:                                                                                                             

|                                                                 |  |                    |        |      |  |  |        | 
|---------------------------------------------------------------- |  | ------------------ | ------ | ---- |  |  | ------ | 
|                                                                 |  | 2001               |        | 2002
|                                                                 |  |                    |        |     
|                                                                 |  | (millions of euro)
|Goodwill                                                         |  |                    | 8,102  |      |  |  | 7,391  | 
|Concessions, licenses, trademarks and similar
rights             |  |                    | 2,840  |      |  |  | 2,839  | 
|Extraordinary contribution for Electricity
Industry Pension Fund |  |                    | 1,751  |      |  |  | 1,546  | 
|Patents and intellectual property rights                         |  |                    | 458    |      |  |  | 465    | 
|Other                                                            |  |                    | 762    |      |  |  | 788    | 
|                                                                 |  |                    |        |      |  |  |        | 
|Total                                                            |  |                    | 13,913 |      |  |  | 13,029 | 
|                                                                 |  |                    |        |      |  |  |        | 



| |  | The amortization of intangible assets for the years ended December 31, 2001 and
2002 amounts to euro 815 million and to euro 1,142 million, respectively.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Goodwill is detailed as follows:                                                                                                                         



|                   |  |                   |       |                   |  |              |     |          |  |            |       |            |  |          |       |              |  |  |       |  |  |  |       |  |  |          |  | 
|------------------ |  | ----------------- | ----- | ----------------- |  | ------------ | --- | -------- |  | ---------- | ----- | ---------- |  | -------- | ----- | ------------ |  |  | ----- |  |  |  | ----- |  |  | -------- |  | 
|                   |  | December 31, 2001 |       | December 31, 2002 |  |              |     |         
|                   |  |                   |       |                   |  |              |     |         
|                   |  |                   |       |                   |  | Accumulated  |     |          |  |            |       |            |  |          |       | Accumulated  |  |  |       |  |  |  |       | 
|                   |  |                   |       |                   |  | amortization |     |          |  |            |       |            |  |          |       | amortization |  |  |       |  |  |  |       | 
|                   |  |                   |       |                   |  | and write-   |     | Net book |  | Historical |       | and write- |  | Net book |       | Amortization
|(millions of euro) |  | Historical cost   |       | downs             |  | value        |     | cost     |  | downs      |       | value      |  | period  
|                   |  |                   |       |                   |  |              |     |          |  |            |       |            |  |         
|Telecommunications |  |                   | 8,230 |                   |  |              | 439 |          |  |            | 7,791 |            |  |          | 8,360 |              |  |  | 2,511 |  |  |  | 5,849 |  |  | 15 years
|Viesgo             |  |                   |      |                   |  |              |    |          |  |            |      |            |  |          | 757   |              |  |  | 38    |  |  |  | 719   |  |  | 20 years
|Gas sector         |  |                   | 162   |                   |  |              | 14  |          |  |            | 148   |            |  |          | 695   |              |  |  | 35    |  |  |  | 660   |  |  | 15 years
|CHI Energy and EGI |  |                   | 153   |                   |  |              | 6   |          |  |            | 147   |            |  |          | 163   |              |  |  | 14    |  |  |  | 149   |  |  | 20 years
|Other              |  |                   | 16    |                   |  |              |     |          |  |            | 16    |            |  |          | 15    |              |  |  | 1     |  |  |  | 14    |  |  | 10 years
|                   |  |                   |       |                   |  |              |     |          |  |            |       |            |  |          |       |              |  |  |       |  |  |  |       |  |  |          |  | 
|Total              |  |                   | 8,561 |                   |  |              | 459 |          |  |            | 8,102 |            |  |          | 9,990 |              |  |  | 2,599 |  |  |  | 7,391 |  |  |          |  | 
|                   |  |                   |       |                   |  |              |     |          |  |            |       |            |  |          |       |              |  |  |       |  |  |  |       |  |  |          |  | 



F - 26



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| |  | At December 31, 2002, goodwill for the telecommunications segment includes
primarily the residual amount of the goodwill paid in March 2001 upon the
acquisition of Infostrada, and in July 2000 for the acquisition of a 5.63%
share in WIND, amounting to euro 5,230 million and to euro 480 million,
respectively. Additionally, in 2002, following the break-up of the Italian
mobile communications operator named BLU, WIND acquired certain of BLUs
assets, paying euro 130 million in goodwill.
Amortization is calculated over a period of 15 years.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In view of the outlook of the telecommunications sector and the downwards
revision of growth expectations inevitably affecting WIND, it has been
deemed necessary to review the carrying value of the goodwill related to
such segment at December 31, 2002. A valuation of the Groups
telecommunications business was thus carried out on the basis of estimated
future cash flows. From such valuation, which involved the comparison of
the estimated future discounted cash flows to the book value of the
telecommunications segment, an impairment in value emerged of euro 1,511
million that was deemed to be other than temporary and therefore recorded
among extraordinary charges in the consolidated statements of income.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Goodwill related to the acquisition of Viesgo is amortized over 20 years,
deemed in line with the activity and business plans.
| |  | ------------------------------------------------------------------------------------------------------------------------------



| |  | Goodwill paid in 2002 for the acquisitions of gas distributors (Camuzzi and
other minor companies) amounts to euro 597 million, representing the
difference between the price paid and the proportionate fair value of
assets acquired and liabilities assumed at the time when control was
acquired. Such goodwill, mainly related to the customer base acquired, is
amortized over 15 years, deemed appropriate in view of current and expected
performances of the business, despite growing competitive pressures and in
view of the fact that sales activities are not directly connected to the
expiration terms of licenses for the distribution of gas.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Concessions, licenses, trademarks and similar rights include costs incurred
by WIND to participate in the auction for the awarding of a license for the
installation and operation of third generation mobile telecommunications
systems (UMTS  IMT 2000) as well as license registration costs, amounting
to euro 2,447 million. The initial 15-year license issued by the Authority
for Telecommunications on January 10, 2001 was extended in 2002 to a
20-year period, effective January 1, 2002. Amortization over the residual
life of the license will start at the time the asset is ready for its
intended use. No amortization was thus recorded in 2001 and 2002. The item
also includes approximately euro 330 million relating to costs incurred by
Infostrada (now part of WIND) to acquire concessions for the use of
international circuits and for the usage and passage rights provided for in
the contract signed in 1998 with Ferrovie dello Stato (State Railways),
regulating the use of the related fiber optic network. The right of access
to the network is amortized on the basis of the residual duration of the
same (30 years). The right to use the existing optical fiber network is
amortized over 20 years.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The extraordinary contribution due following the suppression of the
electricity industry pension fund, was established through Law no. 488,
dated December 23, 1999 (2000 Budget Law). Based on the three installments
paid, the Companys final total contribution of euro 1,940 million
(the original estimate was euro 2,036 million) is expensed on a straight-line
basis over a period of 20 years, as also permitted by the above-mentioned
Budget Law.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Patents and intellectual property rights primarily relate to costs incurred
by the telecommunications companies for the acquisition of proprietary and
licensed software.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27



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| |  | Other intangible assets mainly relate to leasehold improvements made by
telecommunications companies on technical sites; costs incurred for the
implementation of SAP and the Contact center; cost of advertising campaigns
carried out to support new telecommunications services and trademarks and
software development costs.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The accumulated amortization and write downs as of December 31, 2002, for
goodwill, concessions, licenses, trademarks and similar rights and the extraordinary contribution relate
to the suppression of the electricity industry pension fund, amounts to
euro 2,599 million, euro 71 million and euro 340 million, respectively.
The amortization for the year ended December 31, 2002, for goodwill,
concessions, licenses, trademarks and similar rights and the extraordinary contribution relating to the
suppression of the electricity industry pension fund, amounts to euro 595
million, euro 25 million and euro 92 million, respectively. Additionally,
extraordinary charges for 2002 include the mentioned write down of the
goodwill related to WIND (euro 1,511 million) together with extraordinary
amortization of euro 45 million in connection with the contribution for
the electricity industry pension fund and licenses.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) |  | INVESTMENTS                                                 
|--- |  | ------------------------------------------------------------
|   
|    |  | Investments as of December 31, 2001 and 2002 are as follows:

|                                           |  |                    |     |      |  |  |     | 
|------------------------------------------ |  | ------------------ | --- | ---- |  |  | --- | 
|                                           |  | 2001               |     | 2002
|                                           |  |                    |     |     
|                                           |  | (millions of euro)
|Investments in unconsolidated subsidiaries |  |                    | 10  |      |  |  | 7   | 
|Investments in affiliates                  |  |                    | 287 |      |  |  | 293 | 
|Investments in other companies             |  |                    | 335 |      |  |  | 85  | 
|                                           |  |                    |     |      |  |  |     | 
|Total                                      |  |                    | 632 |      |  |  | 385 | 
|                                           |  |                    |     |      |  |  |     | 



| |  | Investment in affiliates primarily includes a 49% ownership in Immobiliare
Foro Bonaparte (euro 114 million) following the contribution in 2001 of
real estate property and a 49% ownership in Leasys (euro 109 million)
following the contribution in 2001 of vehicles leasing and company fleet
management activities.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|    |  | Investments in other companies as of December 31, 2001 included a 12.5%
share of Electra de Viesgo, acquired on December 21, 2001 for an amount of
euro 234 million. Following the acquisition of the full capital in January
2002 and the consolidation on a line by line basis, this amount was
consequently eliminated.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(9) |  | OTHER NON-CURRENT ASSETS                                                                                                                                                                                                                                                                                                  



| |  | At December 31, 2002, the balance includes mainly the long-term portion of
deferred tax assets, amounting to euro 939 million, tax receivables payable
beyond twelve months, amounting to euro 294 million, and other long-term
receivables amounting to euro 375 million.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At December 31, 2001, the item included advance payments for the
acquisitions of Camuzzi and Viesgo for a total amount of euro 528 million,
in addition to the long-term portion of deferred tax assets, amounting to
euro 880 million, and other long-term receivables amounting to euro 331
million.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The decrease of euro 131 million is primarily due to the elimination of the
advance payments above, following the acquisition of the two companies,
partially offset by a euro 289 million increase in long-term tax
receivables and by a euro 59 million increase in deferred tax assets.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 28



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| |  | Deferred tax assets recorded in
WIND for tax loss carry-forwards amount to a
total of euro 652 million. In this context, an amount equal to euro 174
million relates to losses that may be carried forward indefinitely, while
the remainder expires in the years 2005 to 2007. In 2002, WIND recorded
euro 265 million of deferred tax assets on the loss reported for the year
while writing off euro 269 million of deferred tax assets relating to
previous years, no longer believed recoverable in light of the new business plan.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 29



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|(10) |  | DEBT                                                                                                                                                                  
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | Long-Term Debt                                                                                                                                                        
|    
|     |  | The Companys consolidated long-term debt balances, including current
maturities, as of December 31, 2001 and 2002, and the related maturity
schedules are as follows:

|                                 |  |          |           |            |  |            |        |          |  |      |        |      |  |         |       |      |  |       |       |                    |  |                    |       |  |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 
|-------------------------------- |  | -------- | --------- | ---------- |  | ---------- | ------ | -------- |  | ---- | ------ | ---- |  | ------- | ----- | ---- |  | ----- | ----- | ------------------ |  | ------------------ | ----- |  |  |  | ----- |  |  |  | --- |  |  |  | ----- |  |  |  | ------ | 
|                                 |  |          |           |            |  |            |        |          |  |      |        |      |  | Current |       |      |  |       |       | Long-term Maturity
|Summary by Type                  |  | Maturity |           | Balance at |  | Balance at |        | Maturity |  |     
|of Debt Instrument               |  | Range    |           | 12/31/2001 |  | 12/31/2002 |        | 2003     |  | 2004 |        | 2005 |  | 2006    |       | 2007 |  | After |       | Total             
|                                 |  |          |           |            |  |            |        |          |  |      |        |      |  |         |       |      |  |       |       |                   
|                                 |  |          |           |            |  |            |        |          |  |      |        |      |  |         |       |      |  |       |       |                    |  | (millions of euro) |       |  |  |  |       |  |  |  |     |  |  | 
|Fixed - rate listed
bonds        |  |          | 2004-2031 |            |  |            | 5,075  |          |  |      | 5,075  |      |  |         |      |      |  |       | 3,000 |                    |  |                    | 750   |  |  |  | 225   |  |  |  |    |  |  |  | 1,100 |  |  |  | 5,075  | 
|Floating - rate listed
bonds     |  |          | 2004-2009 |            |  |            | 252    |          |  |      | 452    |      |  |         |      |      |  |       | 200   |                    |  |                    |      |  |  |  | 166   |  |  |  |    |  |  |  | 86    |  |  |  | 452    | 
|Fixed - rate bonds not
listed    |  |          | 2005-2008 |            |  |            | 171    |          |  |      | 176    |      |  |         |      |      |  |       |      |                    |  |                    | 57    |  |  |  | 45    |  |  |  |    |  |  |  | 74    |  |  |  | 176    | 
|Floating - rate bonds not
listed |  |          | 2003-2021 |            |  |            | 1,625  |          |  |      | 1,614  |      |  |         | 18    |      |  |       | 20    |                    |  |                    | 21    |  |  |  | 21    |  |  |  | 22  |  |  |  | 1,512 |  |  |  | 1,596  | 
|Fixed - rate bond EU             |  |          | 2003-2010 |            |  |            | 263    |          |  |      | 210    |      |  |         | 53    |      |  |       | 38    |                    |  |                    | 39    |  |  |  | 37    |  |  |  | 32  |  |  |  | 11    |  |  |  | 157    | 
|Floating - rate bonds EU         |  |          | 2003-2009 |            |  |            | 20     |          |  |      | 16     |      |  |         | 5     |      |  |       | 3     |                    |  |                    | 3     |  |  |  | 3     |  |  |  | 1   |  |  |  | 1     |  |  |  | 11     | 
|Fixed - rate bank loans          |  |          | 2003-2012 |            |  |            | 89     |          |  |      | 75     |      |  |         | 11    |      |  |       | 10    |                    |  |                    | 9     |  |  |  | 8     |  |  |  | 5   |  |  |  | 32    |  |  |  | 64     | 
|Floating - rate bank loans       |  |          | 2003-2016 |            |  |            | 5,853  |          |  |      | 7,241  |      |  |         | 891   |      |  |       | 637   |                    |  |                    | 288   |  |  |  | 378   |  |  |  | 578 |  |  |  | 4,469 |  |  |  | 6,350  | 
|Fixed - rate EU Loans            |  |          | 2003-2009 |            |  |            | 429    |          |  |      | 247    |      |  |         | 79    |      |  |       | 46    |                    |  |                    | 37    |  |  |  | 30    |  |  |  | 29  |  |  |  | 26    |  |  |  | 168    | 
|Floating - rate EU Loans         |  |          | 2004-2016 |            |  |            | 2,324  |          |  |      | 2,838  |      |  |         | 49    |      |  |       | 56    |                    |  |                    | 104   |  |  |  | 260   |  |  |  | 284 |  |  |  | 2,085 |  |  |  | 2,789  | 
|Other financings                 |  |          | 2003-2022 |            |  |            | 538    |          |  |      | 348    |      |  |         | 14    |      |  |       | 12    |                    |  |                    | 14    |  |  |  | 14    |  |  |  | 12  |  |  |  | 282   |  |  |  | 334    | 
|                                 |  |          |           |            |  |            |        |          |  |      |        |      |  |         |       |      |  |       |       |                    |  |                    |       |  |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 
|Total                            |  |          |           |            |  |            | 16,639 |          |  |      | 18,292 |      |  |         | 1,120 |      |  |       | 4,022 |                    |  |                    | 1,322 |  |  |  | 1,187 |  |  |  | 963 |  |  |  | 9,678 |  |  |  | 17,172 | 
|                                 |  |          |           |            |  |            |        |          |  |      |        |      |  |         |       |      |  |       |       |                    |  |                    |       |  |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 



| |  | Bonds include euro 1,358 million guaranteed by the Republic of Italy (euro
1,428 million at December 31, 2001).
| |  | ---------------------------------------------------------------------------------------------------------------



| |  | The increase in long-term debt of euro 1,653 million is a result of new
borrowings of euro 2,411 million and the change in the Group
structure of euro 309 million, which are offset by principal repayments of euro
1,029 million and by foreign exchange differences of euro 38 million.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2001, WIND entered into two syndicated credit facilities for a total
amount of euro 7,000 million aimed at financing capital
expenditures on the
network. These credit facilities were utilized in the amount of euro 5,865
million at year-end 2002, and of euro 4,103 million at year-end 2001. Such
credit lines expire at the end of 2010 and are subject, for the full
duration of their term, to equity, debt and financial ratio covenants
according to which the availability of funds and the applicable spread on
Euribor are determined.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2002, the European Investment Bank extended to Enel Green Power a euro
300 million, 15-year floating-rate loan guaranteed by the Parent Company.
This loan will contribute to finance investment projects for new
construction and for the revamping and upgrade of existing plants in the
sector of electricity generation from renewable resources.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 30



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| |                                                                  
| | -----------------------------------------------------------------
| | Long-term debt, including maturities, by currency, is as follows:

|                     |  |          |           |      |  |                         |       |                 |  |                    |        |                      |  |  |       |   |  |  |        | 
|-------------------- |  | -------- | --------- | ---- |  | ----------------------- | ----- | --------------- |  | ------------------ | ------ | -------------------- |  |  | ----- | - |  |  | ------ | 
|                     |  |          |           |      |  | Average Interest        |       | At December 31, |  | Average Interest   |        | At December 31, 2002
|Currency             |  | Maturity |           | rate |  | 2001 (millions of euro) |       | rate            |  | (millions of euro)
|                     |  |          |           |      |  |                         |       |                 |  |                   
|Euro                 |  |          | 2003-2031 |      |  |                         | 4.99  | %               |  |                    | 16,118 |                      |  |  | 4.58  | % |  |  | 17,702 | 
|                     |  |          |           |      |  |                         |       |                 |  |                    |        |                      |  |  |       |   |  |  |        | 
|U.S. Dollar          |  |          | 2004-2026 |      |  |                         | 7.84  | %               |  |                    | 177    |                      |  |  | 7.48  | % |  |  | 187    | 
|British Pound        |  |          | 2004-2007 |      |  |                         | 9.74  | %               |  |                    | 17     |                      |  |  | 9.73  | % |  |  | 12     | 
|Swiss Franc          |  |          | 2003-2009 |      |  |                         | 6.95  | %               |  |                    | 65     |                      |  |  | 6.92  | % |  |  | 55     | 
|Danish Krone         |  |          |          |      |  |                         | 10.55 | %               |  |                    | 1      |                      |  |  |      |   |  |  |       | 
|Japanese Yen         |  |          | 2003-2010 |      |  |                         | 2.59  | %               |  |                    | 183    |                      |  |  | 2.24  | % |  |  | 163    | 
|Brasilian Real       |  |          | 2016      |      |  |                         |      |                 |  |                    |       |                      |  |  | 13.91 | % |  |  | 111    | 
|Other currencies     |  |          | 2005-2022 |      |  |                         | 8.43  | %               |  |                    | 78     |                      |  |  | 8.29  | % |  |  | 62     | 
|                     |  |          |           |      |  |                         |       |                 |  |                    |        |                      |  |  |       |   |  |  |        | 
|Non
- EMU Currencies |  |          |           |      |  |                         |       |                 |  |                    | 521    |                      |  |  |       |   |  |  | 590    | 
|                     |  |          |           |      |  |                         |       |                 |  |                    |        |                      |  |  |       |   |  |  |        | 
|Total Long-term Debt |  |          |           |      |  |                         |       |                 |  |                    | 16,639 |                      |  |  |       |   |  |  | 18,292 | 
|                     |  |          |           |      |  |                         |       |                 |  |                    |        |                      |  |  |       |   |  |  |        | 



| |  | At December 31, 2002, approximately 68% of the Companys long-term debt was
linked to floating-rates (63% as of December 31, 2001). To reduce exposure
to interest rate mix, the Company entered into interest rate hedging
transactions for a total nominal value of euro 8,704 million, of which
euro 7,697 million is in the form of interest rate swaps, euro 857 million
of interest rate collars and euro 150 million of forward rate agreements
and swaptions. Considering the above mentioned hedging contracts,
appropriately weighting the notional amount of the collars, the residual
amount of debt still exposed to the risk of floating-rates was
approximately 41% of total long-term debt at December 31, 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Short-term Debt
| |  | ---------------



| |  | The Company maintains committed revolving lines of credit with maximum
borrowing limits aggregating euro 6,488 million and uncommitted lines of
credit and other short-term borrowing agreements with banks with maximum
borrowing limits aggregating approximately euro 3,001 million at December
31, 2002. These agreements provide for interest charges based on prevailing
market conditions. As of December 31, 2001 and 2002, the average interest
rate on short-term borrowings was 3.6% and 3.2%, respectively.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | As of December 31, 2001 and 2002, euro 5,906 million and euro 5,807
million, respectively, in borrowings from banks were outstanding.
Short-term bank debt includes 18-month loans amounting to euro 700 million
and the use of revolving credit lines amounting to euro 3,388 million. In
2002, funds drawn down from the revolving credit lines and 18-month loans
amounted to euro 1,167 million, while repayments of other short-term bank
debt totaled euro 1,266 million.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Among the most significant short-term transactions carried out in 2002 is
the renewal, for the original amount of euro 5 billion, of the revolving
credit line, originally concluded with a pool of banks in November 2001.                                                                                                                                                                                                                                                    



| |  | In the context of a financial policy aimed at diversifying sources of
financing and at reducing the cost of funding, Enel Investment Holding BV
in 2001 established a Commercial Paper Program,
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F - 31



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##### Table of Contents





| |  | guaranteed by the Parent, for a total amount of euro 1,500 million. At December 31, 2002,
euro 1,444 million of commercial paper was outstanding under such program
(euro 604 million at December 31, 2001).
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The increase in short-term debt (primarily due to the issuance of
commercial paper) resulted in a more flexible financial management, giving
to the Group a more adequate financial structure in a period characterized
by strong financial flows, allowing the Company to benefit from low
short-term interest rates in 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) |  | RESERVE FOR PENSIONS AND SIMILAR OBLIGATIONS                                                                                                                                                                                                                                                                                                                          
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|     |  | As of December 31, 2002, an amount of euro 406 million represents the
present value of future liabilities connected with trade union agreements
regarding a supplemental pension fund for managers participating in the
program. Since April 1, 1998, the reserve relates only to retired managers.
The managers currently employed are covered by the FONDENEL Fund. 
|    
|     |  | The agreement between the ENEL Group and FNDAI (National Federation of
Industrial Managers), signed on January 23, 1998, led to the establishment
of a Company - sponsored pension fund known as FONDENEL, which is managed
externally. It differs from the previous pension plan, which was based on
defined benefits, in that it is now a defined-contribution plan.

| |  | Viesgo employees are also entitled to retirement and post-retirement
benefits similar to Italian employees, of which the related reserve as of
December 31, 2002 amounts to euro 45 million.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|     |  | The remaining reserve of euro 21 million covers payments in lieu of notice
at the time of the retirement, to existing employees who have, among other
conditions, worked at least 35 years, in accordance with collective labor
contracts and current union agreements.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(12) |  | OTHER NON - CURRENT LIABILITIES                                                                                                                                                                                                                                        
|    
|     |  | The amounts included in the caption Other in Other non-current
liabilities in the accompanying consolidated balance sheets as of December
31, 2001 and 2002 were as follows:                                                                                       



|                                                                           |  |  |                    |  |      |  |       |  | 
|-------------------------------------------------------------------------- |  |  | ------------------ |  | ---- |  | ----- |  | 
|                                                                           |  |  | 2001               |  | 2002
|                                                                           |  |  |                    |  |     
|                                                                           |  |  | (millions of euro)
|Litigation and contingent liabilities reserves                             |  |  | 1,054              |  |      |  | 1,181 | 
|Reserve for early
retirement                                               |  |  | 30                 |  |      |  | 110   | 
|Substitute tax due upon the releasing of
accelerated depreciation
reserves |  |  | 392                |  |      |  | 119   | 
|Payable to Treasury for UMTS license                                       |  |  | 289                |  |      |  | 253   | 
|Payable to Ferrovie dello Statofor
telecommunication network               |  |  | 284                |  |      |  | 260   | 
|Other                                                                      |  |  | 510                |  |      |  | 245   | 
|                                                                           |  |  |                    |  |      |  |       | 
|                                                                           |  |  | 2,559              |  |      |  | 2,168 | 
|                                                                           |  |  |                    |  |      |  |       | 



F - 32



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##### Table of Contents





| |  | Litigation and contingent liabilities reserves include euro 400 million to
cover uncertainties, contingencies and potential liabilities from current
legal proceedings (primarily relating to supply contracts, labor disputes
and plant operations) of a determinate nature that, according to ENEL
Groups internal and external legal advisors, are reasonably estimable and
which the Company believes an unfavorable outcome to be probable. An
additional amount of euro 58 million has been accrued in the year ended
December 31, 2002. The reserve does not take into account the effects of
proceedings in which a favorable outcome is expected or those in which an
adverse outcome cannot be reasonably estimated. Further information
regarding litigation and contingent liabilities is provided in Note 21.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The reserve also covers additional estimated liabilities and charges of
various nature, connected mainly to the operation and conversion of plants,
penalties and other charges on engineering contracts, litigation with local
administrations for taxes and fees of various nature, the estimated future
cost arising from the post-merger integration of WIND and Infostradas
activities (euro 57 million), in addition to amounts due on
telecommunications licenses  for which the related resolution imposing
them was appealed. With regards to the latter category, the provision at
the end of 2002 amounted to euro 143 million, of which euro 69 million was
accrued during the year. In 2002, in the context of the appeals submitted
by Albacom and Infostrada, the Attorney General of the European Court of
Justice indicated that EU regulations prohibit Member States from imposing
on holders of individual telecommunications licenses additional taxes or
any other tax different from those provided for in article 11 of the same
Directive. The European Court decision is still pending. Other accruals for
the year relate mainly to penalties and risks on engineering contracts,
amounting to euro 92 million, charges relating to the operation of
generation plants, amounting to euro 47 million, and an estimate of damages
in excess of insurance coverage equal to euro 26 million.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Italian 2002 and 2003 Budget
Laws have enabled the release from
corporate tax (IRPEG) of the reserves accumulated in the statutory
accounts following the calculation of accelerated depreciation for tax
purposes, after the recognition of a 19% substitute tax. A total of euro 712
million substitute tax payable was recorded at December 31, 2001 (euro 392
million representing the long-term portion as at December 31, 2001), of
which euro 402 million has been paid in 2002. The outstanding debt of euro
371 million at December 31, 2002 reflects the residual amount of euro 310
million due upon the application of 2002 Budget Law rules in addition to
euro 61 million arising from the 2003 Budget Law provisions. Such amounts
are to be paid in 2003 for euro 252 million (included in current
liabilities under taxes payable) and in 2004 for euro 119 million.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2001, WIND bought a 20-year license for the installation and operation
of third generation mobile telecommunications system (UMTS  IMT 2000) for
a total consideration of euro 2,447 million, of which euro 253 million is
due in the years from 2004 to 2010.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The euro 260 million payable to Ferrovie dello Stato is related to the
usage and transmission rights of the fiber optic network.
| |  | --------------------------------------------------------------------------------------------------------------------------------
|

| |  | Other items mainly include minority interests (euro 70 million) and
long-term trade and other payables (euro 175 million).
| |  | ----------------------------------------------------------------------------------------------------------------------------



|(13) |  | SHAREHOLDERS EQUITY
|---- |  | --------------------



| |  | Share Capital                                                                                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In accordance with the resolution of the Shareholders Meeting held on May
25, 2001, the capital stock of the Group Parent Company was restated in
euro (bringing the nominal value of each share from lire 1,000 to euro 0.50). At the same time the shares were subject to a reverse split in a
ratio of one share with nominal

F - 33



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##### Table of Contents





| |  | value euro 1 for every two shares of
nominal value euro 0.50, effective July 9, 2001. Following such operations,
the capital stock is now composed of 6,063,075,189 ordinary shares with a
nominal value of euro 1 each. As a result of rounding, the capital stock
was decreased from euro 6,263 million to euro 6,063 million, with the
balance of euro 200 million transferred to the Legal reserve.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | At December 31, 2002, on the
basis of the Shareholders Register and
information available, there are no shareholders with an ownership interest
in the Company greater than 2% of the capital stock of the Company other
than the Italian Treasury (which holds 67.576% of the capital stock).
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Shareholders Equity Reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Legal reserve
represents undistributable earnings restricted from the payment of
dividends pursuant to the Italian Civil Code (the Civil Code). Under the
Civil Code, with respect to income of any year, an amount equal to 5% of
the Companys and Italian subsidiaries statutory income must be set aside
until the cumulative legal reserve is equal to one-fifth of the par value
of the Companys issued and outstanding share capital. The legal reserve of
the Parent Company represents 24% of its share capital, consequently the
allocation is no longer required.
|
| |  | The Law 292/93 reserve reflects the write-up of assets of the Parent
pursuant to Law No. 292. As discussed in Note 2, revaluation reserves of
the Parent prior to 1993 have been credited to retained earnings in the
accompanying consolidated financial statements. This reserve was decreased
by euro 902 million in 2001 following the distribution resolved by the
Shareholders Meeting held on May 25, 2001.                                                                                                                                                                 
|
| |  | Retained Earnings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | As provided by Italian law, dividends may only be paid out of the statutory
retained earnings, plus its distributable reserves and statutory net income
for the current year, net of the amount to be allocated to the legal
reserve in the subsequent year. Approximately euro 6,000 million was
available for dividends at December 31, 2002.                                                                                                                                                                                                                                       
|
| |  | Reconciliation of Parents Statutory Net Income and Shareholders Equity to
Consolidated Net Income and Shareholders Equity in the Parents statutory financial statements, investments in subsidiaries
are accounted for under the cost method, consequently they do not reflect
the consolidation of the Subsidiary Companies.                                                                                                                                                                                                                                                     



| |  | Adjustments are made in consolidating the accounts of the Parent and the
Subsidiary Companies to reflect the consolidation principles described in
Note 2. In addition, adjustments are made to eliminate the effect of
certain tax-basis reporting applied by the Parent and the Subsidiary
Companies in their respective statutory accounts.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The reconciliation of shareholders equity and net income as reported in
the statutory financial statements to those reported in the consolidated
financial statements, is as follows:                                                                                                                                                        



|                                                                              |  |            |       |                      |  |      |       |      |  |                    |       |      |  |  |        |   |  |  |        |   |  |  |        |  
|----------------------------------------------------------------------------- |  | ---------- | ----- | -------------------- |  | ---- | ----- | ---- |  | ------------------ | ----- | ---- |  |  | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                                                              |  | Net Income |       | Shareholders Equity
|                                                                              |  |            |       |                     
|                                                                              |  | 2000       |       | 2001                 |  | 2002 |       | 2000 |  | 2001               |       | 2002
|                                                                              |  |            |       |                      |  |      |       |      |  |                    |       |     
|                                                                              |  |            |       |                      |  |      |       |      |  | (millions of euro) |       |      |  |  |        |   |  | 
|Per Parent
Statutory financial
statements                                     |  |            | 226   |                      |  |      | 3,578 |      |  |                    | 2,405 |      |  |  | 11,350 |   |  |  | 13,350 |   |  |  | 13,573 |  
|Effects of
consolidating the
financial
statements of the
Subsidiary
Companies |  |            | 2,004 |                      |  |      | 709   |      |  |                    | (370  | )    |  |  | 7,025  |   |  |  | 7,737  |   |  |  | 7,358  |  
|Elimination of
intra-group gains
and other                                    |  |            | (42   | )                    |  |      | (61   | )    |  |                    | (27   | )    |  |  | (63    | ) |  |  | (121   | ) |  |  | (159   | )
|                                                                              |  |            |       |                      |  |      |       |      |  |                    |       |      |  |  |        |   |  |  |        |   |  |  |        |  
|Per consolidated
financial
statements                                         |  |            | 2,188 |                      |  |      | 4,226 |      |  |                    | 2,008 |      |  |  | 18,312 |   |  |  | 20,966 |   |  |  | 20,772 |  
|                                                                              |  |            |       |                      |  |      |       |      |  |                    |       |      |  |  |        |   |  |  |        |   |  |  |        |  

F - 34



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##### Table of Contents



|     |  | The elimination of intra-group gains relates mainly to the elimination of
margins earned on captive generation and transmission plant construction
activities.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(14) |  | OPERATING REVENUES                                                                                                                                            
|    
|     |  | Operating revenues for the years ended December 31, 2000, 2001 and 2002
were as follows:                                                                      



|                                                      |  |                    |        |      |  |      |        |  |  |  |        | 
|----------------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                      |  | 2000               |        | 2001 |  | 2002
|                                                      |  |                    |        |      |  |     
|                                                      |  | (millions of euro)
|Sales and transport of
electricity                    |  |                    | 12,981 |      |  |      | 21,323 |  |  |  | 20,208 | 
|Equalization Fund
contributions                       |  |                    | 9,777  |      |  |      | 783    |  |  |  | 187    | 
|Telecommunications services                           |  |                    |       |      |  |      | 2,817  |  |  |  | 3,642  | 
|Other:                                                |  |                    |        |      |  |      |        |  |  |  |        | 
|- Connections, inspections and
repositioning
services |  |                    | 633    |      |  |      | 591    |  |  |  | 645    | 
|- Other operating
revenues                            |  |                    | 1,718  |      |  |      | 3,267  |  |  |  | 5,295  | 
|                                                      |  |                    |        |      |  |      |        |  |  |  |        | 
|Total
other                                           |  |                    | 2,351  |      |  |      | 3,858  |  |  |  | 5,940  | 
|                                                      |  |                    |        |      |  |      |        |  |  |  |        | 
|Total operating revenues                              |  |                    | 25,109 |      |  |      | 28,781 |  |  |  | 29,977 | 
|                                                      |  |                    |        |      |  |      |        |  |  |  |        | 



| |  | Revenues from the sale and transport of electricity declined in 2002 by euro
1,115 million mainly due to the reduction in the tariff component aimed at
covering the cost of fuel and the decline in quantities sold on the
domestic regulated market, following the liberalization of the same. These
decreases were partially offset by changes in the scope of consolidation
(due primarily to the contribution of the Viesgo Group), higher direct
sales recorded by generation companies and the increase in the volume of
electricity transported on Enel Distribuziones network for the free
market.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The amounts included in Equalization Fund contributions for the years ended
December 31, 2000, 2001, and 2002 were as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------------



|                                                                           |  |                    |       |      |  |      |   |  |  |  |   | 
|-------------------------------------------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | - |  |  |  | - | 
|                                                                           |  | 2000               |       | 2001 |  | 2002
|                                                                           |  |                    |       |      |  |     
|                                                                           |  | (millions of euro)
|Contributions for thermal
generation to the Non-Eligible
Customers
markets |  |                    | 5,367 |      |  |      |  |  |  |  |  | 
|Contributions for overseas net
purchase of electricity                     |  |                    | 825   |      |  |      |  |  |  |  |  | 



F - 35



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##### Table of Contents



|                                                                                                             |  |                    |       |      |  |      |     |  |  |  |     | 
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | ----- | ---- |  | ---- | --- |  |  |  | --- | 
|                                                                                                             |  | 2000               |       | 2001 |  | 2002
|                                                                                                             |  |                    |       |      |  |     
|                                                                                                             |  | (millions of euro)
|Contributions for domestic
purchases of electricity,
incentives for renewable energy
sources and other minor |  |                    | 3,133 |      |  |      | 331 |  |  |  | 187 | 
|Contributions for power
generation to the Non-Eligible
Customers                                             |  |                    | 452   |      |  |      | 452 |  |  |  |    | 
|                                                                                                             |  |                    |       |      |  |      |     |  |  |  |     | 
|                                                                                                             |  |                    | 9,777 |      |  |      | 783 |  |  |  | 187 | 
|                                                                                                             |  |                    |       |      |  |      |     |  |  |  |     | 



| |  | As discussed in Note 2, starting from 2001, revenues from sales of
electricity include the amounts for the reimbursement of fuel costs which
were previously paid by the Equalization Fund. As a result, Equalization
Fund contributions include in 2001 only euro 452 million relating to the
contribution of euro 0.003 for each kWh produced for Non-Eligible Customers
and euro 331 million mainly related to contributions on electricity
generated by plants under the provisions of CIP Regulation 6/92 in
previous years, but recognized in 2001.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2001, contributions previously received for the purchase of electricity
from third parties and those on electricity generated by plants under the
provisions of CIP Regulation 6/92 were also eliminated. The first were
replaced by the above mentioned introduction of a single tariff for the
sale of electricity, and the second by a corresponding share in the sale
price of such energy to the System Operator (Gestore della Rete).
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | In compliance with the tariff regulations, effective January 1, 2002,
Equalization Fund contributions for power generated for Non-Eligible
Customers were eliminated. The decrease of euro 144 million in contributions
for domestic purchases of electricity etc. is due to lower contributions
for electricity generated in past years by plants falling under the
provisions of CIP Regulation 6/92, mainly due to the disposal of generation
companies.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Revenues from telecommunication services increase by euro 825 million due
to higher traffic and to the contribution of Infostradas activities (now
merged with WIND) for the full year, as compared with 2001 in which such
contribution was limited to a period of nine months, as the acquisition was
concluded on March 31, 2001.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Businesses other than electricity and telecommunications increased their
revenues by euro 2,028 million in 2002 as compared to 2001 and by euro
1,549 million in 2001 as compared to 2000. Specifically, in 2002, fuel
trading activities rose by euro 796 million, natural gas distribution and
sales rose by euro 569 million, engineering and contracting increased by
euro 466 million and minor activities (information technology, real estate,
public lighting, etc.) increased by approximately euro 90 million. Sales of
natural gas benefited from the acquisition in 2002 of Camuzzi and
minor distributors.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | In 2002, sales in countries other than Italy amounted to euro 1,596
million, of which euro 1,085 million were in Europe, euro 363 million in
the Middle East, euro 91 million in the Americas and euro 57 million in
Africa.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(15) |  | PERSONNEL EXPENSES                                                                      
|---- |  | ----------------------------------------------------------------------------------------
|    
|     |  | Personnel expenses for the years ended December 31, 2000, 2001 and 2002
were as follows:

F - 36



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##### Table of Contents



|                                         |  |                    |       |      |  |      |       |  |  |  |       | 
|---------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                         |  | 2000               |       | 2001 |  | 2002
|                                         |  |                    |       |      |  |     
|                                         |  | (millions of euro)
|Wages and salaries                       |  |                    | 2,467 |      |  |      | 2,645 |  |  |  | 2,554 | 
|Social security contributions            |  |                    | 691   |      |  |      | 726   |  |  |  | 700   | 
|Employee termination indemnities         |  |                    | 217   |      |  |      | 218   |  |  |  | 208   | 
|Employee pension and similar
obligations |  |                    | 21    |      |  |      | 26    |  |  |  | 22    | 
|Other costs                              |  |                    | 135   |      |  |      | 107   |  |  |  | 105   | 
|                                         |  |                    |       |      |  |      |       |  |  |  |       | 
|                                         |  |                    | 3,531 |      |  |      | 3,722 |  |  |  | 3,589 | 
|                                         |  |                    |       |      |  |      |       |  |  |  |       | 





|     |  | Personnel expenses decreased by euro 133 million due to the reduction in
headcount for the electricity sector, partially offset by the effect of
changes in the scope of consolidation.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(16) |  | PURCHASED POWER, FUEL FOR THERMAL GENERATION AND MATERIALS AND SUPPLIES                                                                                                                
|    
|     |  | Purchased power, fuel for thermal generation and materials and supplies for
the years ended December 31, 2000, 2001 and 2002 were as follows:                                          

|                                          |  |                    |        |      |  |      |        |  |  |  |        | 
|----------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                          |  | 2000               |        | 2001 |  | 2002
|                                          |  |                    |        |      |  |     
|                                          |  | (millions of euro)
|Purchased power                           |  |                    | 4,373  |      |  |      | 3,649  |  |  |  | 4,802  | 
|Fuel for thermal generation               |  |                    | 5,644  |      |  |      | 5,249  |  |  |  | 4,255  | 
|                                          |  |                    |        |      |  |      |        |  |  |  |        | 
|Total fuel and power                      |  |                    | 10,017 |      |  |      | 8,898  |  |  |  | 9,057  | 
|Materials consumption                     |  |                    | 726    |      |  |      | 1,344  |  |  |  | 1,975  | 
|Gas for distribution and fuel for trading |  |                    | 122    |      |  |      | 1,005  |  |  |  | 2,237  | 
|                                          |  |                    |        |      |  |      |        |  |  |  |        | 
|Total materials and supplies              |  |                    | 848    |      |  |      | 2,349  |  |  |  | 4,212  | 
|                                          |  |                    |        |      |  |      |        |  |  |  |        | 
|                                          |  |                    | 10,865 |      |  |      | 11,247 |  |  |  | 13,269 | 
|                                          |  |                    |        |      |  |      |        |  |  |  |        | 



| |  | The increase in the cost of purchased power of euro 1,153 million in 2002
as compared to 2001, is mainly connected to purchases made in 2002 from
Elettrogen and Eurogen, which are no longer part of the Group and have
become outside suppliers.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The decrease in the cost of thermal fuel reflects mainly the change in the
scope of activity following the disposal of Elettrogen and Eurogen.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  | The increase in cost of materials is due to the growth in the construction
of power plants on behalf of third parties carried out by the engineering
and construction sector.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Increased purchases of gas for distribution and fuel for trading are
related to the development of these operations during 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------



F - 37



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##### Table of Contents





|(17) |  | SERVICES AND RENTALS                                                                      
|---- |  | ------------------------------------------------------------------------------------------
|    
|     |  | Services and rentals for the years ended December 31, 2000, 2001 and 2002
were as follows:

|                              |  |                    |       |      |  |      |       |  |  |  |       | 
|----------------------------- |  | ------------------ | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                              |  | 2000               |       | 2001 |  | 2002
|                              |  |                    |       |      |  |     
|                              |  | (millions of euro)
|Electricity transmission fees |  |                    | 958   |      |  |      | 1,751 |  |  |  | 1,399 | 
|Interconnections and roaming  |  |                    |      |      |  |      | 1,424 |  |  |  | 1,426 | 
|Other services                |  |                    | 1,263 |      |  |      | 1,843 |  |  |  | 2,164 | 
|                              |  |                    |       |      |  |      |       |  |  |  |       | 
|Total services                |  |                    | 2,221 |      |  |      | 5,018 |  |  |  | 4,989 | 
|                              |  |                    |       |      |  |      |       |  |  |  |       | 
|Rentals and Leases            |  |                    | 232   |      |  |      | 615   |  |  |  | 721   | 
|                              |  |                    |       |      |  |      |       |  |  |  |       | 
|Total                         |  |                    | 2,453 |      |  |      | 5,633 |  |  |  | 5,710 | 
|                              |  |                    |       |      |  |      |       |  |  |  |       | 



| |  | The cost of services is
substantially consistent with that recorded in 2001,
showing an overall decrease of euro 29 million. Specifically, electricity
transmission fees decreased by euro 352 million mainly due to a lower
Hydroelectric Surcharge paid to the Gestore della Retewith respect to
the hydroelectric and geothermal generation in connection with the decline
in volumes and the reduction in the tariff component indexed to the cost of
fuels. On February 19, 2003, Law Decree no. 25, dated February 18, 2003
containing Urgent resolutions regarding general costs of the electricity
system was published. Article 2, comma 1 of the Decree establishes the
elimination from January 1, 2002 of the hydroelectric surcharge. In 2002,
pursuant to the legislation in force, Enel Produzione and Enel Green Power
recorded a cost resulting from the application of such hydroelectric
surchargeamounting to euro 424 million, that at December 31, 2002 were
paid-up almost in full. The resulting benefit has not been recorded in the
financial statements at December 31, 2002 since the Law Decree was issued
after December 31, 2002 and its conversion into law was still pending.
Additionally, the terms establishing the timing and specifics of the
reimbursement had not yet been issued.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Interconnections and roaming costs in 2002 are consistent with those
recorded in 2001 since the increase due to the contribution of Infostradas
activities for the full year were offset by savings deriving from the
development of WINDs network, which allowed a reduction in the volume of
traffic diverted to other operators networks.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Other services increased by euro 321 million primarily due to higher costs
incurred in the engineering and contracting sector for the growth in
activities.                                                                                                                                                                                    



| |  | Rental and lease costs increased by euro 106 million, primarily due to the
increase in operating costs relating to the telecommunications network
resulting from its growth, and to higher lease and rental costs as a result
of the sale of businesses in the real estate and vehicles renting sectors
carried out in 2001.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Company has entered into various operating leases, primarily related to
offices, vehicles and office equipment, used in the normal course of
business. The original lease terms generally do not exceed six years in
accordance with Italian law, but may be renewed on expiry. Rent
expense for significant leases totaled approximately euro 93 million, euro
211 million and euro 216 million for the years ended December 31, 2000,
2001 and 2002, respectively. Future rental payments for the years 2003
through 2007 are estimated to be euro 224 million, euro 229 million, euro
234 million, euro 239 million and euro 244 million, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38



---



##### Table of Contents



(18)   FINANCIAL INCOME AND EXPENSES



| |  | Financial income for the years ended December 31, 2000, 2001 and 2002 was
as follows:
| |  | -------------------------------------------------------------------------------------

|                             |  |                    |     |      |  |      |     |  |  |  |     | 
|---------------------------- |  | ------------------ | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                             |  | 2000               |     | 2001 |  | 2002
|                             |  |                    |     |      |  |     
|                             |  | (millions of euro)
|Interest income              |  |                    | 90  |      |  |      | 104 |  |  |  | 100 | 
|Foreign exchange differences |  |                    | 38  |      |  |      | 68  |  |  |  | 152 | 
|Other                        |  |                    | 22  |      |  |      | 35  |  |  |  | 34  | 
|                             |  |                    |     |      |  |      |     |  |  |  |     | 
|Total                        |  |                    | 150 |      |  |      | 207 |  |  |  | 286 | 
|                             |  |                    |     |      |  |      |     |  |  |  |     | 



| |  | Financial expense for the years ended December 31, 2000, 2001 and 2002
was as follows:
| |  | --------------------------------------------------------------------------------------

|                                                                                |  |                    |     |      |  |      |       |  |  |  |       | 
|------------------------------------------------------------------------------- |  | ------------------ | --- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                                |  | 2000               |     | 2001 |  | 2002
|                                                                                |  |                    |     |      |  |     
|                                                                                |  | (millions of euro)
|Interest and other charges on bonds                                             |  |                    | 385 |      |  |      | 390   |  |  |  | 418   | 
|Interest and other charges on loans from banks and
other financial institutions |  |                    | 198 |      |  |      | 413   |  |  |  | 510   | 
|Interest on short term debt from banks and other
financial institutions         |  |                    | 101 |      |  |      | 376   |  |  |  | 200   | 
|Foreign exchange differences                                                    |  |                    | 54  |      |  |      | 57    |  |  |  | 159   | 
|Other                                                                           |  |                    | 60  |      |  |      | 81    |  |  |  | 177   | 
|                                                                                |  |                    |     |      |  |      |       |  |  |  |       | 
|Total                                                                           |  |                    | 798 |      |  |      | 1,317 |  |  |  | 1,464 | 
|                                                                                |  |                    |     |      |  |      |       |  |  |  |       | 



| |  | Net financial expense increased by euro 68 million over the previous year
due mainly to the growth in average net financial debt. The impact of
higher average debt with respect to 2001 was partially offset by the
decline in interest rates, which the Group was able to take advantage of
due to the debt management policies implemented.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(19)   EXTRAORDINARY INCOME AND EXPENSES



| |  | Extraordinary income in 2002 included:
| |  | --------------------------------------



|
|
|
|
|
|
|
|
|
|
|

F - 39



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##### Table of Contents





| |  |  | other extraordinary gains amounting to euro 88 million.
| | - |  | -------------------------------------------------------



| |  | These extraordinary income items were offset in part by:
| |  | --------------------------------------------------------



| |  |  | a write-down of euro 1,511 million to reflect the impairment in
the value of the goodwill relating to WIND, based on the
outlook for the telecommunications sector and the downwards revision
of growth expectations (see Note 7);                                                                   
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | early retirement incentives to personnel for euro 291 million;                                                                                                                                                                                                                                       
|
| |  |  | a write-down of euro 94 million in the value of a discontinued geothermal plant (see Note 6);                                                                                                                                                                                                        
|
| |  |  | adjustments, write-downs and items of various nature relating to
WIND amounting to euro 92 million;                                                                                                                                                                                                  
|
| |  |  | a write-down of euro 58 million in the value of generation plants
to be decommissioned in view of their conversion to combined-cycle
technology (see Note 6);                                                                                                                                        
|
| |  |  | a write-down of euro 49 million in the value of parts of plants
destined to international projects in the engineering and contracting
sector which, in view of the adverse economic situation in the area in
which such projects were based (South America), are no longer expected
to be carried on;
|
| |  |  | adjustments and accruals recorded by Viesgo, amounting to euro 39
million;                                                                                                                                                                                                                           
|
| |  |  | an adjustment of euro 41 million in the unamortized cost paid
upon the suppression of the electricity industry pension fund
following a reduction in personnel; and                                                                                                                                  
|
| |  |  | other extraordinary losses amounting to euro 93 million.                                                                                                                                                                                                                                             



| |  | The net extraordinary income net of tax effect amounts to euro 1,067
million, reflecting different tax rates applicable to the single
components of net extraordinary income.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Extraordinary income in 2001 included:                                                                                                                                       



| |  |  | gains on the sale of Elettrogen for euro 1,900 million;                                                                                                                                 
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | gains on the sales of generation plants located in the Valle
dAosta (Geval) and of 49% of distribution activities in the Region
(Deval) amounting to euro 444 million;                 
|
| |  |  | gains on the disposal of assets primarily represented by the
distribution networks in the municipalities of Rome and Turin for euro
391 million;                                        
|
| |  |  | other gains on the disposal of assets amounting to euro 87
million;                                                                                                                     
|
| |  |  | the recording of euro 501 million relating to electricity
supplied at the end of 2000; such recognition was not possible
according to the accounting and billing method previously used;
|
| |  |  | settlement of contributions from the Electricity Equalization
Fund relating to previous years amounting to euro 40 million; and                                                         
|
| |  |  | other extraordinary gains amounting to euro 81 million.                                                                                                                                 

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##### Table of Contents





| |  | These extraordinary income items were offset in part by:
| |  | --------------------------------------------------------



| |  |  | A write-down of euro 443 million to reflect the early disposal of
analog meters currently in use due to their replacement with
electronic meters in the context of the digital meter project;                           
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | A write-down of euro 224 million in the value of plant and
accrual of expected costs for the disposal of fixed assets as a result
of the conversion of part of generating plants to combined cycle
gas turbine technology;
|
| |  |  | early retirement incentives to personnel for euro 190 million;                                                                                                                                                            
|
| |  |  | charges connected with the business integration between WIND and
Infostrada amounting to euro 125 million;                                                                                                                
|
| |  |  | capital losses on disposal of
assets and other extraordinary write-downs amounting to euro
76 million; and                                                                                                                
|
| |  |  | other extraordinary losses amounting to euro 68 million.                                                                                                                                                                  



| |  | Net extraordinary income net of
the tax effect amounts to euro 2,078
million.
| |  | -----------------------------------------------------------------------------
|
| |  | Extraordinary income in 2000 primarily included:                             



| |  |  | The collection of euro 160 million following the settlement of
litigation on the reimbursement of certain previously incurred nuclear
charges;                                                                                                                                                                                                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The collection of euro 60 million relating to the settlement of
certain claims arising from the Vajont disaster litigation. After
several years of negotiations, a final agreement was reached in July
2000 between the Italian State, the Company and Montedison, the
parties responsible for damages caused by the Vajont dam catastrophe,
to settle all outstanding claims;
|
| |  |  | Capital gains on the disposal of assets (primarily represented by
the distribution networks in the towns of Parma and Trieste) for euro
70 million; and                                                                                                                                                                                                                       
|
| |  |  | The recovery of previous years taxes amounting to euro 57 million.                                                                                                                                                                                                                                                                                                           



| |  | These extraordinary income items were offset in part by:
| |  | --------------------------------------------------------



| |  |  | Early retirement incentives offered to personnel for euro 102 million; and                                                          
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Accrued costs of euro 78 million related to the incentive
program for personnel, recorded in the year to which the incentive
refers.

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(20)   INCOME TAXES



| |  | The provisions for income taxes for the years ended December 31, 2000, 2001
and 2002, were as follows:
| |  | ------------------------------------------------------------------------------------------------------

|                                                                                               |  |                    |       |      |  |      |       |   |  |  |      |  
|---------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | ----- | - |  |  | ---- | -
|                                                                                               |  | 2000               |       | 2001 |  | 2002
|                                                                                               |  |                    |       |      |  |     
|                                                                                               |  | (millions of euro)
|Current                                                                                        |  |                    | 872   |      |  |      | 1,655 |   |  |  | 562  |  
|Deferred                                                                                       |  |                    | 925   |      |  |      | (317  | ) |  |  | 357  |  
|Adjustments made to deferred
and prepaid taxes in
accordance with new
corporate tax rates      |  |                    | (148  | )    |  |      |      |   |  |  | (38  | )
|Tax incentives on capital
expenditure                                                          |  |                    |      |      |  |      | (86   | ) |  |  | (213 | )
|Release of deferred tax
provision following the
releasing of accelerated
depreciation reserves |  |                    |      |      |  |      | (603  | ) |  |  | (60  | )
|                                                                                               |  |                    |       |      |  |      |       |   |  |  |      |  
|Total                                                                                          |  |                    | 1,649 |      |  |      | 649   |   |  |  | 608  |  
|                                                                                               |  |                    |       |      |  |      |       |   |  |  |      |  



| |  | The difference between the statutory and effective tax rate for the years
ended December 31, 2000, 2001 and 2002 is due to the following factors:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                   |  |                    |      |      |  |      |       |   |  |  |       |  
|-------------------------------------------------------------------------------------------------- |  | ------------------ | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                   |  | 2000               |      | 2001 |  | 2002
|                                                                                                   |  |                    |      |      |  |     
|                                                                                                   |  | (millions of euro)
|Combined statutory tax
rate                                                                        |  |                    | 48.0 | %    |  |      | 47.0  | % |  |  | 47.0  | %
|Adjustments made to deferred
and prepaid taxes in
accordance with new corporate
tax rates          |  |                    | (6.0 | )    |  |      |      |   |  |  | (1.6  | )
|Release of deferred tax
provision following the
releasing of accelerated
depreciation reserves     |  |                    |     |      |  |      | (13.1 | ) |  |  | (2.5  | )
|Capital gains subject to 19%
substitute tax and release of
excess deferred taxes of
companies
sold |  |                    |     |      |  |      | (19.8 | ) |  |  | (37.1 | )
|Adjustments of deferred tax
assets and other impacts
relating to
WIND                              |  |                    |     |      |  |      |      |   |  |  | 23.2  |  
|Tax incentives on capital
expenditure                                                              |  |                    |     |      |  |      | (1.8  | ) |  |  | (9.0  | )
|Impact due to corporate
operations in the gas
sector                                               |  |                    |     |      |  |      |      |   |  |  | 5.0   |  
|Permanent differences and
other                                                                    |  |                    | 1.0  |      |  |      | 1.8   |   |  |  | 0.6   |  
|                                                                                                   |  |                    |      |      |  |      |       |   |  |  |       |  
|Effective tax rate                                                                                 |  |                    | 43.0 | %    |  |      | 14.1  | % |  |  | 25.6  | %
|                                                                                                   |  |                    |      |      |  |      |       |   |  |  |       |  



| |  | Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting and income tax purposes. Deferred tax assets have also been
calculated on loss carry-forwards for tax purposes to the extent of the
amount reasonably expected to be recovered in the future.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Income taxes for 2001 benefited from the reversal of a euro 603 million
surplus in the deferred tax provision accrued on the reserves for
accelerated depreciation up to December 31, 2000. Such reserves were
released
from corporate tax (IRPEG) in 2001 after the recognition of a 19%
substitute tax, as permitted by the 2002 Budget Law issued at the end of 2001 and
required to be reflected in 2001 financial statements. The reversal in the
deferred tax provision represented the difference between deferred taxes
accrued in accordance with ordinary corporate tax rates and the substitute tax
payable. Reserves for accelerated depreciation accrued in 2001 and 2002
were partly released in 2002; the related reversal of the excess in the
deferred tax provision amounts to euro 60 million.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The two financial years benefited from the taxation of large capital gains
(euro 2,772 million in 2002 and euro 2,755 million in 2001) at a 19%
substitute tax rate instead of the ordinary corporate tax rate, in addition
to the further benefit consisting of the reversal of the surplus in
deferred tax provisions accrued at the ordinary corporate tax rate on the
temporary differences related to the assets and businesses sold during the
year. Benefits deriving from tax incentives on capital expenditure
(Tremonti-bis Law) for 2002 amounted to euro 213 million, against euro 86
million in 2001.                                                                                                                                                                                               
|
| |  | Deferred tax assets, recognized by WIND in 2001 and 2002, on the tax loss
carry-forward for each of these years amounted to euro 350 million and euro 265
million, respectively. In 2002, following the definition of a new business
plan, deferred tax assets amounting to euro 269 million were deemed no
longer recoverable and were consequently written down.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Significant components of net
deferred income tax liabilities at December 31, 2001 and 2002 as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                 |                                     |  |                    |        |      |  |  |        |  
|-------------------------------- | ----------------------------------- |  | ------------------ | ------ | ---- |  |  | ------ | -
|                                 |                                     |  | 2001               |        | 2002
|                                 |                                     |  |                    |        |     
|                                 |                                     |  | (millions of euro)
|Deferred income tax liabilities: |                                     |  |                    |        |      |  |  |       
|                                 | Accelerated
depreciation            |  |                    | (2,067 | )    |  |  | (2,077 | )
|                                 | Other                               |  |                    | (513   | )    |  |  | (1,027 | )
|Deferred income tax assets:      |                                     |  |                    |        |      |  |  |       
|                                 | Loss
carry-forward                  |  |                    | 655    |      |  |  | 696    |  
|                                 | Accruals and
reserves               |  |                    | 706    |      |  |  | 973    |  
|                                 |                                     |  |                    |        |      |  |  |       
|                                 | Net deferred income tax
liabilities |  |                    | (1,219 | )    |  |  | (1,435 | )
|                                 |                                     |  |                    |        |      |  |  |       



| |  | At December 31, 2002, income taxes for all fiscal years prior to 1997 have
been settled by the Company with the Italian tax authorities.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------

(21)   COMMITMENTS AND CONTINGENCIES



| |  | Financial Derivatives                                                                                                                                                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company, in connection with the generation of electricity, purchases
fuel power in the international oil and natural gas market and also
purchases electricity from outside of Italy. The Company is therefore
subject to exposure to foreign exchange rates and commodity price risks.
|
| |  | Considering its medium and long-term debt positions, the Company is also
subject to interest rate risk.                                                                                                                                                                                    

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| |  | Derivative instruments are utilized by the Company to reduce these risks.                                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Notional Amounts and Credit Exposures of Derivatives                                                                                                                                                                                                                                                                                                 
|
| |  | The notional value of a derivative is the contractual amount on the basis
of which the differentials are exchanged; this amount can be expressed
either on a value basis or on a physical quantities basis (such as tons).
The amounts expressed in currencies different from euro are converted into
euro by applying the exchange rate at year-end.
|
| |  | The notional amounts of derivatives summarized below do not represent
amounts exchanged by the parties and, thus, are not a measure of the credit
exposure of the Company.                                                                                                                                                                           
|
| |  | Although the Company is exposed to credit-related losses in the event of
non-performance by counterparties to derivative financial instruments,
given the high credit standing of the counterparties, the Company does not
expect any failure in meeting their obligations.                                                                          
|
| |  | Interest Rate Risk Management                                                                                                                                                                                                                                                                                                                        
|
| |  | The Company enters into various types of interest rate contracts in
managing its interest rate risk. The financial instruments utilized as of
December 31, 2001 and 2002 were as follows:                                                                                                                                                            

|                        |  |                    |       |      |  |  |       | 
|----------------------- |  | ------------------ | ----- | ---- |  |  | ----- | 
|                        |  | 2001               |       | 2002
|                        |  |                    |       |     
|                        |  | Notional amount   
|                        |  |                   
|                        |  | (millions of euro)
|Interest rate swaps     |  |                    | 4,096 |      |  |  | 7,697 | 
|Interest rate collars   |  |                    | 207   |      |  |  | 857   | 
|Swaptions               |  |                    |      |      |  |  | 50    | 
|Forward Rate Agreements |  |                    |      |      |  |  | 100   | 
|                        |  |                    |       |      |  |  |       | 
|Total                   |  |                    | 4,303 |      |  |  | 8,704 | 
|                        |  |                    |       |      |  |  |       | 



| |  | The Company enters into interest rate derivatives, particularly interest
rate swaps, with the purpose of decreasing the amount of debt subject to
interest rate fluctuations and to lower funding costs. Under interest rate
swaps, the Company agrees with other parties to exchange, at specified
intervals, the difference between interest amounts calculated by reference
to an agreed notional principal amount and agreed fixed or floating
interest rates.                                                                                                                                                         
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Forward rate agreements are generally used by the Company to offset changes
in the rates of short-term debt and the current maturity of long-term
floating-rate debt. Forward rate agreements settle in cash at a specified
future date based on the differential between agreed interest rates applied
to a notional amount.                                                                                                                                                                                                                                                                                              
|
| |  | The Company also enters into interest rate collar contracts to reduce the
potential impact of increases in interest rates on floating-rate long-term
debt. These agreements are normally entered into when the fixed rate
available under interest rate swaps are considered too high with respect to
the Companys view about the level of future interest rates. Moreover, the
use of interest rate collars is deemed appropriate under uncertainty
periods, in order to benefit from a possible decline in interest rates. The
Company normally uses zero-cost collars that do not require payment of an
option premium.
|
| |  | Swaptions provide the holder with the right to enter into an interest rate
swap in the future. The Company generally buys the right to pay a fixed
rate or sells the right to receive a fixed rate should the option be
exercised, in order to eventually lock in a fixed rate hedging transaction
at a rate lower than the actual level.                                                                                                                                                                                                                                                                                  

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| |  | Foreign Exchange Rate Risk Management                                                                                                                                                                
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company enters into various types of foreign exchange contracts in
managing its foreign exchange risk. The foreign exchange contracts utilized
as of December 31, 2001 and 2002, were as follows:

|                                                         |  |                    |       |      |  |  |       | 
|-------------------------------------------------------- |  | ------------------ | ----- | ---- |  |  | ----- | 
|                                                         |  | 2001               |       | 2002
|                                                         |  |                    |       |     
|                                                         |  | Notional amount   
|                                                         |  |                   
|                                                         |  | (millions of euro)
|Forward exchange contracts                               |  |                    | 280   |      |  |  | 671   | 
|Options                                                  |  |                    | 80    |      |  |  | 254   | 
|Forward exchange contracts relating to Commodity
hedging |  |                    | 1,284 |      |  |  | 1,618 | 
|                                                         |  |                    |       |      |  |  |       | 
|Total                                                    |  |                    | 1,644 |      |  |  | 2,543 | 
|                                                         |  |                    |       |      |  |  |       | 



| |  | At December 31, 2002, the Company had euro/dollar forward exchange
contracts outstanding with an aggregate notional amount of euro 2,543
million, of which 1,618 focused on the hedging of foreign exchange risk
arising from the time lag related to the fuel cost reimbursement mechanism.
At December 31, 2002, the Company also had euro/dollar forward exchange
contracts outstanding with an aggregate notional amount of euro 1,552
million, focused on the hedging of foreign exchange risk arising from debt
issued in currencies other than euro under the Commercial Paper Program,
and on the hedging of specific cash flows.                                       
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company uses forward exchange contracts and currency options primarily
to hedge expenses denominated in foreign currencies. The accounts payable
in currencies other than euro are denominated mainly in U.S. dollars and
Swiss francs. Both buy and sell amounts of such contracts are indicated at
the notional value. Currency options, traded in the over-the-counter
market, provide the Company with the right or the obligation to buy or sell
agreed amounts of currency at a specified exchange rate at the end of a
specified period, never exceeding one year. Generally, the maturity of the
Companys forward exchange contracts also does not exceed one year.
|
| |  | Commodity Risk Management                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | At the end of 1999, the Company established a new company, Enel Trade
(formerly Enel F.T.L.  Fuel Trading and Logistics) with the purpose of
providing fuel to the individual generation companies and gas to the sale
and distribution companies within the ENEL Group, to manage the Companys
risk in the oil market and to develop fuel trading activities on the
international markets. Enel Trade started operations on June 1, 2000.                                                                                                                                                                                                                                    
|
| |  | In 2000, due to the significant volatility in the currency and commodity
market, and taking into consideration the next phase of the Energy Market
that could discontinue the Equalization Fund mechanism (under Decree
70/1997), the Company adopted a systematic approach to cover commodity
pricing and currency risk linked to the time lag present in the
reimbursement mechanism.                                                                                                                                                                                                                                                                                         
|
| |  | Since 2000, Enel Trade has entered into derivative contracts on
commodities to fix part of the margin between the costs and contribution
received from the Authority under the Equalization Fund mechanism.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Company does not enter into
commodity derivatives for speculative trading purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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| |  | The Company has entered into different transactions with the intent to align
revenues and costs through the management of oil price risk in the
international market. The derivative instruments are based on benchmark
indexes (for example, IPE Brent, NYMEX, WTI) that are considered the most
appropriate instruments to hedge the oil index used and to fix the price
for fuel supplies. Any variation in the portfolio value of the derivative
contracts is offset by a corresponding variation of the market value in the
portfolio of the physical contracts, except for a minor risk arising from
the misalignment between the price index of the oil supplies and the
benchmark.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under the commodity swap contracts, the Company establishes with a
counterparty the exchange, estimated on a specific pricing period basis, of
the difference between the average of an index and the predetermined fixed
quantity value.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | For futures contracts, the Company purchases (sells) standardized contracts
on the IPE  International Petroleum Exchange and the NYMEX  New York
Mercantile Exchange. These contracts are subject to the daily payment of
the margins and, therefore, no credit default risk exists.                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | At December 31, 2002, the notional value of open contracts was as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                



| |  |  | Futures: euro 354 million or 12,752 contracts;                      
| | - |  | --------------------------------------------------------------------
|
| |  |  | Swaps on petroleum indexes: euro 268 million or 2,062,518 tons; and;
|
| |  |  | Swaps on gas transmission fee: 1 billion cubic meters per year.     



| |  | At December 31, 2002, the fair value of these contracts was positive by
euro 21 million.
| |  | ----------------------------------------------------------------------------------------

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| |  | Purchase Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has entered into various fuel supply contracts primarily for
the purchase of fuel oil and natural gas. The Company expects that its
expenditures related to these commitments will approximate an aggregate of
euro 11,107 million for the period from January 1, 2003 through December
31, 2007. The Company also has unconditional purchase obligations for
electric power. The Company expects that its expenditures related to these
commitments will approximate euro 2,875 million for the period from January
1, 2003 through December 31, 2007.                                                                                                                                 
|
|
| |  | Insurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The Company maintains third-party insurance to cover property liabilities,
and other risks in the normal course of business in amounts that the
Companys management believes are adequate to cover the risks involved. In
addition, the Company maintains casualty and liability insurance against
risks of its business to the extent management considers appropriate. The
level of this insurance is generally in line with that maintained by other
companies in the same industry.                                                                                                                                                                                                            
|
| |  | Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Company is a defendant in a number of legal proceedings incidental to
the generation, transmission and distribution of electricity. Because of
the nature of these proceedings, it is not possible to predict the ultimate
outcome of certain of these matters, some of which may be unfavorable to
the Company. However, the Company does not expect the outcome of such
proceedings, either individually or in the aggregate, to have a material
adverse effect upon its financial position or results of operations.
However, provisions are made in the accompanying consolidated financial
statements for all significant liabilities that are expected to
materialize.                    
|
| |  | A number of disputes are pending in relation to urban planning, landscape
and environmental matters linked to the construction and operation of
several generating plants and power lines. The examination of such
disputes, also on the basis of legal advice, leads the Company to believe
that unfavorable outcomes would be a remote possibility. While the
possibility is remote, the risk that a limited number of cases might have
unfavorable outcomes cannot be ruled out, and whose consequences could
entail, in addition to the payment of damages. At the present time, such
charges are not predictable and therefore, the Company has not accrued any
liabilities for these disputes.
|
| |  | Environmental litigation and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Company has exposure for environmental contingencies as a result of the
installation and operation of electrical equipment. The most important
environmental issues are those relating to the effect of exposure to
electric and magnetic fields generated by the equipment installed.                                                                                                                                                                                                                                                                                                                                                                                                          
|

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| |  | Notwithstanding the fact that the
relevant infrastructure is, in the opinion of
Company management, in compliance with applicable laws, Enel
Distribuzione and TERNA are currently defendants in numerous pending
proceedings relating to the electromagnetic fields created by transmission
and distribution lines and in some pending proceedings relating to
electromagnetic energy emanating from substations. In most of the
proceedings, the plaintiffs seek the relocation or removal of lines or
substations that are near to inhabited or occupied residential or office
buildings. In a limited number of proceedings, the plaintiffs also seek
damages based on alleged non-compliance with regulations setting maximum
exposure levels or minimum distance requirements for lines and substations
or on the alleged health effects of exposure to electromagnetic fields.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Alleged damage as a result of exposure to electromagnetic fields created by
the Companys transmission and distribution lines has also been the subject
of certain criminal proceedings. In June 1999, the criminal court of
Rimini determined a fine for symbolic damages of approximately Euro 1,000 in one proceeding
and transferred the case to
the civil court for the quantification of the physical damage to the
individual plaintiff. The Company has appealed the decision.                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | In October 2000, the public prosecutor for the city of Turin initiated an
investigation against a manager and the chief executive officer of TERNA,
as well as the former chairman of the Companys board, based on alleged
harmful effects in connection with certain instances of diseases that had
occurred in the province of Piedmont.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In the cases described above, the transmission and distribution lines in
question are in compliance with all applicable laws. Moreover, the
Companys management believe that certain of such proceedings have become
moot as a result of a new law, enacted in March 2001, which replaced
previous legislation on electromagnetic fields and introduced measures for
the restructuring of the Italian electricity grid. In any event, if the
outcome of the above civil cases is unfavorable to the Company, the
potential liability would be limited mainly to damages, to the extent
the plaintiffs are able to satisfy their burden of proof by demonstrating a causal
connection between electromagnetic fields and the alleged damage.                                                                                                                                         

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(22)   RELATED PARTY TRANSACTIONS




| |  | As the entity primarily responsible for electricity generation,
transmission and distribution in Italy, the Company provides services to
many other state-owned entities. The rates earned are comparable to the
tariff rates charged to similar commercial organizations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under the current regulatory framework, the Company enters into certain
transactions with the Gestore della Rete(which is wholly owned by the
Treasury Ministry, the Companys majority shareholder). Prices and fees
paid to or received from the Gestore della Retein connection with these
transactions are determined by the Energy Authority. The Generation and
Energy Management segment sells all the electricity produced under the CIP
6 regime to the Gestore della Rete.The revenues produced from these sales
represented approximately 3% of total ENEL Group revenues in 2002 (2% in
2001). Moreover, the generation companies pay to the Gestore della Rete
the additional access fee to the National Transmission System, due on the
hydroelectric and geothermal production from plants not falling under the
CIP 6 regime. The amount of these transactions represents approximately 2%
of total operating expenses in 2002 and 2001. The Transmission segment
earns revenue from a fee per kWh transported that distributors and suppliers pay to the Company

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| |  | through the Gestore della Rete. The revenues relating
to these fees represented approximately 2% of total Group revenues in 2002
(3% in 2001). The Sales, Infrastructure and Networks segment purchases
electricity from the Gestore della Reteand pays to the same fees for the
use of the national transmission network. The expenses relating to these
prices and fees represented approximately 10% of total operating expenses in
2002 (19% in 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company purchases fuel for generation and gas for distribution from
Eni, an Italian oil and gas company in which the Treasury Ministry has an
ownership interest. Total purchases from Eni were approximately 7% of total
operating expenses in 2002, 10% in 2001 and 7% in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Total purchases from state-owned companies were approximately 10%, 12% and
20% of total operating expenses for each of the three years ended December
31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Until December 31, 2001, certain tariff components were remitted to and
managed by the Cassa Conguaglio per il Settore Elettrico,or Equalization
Fund, a public entity charged with redistributing such revenues to the
electricity companies entitled to receive them. Effective January 1, 2002,
these components, mainly related to the recovery of the fuel cost and to
incentives on generation from renewable sources, are included in the sale
price of electricity applicable for the generation companies. Equalization
Fund contributions recognized in 2002 primarily represent the recovery of
incentives arising from past years production from renewable sources. As
the activity of the Equalization Fund is limited to the redistribution of
certain tariff components among the operators of the electricity market,
the Company does not believe such transactions fall under the definition of
transactions with Related Parties.

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(23)    DIFFERENCES BETWEEN ITALIAN GAAP AND U.S. GAAP




| |  | The consolidated financial statements are prepared in accordance with
Italian GAAP, as described in Note 2, which differs in certain respects
from U.S. GAAP. The significant differences are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Fixed Assets and Related Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | In accordance with various Italian laws, certain utility plant balances
have been restated. Under U.S. GAAP, such restatements are not permitted.
In 2000, the Company initiated a plan to replace the existing meters with
others based on digital technology. As a consequence, a one time write
down was made in 2001 for Italian GAAP but not for U.S. GAAP purposes, and
our estimate regarding their remaining useful life was revised.
Additionally, due to the above, differences in gains or losses on disposal
of fixed assets arise between Italian and U.S. GAAP.                                                                                                                                
|
| |  | The reconciliations below include adjustments to eliminate the
restatements, and related accumulated depreciation, to reflect the effect
of the recomputation of depreciation expense on a historical U.S. GAAP cost
basis, to adjust for the one time write-down made under Italian GAAP and to recognize
gains or losses on asset disposals in accordance with U.S. GAAP. The
effect on net income and basic earnings per share of the change in
estimates of the useful life of certain assets amounts to euro 56 million
and euro 0.01 per share, euro 74 million and euro 0.01 per share and euro
51 million and euro 0.01 per share for the years ended December 31, 2000,
2001 and 2002, respectively.
|
| |  | Capitalized Interest and Related Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Under U.S. GAAP, interest is capitalized as part of the cost of
constructing an asset in accordance with Statement of Financial Accounting
Standards (SFAS) No. 34, Capitalization of Interest Cost. Under
Italian GAAP, interest capitalization is permitted, but not required. For
Italian purposes, the Company has not capitalized any interest since
December 31, 1988. The reconciliation below includes adjustments to
reflect the capitalization of interest on assets, to the extent those assets
qualify for interest capitalization in accordance with SFAS No. 34, and the
related effect on depreciation.                                                                                   
|
| |  | Customer connection fees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | As described in Note 2, the Company changed the period of recognition of
fees charged to Non-Eligible Customers for connection to the electricity
network, from deferring and amortizing the effect of the fees over 20
years, to recording the effect of the fees in income in the year of
assessment. For U.S. GAAP purposes, these fees continue to be deferred
over a 20 year period.                                                                                                                                                                                                                                                                                                                    
|
| |  | Unbilled Revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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| |  | Until December 31, 2000, the Company recorded revenues for electric
services rendered when the electric meter was read or when a customer was
billed based on estimated consumption. Revenues for the supply of
electricity provided after the last meter reading prior to year-end, as
well as differences between estimated and actual consumption, were
recognized in the subsequent period when billed. Under U.S. GAAP, revenues
are recorded for all services provided through the end of the accounting
period. The reconciliation presented for 2000 includes an adjustment to
recognize the net impact on revenues for all services provided during the
fiscal period, even if amounts were not billed at the period end. Following
the new tariff rules, effective January 1, 2001, revenues under Italian
GAAP reflect the estimated amounts of electricity supplied after the last
meter reading prior to year end. At December 31, 2001, the difference
between Italian GAAP and U.S. GAAP no longer exists. Previous years
adjustments were reversed in 2001 in the reconciliation presented below.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Pension and Employee Termination Accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As discussed in Note 2, the Company grants certain pension and other
benefits to its employees, as required by Italian law and under labor
contracts. In particular, the Companys Italian employees are covered by a
plan required under Italian law and labor contracts which grants a
termination indemnity based on compensation and years of service. For
Italian GAAP purposes, the Company accrues the amount due to each employee as of the respective
year-end, based on such factors and dates. In addition, the Company is
required, by agreements with Italian trade unions, to provide certain
additional employee termination benefits. The reserve for these termination
benefits is accrued as a liability at the end of each year and accordingly
is not actuarially computed.
|
| |  | SFAS No.87, Employers Accounting for Pensions, requires the provision
for pension and other benefits to be recognized over the employees
employment period based on actuarially determined calculations.
Additionally, in determining the employee termination liability for U.S.
GAAP purposes, the Company has applied Approach 2 of Emerging Issues Task
Force (EITF) No. 88-1. Under this approach, the actuarial present
value of the vested benefit obligation the employee is entitled to at
separation is based on the employees expected date of separation or
retirement. The reconciliations below include adjustments to recognize the
pension and other benefits in accordance with SFAS No. 87 and EITF No.
88-1.                                                         
|
| |  | Additionally, SFAS 87 requires the recognition of an additional minimum
liability if the unfunded accumulated benefit obligation exceeds the
accrued pension liability. If an additional minimum pension liability is
recognized an equal amount is recognized as an intangible asset to the
extent of unrecognized prior service cost. Any remaining excess is
reported as other comprehensive income.                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Other Postretirement Benefits Accounting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | As discussed in Note 2, the Company grants certain postretirement benefits
to its employees, mainly relating to a reduction in electricity tariffs and
contributions to certain employee programs that provide medical benefits.
The related costs are expensed as incurred under Italian GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | SFAS No. 106, Accounting for Postretirement Benefits Other then Pensions,
requires the provision for various employee benefit arrangements to be
recognized over the employees employment period based on actuarially
determined calculations. The reconciliation presented below includes
adjustments to recognize the other postretirement benefits in accordance
with SFAS No. 106.                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company enters into derivatives for general and specific hedging
purposes. The general hedges are not designated against specific
transactions. Under U.S. GAAP, derivatives that are not designated to
hedge specific transactions are accounted for at market value with gains
and losses being recognized currently in the statements of income. Specific
hedges are accounted for as hedges if they meet the qualifying criteria for
hedge accounting. The ineffective portion of effective hedge relationships
is recorded in earnings when required by U.S. GAAP. The total
ineffectiveness recorded in earnings during the year ended December 31,
2002 amounts to euro 0.7 million.                                                                                                
|
| |  | Additionally, in connection with the preliminary agreement signed by the
Company in October 2000 to acquire Infostrada, the Company also entered
into derivative instruments to manage its exposure to the variable price
adjustment mechanism in the preliminary agreement. For Italian GAAP
purposes, the settlement of the derivative instruments was considered a
component of the purchase price of Infostrada, while U.S. GAAP does not
allow hedge accounting for instruments intended to hedge the purchase price
of a business combination. Therefore, the loss of euro 250 million from
these instruments was recorded in 2001 as a loss in the statements of
income under U.S. GAAP rather than as a part of the purchase price.                                                    

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| |  | The reconciliation below includes adjustments to reflect the derivatives
described above at their estimated market value in the consolidated
statements of income, or in other comprehensive income, as appropriate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Effect of U.S. GAAP adjustments on WIND Equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | As discussed in Note 2, up to December 31, 2000, the investment in WIND
under Italian GAAP was accounted for under the equity method. Certain
differences between Italian GAAP and U.S. GAAP existed in the accounts of
WIND, primarily related to start-up and advertising costs, which are
required to be expensed as incurred for U.S. GAAP purposes. The
reconciliations below include for the year 2000 an adjustment to recognize
the Companys investment in WIND on a U.S. GAAP basis.                                                                                                                                                                                                                                                                                                
|
| |  | Starting January 1, 2001,
WIND has been consolidated on a line by line
basis and the related adjustments are reported in separate lines in the
reconciliations below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Advertising costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Under Italian GAAP, certain advertising costs may be capitalized if certain
conditions are met and are then amortized over 5 years by the Company.
Under U.S. GAAP advertising costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Start-up costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Under Italian GAAP, the Company capitalizes and amortizes start-up costs
over 5 years. Under U.S. GAAP start-up costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Internal use software                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | For Italian GAAP, software development costs may be capitalized if
certain conditions are met. For U.S. GAAP purposes, software
development costs can be divided into three categories: costs
incurred in a preliminary phase (strategic decisions, systems and
performance requirements, vendors selection, general conceptual
framework, preliminary studies and planning), development and
implementation costs, and training and on-going maintenance costs.
Under U.S. GAAP costs related to the preliminary phase and costs
related to training and on-going maintenance are expensed as incurred.
In determining the amounts to be charged to the income statement,
management of the Company makes estimates in terms of percentages of
total costs capitalized for software projects.
|
| |  | Additionally, under Italian GAAP,
the Company accrues for costs expected to
be incurred regarding the adaptation of software applications. Under
U.S. GAAP these costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Reorganizations under common control                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Under U.S. GAAP, acquisitions within a group of commonly controlled
companies are accounted for as a reorganization of entities under
common control in a similar manner to a pooling of interests.
Accordingly, assets and liabilities acquired are recorded at
historical cost with no goodwill or other adjustments to the
historical carrying value of the assets acquired or liabilities
assumed arising. U.S. GAAP requires the elimination of goodwill and
other purchase price allocation adjustments arising on consolidation
of companies acquired under common control together with the related
amortization.                                                                                                                                                                   
|
| |  | FS (Italian State Railways) Right of Way                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | In the consolidated financial statements of the Company, under
Italian GAAP, the total consideration payable to the Italian State
Railways for the rights of way over the FS rail network is recorded as
an intangible asset and residual payments (13 installments over the
period 1999 to 2011) are recorded at face value as liabilities;                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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| |  | the intangible asset is amortized over its estimated useful life. For U.S.
GAAP purposes, the intangible asset
is adjusted to the present value of amounts to be paid for liabilities
incurred. Amortization is charged on the adjusted cost of the intangible
asset and the discount to present value of the gross amounts to be paid is
charged to interest expense using the effective interest rate method over
the repayment period.                                                                                                                                                                                                                                                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Sundry differences regarding telecommunications activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The item includes several differences regarding telecommunications
activities between Italian GAAP and U.S. GAAP, mainly related to customer
acquisition costs and activation fees.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Goodwill and intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
|
| |  | Under Italian GAAP, intangible assets, including goodwill, are amortized
over a period deemed to be representative of the expected useful life of
the assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Under U.S. GAAP, the Company has adopted Statement of Financial Accounting
Standards No. 141 Business Combinations(SFAS 141) which requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. SFAS 141 also includes guidance on the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination completed after June 30, 2001.                                                                                                                                                                                                                                                                                                                                         
|
| |  | Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets(SFAS
142). SFAS 142 prohibits the amortization of all goodwill and intangible
assets with indefinite useful lives, and also requires that goodwill
included in the carrying value of equity method investments no longer be
amortized. Intangible assets that have finite useful lives continue to be
amortized over their useful lives.                                                                                                                                                                                                                                                                                                    
|
| |  | SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives be tested for impairment annually, or more frequently if
events or changes in circumstances indicate that the asset might be
impaired. Goodwill is tested for impairment using the prescribed two-step
process. The first step screens for potential impairment by comparing the
fair value of the reporting units to their carrying values. If the fair
value of a reporting unit is less than its carrying value, the second step
measures the amount of impairment by comparing the fair value of the
reporting unit to the fair value of the recognized and unrecognized assets
and liabilities. In accordance with the requirements of SFAS 142, the
Company performed the initial impairment

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| |  | test of goodwill as of January 1,
2002. Based on that test, no impairment was recorded at January 1, 2002
and accordingly there was no cumulative effect of this change in accounting
principle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under SFAS 142, the Company estimates fair value for its reporting units
using a present value technique with the objective of measuring fair value
and incorporates estimated discounted future cash flow assumptions that
marketplace participants would use in their estimates of fair value. The
annual impairment test of the telecommunications reporting unit was done as
of June 30, 2002, considering the outlook of the telecommunications sector
and the downwards revision of growth expectations for the segment. The
telecommunications reporting unit was evaluated on a stand alone basis,
without considering the weighted
average cost of capital benefits resulting from being part of the Enel
Group. As a result of its annual impairment test performed on the
telecommunications reporting unit, the Company recognized a goodwill
impairment charge of euro 2,336 million. Based on the impairment tests
performed during the year on the other reporting units, no additional
goodwill impairment charges were recognized.
|
| |  | There are also differences between
Italian GAAP and U.S. GAAP in the
application of the purchase method of accounting which results in different
allocations of the purchase price, in particular the allocation of fair
values to intangible assets and the resulting goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The differences in accounting for goodwill between US and Italian GAAP
described above results in differences between net income and shareholders
equity presented under U.S. GAAP and Italian GAAP. In 2002 under Italian
GAAP, and as described in Note 7, the Company recorded a goodwill
impairment charge of euro 1,511 million relating to the telecommunications
business and goodwill amortization for the Group of
euro 595 million. Under U.S. GAAP, there was an additional impairment charge
relating to the telecommunications reporting unit goodwill of euro 825
million, and goodwill is no longer amortized under U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The carrying values of goodwill under U.S. GAAP for the segments are as
follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                |                               |                    |       |                   |   |       |                |     |  |  |       |        |  
|------------------------------- | ----------------------------- | ------------------ | ----- | ----------------- | - | ----- | -------------- | --- |  |  | ----- | ------ | -
|                                |                               |                    |       |                   |   |       | Generation and |     |  |  |      
|(millions of euro)              |                               | Telecommunications |       | Energy Management |   | Total
|                                |                               |                    |       |                   |   |      
|Balance as of
January 1, 2002   |                               |                    | 7,694 |                   |   |       | 163            |     |  |  | 7,857 |       
|                                | Goodwill
acquired during
year |                    |       |                  |   |       |                | 757 |  |  |       | 757    |  
|                                | Impairment
losses             |                    |       | (2,336            | ) |       |                |    |  |  |       | (2,336 | )
|Balance as of
December 31, 2002 |                               |                    | 5,358 |                   |   |       | 920            |     |  |  | 6,278 |       

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| |  | No goodwill has been allocated to any other segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On March 29, 2001, the Company acquired from Vodafone Airtouch Plc 100% of
the voting stock of Infostrada, a fixed-line telecommunications and Italian
internet operator, for euro 7.6 billion, including certain
ancillary costs. Infostrada was merged into WIND
effective January 1, 2002. Under Italian GAAP, the acquisition was
accounted for as a purchase. Under U.S. GAAP, the acquisition was accounted
for under the purchase method, as prescribed by APB 16, which results in
certain differences in the purchase price allocation in the determination
of the amount of resulting goodwill.
|
| |  | The Company allocated the purchase price to the assets acquired and
liabilities assumed based on their fair values and calculated the goodwill
under U.S. GAAP. The table below shows a reconciliation of goodwill at the
acquisition date between Italian GAAP and U.S. GAAP.                                                                                                                                                                                                                                                                                                                           

|                                         |  |  |       |  
|---------------------------------------- |  |  | ----- | -
|(in million of euros)                    |  |  |       |  
|Goodwill under Italian GAAP              |  |  | 7,631 |  
|Hedge cost (see footnote on derivatives) |  |  | (250  | )
|Infostrada U.S. GAAP adjustments         |  |  | 165   |  
|                                         |  |  |       |  
|Goodwill under U.S. GAAP                 |  |  | 7,546 |  
|                                         |  |  |       |  



| |  | Until December 31, 2001 the goodwill was amortized over its expected useful
life, which in the case of Infostrada was 15 years for both U.S. GAAP and
Italian GAAP, prior to the adoption of FASB 142.                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The difference in goodwill
resulting from the purchase price allocation has been considered in
the FASB 142 impairment test and is reflected in the reconciliation
lines related to goodwill amortization and impairment.
| |  |                                                                                                                                                                                                                          
| |  | The following table presents net income and earnings per share for the
years ended December 31, 2000 and 2001 adjusted to exclude the amortization
of goodwill in accordance with SFAS 142:                              

|                                                                                          |  |                        |       |      |  |  |       | 
|----------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- |  |  | ----- | 
|                                                                                          |  | Year ended December 31
|                                                                                          |  |                       
|(millions of euro, except per share data)                                                 |  | 2000                   |       | 2001
|                                                                                          |  |                        |       |     
|Reported net income as adjusted for U.S. GAAP                                             |  |                        | 1,841 |      |  |  | 3,688 | 
|Add back goodwill amortization, net of
tax                                                |  |                        | 5     |      |  |  | 284   | 
|Pro-forma net income as adjusted for U.S. GAAP,
after amortization
add-back               |  |                        | 1,846 |      |  |  | 3,972 | 
|Basic earnings per share:                                                                 |  |                        |       |      |  |  |       | 
|Reported net income, adjusted for U.S. GAAP                                               |  |                        | 0.30  |      |  |  | 0.61  | 
|Goodwill (net of minority
interest)                                                       |  |                        |      |      |  |  | 0.05  | 
|Pro-forma basic earnings per share as adjusted
for U.S. GAAP, after amortization
add-back |  |                        | 0.30  |      |  |  | 0.66  | 



| |  | Camuzzi purchase price allocation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In connection with the Camuzzi acquisition in 2002, under Italian GAAP
goodwill of euro 597 million was recorded. Of this goodwill, an amount euro
566 million is being amortized over 15 years and euro 31 million is being
amortized over 9 years. Under U.S. GAAP the Company recorded a customer
relationship intangible of euro 566 million which is being amortized over
15 years and a license valued at euro 66 million which is being amortized
over 9 years. The different allocation under Italian and U.S. GAAP results in
additional amortization under U.S. GAAP of euro 4 million in 2002.
|

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| |  | Restructuring Reserve                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Italian GAAP financial statements reflect accruals for future
anticipated restructuring charges. U.S. GAAP requires that certain
conditions must be met before a restructuring accrual can be recorded.
Since these conditions have not been met, the reconciliations below reflect
adjustments for the difference in the timing of the recording of accruals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Italian Pension System Obligation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | As discussed in Note 7, the Company was required to pay extraordinary
contributions to the Italian national pension system in the three year
period 2000-2002. U.S. GAAP requires the recognition of the required
contribution as net pension cost for the period and recognition as a
liability of any contributions due and unpaid, while Italian GAAP allows
these amounts to be expensed over a 20-year period. The reconciliations
presented below include an adjustment to recognize the expense in
accordance with U.S. GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Investments in Equity Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The Company has an investment in the equity securities of Echelon
Corporation. For Italian GAAP purposes, the investment is accounted for
under the cost method, with adjustments to earnings in order to reflect
declines in value judged to be other than temporary. For U.S. GAAP
purposes, the securities are accounted for in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities,
classified as available-for-sale and are carried at their fair market value
with the unrealized holding gains and losses reflected under Other
comprehensive income in shareholders equity. Realized
gains and losses, dividends and declines in value judged to be other than
temporary are included in income. The reconciliations below include an
adjustment to recognize the investment in accordance with SFAS No. 115. At
December 31, 2002 and 2001 the investment has the same carrying amount for
both Italian and U.S. GAAP.
|
| |  | Current and deferred taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Company records deferred taxes in accordance with Italian Accounting
Standard No. 25, which is substantially consistent with U.S. GAAP, as set
forth in SFAS No. 109, Accounting for Income Taxes. For Italian GAAP
purposes, the Company is not required to recognize deferred taxes on
capital reserves if they are not expected to be distributed and the Company
has not provided deferred taxes for the Legal Reserves, Law 292/93,
Reserves or other reserves. For Italian GAAP purposes, the tax effect will
be recognized when these amounts are distributed to the shareholders. For
U.S. GAAP purposes, these taxes are                                                                                                                                                                                                                                                                                                                                        

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| |  | required to be recognized since certain
criteria have been met. The reconciliation below includes the adjustments
to recognize income taxes in accordance with SFAS No. 109.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Additional adjustments to income taxes are also set forth in the
reconciliation below to reflect the impact on deferred taxes related to the
other Italian GAAP  U.S. GAAP differences described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The benefit of investment tax credits, including the Tremonti-bis law
incentive, is recognized as a reduction of income tax expense in the year
in which the credit is claimed for tax purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Classification differences                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | In addition to recognition and measurement differences there are a number
of classification differences between Italian GAAP and U.S. GAAP. The main
classification differences are:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Extraordinary Income and Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | As discussed in Note 2, items are recorded as extraordinary under Italian
GAAP if they meet certain criteria. U.S. GAAP requires more stringent
conditions for the classification of extraordinary item by also requiring the
underlying event or transaction to clearly possess a high degree of
abnormality and be of a type that would not reasonably be expected to recur
in the foreseeable future, taking into account the environment in which the
event occurs. Items recorded by the Company as extraordinary in the years
presented herein for Italian GAAP would not qualify as extraordinary under
U.S. GAAP. Such items have been reclassified to the appropriate income
statement captions as determined by U.S. GAAP, and consequently have been
included in the determination of operating income contained in the
condensed consolidated statements of income presented in Note 24.
|

Consolidation of WIND



| |  | At the end of July 2000, the Company acquired additional shares in WIND as
a result of a settlement agreement with France Telecom and Deutsche
Telekom. In association with the settlement agreement, a new
shareholders
agreement was signed between ENEL and France Telecom, which eliminated
certain management and control restrictions previously imposed on the
Company. In 2000, for U.S. GAAP purposes, WIND was consolidated starting
August 1, 2000, while the investment was presented under the equity method
for Italian GAAP purposes, due to the existence of control restrictions for
the majority of the year. Therefore, in the condensed consolidated
financial statements for the year ended December 31, 2000
presented in Note 24,
WIND is accounted for under the equity method for the first seven months of the
year and consolidated for the last five months.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Cash Flow Statements                                                                                                                                                                                                                                                               
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Under Italian GAAP, the Company determines net cash flow from operating
activities by the indirect method, starting from income before minority
interests. Under U.S. GAAP net cash flow from operating activities is
presented starting from net income.                          
|
| |  | Additionally, under Italian GAAP, extraordinary contributions to pension
funds and the payment of substitute tax on the release of reserves are treated
as cash flows from financing activities, while under U.S. GAAP they are
classified as cash flows from operating activities.

F - 60



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Summarized cash flows determined in accordance with U.S. GAAP are presented
below:

|                                                 |  |                    |        |          |  |      |        |      |  |  |        |   |  |                |       | 
|------------------------------------------------ |  | ------------------ | ------ | -------- |  | ---- | ------ | ---- |  |  | ------ | - |  | -------------- | ----- | 
|                                                 |  | 2000               |        | 2001     |  | 2002 |        | 2002
|                                                 |  |                    |        |          |  |      |        |     
|                                                 |  |                    |        |          |  |      |        |      |  |  |        |   |  | (million of US
|                                                 |  | (millions of euro) |        | dollars)
|Net cash provided
by operating
activities        |  |                    | 4,937  |          |  |      | 5,554  |      |  |  | 3,815  |   |  |                | 4,000 | 
|Net cash used in
investing activities            |  |                    | (3,468 | )        |  |      | (8,707 | )    |  |  | (4,241 | ) |  |                | 4,447 | 
|Net cash (used)
provided in financing
activities |  |                    | (1,509 | )        |  |      | 3,249  |      |  |  | 239    |   |  |                | 250   | 





| |  |  | Recently issued accounting standards
| |  |  | ------------------------------------

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| |  |  | In June 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. The statement applies to legal obligations associated with
the retirement of tangible long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS 143
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset and subsequently allocated to expense over the assets
useful life. The liability is changed at the end of each period to reflect
the passage of time (i.e. accretion expense) and changes in the estimated
future cash flows underlying the initial fair value measurement. SFAS 143
is effective for the Companys fiscal year commencing January 1, 2003. The
Company expects the adoption of this standard will have no material impact
on its financial position, results of operations or cash flows.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | In October 2001 the FASB issued
SFAS No. 144 Accounting for Impairment or Disposal of Long
Lived Assets, that supersedes SFAS No. 121. The accounting
model for long-lived assets to be disposed of by sale applies to all
long-lived assets, including discontinued operations, and replaces
the provisions of APB Opinion No. 30 for the disposal of segments of
a business. SFAS No. 144 requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued
operations. Therefore, discontinued operations will no longer be
measured at net realizable value or include amounts for operating
losses that have not yet occurred. SFAS No. 144 also broadens the
reporting of discontinued operations to include all components of an
entity with operations that can be distinguished from the rest of the
entity, and which components will be eliminated from the ongoing
operations of the entity in a disposal transaction. The adoption of
SFAS No. 144, effective January 1, 2002, did not have a material
impact on the Company consolidated financial statements.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On April 22, 2002, the FASB issued SFAS No. 145 Rescission of FASB
Statements Nos 4, 44 and 64, Amendment of SFAS No. 13 and Technical
Corrections. The principal change is that gains or losses from
extinguishments of debt will no longer be classified as extraordinary items
as they were under SFAS No. 4. The provisions of SFAS No 145 are effective
for fiscal years beginning after May 15, 2002, except for the provisions
relating to the amendments of SFAS 13, which had been adopted for
transactions occurring subsequent to May 15, 2002. The full adoption of
SFAS No. 145, effective January 1, 2003, did not have a material impact on
the Companys financial position, results of operations or cash flows.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated
with Exit or Disposal Activities. The statement requires that a liability
for costs associated with exit or disposal activities be recognized in the
period in which the costs are incurred. Under current accounting guidance,
a liability can be recognized when management has committed to an exit
plan. The requirements under SFAS 146 are effective prospectively for exit
or disposal activities initiated after December 31, 2002. The adoption of
this statement will affect the Companys accounting for exit and disposal
activities initiated after December 31, 2002.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FASB Statement
No. 123. SFAS 148 amends SFAS 123, Accounting for Stock-Based
Compensation to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS 148 requires more prominent
disclosures in annual financial statements about the method of accounting
used for stock-based employee compensation and the effect of the method
used on reported results. The disclosure provisions of FASB 148 are
effective for fiscal years ending after December 15, 2002 and have been
incorporated into the Companys consolidated financial statements and
accompanying footnotes. The Company has elected to continue to follow APB
25, which uses an intrinsic value based approach to measure compensation
expense.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2002, the Emerging Issues Task Force (EITF) reached consensus
on EITF Issue 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables. This Issue addresses certain aspects of
the accounting by a vendor for arrangements under which it will perform
multiple revenue-generating activities. In some arrangements, the different
revenue-generating activities (deliverables) are sufficiently separable,
and there exists sufficient evidence of their fair values to separately
account for some or all of the deliverables (that is, there are separate
units of accounting). In other arrangements, some or all of the
deliverables are not independently functional, or there is not sufficient
evidence of their fair values to account for them separately. This Issue
addresses when and, if so, how an arrangement involving multiple
deliverables should be divided into separate units of accounting. This
Issue does not change otherwise applicable revenue recognition criteria.
The provisions of this Issue become effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. The Company
is currently determining the impact of the adoption of EITF 00-21 on its
consolidated financial statements.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2002, the FASB issued FASB Interpretation (FIN) 45,
Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others  an
interpretation of FASB statements 5, 57, and 107 and rescission of FASB
Interpretation 34. This Interpretation elaborates on the disclosure to be
made by a guarantor in its financial statements regarding obligations under
certain guarantees that it has issued. FIN 45 also clarifies that a
guarantor is required to recognize, at inception of a guarantee, a
liability for the fair value of the obligation due to the issuance of the
guarantee. Disclosure requirements are effective for financial statements
of periods ending after December 15, 2002. The initial recognition and
measurement provisions are effective on a prospective basis for guarantees
issued or modified after December 31, 2002. The Company does not believe
the adoption of FIN 45 will have a material impact on its financial
position, results of operations, or cash flows.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In January 2003, the FASB issued FIN 46, Consolidation of Variable
Interest Entities  an interpretation of ARB No. 51, which clarifies the
application of the consolidation rules to certain variable interest
entities. FIN 46 established a new multi-step model for the consolidation
of variable interest entities when a company has a controlling financial
interest based either on voting interests or variable interests.
Consolidation based
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | on variable interests is required by the primary
beneficiary if the equity investors lack essential characteristics of a
controlling financial interest or if the equity investment at risk is not
sufficient for the entity to finance its activities without additional
subordinated financial support from other parties. The primary beneficiary
of a variable interest entity is the party that absorbs a majority of the
entitys expected losses, receives a majority of its expected residual
returns, or both, as a result of holding variable interests. FIN 46 also
provides disclosure requirements related to investments in variable
interest entities, whether or not those entities are consolidated. The
requirements of FIN 46 apply in the first fiscal year or interim period
beginning after June 15, 2003 to variable interest entities in which an
enterprise holds a variable interest that is acquired before February 1,
2003. Also, certain disclosure requirements apply to all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. In connection with the matter discussed in
note 4, concerning the securitization of receivables carried out by WIND,
the Company is still evaluating the underlying circumstances in order to
determine if the entity described in that note qualifies as a variable
interest entity. Should the Company subsequently conclude that
consolidation would be appropriate, the only effect at December 31, 2002 on
the consolidated financial statements would be an increase in accounts
receivable and an equal increase in financing liabilities of euro 173 million, with
no material effect on consolidated net income for the year then ended nor on the
consolidated shareholders equity at that date. The maximum exposure as of
December 31, 2002 amounts to the carrying value of the financial notes for
euro 133 million.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company has not identified any other entities which could be qualified
as variable interest entities.
| |  |  | ---------------------------------------------------------------------------------------------------------



| |  |  | On October 25, 2002, the EITF reached a consensus on Issue 02-3,
Recognition and Reporting of Gains and Losses on Energy Trading Contracts
Under EITF Issues No. 98-10 and No. 00-17, that changed the accounting for
certain energy contracts:
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | EITF 02-3 prohibits the use of mark-to-market
accounting for any energy-related contracts unless they are
derivatives. Any contracts subject to EITF 02-3 must be accounted
for on the accrual basis if they are not derivatives. This change
applied immediately to new contracts executed after October 25,
2002 and applies to all existing non-derivative energy-related
contracts beginning
January 1, 2003.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company is required to report the impact of
initially applying EITF 02-3 as the cumulative effect of a change
in accounting principle effective January 1, 2003.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The EITF minutes on Issue 02-3 indicate that an entity
should not record unrealized gains or losses at the inception of
derivative contracts unless the fair value of the contracts is
evidenced by observable market data.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | EITF 02-3 requires the recording of a non-cash, cumulative effect
adjustment to convert non-derivative mark-to-market contracts to accrual
accounting no later than January 1, 2003. The Company did not
mark-to-market any non-derivative contract.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative Instruments and Hedging Activities, which
amends FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, to address (1) decisions reached by the Derivatives
Implementation Group, (2) developments in other Board projects that address
financial instruments, and (3) implementation issues related to the
definition of a derivative.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SFAS 149 has multiple effective date provisions depending on the nature of
the amendment to SFAS 133. The Company is currently evaluating the impact
of adopting SFAS 149 on its financial statements.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | On May 15, 2003, the FASB issued FASB Statement No. 150, Accounting for
Certain Financial Instruments
| |  |  | ------------------------------------------------------------------------------------------------------

F - 64



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| |  |  | with Characteristics of both Liabilities and
Equity. This Statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as
equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003, except for
mandatory redeemable financial instruments of nonpublic entities. It is to
be implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before the issuance
date of the SFAS 150 and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. The Company is currently
evaluating the impact of adopting SFAS 150 on its consolidated financial
statements.
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|(24) |  | RECONCILIATION BETWEEN NET INCOME AND SHAREHOLDERS
EQUITY DETERMINED UNDER ITALIAN GAAP AND U.S. GAAP
|---- |  | ------------------------------------------------------------------------------------------------------



| |  | The following table summarizes the significant adjustments to consolidated
net income for the years ended December 31, 2000, 2001 and 2002 that would
be required if U.S. GAAP had been applied instead of Italian GAAP:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                 |  |                        |       |              |  |      |       |      |  |  |       |   |  |                   |       |  
|---------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ------------ |  | ---- | ----- | ---- |  |  | ----- | - |  | ----------------- | ----- | -
|                                                                                                                
|                                                                                                                 |  | 2000                   |       | 2001         |  | 2002 |       | 2002
|                                                                                                                 |  |                        |       |              |  |      |       |     
|                                                                                                                 |  |                        |       |              |  |      |       |      |  |  |       |   |  | (millions of U.S.
|                                                                                                                 |  | (millions of euro (a)) |       | dollars (a))
|                                                                                                                 |  |                        |       |             
|Net income as reported in the consolidated statements of income                                                  |  |                        | 2,188 |              |  |      | 4,226 |      |  |  | 2,008 |   |  |                   | 2,105 |  
|Items increasing (decreasing) reported net income:                                                               |  |                        |       |              |  |      |       |      |  |  |       |   |  |                   |       |  
|Fixed assets and related depreciation                                                                            |  |                        | 370   |              |  |      | 570   |      |  |  | 391   |   |  |                   | 410   |  
|Capitalized interest and related depreciation
(b)                                                                |  |                        | (33   | )            |  |      | (90   | )    |  |  | (37   | ) |  |                   | (39   | )
|Customers connection fees                                                                                       |  |                        |      |              |  |      |      |      |  |  | (491  | ) |  |                   | (515  | )
|Unbilled
revenues                                                                                                |  |                        | (60   | )            |  |      | (501  | )    |  |  |      |   |  |                   |      |  
|Pension and employee termination accounting                                                                      |  |                        | (111  | )            |  |      | 117   |      |  |  | (71   | ) |  |                   | (74   | )
|Other postretirement benefits
accounting                                                                         |  |                        | (19   | )            |  |      | (23   | )    |  |  | (22   | ) |  |                   | (23   | )
|Derivatives                                                                                                      |  |                        | (83   | )            |  |      | (179  | )    |  |  | (42   | ) |  |                   | (44   | )
|Effect of U.S. GAAP adjustments on WIND                                                                          |  |                        | 1     |              |  |      |      |      |  |  |      |   |  |                   |      |  
|Advertising costs                                                                                                |  |                        |      |              |  |      | 23    |      |  |  | 25    |   |  |                   | 26    |  
|Start-up costs                                                                                                   |  |                        |      |              |  |      | 14    |      |  |  | (13   | ) |  |                   | (14   | )
|Internal use of
software                                                                                         |  |                        |      |              |  |      | (5    | )    |  |  | 1     |   |  |                   | 1     |  
|Reorganization under common
control                                                                              |  |                        |      |              |  |      | 2     |      |  |  | 2     |   |  |                   | 2     |  
|FS (Italian State Railways) Right of
Way                                                                         |  |                        |      |              |  |      | (4    | )    |  |  | (4    | ) |  |                   | (4    | )
|Sundry differences regarding telecommunications
activity                                                         |  |                        |      |              |  |      | 7     |      |  |  | 2     |   |  |                   | 2     |  
|Goodwill
amortization                                                                                            |  |                        |      |              |  |      | 5     |      |  |  | 595   |   |  |                   | 624   |  
|Goodwill
impairment                                                                                              |  |                        |      |              |  |      |      |      |  |  | (825  | ) |  |                   | (865  | )
|Camuzzi purchase price
allocation                                                                                |  |                        |      |              |  |      |      |      |  |  | (4    | ) |  |                   | (4    | )
|Restructuring
reserve                                                                                            |  |                        | (17   | )            |  |      | (11   | )    |  |  | (2    | ) |  |                   | (2    | )
|Italian pension system
obligation                                                                                |  |                        | (577  | )            |  |      | (523  | )    |  |  | (446  | ) |  |                   | (468  | )
|Investment in equity
securities                                                                                  |  |                        | 35    |              |  |      | (35   | )    |  |  |      |   |  |                   |      |  
|Deferred taxes on equity reserves, including
revaluations                                                        |  |                        |      |              |  |      | (49   | )    |  |  | (3    | ) |  |                   | (3    | )
|Tax effects of reconciling
items                                                                                 |  |                        | 147   |              |  |      | 151   |      |  |  | 340   |   |  |                   | 357   |  
|Impact of reconciling items on minority
interest                                                                 |  |                        |      |              |  |      | (4    | )    |  |  | (5    | ) |  |                   | (5    | )
|                                                                                                                 |  |                        |       |              |  |      |       |      |  |  |       |   |  |                   |       |  
|Net income in accordance with U.S. GAAP before the cumulative
effect of implementation of SFAS 133, net of taxes |  |                        | 1,841 |              |  |      | 3,691 |      |  |  | 1,399 |   |  |                   | 1,467 |  
|Cumulative
effect of implementation of SFAS 133,
net of
taxes                                                    |  |                        |      |              |  |      | (3    | )    |  |  |      |   |  |                   |      |  
|                                                                                                                 |  |                        |       |              |  |      |       |      |  |  |       |   |  |                   |       |  
|Net income in accordance with U.S. GAAP                                                                          |  |                        | 1,841 |              |  |      | 3,688 |      |  |  | 1,399 |   |  |                   | 1,467 |  
|                                                                                                                 |  |                        |       |              |  |      |       |      |  |  |       |   |  |                   |       |  
|Basic and diluted earnings per share in accordance with
U.S. GAAP (c)                                            |  |                        | 0.30  |              |  |      | 0.61  |      |  |  | 0.23  |   |  |                   | 0.24  |  
|                                                                                                                 |  |                        |       |              |  |      |       |      |  |  |       |   |  |                   |       |  



|(a) |  | Except per-share data which is in Euro and U.S. dollars                                                                                                                                                                                                                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes related depreciation of euro 71 million, euro 72 million, euro 72 million and U.S. $ 75 million, respectively.                                                                                                                                                                                                                                              
|   
|(c) |  | The per share amounts have been calculated in accordance with SFAS No. 128, Earnings Per Share.
See Note 27 for additional information on earnings per share. For purposes of these calculations the weighted average number of shares, taking into
account the reverse stock split, was 6,063,075,189 shares as of December 31, 2000, 2001 and 2002, respectively.

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The following table summarizes the significant adjustments to consolidated
shareholders equity as of December 31, 2001 and 2002 that would be
required if U.S. GAAP had been applied instead of Italian GAAP:

|                                                                                                                            |  |                    |        |          |  |      |        |   |  |                   |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | -------- |  | ---- | ------ | - |  | ----------------- | ------ | -
|                                                                                                                           
|                                                                                                                            |  | 2001               |        | 2002     |  | 2002
|                                                                                                                            |  |                    |        |          |  |     
|                                                                                                                            |  |                    |        |          |  |      |        |   |  | (millions of U.S.
|                                                                                                                            |  | (millions of euro) |        | dollars)
|Shareholders equity as reported in the consolidated
Balance
Sheet                                                          |  |                    | 20,966 |          |  |      | 20,772 |   |  |                   | 21,779 |  
|Items increasing (decreasing) reported shareholders equity:                                                                |  |                    |        |          |  |      |        |   |  |                   |        |  
|Fixed assets and related depreciation (a)                                                                                   |  |                    | (772   | )        |  |      | (381   | ) |  |                   | (399   | )
|Capitalized interest and related depreciation (b)                                                                           |  |                    | 1,385  |          |  |      | 1,348  |   |  |                   | 1,413  |  
|Customers connection fees                                                                                                  |  |                    |       |          |  |      | (491   | ) |  |                   | (515   | )
|Pension and employee termination accounting                                                                                 |  |                    | (18    | )        |  |      | (94    | ) |  |                   | (99    | )
|Other postretirement benefits accounting                                                                                    |  |                    | (1,078 | )        |  |      | (1.100 | ) |  |                   | (1,153 | )
|Derivatives                                                                                                                 |  |                    | 157    |          |  |      | (338   | ) |  |                   | (354   | )
|Advertising
costs                                                                                                           |  |                    | (80    | )        |  |      | (55    | ) |  |                   | (58    | )
|Start-up
costs                                                                                                              |  |                    | (19    | )        |  |      | (36    | ) |  |                   | (38    | )
|Internal use of
software                                                                                                    |  |                    | (34    | )        |  |      | (33    | ) |  |                   | (34    | )
|Reorganization under common control                                                                                         |  |                    | (12    | )        |  |      | (10    | ) |  |                   | (11    | )
|FS (Italian State Railways) Right of Way                                                                                    |  |                    | (14    | )        |  |      | (18    | ) |  |                   | (19    | )
|Sundry differences regarding telecommunications activity                                                                    |  |                    | (3     | )        |  |      | (1     | ) |  |                   | (1     | )
|Camuzzi purchase price allocation                                                                                           |  |                    |       |          |  |      | 31     |   |  |                   | 33     |  
|Goodwill
impairment and related amortization                                                                                |  |                    | (79    | )        |  |      | (309   | ) |  |                   | (324   | )
|Restructuring
reserve                                                                                                       |  |                    | 2      |          |  |      |       |   |  |                   |       |  
|Italian pension system obligation                                                                                           |  |                    | (1,100 | )        |  |      | (1,546 | ) |  |                   | (1,621 | )
|Deferred taxes on equity reserves, including revaluations                                                                   |  |                    | (155   | )        |  |      | (191   | ) |  |                   | (200   | )
|Tax effects of reconciling
items                                                                                            |  |                    | 469    |          |  |      | 972    |   |  |                   | 1,020  |  
|Impact of reconciling items on minority interest                                                                            |  |                    | 11     |          |  |      | 6      |   |  |                   | 6      |  
|                                                                                                                            |  |                    |        |          |  |      |        |   |  |                   |        |  
|Shareholders equity in accordance with U.S. GAAP. before the cumulative
effect of implementation of SFAS 133, net of taxes |  |                    | 19,626 |          |  |      | 18,526 |   |  |                   | 19,425 |  
|Cumulative
effect of implementation of SFAS 133,
net of
taxes                                                               |  |                    | (159   | )        |  |      |       |   |  |                   |       |  
|                                                                                                                            |  |                    |        |          |  |      |        |   |  |                   |        |  
|Shareholders equity in accordance with U.S. GAAP                                                                           |  |                    | 19,467 |          |  |      | 18,526 |   |  |                   | 19,425 |  
|                                                                                                                            |  |                    |        |          |  |      |        |   |  |                   |        |  



|(a) |  | Includes related accumulated depreciation of euro 11,281 million, euro 10,428 million, and U.S. $ 10,934 million, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes related accumulated depreciation of euro 544 million, euro 544 million and U.S. $ 570 million, respectively.          

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| |  | The condensed consolidated balance sheets as of December 31, 2001 and 2002
presented below have been restated to reflect the differences between
Italian GAAP and U.S. GAAP.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | CONSOLIDATED BALANCE SHEETS
| |  | ---------------------------

|                                     |  |                    |        |               |  |      |        |  |  |              |        | 
|------------------------------------ |  | ------------------ | ------ | ------------- |  | ---- | ------ |  |  | ------------ | ------ | 
|                                    
|                                     |  | As of December 31, |        |               |  |     
|                                     |  | 2001               |        | 2002          |  | 2002
|                                     |  |                    |        |               |  |     
|                                     |  |                    |        |               |  |      |        |  |  | (millions of
|                                     |  | (millions of euro) |        | U.S. dollars)
|Assets                               |  |                    |        |               |  |      |        |  |  |              |        | 
|Current Assets                       |  |                    | 11,706 |               |  |      | 14,220 |  |  |              | 14,910 | 
|Fixed Assets, net                    |  |                    | 36,035 |               |  |      | 38,304 |  |  |              | 40,162 | 
|Other non-current assets             |  |                    | 16,058 |               |  |      | 13,899 |  |  |              | 14,573 | 
|                                     |  |                    |        |               |  |      |        |  |  |              |        | 
|                                     |  |                    | 63,799 |               |  |      | 66,423 |  |  |              | 69,645 | 
|                                     |  |                    |        |               |  |      |        |  |  |              |        | 
|Liabilities and Shareholders Equity |  |                    |        |               |  |      |        |  |  |              |        | 
|Current liabilities                  |  |                    | 19,367 |               |  |      | 22,255 |  |  |              | 23,334 | 
|Long-term debt                       |  |                    | 16,072 |               |  |      | 17,172 |  |  |              | 18,005 | 
|Other non-current liabilities        |  |                    | 8,761  |               |  |      | 8,406  |  |  |              | 8,814  | 
|                                     |  |                    |        |               |  |      |        |  |  |              |        | 
|Total liabilities                    |  |                    | 44,200 |               |  |      | 47,833 |  |  |              | 50,153 | 
|                                     |  |                    |        |               |  |      |        |  |  |              |        | 
|Minority interest                    |  |                    | 132    |               |  |      | 64     |  |  |              | 67     | 
|Shareholders equity                 |  |                    | 19,467 |               |  |      | 18,526 |  |  |              | 19,425 | 
|                                     |  |                    |        |               |  |      |        |  |  |              |        | 
|                                     |  |                    | 63,799 |               |  |      | 66,423 |  |  |              | 69,645 | 
|                                     |  |                    |        |               |  |      |        |  |  |              |        | 



| |  |  | The condensed consolidated statements of income for the years ended
December 31, 2000, 2001 and 2002 presented below have been restated to
reflect the differences between Italian GAAP and U.S. GAAP.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 70



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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME

|                                     |  |                    |        |          |  |      |        |      |  |  |        |   |  |                   |        |  
|------------------------------------ |  | ------------------ | ------ | -------- |  | ---- | ------ | ---- |  |  | ------ | - |  | ----------------- | ------ | -
|                                    
|                                     |  | 2000               |        | 2001     |  | 2002 |        | 2002
|                                     |  |                    |        |          |  |      |        |     
|                                     |  |                    |        |          |  |      |        |      |  |  |        |   |  | (millions of U.S.
|                                     |  | (millions of euro) |        | dollars)
|Total operating revenues             |  |                    | 26,432 |          |  |      | 28,781 |      |  |  | 30,604 |   |  |                   | 32,088 |  
|Total operating expenses             |  |                    | 22,367 |          |  |      | 25,140 |      |  |  | 30,600 |   |  |                   | 32,083 |  
|                                     |  |                    |        |          |  |      |        |      |  |  |        |   |  |                   |        |  
|Operating income                     |  |                    | 4,065  |          |  |      | 3,641  |      |  |  | 4      |   |  |                   | 5      |  
|Financial income (expense)           |  |                    | (716   | )        |  |      | (1,252 | )    |  |  | (1,185 | ) |  |                   | (1,242 | )
|Other non-operating income
(expense) |  |                    | (224   | )        |  |      | 1,576  |      |  |  | 2,554  |   |  |                   | 2,678  |  
|                                     |  |                    |        |          |  |      |        |      |  |  |        |   |  |                   |        |  
|Income before income taxes           |  |                    | 3,125  |          |  |      | 3,965  |      |  |  | 1,373  |   |  |                   | 1,441  |  
|Income tax expense                   |  |                    | 1,420  |          |  |      | 547    |      |  |  | 207    |   |  |                   | 217    |  
|                                     |  |                    |        |          |  |      |        |      |  |  |        |   |  |                   |        |  
|Income before minority interest      |  |                    | 1,705  |          |  |      | 3,418  |      |  |  | 1,166  |   |  |                   | 1,224  |  
|Minority interest
(loss)             |  |                    | (136   | )        |  |      | (270   | )    |  |  | (233   | ) |  |                   | (243   | )
|                                     |  |                    |        |          |  |      |        |      |  |  |        |   |  |                   |        |  
|Net Income                           |  |                    | 1,841  |          |  |      | 3,688  |      |  |  | 1,399  |   |  |                   | 1,467  |  
|                                     |  |                    |        |          |  |      |        |      |  |  |        |   |  |                   |        |  



| |  |  | Income before income taxes of euro 1,373 million is made up of income of
euro 1,468 million arising from domestic operations and losses of euro 95
million from foreign operations.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The condensed consolidated statements of changes in shareholders equity
for the years ended December 31, 2001 and 2002 presented below have been
restated to reflect the differences between Italian GAAP and U.S. GAAP as
discussed above.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 71



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##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY



|                                                                 |  |                    |       |          |  |               |        |       |  |       |      |   |  |  |        |  
|---------------------------------------------------------------- |  | ------------------ | ----- | -------- |  | ------------- | ------ | ----- |  | ----- | ---- | - |  |  | ------ | -
|                                                                 |  |                    |       |          |  |               |        |       |  | Other |      |   |  | 
|                                                                 |  | Share              |       | Retained |  | Comprehensive |        |       |  |      
|                                                                 |  | Capital            |       | Earnings |  | Income        |        | Total
|                                                                 |  |                    |       |          |  |               |        |      
|                                                                 |  | (millions of euro)
|Balance as of December 31,
2000                                  |  |                    | 6,263 |          |  |               | 11,507 |       |  |       | (332 | ) |  |  | 17,438 |  
|Restatement of the share
capital in euro and reverse
stock split |  |                    | (200  | )        |  |               | 200    |       |  |       |     |   |  |  |       |  
|Cumulative effect from
implementation of SFAS 133,
net of taxes  |  |                    |      |          |  |               |       |       |  |       | (159 | ) |  |  | (159   | )
|Net income                                                       |  |                    |      |          |  |               | 3,688  |       |  |       |     |   |  |  | 3,688  |  
|Unrealized loss on equity
securities                             |  |                    |      |          |  |               |       |       |  |       | 65   |   |  |  | 65     |  
|Derivatives                                                      |  |                    |      |          |  |               |       |       |  |       | 114  |   |  |  | 114    |  
|Minimum pension liabilities                                      |  |                    |      |          |  |               |       |       |  |       | (107 | ) |  |  | (107   | )
|Other changes                                                    |  |                    |      |          |  |               |       |       |  |       | 6    |   |  |  | 6      |  
|Dividends                                                        |  |                    |      |          |  |               | (1,578 | )     |  |       |     |   |  |  | (1,578 | )
|                                                                 |  |                    |       |          |  |               |        |       |  |       |      |   |  |  |        |  
|Balance
as of December 31, 2001                                  |  |                    | 6,063 |          |  |               | 13,817 |       |  |       | (413 | ) |  |  | 19,467 |  
|                                                                 |  |                    |       |          |  |               |        |       |  |       |      |   |  |  |        |  
|Net income                                                       |  |                    |      |          |  |               | 1,399  |       |  |       |     |   |  |  | 1,399  |  
|Derivatives                                                      |  |                    |      |          |  |               |       |       |  |       | (135 | ) |  |  | (135   | )
|Minimum pension liabilities                                      |  |                    |      |          |  |               |       |       |  |       | (3   | ) |  |  | (3     | )
|Other changes                                                    |  |                    |      |          |  |               |       |       |  |       | (19  | ) |  |  | (19    | )
|Dividends                                                        |  |                    |      |          |  |               | (2,183 | )     |  |       |     |   |  |  | (2,183 | )
|                                                                 |  |                    |       |          |  |               |        |       |  |       |      |   |  |  |        |  
|Balance as of December 31, 2002                                  |  |                    | 6,063 |          |  |               | 13,033 |       |  |       | (570 | ) |  |  | 18,526 |  
|                                                                 |  |                    |       |          |  |               |        |       |  |       |      |   |  |  |        |  



|                                |  |  |       |  |  |                            |        |  |  |  |      |   |  |  |        | 
|------------------------------- |  |  | ----- |  |  | -------------------------- | ------ |  |  |  | ---- | - |  |  | ------ | 
|                                |  |  |       |  |  | (millions of
U.S. dollars) |        |  |  |  |     
|Balance as of December 31,
2002 |  |  | 6,357 |  |  |                            | 13,665 |  |  |  | (597 | ) |  |  | 19,425 | 
|                                |  |  |       |  |  |                            |        |  |  |  |      |   |  |  |        | 

DISCLOSURE OF COMPREHENSIVE INCOME, NET OF TAX



|                                     |  |                    |       |                            |  |      |       |   |  |  |       |  
|------------------------------------ |  | ------------------ | ----- | -------------------------- |  | ---- | ----- | - |  |  | ----- | -
|                                     |  | 2001               |       | 2002                       |  | 2002
|                                     |  |                    |       |                            |  |     
|                                     |  | (millions of euro) |       | (millions of U.S. dollars)
|Net income                           |  |                    | 3,688 |                            |  |      | 1,399 |   |  |  | 1,467 |  
|Minimum pension liabilities          |  |                    | (107  | )                          |  |      | (3    | ) |  |  | (3    | )
|Unrealized loss on equity securities |  |                    | 65    |                            |  |      |      |   |  |  |      |  
|Derivatives                          |  |                    | (45   | )                          |  |      | (135  | ) |  |  | (142  | )
|Other changes                        |  |                    | 6     |                            |  |      | (19   | ) |  |  | (20   | )
|                                     |  |                    |       |                            |  |      |       |   |  |  |       |  
|Total comprehensive income           |  |                    | 3,607 |                            |  |      | 1,242 |   |  |  | 1,302 |  
|                                     |  |                    |       |                            |  |      |       |   |  |  |       |  

F - 72



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##### Table of Contents





|(25) |  | ADDITIONAL U.S. GAAP DISCLOSURES
|---- |  | --------------------------------



|(a) |  | Concentrations of Risk and Certain Significant Estimates
|--- |  | --------------------------------------------------------



|
|
|
|
|



| |  | A new tariff regime set by the Energy Authority that came into effect on
January 1, 2000, regulates the price paid by Non-Eligible Customers for
electricity, while Eligible Customers pay electricity at market price.
Both Eligible and Non-Eligible Customers pay transmission, distribution and
system charges as set by the Energy Authority. Prior to January 1, 2002,
the Energy Authority set different prices to cover transmission and
distribution costs for Eligible and Non-Eligible Customers. As a result of
its decision of October 2001, and effective as of January 1, 2002, the
Energy Authority established so-called transport charges which are equal
for both Eligible and Non-Eligible Customers and are meant to cover
transmission and distribution costs.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Energy Authority has also established a mechanism that will allow the
Company to recover a portion of its stranded costs through the transport
charges paid by all customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



| |  | The new tariff regime administered by the Energy Authority that took effect
on January 1, 2000, significantly lowered the fixed tariff components for
generation, transmission and distribution. In 2002 and 2001, reductions in
fees also resulted from the application of the price cap mechanism to
transmission and distribution charges established by the Energy Authority.
Once the pool market becomes operational, the tariff component for
generation will be periodically adjusted to reflect prices on that market,
while the tariff components for transmission and distribution will continue
to be subject to a system of price caps.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|
|
|
|
|
|
|
|
|

F - 73



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##### Table of Contents



|
|
|



| |  |  | An increase in bilateral contracts between its competitors and final customers;
| | - |  | -------------------------------------------------------------------------------



| |  |  | The introduction of the pool market, on which prices will be determined by competitive bidding;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | Regulations limiting each operators access to international
electricity sources to a maximum percentage of available
interconnection capacity; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



|
|
|



| |  | Basis of Presentation
| |  | ---------------------



| |  | The preparation of financial statements in conformity with Italian GAAP,
along with the reconciliation to U.S. GAAP, requires management to make
certain estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Viesgo acquisition
|--- |  | ------------------



| |  | On January 8, 2002, as part of the program aimed at expansion of its
international operations, the Company acquired 100% of the share capital of
Electra de Viesgo SL, the holding company of the Viesgo Group, the fourth
largest electricity operator in Spain for euro 1,920 million in cash.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The following table summarizes the fair value of the assets acquired and
liabilities assumed, on a U.S. GAAP basis, at the date of acquisition:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------



|                              |                           |  |       |       |   | 
|----------------------------- | ------------------------- |  | ----- | ----- | - | 
|(million of euro)             |                           |  |       |      
|Current assets                |                           |  | 252   |      
|Fixed assets, net             |                           |  | 1,421 |      
|Goodwill                      |                           |  | 757   |      
|Other non-current assets      |                           |  | 123   |      
|                              |                           |  |       |      
|                              | Total assets acquired     |  |       | 2,553 |  
|                              |                           |  |       |      
|Current liabilities           |                           |  | (457  | )    
|Long-term debt                |                           |  | (12   | )    
|Minority interest             |                           |  | (19   | )    
|Other non-current liabilities |                           |  | (145  | )    
|                              |                           |  |       |      
|                              | Total liabilities assumed |  |       | (633  | )
|                              |                           |  |       |      
|Net assets acquired           |                           |  | 1,920 |      
|                              |                           |  |       |      



| |  | The acquisition was treated as a
purchase. Goodwill of euro 757 million was assigned to the Generation and Energy Management segment.
Minority interest relates to certain Viesgo subsidiaries.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | Camuzzi acquisition
|--- |  | -------------------

F-74



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##### Table of Contents





| |  | On May 23, 2002, following the strategy to expand its operations in the
natural gas distribution and sales activities, the Company purchased 98.81%
of the share capital of Camuzzi Gazometri SpA, the second largest
distributor of natural gas in Italy, for euro 1,045 million in cash.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The following table summarizes the fair value of the assets acquired and
liabilities assumed, on a U.S. GAAP basis, at the date of
acquisition:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  |  |  |  | 
| |  |  |  |  |  | 

|(million of euro)             |                           |  |       |       
|----------------------------- | ------------------------- |  | ----- | ------
|Current assets                |                           |  | 479   |       
|Fixed assets, net             |                           |  | 866   |       
|Intangible assets             |                           |  | 632   |       
|Other non-current assets      |                           |  | 98    |       
|                              |                           |  |       |       
|                              | Total assets acquired     |  |       | 2,075 
|                              |                           |  |       |       
|Current liabilities           |                           |  | (658  | )     
|Long-term debt                |                           |  | (228  | )     
|Minority interest             |                           |  | (2    | )     
|Other non-current liabilities |                           |  | (142  | )     
|                              |                           |  |       |       
|                              | Total liabilities assumed |  |       | (1,030
|                              |                           |  |       |       
|Net assets acquired           |                           |  | 1,045 |       
|                              |                           |  |       |       



| |  | The acquisition was treated as a purchase. Of the euro 632 million of
acquired intangible assets, euro 566 million was assigned to
customer relationships and is being amortized over a period of 15 years, deemed to be
appropriate of view of estimated customer turnover, and euro 66 million was
assigned to the licenses for the distribution of gas, amortized over the
duration of the license of 9 years. If the license is not
renewed, the customer relationship continues to exist even though the
license is held by another party.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) |  | Accounting for Deferred Income Taxes
|--- |  | ------------------------------------



|
|
|
|
|
|
|



|         |  | 2000 |       | 2001 |  | 2002               |        | 2002
|-------- |  | ---- | ----- | ---- |  | ------------------ | ------ | ----
|         |  |      |       |      |  |                    |        |     
|         |  |      |       |      |  | (millions of euro) |        |     
|Current  |  |      | 872   |      |  |                    | 1,569  |     
|Deferred |  |      | 548   |      |  |                    | (1,022 | )   
|         |  |      |       |      |  |                    |        |     
|Total    |  |      | 1,420 |      |  |                    | 547    |     
|         |  |      |       |      |  |                    |        |     

F - 75



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##### Table of Contents





| |  | The difference between the statutory and effective tax rate for the years
ended December 31, 2000, 2001 and 2002, is due to the following factors:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                              |  |      |      |      |  |      |       |   |  |  |       |  
|--------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                              |  | 2000 |      | 2001 |  | 2002
|                                                                                              |  |      |      |      |  |     
|Statutory tax rate                                                                            |  |      | 48.0 | %    |  |      | 47.0  | % |  |  | 47.0  | %
|Change in tax rates                                                                           |  |      | (3.6 | )    |  |      |      |   |  |  | (1.7  | )
|Reversal of deferred tax provision following the
release of accelerated depreciation reserves |  |      |     |      |  |      | (15.0 | ) |  |  | (2.7  | )
|Capital
gains subject to a 19% substitute tax                                                 |  |      |     |      |  |      | (20.0 | ) |  |  | (65.4 | )
|Write-down of deferred tax assets and other items relate
to Wind                              |  |      |     |      |  |      |      |   |  |  | 40.1  |  
|Other differences                                                                             |  |      | 1.0  |      |  |      | 1.8   |   |  |  | (2.2  | )
|                                                                                              |  |      |      |      |  |      |       |   |  |  |       |  
|Effective tax rate                                                                            |  |      | 45.4 | %    |  |      | 13.8  | % |  |  | 15.1  | %
|                                                                                              |  |      |      |      |  |      |       |   |  |  |       |  



| |  | The components of the deferred tax assets (liabilities) under U.S. GAAP
as of December 31, 2001 and 2002 are as follows:
| |  | ------------------------------------------------------------------------------------------------------------------------



|                             |                                              |  |                    |        |                            |  |        |        |   |  |        |        |  
|---------------------------- | -------------------------------------------- |  | ------------------ | ------ | -------------------------- |  | ------ | ------ | - |  | ------ | ------ | -
|                             |                                              |  | 2001               |        | 2002                       |  | 2002  
|                             |                                              |  |                    |        |                            |  |       
|                             |                                              |  | (millions of euro) |        | (millions of U.S. dollars)
|Deferred tax assets:         |                                              |  |                    |        |                            |  |        |        |   |  |        |       
|                             | Other post retirement benefits               |  |                    | 377    |                            |  |        | 374    |   |  |        | 392    |  
|                             | Revaluation of property, plant and equipment |  |                    | 303    |                            |  |        | 146    |   |  |        | 153    |  
|                             | Provision for contingent liabilities         |  |                    | 643    |                            |  |        | 896    |   |  |        | 939    |  
|                             | Allowance for doubtful accounts              |  |                    | 63     |                            |  |        | 77     |   |  |        | 81     |  
|                             | Tax loss carryforwards                       |  |                    | 655    |                            |  |        | 696    |   |  |        | 730    |  
|                             | Customers fees connection                   |  |                    |       |                            |  |        | 192    |   |  |        | 201    |  
|                             | Goodwill write-down and amortization         |  |                    |       |                            |  |        | 105    |   |  |        | 110    |  
|                             | Other                                        |  |                    | 37     |                            |  |        | 145    |   |  |        | 152    |  
|                             |                                              |  |                    |        |                            |  |        |        |   |  |        |        |  
|Subtotal                     |                                              |  | 2,078              |        |                            |  | 2,631  |        |   |  | 2,758  |       
|                             |                                              |  |                    |        |                            |  |        |        |   |  |        |        |  
|Deferred tax liabilities:    |                                              |  |                    |        |                            |  |        |        |   |  |        |       
|                             | Accelerated depreciation of utility plant    |  |                    | (2,067 | )                          |  |        | (2,077 | ) |  |        | (2,178 | )
|                             | Capitalization of interest on utility plant  |  |                    | (545   | )                          |  |        | (516   | ) |  |        | (541   | )
|                             | Equity reserves                              |  |                    | (106   | )                          |  |        | (133   | ) |  |        | (139   | )
|                             | Other                                        |  |                    | (128   | )                          |  |        | (501   | ) |  |        | (525   | )
|                             |                                              |  |                    |        |                            |  |        |        |   |  |        |        |  
|Subtotal                     |                                              |  | (2,846             |        |                            |  | (3,227 | )      |   |  | (3,383 | )     
|                             |                                              |  |                    |        |                            |  |        |        |   |  |        |        |  
|Net deferred tax liabilities |                                              |  | (768               | )      |                            |  | (596   | )      |   |  | (625   | )     
|                             |                                              |  |                    |        |                            |  |        |        |   |  |        |        |  

F - 76



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##### Table of Contents





| |  | Deferred tax assets on tax loss carryforwards as of December 31, 2002
relate to WIND for euro 651 million and to Enelpower for euro 45 million
and are stated net of a valuation allowance of euro 269 million, all of
which related to WIND. The balance as of December 31, 2001 all related to
WIND and no valuation allowance was recognized.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                                                                      
| | ---------------------------------------------------------------------
| | The tax loss carryforwards as of December 31, 2002 expire as follows:



| |  |  | 2005: euro 136 million;
| | - |  | -----------------------



| |  |  | 2006: euro 509 million;
| | - |  | -----------------------



| |  |  | 2007: euro 940 million;
| | - |  | -----------------------



| |  |  | no limits: euro 527 million.
| | - |  | ----------------------------



| |  | There are no deferred tax liabilities not recognized due to the APB 23
exceptions.
| |  | ----------------------------------------------------------------------------------



| |  | Tax has been allocated to each item in Other Comprehensive Income as follows:
| |  | -----------------------------------------------------------------------------



| |  |  | Pensions: euro 193 million;
| | - |  | ---------------------------



| |  |  | Derivatives : euro 94 million.
| | - |  | ------------------------------



| |  | There is no difference between Italian GAAP and U.S. GAAP in the
classification of deferred tax assets and liabilities.
| |  | -----------------------------------------------------------------------------------------------------------------------



|(e) |  | Segment Information
|--- |  | -------------------



| |  | In 2002 the Company reorganized its operations into six business divisions
in order to increase the focus of its activities on the market and to
better control costs and enhance synergies among its various subsidiaries.
The new divisions are: Generation and Energy Management; Sales,
Infrastructure and Networks; Transmission; Telecommunications; Services and
Other Activities and Corporate.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Generation and Energy Management Division is responsible for operations
related to the production of electricity and the procurement of fuel for
electricity generated. The key subsidiaries in this division include Enel
Produzione S.p.A., for energy generation; Enel Green Power S.p.A.
(previously called E.R.G.A. S.p.A.), for generation of energy from
renewable sources; Elettroambiente S.p.A., which specializes in
waste-to-energy generation; Viesgo Generaciòn S.L., a Spanish power
generation company; CHI Energy, Inc. and EGI, which generate power from
renewable resources in the Americas; and Enel Trade S.p.A. (previously
called Enel F.T.L. S.p.A.), which purchases fuel for all of the Groups
generating operations and is active in the fuel trading and logistics
sector.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Sales, Infrastructure and Networks Division comprises two business
units, which operate as independent units under the umbrella of Enel
Distribuzione S.p.A., the divisions lead company. The Infrastructure and
Networks business unit operates mainly through Enel Distribuzione S.p.A.,
which distributes electricity in Italy; Electra de Viesgo Distribuciòn
S.L., a Spanish company which primarily distributes and sells electricity
on the regulated market in Spain; and three gas distribution companies in
Italy. The Sales business unit sells electricity and gas and provides
electricity-related services. The key subsidiaries in this business unit
include Enel Distribuzione S.p.A., which sells electricity on the regulated
market in Italy; Enel Energia S.p.A. (previously called Enel Trade S.p.A.),
which sells electricity on the free market in Italy; Enel Gas S.p.A., which
resells natural gas to end users in Italy; Enel So.l.e. S.p.A., which
offers public and art lighting services; and Enel.si S.p.A. which offers
electricity systems-related services and beyond the meter products and
services, such as consulting and sale of electrical equipment.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 77



---



##### Table of Contents





| |  | Terna S.p.A., a wholly owned subsidiary, constituting the Transmission
Division, owns approximately 94% of Italys national electricity grid.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Telecommunications Divisions operations are carried out by WIND, and
the Services and Other Activities Division includes other non-core business
operations, such as, among others, Enel Real Estate S.p.A. (previously
called SEI S.p.A.), which provides commercial real estate management
services; Enelpower S.p.A., which provides power-related engineering and
construction services; and Enel.it S.p.A., the group-wide information
technology unit. Individually, none of these other activities met the quantitative
thresholds for determining reportable segments in the periods covered by
the financial statements included in this annual report and therefore
have been grouped for purposes of segment reporting.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Enel S.p.A. constitutes the Corporate Division and, as the Parent Company,
defines the strategic objectives for the Enel Group and coordinates the
activities of all of these divisions. In addition, Enel manages finance
operations and insurance risk coverage for all Group companies (in the case
of finance operations, other than WIND) and provides assistance and
guidelines on organizational, industrial relations, accounting,
administrative, tax and legal issues.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The accounting policies of the
segments are the same as those described as significant accounting policies (Note 2).
No geographic information has been presented since foreign operations represent
approximately 5% of total revenues for the year ended December 31, 2002
and approximately 6% of total assets as of December 31, 2002.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Considering the aforementioned segment redefinition which occurred in 2002,
the segment information for prior years has been restated for comparative
purposes.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 78



---



##### Table of Contents



| |  | Information about the Companys segments, prepared in accordance with
Italian GAAP, for the years ended December 31, 2000, 2001 and
2002 is as
follows:
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------





|                              |  |                            |        |                 |  |              |        |          |  |           |       |            |  |                    |        |              |  |              |       |  |  |  |        |   |  |  |         |   |  |  |        | 
|----------------------------- |  | -------------------------- | ------ | --------------- |  | ------------ | ------ | -------- |  | --------- | ----- | ---------- |  | ------------------ | ------ | ------------ |  | ------------ | ----- |  |  |  | ------ | - |  |  | ------- | - |  |  | ------ | 
|                              |  | Generation                 |        | Sales,          |  |              |        |          |  |           |       |            |  |                    |        |              |  | Services and |       |  |  |  |        |   |  | 
|                              |  | and Energy                 |        | Infrastructures |  |              |        |          |  |           |       |            |  |                    |        |              |  | Other        |       |  |  |  |        |   |  | 
|                              |  | Management                 |        | and Networks    |  | Transmission |        | Telecom. |  | Corporate |       | activities |  | Eliminations       |        | Consolidated
|                              |  |                            |        |                 |  |              |        |          |  |           |       |            |  | (millions of euro) |        |              |  |              |       |  |  |  |        |   |  | 
|2000                          |  |                            |        |                 |  |              |        |          |  |           |       |            |  |                    |        |              |  |              |       |  |  |  |        |   |  |  |         |   |  |  |        | 
|Revenues                      |  |                            | 11,623 |                 |  |              | 14,070 |          |  |           | 771   |            |  |                    |       |              |  |              | 9,800 |  |  |  | 1,654  |   |  |  | (12,809 | ) |  |  | 25,109 | 
|Operating Income              |  |                            | 2,379  |                 |  |              | 1,509  |          |  |           | 237   |            |  |                    |       |              |  |              | 488   |  |  |  | 197    |   |  |  | (57     | ) |  |  | 4,753  | 
|Depreciation
and Amortization |  |                            | 1,409  |                 |  |              | 1,631  |          |  |           | 229   |            |  |                    |       |              |  |              | 7     |  |  |  | 183    |   |  |  |        |   |  |  | 3,459  | 
|Capital Expenditures (1)      |  |                            | 571    |                 |  |              | 1,358  |          |  |           | 190   |            |  |                    |       |              |  |              | 1     |  |  |  | 297    |   |  |  |        |   |  |  | 2,417  | 
|Identifiable Assets           |  |                            | 23,511 |                 |  |              | 17,539 |          |  |           | 4,138 |            |  |                    |       |              |  |              | 6,402 |  |  |  | 10,150 |   |  |  | (12,106 | ) |  |  | 49,634 | 
|2001                          |  |                            |        |                 |  |              |        |          |  |           |       |            |  |                    |        |              |  |              |       |  |  |  |        |   |  |  |         |   |  |  |        | 
|Revenues                      |  |                            | 12,631 |                 |  |              | 22,206 |          |  |           | 793   |            |  |                    | 3,176  |              |  |              | 3,980 |  |  |  | 2,321  |   |  |  | (16,326 | ) |  |  | 28,781 | 
|Operating Income              |  |                            | 2,570  |                 |  |              | 1,526  |          |  |           | 229   |            |  |                    | (1,237 | )            |  |              | 336   |  |  |  | 128    |   |  |  | (74     | ) |  |  | 3,478  | 
|Depreciation
and Amortization |  |                            | 1,363  |                 |  |              | 1,580  |          |  |           | 240   |            |  |                    | 1,068  |              |  |              | 2     |  |  |  | 206    |   |  |  |        |   |  |  | 4,459  | 
|Capital Expenditures (1)      |  |                            | 828    |                 |  |              | 1,366  |          |  |           | 173   |            |  |                    | 1,185  |              |  |              |      |  |  |  | 531    |   |  |  |        |   |  |  | 4,083  | 
|Identifiable Assets           |  |                            | 21,686 |                 |  |              | 19,254 |          |  |           | 4,537 |            |  |                    | 16,899 |              |  |              | 6,093 |  |  |  | 7,636  |   |  |  | (12,915 | ) |  |  | 63,190 | 
|2002                          |  |                            |        |                 |  |              |        |          |  |           |       |            |  |                    |        |              |  |              |       |  |  |  |        |   |  |  |         |   |  |  |        | 
|Revenues                      |  |                            | 11,777 |                 |  |              | 20,586 |          |  |           | 828   |            |  |                    | 3,921  |              |  |              | 1,973 |  |  |  | 2,874  |   |  |  | (11;982 | ) |  |  | 29,977 | 
|Operating Income              |  |                            | 1,468  |                 |  |              | 2,100  |          |  |           | 271   |            |  |                    | (1,019 | )            |  |              | 164   |  |  |  | (50    | ) |  |  | (54     | ) |  |  | 2,880  | 
|Depreciation
and Amortization |  |                            | 1,315  |                 |  |              | 1,217  |          |  |           | 247   |            |  |                    | 1,496  |              |  |              | 4     |  |  |  | 198    |   |  |  |        |   |  |  | 4,477  | 
|Capital Expenditures (1)      |  |                            | 1,032  |                 |  |              | 1,855  |          |  |           | 178   |            |  |                    | 1,550  |              |  |              |      |  |  |  | 494    |   |  |  |        |   |  |  | 5,109  | 
|Identifiable Assets           |  |                            | 23,100 |                 |  |              | 21,306 |          |  |           | 4,635 |            |  |                    | 15,678 |              |  |              | 7,505 |  |  |  | 8,839  |   |  |  | (14,044 | ) |  |  | 67,019 | 
|                             
|                              |  | (millions of U.S. Dollars)
|2002                          |  |                            |        |                 |  |              |        |          |  |           |       |            |  |                    |        |              |  |              |       |  |  |  |        |   |  |  |         |   |  |  |        | 
|Revenues                      |  |                            | 12,348 |                 |  |              | 21,584 |          |  |           | 868   |            |  |                    | 4,111  |              |  |              | 2,069 |  |  |  | 3,013  |   |  |  | (12,563 | ) |  |  | 31,430 | 
|Operating Income              |  |                            | 1,539  |                 |  |              | 2,202  |          |  |           | 284   |            |  |                    | (1,086 | )            |  |              | 172   |  |  |  | (52    | ) |  |  | (57     | ) |  |  | 3,020  | 
|Depreciation
and Amortization |  |                            | 1,379  |                 |  |              | 1,276  |          |  |           | 259   |            |  |                    | 1,568  |              |  |              | 4     |  |  |  | 208    |   |  |  |        |   |  |  | 4,694  | 
|Capital Expenditures (1)      |  |                            | 1,082  |                 |  |              | 1,945  |          |  |           | 187   |            |  |                    | 1,625  |              |  |              |      |  |  |  | 518    |   |  |  |        |   |  |  | 5,357  | 
|Identifiable Assets           |  |                            | 24,220 |                 |  |              | 22,339 |          |  |           | 4,860 |            |  |                    | 16,438 |              |  |              | 7,869 |  |  |  | 9,268  |   |  |  | (14,725 | ) |  |  | 70,269 | 



|(1) Tangible assets.
|--------------------



|The Companys segment information, prepared in accordance with U.S. GAAP,
for the years ended December 31, 2000, 2001 and 2002 presented below has
been restated to reflect the differences between the Companys accounting
policies under Italian GAAP and U.S. GAAP.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 79



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##### Table of Contents





|                              |      |      |        |  |                            |  |                 |  |              |  |          |  |           |  |            |   |                    |  |              |  |              |  |       |   |  |  |         |   |  |  |        |  |  |  | 
|----------------------------- | ---- | ---- | ------ |  | -------------------------- |  | --------------- |  | ------------ |  | -------- |  | --------- |  | ---------- | - | ------------------ |  | ------------ |  | ------------ |  | ----- | - |  |  | ------- | - |  |  | ------ |  |  |  | 
|                              |      |      |        |  | Generation                 |  | Sales,          |  |              |  |          |  |           |  |            |   |                    |  |              |  | Services and |  |       |   |  |  |         |   | 
|                              |      |      |        |  | and Energy                 |  | Infrastructures |  |              |  |          |  |           |  |            |   |                    |  |              |  | Other        |  |       |   |  |  |         |   | 
|                              |      |      |        |  | Management                 |  | and Networks    |  | Transmission |  | Telecom. |  | Corporate |  | activities |   | Eliminations       |  | Consolidated
|                              |      |      |        |  |                            |  |                 |  |              |  |          |  |           |  |            |   | (millions of euro) |  |              |  |              |  |       |   |  |  |         |   | 
|                              |      |      | 2000   |  |                            |  |                 |  |              |  |          |  |           |  |            |   |                    |  |              |  |              |  |       |   |  |  |         |   |  |  |        |  |  |  | 
|Revenues                      |      |      | 11,726 |  |                            |  | 14,097          |  |              |  | 772      |  |           |  | 724        |   |                    |  | 10,049       |  |              |  | 1,873 |   |  |  | (12,809 | ) |  |  | 26,432 | 
|Operating Income              |      |      | 2,273  |  |                            |  | 933             |  |              |  | 213      |  |           |  | (320       | ) |                    |  | 659          |  |              |  | 364   |   |  |  | (57     | ) |  |  | 4,065  | 
|Depreciation and Amortization |      |      | 1,376  |  |                            |  | 1,639           |  |              |  | 212      |  |           |  | 107        |   |                    |  | 22           |  |              |  | 129   |   |  |  |        |   |  |  | 3,485  | 
|Capital Expenditures (1)      |      |      | 609    |  |                            |  | 1,358           |  |              |  | 190      |  |           |  |           |   |                    |  | 1            |  |              |  | 297   |   |  |  |        |   |  |  | 2,455  | 
|Identifiable Assets           |      |      | 24,381 |  |                            |  | 18,846          |  |              |  | 4,118    |  |           |  | 4,781      |   |                    |  | 6,369        |  |              |  | 9,241 |   |  |  | (13,201 | ) |  |  | 54,535 | 
|                              | 2001 |      |        |  |                            |  |                 |  |              |  |          |  |           |  |            |   |                    |  |              |  |              |  |       |   |  |  |         |   |  |  |        |  | 
|Revenues                      |      |      | 12,631 |  |                            |  | 22,206          |  |              |  | 793      |  |           |  | 3,176      |   |                    |  | 3,980        |  |              |  | 2,321 |   |  |  | (16,326 | ) |  |  | 28,781 | 
|Operating Income              |      |      | 2,873  |  |                            |  | 1,233           |  |              |  | 212      |  |           |  | (1,293     | ) |                    |  | 330          |  |              |  | 360   |   |  |  | (74     | ) |  |  | 3,641  | 
|Depreciation and Amortization |      |      | 1,312  |  |                            |  | 1,746           |  |              |  | 220      |  |           |  | 1,034      |   |                    |  | 2            |  |              |  | 164   |   |  |  |        |   |  |  | 4,478  | 
|Capital Expenditures (1)      |      |      | 869    |  |                            |  | 1,366           |  |              |  | 173      |  |           |  | 1,185      |   |                    |  |             |  |              |  | 531   |   |  |  |        |   |  |  | 4,124  | 
|Identifiable Assets           |      |      | 22,403 |  |                            |  | 20,225          |  |              |  | 4,490    |  |           |  | 16,658     |   |                    |  | 6,117        |  |              |  | 6,821 |   |  |  | (12,915 | ) |  |  | 63,799 | 
|                              | 2002 |      |        |  |                            |  |                 |  |              |  |          |  |           |  |            |   |                    |  |              |  |              |  |       |   |  |  |         |   |  |  |        |  | 
|Revenues                      |      |      | 11,811 |  |                            |  | 21,045          |  |              |  | 828      |  |           |  | 3,967      |   |                    |  | 1,973        |  |              |  | 2,962 |   |  |  | (11,982 | ) |  |  | 30,604 | 
|Operating Income              |      |      | 1,166  |  |                            |  | 1,452           |  |              |  | 234      |  |           |  | (2,839     | ) |                    |  | 158          |  |              |  | (113  | ) |  |  | (54     | ) |  |  | 4      | 
|Depreciation and Amortization |      |      | 1,254  |  |                            |  | 1,516           |  |              |  | 230      |  |           |  | 930        |   |                    |  | 1            |  |              |  | 138   |   |  |  |        |   |  |  | 4,069  | 
|Capital Expenditures (1)      |      |      | 1,067  |  |                            |  | 1,855           |  |              |  | 178      |  |           |  | 1,550      |   |                    |  |             |  |              |  | 494   |   |  |  |        |   |  |  | 5,144  | 
|Identifiable Assets           |      |      | 23,883 |  |                            |  | 21,102          |  |              |  | 4,567    |  |           |  | 15,286     |   |                    |  | 7,616        |  |              |  | 8,013 |   |  |  | (14,044 | ) |  |  | 66,423 | 
|                             
|                              |      |      |        |  | (millions of U.S. Dollars)
|                              |      | 2002 |        |  |                            |  |                 |  |              |  |          |  |           |  |            |   |                    |  |              |  |              |  |       |   |  |  |         |   |  |  |        |  |  | 
|Revenues                      |      |      | 12,383 |  |                            |  | 22,066          |  |              |  | 868      |  |           |  | 4,159      |   |                    |  | 2,069        |  |              |  | 3,106 |   |  |  | (12,563 | ) |  |  | 32,088 | 
|Operating Income              |      |      | 1,222  |  |                            |  | 1,523           |  |              |  | 245      |  |           |  | (2,975     | ) |                    |  | 166          |  |              |  | (119  | ) |  |  | (57     | ) |  |  | 5      | 
|Depreciation and Amortization |      |      | 1,315  |  |                            |  | 1,590           |  |              |  | 241      |  |           |  | 975        |   |                    |  | 1            |  |              |  | 145   |   |  |  |        |   |  |  | 4,267  | 
|Capital Expenditures (1)      |      |      | 1,119  |  |                            |  | 1,945           |  |              |  | 187      |  |           |  | 1,625      |   |                    |  |             |  |              |  | 518   |   |  |  |        |   |  |  | 5,394  | 
|Identifiable Assets           |      |      | 25,041 |  |                            |  | 22,125          |  |              |  | 4,789    |  |           |  | 16,028     |   |                    |  | 7,985        |  |              |  | 8,402 |   |  |  | (14,725 | ) |  |  | 69,645 | 





(1)  Tangible assets.






|(f) |  | Earnings per Share
|--- |  | ------------------





| |  | In accordance with SFAS No. 128, Earnings per Share, basic earnings per
share is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding. The number of
shares included in the computation of diluted earnings per share is
increased to include the effect, if dilutive, of any potentially issuable
common shares. Potentially issuable shares include options, warrants, and
convertible securities. For the years ended December 31, 2000, 2001 and
2002, the Company had no dilutive potential common shares, therefore basic
and diluted earnings per share were equal.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |  | The computation of basic and diluted earnings per share for the years ended
December 31, 2000, 2001 and 2002, prepared in accordance with U.S. GAAP,
are as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



|
|

|                                                  |  |      |       |      |  |                     |       |      |  |  |       |           |  |                   |       | 
|------------------------------------------------- |  | ---- | ----- | ---- |  | ------------------- | ----- | ---- |  |  | ----- | --------- |  | ----------------- | ----- | 
|Basic and Diluted EPS                             |  | 2000 |       | 2001 |  | 2002                |       | 2002
|                                                  |  |      |       |      |  |                     |       |     
|                                                  |  |      |       |      |  |                     |       |      |  |  |       |           |  | (millions of U.S.
|                                                  |  |      |       |      |  | (millions of euro*) |       |      |  |  |       | dollars*)
|Net income available
to common
shareholders       |  |      | 1,841 |      |  |                     | 3,688 |      |  |  | 1,399 |           |  |                   | 1,467 | 
|Weighted average
shares outstanding
(in millions) |  |      | 6,063 |      |  |                     | 6,063 |      |  |  | 6,063 |           |  |                   | 6,063 | 
|                                                  |  |      |       |      |  |                     |       |      |  |  |       |           |  |                   |       | 
|Earnings per share
(basic and
diluted)            |  |      | 0.38  |      |  |                     | 0.30  |      |  |  | 0.23  |           |  |                   | 0.24  | 
|                                                  |  |      |       |      |  |                     |       |      |  |  |       |           |  |                   |       | 



(*)  Except per-share data which
is in Euro and U.S. dollars

F - 80



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|(g) |  | Fair Value of Financial Instruments
|--- |  | -----------------------------------
|   

| |  | As required by SFAS No. 107,  Disclosures about Fair Value of Financial
Instruments, the Company has estimated the fair values of its financial
instruments held.                                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the normal course of its business, the Company utilizes various types of
financial instruments. These instruments include recorded assets and
liabilities, as well as items that principally involve off-balance sheet
risk. Information about the fair value of the Companys financial
instruments is presented below.



| |  |  | Cash and cash equivalents: the carrying values of cash and cash
equivalents approximate their fair values because of their short
maturities.                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Short-term debt: the carrying value of short-term debt
approximates fair value because of the short period of time between
the origination and maturity of the borrowings.                 
|
| |  |  | Bonds payable-listed: the fair value of bonds payable-listed is
based upon period-end market prices.                                                                                       
|
| |  |  | Other bonds and long-term debt (including current maturities):
the fair values of other bonds and long-term debt (including current
maturities) are based on discounted cash flow analyses.

|                                                             |  |                    |        |       |  |                    |        |       |  |  |        |  |  |  |        | 
|------------------------------------------------------------ |  | ------------------ | ------ | ----- |  | ------------------ | ------ | ----- |  |  | ------ |  |  |  | ------ | 
|                                                             |  | As of December 31,
|                                                             |  |                   
|                                                             |  | 2001               |        | 2002 
|                                                             |  |                    |        |      
|                                                             |  | Carrying           |        | Fair  |  | Carrying           |        | Fair 
|                                                             |  | Amount             |        | Value |  | Amount             |        | Value
|                                                             |  |                    |        |       |  |                    |        |      
|                                                             |  |                    |        |       |  | (millions of euro) |        |       |  | 
|Bonds payable-listed                                         |  |                    | 5,327  |       |  |                    | 5,356  |       |  |  | 5,527  |  |  |  | 5,691  | 
|Other bonds and long-term debt, including
Current maturities |  |                    | 11,312 |       |  |                    | 11,328 |       |  |  | 12,765 |  |  |  | 12,606 | 



| |  |  | Derivative financial instruments: the fair value of derivatives
generally reflects the estimated amounts that the Company would pay or
receive to terminate the contracts at the reporting date, thereby
taking into account the current unrealized gains or losses of open
contracts. Appropriate pricing models and current market input data
(such as volatility, interest rate curves and foreign exchange rates)
have been used to estimate the fair value of the Companys
derivatives.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                |  |                    |      |      |  |  |      |  
|------------------------------- |  | ------------------ | ---- | ---- |  |  | ---- | -
|                                |  | As of December, 31
|                                |  |                   
|                                |  | 2001               |      | 2002
|                                |  |                    |      |     
|                                |  | Fair Value        
|                                |  |                   
|                                |  | (millions of euro)
|Interest rate swaps             |  |                    | (130 | )    |  |  | (342 | )
|Interest rate collars           |  |                    | (6   | )    |  |  | (14  | )
|Swaptions                       |  |                    |     |      |  |  | (2   | )
|                                |  |                    |      |      |  |  |      |  
|Total interest rate derivatives |  |                    | (136 | )    |  |  | (358 | )
|Forward
foreign exchange        |  |                    | 2    |      |  |  |     |  
|Forward Commodity risk hedging  |  |                    | 17   |      |  |  | (32  | )
|                                |  |                    |      |      |  |  |      |  
|Total                           |  |                    | (117 | )    |  |  | (390 | )
|                                |  |                    |      |      |  |  |      |  



F - 81





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| |  | At December 31, 2002, the Company had euro/dollar forward exchange
contracts outstanding with an aggregate notional amount of euro 2,543
million, of which euro 1,618 million focused on the hedging of foreign
exchange risk arising from the time lag related to the fuel cost
reimbursement mechanism. At December 31, 2002, the Company also had
euro/dollar forward exchange contracts outstanding with an aggregate
notional amount of euro 1,552 million, focused on the hedging of foreign
exchange risk arising from debt issued in currencies other than euro under
the Commercial Paper Program, and on the hedging of specific cash flows.
Any changes in fair value of these contracts, deriving from a possible
appreciation or depreciation of the euro against the dollar, would be fully
offset by a corresponding change in the amount of the underlying
transactions.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |  | Interest rate derivatives used by the Company mainly consist of interest
rate swaps, forward rate agreements, interest rate collars and swaptions,
in order to lock in a fixed interest rate to balance the fix/floating ratio
of its long-term debt.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |  | The Companys derivative financial instruments were recorded in the Italian
GAAP financial statements at carrying amounts of euro 36 million and euro
11 million at December 31, 2002 and 2001, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|(h) |  | Effects of Regulation
|--- |  | ---------------------





| |  | As discussed in Note 3, the Company is subject to the regulatory
control of the Energy Authority with additional oversight provided by
numerous laws, decrees and codes. The current regulatory tariff
structure provides the Company with recovery of certain levels of cost
through a price cap framework, and not necessarily its specific cost
of providing service. Accordingly, SFAS No. 71,  Accounting for the
Effects of Certain Types of Regulation, which relates to an entity
whose rates are regulated on an actual cost basis, is not currently
applicable to these consolidated financial statements.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 82



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|(i) |  | Utility Plant
|--- |  | -------------





| |  | The Companys net utility plant under U.S. GAAP consisted of the following:
| |  | ---------------------------------------------------------------------------



|
|

|                          |       |                                          |        |                    |        |                             |        |        |        |  |        |        |        | 
|------------------------- | ----- | ---------------------------------------- | ------ | ------------------ | ------ | --------------------------- | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                          |       |                                          |        | 2001               |        | 2002                        |        | 2002  
|                          |       |                                          |        |                    |        |                             |        |       
|                          |       |                                          |        | (millions of euro) |        | (millions
of
U.S. dollars*)
|Utility plant, gross:     |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|Generating Plant:         |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|                          |       | Hydroelectric                            |        |                    | 6,530  |                             |        |        | 6,453  |  |        |        | 6,766  | 
|                          |       | Thermal                                  |        |                    | 18,015 |                             |        |        | 16,740 |  |        |        | 17,552 | 
|                          |       | Geothermal and other renewable resources |        |                    | 1,509  |                             |        |        | 1,778  |  |        |        | 1,864  | 
|Transmission line         |       |                                          | 5,370  |                    |        |                             | 5,668  |        |        |  | 5,943  |       
|Distribution
Network      |       |                                          | 29,700 |                    |        |                             | 33,769 |        |        |  | 35,407 |       
|Telecommunication         |       |                                          | 3,334  |                    |        |                             | 4,484  |        |        |  | 4,701  |       
|Land and Buildings        |       |                                          | 1,613  |                    |        |                             | 1,968  |        |        |  | 2,064  |       
|Other                     |       |                                          | 2,181  |                    |        |                             | 2,349  |        |        |  | 2,463  |       
|Construction in progress  |       |                                          | 2,256  |                    |        |                             | 2,442  |        |        |  | 2,560  |       
|                          |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|                          | Total |                                          |        | 70,508             |        |                             |        | 75,651 |        |  |        | 79,320 |       
|                          |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|Accumulated depreciation: |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|Generating Plant:         |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|                          |       | Hydroelectric                            |        |                    | 2,123  |                             |        |        | 2,208  |  |        |        | 2,315  | 
|                          |       | Thermal                                  |        |                    | 8,063  |                             |        |        | 7,763  |  |        |        | 8,140  | 
|                          |       | Geothermal and other renewable resources |        |                    | 732    |                             |        |        | 763    |  |        |        | 800    | 
|Transmission Line         |       |                                          | 2,123  |                    |        |                             | 2,340  |        |        |  | 2,453  |       
|Distribution Network      |       |                                          | 19,131 |                    |        |                             | 21,052 |        |        |  | 22,072 |       
|Telecommunication         |       |                                          | 847    |                    |        |                             | 1,236  |        |        |  | 1,296  |       
|Land and Buildings        |       |                                          | 324    |                    |        |                             | 523    |        |        |  | 549    |       
|Other                     |       |                                          | 1,130  |                    |        |                             | 1,449  |        |        |  | 1,520  |       
|Construction in progress  |       |                                          |       |                    |        |                             |       |        |        |  |       |       
|                          |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|                          | Total |                                          |        | 34,473             |        |                             |        | 37,334 |        |  |        | 39,145 |       
|                          |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|Utility plant, net:       |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|Generating Plant:         |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|                          |       | Hydroelectric                            |        |                    | 4,407  |                             |        |        | 4,245  |  |        |        | 4,451  | 
|                          |       | Thermal                                  |        |                    | 9,952  |                             |        |        | 8,977  |  |        |        | 9,412  | 
|                          |       | Geothermal and other renewable resources |        |                    | 777    |                             |        |        | 1,015  |  |        |        | 1,064  | 
|Transmission Line         |       |                                          | 3,247  |                    |        |                             | 3,328  |        |        |  | 3,490  |       
|Distribution Network      |       |                                          | 10,569 |                    |        |                             | 12,717 |        |        |  | 13,335 |       
|Telecommunication         |       |                                          | 2,487  |                    |        |                             | 3,248  |        |        |  | 3,405  |       
|Land and Buildings        |       |                                          | 1,289  |                    |        |                             | 1,445  |        |        |  | 1,515  |       
|Other                     |       |                                          | 1,051  |                    |        |                             | 900    |        |        |  | 943    |       
|Construction in progress  |       |                                          | 2,256  |                    |        |                             | 2,442  |        |        |  | 2,560  |       
|                          |       |                                          |        |                    |        |                             |        |        |        |  |        |       
|                          | Total |                                          |        | 36,035             |        |                             |        | 38,317 |        |  |        | 40,175 |       
|                          |       |                                          |        |                    |        |                             |        |        |        |  |        |       



F - 83



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##### Table of Contents





|   
|---
|(j)
|   



| |  | The Company accounts for all stock-based compensation issued under the
provision and related interpretation of Accounting Principles Board Opinion
(APB) No. 25, Accounting for Stock Issued to Employees. In accordance
with SFAS No. 123, Accounting for Stock-Based Compensation, the Company
intends to continue to apply APB No. 25 for purposes of determining net
income and to present the pro forma disclosures required by SFAS No. 123 as
amended by SFAS No. 148 Accounting for Stock-Based
Compensation 
Transition and Disclosure an amendment of FASB Statement No. 123 .
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
| |  | In 2000, following the authorization obtained in an ENEL Shareholders
meeting, the Parent Company launched the Stock Option Plan, granting
certain of its executives 9,845,000 options (Tranche 2000). Options under
this plan vest if certain target prices or other criteria are met. Since
these targets were not achieved, a portion of the options were
forfeited. The status of the stock options granted under the Stock Option
Plan is as follows:                                                                                                                                    
|

|                                 |           |  |           |            |             |  |      |      | 
|-------------------------------- | --------- |  | --------- | ---------- | ----------- |  | ---- | ---- | 
|                                 |           |  | Number of |            | Average    
|                                 |           |  | Options   |            | Grant Price
|                                 |           |  |           |            |            
|                                 |           |  |           |            | (euro)     
|Outstanding at January 1, 2000   |           |  |          |            |             |  |     |     
|                                 | Granted   |  |           | 9,845,000  |             |  |      | 8.60 | 
|                                 | Exercised |  |           |           |             |  |      |     | 
|                                 | Forfeited |  |           | (4,331,800 | )           |  |      | 8.60 | 
|                                 |           |  |           |            |             |  |      |     
|Outstanding at December 31, 2000 |           |  | 5,513,200 |            |             |  | 8.60 |     
|                                 |           |  |           |            |             |  |      |     



| |  | The average fair value of options granted during 2000 was approximately
euro 0.47 per share. The fair value of each option grant is estimated
using a standard Black-Scholes option pricing model with the following
weighted-average assumption used for estimating fair value:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           |  |              |           | 
|-------------------------- |  | ------------ | --------- | 
|                           |  | Tranche 2000
|                           |  |             
|Future dividends per share |  |              | euro
0.26 | 
|Risk-free interest rate    |  |              | 4.77%     | 
|Expected life              |  |              | 2.5 years | 
|Expected volatility        |  |              | 22%       | 



|
|
|
|

F - 84



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##### Table of Contents



|                                 |           |  |            |             |             |  |      |      | 
|-------------------------------- | --------- |  | ---------- | ----------- | ----------- |  | ---- | ---- | 
|                                 |           |  | Number of  |             | Average    
|                                 |           |  | Options    |             | Grant Price
|                                 |           |  |            |             |            
|                                 |           |  |            |             | (euro)     
|Outstanding at January 1, 2001   |           |  | 5,513,200  |             |             |  | 8.60 |     
|                                 | Granted   |  |            | 34,274,050  |             |  |      | 7.27 | 
|                                 | Exercised |  |            |            |             |  |      |     | 
|                                 | Forfeited |  |            | (15,090,582 | )           |  |      | 7.27 | 
|                                 |           |  |            |             |             |  |      |     
|Outstanding at December 31, 2001 |           |  | 24,706,668 |             |             |  | 7.57 |     
|                                 |           |  |            |             |             |  |      |     



F - 85



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##### Table of Contents





|
|
|
|

|                           |  |              |      |  
|-------------------------- |  | ------------ | ---- | -
|                           |  | Tranche 2001
|                           |  |             
|Future dividends per share |  | euro
0.36   
|Risk-free interest rate    |  |              | 4.05 | %
|Expected life              |  | 2.5years    
|Expected volatility        |  |              | 27   | %



|
|
|
|
|
|
|
|
|
|
|
|
|
|
|

|                                 |           |  |            |            |             |  |      |      | 
|-------------------------------- | --------- |  | ---------- | ---------- | ----------- |  | ---- | ---- | 
|                                 |           |  | Number of  |            | Average    
|                                 |           |  | Options    |            | Grant Price
|                                 |           |  |            |            |            
|                                 |           |  |            |            | (euro)     
|Outstanding at January 1, 2002   |           |  | 24,706,668 |            |             |  | 7.57 |     
|                                 | Granted * |  |            | 41,748,500 |             |  |      | 6.43 | 
|                                 | Exercised |  |            |           |             |  |      |     | 
|                                 | Forfeited |  |            |           |             |  |      |     | 
|Outstanding at December 31, 2002 |           |  | 66,455,168 |            |             |  | 6.85 |     
|                                 |           |  |            |            |             |  |      |     

* 2,503,500 granted to
Enels Chief Executive Officer at euro 6.480.



| |  | The average fair value of options granted during 2002 was approximately
euro 0.17 per share. The fair value of each option grant is estimated
using a standard Black-Scholes option-pricing model with the following
weighted-average assumption used for estimating fair value:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                           |  | Tranche 2002
|-------------------------- |  | ------------
|                           |  |             
|Future dividends per share |  | euro 0.28   

|Risk-free interest rate |  |           | 2.88 | %
|----------------------- |  | --------- | ---- | -
|Expected life           |  | 2.0
years
|Expected volatility     |  |           | 28   | %

F - 86



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##### Table of Contents





|
|
|
|



|                    |  |                     |      |           |  |          |            |          |  |          |     |          |  |       |      |        |  |        |            |  |  |  |      |  |  |  |      | 
|------------------- |  | ------------------- | ---- | --------- |  | -------- | ---------- | -------- |  | -------- | --- | -------- |  | ----- | ---- | ------ |  | ------ | ---------- |  |  |  | ---- |  |  |  | ---- | 
|Options Outstanding |  | Options exercisable
|                    |  |                    
|                    |  |                     |      |           |  | Weighted |            | Weighted |  | Weighted |     | Weighted |  |       |      |        |  |        |            | 
|                    |  |                     |      |           |  | Average  |            | Average  |  | Average  |     | Average  |  |       |      |        |  |        |            | 
|                    |  | Range of            |      | Remaining |  | Grant    |            | Grant    |  | Grant    |     |          |  |       |      | Fair  
|Tranche             |  | Grant Prices        |      | Options   |  | Life     |            | Price    |  | Options  |     | Price    |  | Value
|                    |  |                     |      |           |  |          |            |          |  |          |     |          |  |      
|                    |  | (euro)              |      |           |  |          |            | (years)  |  | (euro)   |     |          |  |       |      | (euro) |  | (euro)
|2000                |  |                     | 8.60 |           |  |          | 5,513,200  |          |  |          | 0.5 |          |  |       | 8.60 |        |  |        | 5,513,200  |  |  |  | 8.60 |  |  |  | 0.47 | 
|2001                |  |                     | 7.27 |           |  |          | 19,193,468 |          |  |          | 1.5 |          |  |       | 7.27 |        |  |        | 19,193,468 |  |  |  | 7.27 |  |  |  | 0.48 | 
|2002                |  |                     | 6.43 |           |  |          | 41,748,500 |          |  |          | 2.0 |          |  |       | 6.43 |        |  |        | 41,748,500 |  |  |  | 6.43 |  |  |  | 0.17 | 





| |  | In 2001, WIND launched a Stock Option Plan on WIND shares. Options under
this plan vest if certain targets are met, or other criteria are met
during the year 2002 and WINDs IPO is executed before September 2003.
The options could be exercised starting in 2004. The status of the stock
options offered under the Stock Option Plan is as follows:
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|



|                                 |           |         |           |             |         |  |        |       | 
|-------------------------------- | --------- | ------- | --------- | ----------- | ------- |  | ------ | ----- | 
|                                 |           |         | Number of |             | Average
|WIND Plan                        |           | Options |           | Grant Price
|                                 |           |         |           |            
|                                 |           |         |           |             |         |  | (euro)
|Outstanding at January 1, 2001   |           |         |          |             |         |  |       |      
|                                 | Granted   |         |           | 4,947,150   |         |  |        | 22.46 | 
|                                 | Exercised |         |           |            |         |  |        |      | 
|                                 | Forfeited |         |           |            |         |  |        |      | 
|                                 |           |         |           |             |         |  |        |      
|Outstanding at December 31, 2001 |           |         | 4,947,150 |             |         |  |        |      
|                                 |           |         |           |             |         |  |        |      
|                                 | Granted   |         |           |            |         |  |        |      | 
|                                 | Exercised |         |           |            |         |  |        |      | 
|                                 | Forfeited |         |           | (718,570    | )       |  |        | 22.46 | 
|                                 |           |         |           |             |         |  |        |      
|Outstanding at December 31, 2002 |           |         | 4,228,580 |             |         |  | 22.46  |      
|                                 |           |         |           |             |         |  |        |      



|
|
|
|



|                          |  |  |        | 
|------------------------- |  |  | ------ | 
|Future dividend per share |  |  |       | 
|Risk-free interest rate   |  |  | 4.70%  | 
|Expected life             |  |  | 5years | 
|Expected volatility       |  |  |       | 

F - 87



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|
|
|
|



|                    |  |                     |           |          |  |          |   |          |  |       |       |  |  |        |   |  |  |  |   | 
|------------------- |  | ------------------- | --------- | -------- |  | -------- | - | -------- |  | ----- | ----- |  |  | ------ | - |  |  |  | - | 
|Options Outstanding |  | Options exercisable
|                    |  |                    
|                    |  | Weighted            |           | Weighted |  | Weighted |   | Weighted |  |       |       | 
|                    |  | Average             |           | Average  |  | Average  |   | Average  |  |       |       | 
|Range of            |  | Remaining           |           | Grant    |  | Grant    |   | Grant    |  |       |       | 
|Grant Prices        |  | Options             |           | Life     |  | Price    |   | Options  |  | Price
|                    |  |                     |           |          |  |          |   |          |  |      
|(euro)              |  |                     |           |          |  | (years)  |   | (euro)   |  |       |       |  |  | (euro)
|22.46               |  |                     | 4,228,580 |          |  |          | 5 |          |  |       | 22.46 |  |  |        |  |  |  |  |  | 



|
|
|
|



|                                                           |  |      |       |      |  |      |       |  |  |  |       | 
|---------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                           |  | 2000 |       | 2001 |  | 2002
|                                                           |  |      |       |      |  |     
|Net income, as
reported                                    |  |      | 1,841 |      |  |      | 3,688 |  |  |  | 1,399 | 
|Stock-based employee compensation expense, as
reported     |  |      |      |      |  |      |      |  |  |  |      | 
|Stock-based employee compensation expense under fair value |  |      | 5     |      |  |      | 6     |  |  |  | 6     | 
|Pro forma net income                                       |  |      | 1,836 |      |  |      | 3,682 |  |  |  | 1,393 | 







|                                     |  |             |      |           |  |             |      |           |  |             |      |           |  |  |      |  |  |  |      |  |  |  |      | 
|------------------------------------ |  | ----------- | ---- | --------- |  | ----------- | ---- | --------- |  | ----------- | ---- | --------- |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                                     |  | 2000        |      | 2001      |  | 2002       
|                                     |  |             |      |           |  |            
|                                     |  | As Reported |      | Pro Forma |  | As Reported |      | Pro Forma |  | As Reported |      | Pro Forma
|                                     |  |             |      |           |  |             |      |           |  |             |      |          
|Basic and diluted earnings per share |  |             | 0.15 |           |  |             | 0.15 |           |  |             | 0.61 |           |  |  | 0.61 |  |  |  | 0.23 |  |  |  | 0.23 | 



|
|
|
|

F - 88



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|   
|---
|(k)
|   



|
|
|
|
|
|
|
|

F - 89



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##### Table of Contents





|
|
|
|

Weighted Average Assumptions as
of December 31:




|                                                 |  |                   |      |                               |  |      |      |      |  |      |      |      |  |  |      |  |  |  |      |  |  |  |      | 
|------------------------------------------------ |  | ----------------- | ---- | ----------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|                                                 |  | Pensions Benefits |      | Other Postretirement Benefits
|                                                 |  |                   |      |                              
|                                                 |  | 2000              |      | 2001                          |  | 2002 |      | 2000 |  | 2001 |      | 2002
|                                                 |  |                   |      |                               |  |      |      |      |  |      |      |     
|Discount rate                                    |  |                   | 5.5% |                               |  |      | 5.0% |      |  |      | 5.0% |      |  |  | 5.5% |  |  |  | 5.0% |  |  |  | 5.0% | 
|Expected long term rate of return on plan assets |  |                   | N/A  |                               |  |      | N/A  |      |  |      | 5.0% |      |  |  | N/A  |  |  |  | N/A  |  |  |  | 2.5% | 
|Rate of compensation increase                    |  |                   | 3.5% |                               |  |      | 3.5% |      |  |      | 3.5% |      |  |  | N/A  |  |  |  | N/A  |  |  |  | N/A  | 

Change in Benefit Obligation:




|                                              |  |                    |        |                               |  |      |        |      |  |  |        |   |  |  |        |  
|--------------------------------------------- |  | ------------------ | ------ | ----------------------------- |  | ---- | ------ | ---- |  |  | ------ | - |  |  | ------ | -
|                                              |  | Pensions Benefits  |        | Other Postretirement Benefits
|                                              |  |                    |        |                              
|                                              |  | 2001               |        | 2002                          |  | 2001 |        | 2002
|                                              |  |                    |        |                               |  |      |        |     
|                                              |  | (millions of euro) |        | (millions of euro)           
|Benefit obligation at January 1               |  |                    | 2,172  |                               |  |      | 2,051  |      |  |  | 1,021  |   |  |  | 1,067  |  
|Service cost                                  |  |                    | 87     |                               |  |      | 88     |      |  |  | 12     |   |  |  | 13     |  
|Interest cost                                 |  |                    | 109    |                               |  |      | 102    |      |  |  | 55     |   |  |  | 53     |  
|Actuarial (gain) loss                         |  |                    | 126    |                               |  |      | (24    | )    |  |  | (19    | ) |  |  | 60     |  
|Curtailment cost/Initial accrual              |  |                    | (69    | )                             |  |      | 75     |      |  |  |       |   |  |  |       |  
|Benefit paid from corporate assets            |  |                    | (486   | )                             |  |      | (205   | )    |  |  | (44    | ) |  |  | (43    | )
|                                              |  |                    |        |                               |  |      |        |      |  |  |        |   |  |  |        |  
|Benefit obligation at December 31             |  |                    | 1,939  |                               |  |      | 2,087  |      |  |  | 1,025  |   |  |  | 1,150  |  
|                                              |  |                    |        |                               |  |      |        |      |  |  |        |   |  |  |        |  
|Reconciliation of Funded Status of the Plans: |  |                    |        |                               |  |      |        |      |  |  |        |   |  |  |        |  
|Funded (un-funded) status                     |  |                    | (1,939 | )                             |  |      | (2,087 | )    |  |  | (1,025 | ) |  |  | (1,150 | )
|Unrecognized net (gain) loss                  |  |                    | 605    |                               |  |      | 550    |      |  |  | (53    | ) |  |  | 7      |  
|Unrecognized net transition obligation        |  |                    | (47    | )                             |  |      | (40    | )    |  |  |       |   |  |  |       |  
|                                              |  |                    |        |                               |  |      |        |      |  |  |        |   |  |  |        |  
|Prepaid (accrued) benefit cost                |  |                    | (1,381 | )                             |  |      | (1,577 | )    |  |  | (1,078 | ) |  |  | (1,143 | )
|Adjustment for minimum liability              |  |                    | (439   | )                             |  |      | (406   | )    |  |  |       |   |  |  |       |  
|                                              |  |                    |        |                               |  |      |        |      |  |  |        |   |  |  |        |  
|Amount recognized in Balance Sheet            |  |                    | (1,820 | )                             |  |      | (1,983 | )    |  |  | (1,078 | ) |  |  | (1,143 | )
|                                              |  |                    |        |                               |  |      |        |      |  |  |        |   |  |  |        |  



|                                            |  |                   |     |                               |  |      |     |      |  |      |     |      |  |  |    |  |  |  |    |  |  |  |    | 
|------------------------------------------- |  | ----------------- | --- | ----------------------------- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | -- |  |  |  | -- |  |  |  | -- | 
|                                            |  | Pensions Benefits |     | Other Postretirement Benefits
|                                            |  |                   |     |                              
|                                            |  | 2000              |     | 2001                          |  | 2002 |     | 2000 |  | 2001 |     | 2002
|                                            |  |                   |     |                               |  |      |     |      |  |      |     |     
|Components of Net Periodic Benefit Cost:    |  |                   |     |                               |  |      |     |      |  |      |     |      |  |  |    |  |  |  |    |  |  |  |    | 
|Service cost (net of employee contribution) |  |                   | 148 |                               |  |      | 87  |      |  |      | 89  |      |  |  | 12 |  |  |  | 12 |  |  |  | 13 | 
|Interest cost                               |  |                   | 139 |                               |  |      | 109 |      |  |      | 102 |      |  |  | 53 |  |  |  | 55 |  |  |  | 52 | 
|Expected return on plan assets              |  |                   |    |                               |  |      |    |      |  |      | (5  | )    |  |  |   |  |  |  |   |  |  |  |   | 
|Net amortization and deferral               |  |                   | 24  |                               |  |      | 16  |      |  |      | 20  |      |  |  |   |  |  |  |   |  |  |  |   | 
|                                            |  |                   |     |                               |  |      |     |      |  |      |     |      |  |  |    |  |  |  |    |  |  |  |    | 
|Net periodic benefit cost                   |  |                   | 311 |                               |  |      | 212 |      |  |      | 206 |      |  |  | 65 |  |  |  | 67 |  |  |  | 65 | 
|                                            |  |                   |     |                               |  |      |     |      |  |      |     |      |  |  |    |  |  |  |    |  |  |  |    | 
|Curtailment gain/Initial accrual            |  |                   | (23 | )                             |  |      | (69 | )    |  |      | 75  |      |  |  |   |  |  |  |   |  |  |  |   | 
|Settlement cost                             |  |                   | 130 |                               |  |      |    |      |  |      |    |      |  |  |   |  |  |  |   |  |  |  |   | 
|                                            |  |                   |     |                               |  |      |     |      |  |      |     |      |  |  |    |  |  |  |    |  |  |  |    | 
|Total cost accrual                          |  |                   | 418 |                               |  |      | 143 |      |  |      | 281 |      |  |  | 65 |  |  |  | 67 |  |  |  | 65 | 
|                                            |  |                   |     |                               |  |      |     |      |  |      |     |      |  |  |    |  |  |  |    |  |  |  |    | 



Change in Plan Assets:




Plan assets are represented by amounts related to Electra de Viesgos pension
plan and approximate euro 134 million, as of December 31, 2002.


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|(l) |  | Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|    |  | Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standard No. 133 (SFAS 133), Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (embedded derivatives),
and for hedging activities. SFAS 133 requires that all derivatives,
whether designated in hedging relationships or not, be recorded on the
balance sheet at fair value. The accounting for changes in fair value of a
derivative instrument depends on its intended use and the resulting
designation.
|   
|    |  | As of January 1, 2001, the Company classified for U.S. GAAP purposes all of
its derivative instruments into two categories, for which the accounting
are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



| |  |  | For cash flow hedges, the effective portion of the gain or loss
from the derivative hedging instrument is accumulated in other
comprehensive income (''OCI) and recognized in earnings during the
period that the hedged forecasted transaction impacts earnings. The
ineffective portion of the gain or loss from the derivative hedging
instrument is recognized in earnings immediately.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|
| |  |  | For all other derivative contracts which do not qualify for the
special hedge accounting treatment under SFAS 133, gains and losses
are recorded in earnings each reporting period.                                                                                                                                                                                                            
|



| |  | Since the adoption of SFAS 133, the Company implemented a control to
identify and, if necessary, recognize any potential embedded derivatives.
The Company believes that the majority of its contracts, power purchase
agreements and gas transportation contracts qualify for the normal
purchases and sales exception of SFAS No. 133 and are not subject to the
accounting rules for derivative instruments. Accordingly, through December
31, 2002 no embedded derivatives were required to be separated from the
underlying obligation and carried at fair value.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Cash Flow Hedges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | ENELs cash flow hedges primarily include hedges of certain floating rate
medium-term and long-term bank loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
|
| |  | The Company has swapped these variable interest rate loans into fixed
interest rate loans. Interest rate swaps are the most common type of
derivative contract used to modify exposure to interest rate risk by
converting floating rate liabilities to fixed rate liabilities. ENEL also
enters into Swaptions and Forward rate agreements. Interest rate collars
are also used when the fixed rate available under interest rate swaps are
considered too high with respect to the Companys view about the future
level of interest rates.                         
|
|
|
| |  | ENELs cash flow hedges also include hedges of fixed rate medium-term and
long-term foreign currency bank loans. In order to hedge the variability of
the foreign functional currency equivalent cash flows on the loans, ENEL
has entered into combinations of interest rate swaps to effectively switch
the foreign fixed interest rate loans into euro fixed interest loans. These
transactions must be viewed in combination and are designated jointly as a
hedging instrument.                                                                                  
|
|
| |  | In addition, the Company also enters into combinations of interest rate
swaps to switch the structured rate paid on certain medium-term and
long-term bank loans into fixed interest rate outflows.                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The breakdown of the hedging
instruments, and the amounts recognized in other comprehensive income
(loss) are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                             
|

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|                      |  |              |     |              |  |                  |      |              |  |        |   |  |  |  |      |  
|--------------------- |  | ------------ | --- | ------------ |  | ---------------- | ---- | ------------ |  | ------ | - |  |  |  | ---- | -
|                      |  | OCI at       |     | Gains/Losses |  |                  |      |              |  | OCI at
|                      |  | December 31, |     | Recorded     |  | Reclassified to  |      | December 31,
|Type of Operation     |  | 2001         |     | in 2002      |  | earnings in 2002 |      | 2002        
|Interest rate swaps   |  |              | (72 | )            |  |                  | (201 | )            |  |        | 3 |  |  |  | (270 | )
|Interest rate collars |  |              |    |              |  |                  | (4   | )            |  |        |  |  |  |  | (4   | )
|Swaptions             |  |              |    |              |  |                  | (2   | )            |  |        |  |  |  |  | (2   | )
|                      |  |              |     |              |  |                  |      |              |  |        |   |  |  |  |      |  
|Total                 |  |              | (72 | )            |  |                  | (207 | )            |  |        | 3 |  |  |  | (276 | )
|                      |  |              |     |              |  |                  |      |              |  |        |   |  |  |  |      |  



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|                            |  |                                 |     |   | 
|--------------------------- |  | ------------------------------- | --- | - | 
|                            |  | Gain/LossesIncluded
in Earnings
|Type of Operation           |  | in 2002                        
|Interest rate swaps         |  |                                 | (6  | ) | 
|Interest rate collars       |  |                                 | (1  | )
|Swaptions                   |  |                                 | 5   |   | 
|Forward exchange
agreements |  |                                 | (52 | )
|Options                     |  |                                 |    |   | 
|Commodity swaps             |  |                                 | (13 | )
|Commodity futures           |  |                                 | 25  |   | 
|                            |  |                                 |    
|Total                       |  |                                 | (42 | ) | 
|                            |  |                                 |    



|    |  | Derivative instruments are reported on a net-by-counterparty basis on the
consolidated balance sheet where management believes a legal right of
setoff exists under an enforceable netting agreement.                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|(m) |  | Amortization of intangible assets                                                                                                                                                                                                
|   
|   
|   
|    |  | The estimated amortization of intangible assets for each year in the period
from 2003 to 2007 amounts to approximately euro 850 million, euro 770
million, euro 750 million, euro 730 million and euro 720 million,
respectively.
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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
Wind Telecomunicazioni SpA

We have audited the consolidated balance sheet of Wind Telecomunicazioni SpA
(an Italian corporation) and its subsidiaries (the ''Company) as of December
31, 2002, and the related consolidated statements of operations, changes in
shareholders equity and cash flows for the year then ended (all expressed in
Euro). These financial statements are the responsibility of
the Companys directors. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wind
Telecomunicazioni SpA and its subsidiaries as of December 31, 2002, and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in Italy.

We draw your attention to the matters regarding deferred tax assets and
intangible assets as described in the notes to the consolidated financial
statements.

We also draw your attention to the fact that this opinion relates only to the
financial statements referred to above that were prepared under the Italian
regulation governing financial statements and do not conform with accounting
principles generally accepted in the United States (U.S. GAAP).

Rome, 19 March 2003

PricewaterhouseCoopers SpA

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant certifies that it meets all the requirements of filing
on Form 20-F and has duly caused this annual report to be signed on its behalf
by the undersigned, thereunto duly authorized.

|                    |  |                                     
|------------------- |  | ------------------------------------
|                    |  | ENEL S.P.A.                         
|                    |  |                                     
|                    |  | (Registrant)                        
|                    |  |                                     
|                    |  | /s/ FULVIO CONTI                    
|                    |  |                                     
|                    |  | FULVIO CONTI Chief Financial Officer
|Date: June 30, 2003 |  |                                     





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##### Table of Contents



Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paolo Scaroni,certify that:



|1. |  | I have reviewed this annual report on Form 20-F of ENEL S.p.A.;                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weakness in
internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/S/ PAOLO SCARONI
Paolo Scaroni
Chief Executive Officer
June 30, 2003





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Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Fulvio Conti,certify that:



|1. |  | I have reviewed this annual report on Form 20-F of ENEL S.p.A.;                                                                                                                                                                                                                                                         
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing
the equivalent function):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weakness in
internal controls; and
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                      



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

/S/ FULVIO CONTI
Fulvio Conti
Chief Financial Officer
June 30, 2003





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Index to Exhibits

|     |  |                                                                          
|---- |  | -------------------------------------------------------------------------
|1.1  |  | By-laws of the Company.                                                  
|     |  |                                                                          
|3.1  |  | List of Subsidiaries.                                                    
|     |  |                                                                          
|99.1 |  | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.