Edison

TO THE SHAREHOLDERS

Dear Shareholders:
In 2008, there was a sharp reversal from the trends that shaped the global economy in the past. Over a few short months, the economy swung sharply from an expansion period in these years to a severe recession, triggered by the subprime mortgage crisis and magnified by the serious difficulties experienced by some of the main banking institutions in the United States and Europe.

In Italy, for the first time since the crisis of 1981, the demand for energy reversed its positive trend in the fourth quarter of 2008, with a negative impact on the results of the energy industry for the full year. From October to December, demand for electric power decreased by 5% on average, with consumption in the industrial sector plummeting by 15%. As a result, the decrease for the full year was 1% for total demand and 9% for industrial demand. During the year, raw material prices were characterized by unprecedented fluctuations: in a few short weeks, the price of oil swung from an all-time high in July to a low that had not been seen since 2004. In Italy, the impact of these unfavorable business conditions on the traditional stability of the electric power market was compounded by a series of changes in the regulatory framework and the tax laws that further affected the year’s results.

In this environment, Edison’s results for 2008 were substantially in line with those achieved in 2007, with a slight improvement at the operating level and a deterioration at the earnings level caused by a higher tax burden. Sales revenues were up significantly (+33.7%), rising to 11,066 million euros. This improvement reflects positive contributions both by the electric power operations (+28.1%) and in the natural gas area (+29.4%), attributable mainly to the upward trend that characterized the reference parameters.

In 2008, EBITDA increased 2.4% to 1,643 million euros and the profit before taxes increased 6.3% to 730 million euros. The Group’s net profit totaled 346 million euros. Unfavorable changes in the tax laws, such as the Robin Hood Tax (Law No. 133) and the Anti-Crisis Decree (Decree Law No. 185), and the absence of the nonrecurring tax benefit of 135 million euros recognized in 2007 are the main reasons for this negative comparison.
Net financial debt totaled 2,920 million euros (2,687 million euros in 2007). Even after the effect of the important acquisition of the Abu Qir fields, in Egypt, which closed on January 15, 2009, the Group’s debt/equity ratio is still one of the absolute best in the energy industry. The positive operating results achieved in 2008 will enable the Company distribuite as the 2008 dividend the same amount paid in the previous year.

A series of events, each of which represents a fundamental step forward in the implementation of Edison’s growth strategy, both in the electric power and the natural gas businesses, characterized 2008. In the natural gas area, the goal is to build new infrastructures that will provide Edison and Italy with new supply sources, improve the choice of offers and diversify geographical risks. In September, the offshore regasification terminal arrived off the coast of Rovigo. When fully operational, this facility will be used to import 8 billion cubic meters of natural gas from Qatar, 6.4 million cubic meters of which will be available to Edison. The Cavarzere-Minerbio natural gas pipeline, which will connect the terminal to the national transmission network, was also brought on stream in 2008. In addition to this infrastructure, the only one of its kind in the world, other Edison projects made progress during the year: the GALSI pipeline (connecting Algeria to Sardinia and Tuscany) and the ITGI pipeline (connecting Turkey, Greece and Italy). In 2008, the GALSI project began the process of filing the required permit applications and an agreement was reached with Snam Rete Gas to build the connecting link for the new pipeline between Sardinia and the national network.

At the beginning of 2009, the European Union reaffirmed ITGI’s designation as a key infrastructure, thereby making it eligible for E.U. funding within the framework of the European program for the development of strategically significant infrastructures. This natural gas pipeline, which will link Italy with the Caspian Sea Basin by way of Turkey and Greece, will have a transport capacity that will include 8 billion cubic meters of gas a year available to Italy. Edison has secured use of 80% of the capacity of the Italy-Greece pipeline section and is negotiating the corresponding supply contracts.

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