Report of the Board of Statutory Auditors - Edison Annual Report 2010

Dear Shareholders:

In the year ended December 31, 2010, the Board of Statutory Auditors of Edison S.p.A. (the “Company”) carried out its oversight activities in accordance with the provisions of the relevant statute (Legislative Decree No. 58 of February 24, 1998 - “Uniform Code of Financial Intermediation”), performing its work in accordance with the rules of conduct for Boards of Statutory Auditors of corporations with shares traded on regulated markets published by the Italian Board of Certified Public Accountants and Accounting Experts and consistent with Consob pronouncements concerning corporate controls and the activities of the Board of Statutory Auditors.

The Board of Statutory Auditors currently in office was elected by the Shareholders’ Meeting of April 2, 2008, in accordance with the provisions of the Bylaws, which, as amended by the Shareholders’ Meeting of June 26, 2007, incorporate the statutory requirement that the Chairman of the Board of Statutory Auditors should be elected from the slate of Statutory Auditors filed by minority shareholders. The term of office of this Board of Statutory Auditors ends upon the approval of the Company’s financial statements at December 31, 2010.

The members of the Board of Statutory Auditors are in compliance with the limit set forth in Article 144-terdecies of the Consob Issuers’ Regulation No. 11971 with regard to the number of corporate governance posts that may be held and, during the year, met their disclosure obligations toward the Consob and the public, when required.

Pursuant to Legislative Decree No. 58/1998 and Legislative Decree No. 39/2010, the task of performing a statutory independent audit of the financial statements was assigned to the Independent Auditors PricewaterhouseCoopers S.p.A. by the Shareholders’ Meeting of April 19, 2005. The Independent Auditors’ report should be consulted for additional information. The Shareholders’ Meeting of April 5, 2007 extended the term of the auditing assignment until the date of the Shareholders’ Meeting convened to approve the 2010 financial statements.

1. Based on the information received and the facts gathered by the Board of Statutory Auditors, we summarize below the transactions with a material impact on the Company’s income statement, balance sheet and financial position, including those executed through subsidiaries, all of which were reviewed and approved by the Board of Directors and are discussed in the Report on Operations prepared by the Board of Directors:

On March 4, 2010, IGI Poseidon Sa (a 50-50 joint venture of Edison and DEPA, Greece’s national gas company) finalized an agreement with BEH (Bulgarian Energy Holding) to establish an asset company (IGI Poseidon Sa 50% and BEH 50%) that will build a new natural gas pipeline (IGB) linking Greece and Bulgaria. This pipeline extension will be connected to the ITGI (Turkey-Greece-Italy Interconnector), which is the first component being built in Europe of the so-called “Southern Corridor.” Subsequently, (i) on June 17, 2010, Edison, DEPA and Botas (Turkey’s national gas company) signed a Memorandum of Understanding allowing transit through Turkey for natural gas delivered through the ITGI and (ii) on November 30, 2010, the relevant parties signed documents establishing the company that will be responsible for developing, building and operating the IGB pipeline.
On March 10, 2010, Edison Spa completed the placement of a five-year bond issue, for a total amount of 500 million euros, sold exclusively to qualified investors. The bonds, which carry a gross annual coupon of 3.25%, were offered at a 99.70 issue price.
On July 20, 2010, Edison, acting through its Edison Energie Speciali Spa subsidiary, closed the purchase of 100% of Parco Eolico San Francesco Srl, which owns a fully operational 26-MW wind farm in the municipality of Melissa (KR).
On September 24, 2010, Edison’s Board of Directors agreed to increase from 2 to 3 billion euros the maximum amounts of bonds that may be issued under the Euro Medium-term Note Program.
On October 14, 2010, Moody’s Investor Service downgraded Edison’s long-term credit rating, revising it from Baa2, Negative Outlook, to Baa3, Stable Outlook. On November 2, 2010, Standard& Poor’s also downgraded Edison’s long-term credit rating, revising it from BBB+, Negative Outlook, to BBB, Stable Outlook.
On October 26, 2010, Edison’s Board of Directors authorized the filing, with the Ministry of Economic Development, of a binding application for voluntary, early termination of the CIP 6/92 contracts for the Jesi, Milazzo, Porto Viro and Porcari power plants. On November 30, 2010, the GSE countersigned the agreements for early termination of the abovementioned contracts, effective January 1, 2011. On December 17, 2010, the receivable corresponding to the proceeds generated by the early termination of the contracts was assigned to a factoring company and recognized as Other revenues and income in the amount of 173 million euros.
On November 3, 2010, Edison completed the placement of a new seven-year bond issue for a total amount of 600 million euros, sold exclusively to qualified investors. The bonds, which carry a gross annual coupon of 3.875%, were offered at a 99.555 issue price.
On December 17, 2010, Edison signed a term sheet in connection with the divestment of some business operations, comprised of two thermoelectric power plants located in Taranto, for a price of 165 million euros. This transaction, which is expected to close by January 15, 2012, required the Company to recognize an asset writedown of 40 million euros in 2010 and reclassify the assets and liabilities of the abovementioned business operations to assets and liabilities held for sale.
In the activity that involves buying and selling natural gas, the unit margins contracted to zero due (i) on the one hand, to the competitive price pressure caused by increased competition, excess supply and the availability of large quantities of spot gas at prices lower than those paid under conventional long-term gas procurement contracts (with activation of the take-or-pay clause for those contracts and recognition in the financial statements of advances paid totaling 91 million euros and commitments owed to the counterparties amounting to 140 million euros), and (ii) on the other hand, to a decrease in demand for natural gas in Italy, compared with the levels before the 2009 economic crisis. With regard to this issue, Edison, acting pursuant to the relevant contract clauses, is renegotiating contract prices with all of its suppliers and, in some instances, has filed for arbitration, as allowed under the abovementioned contracts, with the aim of asserting its right to earn a reasonable margin on its portfolio of multi-year import contracts.

2. In the exercise of its function, in order to obtain the information needed to carry out its oversight activities, the Board of Statutory Auditors performed the following activities:

It met on a regular basis and drew up 14 minutes of the meetings recording its activities.
It attended all meetings of the Board of Directors (7), obtaining from the Board of Directors a steady flow of information concerning its activity and transactions with a material impact on the Company’s income statement, balance sheet and financial position executed by the Company and its subsidiaries.
Its Chairman attended the meetings of the Audit Committee (5), the Compensation Committee (4) and the Oversight Board (6).
It attended the Shareholders’ Meeting held on March 23, 2010.
It reviewed issues under its jurisdiction through interviews with management, direct observation, reviews of Company documents, information obtained from managers of Company departments, and meetings with the Internal Control Officer.
It met on a regular basis with representatives of the Independent Auditors hired to perform statutory independent audits of the Company’s financial statements, with whom it exchanged data and information, analyzing the product of the work they performed and verifying issues related to their independence.
It interacted with the governance bodies of the subsidiaries, as required by Article 151 of Legislative Decree No. 58/1998.
It attended the meetings of the Oversight Board of the Organizational Model adopted pursuant to Law No. 231/2001, for the purpose of exchanging information.

Moreover, by attending the meetings of the Audit Committee established internally by the Board of Directors, the Board of Statutory Auditors was able to carry out the function of Internal Control and Independent Audit Committee assigned to it by Article 19 of Legislative Decree No. 39 of January 27, 2010, and performed its oversight function with regard to:

the financial reporting process;
the effectiveness of the internal control, internal auditing and risk management systems;
the statutory independent auditing of the annual and consolidated financial statements;
issues concerning the independence of the Independent Auditors.

3. The characteristics of intercompany and related-party transactions executed in 2010, the parties involved and their financial effects are adequately explained in the section of the 2010 Consolidated Financial Statements entitled “Intercompany and Related-party Transactions,” which should be consulted for additional information.

In 2010, the Company implemented a procedure approved by the Board of Directors adopted a Group procedure (revised most recently in 2008) that governs transactions between Edison and all significant and related parties. This procedure, which applies to the Chief Executive Officer as well, requires compliance with the principles of objectivity, transparency and truthfulness, based on the general principles that all transactions with related parties, including those executed through subsidiaries, must be conducted fairly, both substantively and procedurally. In accordance with this procedure, the Board of Directors must be provided with adequate information about the nature of the relationship with the significant or related party, the manner in which the transaction will be implemented, the timing and financial terms of the transaction, the assessment process applied, the interests in and the underlying reasons for the transaction, and any risks to which the Company and its subsidiaries could be exposed as a result of the abovementioned transactions with significant parties or of transactions that are not executed on standard term and atypical or unusual transactions executed directly or indirectly with other related parties.

Insofar as the areas under its jurisdiction are concerned, the Board of Statutory Auditors found no issues requiring mention with regard to the fairness of intercompany and related-party transactions and the Company’s interest in executing those transactions and, in the course of its work, did not uncover any atypical and/or unusual intercompany and/or related-party transactions.

On December 3, 2010, as required by Consob Resolution No. 17221 of March 12, 2010, as amended, Edison’s Board of Directors adopted a new internal Procedure Governing Related-party Transactions. This procedure classifies these transactions into different categories and provides for each category specific validation and implementation methods, in accordance with a process explained in detail in Edison’s 2010 Report on Corporate Governance and on the Company’s

Ownership Structure, which should be consulted for additional information. As part of this new procedure, the Company established a Committee of Independent Directors, comprised of three independent directors, which is required to render an opinion whether related-party transactions executed by the Company and its subsidiaries are in the Company’s interest and whether their terms and conditions are beneficial and substantively fair, depending on the type transaction.

Pursuant to Article 4, Section 6, of the regulations adopted by the Consob with the abovementioned Resolution No. 17221/2010, we inform you that the procedure adopted by the Company (i) is consistent with the principles of the abovementioned Consob Resolution, (ii) is applicable as of January 1, 2011, and (iii) has been posted on the Company website.

4. On April 4, 2011, the Independent Auditors PricewaterhouseCoopers S.p.A. issued the reports required by Article 14 of Legislative Decree No. 39 of January 27, 2010, which contained no qualifications or disclosure requirements, certifying that the separate and consolidated financial statements at December 31, 2010 were prepared transparently and present truthfully and fairly the balance sheet, income statement and other components of the comprehensive income statement, changes in shareholders’ equity and cash flow of the Company and the Group, and attesting that the Report on Operations and the disclosures provided in the Report on Corporate Governance and on the Company’s Ownership Structure in accordance with Article 123-bis, Section 4, of Legislative Decree No. 58/1998 are consistent with the Company’s Statutory Financial Statements and the Group’s Consolidated Financial Statements.

5. We noted that, in the course of the year, Edison S.p.A. awarded to the Independent Auditors PricewaterhouseCoopers S.p.A. the following additional assignments within the framework of the statutory independent audit of the financial statements:

22,220.00 euros for additional work required to audit the consolidated financial statements;
11,000.00 euros for a limited audit of the semiannual report of Edison Trading S.p.A.;
4,900.00 euros for additional work required to coordinate the activity of other independent auditors;
6,000.00 euros for work concerning the purchase price allocation for Parco Eolico San Francesco; and the following additional assignments that were not related to the statutory independent auditing of the financial statements:
18,000.00 euros for additional review work concerning unbundling;
8,729.00 euros for reviewing the 2010 Pay Schedule for expatriates in Egypt;
25,096.00 euros for reviewing the 2010 Pay Schedule for Gas JV Employees in Italy;
25,096.00 euros for reviewing the 2010 Pay Schedule for Gas JV Employees abroad;
5,894.00 euros for activities related to Sel-Edison’s 2010 Reporting Package;
8,000.00 euros for attestations concerning the contract with G.C. Partecipazioni Società Agricola;
15,000.00 euros for attestations in connection with the Operating Excellence Project;
80,000.00 euros for attestations provided in connection with arbitration proceedings for the renegotiation of long-term gas procurement contracts;
20,000.00 euros for attestations provided in connection with a bond placement in March 2010;
30,000.00 euros for attestations provided in connection with a bond placement in October 2010.

In addition, the Board of Statutory Auditors monitored the independence of the Independent Auditors, taking also into account the requirements of Article 19 of Legislative Decree No. 39/2010, ascertaining that they were in compliance with the provisions of the relevant statutes in providing Edison S.p.A. and its subsidiaries with services other than the statutory, independent audits of the financial statements, and determined that no significant assignments were granted in 2010 to members of the network to which the Independent Auditors belong.

6. The assignment to perform statutory, independent audits of the financial statements awarded to PricewaterhouseCoopers S.p.A. ends upon the approval of the financial statements at December 31, 2010 and cannot be renewed, having reached the maximum total duration of nine years.

Edison’s Board of Statutory Auditors, working with the support of corporate departments (Internal Control Systems Department, Administration Department and Corporate Affairs Department) carried out the activities needed to develop a detailed proposal for the Shareholders’ Meeting concerning the award of the auditing assignment for the 2011-2019 period to new Independent Auditors.

Meeting on March 2, 2010, the Board of Statutory Auditors, based on the conclusions obtained by reviewing the technical and cost offers it received and the entire process applied to study and analyze the abovementioned offers, determined that the offer submitted by Deloitte & Touche S.p.A. was the best offer. Accordingly, it prepared a detailed proposal for the Shareholders’ Meeting convened to award the statutory, independent auditing assignment. The abovementioned proposal should be consulted for additional information.

7. In 2010, the Board of Statutory Auditors received no complaints filed pursuant to Article 2408 of the Italian Civil Code or memoranda submitted by third parties.

In response to a request by some shareholders, the Board of Statutory Auditors reviewed the situation that developed as a result of decision No. 14099/08 handed down on July 16, 2008 by the Court of Milan in the proceedings launched by a summons that Stefano Bollino served on Edison on August 9, 2002 in his capacity as Common Representative of the holders of savings shares, the purpose of which was to challenge the Shareholders’ Meeting resolution of June 27, 2002, by which holders of Edison common shares approved the merger by absorption of Edison into Italenergia S.p.A. These proceedings, which UBS AG also joined to put forth the same claims and pursue an independent and separate claim for damages, ended with a decision that found in favor of the plaintiffs and quantified the damage suffered by the savings shareholders.

In the Company’s opinion, the decision handed down by the Court of Milan, with regard to the claims of the Common Representative of the holders of savings shares, contains a declaration judgment providing a mere finding of facts, devoid of any indication of an order to pay damages. Consequently, the damage claims of the holders of savings shares (other than UBS AG) who, during the five years that followed the execution of the deed of merger (November 4, 2002), failed to take action to suspend the running of the statute of limitations can no longer be pursued for that reason, pursuant to Article 2949 of the Italian Civil Code.

However, in view of the lack of case law concerning this issue and in order to avoid the risks and costs entailed by seeking a confirmation of this opinion in the courts, Edison’s Board of Directors, meeting on March 14, 2011, agreed to offer to the holders of savings shares who are claiming damages, in settlement of any and all claims, a sum equal to 75% of amount determined with the criteria set forth in the abovementioned court decision (number of share held at the time of the merger multiplied by 0.4426), without any interest and inflation adjustments. The settlement offer is conditional on the acceptance of the offer by shareholders representing a minimum percentage of the savings shares.

8. In 2010, the Board of Statutory Auditors issued the opinions required pursuant to law in connection with the compensation awarded to Directors who perform special functions, which were determined by the Board of Directors upon a recommendation by the Compensation Committee.

With regard to this issue, we wish to remind you that, at a meeting held on October 30, 2009, the Board of Directors, in view of the effects of the economic crisis, acting upon a recommendation by the Compensation Committee and with the consent of the Board of Statutory Auditors, agreed to reduce the compensation of the Chairman (10% reduction of the fixed compensation) and the Chief Executive Officer (reduction of 10% for the fixed compensation and of up to 25% for the variable compensation).

In addition, the Shareholders’ Meeting of March 23, 2010 approved a motion put forth by the Board of Directors, based on a recommendation by the Compensation Committee and with the consent of the Board of Statutory Auditors, similarly reducing by 10% the compensation of the members of the Board of Directors.

Detailed information about the total compensation of the members of the Board of Directors is provided in a special section of the Report on Corporate Governance and on the Company’s Ownership Structure.

9. The Board of Statutory Auditors monitored compliance with the law and the Articles of Incorporation and with the principles of sound management, ensuring that all transactions approved and executed by the Board of Directors complied with the applicable statutes and the Bylaws, were financially sound, were not manifestly imprudent or reckless, did not give rise to potential conflicts of interest, were not in conflict with resolutions approved by the Shareholders’ Meeting and did not compromise the integrity of the Company’s assets.

The Board of Directors reserves for its exclusive jurisdiction all significant transactions with related parties, which, as the Board of Directors specified, include, in addition to transactions with Transalpina di Energia (“TdE”), the Company’s controlling shareholder, and TdE’s shareholders, also transactions with the shareholders of TdE’s shareholders and group companies owned by these parties, all of which have been classified as “Significant Parties.” Additional information about this issue is discussed in Section 3 above, keeping in mind that all of the abovementioned Significant Parties are classified as Related Parties for the purposes of the new procedure approved in accordance with Consob Resolution No. 17221/2010.

The Board of Statutory Auditors believes that the governance tools and systems adopted by the Company provide adequate assurance that the principles of sound management are being followed in operating practice.

10. The Board of Statutory Auditors monitored the adequacy of the organizational structure of the Company and the Group by gaining an understanding of the organizational structure, obtaining information from the relevant departments and through meetings with managers of various Company functions, the manager of the Internal Control Systems Department and the Independent Auditors, with whom it exchanged data and information.

The Board of Directors, acting directly or through governance bodies delegated to represent it, is responsible for managing the Company. In order to strengthen its managerial function, a series of issues that are especially significant for Edison S.p.A. and the subsidiaries of Edison S.p.A. are reserved for the Board’s exclusive jurisdiction and, consequently, cannot be delegated to individual Directors. Pursuant to the Bylaws, the Chairman of the Board of Directors and the Chief Executive Officer are the Company’s legal representative vis-à-vis third parties and in court proceedings.

The Chairman of the Board of Directors does not have operational authority, serving instead in an institutional, guidance and control function. The Chief Executive Officer has the most ample powers to manage the Company.

The organizational structure of the Company and the Group can be defined as a system of organizational communications, by which the Chief Executive Officer appoints the managers of the various departments and business units, and a system for the delegation of authority, consistent with the assigned responsibilities, the attribution guidelines of which are established within the framework of the Model 231/2001. Similar organizational communications issued by the managers of the different departments and business units and reviewed by the Chief Executive Officer, are used to define the organizational structure at a more operational level. All employees can access these organizational communications on the Company Intranet.

11. In monitoring the adequacy and effectiveness of the system of internal controls, also with regard to the requirements of Article 19 of Legislative Decree No. 39/2010, the Board of Statutory Auditors met on a regular basis with managers of the Internal Control Systems Department and other Company departments and relied on the information obtained by the Chairman of the Board of Statutory Auditors by attending relevant meetings of the Audit Committee and the Oversight Board of the 231/2001 Model.

Edison’s System of Internal Controls is a structured and organic set of rules, procedures and organizational structures, applied pervasively throughout the Company, to prevent or minimize the impact of unexpected results and allow the achievement of the Company’s strategic and operating objectives (i.e., consistency of the activities with the desired objectives, effectiveness and efficiency in conducting its operations, and protection of the corporate assets), compliance with applicable laws and regulations, and accurate and transparent internal and market communications (reporting). The Board of Directors, working with the support of the Audit Committee, (i) defines the guidelines of the System of Internal Controls; (ii) regularly reviews the main risks faced by the Company, as defined by the Chief Executive Officer, who is responsible for implementing the guidelines of the system of internal controls; and (iii) assesses the adequacy, efficacy and effectiveness of the System of Internal Controls at least once a year.

The system of internal controls includes an Internal Auditing Unit, which is responsible for providing support to the Board of Directors, the Audit Committee and the Company’s management. The manager of this unit, part of the Internal Control Systems Department, whom the Board of Directors appointed to the post of Internal Control Officer, is responsible for assessing the adequacy and effectiveness of the overall system of internal controls. The activity of the Internal Control Officer is carried out primarily through an annual plan of auditing and compliance engagements and includes monitoring the actual implementation of recommendations issued in connection with auditing engagements (follow up).

The Group uses additional tools to monitor progress toward the achievement of operational and compliance objectives, including a structured and periodic planning, management control and reporting system, a financial risk governance system (commodity and foreign exchange risks primarily), a system to manage Company risks in accordance with Enterprise Risk Management (ERM) principles, and the accounting control model required by Law No. 262/2005 in the area of financial disclosures.

As part of the ERM activities, the Company developed a map of the main business risks by implementing a structured risk mapping and risk scoring activity, carried out through a risk selfassessment process that involved all department and business unit managers.

Edison’s Risk Officer is responsible for coordinating the risk management process, supporting management in defining the overall strategy and risk policies; analyzing, identifying, assessing and managing risks; and defining and managing an appropriate control and reporting system. Periodically, the Board of Statutory Auditors, working with managers of the relevant department, reviewed changes in the risk map based on ERM methods.

Edison adopted the organizational model required pursuant to Legislative Decree No. 231/2001 (“231 Model”). The Model is designed to prevent the perpetration of the unlawful acts referred to in the abovementioned Decree and, consequently, shield the Company from administrative liability. The 231 Model, of which the Code of Ethics is an integral part, was adopted following an analysis of the Company’s operations to identify activities with a risk potential. It includes a series of general principles, rules of conduct, control tools, administrative procedures, training and information programs, and disciplinary systems that are designed to prevent, as much as possible, the occurrence of the abovementioned crimes. The Board of Directors also established an Oversight Board (OB), which is responsible for ensuring that the 231 Model is functioning effectively and is kept up to date, and is required to report to the Board of Directors and the Board of Statutory Auditors every six months. The members of the OB include an outside professional, who serves as Chairman, and two independent Directors. The Chairman of the Board of Statutory auditors attends the meetings of the OB (6 in 2010).

The Company has been using for some time a procedure for the internal management and external communication of documents and information concerning its activities as an issuer of securities, with special emphasis on insider information. This procedure is an integral part of the 231 Model. This procedure was amended in 2010 to make it more consistent with regulatory changes introduced to reflect European Union rules governing market abuse and to address operational issues that developed in connection with the procedure’s implementation.

In the area of internal dealing, in addition to the obligations that already exist pursuant to the regulations concerning market abuse, the Board of Directors, acting pursuant to law, introduced an obligation to refrain, during certain periods of the year, from executing transactions that involve financial instruments issued by the Company.

In 2010, there were no transactions executed by Directors or Statutory Auditors for which disclosure to the market and the regulatory authorities was required.

Lastly, the Board of Statutory Auditors interfaced on an ongoing basis with the Internal Control Systems Department to monitor the implementation of the internal auditing plan and its findings, both during the design phase and in analyzing completed engagements and any related follow-up activities.

As mentioned earlier in this report, the Board of Statutory Auditors, through its Chairman, attended the meetings of the Audit Committee and the Oversight Board and analyzed the semiannual reports sent by these entities to the Board of Directors.

12. In addition, the Board of Statutory Auditors monitored the adequacy of the Company’s administrative and accounting system and its reliability in presenting accurately the results from operations, through direct observations, by obtaining information from the managers of the relevant departments, reviewing Company documents and analyzing the information produced by the Independent Auditors. Acting pursuant to law and based on the mandatory recommendation of the Board of Statutory Auditors, the Board of Directors appointed a Corporate Accounting Documents Officer, who was awarded the powers and attributions that the law requires and was provided with sufficient authority and resources to discharge his duties.

The Board of Directors approved an “Accounting Control Model Pursuant to Law No. 262/2005,” the purpose of which is to establish the guidelines that must be applied within the Edison Group to satisfy the obligations set forth in Article 154-bis of Legislative Decree No. 58/1998 with regard to the preparation of corporate accounting documents and comply with the resulting certification requirements, and authorized the Chief Executive Officer, acting through the Corporate Accounting Documents Officer, to implement the abovementioned Model.

The preparation of accounting disclosures and of statutory and consolidated financial statements is governed by the Group Accounting Manual and by the other administrative and accounting procedures that are part of the Model adopted pursuant to Law No. 262/2005, including the fast closing procedure. The Model adopted pursuant to Law No. 262/2005 includes official procedures concerning the impairment test, performed in accordance with IAS 36. As in the past, the analysis of the recoverable values of goodwill and other assets was carried out with the support of a highly qualified independent expert and approved by the Board of Directors on April 21, 2011. A detailed description of the methods and assumptions applied is provided in Note 17 to the consolidated financial statements. The performance of the impairment test and its results were analyzed and discussed at meetings of Audit Committee, which were attended by the Chairman of the Board of Statutory Auditors, and at meeting held by the Board of Statutory Auditors, which constantly monitored the implementation of the test through discussions with company managers, the independent expert and the Independent Auditors.

The Board of Statutory Auditors is cognizant of the attestations issued by the Chief Executive Officer and Corporate Accounting Documents Officer of Edison S.p.A. regarding the adequacy of the administrative and accounting system, in light of the Company’s characteristics, and the effective implementation of the administrative and accounting procedures required for the preparation of the separate financial statements of Edison S.p.A. and the consolidated financial statements of the Edison Group.

Lastly, the Board of Statutory Auditors monitored the financial information reporting process, obtaining information from Company managers and by other means.

13. The Board of Statutory Auditors monitored the process adopted to ensure the concrete implementation of the corporate governance rules set forth in the 2006 updated edition of the Corporate Governance Code published by Borsa Italiana (the “Code”), with the support of the Corporate Affairs Department. The Report on Corporate Governance and on the Company’s Ownership Structure lists the limited number of Code recommendations that the Board of Directors chose not to adopt and explains the reasons for these choices.

The main rules of corporate governance, as defined after September 16, 2005, the date that TdE became Edison’s controlling shareholder, have been incorporated into Edison’s Bylaws and reflect the provision of the framework agreement executed on May 12, 2005 by Electricitè de France S.a. and its WGRM Holding 4 S.p.A. subsidiary and A2A S.p.A. and its Delmi S.p.A. subsidiary and of the Shareholders’ Agreement executed by the same parties to address issues concerning the management and corporate governance of Edison and TdE (the “Governance Agreements”). The governance rules set forth in the Governance Agreements have been incorporated into Edison’s Bylaws for the sake of transparency and to disclose to the market the governance rules of the Company’s controlling entity.

The abovementioned Governance Agreements expire on September 15, 2011 and will be automatically renewed for three years, unless one of the parties cancels them before the expiration date of September 15, 2011. New terms recently agreed to by the parties included the elimination of the previous requirement that notice of cancellation should be given six months before the expiration date and the stipulation that upon the end of the term of office of the current Board of Directors, which will coincide with the Shareholders’ Meeting convened to approve the 2010 financial statements, the new Board of Directors of Edison S.p.A. will be elected for a term of just one year.

The Company established an Audit Committee, a Compensation Committee and a Strategy Committee as internal committees of the Board of Directors. Based on the general guidelines provided in the Governance Agreements, the Board of Directors approved special resolutions setting forth the specific attributions of each committee.

The Company’s Board of Directors is comprised of 13 Directors, including 12 non-executive Directors. The Board of Directors qualified three of the non-executive Directors as independent Directors, based on affidavits submitted by the Directors. Based on information available to the Company and provided by the Directors, the Board of Directors assessed compliance with the independence requirements. The Board of Statutory Auditors monitored this assessment process, performing tests for issues under its jurisdiction, determining that the criteria and procedures chosen by the Board of Directors to assess compliance with independence requirements were being correctly implemented and that the requirements applicable to the composition of the Board of Directors as a whole were being complied with.

In addition, the Board of Statutory Auditors ascertained that its members met the same independence requirements as the Directors and adopted the Code’s recommendation requiring its members to disclose any personal or third-party interest in specific transactions submitted to the Board of Directors for approval. In 2010, there were no instances in which the members of the Board of Statutory Auditors were required to make such a disclosure.

Lastly, the Board of Directors performed a self-assessment with regard to the size, composition and activities of the Board itself and its Committees, using a questionnaire that was filled out by all Directors. The findings of the self-assessment process, which were presented at a meeting of the Board of Directors on March 14, 2011, provided an overall positive assessment of the activities of the Board of Directors and its Committees.

In 2010, following the resignation of the Directors Pierre Gadonneix and Didier Calvez, the Board of Directors coopted, at meetings held on February 8, 2010 and June 29, 2010, respectively, (i) the Director Henri Proglio, who was confirmed by the Shareholders’ Meeting of March 23, 2010, and (ii) the Director Thomas Piquemal.

In addition, the Directors Marc Boudier and Gerard Wolf resigned effective January 14, 2011 and, on the same date, the Board of Directors coopted Bruno Lescoeur and Jean-Louis Mathias as their replacements.

Additional information about the Company’s corporate governance is provided in the Report on Corporate Governance and on the Company’s Ownership Structure, with regard to which the Board of Statutory Auditors has no objections requiring disclosure to the Shareholders’ Meeting.

14. The Board of Statutory Auditors monitored the adequacy of the instructions provided by the Company to its subsidiaries pursuant to Article 114, Section 2, of Legislative Decree No. 58/98, making sure that the subsidiaries were providing the information needed to comply with statutory disclosure requirements, and has no objections.

15. Lastly, the Board of Statutory Auditors verified directly compliance with the provisions of the statutes governing the preparation of the draft separate financial statements and consolidated financial statements at December 31, 2010, the respective accompanying Notes and the Report of the Board of Directors. It accomplished this task through direct observations and with the support of managers of Company departments and representatives of the Independent Auditors.

Specifically, the Board of Statutory Auditors attests that the separate and consolidated financial statements of Edison S.p.A. at December 31, 2010 were prepared in accordance with the International Financial Reporting Standards (“IFRS international accounting principles”) issued by the International Accounting Standards Board, as published in the Official Journal of the European Union (OJEU).

The oversight and control activity carried out by the Board of Statutory Auditors, as described above, did not uncover any significant facts that would require mention in this Report to the Shareholders’ Meeting or reporting to oversight and control entities.

Based on the foregoing considerations, which provide an overview of its activities in 2010, the Board of Statutory Auditors has no remarks, as would be required pursuant to Article 153 of Legislative Decree No. 58/1998, with regard to issues under its jurisdiction concerning the separate and consolidated financial statements, the accompanying notes and the report on operations, and concurs with the motion submitted to the Shareholders’ Meeting by the Board of Directors to replenish the loss reported in 2010.

The Shareholders’ Meeting convened to approve the 2010 financial statements marks the end of the term of office of the Board of Directors and Board of Statutory Auditors elected by the Shareholders’ Meeting of April 2, 2008. The Board of Statutory Auditors therefore recommends that the shareholders take appropriate action with regard to this issue.

Milan, April 4, 2011

The Board of Statutory Auditors
Alfredo Fossati, Chairman
Angelo Maria Palma, Statutory Auditor
Leonello Schinasi. Statutory Auditor