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					CONSOLIDATED
FINANCIAL STATEMENTS


2010
Consolidated Financial
Statements 2010
SUMARIO




 1             2




Independent   Consolidated
Auditor’s     Financial
Report        Statements
page 5        page 9




               3




              Informe
              de Gobierno
              Corporativo
3               4




Consolidated   Certification
Management
Report
page 159       page 271
1
Independent
Auditor’s
Report
                                                         / CONSOLIDATED FINANCIAL STATEMENTS


NOTICE: This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.




                             INDEPENDENT
                             AUDITOR’S REPORT
                             Ernst & Young, S.L. was re-elected auditor of IBERDROLA, S.A. and of IBERDROLA, S.A. and its
                             Consolidated Group pursuant to resolutions adopted at the General Shareholders’ Meeting held on
                             March 26, 2010, following a proposal of the Audit and Risk Supervision Committee of the Board of
                             Directors of IBERDROLA,S.A. dated January 25, 2010.



                             The criteria for apponting and hiring the auditor, as well as the supervisory powers of the Audit
                             and Risk Supervision Committee, are contained in the “Annual Corporate Governance Report of
                             IBERDROLA, S.A.” for fiscal year 2010.




                               6      Independent Auditor’s Report
INFORME AUDITORÍA
INDEPENDIENTE
Ernst & Young, S.L. fue reelegido auditor de cuentas de IBERDROLA, S.A. y de IBERDROLA, S.A. y
su Grupo Consolidado por la Junta General de Accionistas de IBERDROLA, S.A., celebrada el 20 de
marzo de 2009, previo informe favorable de la Comisión de Auditoría y Cumplimiento del Consejo
de Administración de IBERDROLA,S.A. de fecha 26 de enero de 2009.



Los criterios para el nombramiento y contratación del auditor de cuentas, así como la función de
supervisión por parte de la Comisión de Auditoría y Cumplimiento, son recogidos en el “Informe
Anual de Gobierno Corporativo de IBERDROLA, S.A.” correspondiente al ejercicio 2010.




                                                                                                   7
2
Consolidated
Financial
Statements
                                                 / CONSOLIDATED FINANCIAL STATEMENTS



Translation of Consolidated Financial Statements originally issued in Spanish and prepared in accordance with IFRS, as adopted by the European Union (Note 52).
In the event of a discrepancy, the Spanish-language version prevails.



IBERDROLA, S.A. AND SUBSIDIARIES
Consolidated Statements of Financial Position at 31 December 2010 and 2009 and 1 January 2009
                                                                                                                                           Thousands of euros
                                                                                                                 December 31, 2009         January 1, 2009
                                                                                              December             (Reexpressed             (Reexpressed
                                                                            Note               31, 2010              Note 2.a)(*)             Note 2.a)(*)
 NON-CURRENT ASSETS:
 Intangible assets                                                            8               18,222,861              18,825,129               18,401,332
  Goodwill                                                                                      7,830,563               7,588,687                7,254,953
  Other intangible assets                                                                     10,392,298              11,236,442                11,146,379
 Investment property                                                          9                   418,793                 387,802                  438,750
 Property, plant and equipment                                                10              50,202,245              45,406,990               42,527,707
  Property, plant and equipment in use                                                        43,831,369              39,982,816               35,945,454
  Property, plant and equipment under construction                                              6,370,876               5,424,174                6,582,253
 Non-current financial assets                                                                   2,636,156               2,769,744                6,610,673
  Investments accounted for using the equity method                          11.a                 775,960                 636,131                  940,987
  Non-current equity instruments                                             11.b                 712,371                 923,342                1,056,662
  Other non-current financial assets                                         11.d                 625,842                 668,187                3,693,070
  Derivative financial instruments                                            24                  521,983                 542,084                  919,954
 Non-current trade and other receivables                                      12                 478,995                  487,454                  337,764
 Deferred tax assets                                                          26                3,487,732               3,142,453               3,242,897
                                                                                              75,446,782               71,019,572               71,559,123
 CURRENT ASSETS:
 Nuclear fuel                                                                 14                  279,676                 286,774                  293,532
 Inventories                                                                  15                1,971,233               2,151,541                2,331,147
 Current trade and other receivables                                          16                5,819,237               5,102,655                5,127,455
 Current financial assets                                                                       6,924,074               6,196,965                3,188,542
  Current equity instruments                                                 11.c                       35                311,391                    9,992
  Other current financial assets                                             11.d               5,967,782               4,486,196                  669,856
  Derivative financial instruments                                            24                  956,257               1,399,378                2,508,694
 Income tax receivable                                                        27                 588,732                  661,031                  484,641
 Other tax receivables                                                        27                  569,361                 501,837                  533,116
 Cash and cash equivalents                                                    17                2,101,857               1,090,619                2,086,614
                                                                                              18,254,170              15,991,422               14,045,047
 TOTAL ASSETS                                                                                 93,700,952               87,010,994              85,604,170

 (*) The Consolidated Statement of Financial Position at 31 December 2009 and 1 January 2009 are presented for comparative purposes only.
 The accompanying Notes 1 to 52 and the Appendix are an integral part of the Consolidated Statements of Financial Position at 31 December 2010 and 2009 and
 at 1 January 2009.




                            10     Annual Consolidated Financial Statements
Translation of Consolidated Financial Statements originally issued in Spanish and prepared in accordance with IFRS, as adopted by the European Union (Note 52).
In the event of a discrepancy, the Spanish-language version prevails.



IBERDROLA, S.A. AND SUBSIDIARIES
Consolidated Statements of Financial Position at 31 December 2010 and 2009 and 1 January 2009
                                                                                                                                            Thousands of euros
                                                                                                                 December 31, 2009          January 1, 2009
                                                                                               December            (Reexpressed              (Reexpressed
                                                                             Note               31, 2010             Note 2.a)(*)              Note 2.a)(*)
 EQUITY:
 Of shareholders of the Parent                                                18               29,078,799              26,636,654               23,364,585
  Share capital                                                                                   4,112,882              3,939,243                 3,751,743
  Unrealised assets and liabilities revaluation reserve                                          (360,243)               (213,239)                (218,561)
  Other reserves                                                                                24,474,576              22,565,366               20,608,598
  Treasury shares                                                                                (284,332)               (232,614)                (915,584)
  Translation differences                                                                       (1,735,008)             (2,246,437)              (2,722,217)
  Net profit for the year                                                                       2,870,924               2,824,335                2,860,606
 Of non-controlling interests                                                                    2,584,271               2,393,198                2,344,481
                                                                                               31,663,070              29,029,852               25,709,066
 EQUITY INSTRUMENTS HAVING THE SUBSTANCE OF A FINANCIAL
                                                                               19                  652,282                 671,446                  797,626
 LIABILITY


 NON-CURRENT LIABILITIES:
 Deferred income                                                              20                 4,463,483               3,709,641                2,854,674
 Provisions                                                                                     3,642,941                3,461,819               3,544,423
  Provisions for pensions and similar obligations                              21                1,260,798               1,255,559                 1,221,227
  Other provisions                                                            22                2,382,143               2,206,260                2,323,196
 Bank borrowings                                                                                26,397,550              27,289,002               24,336,956
  Bank borrowings-loans and others                                            23               25,916,689              26,628,829               23,069,148
  Derivative financial instruments                                            24                   480,861                 660,173                 1,267,808
 Other non-current payables                                                   25                  296,630                 327,032                  406,718
 Deferred tax liabilities                                                     26                 8,773,704               7,880,560                 7,004,581
                                                                                               43,574,308              42,668,054               38,147,352
 CURRENT LIABILITIES:
 Provisions                                                                                       508,611                  678,116                 719,045
  Provisions for pensions and similar obligations                              21                     8,583                 13,753                     7,095
  Other provisions                                                            22                  500,028                 664,363                   711,950
 Bank borrowings                                                                                 6,937,475               5,592,359                9,656,187
  Bank borrowings and other financial liabilities-loans and others            23                5,902,157               4,282,871                8,173,638
  Derivative financial instruments                                            24                  1,035,318              1,309,488                1,482,549
 Trade and other payables                                                                       10,365,206                8,371,167              10,574,894
  Trade payables                                                              28                 6,208,228               5,463,907                5,403,635
  Income tax payable                                                          27                   743,724                 384,520                  477,352
  Other tax payables                                                          27                   542,189                 762,364                  920,769
  Other current liabilities                                                                      2,871,065                1,760,376               3,773,138
                                                                                                 17,811,292             14,641,642               20,950,126
 TOTAL EQUITY AND LIABILITIES                                                                   93,700,952              87,010,994               85,604,170

 (*) The Consolidated Statement of Financial Position at 31 December 2009 and 1 January 2009 are presented for comparative purposes only. The accompanying
 Notes 1 to 52 and the Appendix are an integral part of the Consolidated Statements of Financial Position at 31 December 2010 and 2009 and at 1 January 2009.




                                                                                                                                  11
                                                 / CONSOLIDATED FINANCIAL STATEMENTS



Translation of Consolidated Financial Statements originally issued in Spanish and prepared in accordance with IFRS, as adopted by the European Union (Note 52).
In the event of a discrepancy, the Spanish-language version prevails.



IBERDROLA, S.A. AND SUBSIDIARIES
Consolidated Income Statements for the years ended 31 December 2010 and 2009
                                                                                                                                           Thousands of euros

                                                                                                                                         December 31, 2009
                                                                                                                                            (Reexpressed
                                                                                                  Note          December 31, 2010        Notes 2.a and 2.c) (*)
 Net revenue                                                                                       30                 30,431,034               25,891,938
 Procurements                                                                                      32                (18,785,835)             (15,103,954)
                                                                                                                       11,645,199              10,787,984
 Staff costs                                                                                       33                 (2,158,723)              (2,161,428)
 Capitalised staff costs                                                                           33                    453,958                  459,053
 Outside services                                                                                                      (2,174,164)             (2,205,882)
 Other operating income                                                                                                   670,107                  618,250
                                                                                                                      (3,208,822)              (3,290,007)
 Taxes other than income tax                                                                                            (908,408)                (682,712)
                                                                                                                        7,527,969                6,815,265
 Depreciation and amortisation charge, allowances and provisions                                   35                 (2,698,228)              (2,306,082)
 OPERATING PROFIT                                                                                                       4,829,741                4,509,183
 Result of companies accounted for using the equity method - net of taxes                         11.a                     27,356                   32,437
 Finance income                                                                                    37                   1,626,254                1,360,178
 Finance cost                                                                                      38                  (2,914,141)             (2,469,623)
 Gains on disposal of non-current assets                                                           36                     276,109                  241,107
 Losses on disposal of non-current assets                                                                                  (4,334)                (15,824)
 PROFIT BEFORE TAX                                                                                                     3,840,985                 3,657,458
 Income tax                                                                                        26                   (899,270)                (718,770)
 NET PROFIT FOR THE YEAR                                                                                                2,941,715               2,938,688
 Non-controlling interests                                                                                               (70,791)                (114,353)
 NET PROFIT FOR THE YEAR ATTRIBUTABLE TO THE EQUITY HOLDERS
                                                                                                                       2,870,924                2,824,335
 OF THE PARENT
 EARNINGS PER SHARE IN EUROS (BASIC AND DILUTED)                                                   50                       0.527                    0.532

 (*) The Consolidated Income Statement at 31 December 2009 is presented for comparative purposes only. The accompanying Notes 1 to 52 and the Appendix
 are an integral part of the Consolidated Income Statements for the year ended 31 December 2010 and 2009.




                           12    Annual Consolidated Financial Statements
Translation of Consolidated Financial Statements originally issued in Spanish and prepared in accordance with IFRS, as adopted by the European Union (Note 52).
In the event of a discrepancy, the Spanish-language version prevails.



IBERDROLA, S.A. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income for the years ended 31 December 2010 and 2009
                                                                                                                                              Thousands of euros
                                                                           2010                                     2009 (Reexpressed Note 2.a) (*)
                                                                          Of Non-                                                Of Non-
                                                                        controlling                                            controlling
                                                    Of the Parent        interests           Total         Of the Parent        interests             Total
 NET PROFIT RECOGNISED DIRECTLY IN
 EQUITY
 In other reserves                                    (108,197)             (772)         (108,969)          (163,319)                 119         (163,200)
  Actuarial gains and losses on pension
                                                     (159,373)             (1,269)        (160,642)          (211,625)                 193         (211,432)
  schemes (Note 21)
   Electricity for employees                              5,172                   -            5,172          (21,374)                    -         (21,374)
   United Kingdom                                      (93,641)                   -         (93,641)        (304,668)                     -        (304,668)
   U.S.A                                               (70,330)            (1,269)          (71,599)          106,142                  193          106,335
   Brazil                                                 8,172                   -            8,172             8,275                    -           8,275
   Others                                               (8,746)                   -          (8,746)                  -                   -                   -
  Tax effect                                             51,176               497            51,673            48,306                  (74)          48,232
 In unrealised asset and liability
                                                      (147,004)           (5,669)         (152,673)              5,322           (9,347)             (4,025)
 revaluation reserves (Note 18)
  Change in the value of available-for-sale
                                                     (196,868)                    -       (196,868)           107,981                     -          107,981
  investments
  Change in the value of cash flow hedges               79,985            (8,858)             71,127         (176,163)          (14,708)           (190,871)
  Tax effect                                           (30,121)             3,189          (26,932)            73,504              5,361             78,865
 In translation differences                            511,429             68,690           580,119           475,780              8,928            484,708
 NET PROFIT RECOGNISED DIRECTLY IN
                                                       256,228             62,249           318,477           317,783               (300)           317,483
 EQUITY
 NET PROFIT FOR THE YEAR                             2,870,924             70,791         2,941,715         2,824,335            114,353          2,938,688
 TOTAL INCOME AND EXPENSES
                                                      3,127,152          133,040          3,260,192         3,142,118            114,053           3,256,171
 RECOGNISED IN THE YEAR

 (*) The Consolidated Statement of Comprehensive Income for 2009 is presented for comparative purposes only. The accompanying Notes 1 to 52 and the
 Appendix are an integral part of The accompanying Notes 1 to 52 and the Appendix are an integral part of the Consolidated Statements of Comprehensive
 Income for the year ended 31 December 2010 and 2009.




                                                                                                                                  13
                                                               / CONSOLIDATED FINANCIAL STATEMENTS



Translation of Consolidated Financial Statements originally issued in Spanish and prepared in accordance with IFRS, as adopted by the European Union (Note 52).
In the event of a discrepancy, the Spanish-language version prevails.



IBERDROLA, S.A. AND ITS SUBSIDIARIES
Consolidated Statements of Changes in Equity for the years ended 31 December 2010 and 2009
                                                                                                                                                                                              Thousands of euros
                                                                                                Other reserves                                  Unrealised
                                                                                                                                                assets and
                                                                                  Reva-                              Other                       liabilities
                                Issued         Treasury           Legal          luation            Share         restricted                   revaluation      Transla-     Net profit       Non-con-
                                capital         shares           reserve        reserves          Premium          reserves        Retained       reserve      tion diffe-    for the          trolling
                               (Note 18)       (Note 18)        (Note 18)       (Note 18)         (Note 18)        (Note 18)       earnings      (Note 18)       rences        year           interests        Total
 As at 1 January 2010          3,939,243       (232,614)         750,348        1,389,408 13,015,498                 86,270        7,323,842    (213,239) (2,246,437)        2,824,335        2,393,198 29,029,852
 Comprehensive Income
                                           -               -                -               -                 -                -   (108,197)    (147,004)        511,429     2,870,924         133,040        3,260,192
 for the period
 Operations with
 partners or owners
  Profit Distribution                      -               -       37,500                   -                 -                -   2,788,617               -             - (2,824,335)                    -      1,782
 Transactions with treasury
                                           -    (51,718)                    -               -                 -                -     (4,586)               -             -                -               -    (56,304)
 shares (Note 18)
  Free capital increase
                                173,639                    -                -   (173,639)                     -                -     (1,616)               -             -                -               -     (1,616)
 (Note 18)
 Free allowances
                                           -               -                -               -                 -                -   (609,647)               -             -                -               -   (609,647)
 acquisition (Note 18)
 Other changes in Equity
  Share based payment
                                           -               -                -               -                 -                -       9,821               -             -                -               -      9,821
 transactions
  Other changes                            -               -                -               -                 -                -    (29,043)               -             -                -     58,033          28,990

 As at 31 December 2010        4,112,882       (284,332)         787,848        1,215,769 13,015,498                 86,270        9,369,191   (360,243) (1,735,008)         2,870,924        2,584,271 31,663,070




                                                                                                                                                                                              Thousands of euros
                                                                                                Other reserves                                  Unrealised
                                                                                                                                                assets and
                                                                                  Reva-                              Other                       liabilities
                                Issued         Treasury           Legal          luation            Share         restricted                   revaluation      Transla-     Net profit       Non-con-
                                capital         shares           reserve        reserves          Premium          reserves        Retained       reserve      tion diffe-    for the          trolling
                               (Note 18)       (Note 18)        (Note 18)       (Note 18)         (Note 18)        (Note 18)       earnings      (Note 18)       rences        year           interests        Total
 As at 1 January 2009
 (Reexpressed                  3,751,743       (915,584)         749,061        1,389,408 11,877,998                 86,270        6,505,861    (218,561) (2,722,217)        2,860,606        2,344,481 25,709,066
  Note 2.a) (*)
 Comprehensive Income
                                           -               -                -               -                 -                -   (163,319)         5,322       475,780     2,824,335         114,053        3,256,171
 for the period
 Operations with
 partners or owners
 Distribution of 2008 Profit
                                           -               -        1,287                   -                 -                -   1,957,320               -             - (2,860,606)                    -   (901,999)
 – Dividends
  Transactions with treasury
                                           -    682,970                     -               -                 -                -   (212,032)               -             -                -               -    470,938
  shares
  Capital increase (Note 18)        187,500                -                -               -     1,137,500                    -    (19,292)               -             -                -               -   1,305,708

  Interim dividend                         -               -                -               -                 -                -   (751,082)               -             -                -               -   (751,082)

 Other changes in Equity
  Share based payment
                                           -               -                -               -                 -                -     24,086                -             -                -               -     24,086
 transactions
  Other changes                            -               -                -               -                 -                -    (17,700)               -             -                -    (65,336)        (83,036)
 As at 31 December 2009
 (Reexpressed                  3,939,243       (232,614)         750,348        1,389,408 13,015,498                 86,270        7,323,842    (213,239) (2,246,437)        2,824,335        2,393,198 29,029,852
 Note 2.a) (*)

  (*) The Consolidated Statement of Changes in Equity for 2009 is presented for comparative purposes only. The accompanying Notes 1 to 52 and the Appendix
 are an integral part of the Consolidated Statements of Changes in Equity for the year ended 31 December 2010 and 2009.




                               14      Annual Consolidated Financial Statements
Translation of Consolidated Financial Statements originally issued in Spanish and prepared in accordance with IFRS, as adopted by the European Union (Note 52).
In the event of a discrepancy, the Spanish-language version prevails.



IBERDROLA, S.A. AND SUBSIDIARIES
Consolidated Statements of Cash Flow for the years ended 31 December 2010 and 2009
                                                                                                                                            Thousands of euros
                                                                                                                                             December 31,
                                                                                                                    December 31,                 2009
                                                                                                    Note                2010              (Reexpressed 2.a) (*)
 Cash flows from operating activities:
  Profit before tax                                                                                                     3,840,985                3,657,458
  Non cash - adjustments for
   Depreciation and amortisation charge, allowances, provisions and staff costs for pensions      21, 33, 35            2,922,741                2,534,654
   Result of companies accounted for using the equity method net of taxes                            11                  (27,356)                (32,437)
   Grants credited to income                                                                         35                  (48,440)                 (88,926)
   Finance income and costs                                                                        37, 38              1,287,887                1,109,445
   Gains from disposal of non-current assets                                                                            (271,775)                (225,283)
 Changes in working capital
   Change in trade and other receivables                                                                                (630,506)                1,232,701
   Change in inventories                                                                                                 165,997                  186,364
   Change in trade and other payables                                                                                  1,698,371                (989,060)
   Effect of translation differences on working capital of foreign companies                                           (341,075)                 (116,981)
   Change in non-current receivables and other payables                                                                   (21,943)               (229,376)
   Provisions paid                                                                                                     (422,397)                (329,995)
   Income taxes paid                                                                                                    (599,479)                (616,732)
   Interests received                                                                                                    348,468                  365,196
   Dividends received                                                                                                      17,586                   24,128
 Net cash flows from operating activities                                                                              7,919,064                6,481,156
 Cash flows from investing activities:
  Change in cash due to changes in consolidation method and/or scope                                                     (39,757)                        -
  Investments in intangible assets                                                                    8                 (324,379)                (366,976)
  Investments in associates                                                                          11                  (98,283)                 (11,715)
  Investments in equity investments                                                                  11                   49,735                  (18,975)
  Other investments                                                                                  11                   43,019                  (31,918)
  Investments in investment property                                                                  9                   (16,083)                 (6,780)
  Investments in property, plant and equipment                                                       10               (5,225,914)             (4,578,372)
  Changes in working capital due to current financial assets                                                           (1,466,937)               (960,032)
  Income taxes paid                                                                                                      (91,042)                  (4,890)

  Proceeds from disposals of non-financial assets                                                                       1,312,424                 300,838

  Proceeds from disposals of financial assets                                                                            279,597                  433,466

 Net cash flows from investing activities                                                                              (5,577,620)             (5,245,354)

 Cash flows from financing activities:

  Free allowances acquisition                                                                        18                 (609,647)                        -

  Dividends paid                                                                                     18                          -            (2,366,630)

  Proceeds from borrowings                                                                                              6,910,774                9,933,861

  Repayment of borrowings                                                                                            (6,665,988)             (10,788,946)

  Grants related to assets                                                                                                502,500                  587,842

  Interest paid including capitalised interest                                                                        (1,490,900)              (1,486,247)

  Proceeds from capital increase                                                                     18                    (1,616)               1,305,708

  Treasury shares acquisition                                                                        18                (358,242)                (457,920)

  Proceeds from disposals of treasury shares                                                         18                   301,938                 928,845

 Net cash flows from financing activities                                                                             (1,411,181)             (2,343,487)

 Effect of exchange rate changes on cash and cash equivalents                                                              80,975                  111,690

 Net increase in cash and cash equivalents                                                                             1,011,238                (995,995)

 Cash and cash equivalents at 1 January                                                                                 1,090,619                2,086,614

 Cash and cash equivalents at 31 December                                                                              2,101,857                1,090,619


 (*) The Consolidated Cash Flow Statement for 2009 is presented for comparative purposes only. The accompanying Notes 1 to 52 and the Appendix are an
 integral part of the Consolidated Cash Flow Statements for the year ended 31 December 2010 and 2009.



                                                                                                                                     15
                     / CONSOLIDATED FINANCIAL STATEMENTS




IBERDROLA, S.A.
AND ITS SUBSIDIARIES
Notes to the Consolidated Financial Statements for year ended December 31, 2010



1. GROUP ACTIVITIES

Pursuant to Article 2 of its Bylaws, the corporate purpose of Iberdrola, incorporated in Spain with limited liability
(Sociedad Anónima) (hereinafter “IBERDROLA”) is as follows:
    - To carry out all manner of activities and construction work and provide services required for, or related
       to, the production, transmission, switching and distribution or retailing of electric power or electricity by-
       products and their applications, and involving the raw materials or primary energies required for electric
       power generation, energy, engineering, computer and telecommunications services, services relating to
       the Internet, the treatment and distribution of water, the integral provision of urban and gas retailing
       services, and other gas storage, regasification, transmission or distribution activities, which will be provided
       indirectly through the ownership of shares or other equity investments in companies that do not engage in
       the retailing of gas.
    - The distribution, representation and marketing of all manner of goods and services, products, articles,
       merchandise, computer programs, industrial equipment, machinery, machine and hand tools, spare parts
       and accessories.
    - To engage in the research, study and planning of investment and corporate organisation projects, and to
       promote, set up and develop industrial, commercial and service companies.
    - To provide assistance and support services to the Group companies and other investees, providing for them
       the guarantees and collateral required for this purpose.
IBERDROLA’s registered address is at Calle Cardenal Gardoqui 8, in Bilbao.
  The aforementioned activities may be performed in Spain and abroad, and may be performed totally or
partially either directly by IBERDROLA or through the ownership of shares or other equity investments in other
companies, subject in all cases to the legislation applicable at any given time and, in particular, to the legislation
applicable to the electricity industry (Note 3).
  In general, the corporate purpose of the subsidiaries consists of the production, switching, distribution and
retailing of electricity and gas, the provision of telecommunications services and the performance of real estate
and other related activities in Spain and abroad.


2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL
STATEMENTS

a)    Applicable accounting legislation

The IBERDROLA Group’s 2010 Consolidated Financial Statements were prepared by the Directors on 22 February
2011, in accordance with International Financial Reporting Standards (IFRSs), as adopted by the European Union,
in conformity with Regulation (EC) no. 1606/2002 of the European Parliament and of the Council. The Directors
of IBERDROLA expect these Consolidated Financial Statements to be approved at the General Shareholders’
Meeting without modification.
   The IBERDROLA Group’s Consolidated Financial Statements corresponding to the year 2009 were approved at
the General Shareholders’ Meeting on 26 March 2010.
   These Consolidated Financial Statements have been prepared on a historical cost basis, except for available-for-
sale financial assets and derivative financial instruments, which have been measured at fair value. The carrying
amounts of assets and liabilities hedged by fair value hedges are restated to reflect variations in their fair value as
a result of the risk hedged.




 16    Annual Consolidated Financial Statements
  In the preparation of the 2010 Consolidated Financial Statements, the IBERDROLA Group applied the
following standards for the first time:
• IFRIC 12: “Service concession arrangements”.
• IFRIC 15: “Agreements for the construction of real estate”.
• IFRIC 16: “Hedges of a net investment in a foreign operation”.
• IFRIC 17: “Distributions of non-cash assets to owners”.
• IFRIC 18: “Transfers of assets from customers”.
• IAS 27: “Consolidated and separate financial statements” (Reviewed), which is amended to clarify with greater
  precision than the previous version of IAS 27 the treatment of minority interests and transactions where an
  entity loses control of a subsidiary.
• IFRS 3: “Business combinations” (Reviewed).
• IFRS 1: “First-time adoption of IFRS” (Reviewed).
• Amendments to IFRS 1: “Additional exemptions for first-time adopters".
• Amendments to IAS 39: “Financial instruments: Recognition and measurement - Eligible hedged items”.
• Improvement to standards of April 2009.
• Amendments to IFRS 5 “Non-current assets held for sale and discontinued operations” for improvements
  issued in May 2008.
• Amendments to IFRS 2 “Share-based Payments”
  Regarding the entry into force of these standards, the following parragraphs should be considered.
  IFRIC 12: “Service concession arrangements” concerning public-private service concession arrangements that
meet two prerequisites:
• the grantor controls or regulates which services the operator must provide using the assets, to whom, and at
  what price; and
• the grantor controls any significant residual interest in the assets at the end of the term of the arrangement.
  Infrastructure within the scope of a service concession agreement should not be recognised as property,
plant and equipment of the operator, because the operator does not have the right to control the use of the
infrastructure.
  If the operator performs more than one service (i.e. operation services and construction or upgrade
services), the consideration received under the agreement for provision of services is recognised separately
in the Consolidated Income Statement, pursuant to the standards applicable in each case: IAS 18: "Revenue
recognition" and IAS 11: "Construction contracts".
  The IFRIC 12 establishes two ways in which the consideration received may be recognised for construction or
upgrading services:
• As a financial asset: if the operator has an unconditional contractual right to receive cash from the grantor.
• As an intangible asset: if the operator does not have such a right, but instead has a right to charge users of the
  public service.
  The IFRIC 12 mainly affects the electricity distribution activities developed in Brazil by the IBERDROLA Group.
Remuneration for network construction and upgrade work carried out by the IBERDROLA Group in this country
consisted on the one hand of an unconditional right to receive cash and, on the other, of the right to pass on
certain amounts to consumers. As a result, the application of IFRIC 12 has meant removing the distribution
facilities in Brazil from “Property, plant and equipment” in the Consolidated Statement of Financial Position and
recognising two different assets for the two types of consideration received:
• An available-for-sale financial asset, which is accounted for under “Other non-current financial assets” on the
  Consolidated Statement of Financial Position, for EUR 135,618 thousand, EUR 83,572 thousand and EUR
  57,158 thousand at 31 December 2010, 31 December 2009, and 1 January 2009, respectively (Note 11.d).




                                                                                                                  17
                    / CONSOLIDATED FINANCIAL STATEMENTS




• An intangible asset, amortisable in the concession period, which is recorded under “Other intangible assets”
  on the Consolidated Statement of Financial Position, the value of which at 31 December 2010, 31 December
  2009 and 1 January 2009 totalled EUR 967,490 thousand, EUR 782,852 thousand and EUR 530,735 thousand,
  respectively (Note 8).
  In addition, as the IBERDROLA Group’s Brazilian subsidiaries presented grants received for financing their
facilities, under “Deferred income” in the Consolidated Statement of Financial Position, due to the application of
IFRIC 12, this caption in the Consolidated Statement of Financial Position at 31 December 2009 and 1 January
2009 decreased by EUR 367,793 thousand and EUR 249,043 thousand, respectively.
  The retrospective application of IFRIC 12 led to an increase in the IBERDROLA Group’s consolidated equity at
31 December 2009 and 1 January 2009 of EUR 124 thousand and EUR 964 thousand, respectively.
  The IBERDROLA Group has applied this interpretation retrospectively. Thus, and in accordance with IAS 1
and IAS 8, these Consolidated Financial Statements include a Consolidated Statement of Financial Position at 1
January 2009, while the comparative balances for year 2009 include the aforementioned adjustments.
  Given the complexity of applying IFRIC 12, it has been very challenging to estimate the impact thereof on the
Consolidated Financial Statements. Future changes in this estimate shall be recognised prospectively.
  Furthermore, IFRIC 18: “Transfers of assets from customers” applies to agreements in which an entity receives
from its customers items of property, plant, and equipment that must be used either to connect these customers
to a network or provide them with ongoing access to a supply of goods or services, or both, and those in which
the entity receives cash from customers for the construction of such items of property, plant, and equipment for
the same purpose.
  In transfers of items of property plant and equipment, the entity must establish whether the transferred items
meet the definition of an asset set out in the Framework of IFRS. If so, it measures the transferred asset at fair
value under the Property, plant and equipment caption of the Consolidated Statement of Financial Position.
IFRIC 18 states that this fair value must be recognised with a credit to revenue, in one of the two following ways:
     •	 If the entity considers the installation received as payment for connecting the customer to its network, the
        fair value is charged immediately to the Consolidated Income Statement.
     •	 If the entity considers the installation received as payment for ongoing access to the supply of goods
        and services, the fair value is recognised in the Consolidated Income Statement over the period of the
        agreement with the customer. If the agreement does not specify a period, the revenue shall be recognised
        over a period no longer than the useful life of the transferred asset.
  When the entity receives cash for development of the facility, it recognises the asset at acquisition cost and the
cash received is accounted for in the Consolidated Income Statement as described above for transfers of tangible
assets.
  The IBERDROLA Group considers that it receives facilities or the cash required to construct them in payment
for ongoing access to the network which it will provide to the system, guaranteeing third-party access to the
transmission and distribution networks in the agreed technical and financial conditions, and that this service
will be provided throughout the useful life of the corresponding facilities. As a result, IBERDROLA recognises
both the cash received and the fair value of the facilities received as a credit under “Deferred income” on the
Consolidated Statement of Financial Position in order to subsequently record them under “Other operating
income” on the Consolidated Income Statement as the facilities are depreciated.
  The rest of the standards applied by the Iberdrola Group for the first time in 2010 did not have a significant
effect on these Consolidated Financial Statements.
  Meanwhile, the standards approved by the European Union whose application was not mandatory for 2010
did not entail significant changes in these Consolidated Financial Statements.
  In addition, the IFRSs provide certain alternatives for its application, including most notably the following:
     - Interests in joint ventures may be proportionately consolidated or accounted for by the equity method.
        The same method must be applied to all the Group’s interests in joint ventures. The IBERDROLA Group
        proportionately consolidates all its investments in companies over which it shares control with the
        shareholders.
     - Intangible assets and assets recorded under “Property, plant and equipment” and “Investment property”
        may be measured at market value or cost, less any accumulated amortisation and any accumulated
        impairment losses. The IBERDROLA Group decided to measure these assets at adjusted acquisition cost.
     - Under IFRSs, actuarial differences exceeding the higher of 10% of the actuarial present value of guaranteed
        benefit or 10% of the market value of the plan assets, and differ over the average remaining life of the
        employees covered by the pension plan, may be allocated to income. Alternatively, the actuarial differences
        that arise in relation to its defined benefit obligations may be allocated to reserves. The IBERDROLA Group
        decided to recognise the full amount of the actuarial variances charged or credited, as appropriate, to
        reserves.




 18   Annual Consolidated Financial Statements
     - Under IFRSs, grants related to assets can be treated in two ways: the amount of the grants related to assets
       received for the acquisition of the assets can be deducted from the carrying amount of the assets or they
       can be set up as deferred income on the liability side of the Consolidated Statement of Financial Position.
       The IBERDROLA Group opted for the latter treatment.


b)     Basis of consolidation

   The subsidiaries over which the IBERDROLA Group exercises control are fully consolidated, except when they
are scantly material with respect to presenting fairly the accounts of the IBERDROLA Group.
   The IBERDROLA Group considers that it has control over a company when it has the power to govern its
financial and operating policies, so as to obtain benefits from its activities.
   The entities that the IBERDROLA Group manages jointly with other companies are proportionately
consolidated.
   The associates over which the IBERDROLA Group does not exercise control but does have a significant influence
were accounted for in the Consolidated Statement of Financial Position by the equity method. For the purposes
of these Consolidated Financial Statements generally, it is considered that a significant influence is exercised over
companies in which the Group has an ownership of over 20% and it can be proven that such significant influence
exists.
   In addition, there are specific cases that, despite having a lower ownership percentage, a significant influence
can be demonstrated and, therefore, the equity method is applied. In the specific case of Gamesa Corporación
Tecnológica, S.A. (hereinafter, GAMESA, Note 11.a), this significant influence is demonstrated, inter alia, by the
fact IBERDROLA , being the main shareholder, has two representatives on this company’s board of directors,
which has ten members, and there are significant transactions between both companies.
   The Appendix to these Consolidated Financial Statements contains a detail of the subsidiaries, jointly
controlled entities and associates of IBERDROLA, together with the consolidation or measurement basis used in
preparing the Consolidated Financial Statements and other disclosures relating thereto.
   The closing date used of the financial statements of subsidiaries, jointly controlled entities and associates is 31
December. These companies’ accounting policies are the same as or have been conformed to those used by the
IBERDROLA Group in preparing these Consolidated Financial Statements.
   The financial statements of each of the foreign companies have been prepared in their respective functional
currencies, defined as the currency of the economy environment in which each company operates and in which it
generates and uses cash.
   The operations of IBERDROLA and of the consolidated subsidiaries and jointly controlled entities are
consolidated in accordance with the following basic principles:
     1. On acquisition, the assets, liabilities and contingent liabilities of a subsidiary are recognised at their
        market value. Any excess of the cost of acquisition of the subsidiary over the market value of its assets and
        liabilities, in proportion to the Parent’s ownership interest, is recognised as goodwill, as it corresponds to
        assets that cannot be separately identified and measured.
        If the difference is negative, it is recognised via a credit to income in the Consolidated Income Statement.
        The results of the subsidiaries acquired or disposed of during the year are included in the Consolidated
        Income Statement from the effective date of acquisition or until the effective date of disposal.
     2. Goodwill arising from business combinations has not been amortised since 1 January 2004, the date of
        transition to IFRSs, although it is reviewed to ascertain whether any impairment loss should be recognised
        once a year.
     3. The result of accounting for investments using the equity method (after eliminating the results on intra-
        Group transactions) is classified under “Other reserves” and “Result of companies accounted for using the
        equity method- net of taxes” in the Consolidated Statement of Financial Position and Consolidated Income
        Statement, respectively.
     4. The interest of minority shareholders in the equity and results of the fully consolidated subsidiaries and
        of the subsidiaries of proportionately consolidated jointly owned entities is presented under “Equity – Of
        non-controlling interests” on the liability side of the Consolidated Statement of Financial Position and “non-
        controlling” in the Consolidated Income Statement, respectively.




                                                                                                                   19
                      / CONSOLIDATED FINANCIAL STATEMENTS




      5. Gain or losses on acquisitions from non-controlling interests in companies over which the Group exercises
         control and sales transactions without loss of control are recognised against or credited to reserves.
      6. The financial statements of foreign companies were translated to euros using the year-end exchange rate
         method. This method consists of translating to euros all the assets, rights and obligations at the exchange
         rates prevailing at the date of the Consolidated Financial Statements; the Consolidated Income Statement
         items at the average exchange rates for the year; and equity at the historical exchange rates at the date
         of acquisition (or in the case of retained earnings at the average exchange rates for the year in which
         they were generated provided that there are no significant transactions that make the use of the average
         exchange rate inappropriate), as appropriate. The resulting translation differences are taken directly to
         reserves.
      7. All balances and transactions between the fully and proportionately consolidated companies were
         eliminated on consolidation.


c)       Comparability of information

Additionally to what it is indicated in Note 2.a) about the effects of IFRIC 12, there has been made a modification
on the figures of these Consolidated Income Statement at 31 December 2009.
Last resort supply was established in Spain on 1 July 2009 (Note 3). As the IBERDROLA Group considers this
to be a regulated activity, “Net revenue” in the 2009 Consolidated Income Statement only includes the supply
margin commanded in the last resort supply.
The IBERDROLA Group considers recognising sales to end last resort customers separately from purchases of
energy for self-supply in “Net revenue” and “Procurements” of the Consolidated Income Statement for that year
to be a better way of giving a true and fair view of the last resort supply.
As a result, the IBERDROLA Group, as provided for in IAS 8, has applied the same presentation policy in 2009.
Therefore, the balances of “Net revenue” and “Procurements” in the 2009 Consolidated Income Statement
included in these Consolidated Financial Statements are EUR 1,332,997 thousand higher each than the amounts
shown in the IBERDROLA Group’s Consolidated Financial Statements for the year ended 31 December 2009.


3. INDUSTRY REGULATION AND FUNCTIONING OF THE
ELECTRICITY AND GAS SYSTEM


a)      Industry Regulation and functioning of the Electricity System in Spain

Both IBERDROLA and certain of the fully and proportionately consolidated subsidiaries engage in electricity
business activities in Spain and abroad (see the Appendix to these Consolidated Financial Statements) that are
heavily affected by the respective regulatory frameworks. Following is a description of the main regulations
affecting the IBERDROLA Group:


Spain
The electricity sector is currently regulated by the Electricity Industry Law 54/1997, of 27 November 1997. This
Law and its subsequent updates have transposed the provisions contained in Directives 96/92/CE and 2003/54/
CE concerning common rules for the Electricity Internal Market into Spanish Law.
   Electricity Industry Law 54/1997, of 27 November, and the subsequent implementing legislation established,
inter alia, the following principles:
1) Separation of activities:
It prescribes a separation between the activities carried out in the competitive sector and others that are
considered to be regulated activities. Companies that carry out any activities defined by the Law as regulated
(economic and technical management of the system, transmission and distribution) must have these as their sole
corporate purpose and cannot, therefore, engage in unregulated activities (generation, supply, to either eligible
or last resort customers, other activities unrelated to electricity or activities abroad). In addition, it prescribes a
separation between regulated and deregulated activities for accounting purposes.




 20     Annual Consolidated Financial Statements
  However, a group may carry out incompatible activities provided that these are done by different companies
within it.
  In addition, Law 17/2007, which transposed European Directive 2003/54/EC, introduced the functional
separation of regulated activities.
2) Introduction of competition in the power generation activity through the following measures:
    - Since 1 January 1998, the producers of electricity, other than the special cases and exceptions provided
      for in the Law, have tendered hourly bids for the selling price of electricity of each of the production units
      owned by them. The operating order of the production units is established on the basis of the lowest bids
      made until demand is satisfied in each programming period as a result of matched supply and demand.
      There is also the option of recourse to the intraday markets (six every day), where operators can adjust their
      positions relative to what they offered on the daily market. Meanwhile, the production facilities contribute
      to the provision of whatever additional services may be necessary to guarantee adequate supply, obtaining
      additional remuneration for such services. The organisation and regulation of the electricity production
      market was defined and implemented by Royal Decree 2019/1997, of 26 December.
      Although forward trading was initially subject to stringent regulatory constraints, these obstacles have now
      been eliminated enabling levels to reach those of highly developed markets.
    - In 2007 instituted the regulation of auctions to buy energy that would then be supplied at the regulated
      tariff (“CESUR”). Since 1 July 2009, the last resort suppliers have acquired energy for supply to customers
      signed up for the Last Resort Tariff. The outcome of the auctions feeds into the calculation of the additive
      rate for Last Resort Tariffs.
    - The installation of new generating facilities is deemed to be liberalised, without prejudice to the
      obtainment of the necessary authorisations.
    - Producers are entitled to use in their generating facilities the primary energy sources that they deem most
      appropriate, subject to such restrictions in respect of the environment, etc. as might be provided for in
      current legislation.
    - The new Law envisages the possibility of giving operating priority to facilities which use Spanish energy
      sources (national coal, etc.), up to a limit of 15% of the total amount of primary energy required for
      electricity production, provided that this is compatible with the free market. In this respect, Royal Decree
      134/2010 establishes a “Security of Supply Restriction” procedure guaranteeing a minimum amount
      of electricity production using domestic coal. This minimum annual production must comply with the
      aforementioned 15% limit at all times. A certain maximum output level from domestic coal is defined for
      certain public service groups. Accordingly, regulated remuneration is established for these groups designed
      to reflect the full costs of providing the defined public service. At 31 December 2010, the government had
      not yet started applying this procedure.
    - Plants not exceeding 50 MW of installed capacity that qualify as co-generation facilities under Law
      54/1997 or plants whose primary energy source is renewable can come under the Special Regime, with a
      separate regulatory system and remuneration that is different from the market price.
    - On May 28, 2007, the government published Royal Decree 661/2007, which regulates the production of
      electricity under the Special Regime, replacing the previous Royal Decree 436/2004. The main implications
      of this Royal Decree for the economic framework for electricity generation by the IBERDROLA Group are
      the following:
       a) Owners of facilities commissioned after 31 December 2007 must select, for periods of one year or
           more, between the following two options:
           - To supply the grid through the transmission or distribution network in exchange for a regulated
              tariff.
           - To sell electricity on the spot electricity generation market either at the applicable sales price on
              the organised market or at the price freely negotiated between the facility owner, plus, where
              appropriate, a premium. In this instance, there are minimum and maximum prices in place.
       b) Facilities commissioned prior to 31 December 2007 (except photovoltaic solar farms) must elect,
           before 1 January 2009, whether to remain within the regime provided for in Royal Decree 436/2004
           or to switch to the new one. This Royal Decree establishes two remuneration schemes. The first
           consists of supplying electricity to the electricity distributor at the pre-existing price set for this
           modality, without scope for future resetting. The second option consists of selling electricity onto the
           wholesale generation market at the prevailing price plus the incentive and premium provided for in
           said Royal Decree when the new legislation was published, also without update.




                                                                                                                 21
                    / CONSOLIDATED FINANCIAL STATEMENTS




     c) On 26 September 2008 the government published Royal Decree 1578/2008, on remuneration for
        electricity generation via solar photovoltaic technology for installations brought into service after the
        date for continued application of the remuneration system set out in Royal Decree 661/2007, of 25
        May, for this technology. This Royal Decree establishes premiums of between 32 and 34 euro cents per
        kWh generated and sets a system of inscription (“convocatorias”) for the allocation of pre-established
        quotas and feed-in tariffs, such that only those projects submitted that fall within the pre-defined
        quotas are eligible to receive the feed-in tariff. Allocations are based on chronological order of the
        applications received. The feed-in tariff declines as the pre-defined quotas are met.
     d) Royal Decree Law 6/2009 establishes a register for pre-allocation of remuneration covering all
        technologies included under the Special Regime except photovoltaic energy, requiring registration
        of a project before it is eligible to receive remuneration in accordance with Royal Decree 661/2007.
        Projects are registered in chronological order, and must meet some administrative requirements and
        guarantees must be provided. All registered facilities have the right to be remunerated in accordance
        with Royal Decree 661/2007, although the total amount may not surpass the limit established in this
        legislation. If the total amount of capacity registered in a single category is below the established limit,
        the subsequent projects will be entitled to this remuneration up to the limit.
     e) Towards the end of 2010, a number of regulations affecting the Special Regime were published:
        Royal Decree 1565/2010, Royal Decree 1614/2010 and Royal Decree Law 14/2010. These amend the
        remuneration of the various technologies as follows:
        • Wind power. The benchmark premiums for 2011 and 2012 are reduced for wind farms accessing the
          market under Royal Decree 661/2007 by 35%. A limit is placed on equivalent hours of operation of
          the wind farms, whereby hours that exceed the limit are not eligible for the related premium. For
          the individual wind farm limit to be triggered, the national level must also exceed the overall limit.
        • Solar thermal. The regulations state that during the first year of either the life of the plant or from
          enactment of Royal Decree 1614/2010, these plants may only choose the regulated tariff option
          (the market option disappears). Limits are also placed on equivalent hours in accordance with the
          technology of each plant.
        • Photovoltaic. The number of years of eligibility to obtain the premium is limited to 28 (previously
          there was no limit). Limits are also placed on equivalent hours of operation according to the
          technology and the climate area after which the plants no longer receive the premium (tentatively
          until 2013, more restrictive equivalent hours than those established in general).
3) Guarantee of the proper functioning of the system, by means of the following measures:
   -    System:
        • Red Eléctrica de España, S.A. carries on the Transmission Management and System Operation
          activities which, pursuant to the Law, have been unbundled for accounting purposes. As System
          Operator, it is responsible for managing the adjustment markets to guarantee a balance between
          energy production and consumption.
   -    Market:
        • In 1998, OMEL, S.A was created for managing the Spanish electricity peninsular market. The
          “offshore” system was run following its own rules.
        • Iberian Electricity Market. On 1 October 2004, Spain and Portugal agreed the International
          Convention setting up an Iberian Market for Electric Power between the Kingdom of Spain and the
          Republic of Portugal. In January 2008, this agreement was revised at the Braga Summit to comply
          with the March 2007 Regulatory Compatibility Plan.
        • Since July 2006 the Portuguese and Spanish forward markets have operated together and since July
          2007 the short-term markets. Several of the measures described above are designed to implement a
          single Iberian Market for Electricity.
        • Currently, the Operation of the Iberian Market is split between two companies: OMIE (OMI-Polo
          Español) which is responsible for managing the daily and intraday markets for MIBEL and futures
          auctions for last resort demand in the Spanish system, and OMIP (OMI-Polo Portugués) which runs
          the overall MIBEL futures markets.




 22   Annual Consolidated Financial Statements
            • The International Convention between the Portuguese Republic and the Kingdom of Spain, setting up
               a single Iberian market for electricity, revised according to Braga Agreement in Braga on 18 January
               2009, envisaged the creation of “the Iberian Market Operator” (Operador del Mercado Ibérico, OMI)
               by merging OMIE and OMIP, via two shareholding companies with head offices in Spain and Portugal,
               10% cross-shareholdings and a corporate structure comprising the current two market operating
               companies. This reorganisation process was mostly completed as of 31 December 2010.
4) Legislation applying to regulated activities:
   Spanish Electricity Industry Law 54/1997 establishes that Distribution and Transportation activities are
not subject to the competition and market regime and thus, their remuneration is regulated. This overall
remuneration is calculated largely on the basis of the necessary costs taking into account a model characterizing
the distribution areas and of certain efficiency parameters.
   On 1 December 2000, Royal Decree 1955/2000, regulating the transmission, distribution, retailing and supply
activities and electricity facility authorisation procedures, was approved. The basic aim of this Royal Decree was to
establish the measures required to guarantee the supply of power and the authorisation procedures relating to all
electricity facilities that are the responsibility of the Spanish Government.
   On 15 February 2008, the government approved Royal Decree 222/2008, establishing the prevailing
remuneration framework for the electricity distribution business. Pursuant to this Royal Decree, the remuneration
paid for distribution activities will be set for regulatory periods of four years and will be calculated using a
reference network model as a technical comparison tool. A reference network model is a model that maps out,
for all Spanish territory, the areas in which each distributor is active and determines the reference distribution
network needed to link up the transmission network, where applicable, and distribution network with the final
consumers of electricity, based on their geographical location, feed voltage and demand for power and electricity.
   The reference remuneration of each distribution company will be calculated by summing together three
components:
    - Remuneration for investment, which will include a component corresponding to the straight-line
       depreciation of property, plant and equipment, and remuneration for net assets constituting distribution
       facilities, the latter determined on the basis of remuneration calculated according to the average cost of
       capital representative of the distribution business.
    - Remuneration for operating and maintenance, which will be determined according to the type and
       characteristics of the distribution facilities of each distributor, as well as their use.
    - Remuneration for all other costs necessary to the exercise of distribution activities, which will include
       commercial management, network planning and energy management costs.
   Order ITC 3801/2008 of 26 December on electricity rates modifies the quality incentives established in Royal
Decree 222/2008. In general, the incentive consists of comparing utilities’ global quality indicators with target
indicators, resulting in penalties or bonuses. The limits of the incentive/bonus are ±3% of the remuneration.
   Enacting legislation for the incentives for losses is Order ITC 2524/2009 of 8 September, which establishes
the margins for incentives and penalties at ±2% of the utility’s remuneration for the prior year. This incentive is
calculated as a function of the energy saved relative to the target, a price for losses and the power flowing through
the networks of distribution companies. It comes into effect on 1 January 2011.
   Order ITC 3353/2010 of 28 December establishes, according to the remuneration methodology based on
the reference network model, the final distribution remuneration for 2009 and 2010 (Note 4.y). Therefore, the
transitional period established in Royal Decree 222/2008 is finished.
   With regard to the electricity transmission business, Royal Decree 325/2008, establishing remuneration
for electricity transmission activities for facilities brought into service after 1 January 2008, provides that the
remuneration of each transmission facility commissioned after 1 January 2008, will consist of two components:
    - Remuneration for investment.
    - Remuneration for operating and maintenance costs.
   Facilities commissioned prior to 1 January 2008 will continue to be governed, for the most part, by the model
in place until 1998, after deduction of real physical units, and of standard investment, operating and maintenance
costs and other essential business costs.
5) New Access Tariffs review Mechanism
   On 24 September, Royal Decree 1202/2010 was published establishing the periods of review for the access tolls
to transmission and distribution networks for electricity. According to this regulation, in addition to its mandatory
obligation of reviewing access tariffs and tolls to transmission and distribution networks for electricity each year,
the Ministry of Industry, Tourism and Trade may review the tolls with a quarterly maximum frequency (previously
it was half-yearly) when temporary imbalances arise in the settlement of regulated activities in the industry or
when regulatory changes or special circumstances warrant. This allows for a better adjustment of income when
there are changes in the calculation of electricity system costs.




                                                                                                                  23
                     / CONSOLIDATED FINANCIAL STATEMENTS




6) Progressive liberalization of the electricity supply and introduction of the supply activity:
     - Law 54/1997 provided for the gradual deregulation of the electricity supply market, progressively giving
        each of the different types of customer segments the possibility of choosing their supplier. All electricity
        consumption has been deregulated since 1 January 2003. This means that consumers who so wish can
        freely contract their energy with the supplier of their choice, paying an access tariff for the right to use the
        networks.
     - The new regime gives qualifying customers and suppliers the right to use the transmission and distribution
        networks, setting a single toll applicable nationwide for use of the networks, without prejudice to any
        specialised services provided due to voltage and/or network usage requirements, or to the type of
        energy supplied, depending whether transmission or distribution networks are involved. Royal Decree
        1164/2001, published on 26 October 2001, established the access tariffs for the electricity transmission
        and distribution networks, passwords, which have been updated each year.
     - From 1 July 2009, the ‘Last Resort Supply' has been in place. Low-voltage customers connected with a
        contracted capacity of less than 10 kW who do not choose another supply option shall be supplied by
        a last-resort supplier at a price calculated automatically. This additive rate is called Last Resort Tariff.
        Iberdrola Comercialización de Último Recurso, S.A.U. has been designated, among others, as last resort
        suppliers of electricity and natural gas in Spain.
7) Price formation and tariff structure:
  On 4 July 2007, the government published Law 17/2007, amending the Spanish Electricity Industry Law
54/1997, of 27 November to bring it in line with the provisions of Directive 2003/54/EC of the European
Parliament and of the Council, of 26 June, 2003, on common standards for the domestic electricity market. This
law establishes the concept of last resort supply and the additive calculation mechanism used to set last resort
tariffs based on the cost of energy, the access tariff and an additional cost for commercial management. This was
developed through Royal Decree 485/2009 which implements the Last Resort Supply and sets the terms and
scope of application. Order ITC 1659/2009 lays down the mechanism for transferring customers from the tariff
market to last resort electricity supply and, specifically, the procedure for calculating and structuring Last Resort
Tariffs. Through this procedure, the Last Resort Tariff is calculated as an additive rate replicating supplier costs. In
this way, energy acquisition costs, regulated access tolls and supply costs are included.
  At the end of June, the Directorate General of Energy Policy and Mining issued a Resolution establishing the
cost of electricity production and last resort tariffs to be applied in the second half of 2009.
  In 2010, there have been three publications of Last Resort Tariff Prices were published for the first half of
the year on 31 December 2009. The tariff revision began operating quarterly from 1 July, with the related
Resolutions published on 30 June and 30 September.
8) Social Tariff:
  On 7 May 2009, Royal Decree-Law 6/2009 was published, adopting certain energy sector measures and
approving the social tariff (‘bono social’). Among the main features, it creates the social tariff for certain
consumers with certain social, consumption and purchase power characteristics supplied at the last resort
tariff at their normal residence. This tariff is calculated as the difference between last resort tariff and the
tariff indexed to a reference value, the so-called reduced tariff. This reduced tariff will be the prevailing tariff
applicable to domestic consumers at the date the Royal Decree-Law takes effect, although it may be modified
via the Ministry of Industry, Tourism and Trade order. Until these social and economic indicators are developed
for application, the social tariff will apply to natural persons in their normal residence supplied under the last
resort scheme with contracted capacity of less than 3 kW, to large families or families whose members are all
unemployed and to certain pensioners over 60 years of age receiving minimum pensions. Subsequently, the
General Secretary for Energy’s Resolution of 26 June establishes the procedure for implementing the social tariff.
  According to Royal Decree-Law 6/2009, financing of the social tariff will be split among owners of the
electricity generation facilities. This legislation also states that the financing and features of the social tariff will
be revised by order of the Ministry of Industry, Tourism and Trade at least every four years. In this respect, Royal
Decree-Law 14/2010 extends the period for the first revision of the financing until 1 January 2014, maintaining
the transitional financing provided for in the second transitional provision of Royal Decree-Law 6/2009.




 24    Annual Consolidated Financial Statements
9) Load Manager:
   Royal Decree-Law 6/2010 introduces the figure of the Load Manager, defined as follows:
   Grid load managers are companies which, while consumers, are authorised to resell electricity for power
recharging systems and store electricity for better management of the grid.
   The related regulations are outstanding for future development.
10) Emission allowances:
   Regarding environment regulations, the issue of CO2 emissions rights or “allowances” should be noted. This
concern the obligation placed on companies by Directive 2003/87/EC to hold an emission allowance for
every tonne of CO2 emitted by a plant. Royal Decree 1866/2004, of 6 September, as amended by Royal Decree
60/2005, of 21 January, set up a National Plan for the Allocation of Emission Allowances, as required by the
Directive. This plan came into effect on 1 January 2005 and ran for 3 years. Emission allowances allocated free
of charge to the Spanish electricity sector for 2005-2007 amounted to 269 million tonnes, of which 43 million
tonnes corresponded to facilities of the IBERDROLA Group (15 and 14 million tonnes for 2007 and 2006,
respectively) (Note 8).
   Subsequently, Royal Decree 1402/2007, amending Royal Decree 1370/2006, of 24 November, and approving
the National Allocation Plan for CO2 emission allowances for 2008-2012, allocated 270 million tonnes of CO2
to the electricity sector for this five-year period, of which 42 million tonnes correspond to IBERDROLA Group
facilities (compared with 9 million tonnes in 2009).
   On the other hand, Royal Decree-Law 3/2006 stated in article 2 that, as from 2 March 2006, remuneration for
electricity generated under the ordinary regime would be reduced by an amount equal to the value of greenhouse
gas emission allowances allocated free to power generators under the ordinary regime. This Royal Decree-Law
empowers the Government to implement the regulations of article 2, as occurred in 2006 when the publication
of Order ITC 3315/2007, of 15 November, regulated for 2006 the reduction in remuneration for electricity
generation by an amount equal to the value of the greenhouse gas emission allocations that were freely granted.
   Under the 2007 Order, for companies operating power generation plants who had to fund the revenue
shortfall, the corresponding deductions will be made from their accrued entitlements from their contributions
to funding the 2006 shortfall. The final amount of this shortfall was published in Royal Decree 485/2009, of 3
April, which regulated the introduction of the Last Resort supply (Note 4.y).
   Royal Decree-Law 11/2007 of 7 December, was implemented, extending the deduction from 1 January 2008
and obliging the owners of power generating plants to make an annual payment based on the free allocation
of greenhouse gas emission allowances under the National Plan for Allocation of greenhouse gas emission
allowances for 2008-2012.
   Notwithstanding the above, as consequence of publication of Royal Decree-Law 6/2009, of 30 April,
introducing certain measures in the energy sector and approving the social tariff, the Royal Decree-Law 11/2007
was repealed from 1 July, 2009, abolishing the integrated tariff system and introducing the last resort tariff in the
electricity sector from that date on.
   Orders ITC 1721/2009 and ITC 1722/2009, of 26 June, regulated for 2007 and for 2008 and the first half of
2009, respectively, the value of CO2 emissions allocated free of charge which would be netted from electricity
generation remuneration.
   In accordance with these Orders, the net amount deducted in 2007 would go to reduce the revenue shortfalls
for 2007 and subsequent years, and the deduction for 2008 and the first half of 2009 would go to reduce the
shortfall for 2008 and later years. This was accomplished through the new tariffs that came into effect on 1
January 2010 as Order ITC 3519/2009, of 28 December, revising access tolls with effect from 1 January 2010
and tariffs and premiums for special regime plants, stated that the net deductions in 2007 and 2009 would be
incorporated as revenue from regulated activities in 2009 and therefore, reduce the revenue shortfall for that
year.
   On 7 December 2010, the Supreme Court issued a ruling on the appeals filed by IBERDROLA against the
regulations governing the allocating of CO2 emission rights for the 2008-2012 period. The ruling accepted
IBERDROLA arguments and declared the discrimination of the allocation to coal technologies compared to gas
natural technologies unjustified.
11) Revenue shortfall:
   Electricity Industry Law 54/1997, of 27 November, introduced the liberalisation of electricity generation and
supply activities. However, it was noted that the sustainability of the system was heavily dependent on the tariff
system. The difference between the access tariff revenue established by the Government and real costs related
to these tariffs resulted in a revenue shortfall which led to problems and modifications in the functioning of the
system.




                                                                                                                  25
                     / CONSOLIDATED FINANCIAL STATEMENTS




   To fund this shortfall, which is deferred through the recognition of long-term collection rights recovered by
the annuities incorporated to annual fee, a series of measures have been adopted that so far have proven to be
insufficient.
   Royal Decree-Law 6/2009, of 30 April, sets limits to the increase of the deficit and defines a framework for
the gradual sufficiency of the access tolls. It also addresses the mechanism for funding the tariff deficit. This
Royal Decree states that from 1 January 2013, access tolls will be sufficient to meet the entire cost of regulated
activities, preventing the appearance of an ex-ante deficit. It also regulates the transitional period until that date,
limiting the revenue shortfall in the settlements of regulated activities in the electricity industry for 2009, 2010,
2011 and 2012 to EUR 3,500 million, EUR 3,000 million, EUR 2,000 million and EUR 1,000 million, respectively.
   In addition, it states that if the settlements of regulated activities in each period result in a higher revenue
shortfall than expected, the excess would be recognised in the provisions approving the access tolls for the
ensuing period.
   At the same time, it envisages the assignment of the related present and future collection rights to a
securitisation fund set up for this purpose, which will issue the related liabilities via a competitive mechanism in
the financial market with a Government guarantee.
   Royal Decree-Law 6/2010, of 9 April, reinforces the aim of eliminating the shortfall and is more precise
than the provisions of Royal Decree-Law 6/2009, while it also states that electricity companies designated to
temporarily finance the deficit are also required to finance the ex-ante deficits until the securitisation fund
makes the related issues. It also requires these companies to fund any temporary shortfalls above the ex-ante
deficit, recognising their right to receive the amounts financed, plus interest, in the following year through an
increase in access tariffs.
   Royal Decree 437/2010 implementing the securitisation process for the revenue shortfall in the Spanish
electricity system was published on the same date. This legislation specifies the collection rights and the
initial holders, regulates the method for determining the price and conditions of the assignment, and lays the
framework for the procedure for issuing the financial instruments comprising the fund’s liabilities.
   However, as the tariff increases preclude the established limits from being observed, Royal Decree-Law
14/2010 was published in December establishing urgent measures to correct the shortfall. Among other things,
this legislation raised the maximum limits for 2010, 2011 and 2012 to EUR 5,500, EUR 3,000 and EUR 1,500
million, respectively, and led to an amendment of the 2011 Spanish Budget Act to include up to EUR 22,000
million of guarantees for the electricity system shortfall securitisation fund.


b)    Industry Regulation and functioning of the Gas System in Spain

The natural gas sector in Spain has undergone significant changes in structure and operation in the last 10 years,
from a monopoly to a fully open market, driven mainly by the deregulation measures in European Directives
(1998/30/EC and 2003/55/EC) aimed at opening up markets and creating a single European gas market.
  These liberalised principles have been incorporated and developed in Spanish Law through Law 34/1998 on
the hydrocarbons sector, which began the deregulation process and, more recently, through Law 12/2007 which
completed it.
  The 1998 Hydrocarbons Law laid the foundations for the new gas system, particularly with regard to the
separation of activities (regulated and deregulated), the introduction of third-party access to the regulated
network, the abolition of the former concessions for piped gas supply and their conversion into regulated
administrative permits, and the establishment of a timetable for progressive market deregulation.
  In line with these principles, the gas system has been structured around two types of activities: regulated
activities (regasification, storage, transportation and distribution) and deregulated activities (trading and supply).
  With regard to the separation of activities, Law 34/1998 provides for the legal separation of deregulated and
regulated activities and the segregation for accounting purposes of the various regulated activities. In addition,
with the publication of Law 12/2007, Spain moved a step closer to achieving functional separation between
network activities and deregulated activities and between network activities and technical system management.
  Although the Hydrocarbons Law had established the general principles underpinning the new Spanish gas
system, the sector’s deregulation did not commence in practice until 2001, following publication of Royal
Decree-Law 6/2000, on urgent measures to intensify competition in the goods and services markets, and Royal
Decree 949/2001, regulating third party access to gas installations and establishing an integrated economic
system for the natural gas sector.




 26    Annual Consolidated Financial Statements
   The first of these decrees enacted certain elements of the Hydrocarbons Law with the aim of fostering
measures that would facilitate the elimination of entry barriers for new supply companies. In particular, it
created the Technical System Manager (ENAGAS, S.A.), provided for a 25% gas release under the contract for
natural gas brought from Algeria by means of the Maghreb pipeline, and brought forward the timetable for
deregulation.
   The second, Royal Decree 949/2001, established firstly the specific terms and conditions for third-party
network access and, secondly, a remuneration system for regulated activities - a cost-based system of tariffs, tolls
and charges structured according to pressure levels and consumption bands.
   The publication of the specific criteria to be applied for third-party network access (guarantees, capacity
assignment criteria, grounds for refusal, etc.) and the actual level of the tariffs, tolls and charges were key in
encouraging new operators to enter the market. The remuneration assigned to each company as well as the
tariffs, tolls and charges are updated periodically by Ministerial Orders and Resolutions.
   The economic system also established a settlement procedure that would allow for redistribution of revenues
collected in the form of tariffs, tolls and charges between the various regulated activities in accordance with the
remuneration method established. The body responsible for effecting this redistribution is the National Energy
Commission.
   Other issues related to the regulation of the transmission, distribution and supply businesses, the
administrative authorisation procedures for natural gas facilities and the regulation of certain aspects of the
supply business are dealt with in Royal Decree 1434/2002.
   As for the technical operation of the system, the operating regulations are established in Order ITC 3126/2005
enacting the Gas System Technical Management Rules. Inter alia, these regulations establish that each operator is
individually responsible for maintaining its liquidity and enact specific protocols for the conduct of the Technical
System Manager in exceptional operating circumstances.
   Despite the sector’s progressive deregulation, prevailing regulations uphold the State’s obligation to ensure
the safety and continuity of supply. To this end, Royal Decree 1766/2007 stipulates that direct market suppliers
and consumers must maintain minimum security stocks equivalent to 20 days’ consumption. In addition, it
limits the maximum percentage of gas supplies that may be sourced from a same country to 50%.
   The State also maintains responsibility for obligatory planning work for certain infrastructures (gas pipelines
forming the core transportation network, the secondary transportation network, determining the total liquid
natural gas regasification capacity necessary to supply the system and core natural gas storage facilities). For all
other infrastructures, the state’s planning work is provisional only. As part of this process, planning is carried out
by the Government with contributions from the Regional Governments of Spain and subsequently submitted to
the Congress for approval.
   As mentioned above, in Spain the deregulation process was completed with Law 12/2007 transposing
Directive 2003/55/EC. The two key changes enacted with this Law were the elimination of regulated supply and
the functional separation between network activities and deregulated activities.
   In the Spanish gas system, the market deregulation process was completed on 1 July 2008 with the
elimination of regulated supply for Group 3 customers and the creation of Last Resort Supply. Currently, low-
pressure customers with annual consumption of less than 50,000 kWh who do not choose another supply
option shall be supplied by a last-resort supplier at a price calculated automatically. This additive rate is called
the Last Resort Tariff.
   Iberdrola Comercialización de Último Recurso, S.A.U. has been designated as last resort supplier of electricity
and natural gas in Spain.


c)    International Regulation

1) Industry Regulation in the UK

  The principal laws that govern Scottish Power Ltd.’s (hereinafter “Scottish Power”) activities are the Electricity
Act 1989 (the “Electricity Act”) and the Gas Act 1986 (the “Gas Act”), as substantially amended and supplemented
by numerous subsequent enactments, including the Gas Act 1995, the Utilities Act 2000, the Energy Act 2004,
the Energy Act 2008, the Energy Act 2010 and various EU directives. Parts of the Energy Act 2008 and the Energy
Act 2010, as well as the “third package” EU directives are still in the process of being implemented.




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  Other laws relating to subjects such as environmental protection, health and safety, and planning and
competition are also very important parts of the framework in which Scottish Power operates. These laws
are enforced respectively by the Environment Agency (or in Scotland, the Scottish Environmental Protection
Agency); the Health & Safety Executive; local and national planning authorities; and the Office of Fair Trading
working concurrently with the Office of Gas and Electricity Markets (“OFGEM”).


The Authority
The Utilities Act replaced individual gas and electricity regulators with one regulatory authority, the Gas and
Electricity Markets Authority (“GEMA”), comprising a Chairman and other members appointed by the Secretary
of State for Energy and Climate Change. GEMA is supported by a non-ministerial Government department,
OFGEM. The main instrument of regulation used by GEMA is the licensing regime which in most cases requires
the various aspects of the energy industry (such as transmission, distribution, generation, supply) to be carried
out under a licence to which standard conditions apply. In addition, there are a number of statutory obligations,
known as “relevant requirements”, which are enforced by GEMA as if they were licence conditions.
  GEMA’s principal objective is to promote the interests of present and future consumers, wherever appropriate,
by promoting effective competition. The interests of such consumers are their interests taken as a whole,
including their interests in the reduction of greenhouse gases and in the security of the supply of gas and
electricity to them; and before GEMA protects consumers’ interests by means of competition they must consider
whether an alternative course of action would better protect those interests.
  In furthering this objective they must ensure that all reasonable demands for electricity and gas are met,
ensure that licence holders are able to finance the activities they are obliged to undertake, and contribute to the
achievement of sustainable development.
  Numerous other duties are also required to be taken into account, but do not override the principal duties.
They include the interests of customers who are disabled or chronically sick, of pensionable age, have low
incomes or are residing in rural areas. They also include the interests of users of other utilities, promoting the
efficient running of the companies in the industry, protecting the public from danger, securing a diverse and
viable long term energy supply, and complying with good regulatory practice.
  GEMA’s functions include the granting of licences (and their revocation in certain limited circumstances), the
proposing of changes to licence conditions (including the operation of price controls for the monopoly network
functions), and the review of industry code modifications and operating schemes for promoting renewable
electricity and energy efficiency.
  The Authority has power to impose monetary penalties for past and ongoing breaches of licence conditions
and relevant requirements. Fines can be up to 10 per cent. of the licensee’s applicable turnover. The Secretary
of State and GEMA have to provide an annual report to Parliament on the security of energy supply and also the
capacity of the network to deliver that energy.


Licences
Companies within the Scottish Power Group hold licences for various functions including:
    - The supply of electricity;
    - The generation of electricity;
    - The distribution of electricity in the South Scotland area;
    - The distribution of electricity in the Manweb area (Manchester and Wales);
    - The transmission of electricity in the South Scotland area;
    - The supply of gas;
    - The shipping of gas (that is, arranging to insert it into and remove it from the public network).
    - The transportation of gas to certain specific sites (such as proposed new gas fired power stations)
   The same company cannot hold both an electricity transmission or distribution licence and an electricity
supply licence or generation licence. Similarly the same company cannot hold a gas transporter licence and a gas
supply or gas shipper licence. However it is possible for different entities within the same group to hold such
licences.
   The conditions of licences regulate such matters as:
    - For network licensees, the quality of service and the charges that can be made.
    - For supply to domestic consumers, consumer protection provisions including rules on debt and
      disconnection, cost reflective pricing (especially in relation to payment methods) and on fair marketing.




 28   Annual Consolidated Financial Statements
    - For most types of licence, rules requiring adherence to industry codes that set down the detailed technical
      rules for operating the industry, and providing for OFGEM to determine whether proposed changes to the
      codes should go ahead.
  The Gas Act 1995 and Utilities Act 2000 introduced standard licence conditions to ensure that all holders
of a particular licence type are normally subject to the same conditions and to allow modifications to be made
collectively. The Secretary of State determined the initial standard licence conditions, although subsequent
modifications are made by GEMA. Modifications currently require that the great majority of all relevant licence
holders do not object. Conditions particular to an individual licensee are also allowed when appropriate and
changes to these require the licensee’s consent. Where licence modifications are blocked by the industry, OFGEM
has the opportunity to refer the matter to the Competition Commission. If the Commission concludes that the
public interest requires amendment to the licence conditions, OFGEM may impose amendments (subject to the
Competition Commission’s right of veto).
  The Government has indicated its intention to modify this process to remove the requirement for the consent
(or non-objection) of licence holders and replace it with a right to appeal the matter, on procedure and/or
substance, to the Competition Commission. These changes will be undertaken in pursuance of EU directives.
  The Energy Acts 2008 and 2010 and the new Energy Bill contain clauses allowing the Secretary of State to
modify licence conditions without the consent of the licence holders (and without appeal to the Competition
Commission) for certain specified purposes, including the introduction of smart meters, the introduction
of feed-in tariffs for small scale renewable or CHP generation, the creation of a renewable heat incentive,
implementing assistance schemes for people in fuel poverty, setting notice periods to be given for tariff changes,
the limitation of excessive returns in the balancing market, setting up the Green Deal energy efficiency scheme,
providing additional information on consumer bills and facilitating the proposed special administration regime
in the event of supplier insolvency. In most cases, these powers are time limited. Changes to licence conditions
can also be made without licensees’ consent in pursuance of an EU obligation, using powers in the European
Communities Act 1972.
  Where OFGEM makes a decision on modifying an industry code which runs contrary to the views of the
relevant industry governance body, the decision can, with certain exceptions, be appealed to the Competition
Commission.


Competition Legislation
GEMA also has concurrent powers with the Office of Fair Trading (“OFT”) to apply the Competition Act 1998
(“Competition Act”), the Fair Trading Act 1973 and the Enterprise Act 2002 (“Enterprise Act”) to the energy
sector in Great Britain. The prohibitions of the Competition Act are based on the provisions of Articles 81 and 82
of the EC Treaty and GEMA can levy fines of up to 10 per cent. of turnover for breaches of the prohibitions.
  Under the Enterprise Act GEMA and the OFT have powers to initiate a market investigation where it appears
that competition has been prevented, restricted or distorted by any feature of a market in Great Britain (or
for the OFT, the UK) for goods and services, so far as they relate to commercial activities connected with
the generation, transmission and supply of electricity, but where there has been no obvious breach of the
prohibitions on anti-competitive agreements or arrangements or abuse of a dominant position under the
Competition Act or under Articles 81 or 82 of the EC Treaty. Features that could be examined are the structure
of the electricity market (or any aspect of its structure), the conduct of companies operating within it, and the
conduct of such companies’ customers. The market is assessed according to a competition-based test.
  The Energy Act 2010 empowers the Secretary of State to create additional licence requirements in the area of
potential market abuses regarding transmission constraints. The new Government has not said whether they
intend to use these powers.




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                    / CONSOLIDATED FINANCIAL STATEMENTS




Price controls
Prices for the sale of electricity and gas by utilities to final consumers are not controlled in Great Britain. There
is no controlled tariff for certain categories of consumer, although all the major suppliers do offer preferential
tariffs for certain disadvantaged customers and have undertaken to the Government to spend a certain minimum
amount on these tariffs and other similar measures. Under the Energy Act 2010, the Government proposes
to require utilities to pay disadvantaged customers fixed rebates of a standardised sum, to be paid in a way
that does not distort competition. The existing preferential tariffs are expected to be phased out. OFGEM has
implemented licence modifications requiring any price variation by payment method to be cost reflective, and
also (as an interim measure) requiring broader non-discrimination in charges.
   Similarly, there are currently no controls other than those established in the Competition Act on prices
charged to commercial customers or on the wholesale electricity and gas markets.
   The networks are however recognised to be a natural monopoly. Their prices have been so far controlled
according to a five-year formula known as RPI-X. The regulator assesses the costs of an efficient network operator
and the likely capital programme in order to calculate the return needed to meet a target return on capital.
Various incentives are then added to the formula which also takes account of the Retail Prices Index ‘RPI’ and
any projected efficiency improvements ‘-X’ in order to calculate the permissible revenues for the network.
   This framework is being replaced by the new “RIIO” framework (Revenue set to deliver strong Incentives,
Innovation and Outputs) aiming to encourage energy network companies to:
     - Play a full role in the delivery of a sustainable energy sector (industry decarbonisation)
     - Deliver long-term value for money network services for existing and future consumers
   Several important changes as regards previous framework are to be applied over the next price reviews which
will affect regulatory periods of 8 years. According to OFGEM, “RIIO will first be used for the next transmission
and gas distribution price control reviews renamed RIIO-T1 and RIIO-GD1, respectively, which are due to be
implemented from April 2013, and then for the sixth electricity distribution price control review (from April
2015).”
   The Scottish Power transmission control was last reset in April 2007 and Ofgem proposes to extend it for a
year, with modifications, to allow time for the RIIO-T1 process to complete; the distribution controls for Scottish
Power’s networks in the South of Scotland and the Manweb were reset in April 2010 (DPCR5).


Other issues
Other key elements of the regulatory regime in Great Britain (GB) include:
   - The Renewables Obligation (RO). The UK government has set out a target of sourcing 30 per cent. of
     electricity from renewable sources by 2020 and it has introduced the Renewables Obligation scheme as
     the main support scheme for renewable electricity projects in the UK. The Renewables Obligation Orders
     (which apply separately to different parts of the UK within a unified scheme) place obligations on suppliers
     of electricity to source an increasing proportion of their electricity from renewable sources. Suppliers meet
     their obligations by presenting sufficient Renewables Obligation Certificates (ROCs). When suppliers do
     not have sufficient ROCs to meet their obligations, they must pay an equivalent amount into a fund, the
     proceeds of which are paid back to those suppliers that have presented ROCs in proportion to the number
     of ROCs presented. Since April 2009, the RO has been “banded” so that differing technologies will get
     different levels of support. The renewables obligation ends on 31 March 2027 for projects that started
     generation before 1 April 2009 and 20 years after the start of generation (but not later than 31 March
     2037) for later projects.
   - EU-ETS: like all EU Member States, generators in the UK participate in the EU Emissions Trading Scheme
     (EU ETS). The Department of Energy and Climate Change (DECC) has responsibility for administering the
     National Allocation Plan. So far, the majority of European Union Allowances (EUAs) have been issued as
     free allowances: the UK government decided to auction or sell 7 per cent. of EUAs issued under its Phase II
     NAP.3 From 2013, the government will be required to auction all allocations to the power sector. For the
     UK, the Kyoto agreement calls for a 12.5 per cent. reduction of greenhouse gas (GHG) emissions from 1990
     levels by 2008-2012, but the UK government has adopted more stringent targets. The Climate Change Act
     of 2008 set out a trajectory towards reducing GHG emissions from 1990 levels by at least 80 per cent. by
     2050, with interim reduction targets.




 30   Annual Consolidated Financial Statements
     - The Carbon Emissions Reduction Target (CERT). CERT is the government’s main policy instrument for
        improving energy efficiency in the domestic sector. It requires large energy suppliers to achieve a specified
        amount of carbon reduction, benchmarked against eligible measures such as cavity wall insulation, loft
        insulation and appliance improvements. CERT is due to run from April 2008 to December 2012.
     - The Community Energy Saving Programme (CESP). CESP is an additional energy efficiency programme
        operated by domestic energy suppliers and large generators which is designed to achieve concentrated
        energy efficiency upgrades, largely going beyond the normal CERT measures, in a small number of
        targeted areas of intense economic need. Like CERT, CESP ends on 31 December 2012.
     - In December 2010, the UK government published its proposals for Energy Market Refrom (EMR), aimed at
        providing a framework for the necessary investment for decarbonisation of Britain’s energy supply while
        maintaining security of supply and an acceptable level of costs. The elements of the proposals are
             - a floor price for carbon emitted by generators in the UK;
             - a new incentive scheme, based on feed-in tariffs and contracts for difference to support low carbon
               generation, with the RO preserved for plants commissioning until April 2017;
             - a capacity mechanism to support security of supply; and
             - an emission performance standard, to control the construction of high carbon plant.
  These proposals are being consulted upon during the Spring and the Government will then issue a White
Paper with definitive proposals after which legislation is likely to follow. The full details of the package are not
clear at this stage.
     - Integrated Pollution Prevention and Control (IPPC), the Large Combustion Plant Directive (LCPD) and
        the Industrial Emissions Directive (IED). This covers the regulatory regime for controlling pollution from
        certain industrial activities, including thermal combustion generation, and imposes limits on various
        categories of emissions. In particular, the LCPD limits the emission of sulphur dioxide (SO2), oxides of
        nitrogen (NOx) and particles from power stations, whereby operators of such plant had the option of
        meeting those requirements or accepting a limited hours derogation prior to closure by the end of 2015.
        The IED puts in place a similar regime for 2016 and beyond, with more stringent standards.
     - New nuclear power stations. The Energy Act 2008 sets out rules to ensure the proper funding of
        decommissioning for new stations and the Planning Act 2008 provides a new mechanism that will allow
        questions of development consent in England & Wales to be decided more quickly. These measures,
        together with the financial framework to be brought forward under EMR are expected to allow new
        nuclear power plants to be operational by 2018.
     - Offshore wind. The Energy Act 2004 brought in a regime for the permitting, connection and eventual
        decommissioning of offshore wind farms.
     - Green Deal: The Green Deal is the new UK Coalition Government’s flagship energy efficiency policy and
        the centre-piece of the forthcoming Energy Security and Green Economy Bill. The Green Deal has been
        designed to be the main vehicle for implementing upgrades to residential energy efficiency in the UK. It
        will be underpinned by a new supplier obligation that will replace the current Carbon Emission Reduction
        Target (CERT) and Community Energy Savings Programme (CESP) after 2012.
  The aim of the Green Deal is to encourage energy efficiency improvements paid for by savings from energy
bills, avoiding upfront costs to households and businesses. The Green Deal is a key political priority for the UK
Government though it is as yet unclear how enthusiastic consumers will be about taking up the opportunity.




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                    / CONSOLIDATED FINANCIAL STATEMENTS




2) Sector Regulation in the US


Electricity generation from renewable energy resources
In the United States, numerous State governments and the Federal Government have adopted measures
and implemented numerous regulations designed to foster the development of electricity production from
renewable resources. State programmes have generally come in the form of (1) Renewable Portfolio Standards
(“RPSs”) that usually require utilities to generate or purchase a minimum amount of renewable electricity and (2)
tax incentives. To date, the Federal Government has primarily supported renewable energy development through
fiscal credits to production and investment as well as accelerated depreciation.
   Twenty-nine states and the District of Columbia have adopted mandatory RPS requirements, which vary
across the States but will generally range from (15-30) per cent of utility generation by 2025. The requirements
are typically implemented through a system of tradable renewable energy certificates that verify that a kWh of
electricity has been generated from a renewable resource.
   Most States also offer a variety of tax incentives to promote investment in renewable energy resources.
For instance, Washington and Colorado, among other States, exempt the sale and use of renewable energy
equipment from taxation, which reduces development costs substantially. Oregon offers an investment tax
credit known as the Business Energy Tax Credit of up to U.S.$3.5 million for qualifying investments. Several
States reduce property tax requirements on renewable generation facilities through enterprise zones or similar
designations, while Minnesota has substituted a fixed-rate production tax in lieu of property taxes.
   In 1992 the U.S. Congress enacted legislation that established a tax credit (“PTC”) of U.S.$15/MWh (adjusted
for inflation) for the production of electricity from wind power facilities with a 10-year duration. This programme
has been renewed on several occasions and has been expanded to include the production of electricity from
several additional renewable resources, including biomass, geothermal, municipal solid waste and hydroelectric
power. The production tax credit, which is currently valued at U.S.$21/MWh, is presently applicable to all wind
power projects placed in service prior to 1 January 2013 and all other eligible projects placed in service prior to 1
January 2014. In 2005 Congress established a 30 per cent investment tax credit (“ITC”) for solar power projects.
This investment credit is currently applicable to all solar projects placed in service prior to 1 January 2017. The
purposes of the PTC and ITC are to make electricity production from renewable resources more competitive
relative to fossil fuel and nuclear power facilities.
   In response to the effects of the economic crisis in the U.S., in 2009 Congress approved legislation authorising
companies eligible for the PTC to receive an ITC instead or, in the alternative, for companies eligible for the PTC
or ITC to receive a cash payment equivalent to 30 per cent. of the eligible investment in a facility for projects
which commence construction no later than 31 December 2011 (after extension agreed by Congress in last
Lame Duck Session) and are placed in service prior to 1 January 2013 for wind facilities, 1 January 2014 for other
projects currently eligible for the PTC, and 1 January 2017 for solar facilities.
   In addition to the PTC and ITC, renewable energy facilities are eligible for accelerated five-year tax depreciation
on their investments. This programme, which is known as the Modified Accelerated Cost Recovery System
(MACRS), does not have an expiration date. As a result of 2009 and 2010 legislation, many facilities placed in
service during 2008, 2009, and 2010 qualified for “bonus depreciation” which allows a 50 percent depreciation
deduction in the year a facility is placed in service. Subsequent legislation in 2010 allows 100 percent
depreciation for facilities placed in service after 8 September, 2010 and no later than 31 December, 2011, with
facilities placed in service during 2012 receiving 50 percent bonus depreciation.


Electricity and natural gas distribution
The revenues of Iberdrola USA are essentially regulated, being based on tariffs established in accordance with
administrative procedures negotiated with the various regulatory bodies. The tariffs applied to regulated
activities in the United States are approved by the regulatory commissions of the different States and are based
on service costs. The revenues of each regulated utility are set to be sufficient to cover all its operating costs,
including energy costs, finance costs and the costs of equity, the last of which reflect the company’s capital ratio
and the “reasonable” return on equity.




 32    Annual Consolidated Financial Statements
  Energy costs that are set on the New York and New England wholesale markets are passed through to
consumers. The difference between energy costs that are budgeted for and those that are actually incurred by
the utilities is offset by applying compensation procedures that result in either immediate or deferred tariff
adjustments. These procedures apply to other costs, which are in most cases exceptional (effects of extreme
weather conditions, environmental factors, regulatory and accounting changes, treatment of vulnerable
customers, etc.) that generate credits and liabilities that are offset in the tariff process. Any revenues that allow
a utility to exceed target returns (usually because of better-than-expected cost efficiency) are generally shared
between the utility and its customers, resulting in future tariff reductions.
  Each of the seven supply companies in Iberdrola USA, which are between them active in five different states,
must comply with regulatory procedures that differ in form but in all cases conform to the basic framework
outlined above. As a general rule, tariff reviews cover various years (three in New York and five in Maine) and
provide for reasonable returns on equity, protection and automatic adjustments for exceptional costs incurred
and efficiency incentives.


New York
The New York Rate cases are among the most relevant specific regulatory process affecting Iberdrola USA in
2010. On 17 September 2009 the New York State Electric & Gas Corporation (NYSEG) and Rochester Gas and
Electric Corporation (RG&E) filed rates cases for electric and gas businesses with the New York State Public
Service Commission. The rates cases requested approval to increase the rates the companies charge to deliver
electricity and natural gas. If approved, the proposed rates would ensure that the companies can meet their
increasing costs of service and achieve an adequate return on investment. The increases would be the first for the
companies since the mid-1990s.
  The rates approved by the NY PSC board in September allow increases ranging between average 3 – 7 per
cent. for the different companies, based on 10 per cent. ROE applicable on a 48 per cent. equity ratio. The rate
term is extended until December 2013, with specific Earning Sharing Mechanisms rules giving clear incentives
to the companies to introduce efficiency measures with strict quality targets. Rates also carry protection against
uncontrollable cost variations and include a revenue decoupling mechanism.


Connecticut
On November 16, 2010, after receiving all regulatory approvals, we sold three of our natural gas holding
company subsidiaries and their natural gas distribution utilities to United Illuminating. The three holding
companies and related natural gas distribution utilities are: CTG and CNG, CEC and SCG, and BER and BGC.
Pursuant to the purchase agreement we retained our nonutility subsidiaries CNE Energy Services Group, Inc. and
TEN Companies, Inc. at the time of the transaction.


3) Sector Regulation in Mexico

The Mexican electricity sector has been regulated for more than 30 years by the Ley de Servicio Público de
Energía Eléctrica, or Electricity Public Service Act (“LSPEE”) which, in accordance with the Political Constitution
of the United States of Mexico, establishes that it corresponds “(…) exclusively to the Nation, to generate,
transmit, transform, distribute and supply electricity that is intended to be used to provide a public service (…). In
this field, concessions will not be awarded to individuals and the Nation, via the Federal Electricity Commission,
will exploit the assets and natural resources that are necessary for such purposes”.
  The same law charges the aforesaid Federal Electricity Commission (“CFE”), which has the legal status of a
decentralised public sector institution, with responsibility for the planning of the national electricity system,
the generation, transmission, transformation, distribution and sale of electricity, and the realisation of all
civil engineering, installations and other work that may be necessary to planning, overseeing, operating and
maintaining the national electricity system (directly or through subsidiaries).
  Since October 2009 the CFE distributes electricity throughout all the country. Before that date, CFE area of
distribution had a significant exception representing about 30% of the national consumption: The metropolitan
Federal District and portions of the surrounding area (the states of Mexico, Morelos, Puebla and Hidalgo), were
managed by Luz y Fuerza del Centro (“LyFC”), another public sector body that entered into a “Zone Delimitation
Agreement” with the CFE in 1982 until its decommissioning presidential decree.
  CFE operates and does the planning and expansion of the entire National Electricity System (Sistema Eléctrico
Nacional, or “SEN”) and is subject to regulation by the Energy Regulating Commission (Comisión Reguladora de
Energía, or “CRE”).




                                                                                                                        33
                     / CONSOLIDATED FINANCIAL STATEMENTS




   Established in 1995, the CRE has as its main duties:
     - Participating in the process of setting tariffs for electricity supply;
     - Approving the criteria used to determine the contributions of the Government and other federal bodies
       to the execution of work necessary for the supply of electricity; checking the efficiency, quality, safety
       and stability of the service; granting and revoking the licences and permits that are required, pursuant to
       applicable law, to perform regulated activities.
     - Issue permits for all types of power generation not intended for public service: Independent Power
       Producer, Self Generation, Cogeneration, Renewable energy generation, import and export of power and
       “Small Indepentent Power Producer”. These forms of privately owned power generation mechanisms are
       explained below.
   The Energy Secretariat (“SENER”), meanwhile, is responsible for planning and guiding national energy policy,
for guaranteeing efficient supply and for undertaking the technological developments necessary for promotion
of the use of innovative energy sources.
   The aforementioned LSPEE was amended in 1993 to specify the activities not considered a “public service” and
in which the participation of other private companies was therefore permitted.
   As a result, there are now six ways in which private investors (licensees) can participate in the electricity sector,
provided they have first obtained a CRE licence. Pursuant to the LSPEE, these are:
     - Own-use: Own-use of electricity generated by the generators themselves or by their partners.
     - Cogeneration: Electricity generated in this way must be used to satisfy the needs of establishments
       associated with co-generation. In this case, as with self-supply, consumers or partners sign an
       interconnection agreement with the CFE for support, transport and other services.
     - Independent production: This is the option most frequently used in Mexico and allows for the
       establishment of an independent generator provided the power its plants generate is sold exclusively to
       the National Electricity System or to the export market through a public tender. The LSPEE regulations
       also require that companies thus established are domiciled in national territory and that their plants have
       a minimum capacity of 30 MW. These licences are granted for a term of 30 years, while all other types of
       licence are granted for indefinite terms.
     - Small-scale production: Generation at plants with capacity of less than 30 MW.
     - Exports: Via the cogeneration, independent production and small-scale production models.
     - Imports: The CRE may authorise import agreements between foreign suppliers and domestic consumers.
   The regulatory framework for the development of power plants using renewable energy sources by private
companies envisages four distinct models:
     - Independent Power Producer (“PIE”): Generation capacity of more than 30 MW. The CFE puts the contract
       for the construction and operation of a plant out to Public Tender, on the undertaking that it will acquire
       the energy thus generated under long-term contracts at a price determined in the tender process. All
       required investment is made by the winner of the tender.
     - Self-supply: Exclusively for shareholder consumption.
     - Small-scale producer: Capacity of less than 10 MW; the CFE acquires the energy generated at a regulated
       price.
     - Exports: A licence is required to export energy outside the country.
   Recently, CRE has been charged with the implementation of the Renewable Energy Law, designed to create a
framework for the promotion of wind, mini-hydro, biomass and efficient cogeneration by private investment, yet
not by subsidies.
   To promote generation from renewable sources, the Interconnection Agreement for Renewable Sources,
intended to provide the framework for the interconnection to the SEN network has been adapted.
   The benefits of the Interconnection Agreement for Renewable sources are:
     - A banking mechanism of the electricity, for a period up to 12 months
     - Wheeling studies are not required
     - A fixed reduced wheeling tariff to send the electricity to remote customers “estampilla postal”
     - Credit of the user’s demand charges based on average generation in peak hours during each month
     - Waiver on charges such as “connection services, permitting charges and backup
   In addition, investments in these plants are eligible for accelerated tax depreciation of up to 100 per cent.
during the first 10 years.
   During 2010, CRE passed a resolution to extend the benefits of the Interconnection Agreement for Renewable
sources to the Efficient Cogeneration plants, and issued the efficiency criteria to qualify.
   April 2008 saw the launch of a set of seven proposals aimed at reforming the Mexican energy sector in
two areas: reform of the oil industry; and the introduction of a legal framework for energy efficiency and the
development of renewable energy.
   In the area of renewable energy, two proposals were passed in 2008 whose implementation was carried out
during 2009:
     - Draft Decree enacting the Law on Sustainable Energy Usage.
     - Draft Decree creating the Law on Renewable Energy Usage and funding of the Energy Transition.


 34    Annual Consolidated Financial Statements
   These are two of the seven energy proposals approved by the Senate on 23 October 2008 and which have been
submitted to the Federal Executive for the relevant constitutional purposes.
   In the summer of 2009 the Special Renewable Energy Programme for the utilisation of the renewable energies
was published, which establishes non-binding targets for different renewable technologies by year 2012. The
programme aims to increase electricity generation capacity from 3.3 per cent. of the total in 2008 to 7.6 per
cent. in 2012. Wind generation is designed to reach 4.3 per cent. of the total in 2012 compared to 0.15 per cent.
in 2008. This programme is within the framework of a broader CO2 emission reduction strategy (Special Climate
Change Programme), which could amount to 200 Mton in the entire period.
   Since CFE does the growth planning of the SEN based on economical and reliability premises only, CRE has
imposed to CFE the application of a cost criteria to be added to the fossil fuel generation: the cost of CO2
emissions must be considered as part of the total energy cost (estimated based on CO2 emission certificates) thus
providing a better cost opportunity to renewable sources. This new cost criteria must be reflected in the Electric
Sector Program for Construction and Investment or “Programa de Obras e Inversiones del Sector Eléctrico”
POISE, which is CFE’s vehicle for presenting the expansion plan of the SEN to SENER and set the framework for
Congress approval of investments.
   On 4 December 2009, the National Hydrocarbons Commission (CNH) issued a resolution on technical
provisions to prevent or reduce the burning and venting of gas in oil and gas exploration and operations, which
is obligatory for Pemex. It establishes, inter alia, the procedures Pemex must follow to present the CNH with a
programme that includes targets, investment timetables and commitments to reduce gas flaring to the lowest
technical and economically viable volume. This resolution gives rise to investment opportunities in Mexico in
natural gas storage and usage.


4) Sector Regulation in Brazil

The electricity distribution activities carried out by subsidiaries consolidated using proportionate consolidation,
being Companhia de Eletricidade do Estado do Bahía, S.A., Companhia Energética do Río Grande do Norte, S.A.
and Companhia Energética do Pernambuco, S.A are subject to the regulations of the countries in which they
operate.
   The Brazilian regulatory framework is based on a system of maximum tariffs (“Price-Cap”) that is revised every
five years. The tariffs are updated annually by the Brazilian Energy Agency (ANEEL).
   The tariffs have two components:
       - Component A, which corresponds to energy purchases and to other costs that are extraneous to the
            distributor and passed through to the end tariff.
       - Component B, which corresponds to costs relating to the distributor’s system of remuneration and
            which factor in operating and maintenance expenses, a return on investment (determined by applying
            a rate of return to the value of the distribution assets) and an efficiency-related factor.
   The aim of the annual revision is to ensure that component A costs are passed on and that component B costs
perform in line with inflation and with the pre-determined efficiency factor.
   For the electricity generation business, the new model for the Brazilian electricity sector introduced in
2004 made the government responsible for guaranteeing adequate expansion of the supply of energy to the
system, eliminating the risk of further rationing. This expansion is being pursued via the public tendering of
generation projects in which the successful bidder is the supplier that offers the lowest price in Brazilian reals
per MWh generated, in exchange for which the bidder is awarded a concession or permit for between 15 and
30 years (depending on the technology) to operate a power station under a sales contract and at a price that is
predetermined at the time of the tender.
   In 2010, Neoenergia, S.A. (the industrial group through which Iberdrola operates in Brazil, in which it has a
39 per cent. ownership interest) has increased its installed capacity by awarding three of these public calls, Belo
Monte an hydro power plant with 11.000 MW installed capacity (participating in 10% of the plant), Teles Pires
another hydro power plant with 1.820 MW installed capacity (50,1% belongs to Neoenergia) and 10 wind power
plants compounding 288 MW installed capacity and where 50% belongs to Neoenergia and the other 50% to
Iberdrola Renovables.


5) Other EU regulation


Year 2009
Throughout 2009, two sets with legislation of interest to the energy sector have been published in Brussels.
  The first one, issued in June, is called “energy and climate change” and includes:
   - The Renewables Directive, which introduces a binding target to have 20% of the European Union´s final
     energy consumption coming from renewable sources by 2020. This target is split up between the member
     states, with Spain committed to achieving 20%.

                                                                                                                 35
                    / CONSOLIDATED FINANCIAL STATEMENTS




   - The Emissions Allowance Trading Directive to reform the current system for the period 2013-2020. The
     most significant change is that the electricity generating sector will have to acquire its rights through
     auction rather than being granted them free.
   - Directive on the geological storage of CO2. Establishes criteria for developing environmentally-safe capture
     and geological storage of CO2.
   - Decision on the distribution of efforts to reduce greenhouse gases effect in broad sectors between Member
     States.
 The second, published in August, called “the third legislative package to ensure internal gas and electricity
markets” aimed at further driving the constitution of these markets. It entails:
   - Two Directives, one for gas and one for electricity, which reform the previous directives designed to create
     the respective internal markets. Among the main changes are the greater separation of transmission
     and deregulated activities, increased powers and independence of the national regulators and greater
     protection of small consumers.
   - Two Regulations on access to gas and electricity transport networks which reform the previous regulations.
     The main changes include the constitution of a European Network for Transmission System Operators and
     the establishment of a community-wide technical code.
   - A Regulation to establish the Agency for the Cooperation of National Energy Regulators for the purpose of
     promoting cooperation among national regulators to establish a single market.
 Another regulation of interest approved is the Nuclear Safety Directive.


Year 2010
During the course of 2010, appropriate steps were taken to implement the regulations approved in 2009.
  The Regulation on auctioning of greenhouse gas emission allowances envisaged in the Emissions Trading
Directive for the 2013-2020 period was approved, while national plans were presented for the development of
renewable energies called for in the Directive.
  Elsewhere, work was underway to develop the technical and market codes provided for in the third energy
package to liberalise markets slated to take effect in March 2011.
  A new regulation was also published, featuring:
    - Regulation for security of gas supply, establishing preventive and operating criteria to reduce the impact of
      incidents in gas supply.
    - Guidelines covering state aid for the closure of non-competitive coal mines, allowing aid for plants up to
      2018 subject to their decommissioning.
    - Other regulations affecting the energy sector were the Energy Performance of Buildings Directive, the
      regulation regarding information on investment projects in energy infrastructure and the Directive on
      Industrial Emissions, which sets limits on pollutant emissions, among others, by electricity generation
      facilities.
    - Proposals presented during the year and currently pending processing include the directive on the
      treatment of radioactive waste and the Regulation on Energy Market Integrity and Transparency.
    - Towards the end of the year, the Commission presented two communications, one on energy policy for
      2020, and one on energy infrastructure proposing new initiatives.
      Approval of these by the European Council, in March 2011, may lead to new regulations.


4. ACCOUNTING POLICIES

The principal accounting policies used in preparing the Consolidated Financial Statements were as follows:


a)    Revenue recognition

Revenue from sales is measured at the fair value of the assets or rights received as consideration for the goods
and services provided in the normal course of the Group companies’ business, net of discounts and applicable
taxes.
  Income each year from regulated activities where remuneration is based on a fixed margin is booked, by
IBERDROLA Group under “Revenue” on the Consolidated Income Statement for the corresponding year for the
amount of such fixed margin.
  In the case of some regulated activities carried out by IBERDROLA Group, discrepancies between costs
estimated when setting the annual tariff and costs actually incurred are corrected in the following years’ tariffs.
These variances are recognised as income or payment for the year only when it is guaranteed that the additional
cost will be reimbursed, independently of future sales.


 36   Annual Consolidated Financial Statements
  Revenue from construction contracts is recognised in accordance with the accounting policy described in
Note 4.e.
  The IBERDROLA Group recognises housing sales when legal ownership is transferred to the buyer, which
generally coincides with when the sale is being registered by public deed.
  Interest income is accrued on a time proportional basis, by reference to the principal outstanding and the
effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through
the expected life of the asset to that asset’s carrying amount.
  Dividend incomes are recognised when IBERDROLA Group companies are entitled to receive them.


b)    Associates

Associates are companies over which the Group exercises significant influence but which cannot be classified as
subsidiaries or jointly controlled companies. Therefore, the Group has the power to participate in the financial
and operating decisions, but not to fully or jointly control them.
  In general, investments in associates are accounted for under the equity method of accounting. Accordingly,
investments are measured initially at acquisition cost, subsequently adjusted for changes to each company’s
equity, taking into consideration the percentage ownership and impairments, if any.
  Certain investments in associates that are not material in relation to these Consolidated Financial Statements
are recorded at acquisition cost under “Non-current financial assets – Non-current equity instruments” in the
Consolidated Statements of Financial Position at 31 December 2010 and 2009 (Note 11.b).
  Gains or losses on transactions with associates are eliminated to the extent of the Group’s interest in the
associates.
  The IBERDROLA Group applies IAS 39: “Financial instruments: Recognition and measurement” to determine
whether or not to recognise impairment losses on net interests in its associates. If it is detected on applying IAS
39 that a net investment in an associate could have been impaired, the IBERDROLA Group compares the total
carrying amount of the associate in question, including goodwill, with the recoverable value thereof, which is the
higher of value in use and fair value less cost to sell. If the carrying amount exceeds the recoverable value, the
IBERDROLA Group recognises the impairment with a charge to the Consolidated Income Statement.


c)    Joint ventures

A joint venture is a company whose activity is jointly controlled. Joint control is the contractually agreed sharing
of control over an economic activity, and exists only when both the financial strategy and operating decisions
relating to the activity require the unanimous consent of all the ventures.
  Joint ventures are proportionally consolidated in the Consolidated Financial Statements, whereby the financial
statements include the IBERDROLA Group’s share of assets, liabilities, expenses and income.
  Goodwill arising on the acquisition of interests in joint ventures is recognised in accordance with the Group’s
accounting policies described in Note 4.d.


d)    Goodwill

Goodwill arising on consolidation represents the difference between the price paid to acquire subsidiaries or
jointly controlled entities (consolidated using either the full or the proportionate consolidation method) and the
Group’s percentage ownership of the fair value of the components making up the net assets of these companies
at the time of acquisition.
  Goodwill arising from acquisitions of companies with a functional currency other than the euro is translated
to euros at the exchange rates prevailing at the reporting date of the Statement of Financial Position.
  Goodwill acquired on or after 1 January 2004 is measured at acquisition cost and that acquired earlier is
measured at the carrying amount at 31 December 2003 in accordance with Spanish GAAP and as provided for in
IFRS 1 “First-time adoption of International Financial Reporting Standards”.
  Goodwill is not amortised, although it is reviewed annually for impairment to its recoverable value and any
impairment is written down (Note 4.l).




                                                                                                                  37
                    / CONSOLIDATED FINANCIAL STATEMENTS




e)    Construction contracts

When the income from a construction contract can be estimated reliably, the income is recognised according to
the percentage of completion method of the construction project at each Statement of Financial Position date,
by measuring the contract costs incurred to date as a proportion of the total construction costs.
  When the income from a construction contract cannot be estimated reliably, it is recognised to the extent
of contract costs incurred only if they are recoverable. Contract costs are recognised as expenses in the year in
which they are incurred.
  When estimated contract costs exceed estimated contract revenue, the loss is recognised immediately in the
Consolidated Income Statement.


f)    Intangible assets

Concessions, patents, licences, trademarks and others
The amounts recognised by the IBERDROLA Group as concessions, patents, licences, trademarks and others
relate to the cost incurred in their acquisition.
  Other concessions held by the IBERDROLA Group, including the UK electricity distribution and transmission
concessions held by Scottish Power, plc (hereinafter, “SCOTTISH POWER”) and those linked to the activities of
IBERDROLA USA, are not subject to any limits, of a legal or other nature. Accordingly, as intangible assets with
an indefinite useful life, they are not amortised by the IBERDROLA Group, although they are assessed for signs of
impairment each year, as described in Note 4.l.
  This heading also includes the concession permitting the IBERDROLA Group to build the hydro-electric
complex in Alto Támega, Portugal.
  It also includes the intangible asset represented by future billing rights to IBERDROLA Group customers in
Brazil (Note 2.a), which is amortised on a straight-line basis over the term of the concession agreement.
  The costs incurred in relation to the other items included under this heading in the Consolidated Statement of
Financial Position are amortised on a straight-line basis over their useful lives, between three and five years.


Emission allowances
The IBERDROLA Group recognises emission allowances once it is the owner thereof. Allowances allocated free of
charge to each facility as part of the National Emission Allowance Assignment Plan (Notes 3 and 4.s) are initially
measured at market value on their allocation date and are credited to “Deferred income” on the Consolidated
Statement of Financial Position. Allowances acquired from third parties are measured at acquisition cost.
  Emission allowances acquired for the purpose of benefiting from fluctuations in their market price are
measured at fair value with a credit or debit to the Consolidated Income Statement.
  Emission allowances are derecognised when they are sold to third parties, have been delivered or expire.
When the allowances are delivered, they are derecognised with a charge to the provisions made when the CO2
emissions were produced.
  Emission allowances are measured for impairment at the end of each reporting period, with any impairment
recognised with a charge to the Consolidated Income Statement.


Computer software
The acquisition and development costs incurred in relation to the applications are recorded with a charge to
“Other Intangible Assets” in the Consolidated Statement of Financial Position.
  Maintenance costs of computer software are recorded with a charge to the Consolidated Income Statement for
the year in which they are incurred.
  Computer software is amortised on a straight-line basis over a period of between three and five years from the
entry into service of each application.




 38   Annual Consolidated Financial Statements
Other intangible assets
This heading includes wind farm projects in the development phase which meet the ‘identifiability’ requirement
under IAS 38, as they are separable and susceptible to individual sale and are carried at acquisition cost. The
IBERDROLA Group transfers these assets to “Property, plant and equipment” when construction of each wind
farm commences.


Research and development expenditure
IBERDROLA Group’s policy is to record research expenses in the Consolidated Income Statement for the period
when they are incurred. The Consolidated Income Statements for the years ended 31 December 2010 and 2009
recognise EUR 130,174 thousand and EUR 90,534 thousand, respectively, for this connection.
  Development costs are recognised as an intangible asset on the Consolidated Statement of Financial Position if
the Group can identify them separately and show the technical viability of the asset, its intention and capacity to
use or sell it, and how it will generate probable future economic benefits.


g)    Property, plant and equipment

Property, plant and equipment are stated at cost of acquisition, modified, where appropriate, as follows:
    - Prior to the transition to IFRSs (1 January 2004), the IBERDROLA Group revalued certain spanish assets
      under “Property, Plant and Equipment” in the Consolidated Statement of Financial Position as permitted
      by the applicable legislation, including Royal Decree-Law 7/1996, and considered the amount of these
      revaluations as part of the cost of the assets, in accordance with IFRS 1.
    - In case that IBERDROLA Group is required to dismantle installations or to recondition the site on which
      they are located, the present value of such costs is added to the carrying amount of the asset, based on
      their net present value, with a charge to “Provisions - Other provisions” in the Consolidated Statement of
      Financial Position (Note 4.t).
      The IBERDROLA Group periodically reviews its estimates of this present value and increases or reduces the
      carrying amount of the assets on the basis of the results obtained.
  Cost of acquisition includes the following items:
1. Borrowing costs incurred during the construction period only, determined as follows:
       a) The interests on specific-purpose sources of financing used to build certain of the assets are fully
           capitalised.
       b) The interest on general-purpose borrowings is capitalised by applying the average effective interest
           rate on this financing to the average cumulative investment qualifying for capitalisation, after
           deducting the investment financed with specific-purpose borrowings, provided that it does not exceed
           the total borrowing costs incurred in the year.
  The average capitalisation rates used in 2010 and 2009 amounted to 3.51% and 4.24%, respectively.
  In 2010 and 2009 the IBERDROLA Group capitalised to property, plant and equipment, applying the policy
described above, borrowing costs totalling EUR 82,811 thousand and EUR 76,503 thousand respectively, with a
credit to “Finance Income” in the Consolidated Income Statements (Note 37).
2. Staff costs relating directly or indirectly to construction in progress.
    The amounts capitalised in this connection in 2010 and 2009 totalled EUR 392,652 thousand and EUR
    388,260 thousand, respectively (Note 33).
  The IBERDROLA Group transfers property, plant and equipment in the course of construction to property,
plant and equipment in use at the end of the related trial period.
  The costs of expansion or improvements leading to increased productivity or capacity or to a lengthening of
the useful lives of the assets are capitalised.
  Replacements or renewals of complete items are recorded as additions to property, plant and equipment, and
the items replaced are derecognised.
  Gains or losses arising on the disposal of items of property, plant and equipment are calculated as the
difference between the amount received on the sale and the carrying amount of the asset disposed of.




                                                                                                                39
                           / CONSOLIDATED FINANCIAL STATEMENTS




h)        Depreciation of property, plant and equipment in use

The cost of property, plant and equipment in use is depreciated on a straight-line basis, less any material residual
value, at annual rates based on the following years of estimated useful life:

                                                                                                   Average years
                                                                                                    of estimated
                                                                                                     useful life
 Fossil-fuel plants                                                                                   25 – 50
 Combined cycle plants                                                                                  35
 Nuclear plants                                                                                         40
 Wind power facilities                                                                                  20
 Gas storage facilities                                                                               25 - 40
 Transmission facilities                                                                              40 – 56
 Distribution facilities                                                                              30 – 54
 Meters and measuring devices                                                                         15 – 27
 Buildings                                                                                            50 – 75
 Dispatching centres and other facilities                                                              4 – 50

   As hydroelectric plants are operated under concessions (Note 4.aa), the depreciation of civil engineering assets
is performed over the life of the concession, while electromagnetic equipment is depreciated over the lower of
the concession period or 35 years.
   “Depreciation and amortisation charge, allowances and provisions” in the 2010 and 2009 Consolidated Income
Statements include EUR 2,278,253 thousand and EUR 2,104,670 thousand, respectively, in relation to the period
depreciation of property, plant and equipment in use (Notes 10 and 35).


i)        Investment property

The carrying amount of the Group’s investment property at 31 December 2010 and 2009 amounted to 0.83%
and 0.85%, respectively, of the IBERDROLA Group’s total property, plant and equipment at those dates.
     Investment properties are measured at acquisition cost.
  Investment properties are depreciated on a straight-line basis, minus material residual value, over each asset’s
estimated useful life which ranges between 50 and 75 years based on the features of each asset concerned.
  The investment property owned by the IBERDROLA Group relates primarily to properties earmarked for
lease. The rental income earned in 2010 and 2009 from the lease of investment property amounted to EUR
29,541 thousand and EUR 40,492 thousand, respectively. These amounts are presented under “Revenue” in the
Consolidated Income Statements. These amounts represented 0.10% and 0.16% of the Group’s revenues in 2010
and 2009, respectively.
  Direct operating expenses arising on the investment property in 2010 and 2009 are not material.
  The fair value of the IBERDROLA Group’s investment properties is disclosed in Note 9. The fair value is
determined on the basis of valuations by independent valuers commissioned each year.
  To determine fair value and net realisable value, the Group engaged the following three leading portfolio
valuers to issue appraisals at 31 December 2010, distributing the portfolio among these by standard groups and
the location and use of the assets:
    • CB Richard Ellis Valuation Advisory, S.L.
    • Aguirre Newman Madrid, S.A.U.
    • Knight Frank España, S.A.
  The assets were appraised individually, considering their individual sale and not as part of a property portfolio.
  In general, fair value is determined by referring to the benchmark values of valuations performed by
independent valuers according to the RICS Valuation Standards and Valuer’s Guide of the Royal Institution of
Chartered Surveyors of Great Britain or in accordance with the Order ECO/805/2003, of 27 March, concerning
valuation standards.




     40   Annual Consolidated Financial Statements
  Discounted cash flow methods were used to calculate market value, comparing where possible the amounts
with peer valuations to reflect the market paradigm and prices at which transactions involving similar assets are
being carried out.
  The discounted cash flow method involves estimating possible net cash flows that a property could generate
over a period, and considering the residual value of the asset at the end of the period. Cash flows are discounted
at a “target” internal rate of return considered appropriate to each asset in order to obtain their present value.
  For leased property, the key variables and assumptions used in the discounted cash flow analysis are:
    • Net income from ownership over a specific period of time, bearing in mind the initial contractual situation,
       changes in tenants and expected rent, marketing expenses, disposal costs (variable percentage of 2%-4.5%
       depending on the selling price), etc.
    • The discount or “target” internal rate of return adjusted to reflect the investment risk based on location,
       occupancy, quality of tenant, age of the property, etc.
    • The exit value, which consists of an estimate of the exit (sale) price of the property applying an estimated
       of the value at the end of transaction considering criteria of obsolescence, liquidity and market uncertainty.
  For leased properties without as many variables, with long-term leases (10 years or longer) and a single tenant,
the cost or income capitalisation approaches are used. This method entails the capitalisation to perpetuity of
the contractual rent using a discount rate that factors in all the potential market risks.


j)    Leases

The IBERDROLA Group classifies as finance leases all arrangements under which the lessor transfers to the lessee
substantially all the risks and rewards incidental to ownership of the asset. All other leases are classified as
operating leases.
  Assets acquired under finance leases are recognized as non-current assets in accordance with their nature and
function. Each asset is depreciated over its useful life as IBERDROLA Group considers that the ownership of the
assets will be transferred at the end of the lease term. Assets are measured at the lower of the fair value of the
leased asset and the present value of the future lease payments.
  The expenses arising from operating leases are allocated to the Consolidated Income Statement on an accrual
basis over the life of the lease agreement.
  The IBERDROLA Group has electricity generation capacity assignment contracts with the Mexican Federal
Electricity Commission (FEC) that have a term of 25 years counting from the date on which each facility enters
into commercial operation (Note 7). These contracts set a pre-established payment timetable for assignments of
electricity supply capacity and for plant operation and maintenance.
  The IBERDROLA Group considers these agreements to be leases in accordance with IFRIC 4: “Determining
whether an arrangement contains a lease”. Also, after analysing their economic substance, the Group considers
these agreements are operating leases due to the following reasons, inter alia:
    • The ownership of the assets will not be transferred to the FEC at the end of the agreement, nor do the
      agreements include any type of purchase option.
    • The term of the agreements is less than the useful life (35 years) of the facilities (Note 4.h).
    • The FEC is not entitled to extend the agreement unilaterally.
    • The plants whose capacity is assigned are not of a specific nature and may be leased to third parties other
      than the FEC.


k)    Nuclear fuel

The IBERDROLA Group measures its nuclear fuel stocks on the basis of the costs actually incurred in acquiring
and subsequently processing the fuel.
  Nuclear fuel costs include the finance charges accrued during construction, calculated as indicated in Note 4.g.
  The amounts capitalised in this connection in 2010 and 2009 were EUR 681 thousand and EUR 1,377
thousand, respectively (Notes 14 and 37).
  The nuclear fuel consumed is recognised under “Procurements” in the Consolidated Income Statement from
when the fuel loaded into the reactor starts to be used, based on the cost of the fuel in each reporting period.
The nuclear fuel stocks consumed in 2010 and 2009 amounted to EUR 108,793 thousand and EUR 82,415
thousand, respectively (Notes 14 and 32).




                                                                                                                  41
                       / CONSOLIDATED FINANCIAL STATEMENTS




l)        Non-Financial assets impairment

Each closing date at every accounting year, the IBERDROLA Group reviews the carrying amounts of its non-
current assets to determine whether there is any indication that those assets have suffered an impairment loss.
If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment loss, if it is finally necessary. For this purpose, in the case of assets that, taken individually, do
not generate cash flows, the IBERDROLA Group estimates the recoverable amount of the cash-generating unit to
which belongs.
   In the case of goodwill and other intangible assets which have not come into use or which have an indefinite
useful life, the IBERDROLA Group performs the recoverability analysis systematically every year.
   For purposes of this recoverability analysis, goodwill is allocated to the cash generating units in which it is
controlled for internal management purposes. In no instance, are these cash generating units bigger than the
operating segments defined by the IBERDROLA Group (Notes 7 and 8).
   Recoverable amount is the higher of fair value less costs to sell and value in use, which is taken to be the
present value of the estimated future cash flows. The assumptions used in assessing value in use, in making
the estimates include discount rates, growth rates and expected changes in selling prices and direct costs. The
discount rates reflect the time value of money and the risks specific to each cash-generating unit. The growth
rates and the changes in prices and direct costs are based on contractual commitments that have already been
signed, information in the public domain, sector forecasts and the experience of the IBERDROLA Group (Note 8).
   If the recoverable amount of an asset is less than its carrying amount, an impairment loss is recognised
for the difference with a charge to “Depreciation and amortisation charge, allowances and provisions” in the
Consolidated Income Statement. Impairment losses recognised for an asset are reversed with a credit to the
aforementioned heading when there is a change in the estimates concerning the recoverable amount of the
asset, increasing the carrying amount of the asset, but so the increased carrying amount does not exceed the
carrying amount that would have been determined if no impairment loss had been recognised, except in the
case of the goodwill, which impairment is not reversible.
   “Depreciation and amortisation charge, allowances and provisions” of the 2010 and 2009 Consolidated Income
Statements include EUR 39,638 thousand and EUR 80,602 thousand, respectively, related to corresponding
non current asset impairment losses. Also, in 2010 and 2009, EUR 4,152 thousand and EUR 70,000 thousand of
impairment losses recognised on non-current assets were reversed.


m)        Financial instruments


Financial assets
The Group measures its current and non-current financial assets in accordance with the criteria described below:
1. Financial assets classified at fair value through profit or loss, which are assets that meet any of the following
    requirements:
    - They have been classified as held-for-trading financial assets, on the basis that intends to generate a profit
       from fluctuations in their prices.
    - They have been included in this asset category since initial recognition.
  The assets included in this category are stated at fair value in the Consolidated Statement of Financial Position,
and changes in fair value are recognised as “Finance Costs” or “Finance Income” in the Consolidated Income
Statement, as appropriate.
  The IBERDROLA Group includes in this category the derivative financial instruments which do not satisfy the
conditions necessary for hedge accounting based on the requirements established for this purpose in IAS 39
“Financial Instruments” (Note 24).
2. Loans and receivables: these are initially recognised in the Statement of Financial Position at fair value and
    are subsequently measured at amortised cost using the effective interest rate method.
  The IBERDROLA Group records the related provisions for the difference between the amount of the receivables
considered recoverable and the carrying amount of the receivables.
3. Held-to-maturity investments, which are investments that the IBERDROLA Group has the intention and
    ability to hold to the date of maturity, which are also measured at amortised cost.
4. Available-for-sale financial assets: these are the other financial assets that do not fall into any of the
    aforementioned three categories and correspond in almost all cases to equity investments (Note 11.b). These
    investments are also recognised in the Consolidated Statement of Financial Position at fair value at year-end
    which, in the case of companies that are not publicly listed, is obtained using a range of methods such as
    comparable company transactions or, if there is sufficient information, by discounting the expected cash
    flows. Changes in fair value are recognised with a charge or credit, as appropriate, to the “Unrealised asset
    and liability revaluation reserve” in the Consolidated Statement of Financial Position (Note 18) until the



     42   Annual Consolidated Financial Statements
    disposal or impairment of these assets at which time the cumulative balance of this heading is recognised in
    full in the Consolidated Income Statement.
    Investments in the share capital of companies that are not publicly listed the market value of which cannot
    be determined reliably are carried at cost of acquisition.
  The IBERDROLA Group determines the most appropriate classification for each asset on acquisition and
reviews the classification at each year-end date.
  The IBERDROLA Group recognises conventional financial asset purchases and sales on the date of operation.


Cash and cash equivalents
This heading in the Consolidated Statement of Financial Position includes cash, current accounts and other
highly liquid short-term investments that can be realised in cash quickly and are not subject to a risk of change
in value.


Financial liabilities and equity instruments
Financial liabilities and equity instruments issued by IBERDROLA Group are classified on the basis of their
nature.
  The IBERDROLA Group classifies as an equity instrument any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities.


Equity instruments having the substance of a financial liability
In the US, the IBERDROLA Group has undertaken several transactions that bring minority shareholders into
certain of its wind farms in exchange for cash and other financial assets primarily.
   The main characteristics of these transactions are as follows:
     - Regardless of the equity stake taken by the minority shareholders, the IBERDROLA Group retains
       ownership and management control of the wind farms; accordingly they are fully consolidated in these
       Consolidated Financial Statements.
     - The minority shareholders have the right to a substantial portion of the profits and tax credits generated
       by these wind farms up to the return level established at the beginning of the contract.
     - The minority shareholders remain shareholders of the wind farms until they achieve the stipulated returns.
     - Once these returns have been obtained, the minority shareholders lose their entitlement to hold capital in
       the wind farms, simultaneously renouncing their claim on the profits and tax credits generated.
     - Whether or not the minority shareholders of the IBERDROLA Group obtain the agreed upon returns
       depends on the economic performance of the wind farms. Although the IBERDROLA Group is bound to
       operate and maintain these facilities in an efficient manner and to take out the appropriate insurance
       policies, it is not obliged to deliver cash to the minority shareholders over and above the
       aforementioned profits and tax credits.
   Following an analysis of the economic substance of these agreements, IBERDROLA Group classifies the
consideration received at the outset of the transaction under “Equity instruments having the substance of
a financial liability” in the Consolidated Statement of Financial Position. Subsequently, this consideration is
measured at amortised cost (Note 19).


Debentures, bonds and bank borrowings
Loans, debentures and similar items are recorded initially at the amount received, net of transaction costs. In
subsequent periods, all these financial liabilities are measured at amortised cost, using the effective interest rate
method, except for hedged transactions, which are measured using the method described below in this same
Note.
  Also, obligations under finance leases (Note 4.j) are recognised at the present value of the lease payments
under “Bank borrowings and other financial liabilities – loans and others” in the Consolidated Statement of
Financial Position.




                                                                                                                    43
                     / CONSOLIDATED FINANCIAL STATEMENTS




Trade and other payables
Trade payables are initially recognised at fair value and are subsequently measured at amortised cost .


Contracts to buy or sell non-financial items
The IBERDROLA Group performs detailed analysis of all its contracts to buy or sell non-financial items to ensure
they are classified correctly for accounting purposes.
  As a general rule, contracts that are settled net in cash or in another financial asset are classified as derivatives
and are recognised and measured as described in this note, except for contracts entered into and held for the
purpose of the receipt or delivery of a non-financial item in accordance with the IBERDROLA Group’s purchase,
sale, or usage requirements.
  Contracts to buy or sell non-financial items to which the treatment described in the preceding paragraph does
not apply are designated as “own-use contracts” and are recognised as the IBERDROLA Group receives or delivers
the rights or obligations originating thereunder.
  In the specific case of short-term contracts to buy or sell electricity and gas concluded on certain highly-liquid
markets, the IBERDROLA Group adopts the following accounting treatment:
    - Until the month preceding the supply date, the IBERDROLA Group classifies as “own-use contracts”
       only those contracts to buy or sell electricity and gas that reflect its best estimate of the actual purchase
       requirements of the IBERDROLA Group.
    - In the month preceding the date of supply, and given that demand estimates become more and more
       accurate each day, the IBERDROLA Group assumes that all contracts written solely in response to changes
       in demand estimates, whether for purchase or sale, are own-use contracts, and not therefore derivatives.
    - All contracts entered into with the intention of realising short-term gains on fluctuations in the market
       price of electricity and gas, as well as those that do not correspond to the situations described in the
       preceding two points are considered derivatives, and are therefore recognised on the Consolidated
       Statement of Financial Position at their fair value.


Derivative financial instruments and hedge accounting
Financial derivatives are initially recognised at acquisition cost in the Consolidated Statement of Financial
Position and the required value adjustments are subsequently made to reflect their fair value at all times.
Gains and losses arising from these changes are recognised in the Consolidated Income Statement, unless the
derivative has been designated as a cash flow hedge or a hedge of a net investment in the foreign.
  For accounting purposes, hedges are classified as follows:
    - Fair value hedges: where the risk hedged is a change in the fair value of an asset or liability or a firm
      commitment.
    - Cash-flow hedges: where the risk hedged is the variation in cash flows attributable to a specific risk
      associated with an asset or liability or a forecast transaction, or to exchange rate risk in a firm commitment.
    - Hedge of a net investment in a foreign operation.
  Each time a hedge transaction is entered into the IBERDROLA Group formally documents the transaction to be
treated under hedge accounting. This documentation includes its identification as a hedge instrument, the item
hedged, the nature of the risk the hedge is designed to cover and the way the effectiveness of the hedge is to be
measured. In addition, hedges are reviewed periodically to ensure they are highly effective (between 80% and
125%).
  The accounting treatment for hedging transactions is as follows:
    - In the fair value hedges, changes in the fair value of the derivative financial instruments designated as a
      hedge and changes in the fair value of a hedged item due to the hedged risk are recognised with a charge
      or credit to the same heading of the Consolidated Income Statement.
    - In cash flow hedges and hedges of a net investment in a foreign operation, changes in the fair value
      of the hedging derivative are recognised, in respective of the ineffective portion of the hedges, in the
      Consolidated Income Statement, while the effective portion is recognised under “Unrealised assets and
      liabilities revaluation reserve” and “Translation differences”, respectively, in the Consolidated Statement of
      Financial Position. The cumulative gain or loss recognised in these headings is transferred to the relevant
      heading of the Consolidated Income Statement as the hedged item affects net profit or loss or in the year
      in which the item is disposed of.




 44    Annual Consolidated Financial Statements
    - If a hedge of a forecasted transaction results in the recognition of a non-financial asset or a liability, its
       balance is taken into account in the initial measurement of the asset or liability arising from the hedged
       transaction.
    - If a hedge of a forecasted transaction results in the recognition of a financial asset or liability, this balance
       is recognised in the “Unrealised assets and liability revaluation reserve” until the hedged item affects the
       Consolidated Income Statement.
    - If a forecasted transaction does not result in recognition of an asset or a liability, the amounts credited or
       charged, to “Unrealised asset and liability revaluation reserve” in the Consolidated Statement of Financial
       Position will be recognised in the Consolidated Income Statement in the same period in which the hedge
       transaction is realised.
    - When hedge accounting is discontinued, the cumulative amount at that date recognised under “Unrealised
       asset and liability revaluation reserve” is retained under that heading until the hedged transaction occurs,
       at which time the gain or loss on the transaction will be adjusted. If a hedged transaction is no longer
       expected to occur, the gain or loss recognised under the aforementioned heading is transferred to the
       Consolidated Income Statement.
  Derivatives embedded in other financial instruments are recognised separately when the IBERDROLA
Group considers that their characteristics are not closely related to the financial instruments in which they are
embedded and so long as the entire contract is not already and entirely carried at fair value through profit or
loss, registering changes in fair value with the gain or loss recognised in the Consolidated Income Statement.
  The fair value of the derivative financial instruments is calculated as follows (Note 13):
    - For derivatives quoted on an organised market, at market price at year-end.
    - To measure derivatives not traded on an organised market, the IBERDROLA Group uses assumptions based
       on market conditions at year-end. Specifically, the fair value of interest rate swaps is calculated as the
       value discounted at market interest rates of the interest rate swap contract spread; currency futures are
       measured by discounting the future cash flows calculated using the forward exchange rates at year-end;
       finally, the fair value of contracts to trade non-financial items falling under the scope of IAS 39 “Financial
       instruments” is calculated on the basis of the best estimate of future price curves for the underlying non-
       financial items at the reporting date, using, wherever possible, prices established on futures markets.


Derecognition of financial assets and liabilities
A financial asset is derecognised when:
    - The rights to receive cash flows from the asset have expired.
    - The IBERDROLA Group retains the rights to receive cash flows from the asset, but has assumed an
      obligation to pay them in full to a third party and has transferred substantially all the asset’s benefits and
      risks or does not retain them substantially.
    - The IBERDROLA Group has transferred its rights to receive cash flows from the asset and either has
      transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained
      substantially all risks and rewards of the asset, but has transferred control of the asset.
  Financial liabilities are derecognised when the obligation under the liability is discharged or cancelled or
expires.


n)    Inventories

Fuel stocks
Fuel stocks are measured at the lower of acquisition cost, calculated using the average weighted price method, or
net realisable value.
  No adjustments to the value of fuel stocks that are part of the production process are made provided it is
expected that the finished products into which they will be incorporated will be sold at above cost.




                                                                                                                    45
                    / CONSOLIDATED FINANCIAL STATEMENTS




Real estate inventories
The real estate inventories were measured at cost of acquisition, which includes both the acquisition cost of the
land and the costs of urban infrastructures and construction of real estate developments incurred until the year
end. These costs include those incurred by the architecture and construction departments.
   Acquisition cost also includes finance costs incurred during the planning, urban infrastructure and
construction period until the land is ready to be used, calculated using the method described in Note 4.g.
“Finance income” in the Consolidated Income Statements for 2010 and 2009 includes EUR 6,174 thousand and
EUR 6,040 thousand, respectively, in this connection (Note 37).
   Commercial costs are expensed on an accrual basis.
   The IBERDROLA Group periodically compares the cost of acquisition of real estate inventories with their
net realisable value, recognising the necessary impairment losses with a charge to the Consolidated Income
Statement when the latter is lower. If the circumstance leading to the valuation adjustment no longer exists, it is
reversed. Such reversal is recognised in income.
   For land, construction in progress and unsold units, net realisable value is used. Net realisable value is the
estimated selling price in the ordinary course of business, less the estimated costs to finish the production and
the necessary costs to carry on with the sale of the element.
   This value is determined using the Residual Method, where the estimated total cost of the work, plus
allowance for developer’s risk and profit, is deducted from the gross value of the completed project. The key
variables of the Residual Method are:
    • The estimate total cost of the development, comprising the potential value of development at the
       valuation date based on the best estimates of independent experts.
    • The cost of the development, including all disbursements to be made by the developer of the work
       depending on the type (e.g. government-sponsored or private single-family dwellings) and quality of the
       construction. In addition to the cost of the work, it includes the cost of projects and licenses (10%-12% of
       the physical construction project), legal fees (1%-1.5% of the material implementation project), marketing
       and promotional expenses (2%-4% of income) and unforeseen contingencies (3%).
    • The developer profit considered for each asset, depending on the zone state of the land, size and
       complexity of the development, ranging to 18% to 25% of total costs.
   For land with permits, construction in progress and unsold units, the main difference relative to unlicensed
land is the developer profit, which in this case is lower given the stage of completion of the work and the
decrease in risk as the completion of construction nears.
   “Net revenue” in the 2010 and 2009 Consolidated Financial Statements include EUR 62,726 thousand and
EUR 44,504 thousand, respectively, relating to sales of real state (Note 15). These amounts represent the 0.21%
and 0.17% of the IBERDROLA Group´s total net revenue at those dates.


o)    Treasury shares

At year end the IBERDROLA Group’s treasury shares are deducted from “Equity-Treasury shares” on the
Consolidated Statement of Financial Position and are measured at acquisition cost.
  The gains and losses obtained on disposal of treasury shares are recognised in “Other reserves” in the
Consolidated Statement of Financial Position.


p)    Deferred income

This heading includes the following concepts:

   • Government Grants
   Income recognised by virtue of the agreements entered into with the Ministry of Industry and Energy and
Autonomous Communities, Provincial and Municipal Governments in connection with investments relating
to rural electrification plans and service quality improvements is recognised under “Deferred income” on the
liability side of the Consolidated Statement of Financial Position when the related investments have been made
and when the IBERDROLA Group is notified that the amounts have been officially granted.
   Also included are non-repayable grant to finance property, plant and equipment.




 46   Annual Consolidated Financial Statements
   • Investment Tax Credits (ITC)
   Also, this item on the Consolidated Statement of Financial Position includes cash payments from the US
government under the Investment Tax Credits scheme (Note 3) in response to the start-up of wind farms.
   Both the grants and the Investment Tax Credits are taking to profit and loss under “Depreciation and
amortisation charge, allowances and provisions” of the Consolidated Income Statement as the financed plants
are depreciated, thereby offsetting the depreciation expense.
   • Transfer of assets from customers
   Pursuant to the regulations applicable to electricity distribution in the countries in which it is active, the
IBERDROLA Group occasionally receives cash payments from its customers for the construction of electricity grid
connection facilities or in some cases is directly assigned such facilities by its customers. Both the cash received
and the fair value of the facilities received are credited to “Deferred income” in the Consolidated Statement of
Financial Position.
   These amounts are subsequently recognised under “Other operating income” in the Consolidated Income
Statement as the facilities are depreciated.
   • Emission rights
   Emission rights allocated to the IBERDROLA Group without charge in application of national allocation
plans (Note 3) are recognised on the asset side of the Consolidated Statement of Financial Position at their fair
value with a credit to “Deferred income”. This deferred income is taken to “Other operating income” on the
Consolidated Income Statement as the CO2 emissions for which the allowances were granted are emitted.
   • Other deferred income
   “Deferred income” also includes amounts received from third parties in relation to the assignment of the
right to use certain facilities which connect to the electricity grid, the IBERDROLA Group’s fibre optic network
and other owned assets. These amounts are taken to profit or loss on a straight-line basis over the term of each
contract under “Other operating income” in the Consolidated Income Statement.


q)    Post-employment and other employee benefits

The contributions to be made to the defined contribution post-employment benefit plans are expensed under
“Staff costs” in the Consolidated Income Statement on an accrual basis.
  In the case of the defined benefit plans, the IBERDROLA Group recognises the expenditure relating to these
obligations on an accrual basis over the working life of the employees by commissioning the appropriate
independent actuarial studies using the projected unit credit method to measure the obligation accrued at year-
end, and the positive or negative actuarial differences are recognised as “Other reserves” when they arise (Note
2.a). The provision recognised in this connection represents the present value of the defined benefit obligation
reduced by the market value of the related plans.
  If the market value of the assets exceeds the present value of the obligation, the net asset is not recognised
in the Consolidated Statement of Financial Position unless it is practically certain that it belongs to IBERDROLA
Group.


r)    Collective redundancy procedure and other early retirement plans for employees

The IBERDROLA Group recognises termination benefits, when there is an agreement with the employees or a
certain expectation that such an agreement will be reached that will enable the employees to be terminated in
exchange for indemnity payment.
  The Group recognises the full amount of the expenditure relating to these plans when the obligation arises
by performing the appropriate actuarial studies to calculate the present value of the actuarial obligation at year-
end. The actuarial gains and losses are recognised in the Consolidated Income Statement.




                                                                                                                 47
                    / CONSOLIDATED FINANCIAL STATEMENTS




s)      Provision for emission allowances

The IBERDROLA Group records a provision for contingencies and expenses in order to recognise the obligation
to deliver CO2 emission allowances in accordance with the methods provided for in the National Assignment
Plans (Note 3).
  The amount of the provision is determined on the assumption that the obligation will be settled:
    - Through the emission allowances transferred for no consideration to the Group companies under the
      National Emission Allowance Assignment Plan.
    - Through other emission allowances in the Consolidated Statement of Financial Position that were acquired
      subsequently.
  For the portion of emissions covered by the allowances granted under these plans or by allowances acquired
by the Group, the provision is recognised at the carrying amount of the allowances. If it is estimated that it will
be necessary to deliver more emission allowances, the provision for this shortfall is calculated based on the
market price of the allowances at the Statement of Financial Position date.
  The amounts comprising “Provisions-Other provisions” on the liability side of the Consolidated Statements of
Financial Position ending 31 December 2010 and 2009 include provisions for this shortfall in the amounts of
EUR 341,108 thousand and EUR 385,439 thousand, respectively (Note 22). In addition, under “Procurements”
the 2010 and 2009 Consolidated Income Statements include EUR 368,074 thousand and EUR 388,427 thousand,
respectively, corresponding to allowances used, of which EUR 119,710 thousand and EUR 124,179 thousand
correspond to allowances not allocated free of charge.


t)    Production facility closure costs

The IBERDROLA Group will incur in several decommissioning costs of its thermal plants, among which include
those arising from necessary tasks to fit the land where they are located. Additionally, it has the obligation to
carry out similar tasks in a part of its wind forms in accordance with the current legislation. The Group must
perform certain tasks prior to the decommisioning of its nuclear plants. In the case of nuclear plants a part of
the nuclear fuel will not burnt in the reactor.
  The estimated present value of these costs is capitalised with a credit to “Provisions – Other provisions” at the
beginning of the useful life of the related asset (Note 22).
  This estimate is subject to annual revision so that the provision reflects the present value of the full amount of
the estimated future costs. The value of the asset is only adjusted for variances with respect to initial.
  Any change in the provision as a result of its discounting is recognised in “Finance costs” in the Consolidated
Income Statement.


u)    Other provisions

The IBERDROLA Group recognises provisions to cover present obligations, whether these be legal or
constructive, which arise as a result of past events, provided that it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. A provision is recognised when the liability or obligation (Note 22) arises, with
a charge to the relevant heading in the Consolidated Income Statement depending upon the nature of the
obligation, for the present value of the provision when the effect of discounting the value of the obligation
to present value is material. The change in the provision due to its discounting each year is recognised under
“Finance costs” in the Consolidated Income Statement.
  These provisions include those recorded to cover environmental damage, which were determined on the basis
of a case-by-case analysis of the situation of the polluted assets and the cost of cleaning them.
  On the other hand, according to labor regulations in force, IBERDROLA Group is obliged to pay compensations
to employees who, under certain conditions, terminate their employment relationship. IBERDROLA Group does
not expect lay offs in the future from which significant liabilities that may arise.


v)    Onerous contracts

The IBERDROLA Group defines an onerous contract as a contract in which the unavoidable costs of meeting the
obligations thereunder exceed the economic benefits expected to be received under the contract.




 48   Annual Consolidated Financial Statements
  The IBERDROLA Group records a provision for the present value of the difference between the costs and the
economic benefits of the contract.
  No provision was deemed necessary under this heading at 31 December 2010 or 2009.


w)     Transactions in currencies other than the euro

Transactions carried out in currencies other than the functional currency of the Group companies are translated
at the exchange rates prevailing at the transaction date. During the year, the differences arising between the
exchange rates at which the transactions were recorded and those in force at the date on which the related
collections or payments are made are charged or credited, as appropriate, to the Consolidated Income Statament.
   Fixed-income securities and receivables and payables denominated in currencies other than those in which the
financial statements of the Group companies are denominated are translated at the year-end exchange rates at
31 December of each year. Exchange differences are charged to “Finance costs” or credited to “Finance income”
in the Consolidated Income Statement, as appropriate.
   The foreign currency transactions in which the IBERDROLA Group has decided to mitigate foreign currency
risk through the use of financial derivatives or other hedging instruments are recorded as described in Note 4.m.


x)     Current/non-current debt classification

In the Consolidated Statement of Financial Position debts are clasified by their maturity date at year-end. Debts
due to be settled within 12 months are classified as current items and those due to be settled within more than
12 months as non-current items.


y)   Settlements relating to regulated activities, netting of emission rights and shortfall in
revenue

Following is a description of the accounting impact on the Consolidated Financial Statements of certain
regulatory issues arising in Spain in 2009 and 2010.


Year 2009

a) Electricity distribution

On 31 December 2009, Order ITC 3519/2009 was published, revising the access tolls from 1 January 2010
and the tariffs and premiums of certain facilities operating under the special regime. Article 2 of this Order
establishes a provisional remuneration for 2009 for the Spanish distributors, including Iberdrola Distribución
Eléctrica, S.A.U (here on, IBERDROLA DISTRIBUCIÓN), which is assigned remuneration of EUR 1,546,245
thousand. This provisional remuneration was calculated by updating the remuneration of previous years and
will not be definitive until the reference network referred to in article 8 of Royal Decree 222/2008, establishing
the remuneration scheme for electricity distribution, is ratified (Note 3).
  As the IBERDROLA Group considers that the definitive remuneration calculated in accordance with said
reference network will in no case be less than that published in Order ITC 3519/2009, and because it did not
have access to the detailed model of the reference network when the 2009 Consolidated Financial Statements
were prepared, “Revenue” in the 2009 Consolidated Income Statement only includes the EUR 1,546,245
thousand of remuneration for the distribution activity in that year.


b) Revenue shortfall

Article 1 of Royal Decree-Law 6/2009 states that from 1 January 2013, access tolls shall be sufficient to meet
the entire cost of regulated activities, preventing the appearance of the ex-ante deficit and that, until then, the
provisions approving the access tolls will expressly recognise the estimated revenue shortfall which could arise
in the settlements of regulated activities in the electricity industry. It also states that if, in any period, a higher
revenue shortfall than expected in the provision approving the related access tolls is produced, this shortfall
shall be expressly recognised in the provisions approving the access tolls for the ensuing period.




                                                                                                                          49
                    / CONSOLIDATED FINANCIAL STATEMENTS




   The aforementioned Royal Decree-Law specifies that for 2009, 2010, 2011 and 2012, the shortfall in revenue
from regulated activities in the electricity industry shall not exceed EUR 3,500, EUR 3,000, EUR 2,000 and EUR
1,000 million, respectively.
   The IBERDROLA Group’s best estimate of the revenue shortfall in 2009 at the date of authorisation for issue of
the Consolidated Financial Statements is EUR 4,281,245 thousand before netting of the allowances for the first
half of 2009 described below in this note. Of this amount, the Group must finance 35.01% or EUR 1,498,864
thousand.
   Although Order ITC 3519/2009 does not explicitly recognise any deficit, the IBERDROLA Group, in accordance
with its interpretation of prevailing legislation and talks held with the regulator, considers that the 2009 revenue
shortfall will be recognised in full and that its recoverability is guaranteed irrespective of future revenues.
Accordingly, this EUR 1,498,864 thousand plus accrued interest is recognised under “Other current financial
assets” in the Consolidated Statement of Financial Position at 31 December 2009.
   Meanwhile, at the date of authorisation for issue of the 2009 Consolidated Financial Statements, the
IBERDROLA Group considered that the definitive securitisation of the 2006 and 2008 revenue deficits would
take place in 2010, as only the publication of the related regulation was pending. As a result, “Other current
financial assets” in the Consolidated Statement of Financial Position at 31 December 2009 includes the total
amount receivable in this connection, which amounted to EUR 2,509,903 thousand, after interest accrued in
2009.


c) Netting of emission rights

In December 2007, Royal Decree-Law 11/2007 was published, providing a netting of the increased revenue
deriving from the free assignment of CO2 emission allowances for 2008 and beyond from remuneration for
electricity generation.
  Afterwards, the Royal Decree-Law 6/2009, introducing a number of measures in the energy industry and
approving the subsidised rate, established that the netting of emission rights stipulated in Royal Decree 11/2007
would only be applicable until 1 July 2009.
  The enacting regulation for this article was Order ITC 1722/2009, of 26 June, stipulating that, for 2008 and
the first half of 2009, the value of CO2 emission rights allocated free of charge would be netted from electricity
generation remuneration. This Order required the owners of each electricity generation facility operating under
the ordinary regime to make a payment equal to the value of the emission rights that a combined cycle plant
would have used to generate the same amount of energy.
  The negative impact of netting emissions rights in the first six months of 2009, amounting to EUR 97,834
thousand, was recognised via a charge to “Taxes other than income tax” of the 2009 Consolidated Income
Statement, as the IBERDROLA Group considered that its payment besides having been imposed by a public
sector body, represented a parafiscal levy and was totally independent from its electricity generation activity
subject to free competition as established at the time in Electricity Industry Law 54/1997 of 27 November
(Note 3).


Year 2010

a) Electricity distribution

On 29 December 2010, Order 3353/2010 of 28 December was published, revising the access tolls from 1 January
2011 and the tariffs and premiums of certain facilities operating under the special regime. This Order establishes
a remuneration of EUR 1,681,932 thousand for the distribution of electricity in Spain by the IBERDROLA Group
during 2010. This remuneration is definitive and is recognised under “Revenue” in the 2010 Consolidated
Income Statement.
   This Order also establishes a definitive remuneration of EUR 1,621,069 thousand for 2009. The “revenues”
caption of the 2010 Consolidated Income Statement includes EUR 74,824 thousand, comprising the difference
between this amount and the provisional remuneration of EUR 1,546,245 thousand recognised in 2009, as
previously explained in this note.




 50   Annual Consolidated Financial Statements
b) Revenue shortfall

Royal Decree-Law 6/2010 was published on 9 April, setting out measures for boosting the recovery of the
economic and employment. This legislation has explicitly guaranteed the full recover of the 2010 revenue
shortfall, an issue which was included as a source of uncertainty in the 2009 Consolidated Financial Statements
of the IBERDROLA Group.
   Shortly after, Royal Decree 437/2010, of 21 April, was published, implementing the rules for securitisation of
the deficit in the electricity system. It detailed, inter alia, the amounts recognised for the IBERDROLA Group for
collection rights on the 2006, 2008, 2009 and 2010 deficits.
   In the lastest of 2010, Royal Decree-Law 14/2010, of 23 December was implemented, establishing urgent
measures to correct the electricity system deficit. This law increased the shortfall limits established in Royal
Decree 6/2009 for 2011 from EUR 2,000 million to EUR 3,000 million and for 2012 from EUR 1,000 million to
EUR 1,500 million. It also considered the temporary imbalance of settlements in the system arising in 2010 as
eligible for securitisation up to a maximum amount of EUR 2,500 million.
   The best estimation available by IBERDROLA Group about the generated revenue shortfall in 2010 is EUR
5,040,498 thousand. The 35.01% to be finance by the Group totalling an amount of EUR 1,764,679 thousand
of which they have recovered 56,421 thousand in 2010. The recovery of this amount is fully guaranteed by the
current legislation regardless of IBERDROLA Group´s future revenues.
   As a result, “Other current financial assets” on the Consolidated Statement of Financial Position at 31
December 2010 includes EUR 5,556,003 thousand for the 2010 revenue shortfall and the shortfalls generated in
prior years. Having analysed the relevant legislation and current status of the financial markets, the IBERDROLA
Group concludes that the definitive securitisation of this total amount will take place in 2011 (Notes 6 and 48).


z)    Income Tax

Since 1986 IBERDROLA has filed Consolidated Tax Returns with certain Group companies.
  Foreign companies are taxed according to the current legislation of their respective jurisdiction.
  Income Tax is accounted for using the Statement of Financial Position liability method, which consists of
determining deferred tax assets and liabilities on the basis of the carrying amounts of assets and liabilities and
their tax base, using the tax rates that can objectively be expected to be in force when the assets or liabilities are
realised or settled. Deferred tax assets and liabilities arising as a result of direct charges or credits to equity are
also accounted for with a charge or credit to equity.
  The IBERDROLA Group recognises deferred tax assets provided future taxable profits are expected against
which said assets can be recovered.
  Double taxation tax credits and other tax credits and tax relief earned as a result of economic events occurring
in the year are deducted from the Income Tax expense, unless there are doubts as to whether they can be
realised.


aa)   Administrative concessions for hydroelectric plants

Pursuant to Law 29/1985, of 2 August, partially amended by Law 46/1999, of 13 December, all the Spanish
hydroelectric plants, of which the total carrying amounts are disclosed in Note 10, are operated under the
temporary administrative concession system, whereby at the end of the concession period title to the facilities is
returned to the State, at which time the facilities have to be in good working order. The Group’s administrative
concessions expire in the period from 2000 to 2067. However, the facilities which concessions had expired at 31
December 2010 are scantly material in terms of installed capacity, and had been fully amortised as of that date,
although they continued to be operated by the IBERDROLA Group, as these concessions are renewed tacitly.
   IBERDROLA considers that it is not necessary to record a provision to a reversion reserve since the
maintenance programmes ensure the good working condition of the facilities at all times.




                                                                                                                     51
                    / CONSOLIDATED FINANCIAL STATEMENTS




ab)   Final radioactive waste management costs

Royal Decree 1349/2003, of 31 October, was published on 8 of November 2003 regulating the Empresa Nacional
de Residuos Radioactivos, S.A. (ENRESA) activities and its financing. This Royal Decree grouped together the
previous legislation regulating the activities that ENRESA develops as well as its financing, and repeals, inter alia,
Royal Decree 1899/1984, of 1 August.
  Meanwhile, Royal Decree-Law 5/2005, of 11 March, on urgent reforms to boost productivity, and Law
24/2005, of 18 November, established that the costs relating to the management of radioactive waste and
spent fuel from nuclear plants, and to the decommissioning and shut-down of the plants, attributable to their
operation and incurred after 31 March 2005, will be financed by the owners of the nuclear plants in use.
  On the other hand, on 7 May 2009, the Spanish Government passed Royal Decree-Law 6/2009, of 30 April,
adopting various energy sector measures and approving the social tariff. The principal measures introduced by
this Royal Decree-Law with respect to nuclear waste are as follows:
    - Necessary costs incurred in the management of radioactive waste and nuclear fuel at nuclear power
       stations that are definitively decommissioned before the state-owned radioactive waste management
       company ENRESA begins operating, which it had still not done at the date of preparing these Consolidated
       Financial Statements, and all necessary costs incurred in dismantling and closing these power stations, will
       be treated as diversification and capacity guarantee costs.
    - Amounts used to cover the cost of managing radioactive waste generated by research activities directly
       related to nuclear electricity generation and the costs deriving from the reprocessing of spent fuel sent
       overseas prior to the entry into force of Electricity Industry Law 54/1997, and all other costs that may be
       specified by Royal Decree shall also be considered diversification and capacity guarantee costs.
    - Amounts used to establish provisions to cover the costs incurred in managing radioactive waste and
       spent fuel generated at operational nuclear power stations after the establishment of ENRESA as well as
       dismantling and closure costs will not be treated as supply diversification and security costs, since these
       will be borne by the owners of the nuclear power stations while they are operational, irrespective of the
       date on which they are generated.
    - The balance of ENRESA’s provisions remaining after deduction of the amounts needed to cover the supply
       security and diversification costs will be used to cover costs not included in this category.
    - To cover the costs associated with nuclear power stations in operation, the companies owning the stations
       must pay a charge directly proportional to the volume of energy generated at each. The definitive method
       used to calculate this charge will be approved by resolution of the Spanish Cabinet. This had yet to take
       place as of the date of issue of these Consolidated Financial Statements.
  After a detailed analysis of the impact of Royal Decree-Law 6/2009, the IBERDROLA Group considers that the
rate is the best estimate available of the accrued expenses payable to the IBERDROLA Group in this connection.
  The Consolidated Income Statements for 2010 and 2009 include EUR 188,600 thousand and EUR 81,401
thousand, respectively, in this connection.


ac)   Earnings per share

Basic earnings per share are calculated by dividing the net profit for the year attributable to the Parent by the
weighted average number of ordinary shares outstanding during the year, excluding the average number of
shares of the parent IBERDROLA held by the IBERDROLA Group companies (Note 18).
   Meanwhile, diluted earnings per share are calculated by dividing the net profit for the year attributable to
ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, adjusted
by the weighted average number of ordinary shares that would have been outstanding assuming the conversion
of all the potential ordinary shares into ordinary shares of IBERDROLA. For these purposes, it is considered that
shares are converted at the beginning of the year or at the date of issue of the potential ordinary shares, if the
latter were issued during the current period.
   In the Consolidated Financial Statements of the IBERDROLA Group for the years ended 31 December 2010
and 2009, basic earnings per share coincide with diluted earnings per share, since there were no potential shares
outstanding during these years that could be converted into ordinary shares (Note 50).




 52    Annual Consolidated Financial Statements
ad)   Dividends

The interim dividend approved by the Board of Directors in 2009 is presented as a deduction from the equity.
However, the final dividend proposed by the Board of Directors of IBERDROLA to the shareholders at the Annual
General Meeting is not deducted from equity until it has been approved by the latter.


ae)   Discontinued operations

A discontinued operation is a line of business that it has been decided to abandon and/or sell whose assets,
liabilities and net profit or loss can be distinguished physically, operationally and for financial reporting
purposes.
   Income and expenses of discontinued operations are presented separately in the Consolidated Income
Statement.
   No significant line of business in relation to these Consolidated Financial Statements was discontinued in
either 2010 or 2009.


af)   Consolidated Statements of Cash Flow

The following terms are used in the Consolidated Statements of Cash Flow, which were prepared using the
indirect method, with the meanings specified:
    - Cash flows: inflows and outflows of cash and cash equivalents, which are short-term, highly liquid
      investments and which are subject to an insignificant risk of changes in value.
    - Operating activities: the principal revenue-producing activities of the Group companies, as well as other
      activities that are not investing or financing activities.
    - Investing activities: the acquisition and disposal of long-term assets and other investments not included in
      cash and cash equivalents.
    - Financing activities: activities that result in changes in the size and composition of the equity and
      borrowings of the Company that are not operating activities.


ag)   Share-based employee compensation

The delivery of IBERDROLA shares to employees as compensation for their services is recognised under “Staff
costs” in the Consolidated Income Statement as the workers perform the remunerated services, with a credit to
equity under “Equity – Retained earnings” in the Consolidated Statement of Financial Position at the fair value
of the equity instruments on the grant date, i.e., the date the IBERDROLA Group and its employees reach an
agreement establishing the terms of the share grant.
  In the event of cash settled share-based payments, i.e., linked to IBERDROLA’s share price, the payment is
charged to “Staff costs” in the Consolidated Income Statement and credited to “Other non-current payables” or
“Other current liabilities” in the Consolidated Statement of Financial Position, as appropriate. The fair value of
the cash settled compensation is reestimated at each accounting close.




                                                                                                                     53
                        / CONSOLIDATED FINANCIAL STATEMENTS




5. FINANCING AND FINANCIAL RISK MANAGEMENT POLICY

The IBERDROLA Group is exposed to various inherent risks in the countries, industries and markets in which it
operates and the businesses it carries out, which could prevent it from achieving its objectives and executing its
strategies successfully.
   In particular, the Financing and Financial Risk Policy approved by the Board of Directors identifies the risk
factors described below, accompanied by a sensitivity analysis. The IBERDROLA Group has an organisation and
systems which allow the financial risks to which the Group is exposed to be identified, measured and controlled.


Interest rate risk
The IBERDROLA Group is exposed to risk of fluctuations in interest rates affecting cash flows and market value
in respect of its debt and derivatives. In order to adequately manage and limit this risk IBERDROLA manages
annually the proportion of its debt that bears fixed interest to that which bears floating interest and establishes
the actions to be carried out throughout the year: new sources of financing (at a fixed, floating or indexed rate)
and the use of interest rate derivatives.
  The debt structure at 31 December 2010 and 2009, after taking into account hedges via derivatives, is the
following:



                                                                                                                   Thousands of euros
                                                                                                   2010                      2009
 Fixed interest rate                                                                          16,335,479             15,122,607
 Floating interest rate                                                                       15,151,465             15,490,636
 Floating interest rate with cap and floor (*)                                                   331,902                298,457
                                                                                               31,818,846             30,911,700

 (*) Relating to certain borrowing agreements whose exposure to interest rate fluctuations is limited by caps and floors.



  The reference interest rates for the floating rate borrowings are basically Euribor, Pound sterling-Libor and
US dollar-Libor and the most liquid local reference rates in the case of the borrowings of the Latin American
subsidiaries.
  The sensitivity earnings and equity to changes in interest rates after taking into account the effect of the
derivatives is the following:



                                                                 Increase/ decrease                   Thousands of euros
                                                                in interest rate (basis      Impact on profit       Impact on equity
                                                                        points)                before taxes           before taxes
 2010                                                                     +25                    (36,240)                    3.787
                                                                          -25                     36,240                    (3.745)
 2009                                                                     +25                    (35,744)                   (18,505)
                                                                          -25                     35,744                    18,176



Foreign currency risk
As the IBERDROLA Group functional currency is euro, fluctuations in the value of the currencies, mainly the
pound sterling and the US dollar, in which borrowings are instrumented and purchases and sales are made with
respect to the presentation currency may have an adverse effect on the finance costs and profit for the year.
  The following items could be affected by foreign currency risk:
    - Debt denominated in currencies other than the local or functional currency arranged by the IBERDROLA
      Group companies.
    - Collections and payments for supplies, services or equipment in currencies other than the functional
      currency.
    - Income and expenses of certain foreign subsidiaries indexed to currencies other than the functional
      currency.


 54     Annual Consolidated Financial Statements
     - Taxes derived from the accounting for tax purposes in local currencies other than the functional currency.
     - Profit or loss on consolidation of the foreign subsidiaries.
     - Consolidated carrying amount of investments in foreign subsidiaries.
  The IBERDROLA Group reduces this risk by ensuring that all its economic flows are denominated in the
presentation currency of each Group company, provided that this is possible and economically practicable and
efficient. The resulting open positions are integrated and managed through the use of derivatives, within the
approved limits.
  The other currencies than the euro in which the IBERDROLA Group operates most, is the US dollar and the
Pound sterling. The sensitivity of earnings and consolidated of IBERDROLA Group equity to changes in the US
dollar/euro and pound sterling/euro exchange rate is as follows:


                                                         Change in the               Thousands of euros
                                                         US dollar/euro     Impact on profit       Impact on equity
                                                         exchange rate        before taxes           before taxes
 2010                                                        +5%                 (13,264)             (456,872)
                                                              -5%                  9,375                501,686
 2009                                                        +5%                  (6,678)             (226,483)
                                                              -5%                 22,710               266,721




                                                        Change in the                Thousands of euros
                                                      pound sterling/euro   Impact on profit       Impact on equity
                                                        exchange rate         before taxes           before taxes
 2010                                                        +5%                 (33,697)             (460,628)
                                                              -5%                 23,775               495,646
 2009                                                        +5%                 (16,483)             (353,672)
                                                              -5%                 18,217               390,950


  The sensitivity of the market value of the IBERDROLA Group’s financial borrowings, bearing in mind hedges
entered into, to changes in the US dollar/euro and in the pound sterling/euro exchange rate is as follows (in
thousands of euros):

                                                                                                   Thousands of euros
                                                  2010                                      2009
 Changes in the US dollar/euro
                                       +5%                   -5%                 +5%                     -5%
 exchange rate
 Change in the market value of
                                     (246,848)            272,832              (309,339)               341,901
 the borrowings




                                                                                                   Thousands of euros
                                                  2010                                      2009
 Changes in the pound ster-
                                       +5%                   -5%                 +5%                     -5%
 ling/euro exchange rate
 Change in the market value of
                                     (200,289)             221,373             (208,492)               230,439
 the borrowings



Commodity price risk
The activities carried out by the IBERDROLA Group are subject to a range of business risks, such as the fuel prices
fluctuations including the CO2 emission allowances.
   The exposure to these risks is managed and mitigated by monitoring the positions, arranging derivatives, and
diversifying contracts and various clauses contained in the related purchase and sale agreements.
   In the Spanish market, where IBERDROLA’s main activities are based, and in the UK market, which is the
Group’s second most important market, the current generating mix provides a natural hedge against the range



                                                                                                                      55
                      / CONSOLIDATED FINANCIAL STATEMENTS




of generating technologies used, limiting the business and market risks associated with the purchase and sale of
energy to final customers.
   The remaining risk arising from fluctuations in prices of products to which fuel prices are indexed and
exchange rates is mitigated through the appropriate diversification and management of the supply contracts.
   With regard to the measurements of the risk of a change in the market price of gas in those markets which
are sufficiently liquid (UK and US), the IBERDROLA Group uses, among other control indicators, the value at
risk (VaR), establishing limits for each business. VaR figures are calculated with a confidence level of 99% and a
holding period of five days, as follows:



                                                                                                     Thousands of euros
                                                                            2010                        2009
 VaR at 31 December                                                       22,610                      37,284
 Average VaR for the 12 preceding months                                  25,299                      29,902
 Maximum VaR in the 12 preceding months                                   47,776                      66,667
 Minimum VaR in the 12 preceding months                                   12,245                       11,768


  In the rest of markets where IBERDROLA Group operates, the risk is measured through the sensitivity to the
earnings and to the equity, which is as follows:

                                                                                         Thousands of euros
                                                                                Impact on profit     Impact on equity
                                                         Change in gas price      before tax            before tax
 2010                                                            +5%                 (9,180)               (7,674)
                                                                 -5%                  9,180                 7,674
 2009                                                            +5%                  4,961                4,854
                                                                 -5%                 (4,961)               (4,854)




Liquidity risk
Exposure to adverse situations in the debt or capital markets or to IBERDROLA Group´s economic and financial
situation can hinder or prevent the Group from obtaining the financing required to properly carry on its
business activities and implement.
   IBERDROLA Group’s liquidity policy is designed to ensure that it can meet its payment obligations without
having to obtain financing under unfavourable terms. For this purpose, it uses various management measures
such as the arrangement of committed credit facilities of sufficient amount, term and flexibility, diversification of
the coverage of financing needs through access to different markets and geographical areas, and diversification
of the maturities of the debt issued (Notes 23 and 48).


Credit risk
This risk is defined as the risk that a third party will not fulfil its contractual obligations and, therefore, generate
losses for the Group.
  With regard to credit risk relating to trade accounts receivable, this risk is historically very low. Trade payables
are recognised on the Consolidated Statement of Financial Position, net of provisions for doubtful debts. The
cost of doubtful debts has historically remained at moderate and stable levels, despite the current difficult
economic situation.
  The IBERDROLA Group is also exposed to the risk that its counterparties will not meet their obligations
in transactions with derivatives, the placement of cash surpluses, energy trading operations and guarantees
received by third parties. The Corporate Risk Function of the IBERDROLA Group establishes strict criteria
in selecting counterparties based on the creditworthiness of the entities, which translates into a highly
creditworthy and highly solvent counterparty portfolio. It should be noted that in 2010 and 2009 there were no
material non-payments or losses.




 56     Annual Consolidated Financial Statements
  At 31 December 2010 and 2009 there was no material concentration of credit risk at the IBERDROLA Group.
  The age at 31 December 2010, 31 December 2009 and 1 January 2009 of financial assets that are past due but
not considered impaired is the following:

                                                                                               Thousands of euros
                                                         December 31,        December 31,          January 1,
                                                             2010                2009                2009
 Less than 90 days                                          576,401             627,789              227,504
 90-180 days                                                133,057             188,220             153,567
 Over 180 days                                             100,020               91,242              88,232
                                                            809,478             907,251             469,303




6. USE OF ESTIMATES AND SOURCES OF UNCERTAINTY

a)     Accounting estimates

The most significant estimates made by IBERDROLA Group in these Consolidated Financial Statements are as
follows:
    - Unbilled power supplied:
      The revenue figure for each year includes an estimate of the power supplied to customers of liberalised
      markets but not billed because it had not been metered at year-end for reasons relating to the regular
      meter-reading period. The estimated unbilled power at 31 December 2010 and 2009, amounted to EUR
      972,466 thousand and 882,095 thousand, respectively. This amount is included under “Current trade and
      other receivables” on the Consolidated Statements of Financial Position at 31 December 2010 and 2009.
    - Settlements relating to regulated activities in Spain:
      At the end of each year the IBERDROLA Group estimates the definitive settlements relating to regulated
      activities in Spain for that year, establishing the shortfall in revenue, if any, that corresponds, together
      with the amount that will be recovered in the future on the basis of the announcements made by the
      authorities in this connection and the periods during which this recovery will take place (Note 4.y).
      The estimates are made on the basis of the provisional settlements published up to the date of preparation
      of the Consolidated Financial Statements and all available information on the sector.
    - As mentioned in Note 4.m, the IBERDROLA Group analyses its contracts to trade energy supplies to ensure
      they are properly classified for accounting purposes. This analysis involves estimating final customer
      demand and other variables. These estimates are revised at regular intervals.
    - Costs incurred in dismantling electricity production and distribution facilities:
      The IBERDROLA Group periodically revises the estimates made concerning the costs to be incurred in the
      dismantling its generating facilities, and in the dismantling work that will have to be performed on the
      basis on agreements entered into for the disposal of land on which distribution facilities are located (Note
      22).
    - Provision for pensions and similar obligations and restructuring plans:
      At each year-end the IBERDROLA Group estimates the current actuarial provision required to cover
      obligations relating to restructuring plans, pensions and other similar obligations to its employees. In
      making these estimates, the IBERDROLA Group receives advice from independent actuaries (Notes 4.q, 4.r
      and 21).
    - Discontinued operations and assets held for sale:
      The IBERDROLA Group considers that neither at 31 December 2010 nor the date of preparation of these
      Consolidated Financial Statements exist assets held for sale or discontinued operations significant in
      relation to these Consolidated Financial Statements.
    - Fair value of investment property:
      The IBERDROLA Group appraises its investment property each year. While these appraisals are particularly
      important given the current situation of the real estate market, the IBERDROLA Group considers that its
      appraisals, commissioned by independent experts, appropriately reflect this situation.




                                                                                                                57
                    / CONSOLIDATED FINANCIAL STATEMENTS




    - Impairment of assets:
      As described in Notes 4.l and 8, the IBERDROLA Group, in accordance with applicable accounting
      regulations, tests the cash-generating units that require testing for impairment each year in September.
      These impairment tests require estimating the future cash flows of the businesses and the most
      appropriate discount rate in each case. The IBERDROLA Group believes its estimates in this respect are
      appropriate and consistent with the current market situation. Also, the discount rates reflect the risk of
      cash-generating units.
    - Other intangible assets:
      As disclosed in Note 4.f of these Consolidated Financial Statements, the "Other intangible assets" caption
      on the Consolidated Statement of Financial Position includes wind farm projects in the development
      phase. The IBERDROLA Group estimates that these projects meet the ‘identifiability’ requirement under
      IAS 38 for them to be capitalised, and that the Group's future investment plans will include constructing
      the facilities proposed in these projects.
    - Regulations concerning production of renewable energy in Spain:
      On 8 December 2010, the government published Royal Decree 1614/2010. The main features with
      respect to wind farms located in Spain are as follows:
           - The premiums corresponding to facilities benefited from the Royal Decree 436/2004 which was
             removal by the ninth transitional arrangement of Decree 661/2007 (4,159 MW in the case of
             IBERDROLA Group).
           - The reference premium to which plants under Royal Decree 661/2007 (which in the case of the
             IBERDROLA Group entail installed capacity of 897 MW) is reduced, under certain conditions, by 35%
             until 31 December 2012, although there are still upper and lower limits in place and the plants still
             have the possibility of selling at the regulated tariff to ease the impact of the premium reduction.
           - A maximum number of hours per year eligible for the premium is established.
  The IBERDROLA Group has assessed the impact of this Royal Decree and considers that there is no need to
make any write-offs.
  Although these estimates were made on the basis of the best information available at the date on which
these Consolidated Financial Statements were prepared on the events analysed, events that take place in the
future might make it necessary to change these estimates (upwards or downwards) in coming years. Changes in
accounting estimates would be applied prospectively, recognising the effects of the change in estimates in the
related future Consolidated Financial Statements.


b)    Sources of uncertainty

There are certain aspects that, at the date of approval of these Consolidated Financial Statements constitute a
source of uncertainty concerning the accounting effect:
   - “Other current financial assets” on the Consolidated Statement of Financial Position at 31 December 2010
     includes EUR 5,556,003 thousand for all revenue shortfalls borne by the IBERDROLA Group and pending
     payment. Royal Decree 437/2010 was published on 21 April 2010, regulating the securitisation process
     of the electricity system deficit (Note 4.y). This Royal Decree sets the functional procedures for the fund
     for securitisation of the revenue deficit. After detailed analysis of this Royal Decree and also considering
     the securitisation described in Note 48, the IBERDROLA Group considers that the definitive securitisation
     of the revenue shortfall will take place before 31 December 2011, and the corresponding amount has
     therefore been recognised under current assets in the Consolidated Statement of Financial Position at 31
     December 2010.
   - On 27 February 2010, Royal Decree 134/2010 was published establishing the procedure for resolving the
     restrictions on supply guarantees and amending Royal Decree 2017/1997, which organised and regulated
     the electricity generation market. The new Royal Decree prescribes a number of measures to support
     power plants using local coal in Spain and to compensate producers for plants that are taken out of the
     production market as a result of this intervention in the market, basically expected to be those using
     imported coal or natural gas. Following a review by the European Union amending the aforementioned
     Royal Decree, this has been amended by the Royal Decree1221/2010 publication. Royal Decree 1221/2010
     eliminates the compensation paid to plants excluded from the generation programme. Nevertheless, at
     the date of preparation of these Consolidated Financial Statements, this Royal Decree had not entered into
     force due to the outstanding final approval by the Luxembourg´s Court.




 58   Annual Consolidated Financial Statements
      The IBERDROLA Group considers that since Royal Decree 1221/2010 came into effect, the carrying amount
      of its generating plants which use imported coal and natural gas will not need to be significantly impaired.
    - In 2009 and against the backdrop of the Recovery and Reinvestment Act, a series of renewable energy
      incentives were established in the United States. These measures solely related to facilities coming on
      stream prior to 31 December 2012 (Note 3).
      Although the regulation governing wind facilities entering service in US after 1 January 2013 is pending
      publication at the date of preparing the Consolidated Financial Statements, the IBERDROLA Group
      considers that this regulation will favour its interests and will ensure sufficient returns on its investment. It
      therefore concludes that its assets are not exposed to any impairment risk.
    - The operating licence in effect for the majority of the IBERDROLA Group’s nuclear facilities, all located in
      Spain, span a 30 year period once they become operational. Renewal of these licences cannot be applied
      for until a few years before they expire.
      On 13 July 2009, Order ITC 1785/2009 was published, establishing 6 July 2013 as the definitive
      decommissioning date for the Santa María de Garoña nuclear power station, 42 years after it was brought
      into operation. Also, the Sustainable Economy Law aproved on 15 February 2011 sets out, without any
      time limit, that its contribution in the production mix will be determined according to the operational
      schedule and the potential renewals required by the facilities owners under the regulatory framework.
      Taking this into account, as well as the investment and maintenance policies followed at its nuclear plants,
      the IBERDROLA Group considers that the corresponding operating licences will be renewed for at least an
      additional 10 years period. Accordingly, for accounting purposes a useful life of 40 years will be applied to
      these plants (Note 4.h).
    - The legislation applicable to IBERDROLA DISTRIBUCIÓN and other Group companies applying Basque
      Country regional tax legislation to settle their 2010 Income Taxes is Regional Law 3/1996 of 26 June, as
      amended by more recent regulations, which is currently in force despite a series of ongoing appeals.
      The IBERDROLA Group companies that settle their taxes under this legislation have calculated the
      amounts corresponding to this tax for financial years 2010 and 2009 and for those years open to
      inspection in accordance with the regional regulations in effect at the end of each year based on their
      judgment that the final outcome of the legal proceedings and appeals filed will not have a significant effect
      on the Consolidated Financial Statements.
    - Meanwhile, Royal Decree-Law 6/2009 created the register for pre-allocation of remuneration, in which
      projects must be registered to be covered by the economic regime established by Royal Decree 661/2007
      regulating special regime electricity generation in Spain. This Royal Decree-Law also states that when
      the capacity of projects registered in the pre-allocation register is greater than the wind capacity target
      established in Royal Decree 661/2007, the economic regime established in Royal Decree 661/2007 will
      expire with the registered facilities.
      Subsequently, on 19 November 2009 the Resolution of the General Secretary for Energy was published,
      enacting the agreement of the Council of Ministers of 13 November 2009. This resolution sets a system of
      stages for the start-up of wind farms, as follows:
           • Phase 1: includes 3,719 MW of wind capacity, which can come on stream at any time.
           • Phase 2: includes 1,700 MW of wind capacity, which cannot be brought into service before 1 January
              2011 or after 1 January 2013.
           • Phase 3: the rest of the capacity in the pre-allocation register, which cannot come on stream before 1
              January 2012 or after 1 January 2013.
  Subsequent to this Resolution, the IBERDROLA Group received a response to the applications for inclusion of
projects in the pre-allocation register, with the following MW of wind power assigned to it for each of the three
phases:
           • Phase 1: 732 MW
           • Phase 2: 264 MW
           • Phase 3: 295 MW
  Meanwhile, at the date of authorisation for issue of these Consolidated Financial Statements, the economic
regime applicable to Spanish wind facilities coming on stream after 1 January 2013 had yet to be defined.
However, Royal Decree-Law 6/2009 states that a new legal-economic framework for these projects will be
approved via Royal Decree, establishing an economic regime that is sufficient and appropriate to promote
commissioning of these projects.




                                                                                                                    59
                     / CONSOLIDATED FINANCIAL STATEMENTS




   The IBERDROLA Group considers that it will be able to commission the MW of each phase as planned,
otherwise avail itself of certain flexibility measures between the phases established in the Resolution of 18
November 2009. It also considers that the costs capitalised up until then on projects not included in the pre-
allocation register, which therefore will be put into service after 1 January 2013, are not significant in relation
to these Consolidated Financial Statements and that, in any event, will be recovered under the new regulatory
framework when it is approved.
   The IBERDROLA Group and its legal and tax advisors consider that no significant liabilities will arise for the
IBERDROLA Group as a result of the matters detailed in the paragraphs above.


7. GEOGRAPHICAL AND BUSINESS SEGMENT REPORTING

IFRS 8: “Operating segments” provides that an operating segment is a component of an entity.
      a) that engages in business activities from which it may earn revenues and incur expenses (including
          revenues and expenses relating to transactions with other components of the same entity),
      b) whose operating results are reviewed regularly by the entity’s chief operating decision maker to make
          decisions about resources to be allocated to the segment and assess its performance,
      c) for which discrete financial information is available.
  Due to the characteristics of the activities developed by the IBERDROLA Group, the reported segments
agree with strategic business units rather than with the delivered products and services. The segments are
independently managed as they have different technologies and regulation and are located in different
geographical markets.
  Transactions among different segments are carried out on an arm’s length basis.

  The operating segments identified by the IBERDROLA Group are as follows:
      - The deregulated business: this segment includes electricity generation in ordinary regime
      and the sale of electricity and gas, mainly in Spain. Additionally, this segment includes the activity of
      Last Resort Supply of electricity and gas, as long as despite being considered a regulated activity its
      management is carried out by the liberalized business.
    - Regulated business: the electricity and gas distribution business made in Spain.
    - Non-energy: this segment includes the real estate activities performed in Spain (Notes 4.i and 4.n), the
      engineering business and the other non-energy activities.
    - Renewables: includes primarily generation from renewable energy sources worldwide and the gas storage
      and electricity and gas supply businesses carried out in the USA.
    - South America: this segment includes the electricity generation, distribution and supply activities in this
      continent.
    - Mexico and Guatemala: this segment includes electricity generation in Mexico (Note 4.j) and the
      distribution and sale of electricity in Guatemala up to its disposal in the financial year 2010 (Note 36).
    - SCOTTISH POWER: this segment includes all the activities undertaken in the UK except for the renewable
      energy business, i.e., the generation, the transport, the distribution and the sale of electricity and the sale
      of gas.
    - IBERDROLA USA: includes electricity generation, distribution and supply in the North-East region of the
      United States, carried on entirely through the subgroup of which IBERDROLA USA is parent.
  The IBERDROLA Group manages globaly not only the financial activities but also the effects of taxation on
profits. Consequently, financial income and expenses and income tax have not been allocated to operating
segments.
  The key figures for the operating segments identified are as follows:




 60     Annual Consolidated Financial Statements
BUSINESS SEGMENT REPORTING FOR 2010

                                                                                                                                                   Thousands of euros
                                                    Spain
                                                                                                                                            Structure
                                                              Non Energy    Renewable                 Mexico-Gua-   SCOTTISH     IBERDROLA     and
                                    Liberalised   Regulated    Activities     Energy     Southamerica   temala       POWER          USA    adjustments         Total
REVENUE

External revenues                   10,515,948    1,842,231    1,724,696     1,629,754    1,598,131    1,640,980    8,347,270    3,132,026            (2)   30,431,034

Inter-segment revenues                 29,428         2,860      192,215       611,323            -            -          515               -           -     836,341

Intercompany eliminations                                                                                                                                    (836,341)

Total sales                                                                                                                                                 30,431,034



INCOME STATEMENT

Operating profit (loss)               953,314     1,088,511     108,095       690,986      476,200      337,791       784,300      462,012       (71,468)    4,829,741
Result of companies
accounted for using the                  1,093        3,069        7,727           10         5,881        7,655         (316)         2,455        (218)       27,356
equity method net of taxes


ASSETS

Segment assets                      11,174,806    8,878,653   2,752,294     22,666,789   2,626,970     1,872,149    17,307,563   8,248,934       984,899    76,513,057
Investments in companies
accounted for using the                  2,309       23,673     634,156           284       28,205       45,802           987       18,346        22,198      775,960
equity method


LIABILITIES

Segment liabilities                  2,899,774    4,884,945    1,437,486     2,511,426     420,516      305,202     2,419,933     1,326,101     1,792,050   17,997,433



OTHER INFORMATION
Total cost incurred during
the year in the acquisition
of property, plant and                560,446       671,941      54,876      2,938,539     199,947       25,251       861,277      439,576        99,528     5,851,381
equipment and non-current
intangible assets
Depreciation and amortisation
                                       529,811      301,239       92,969       764,691       80,543       69,055       564,740      248,781        46,399    2,698,228
charge, allowances and provisions
Expenses for the year other than
depreciation and amortisation
                                        30,265       12,843        1,784        10,190        8,009          689        50,142         52,378      36,112      202,412
that did not result in cash
outflows




                                                                                                                                  61
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




BUSINESS SEGMENT REPORTING FOR 2010

                                                                                                                                                Thousands of euros
                                               Spain
                                                                                                                                            Structure
                                                          Non Energy    Renewable                    Mexico-      SCOTTISH       IBERDROLA     and
                              Liberalised    Regulated     Activities     Energy     Southamerica   Guatemala      POWER            USA    adjustments        Total

REVENUE
External revenues              7,190,497      1,682,418     2,123,530    1,663,481     1,196,008     1,456,156     7,555,157      3,010,164     14,527    25,891,938
Inter-segment revenues               2,876        3,311      169,859      345,604               -            -          465               -           -       522,115
Intercompany eliminations                                                                                                                                    (522,115)
Total sales                                                                                                                                               25,891,938


INCOME STATEMENT
Operating profit (loss)          869,186       891,985       225,040      688,844       414,037       344,824        899,671       248,959     (73,363)      4,509,183
Result of companies
accounted for using the
                                      204         3,142        19,031           6          5,499        1,720               48       3,009        (222)        32,437
equity method net of
taxes


ASSETS
Segment assets                10,914,391     8,360,695      3,223,338   19,529,806     2,162,813     1,966,445    16,581,929      8,567,788    968,871    72,276,076
Investments in companies
accounted for using the              2,819      27,380       542,149          308               -      40,422          1,337        16,296       5,420        636,131
equity method


LIABILITIES
Segment liabilities            2,362,702      3,919,206     1,440,430    1,950,579       816,615      331,345      2,133,781      1,323,723   1,502,359   15,780,740


OTHER INFORMATION
Total cost incurred during
the year in the acquisition
of property, plant and           598,813       735,041        79,884     2,477,097      286,016        27,969        780,184       192,234     127,267       5,304,505
equipment and non-cu-
rrent intangible assets
Depreciation and
amortisation charge,             461,481       226,915        110,819     636,427         88,193       12,657        551,576       202,334      15,680       2,306,082
allowances and provisions
Expenses for the year
other than depreciation
                                   16,174        19,173          499        9,995          4,878          764         62,154        34,621      40,892        189,150
and amortisation that did
not result in cash outflows


                                A breakdown of non-current assets (intangible assets, investment properties and
                              property, plant and equipment) by geographical area is as follows:

                                                                                                                                                 Thousands of euros
                                                                                                        Non-current assets
                                                                        December 31,                      December 31,                          January 1,
                                                                            2010                              2009                                2009
Spain                                                                    24,979,206                         24,275,025                         23,685,038
UK                                                                       18,489,590                         17,529,956                         16,569,628
Rest of Europe                                                            1,758,881                             1,592,448                        1,194,542
USA                                                                      19,529,374                         17,534,464                          16,625,162
South America                                                             4,086,848                             3,688,028                        3,293,419
                                                                         68,843,899                         64,619,921                          61,367,789


                                62     Annual Consolidated Financial Statements
  Additionally, a breakdown of revenue by geographical area is as follows:

                                                                                                Thousands of euros
                                                                                            Revenue
                                                                                  2010                   2009
 Spain                                                                        14,629,123           11,507,174
 UK                                                                            8,325,923              7,720,593
 Rest of Europe                                                                  173,588               138,684
 USA                                                                           4,035,204              3,854,469
 South America                                                                 3,267,196              2,671,018
                                                                              30,431,034          25,891,938


  As described in Note 4.j, IBERDROLA Group has electricity generation capacity assignment contracts with
the Mexican Federal Electricity Commission in connection with these contracts. The external sales of Mexico-
Guatemala segment 2010 and 2009 include EUR 265,418 and 257,723 thousands, respectively.
  In addition, the reconciliation between segment assets and liabilities and total assets and liabilities in the
Consolidated Statement of Financial Position is as follows:



                                                                                                 Thousands of euros
                                                                                 12.31.10               12.31.09
 Segment assets                                                                76,513,057             72,276,076
 Non-current financial assets                                                   2,636,156              2,769,744
 Deferred tax assets                                                           3,487,732              3,142,453
 Current trade and other receivables                                              932,907                425,581
 Current financial investments                                                  6,871,150              6,143,653
 Current income tax assets                                                        588,732                661,031
 Other tax receivables                                                            569,361                501,837
 Cash and cash equivalents                                                      2,101,857              1,090,619
 Total Assets                                                                  93,700,952             87,010,994




                                                                                                 Thousands of euros
                                                                                 12.31.10               12.31.09
 Segment liabilities                                                           17,997,433             15,780,740
 Equity                                                                        31,663,070             29,029,852
 Equity having the substance of a financial liability                            652,282                671,446
 Non-current bank borrowings                                                   26,397,550             27,289,002
 Deferred tax liabilities                                                       8,773,704              7,880,560
 Other non-current payables                                                      296,630                327,032
 Current bank borrowings                                                        6,937,475              5,592,359
 Other current liabilities                                                       982,808                440,003
 Total Equity and Liabilities                                                  93,700,952             87,010,994




                                                                                                                   63
                                                                   / CONSOLIDATED FINANCIAL STATEMENTS




                                        8. INTANGIBLE ASSETS

                                        The changes in 2010 and 2009 in intangible assets accounts and in the related accumulated amortisation,
                                        allowances and provisions were as follows:




                                                                                                                                                                         Thousands of euros
                                   Changes                                    Disposals,                          Changes                                    Disposals,
                     Balance     in the con-                                   derecog-            Balance at   in the con-                                   derecog-
                   at 01.01.09    solidation Translation Additions              nition,              12.31.09    solidation Translation Additions              nition,
                   (Reexpres-      method differences and char- Capitalised reductions             (Reexpres-     method differences and char- Capitalised reductions
                       sed          and/or in foreign ges for the staff costs and write-               sed         and/or in foreign ges for the staff costs and write-           Balance at
                    Note 2.a)       scope     currency     year    (Note 33)     offs    Transfers Note 2.a)       scope     currency     year    (Note 33)     offs    Transfers 12.31.10
Cost:


Goodwill           7,254,953        27,580     306,154         -          -           -         - 7,588,687      (75,128)    316,339       693           -        (28)           - 7,830,563
Concessions,
patents, licen-
                   7,259,676             -     424,113   149,003     28,287   (25,707)      (298) 7,835,074 (391,904)       609,385    135,058      20,024 (166,766)             - 8,040,871
ses, trademarks
and other
Computer
                     865,341             -      37,587   103,572      7,427     (8,810)         - 1,005,117             -     20,635   100,878      13,052   (11,720)            - 1,127,962
software
Emission
                     520,821             -      17,035   387,960          - (543,688)           -    382,128            -      6,489   386,364           - (427,042)             -   347,939
allowances
Other intangible
                 3,948,970               -      33,954    43,608     35,079   (37,530) (134,557) 3,889,524              -    208,106     38,025     16,649     (5,571) (926,666) 3,220,067
assets
Total cost         19,849,761       27,580     818,843   684,143    70,793 (615,735) (134,855) 20,700,530 (467,032) 1,160,954           661,018     49,725   (611,127) (926,666) 20,567,402


Accumulated
amortisation
and
allowances


Concessions,
patents,
licences,            586,691             -     183,554   150,938          -    (4,298)          -    916,885            -     54,835    256,110          -    (21,054)           - 1,206,776
trademarks and
other
Computer
                     609,971             -      20,995    85,373          -     (7,675)         -   708,664             -     13,881     90,552          -   (10,090)            -   803,007
software
Other intangible
                     188,696             -       7,749    77,916          -   (28,888)          -   245,473             -      1,541     81,251          -      (482)            -   327,783
assets
Total
accumulated        1,385,358             -     212,298   314,227          -   (40,861)          - 1,871,022             -    70,257     427,913          -   (31,626)            - 2,337,566
amortisation
Impairment
                      63,071             -           -         -          -   (58,692)          -      4,379            -          -          -          -      2,596            -     6,975
allowances
Total
accumulated
amortisation       1,448,429             -     212,298   314,227          -   (99,553)          - 1,875,401             -    70,257     427,913          -   (29,030)            - 2,344,541
and
allowances
Total carrying
                   18,401,332       27,580     606,545   369,916    70,793 (516,182) (134,855) 18,825,129 (467,032) 1,090,697           233,105     49,725 (582,097) (926,666) 18,222,861
amount



                                          The fully amortised intangible assets in use at 31 December 2010 and 2009, amounted to EUR 702,153
                                        thousand and EUR 664,107 thousand, respectively.




                                          64     Annual Consolidated Financial Statements
  The allocation of goodwill to the cash generating units at 31 December 2010 and 2009 is as follows:
                                                                                                           Thousands of euros
                                                                                           12.31.10            12.31.09
 Electricity generation and electricity and gas supply in the UK                          4,350,011           4,216,047
 Electricity transmission and distribution in the UK                                       670,489             649,842
 Production of renewable energies in the UK                                               424,312              411,244
 Deregulated activities in the US                                                        1,232,062            1,142,775
 Activities in Canada                                                                      180,281              167,357
 Corporate activities                                                                      360,212              349,119
 Regulated activities in the US                                                            553,633             588,639
 Others                                                                                     59,563               63,664
                                                                                          7,830,563           7,588,687

  The allocation of indefinite life and in-progress intangible assets at 31 December 2010 and 2009 to the various
cash generating units is as follows:



                                                                                                           Thousands of euros
                                                                                             2010
                                                                   Intangible assets
                                                                    with indefinite    Intangible assets
                                                                      useful lives        in progress            Total
 Electricity generation in the Iberian Market                                 -             322,128             322,128
 Electricity distribution in Scotland                                   773,047                       -         773,047
 Electricity distribution in Wales and the UK                          744,002                        -         744,002
 Electricity transmission in the UK                                     293,814                       -         293,814
 Renewable energies in the UK                                                 -             647,771             647,771
 Renewable energies in the US                                                 -             795,880             795,880
 Other activities in the US                                                   -             266,991             266,991
 Canada                                                                       -              33,804              33,804
 Electricity and gas distribution in New York (NYSEG) (*)               886,674                       -         886,674
 Electricity and gas distribution in New York (RG&E) (*)                799,200                       -         799,200
 Electricity transmission and distribution in Maine (CMP) (*)           220,191             646,562             866,753
 Other                                                                        -              35,433              35,433
                                                                      3,716,928           2,748,569           6,465,497

 (*) Belonging to the IBERDROLA USA subgroup.




                                                                                                                          65
                          / CONSOLIDATED FINANCIAL STATEMENTS




                                                                                                                              Thousands of euros
                                                                                                            2009
                                                                           Intangible assets
                                                                            with indefinite           Intangible assets
                                                                              useful lives               in progress                     Total
 Electricity generation in the Iberian Market                                            -                  314,154                    314,154
 Electricity distribution in Scotland                                             748,847                          -                 748,847
 Electricity distribution in Wales and the UK                                    720,711                           -                 720,711
 Electricity transmission in the UK                                               285,537                          -                 285,537
 Renewable energies in the UK                                                            -                  805,412                  805,412
 Renewable energies in the US                                                            -                 1,441,044               1,441,044
 Other activities in the US                                                              -                  337,641                    337,641
 Canada                                                                                  -                   31,354                      31,354
 Electricity and gas distribution in New York (NYSEG) (*)                         822,415                          -                 822,415
 Electricity and gas distribution in New York (RG&E) (*)                          741,282                          -                   741,282
 Electricity transmission and distribution in Maine (CMP) (*)                     204,234                   599,706                  803,940
 Gas distribution in Connecticut (CNG) (*)                                        138,771                          -                 138,771
 Gas distribution in Connecticut (SCG) (*)                                         63,469                          -                     63,469
 Gas distribution in Massachusetts (BGC) (*)                                       30,900                          -                     30,900
 Other                                                                                   -                  152,343                  152,343
                                                                                 3,756,166                 3,681,654               7,437,820

 (*) Belonging to the IBERDROLA USA subgroup.



  The discount rates, before taxes, used by IBERDROLA Group for impairment test purposes are the following:


         Operating segment (Note 7)                                 2010 rates                                          2009 rates
 Renewables                                                        6.51% - 9.16%                                       6.48% - 8.61%
 South America (*)                                                 7.69% - 11.77%                                      9.20% - 14.91%
 SCOTTISH POWER                                                    6.12% - 7.55%                                       6.60% - 7.89%
 IBERDROLA USA                                                           5.95%                                             6.31%

 (*) 2009 rates include Guatemala, sold in 2010 (Note 36), therefore it does not integrate 2010 data.




  The future cash flows projection period as well as the growth rate used for estimating the subsequent periods
are as follows:

          Cash Generating Unit                          Business Unit                         Period                                 g
 Generation                                                                                  Useful life
                                                       Scottish Power                                                              0%
 and electricity and gas retail in UK                                                           10
 Electricity transmission and
                                                       Scottish Power                            10                                2%
 distribution in UK
 Renewable energy production in UK                          Renewables                       Useful life                           0%
 Non-Regulated activities in USA                            Renewables                       Useful life                           0%
 Regulated activities in USA                            Iberdrola USA                            10                                2%
 Activities in Canada                                  Scottish Power                        Useful life                           0%
 Corporate activities                          Corporate and adjustments                         20                                0%




 66      Annual Consolidated Financial Statements
Period of projection:

    - For generation assets are corresponded with their remaining useful lives (the most relevant assets useful
       lives are: combined cycle 35 years and wind farms 20 years).
    - For distribution and retail of electricity and gas business units there has been considered 10 years.
    - Corporate activities include the part of the assigned price in the SCOTTISH POWER purchase to the fiscal
       deductibility of goodwill during 20 years.
  For these businesses (with long-term maturity-investments), it is considered more correct to use the
aforementioned periods rather than 5 years plus a growth rate. This is due to the fact that in the generation
business there are long-term contracts in force and estimated prices curves are frequently used in the operating
activity (hedges, contracts…). In the distribution business, there are long-term regulated periods (5 years) and
projected investment plans.


Growth rate:

  The growth rate for extrapolating the projections is null in generation assets. It is also null for the electricity
and gas retailing whereas for distribution activities it has been considered a 2% rate in USA and UK. These rates
are based on the inflation and market growth expectations.


The main assumptions on which impairment tests are based on are as follows:

    - Power produced at electricity generation facilities: the latest available estimate is used for this purpose.
      This takes into account the long-term predictability of wind output and also the fact that wind generation
      is supported in nearly all countries by regulatory mechanisms that allow for production whenever weather
      conditions permit. It was also confirmed that the hours of operation for each wind farm are consistent
      with their historical output and wind studies carried out. In the case of generating plant located in the
      UK, the hours of operation used were consistent with previous years and with the future UK energy mix
      projected by IBERDROLA Group.
    - Electricity and gas prices: prices used for electricity and gas generation and supply in the UK were those
      stated in the long-term gas supply contracts entered into by SCOTTISH POWER and prices in the UK gas
      and electricity futures markets, which offer liquidity for periods of between two and three years. Also,
      the wind generation plants in the US and some of those in the UK have signed contracts to sell all their
      output at a fixed price for virtually the whole of their useful life and these were the prices used for the
      impairment tests. For other cash-generating units, the prices used were the contractual supply prices.
      For uncontracted output and unlisted derivatives, prices were derived using the usual curves applied by
      IBERDROLA Group, based on its experience in the markets where it operates.
    - Regulated remuneration: in the electricity and gas distribution businesses carried out by IBERDROLA
      Group in Spain, the UK, the US and Brazil, the approved remuneration has been applied where is available.
      Where this is not available, the mechanisms for updating the remuneration established in the various
      legislations are taken and applied on a consistent basis with the estimated costs of the cash-generating
      units.
    - Investment: tests were based on the best information available on plants due to come on stream in
      coming years. In the case of wind farms, tests considered the fixed prices stated in the contracts to buy
      turbines from various suppliers, including GAMESA (Note 47), and the technical and financial capacity of
      IBERDROLA Group to successfully complete the projects planned. In the regulated business, tests took
      account of investment consistent with the expected growth in demand in countries where IBERDROLA
      Group has electricity and gas transmission and distribution operations.
    - Operating costs: in the UK generation and supply market, cost estimates were based on long-term
      maintenance contracts where these existed. In the case of renewables, with their highly predictable costs,
      the prices used were those for the land leases and maintenance contracts for the whole useful life of the
      plants. Other operating costs were projected consistent with the expected growth of each cash-generating
      unit, assuming the headcount would rise in line with said growth.
    - Discount rate: the discount rates used reflect the IBERDROLA Group’s best estimate of the risks specific to
      each cash-generating unit.




                                                                                                                    67
                    / CONSOLIDATED FINANCIAL STATEMENTS




  The IBERDROLA Group has performed a series of sensitivity analyses of the results of impairment tests to
changes in the following assumptions:
    - Hours of operation of wind farms in the US.
    - Hours of operation of wind farms in the UK.
    - Hours of operation of generation facilities in the UK.
    - Gas sales in the US.
    - Gas spread in the US.
    - Uncontracted output price in the UK.
    - Uncontracted output price in the US.
    - Increase in remuneration for regulated electricity distribution activities in the UK.
    - Increase in remuneration for regulated electricity distribution activities in the US.
    - Investment in wind power in the US.
    - Investment in wind power in the UK.
    - Investment in electricity distribution in the UK.
    - Investment in electricity distribution in the US.
    - Operating costs not subject to contracts for each cash generating unit tested for impairment.
  The results of the sensitivity analyses indicated that neither an unfavourable change for the IBERDROLA Group
of 10% of the amounts considered in each assumption, nor a 50bp increase in the various pre-tax discount rates
would lead to the recognition of an impairment loss.
  On 8 January 2010, Iberdrola Renovables, S.A. (hereinafter IBERDROLA RENOVABLES) and Swedish company
Vattenfall AB (Vattenfall) obtained the rights in the UK to build and develop one of the world’s largest offshore
wind farms, with up to 7,200 MW of installed capacity in the region of East Anglia (central eastern England).
IBERDROLA RENOVABLES and Vattenfall have set up a 50% joint venture, East Anglia Offshore Wind Ltd., to
develop this project. The preliminary permits required for the plant could be obtained in 2012 and construction
could start in 2015. The costs incurred to date, amounting to EUR 7,040 thousand, are recognised under “Other
intangible assets” in the Consolidated Statement of Financial Position at 31 December 2010.
  On the other hand, at 31 December 2010 and 2009, there were no material restrictions on the ownership of
the intangible assets.




 68   Annual Consolidated Financial Statements
9. INVESTMENT PROPERTY

The changes in 2010 and 2009 in the IBERDROLA Group’s investment property were as follows:

                                                                                                                           Thousands of euros
                                  External     Increase                                  External     Increase
                                additions/    (decrease)   Decreases,                  additions/    (decrease)   Decreases,
                  Balance at    (charge for     due to     disposals or   Balance at   (charge for     due to     disposals or   Balance at
                   01.01.09      the year)     transfer    reductions      12.31.09     the year)     transfer    reductions      12.31.10
 Investment
                    462,724         6,780        10,805      (60,307)      420,002        16,083        21,373         (1,019)     456,439
 properties
 Impairment
                           -       (6,341)            -           149       (6,192)       (1,815)      (6,034)            242      (13,799)
 adjustments
 Accumulated
                    (23,974)       (4,072)            -        2,038       (26,008)       (3,920)        6,034             47      (23,847)
 depreciation
 Carrying
                    438,750        (3,633)       10,805       (58,120)      387,802       10,348        21,373           (730)      418,793
 amount


  The market value of the investment properties in use at 31 December 2010 and 2009, was EUR 518,159
thousand and EUR 496,993 thousand, respectively. This market value was generally calculated on the basis of
valuations undertaken by independent valuers, as described in Note 4.i.
  At 31 December 2010 and 2009, none of the investment properties had been fully depreciated and there were
no restrictions on their realisation. Also, there were no contractual obligations to acquire, build, develop, repair
or maintain investment property.




                                                                                                                  69
                                                                / CONSOLIDATED FINANCIAL STATEMENTS




                                    10. PROPERTY, PLANT AND EQUIPMENT

                                    The changes in 2010 and 2009 in property, plant and equipment accounts and in the
                                    related accumulated amortisation and provisions were as follows:

                                                                                                                                                                     Thousands of euros
                                          Balance      Translation Additions Increase                Balance at               Translation Additions Increase
                                         at 01.01.09   differences    and     (decrease) Disposals    12.31.09    Change in differences      and    (decrease) Disposals
                                       (Reexpressed     in foreign charge for   due to      or     (Reexpressed consolidation in foreign charge for   due to      or     Balance at
                                          Note 2.a)      currency   the year   transfer reductions Note 2.a)       method      currency    the year  transfer reductions 12.31.10
Cost:

Operating plant

 Hydroelectric plants                      6,007,526       27,564      32,591      76,447    (106,046)   6,038,082           -     43,216       8,530     102,748      (10,824)   6,181,752

 Fossil-fuel plants                        3,050,895      101,236        6,199    108,735      (2,369)   3,264,696           -     62,137        2,179    252,156       (3,305)   3,577,863

 Combined cycle plants                     6,735,448       37,567      11,099     (64,558)    (14,819)   6,704,737         (9)    210,697      19,457     118,326      (65,836)   6,987,372

 Nuclear plants                            6,906,267             -     26,247     213,250     (50,937)   7,094,827           -           -      8,646     142,481      (24,994)   7,220,960

 Wind-powered facilities                   8,412,901     (89,393)      48,177    3,359,436       (638) 11,730,483            -    384,366            -   3,566,745     (10,040) 15,671,554
 Gas storage facilities and other
                                            903,316        11,576      56,205     390,100    (169,606)   1,191,591    (11,945)    107,035         133      20,216       (1,201)   1,305,829
 alternative stations
 Transmission facilities                   2,328,988       45,565      11,504     149,027     (13,856)   2,521,228     (5,104)    135,237      60,765     285,280      (24,810)   2,972,596

 Gas transportation facilities                48,619       (1,442)         42          12        (140)      47,091           -       3,187         91       2,659             -     53,028

 Distribution facilities                  16,936,289      112,978     420,312    1,102,290    (35,296) 18,536,573     (21,435)    297,901     451,261     889,663     (156,946) 19,997,017

 Gas distribution facilities               1,654,253     (56,827)      29,593       17,382    (12,031)   1,632,370   (866,650)    127,654      31,450       2,350             -     927,174

 Meters and measuring devices              1,341,053       14,633      30,575     148,801     (29,182)   1,505,880    (94,116)     34,742      77,923      53,073      (18,671)   1,558,831
 Dispatching centres and other
                                           1,000,359       (1,355)      2,725     (23,882)     (2,313)    975,534     (32,466)     23,773       8,267     217,938         (124)   1,192,922
 facilities
Total operating plants in use             55,325,914      202,102     675,269    5,477,040   (437,233) 61,243,092 (1,031,725)    1,429,945    668,702 5,653,635       (316,751) 67,646,898
Other items of property, plant
                                          3,344,239        25,916     136,191      68,164    (210,866) 3,363,644      (98,162)    113,471     103,250    (659,850)    (195,882)   2,626,471
and equipment in use
Plants in progress                         6,367,663       57,918    4,159,794 (5,327,599)    (44,541)   5,213,235     (4,601)    171,679    4,801,985 (4,141,475)     (33,362)   6,007,461
Advances and other items of
property, plant and equipment in            214,590         4,132     102,206     (88,164)    (21,825)    210,939            -      2,944     108,322      73,183      (31,973)    363,415
the course of construction (*)
Total cost                             65,252,406        290,068 5,073,460        129,441    (714,465) 70,030,910 (1,134,488)    1,718,039 5,682,259      925,493     (577,968) 76,644,245


(*) Advances at 31 December 2010 and 2009 were EUR 126,026 thousand and EUR 65,684 thousand, respectively.




                                     70      Annual Consolidated Financial Statements
                                                                                                                                                             Thousands of euros
                                       Balance    Translation Additions Increase               Balance at               Translation Additions Increase
                                      at 01.01.09 differences    and    (decrease) Disposals    12.31.09    Change in differences      and    (decrease) Disposals
                                    (Reexpressed in foreign charge for    due to      or     (Reexpressed consolidation in foreign charge for   due to      or     Balance at
                                       Note 2.a)   currency    the year  transfer reductions Note 2.a)       method      currency    the year  transfer reductions 12.31.10
 Accumulated depreciation and
 allowances:
 Plant in use

  Hydroelectric plants               2,951,759       9,170    112,358     (1,728)    (23,472)   3,048,087           -       7,896      113,074     11,544         (648)   3,179,953

  Fossil-fuel plants                 2,122,848     47,533     214,625       (717)     (1,925)   2,382,364           -     27,399      194,454            -      (1,983)   2,602,234

  Combined cycle plants              1,039,645     25,375     235,186    (23,182)    (11,156)   1,265,868         (9)     44,069      261,959      77,051      (36,769)   1,612,169

  Nuclear plants                     4,300,167           -    189,889           -    (48,606)   4,441,450           -           -     228,338            -     (22,762)   4,647,026

  Wind-powered facilities            1,422,384     (2,480)    556,024      22,181       (297)   1,997,812           -     25,415      681,857            -      (3,738)   2,701,346
 Gas storage facilities and other
                                       102,661       2,194     44,956      15,150    (49,729)    115,232     (11,249)     11,549        34,474        119           (5)    150,120
 alternative stations
  Transmission facilities              771,540       2,192     56,073      5,834     (11,501)    824,138      (5,104)     48,561       59,777      45,027       (9,539)    962,860

 Gas transportation facilities          12,748       (463)        786           -        (44)     13,027            -      3,497         1,233           -            -      17,757

 Distribution facilities             6,500,075     16,550      357,118    (3,874)    (15,112)   6,854,757    (21,435)     83,969       451,481     61,499      (48,829)   7,381,442

 Gas distribution facilities           662,976    (24,304)     63,762           -     (4,830)    697,604    (404,175)     59,007         2,201           -            -    354,637

  Meters and measuring devices         757,914       7,667     90,635       6,518    (22,357)    840,377     (41,787)     18,861       85,667       6,924      (15,919)    894,123
  Dispatching centres and other
                                       537,701       7,491      41,283   (23,375)       (104)    562,996      (6,853)      9,350       23,970      40,906          (41)    630,328
  facilities
 Total                              21,182,418     90,925    1,962,695    (3,193)   (189,133) 23,043,712    (490,612)    339,573     2,138,485    243,070     (140,233) 25,133,995
 Other items of property, plant
                                     1,424,452     23,255     141,975      3,755    (127,730)   1,465,707    (61,395)     31,502      139,768    (243,066)    (140,660)   1,191,856
 and equipment in use
 Total accumulated amortisation     22,606,870    114,180    2,104,670       562    (316,863) 24,509,419    (552,007)    371,075     2,278,253          4     (280,893) 26,325,851

 Impairment allowances                 117,829      1,038       9,202           -    (13,568)    114,501            -        119        4,336            -      (2,807)     116,149
 Total accumulated amortisation
                                    22,724,699    115,218    2,113,872       562    (330,431) 24,623,920    (552,007)     371,194    2,282,589          4     (283,700) 26,442,000
 and allowances
 Total carrying amount              42,527,707    174,850    2,959,588   128,879    (384,034) 45,406,990    (582,481)   1,346,845    3,399,670    925,489     (294,268) 50,202,245



  The fully depreciated items of property, plant and equipment in use at 31 December 2010 and 2009,
amounted to EUR 5,572,074 thousand and EUR 4,988,688 thousand, respectively.
  At 31 December 2010, the IBERDROLA Group had property, plant and equipment purchase commitments
amounting to EUR 2,040,708 thousand.
  At 31 December 2010 and 2009, “Other items of property, plant and equipment in use” included EUR
259,952 thousand and EUR 259,099 thousand for assets held under finance leases corresponding primarily to
IBERDROLA’s corporate offices in Madrid. The information on the minimum payments under the leases at 31
December 2010 is as follows:



                                                                                                                   Thousands of euros
 2011                                                                                                                       17,624
 2012 – 2014                                                                                                                50,348
 2015 and subsequent years                                                                                                185,105
 Total lease payments payable                                                                                             253,077


 Finance costs                                                                                                              60,953
 Present value of the lease payments                                                                                      192,124
                                                                                                                          253,077




                                                                                                                                          71
                                                       / CONSOLIDATED FINANCIAL STATEMENTS




                                 11. FINANCIAL INVESTMENTS

                                 a)      Investments accounted for using the equity method

                                 The changes in 2010 and 2009 in the carrying amount of investments of the
                                 IBERDROLA Group companies accounted for using the equity method (see Appendix)
                                 were as follows:



                                                                                                                             Thousands of euros
                                       Gas Natural                                  Anselmo                             See
                                         Mexico       GAMESA         Amara           León     Euskaltel   Medgaz     Appendixes      Total
Balance at 1 January 2009                38,302      730,202         33,971         23,496     47,345      5,641       62,030      940,987
Increase in percentage of
                                               -             -             -              -          -         -        9,439        9,439
ownership
Profit (loss) for the year and
                                            616        22,643           185          3,084      2,311      (221)        3,819       32,437
impairment
Dividends                                      -       (6,863)             -        (1,680)          -         -     (15,585)      (24,128)
Changes in the consolidation
                                               -             -             -              -          -         -      (18,781)     (18,781)
method and/or scope
Translation differences                   1,951              -          167               -          -         -       (6,078)      (3,960)
Disposal of investment                         -     (310,915)             -              -          -         -             -    (310,915)
Other                                    (5,189)             -             -              -     2,276          -       13,965        11,052
Balance at 31 December
                                         35,680      435,067         34,323         24,900     51,932      5,420       48,809      636,131
2009
Increase in percentage of
                                               -       74,349              -              -          -    17,000        6,934       98,283
ownership
Profit (loss) for the year and
                                          5,379         8,523          (273)         2,528      3,767      (221)        7,653        27,356
impairment
Dividends                                      -             -             -        (2,384)          -         -     (15,202)      (17,586)
Changes in the consolidation
                                               -             -             -              -          -         -        7,586         7,586
method and/or scope
Translation differences                   4,744         2,541            30               -          -         -          595         7,910
Disposal of investment                         -             -             -              -          -         -      (11,883)     (11,883)
Other                                          -             -             -              -     1,723          -       26,440        28,163
Balance at 31 December
                                         45,803      520,480         34,080         25,044     57,422     22,199       70,932      775,960
2010


                                   In the case of GAMESA, the market value of the investment in this company at 31
                                 December 2010 and 2009 amounted to EUR 271,561 thousand and EUR 404,515
                                 thousand. Since the current value of the IBERDROLA Group’s stake is less than its
                                 carrying amount, the IBERDROLA Group has tested for impairment, based on the
                                 Strategic Plan 2011- 2013 presented by GAMESA at the end of 2010, by discounting
                                 cash flows at 31 December 2010. The main assumptions used in this impairment test
                                 are as follows:
                                 • 9% discount rate.
                                 • Cash flow projection period of 5 years.
                                 • 1.75% growth rate in nominal terms for subsequents´ cash flows.
                                   In light of the impairment test, the IBERDROLA Group considers that no
                                 impairment loss needs to be recognised for its stake in GAMESA.
                                   The main transactions performed by the IBERDROLA Group in connection with
                                 these equity investments were as follows:




                                  72     Annual Consolidated Financial Statements
Year 2010
During the second half of 2010, the IBERDROLA Group acquired additional GAMESA shares on the “continous”
market. These acquisitions involved a total outlay of EUR 74,349 thousand and take the IBERDROLA Group’s
stake in GAMESA to 19.58%, at 31 December 2010.
  On 11 January 2010, the IBERDROLA Group sold its 15.68% holding in Petroceltic International, Plc to
Mirabaud Pereire Nominees Limited for GBP 34,175 thousand. At the same time as this sale, it agreeds the return
of the initial payment of USD 7,330 million for an option to acquire a 49% holding in the Algerian “Isarene”
asset. The Group’s combined gain of EUR 3,693 thousand from these two transactions has been recognised
under the “Gain on disposal of non-current assets” caption of the 2010 Consolidated Income Statement
(Note 36).


Year 2009
On 2 June 2009, the IBERDROLA Group sold 10% of its interest in GAMESA to qualified and institutional
investors. The total amount of the transaction was EUR 390,734 thousand, generating a gain of EUR 108,509
thousand, which is recognised in “Gains on the disposal of non-current assets” in the Consolidated Income
Statement for the year ended 31 December 2009. After this disposal, the IBERDROLA Group’s stake in GAMESA
at that date amounted to 14.1046% of its share capital, with the Group retaining its seat on the company’s Board
of Directors (Note 2.b), considering that IBERDROLA Group continues to exercise significant influence over
GAMESA.
  The most significant figures (at 100%) for subgroups consolidated by this method are as follows:


                                                                                                       Thousands of euros
                                        2010                                                  2009
                    Total                   Ordinary       Profit for     Total                   Ordinary       Profit for
  Subgroups        assets     Liabilities   income         the year      assets     Liabilities   income         the year
 Gas Natural de
                   870,155      147,966        351,435        40,593      617,486     367,513        227,345       5,494
 México
 GAMESA           4,544,612   2,192,933     1,786,000         25,000    4,563,848   2,292,616     2,397,000      86,000
 Amara              59,740       24,588         93,644          (273)      64,774       30,170        88,656         185
 Anselmo León       24,074         2,258         7,228         4,401      22,272           980         8,091       4,343
 Euskaltel        1,113,256     206,232        278,000        27,000    1,164,936     317,522        328,000     26,000
 Medgaz           1,001,836     121,569                -      (1,103)    930,317      903,655                -   (1,233)


  The 2010 data included in this table are unaudited and are taken from provisional financial statements at 31
December 2010, with the exception of GAMESA, where the information coincides with the last data disclosed
to the financial markets, so that the figures given for ordinary income and profit are for the nine months to
September 2010.




                                                                                                                         73
                      / CONSOLIDATED FINANCIAL STATEMENTS




b)    Non-current equity instruments

  The detail of the carrying amounts of the main investments in non-current equity instruments at 31 December
2010, 31 December 2009 and 1 January 2009, is as follows:

                                           Thousands of euros                  % of           % of         % of
                                                                            Ownership     Ownership     Ownership
          Company               12.31.10          12.31.09      01.01.09    at 12.31.10   at 12.31.09   at 01.01.09
 Non-current
  Energias de Portugal, S.A
                                618,858           746,300        937,865       6.79%         6.47%           9.5%
 (EDP)
 Other                           93,513           177,042        118,797             -             -             -
                                 712,371          923,342       1,056,662

  During 2009, IBERDROLA Group sold EDP shares totalling 0.42% of the equity in a series of transactions. The
total gain of EUR 7,451 thousand was recognised under “Gains on the disposal of non-current assets” on the
Consolidated Income Statement for the year ended 31 December 2009 (Notes 18 and 36).
  All the financial assets included under this heading in the Consolidated Statement of Financial Position at 31
December 2010 and 2009 were classified as available-for-sale assets.


c)     Current equity instruments

All the assets included in this heading in the Consolidated Statement of Financial Position at year-end 2010 and
2009 are classified as available for sale.
  This caption of the Consolidated Statement of Financial Position at 31 December 2009 also included a 2.61%
stake in Energías de Portugal, S.A. (EDP). In 2010, a 2.29% stake was disposed of for EUR 254,584 thousand.
The capital gain, which amounted to EUR 60,464 thousand, was recognised in “Gains on disposal of non-current
assets” in the 2010 Consolidated Income Statement. The remaining 0.32% interest was transferred to “Non-
current financial assets- Non-current equity instruments” in the Consolidated Statement of Financial Position at
31 December 2010.




 74    Annual Consolidated Financial Statements
d)        Other financial assets

  The detail of “Other non-current financial assets” and “Other current financial assets” in the IBERDROLA
Group’s Consolidated Statement of Financial Position at 31 December 2010, 31 December 2009 and 1 January
2009 is as follows:



                                                                         Thousands of euros
                                                        12.31.2010            12.31.2009             01.01.2009           Interest rate            Maturity
 Non-current
     Home loans to employees                                 7,699                12,898                12,263               0.90%               2012-2029
     Collection rights in Brazil (Note 2.a)               135,618                 83,572                 57,158        Linked to inflation     From 2027 on
     Long-term deposits and guarantees (a)                164,257                141,470               116,343                  -              Not established
     Revenue shortfall for the year
      2008                                                        -                      -           1,859,794         Linked to EURIBOR               -
      2006                                                        -                      -           1,001,219         Linked to EURIBOR               -
     Fixed-income securities
      Related to equity instruments having
                                                           80,675               100,504                181,223            5.5% – 6.5%           From 2012 on
     the substance of a financial liability
                                                                                                                       Linked to EURIBOR
      Others                                               14,878                  6,770                 18,601                                 From 2012 on
                                                                                                                           and LIBOR
                                                                                                                       Linked to EURIBOR
     Long-term loans and deposits                           60,710                66,336                84,448                                  From 2012 on
                                                                                                                           and LIBOR
     Pension plan financial assets (Note 21)                97,334                96,661               251,599           4.6% - 12.36%          From 2012 on
     Others                                                64,671                159,976               110,422             0% – 8.72%           From 2012 on
                                                          625,842                668,187             3,693,070
 Current
                                                                                                                       Linked to EURIBOR
     Short-term cash deposits                              34,467                 42,045                  8,060                               Less than 1 year
                                                                                                                           and LIBOR
     Fixed-income securities
     Related to equity instruments having the
                                                            16,162                10,561                22,876             5.5% - 6.5%        Less than 1 year
     substance of a financial liability
                                                                                                                       Linked to EURIBOR
      Others                                                 1,240                 2,944                 67,304                               Less than 1 year
                                                                                                                           and LIBOR
     Revenue shortfall for the year
     2010 (Note 4.y)                                    1,708,258                        -                     -
     2009 (Note 4.y)                                    1,518,164              1,514,707                       -       Linked to EURIBOR      Less than 1 year
     2008 (Note 4.y)                                    1,316,189              1,416,480                 27.060
     2006 (Note 4.y)                                      928,289                972,160                23.068
     Loans to associates                                    19,819              173,998                 80,221         Linked to EURIBOR      Less than 1 year
                                                                                                                       Linked to EURIBOR
     Short-term deposits and guarantees                   279,052               182,535                303,249                                Less than 1 year
                                                                                                                           and LIBOR
     Others                                               146,142                170,766               138,018                  -                      -
                                                        5,967,782             4,486,196                669,856

 (a) This heading relates mainly to the portion of the guarantees and deposits received from customers at the contracting date (included under “Non-Current
 Liabilities – Other Non-Current Payables” in the Consolidated Statement of Financial Position (Note 25) to secure payment for the electricity supply, which were
 deposited with the competent public authorities in accordance with current legislation in Spain.




                                                                                                                                     75
                          / CONSOLIDATED FINANCIAL STATEMENTS




12. NON-CURRENT TRADE AND OTHER RECEIVABLES

The detail of “Non-current trade and other receivables” in the Consolidated Statements of Financial Position at
31 December 2010, 31 December 2009 and 1 January 2009, is as follows:

                                                 Thousands of euros
                                  December 31,      December 31,        January 1,          Interest
                                      2010              2009              2009                rate              Maturity
 Madrid Municipal Council            15,342            13,424                15,342          4.00%             2012 - 2019
                                                                                          Libor – Euro
 France Telecom España, S.A.          9,972            11,992                13,794                            2012 - 2019
                                                                                             +0.3%
 Desarrollos Urbanísticos e
                                           -           67,704                     -             -                   -
 Inmobiliarios Cívitas, S.L.
 Receivables from Brazilian                                                              Local inflation
                                    199,476           112,665               96,283                             2012 - 2020
 customers                                                                                   +1%
 Receivable due to
 linearization of revenue
                                    216,879           175,271               149,737          6.5%              2012 - 2032
 from capacity assignment
 contracts (Note 4.j)
 Others                              37,326           106,398               62,608       1.00% - 4.64%        From 2012 on
                                    478,995           487,454               337,764



  These balances relate to accounts receivable arising in the normal course of business of the IBERDROLA Group
and, therefore, are recognised at amortised cost. This broadly coincides with market value.


13. MEASUREMENT OF FINANCIAL INSTRUMENTS

The comparison between fair value and carrying amount of the IBERDROLA Group’s financial instruments at 31
December 2010 and 2009 is as follows:

                                                                                                           Thousands of euros
                                                    2010                                            2009
                                  Carrying amount          Fair value            Carrying amount              Fair value
 Financial assets
  Equity instruments
 (Available-for- sale                    712,406                 712,406              1,234,733                 1,234,733
 investments)
 Other financial assets                6,593,624                6,593,624              5,154,383                5,154,383
  Derivative financial
 instruments                           1,478,240                1,478,240              1,941,462                1,941,462

  Current trade and other
                                       6,298,232                6,298,232              5,590,109                5,590,109
 receivables
 Cash and cash equivalents              2,101,857               2,101,857              1,090,619                1,090,619
 Financial liabilities
 Bank borrowings and
                                      31,818,846             31,748,002               30,911,700               32,410,601
 others
  Derivative financial
                                        1,516,179               1,516,179              1,969,661                1,969,661
 instruments
 Other non-current
                                         296,630                 296,630                327,032                   327,032
 payables
 Trade payables                        6,208,228                6,208,228             5,463,907                5,463,907




 76    Annual Consolidated Financial Statements
  The fair value of these financial instruments was calculated as set out in Note 4.m.
  As shown in the preceding table, the IBERDROLA Group measures certain assets and liabilities at fair value,
classifying them into three levels:
    - Level 1: assets and liabilities quoted in liquid markets.
    - Level 2: assets and liabilities whose fair value is determined using valuation techniques with observable
       market data.
    - Level 3: assets and liabilities whose fair value is determined using valuation techniques without observable
       market data.
  The breakdown of financial instruments measured at fair value by levels is as follows:

                                                                                                Thousands of euros
                                  Value at 12.31.10      Level 1               Level 2              Level 3
 Securities portfolio
                                       712,406           618,858                         -            93,548
 (available-for-sale assets)
 Other financial
 investment– Brazil                    135,618                     -           135,618                        -
 receivables (Note 2.a)
 Derivative financial
                                     1,478,240                     -         1,408,596                69,644
 instruments (financial assets)
 Derivative financial
 instruments (financial              1,516,179             4,264             1,464,143                47,772
 liabilities)




                                                                                                Thousands of euros
                                  Value at 12.31.09      Level 1               Level 2              Level 3
 Securities portfolio
                                     1,234,733         1,043,007                         -           191,726
 (available-for-sale assets)
 Other financial
 investment– Brazil                     83,572                     -            83,572                        -
 receivables (Note 2.a)
 Derivative financial
                                     1,941,462                     -         1,901,628                39,834
 instruments (financial assets)
 Derivative financial
 instruments (financial              1,969,661                     -         1,949,881                19,780
 liabilities)




                                                                                                                  77
                     / CONSOLIDATED FINANCIAL STATEMENTS




14. NUCLEAR FUEL

The detail of “Nuclear Fuel” in the Consolidated Statement of Financial Position at 31 December 2010 and 2009,
and of the changes therein in 2010 and 2009 is as follows:

                                                                                               Thousands of euros
                                                      Fuel loaded into the   Nuclear fuel in
                                                         reactor core          progress              Total
 Balance at 31 December 2009                                150,404              143,128            293,532
 Additions                                                         -             74,280             74,280
 Financing interest (Notes 4.k and 37)                             -              1,377              1,377
 Transfers                                                 180,625            (180,625)                      -
 Fuel consumed (Notes 4.k. and 32)                         (82,415)                    -           (82,415)
 Balance at 31 December 2009                                248,614               38,160            286,774
 Additions                                                       90             100,924            101,014
 Financing interest (Notes 4.k and 37)                             -                681                681
 Transfers                                                  20,858             (20,858)                      -
 Fuel consumed (Notes 4.k and 32)                         (108,793)                    -          (108,793)
 Balance at 31 December 2010                                160,769              118,907            279,676


  The IBERDROLA Group’s nuclear fuel purchase commitments at 31 December 2010 and 2009, amounted to
EUR 878,954 thousand and EUR 911,651 thousand, respectively.


15. INVENTORIES

The detail of “Inventories” (Note 4.n), in the Consolidated Statements of Financial Position at 31 December 2010,
31 December 2009 and 1 January 2009, is as follows:

                                                                                                Thousands of euros
                                                          December 31,        December 31,         January 1,
                                                              2010                2009               2009
 Fuel stocks                                                663,017              781,591             906,218
 Property developments                                     1,196,182           1,307,386           1,318,022
 Other inventories                                          112,034               62,564            106,907
                                                            1,971,233           2,151,541           2,331,147


  At 31 December 2010, the IBERDROLA Group had entered into take or pay contracts with several natural
and liquefied natural gas suppliers for the supply of 80.11 bcm of gas in the period from 2011 to 2029 which
reasonably cover the amounts earmarked for retailing and for consumption at the electricity production
facilities. The prices under these contracts are determined on the basis of formulas commonly used in the market
which index the price of gas to the performance of other energy variables.




 78    Annual Consolidated Financial Statements
16. CURRENT TRADE AND OTHER RECEIVABLES

The detail of this heading in the Consolidated Statements of Financial Position at 31 December 2010, 31
December 2009, and 1 January 2009 is as follows:

                                                                                              Thousands of euros
                                                          December 31,        December 31,        January 1,
                                                              2010                2009              2009
 Trade receivables for sales and services                  5,359,200           4,770,745         4,760,551
 Accounts receivables                                        710,834             592,434           622,216
 Receivable from associates                                   21,232              23,268            24,947
 Bad debt provision                                        (272,029)           (283,792)         (280,259)
                                                           5,819,237           5,102,655         5,127,455


  Generally, the amounts included do not bear any interest under this item in the Consolidated Statement of
Financial Position.
  The variations in the bad debt provision in 2010 and 2009 were as follows:



                                                                                              Thousands of euros
                                                                   2010                        2009
 Opening balance                                                  283,792                     280,259
 Changes in consolidation scope                                   (18,347)                            -
 Provisions                                                       194,376                     161,366
 Reversals and translation differences                           (140,808)                   (105,309)
 Surplus                                                          (46,984)                    (52,524)
                                                                   272,029                    283,792


  The bad debt provision relates basically entirely to gas and electricity consumers.


17. CASH AND CASH EQUIVALENTS

The detail of this heading in the Consolidated Statements of Financial Position at 31 December 2010 31
December 2009 and 1 January 2009 is as follows:

                                                                                              Thousands of euros
                                                          December 31,        December 31,        January 1,
                                                              2010                2009              2009
 Cash and cash equivalent                                    214,328             191,993          425,596
 Short-term deposits                                       1,887,529             898,626         1,661,018
                                                           2,101,857           1,090,619         2,086,614


  Short-term deposits mature within a period of less than three months and earn market rates. There are no
restrictions on cash withdrawals for significant amounts.




                                                                                                               79
                        / CONSOLIDATED FINANCIAL STATEMENTS




18. EQUITY

Share capital

At 31 December 2008, the share capital of IBERDROLA totalled EUR 3,751,742,787 represented by 5,002,323,716
shares with a nominal value of EUR 0.75 each, fully paid.
   On 16 June 2009, the IBERDROLA Group’s Board of Directors resolved to increase IBERDROLA’s share capital
to raise funds to shore up its Consolidated Statement of Financial Position, strengthening and optimising
its capital structure. The capital increase was concluded on 18 June 2009 through a private placement open
exclusively to qualified and institutional investors in the form of an Accelerated Bookbuild Offer. A total of
250,000,000 new shares were issued, each with a nominal value and issue premium of EUR 0.75 and EUR 4.55
per share, respectively, all carrying identical rights to the shares already outstanding and together equivalent to
4.9977% of IBERDROLA’s share capital. The total proceeds of the increase, not considering transaction costs of
issue of shares, were EUR 1,305,708 thousand.
   As a result, at 31 December 2009 the Group’s share capital totalled EUR 3,939,242,787 represented by
5,252,323,716 shares each with a nominal value of EUR 0.75.
   Pursuant to shareholder approval granted at the General Shareholders’ Meeting of 26 March 2010, IBERDROLA
carried out two rights issues in 2010 in order to introduce a new shareholder remuneration scheme known as
“IBERDROLA Flexible Dividend”, whereby shareholders can decide whether they wish to be paid, either fully or
partly, in cash or in fully paid up IBERDROLA shares.
     • The first rights issue was held in June. A total of 129,540,284 shares were issued, each with a nominal
       value of EUR 0.75. There was no share premium.
     • The second rights issue was held in December. A total of 101,979,000 shares were issued each with a
       nominal value of EUR 0.75. There was no share premium.
   Therefore, IBERDROLA’s share capital at 31 December 2010 totalled EUR 4,112,882,250 represented by
5,483,843,000 shares each with a nominal value of EUR 0.75.
   IBERDROLA shares are listed for trading on the Spanish electronic trading system (the “Continuous” market),
forming part of the IBEX-35 and the Eurostoxx-50 indices.
   Since IBERDROLA’s shares are represented by the book-entry system, the exact stakes held by its shareholders
are not known. The table below summarises major direct and indirect shareholdings in the share capital of
IBERDROLA at 31 December 2010, as well as the holdings of financial instruments disclosed by the owners of
these stakes in compliance with Royal Decree 1362/2007 of 19 October. The following information is based
on filings by the owners of the stakes in the official registers of the CNMV or the Company itself and in the
respective annual reports and press releases.

                                                        % of voting rights
                                                                                           Financial
                     Owner                   % Direct      % Indirect        % Total     instruments         Director
 ACS, Actividades de Construcción y
                                               3.862          16.338         20.200               -                  -
 Servicios, S.A. (ACS)
 Bilbao Bizkaia Kutxa (BBK)                         -          6.553          6.553               -                  1
 Caja de Ahorros de Valencia, Castellón y
                                                    -          5.494          5.494               -                  1
 Alicante (Bancaja)



  The direct owners of the equity interest in, Actividades de Construcción y Servicios, S.A. (ACS) are as follows:



                                                                                                      % of total voting
                                              Owner                                                         rights
 Residencial Monte Carmelo, S.A.                                                                             6.576
 Villa Aurea, S.L.                                                                                           0.242
 Nexgen Capital Limited, S.A.                                                                               5.069
 Corporate Funding, S.L.                                                                                     3.164
 Roperfeli, S.L.                                                                                            1.287




 80     Annual Consolidated Financial Statements
  On 30 December 2010, ACS announced that its shareholding in IBERDROLA had exceeded 20% of the share
capital. ACS’ indirect holdings in IBERDROLA are owned by Residencial Monte Carmelo, S.A., Corporate Funding,
S.L., Roperfeli, S.L. and Villa Áurea, S.L., all wholly-owned direct or indirectly by ACS.

   Meanwhile, the 5.069% stake through Nexgen Capital Limited, S.A. relates to the equity swap contract
notified on 10 December 2008 under which the exercise of the voting rights inherent in the underlying shares
of IBERDROLA corresponds to ACS, obliging Nexgen Capital Limited, S.A. to be represented at each General
Shareholders’ Meeting held by IBERDROLA by the legal representative appointed by ACS, who may vote freely on
its behalf.
   According to the information published in the CNMV’s official registers, Nexgen Capital Limited, S.A. is a
wholly- owned subsidiary of Nexgen Financial Holdings, itself a subsidiary of Natixis, S.A., owner of a direct
interest of 0.056% (3,067,362 shares) in the share capital of IBERDROLA.
   The direct owners of the shareholdings in BBK and BANCAJA are as follows:



                                                                                                               % of total voting
                                                  Owner                                                              rights
 Kartera 1, S.L.                                                                                                        6.553
 Bancaja Inversiones, S.A.                                                                                              5.494

  Kartera 1, S.L. is a 100%-owned subsidiary of BBK and BANCAJA owns 69.98% of the voting rights of Bancaja
Inversiones, S.A.
  At 31 December 2009, Actividades de Construcción y Servicios, S.A. (ACS), Bilbao Bizkaia Kutxa and Caja
de Ahorros de Valencia, Castellón y Alicante (Bancaja) owned stakes in IBERDROLA, directly or indirectly, of
12.000%, 6.842% and 5.736%, respectively.
  The IBERDROLA Group’s main capital management objectives are to ensure short-term and long-term financial
stability, appreciation of IBERDROLA shares, suitable investment financing and the reduction of the IBERDROLA
Group’s leverage. This policy guarantees that the IBERDROLA Group will remain financially strong with an A
credit rating and solid financial ratios that underpins business performance and maximises shareholder value.
  The IBERDROLA Group’s strategy did not vary in 2010 relative the year before. Specifically, its target was
to keep leverage at 50 % and preserve its Moody’s / Standard & Poor’s A credit ratings (currently A3/A-
respectively).
  Leverage at 31 December 2010 and 2009 stood at:

                                                                                                              Thousands of euros
                                                                                 2010                            2009
 Bank borrowings - Loans and other financial liabilities
                                                                               31,818,846                     30,911,700
 (Note 23)
 Equity having the substance of a financial liability (Note 19)                  652,282                         671,446
 Derivative financial liabilities (*)                                            513,627                        516,338
 Gross debt                                                                   32,984,755                      32,099,484
 Derivative financial assets (*)                                                 769,992                        918,406
 Other current financial assets                                                    98,077                        111,065
 Cash and cash equivalents (Note 17)                                            2,101,857                      1,090,619
 Cash assets                                                                    2,969,926                      2,120,090
 Net debt                                                                    30,014,829                      29,979,394
 Equity
 of the parent                                                                29,078,799                      26,636,654
 of non-controlling interests                                                   2,584,271                      2,393,198
                                                                               31,663,070                     29,029,852
 Leverage                                                                          48.7%                           50.8%

 (*) Only derivative financial instruments related to financial liabilities are included. Excluded financial instruments related
 to commodities and portfolio. The break down is as follows:




                                                                                                                                   81
                        / CONSOLIDATED FINANCIAL STATEMENTS




                                                                                2010
                                               Derivative assets                                      Derivative liabilities
                                 Current         Non current        Total              Current            Non current            Total
 Interest rate hedges
                                   27,769            36,140         63,909              (8,013)             166,433             158,420
 (Note 24)
 Foreign currency hedges
                                  110,105          370,568         480,673             186,029              149,290             335,319
 (Note 24)
 Total hedging derivatives        137,874           406,708        544,582             178,016               315,723            493,739
 Foreign currency derivatives
                                 221,583              3,295        224,878              (7,090)                1,126            (5,964)
 (Note 24)
 Interest rate derivatives
                                        -                 -                 -           (1,061)                  755              (306)
 (Note 24)
 Other non-hedging derivati-
                                        -              532            532                     -               26,158             26,158
 ves (Note 24)
 Total non-hedging
                                  221,583             3,827        225,410              (8,151)               28,039             19,888
 derivatives


                                  359,457           410,535        769,992             169,865               343,762            513,627



                                                                                2009
                                               Derivative assets                                       Derivative liabilities
                                  Current        Non current        Total              Current             Non current            Total
 Interest rate hedges
                                   15,217            21,276         36,493                  555              115,867             116,422
 (Note 24)
 Foreign currency hedges
                                  453,111           394,533        847,644              180,199              143,361            323,560
 (Note 24)
 Total hedging derivatives        468,328            415,809        884,137             180,754               259,228            439,982
 Foreign currency derivatives
                                    3,196             7,724         10,920                        -                    -                  -
 (Note 24)
 Interest rate derivatives
                                    2,419            19,977         22,396                  382                50,532             50,914
 (Note 24)
 Other non-hedging derivati-
                                           -            953            953                        -            25,442             25,442
 ves (Note 24)
 Total non-hedging
                                    5,615             28,654         34,269                 382                 75,974            76,356
 derivatives


                                  473,943           444,463         918,406             181,136               335,202            516,338


  There were no changes to IBERDROLA’s share capital other than those resulting from the transactions
described above. There are no claims on IBERDROLA’s share capital other than those provided for in the Spanish
Companies Law.
  At the General Shareholders’ Meeting held on 29 March 2006 the Board of Directors was authorised, in
accordance with article 297.b) of the Spanish Companies Law, for a 5-year period ending 30 March 2011, if
deemed appropriate, to increase its share capital by as much as one-half, in one or a series of increases, in the
amount deemed appropriate, with disapplication of pre-emptive subscription rights.
  Subsequent to the capital increases agreed by the Company’s Board of Directors on 26 June 2007 and 16 June
2009, for nominal amounts of EUR 255,000 thousand and EUR 187,500 thousand, respectively, the nominal
amounts remaining for potential capital increases under these delegated powers at 31 December 2010 is EUR
909,824 thousand and representing 22.12% of the company’s share capital.
  Furthermore, the General Shareholders’ Meeting held on 20 March 2009, grant to delegate to the Board of
Directors, with express authorization of substitution, for a 5-year period, the authorization to issue: a) debt
obligation and other fixed income securities of similar nature (different to the promissory notes), and preferred
shares, with the maximum limit of EUR 20,000 million, and b) promissory notes with the maximum limit,
regardless of the previous, of EUR 6,000 million (maximum amount outstanding) and c) also give authorization
for the Company to ensure, within the limits described above, new issuances of securities subsidiaries engaged.
To the date of this report, the Board of Directors of IBERDROLA has no made use of this delegation.


 82    Annual Consolidated Financial Statements
Legal reserve

Under the Spanish Companies Law, 10% of net profit for each year must be transferred to the legal reserve until
the balance of this reserve reaches at least 20% of the share capital.
  The legal reserve can be used to increase capital provided that the remaining reserve balance does not fall
below 10% of the increased share capital amount. Otherwise, until the legal reserve exceeds 20% of share
capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this
purpose.


Revaluation reserves

The balance of “Revaluation reserves” arose as a result of the revaluation of property, plant and equipment made
by IBERDROLA pursuant to Royal Decree-Law 7/1996. This balance can be used, free of tax, to offset recorded
losses both prior years’ accumulated losses and current year losses or losses which might arise in the future, and
to increase share capital. From 1 January 2007, the balance of this reserve can be taken to unrestricted reserves,
provided that the monetary surplus has been realised. The surplus will be deemed to have been realised on
the portion on which depreciation has been taken for accounting purposes or if the revalued assets have been
transferred or derecognised. If the balance of this account were used in any way other than as specified in Royal
Decree-Law 7/1996, it would be subject to tax.


Share premium

The Spanish Companies Law expressly permits the use of the share premium account balance to increase capital
and does not establish any specific restrictions as to its use.


Other restricted reserves

“Equity - Other restricted reserves” primarily includes the restricted reserve set up by IBERDROLA in accordance
with article 335.c) of the Spanish Companies Law arising from the capital reductions carried out in prior years
through the retirement of treasury shares. The restricted reserves relating to Group companies other than the
parent IBERDROLA are included under “Equity - Retained earnings”.


Retained earnings

In the course of 2009, various acquisitions of additional percentage interests were made in the Greek subsidiary
C.Rokas, S.A. The IBERDROLA Group opted to treat the difference between the amount paid and the non-
controlling interest as a transaction between shareholders and therefore, recognised this difference, which
totalled EUR 16,653 thousand, via a charge to “Other reserves” in the Consolidated Statement of Financial
Position.




                                                                                                                83
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               Unrealised asset and liability revaluation reserve

                               The changes in this reserve arising from valuation adjustments to available-for-sale
                               assets and derivatives designated as cash flow hedges at 31 December 2010 and 2009
                               were as follows:

                                                                                                                                                  Thousands of euros
                                                                                Amounts                                               Amounts
                                                                              allocated to                                          allocated to
                                                             Change in        income and                           Change in        income and
                                              01.01.09      market value       others (a)         12.31.09        market value       others (a)           12.31.10
Available-for-sale assets:
 Energías de Portugal, S.A. (EDP)
                                               55,258         106,236            (2,249)          159,245          (161,006)          (40,371)           (42,132)
(Notes 11.b and 11.c)
Other                                                -          3,994                   -            3,994             9,776            (5,267)             8,503
                                               55,258         110,230            (2,249)          163,239          (151,230)          (45,638)           (33,629)
Cash flow hedges:
Interest rate swaps                          (438,159)         49,380            38,491         (350,288)           (81,232)            62,784          (368,736)
Collars                                        (3,369)         (5,840)             3,094            (6,115)           (4,021)            4,251            (5,885)
Commodity swaps                              (153,052)       (256,216)           57,325          (351,943)          (43,348)           183,418          (211,873)
Tradeable securities                          118,869          (5,868)           (5,202)          107,799                   -         (22,882)             84,917
Foreign exchange hedges                        60,866         (34,503)          (16,824)             9,539            32,241          (51,226)            (9,446)
                                             (414,845)      (253,047)            76,884          (591,008)          (96,360)           176,345          (511,023)
Tax effect                                     141,026         106,086           (32,582)          214,530            22,984           (53,105)           184,409
                                             (218,561)        (36,731)           42,053          (212,239)         (224,606)            77,602          (360.243)

(a) In 2010 and 2009, gains of EUR 44,503 thousand and EUR 24,737 thousand respectively, not including tax effects, increased the value of the assets hedged by the
corresponding transactions.




                               Treasury shares

                               The changes in 2010 and 2009 in the shares of IBERDROLA owned by Group
                               companies (Note 4.o) were as follows:

                                                                                        Number of shares                            Thousands of euros
                                Balance at 1 January 2009                                           92,757,066                                       785,874
                                 Additions                                                          80,025,777                                       457,920
                                 Disposals                                                       (157,151,792)                                    (1,140,877)
                                Balance at 31 December 2009                                         15,631,051                                       102,917
                                 Additions                                                         69,273,846                                       358,242
                                 Disposals                                                         (57,342,482)                                     (306,188)
                                Balance at 31 December 2010                                         27,562,415                                       154,971


                                  In 2010 and 2009, treasury shares held by the IBERDROLA Group were below the
                               legal limit.
                                  Additionaly, the IBERDROLA Group arranged in 2008 three swaps on its own
                               shares with the following features: during the life of the contract it will pay the
                               financial entity 3-month Euribor plus a spread on the notional underlying and will
                               receive the dividends on the shares paid to the financial entity. When the contracts
                               mature, it will buy back the shares at the price at which it sold them.




                                 84    Annual Consolidated Financial Statements
  The IBERDROLA Group recognised the transaction directly in equity under “Treasury Shares” and recorded the
obligation to buy back the shares under “Bank borrowings – loans and others” of the non-current liabilities of
the Consolidated Statement of Financial Position.
  The characteristics of these contracts are as follows.


                         No. of shares                                                                    Thousands of euros
                           12.31.10      Exercise price   Maturity date    Interest rate       2010             2009           2008
                                                                          3-month euribor
 Total Return Swap         9,050,000             9.30     11/04/2011                            84,165           84,165        84,165
                                                                             + 0.40%
                                                                          3-month euribor
 Total Return Swap          5,167,171            6.37     13/10/2011                            32,915           32,915        32,915
                                                                             +0.85%
                                                                          3-month euribor
 Total Return Swap         1,927,967             6.37     13/10/2011                            12,281           12,617        12,630
                                                                             +0.85%
                           16,145,138                                                           129,361          129,697       129,710




Dividends

Under point six of the agenda of the General Shareholders’ Meeting held on 26 March 2010, the shareholders
approved the establishment of the “Iberdrola Flexible Dividend” scheme. Through this scheme, IBERDROLA
offers a new alternative to its shareholders enabling them to receive shares or an amount in cash equivalent to
the 2009 final dividend and the 2010 interim dividend.
   This option has been implemented through rights issues approved by IBERDROLA shareholders in a General
Meeting, who authorised the Board of Directors to manage the scheme.
   Every time the share capital is increased, each of the Company’s shareholders receives one subscription right
for each IBERDROLA share held. These rights are traded on Madrid, Barcelona, Bilbao and Valencia’s stock
exchanges.
   Depending on the choice made, during each rights issue, each IBERDROLA shareholder has been able to
receive either new company´s shares or cash on selling the subscription rights to IBERDROLA (at a guaranteed
fixed price through the commitment assumed by IBERDROLA) or at the market rate (in which case the price
obtained varies in line with the share price).
   Shareholders have received the new shares at no cost, without charges or commission when the new shares
were issued. IBERDROLA has assumed the costs of issue, subscription, circulation, admission to trading and all
other expenses related to the rights issue. Without prejudice to the above, participating entities in Sociedad
de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (IBERCLEAR) in which
the Company’s shares are deposited can establish, in accordance with prevailing legislation, any administration
charges or commission chargeable to shareholders they deem appropriate for holding the securities in their
accounts. In accordance with applicable law, the aforementioned participating entities can also establish the
charges and commissions chargeable to shareholders they deem appropriate for handling sale and purchase
orders of subscription rights.
   This programme has been performed twice during 2010:
     • In the first instance in June 2010, coinciding with the date on which final dividends have traditionally been
       paid, the holders of 1,884,276,316 subscription rights accepted the irrevocable purchase commitment
       assumed by the IBERDROLA Group, which therefore acquired the rights for a gross amount of EUR
       359,897 thousand. This amount was fully paid up at 31 December 2010. The number of ordinary shares
       issued amounted to 129,540,284 shares, amounting to 2.47% of IBERDROLA's share capital at that date.
     • In the second instance in December 2010, coinciding with the date on which interim dividends have
       traditionally been paid, the holders of 1,710,619,992 subscription rights sold them to IBERDROLA for a
       gross amount of EUR 249,750 thousand. In this case, 101,979,000 shares have been issued, amounting to
       1.89% of IBERDROLA's share capital at that time.
   In addition, at the date of authorisation for issue of these Consolidated Financial Statements, the Board of
Directors of IBERDROLA resolved to propose the following at the General Shareholders’ Meeting:
     • Approval of payment of a final dividend of EUR 164,515 thousand, consisting of a gross dividend of EUR
       0.03 per all of the 5,483,843,000 shares comprising IBERDROLA’s share capital as of the date of adoption
       of the resolution. This dividend would be paid on 1 July 2011.
     • Maintain the “IBERDROLA Flexible Dividend” shareholder remuneration scheme initiated in 2010.




                                                                                                                  85
                    / CONSOLIDATED FINANCIAL STATEMENTS




Share-based compensation plans

In March 2008 the Board of Directors of IBERDROLA approved a new incentives plan for its Chairman and
CEO and senior executives. This plan was ratified at the General Shareholders Meeting held on 17 April 2008.
The plan is designed to boost efforts toward meeting the targets set in the IBERDROLA Group’s strategic plan
for 2008-2010 and will run for three years. Awards under the plan, which will consist of a specific number of
IBERDROLA shares, will be made in equal parts in each of the three years after the plan ends in March 2011,
2012 and 2013. The “Staff costs” heading of the 2010 and 2009 Consolidated Income Statements includes EUR
9,821 thousand and EUR 24,086 thousand, respectively, corresponding to the amount accrued in connection
with this incentives plan. The aforementioned amount has therefore been recognised via a credit to the “Other
reserves - Retained earnings” heading of the Consolidated Statements Financial Position.
  At the date of preparation of these Consolidated Financial Statemens, shares corresponding to the first
tranche have been delivered. For this purpose, it was estimated that the provisional settlement of the
mentioned incentive plan would involve the delivery of 5,997,000 shares. This estimate was made based on
the level of achievement of strategic objectives linked to the Plan and the last estimate available of the variable
remuneration for the year 2010 corresponding to the staff included in the Plan. Any modification of these
estimations, which may cause differences in the final settlement of this Plan, will be regularized with the delivery
of the second tranch in 2012.
  Furthermore, in October 2007, the Board of Directors of IBERDROLA approved an IBERDROLA RENOVABLES
share delivery plan within the framework of the latter’s IPO. The aim of this plan was to reward those employees
of the IBERDROLA Group that in the past had made a notable contribution to the creation of value, and the
management and governance of Iberdrola Renovables and involves the grant of a specific number of Iberdrola
Renovables shares in equal parts during the next three years starting in March 2008. The aggregate number of
shares that each beneficiary of the plan have been entitled to receive is 5,641,481 shares. At March 2010 the plan
wound up.
  Finally, SCOTTISH POWER has share-based plans for its employees. There are two different kinds of plans:
    • Share save Schemes: savings plans in which employees decide the amount they want to contribute to the
      plan and this is deducted monthly from their salary. After a 3 or 5 period of years, as applicable to each
      plan, employees may choose between their settlement in cash or in shares. At 31 December 2010, the
      contributions made by the employees would entitled them to receive 6,377,506 shares or cash equivalent
      number of shares.
      Share Incentive Plan: This plan allows the employee to buy shares with tax incentives and a contribution
      to the company. It is up to the employee to decide the amount to contribute which will be deducted
      monthly from his/her salary (the maximum contribution allowed by law in the UK is GBP 125). The
      shares purchased with this contribution are called “partnership shares”. Additionally, SCOTTISH POWER
      complements these shares to a maximum of GBP 50. The shares purchased with the contribution of the
      company are called “matching shares”. All shares are purchased at market prices at the date of purchase of
      each month.
      The contributions, both from the company and from the employees, contribute to a trust, who buys shares
      and remain there until withdrawn by the employees. The “partnership shares” are owned by the employees
      who have purchased with his own money, but shares purchased with the company contribution, “matching
      shares”, do not consolidate until three years from the date of purchase. The cash contributions are made
      monthly and are charged to the income statement during the three years that the employee must stay
      with the company to qualify for them. The effect on the Consolidated Income Statements for the year 2010
      amounted to Eur 85 thousand and the “matching shares” in the plan at that date amounted to 1,772,296
      shares.




 86   Annual Consolidated Financial Statements
19. EQUITY INSTRUMENTS HAVING THE SUBSTANCE OF A
FINANCIAL LIABILITY

The change in this heading of the Consolidated Statements of Financial Position at 31 December 2010 and 2009
is as follows (Note 4.m.):


                                                                                                  Thousands of euros

 Balance at 1 January 2009                                                                                797,626
 Additions                                                                                                  21,691
 Finance costs accrued during the year                                                                     58,630
 Payments                                                                                                (184,247)
 Translation differences                                                                                 (22,254)
 Balance at 31 December 2009                                                                              671,446
 Finance costs accrued during the year                                                                     53,554
 Payments                                                                                                (125,713)
 Translation differences                                                                                   52,995
 Balance at 31 December 2010                                                                              652,282

  The balance under this heading of the Consolidated Statements of Financial Position at 31 December 2010 and
2009 accrues interest at an average rate of 8.00% and 8.19%, respectively.


20. DEFERRED INCOME

The change in this heading of the Consolidated Statements of Financial Position at 31 December 2010 and 2009
is as follows:



                                                                                                      Thousands of euros
                                          Investment     Emission rights    Transfer
                             Government    Tax Credits     (assigned     of assets from Other deferred Total deferred
                               grants       (Note 4.p)    not accrued)    customers        income         income
 Balance at 1 January
                               138,156              -          1,094      1,805,636        909,788         2,854,674
 2009
 Additions                     129,465      414,002          282,315        420,966         44,375          1,291,123
 Disposals                      (5,011)             -          (391)               -          (292)           (5,694)
 Translation differences
                                  (768)     (12,849)                -         4,493         (2,180)          (11,304)
 in foreign currency
 Charged for the year
 to Income Statement           (22,829)     (15,345)       (281,084)        (50,752)       (49,148)         (419,158)
 (Note 4.p)
 Balance at 31
                               239,013      385,808            1,934      2,180,343        902,543         3,709,641
 December 2009
 Additions                      60,781      321,672          249,142        374,962        120,047         1,126,604
 Disposals                      (2,539)             -          (139)               -       (15,548)          (18,226)
 Translation differences
                                 3,562       28,025                 -         6,083          3,525             41,195
 in foreign currency
 Charged for the year
 to Income Statement           (13,348)     (35,092)       (248,424)        (73,217)       (25,650)         (395,731)
 (Note 4.p)
 Balance at 31
                               287,469      700,413            2,513      2,488,171        984,917         4,463,483
 December 2010




                                                                                                                        87
                       / CONSOLIDATED FINANCIAL STATEMENTS




21. PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS

The detail of this heading in the Consolidated Statements of Financial Position at 31 December 2010, 31
December 2009 and 1 January 2009 is as follows:

                                                                                                  Thousands of euros
                                                           December 31,        December 31,          January 1,
                                                               2010                2009                2009
 Defined benefit plans (Spain)                               385,578              385,289             364,153
 Long-term benefits (Spain)                                    66,972              64,025              58,400
 Defined benefit plans (UK)                                   186,807             134,319               62,614
 Defined benefit plans (US)                                  400,780              474,413              519,740
 Defined benefit plans and other long term benefits
                                                               91,461              44,044               37,301
 (Spain and other countries)
 Restructuring plans                                          137,783             167,222              186,114
                                                             1,269,381           1,269,312           1,228,322


   Each year the IBERDROLA Group estimates through independent experts actuarial studies the amount it
will have to pay in pensions and similar commitments in the year ahead. This amount is recorded as a current
liability in the Consolidated Statement of Financial Position.


a)      Defined benefit and other non-current benefits

Spain
The IBERDROLA Group’s main defined benefit obligations to its employees in Spain, other than Social Security
benefits, are as follows:
   - Employees covered by the IBERDROLA Group’s collective labour agreement retiring before 9 October 1996
      are covered by a defined benefit retirement pension scheme, the actuarial value of which was externalised
      in full at 31 December 2010 and 2009.
      The IBERDROLA Group has no liabilities to these employees nor does it have any claims on any potential
      returns from this plan in excess of the guaranteed benefits.
      Also, in relation to serving employees and employees who have retired since 1996 and covered by the
      IBERDROLA Group’s collective labour agreement, risk benefits (e.g. for death of spouse, permanent
      disability or death of present employee’s parent), guaranteeing a defined benefit at the time the event
      giving rise to such benefits occurs, are instrumented through an annually renewable insurance policy. The
      defined benefit is measured as the difference between the present actuarial value of the benefit at the
      time of the contingency and the employees’ consolidated rights at the time of the event giving rise to the
      benefits under the aforementioned defined benefit plan, if lower. The premium paid for this insurance
      policy in 2010 and 2009 amounted to EUR 9,815 thousand and EUR 8,014 thousand, respectively, and is
      recorded under “Staff costs” in the Consolidated Income Statements.
   - In addition, the IBERDROLA Group also has certain commitments to its employees in Spain other than
      those indicated above, which are covered by in-house provisions related to social benefits, consisting
      mainly of free electricity supply for retired employees, and other long-term benefits, primarily long-service
      bonuses for active employees.




 88     Annual Consolidated Financial Statements
  The changes in 2010 and 2009 in the provision recognised to meet the commitments set out in the paragraph
above are as follows:

                                                                                                            Thousands of euros
                                                                                          Electricity for      Long-service
                                                                                           employees             bonuses
 Balance at 1 January 2009                                                                    364,153              58,400
 Normal cost (Note 33)                                                                           3,844              2,756
 Other costs charged to “Staff costs” (Note 33)                                                (8,479)                     -
 Finance cost (Note 38)                                                                         17,438               2,681
 Actuarial deviations
  To profit and loss (Note 33)                                                                        -             6,855
  To reserves                                                                                   21,374                     -
 Payments and other                                                                           (13,041)             (6,667)
 Balance at 31 December 2009                                                                  385,289              64,025
 Normal cost (Note 33)                                                                           4,410              3,046
 Other costs charged to “Staff costs” (Note 33)                                                (2,086)                     -
 Finance cost (Note 38)                                                                         17,866              2,863
 Actuarial deviations
  To profit and loss (Note 33)                                                                        -             3,667
  To reserves                                                                                  (5,172)                     -
 Payments and other                                                                           (14,729)             (6,629)
 Balance at 31 December 2010                                                                  385,578              66,972


 The main assumptions used in the actuarial studies undertaken to determine the provision required at 31
December 2010 and 2009 to cover the aforementioned obligations are as follows:

                                                    2010                                             2009
                                 Discount         CPI/ wage      Survivorship      Discount       CPI/ wage     Survivorship
                                   rate            inflation        tables           rate          inflation       tables
 Long-service bonus and
                             4.30% / 4.40%         2.50%        PERM/F 2000P 4.60%/4.70%            2.50%      PERM/F 2000 P
 electricity for employees

  The most relevant figures for this plan in the last years were the following:

                                                                                                            Thousands of euros
                                                               2010             2009             2008               2007
 Present value accrued                                     452,550              449,314         422,553           438,043
 Experience adjustments                                    (14,765)               2,496           (8,011)            1,851




                                                                                                                               89
                      / CONSOLIDATED FINANCIAL STATEMENTS




United Kingdom
SCOTTISH POWER employees residing in the UK, hired before 1 April 2006, are covered by several
defined benefit retirement plans.
  The key data pertaining to the UK plans at 31 December 2010, 31 December 2009 and 1 January 2009 are the
following:

                                                                                              Thousands of euros
                                                                            United Kingdom
                                                          31 December,        31 December,        1 January,
                                                              2010                2009               2009
 Present value of obligation                             (3,886,709)         (3,445,931)       (2,621,562)
 Fair value of plan assets                                3,699,902            3,311,612        2,793,664
 Net asset / (net provision)                               (186,807)           (134,319)          172,102
 Amounts recognised in the Consolidated State-
 ment of Financial Position:
 - Other non current financial investments (Note 11.d)             -                      -       234,716
 - Provision for pensions and similar commitments          (186,807)           (134,319)          (62,614)
 Net asset / (net provision)                               (186,807)           (134,319)          172,102


  The movement in the present value of the obligation in this connection is as follows:

                                                                                               Thousands of euros
                                                                                               United Kingdom
 Present value of obligation at 1 January 2009                                                   2,621,562
 Normal cost (Note 33)                                                                              62,154
 Finance cost (Note 38)                                                                            169,421
 Actuarial deviations credited to reserves                                                         529,770
 Employee contributions                                                                             11,399
 Payments                                                                                         (139,264)
 Translation differences                                                                           190,889
 Present value of obligation at 31 December 2009                                                 3,445,931
 Normal cost (Note 33)                                                                              55,674
 Finance cost (Note 38)                                                                            206,218
 Actuarial deviations credited to reserves                                                         228,416
 Employee contributions                                                                             12,142
 Payments                                                                                         (170,133)
 Translation differences                                                                           108,461
 Present value of obligation at 31 December 2010                                                 3,886,709




 90    Annual Consolidated Financial Statements
  The movement in the fair value of the plan assets is as follows:

                                                                                                   Thousands of euros
                                                                                                   United Kingdom
 Fair value at 1 January 2009                                                                        2,793,664
 Estimated revaluation (Note 37)                                                                       179,462
 Actuarial deviations credited to reserves                                                             225,102
 Company contributions                                                                                  39,133
 Employee contributions                                                                                 11,399
 Payments                                                                                             (139,264)
 Translation differences                                                                               202,116
 Fair value at 31 December 2009                                                                       3,311,612
 Estimated revaluation (Note 37)                                                                       212,673
 Actuarial deviations credited to reserves                                                             134,775
 Company contributions                                                                                  94,536
 Employee contributions                                                                                 12,142
 Payments                                                                                             (170,133)
 Translation differences                                                                               104,297
 Fair value at 31 December 2010                                                                      3,699,902


  The main categories allocation of the plan assets, as a percentage of total plan assets, at the close of each year,
are shown in the table below:

                                                                                     2010
                                                                                Fixed-income
                                                          Equity securities       securities             Other
 United Kingdom                                                 38%                  52%                  10%



                                                                                    2009
                                                                                Fixed-income
                                                          Equity securities       securities            Other
 United Kingdom                                                 36%                  56%                  8%


  The expected return on plan assets was calculated on the basis of market expectations for returns over the
entire life of the related obligations.
  The assets associated with these plans include neither financial instruments issued by the IBERDROLA Group
nor tangible nor intangible assets.




                                                                                                                    91
                       / CONSOLIDATED FINANCIAL STATEMENTS




 The main assumptions used in the actuarial studies undertaken to determine the provision required at 31
December 2010 and 2009 to cover the aforementioned obligations are as follows:

                                                                         2010
                                  Discount rate   CPI/ Wage inflation           Survivorship tables SPPS/Manweb
                                                                         Men: 85% of AMC00 ultimate / 130% PNMA00 mc 1%
                                                                                            underpin
 United Kingdom                       5.30%          3.50% /5.00%
                                                                         Women: 85% of AFC00 ultimate / 105% PNFA00 mc
                                                                                         0.5% underpin



                                                                         2009
                                  Discount rate   CPI/ Wage inflation           Survivorship tables SPPS/Manweb
                                                                         Men: 85% of AMC00 ultimate / 130% PNMA00 mc 1%
                                                                                            underpin
 United Kingdom                       5.85%          3.50% / 5.00%
                                                                         Women: 85% of AFC00 ultimate / 105% PNFA00 mc
                                                                                         0.5% underpin


  The most relevant figures for this plan in the last years were the following:



                                                                                                       Thousands of euros
                                                       2010                2009             2008              2007
 Present value accrued                              (3,886,709)         (3,445,931)      (2,621,562)       (3,736,219)
 Plan assets                                         3,699,902           3,311,612        2,793,664         4,034,651
 (Deficit) / surplus                                  (186,807)           (134,319)         172,102           298,432
 Experience adjustments in the plan liabilities         20,535            (25,843)          (13,049)           42,029
 Experience adjustments in the plan assets             134,775             225,102        (502,033)             3,094



  The table above only shows figures for the years when SCOTTISH POWER formed part of IBERDROLA Group.


United States
The former employees of SCOTTISH POWER that now form part of the workforce of the IBERDROLA Group in
the United States, most of them belonging to the workforce of the Iberdrola Renewables Holding Inc. Group
(hereinafter, IRHI), are members of various post-employment plans (Supplemental Executive Retirement Plan,
Iberdrola Renewables Retiree Benefits Plan, Iberdrola Renewables Retirement Plan).
  The employees of IBERDROLA USA are affiliated to various defined benefit pension plans (Qualified Pension
Plans, Non Qualified Pension Plans and Postretirement Benefits Plan) and health insurance plans (Welfare Plan).




 92    Annual Consolidated Financial Statements
 The most significant data for the IRHI and IBERDROLA USA plans are as follows:



                                                                                                           Thousands of euros
                                            United States (IRHI)                      United States (IBERDROLA USA)
                                12.31.10          12.31.09         01.01.09      12.31.10       12.31.09          01.01.09
Present value of
                               (66,779)          (51,791)          (49,629)   (2,023,178)    (2,018,226)       (1,991,090)
obligation
Fair value of plan
                                 33,653           26,079            22,952     1,720,886       1,666,186        1,514,910
assets
Net asset / (net
                               (33,126)          (25,712)          (26,677)    (302,292)       (352,040)         (476,180)
provision)
Amounts
recognised in the
Consolidated
Statement of
Financial Position:
    - Other non
      current financial
                                        -                -                -       65,362         96,661            16,883
      investments
      (Note 11.d)
    - Provision
      for pensions
                               (33,126)          (25,712)          (26,677)    (367,654)       (448,701)        (493,063)
      and similar
      commitments
Net asset / (net
                               (33,126)          (25,712)          (26,677)    (302,292)       (352,040)         (476,180)
provision)


 The movement in the present value of the obligation in this connection is as follows:



                                                                                                           Thousands of euros
                                                                                                                (IRHI)
Present value of obligation at 1 January 2009                                                                   49,629
Normal cost (Note 33)                                                                                            3,460
Finance cost (Note 38)                                                                                          2,927
Actuarial deviations credited to reserves                                                                          745
Employee contributions                                                                                            159
Payments                                                                                                        (3,195)
Translation differences                                                                                        (1,934)
Present value of obligation at 31 December 2009                                                                 51,791
Normal cost (Note 33)                                                                                           3,349
Finance cost (Note 38)                                                                                           3,378
Actuarial deviations credited to reserves                                                                        7,554
Employee contributions                                                                                             145
Payments                                                                                                        (3,291)
Translation differences                                                                                          3,853
Present value of obligation at 31 December 2010                                                                 66,779




                                                                                                                             93
                          / CONSOLIDATED FINANCIAL STATEMENTS




 The movement in the fair value of the plan assets is as follows:



                                                                                            Thousands of euros
                                                                                                  (IRHI)
Fair value at 1 January 2009                                                                     22,952
Estimated revaluation (Note 37)                                                                   1,833
Actuarial deviations credited to reserves                                                         1,710
Company contributions                                                                             1,980
Employee contributions                                                                              159
Payments and other                                                                               (2,295)
Translation differences                                                                           (260)
Fair value at 31 December 2009                                                                   26,079
Estimated revaluation (Note 37)                                                                   2,272
Actuarial deviations credited to reserves                                                         1,205
Company contributions                                                                             5,021
Employee contributions                                                                              145
Payments and other                                                                               (3,066)
Translation differences                                                                           1,997
Fair value at at 31 December 2010                                                                33,653



 In the case of IBERDROLA USA, the movement in the present value of this same obligation is as follows:



                                                                                            Thousands of euros
                                                                                            (IBERDROLA USA)
Present value of obligation a 1 January 2009                                                   1,991,090
Normal Cost (Note 33)                                                                            34,621
Finance cost (Note 38)                                                                          116,943
Actuarial deviations credited to reserves                                                        76,881
Payments                                                                                       (137,161)
Translation differences                                                                         (64,148)
Present value of obligation at 31 December 2009                                               2,018,226
Normal cost (Note 33)                                                                            52,378
Finance cost (Note 38)                                                                          120,815
Actuarial deviations credited to reserves                                                       141,462
Payments                                                                                       (155,688)
Change in consolidation scope (Note 36)                                                        (312,842)
Translation differences                                                                         158,827
Present value of obligation at 31 December 2010                                                2,023,178




94    Annual Consolidated Financial Statements
  The movement in the fair value of the plan assets is as follows:

                                                                                                    Thousands of euros
                                                                                                    (IBERDROLA USA)
 Fair value at 1 January 2009                                                                          1,514,910
 Estimated revaluation (Note 37)                                                                        125,027
 Company contributions                                                                                    9,038
 Actuarial deviations credited to reserves                                                              182,251
 Payments                                                                                             (107,216)
 Translations differences                                                                               (57,824)
 Fair value at 31 December 2009                                                                       1,666,186
 Estimated revaluation (Note 37)                                                                        149,772
 Company contributions                                                                                   27,090
 Actuarial deviations credited to reserves                                                               76,212
 Payments                                                                                              (123,398)
 Change in consolidation scope (Note 36)                                                               (205,723)
 Translation differences                                                                                130,747
 Present value at 31 December 2010                                                                    1,720,886


  The principal categories of plan assets, as a percentage of total plan assets at the close of its year, are shown in
the table below:

                                                                                      2010
                                                                                  Fixed-income
                                                           Equity securities        securities            Other
 United States (IRHI)
    Retirement Plan                                                53%                  20%                 27%
    Retiree Benefits Plan                                          51%                  47%                  2%
 United States (IBERDROLA USA)
    Qualified Pension Plans                                        56%                  30%                 14%
     Welfare Plans                                                   56%                 37%                  7%
    Postretirement Benefit Plans                                       -                     -             100%



                                                                                     2009
                                                                                  Fixed-income
                                                           Equity securities        securities            Other
 United States (IRHI)
    Retirement Plan                                                55%                  17%                 28%
    Retiree Benefits Plan                                          47%                  48%                  5%
 United States (IBERDROLA USA)
    Qualified Pension Plans                                        56%                  30%                 14%
     Welfare Plans                                                   56%                 37%                  7%
     Postretirement Benefit Plans                                      -                     -             100%

  The expected return on plan assets was calculated on the basis of market expectations for returns over the
entire life of the related obligations.
  The assets associated with these plans include neither financial instruments issued by the IBERDROLA Group
nor tangible nor intangible assets.




                                                                                                                    95
                        / CONSOLIDATED FINANCIAL STATEMENTS




 The main assumptions used in the actuarial studies undertaken to determine the provision required at 31
December 2010 and 2009 in connection with these plans were as follows:


                                                                           2010
                                                             CPI/ Wage          Health insurance         Survivorship
                                        Discount rate         inflation               cost                  tables
                                                                               RX: 2011: 8.70%;
                                                                                2012 to 2027:   RP-2000 Combined
 United States (IRHI)                   4.90% / 5.00%     2.50% / 4.00%
                                                                             8.50%-0.3% or 0.2% fully generational
                                                                              year 2028: 4.50%
                                                                                  RX: 2011 to 2028:
 UNITED STATES (IBERDROLA USA)              5.00%          2.50% / 4.00%          7.80%; 0.20% year       RP-2000 +15
                                                                                     2028:4.50%



                                                                           2009
                                                             CPI/ Wage          Health insurance         Survivorship
                                        Discount rate         inflation               cost                  tables
                                                                               RX: 2010: 8.50%;
                                                                                 2011 to 2016:
                                                                               8.10%-0.4% year; RP-2000 Combined
 United States (IRHI)                   5.90% / 6.00%     2.50% / 4.00%
                                                                             2017: 5.80%; 2018 to fully generational
                                                                              2024: 5.60%-0.20%
                                                                               year 2025:4.20%
                                                                                  RX: 2010: 9.50%;
                                                                                    2011 to 2016:
                                                                                  9.10%-0.4% year;
 UNITED STATES (IBERDROLA USA)              5.80%          2.50% / 4.00%                                  RP-2000 +15
                                                                                2017: 6.80%; 2018 to
                                                                                 2026: 6.60%-0.20%
                                                                                  year 2027:4.80%


  The main figures for the IRHI pension plans in recent years are as follows:



                                                                                                       Thousands of euros
                                            2010               2009                    2008                  2007
 Actuarial value accrued                   (66,779)           (51,791)                (49,629)             (43,401)
 Plan Assets                                33,653             26,079                   22,952               27,113
 Deficit                                   (33,126)           (25,712)                (26,677)             (16,288)
 Experience adjustments arising on
                                            (1,878)              1,516                     158               (3,806)
 plan liabilities
 Experience adjustments arising on
                                              1,205              1,710                  (7,620)              (1,356)
 plan assets




 96    Annual Consolidated Financial Statements
  The main figures for the IBERDROLA USA pension plans in recent years are as follows:



                                                                                             Thousands of euros
                                                              2010             2009                2008
 Actuarial value accrued                                   (2,023,178)       (2,018,226)        (1,991,090)
 Plan Assets                                                 1,720,886        1,666,186           1,514,910
 Deficit                                                     (302,292)        (352,040)           (476,180)
 Experience adjustments arising on plan liabilities             10,706            (430)               2,296
 Experience adjustments arising on plan assets                  76,212          182,251           (280,036)


  The tables above only show figures for the years when IRHI and IBERDROLA USA formed part of IBERDROLA
Group.


Other companies
The employees of other IBERDROLA Group companies which include Spanish companies alien to the Collective
Labour Agreement of IBERDROLA Group and which are located in countries other than those detailed
individually above are covered by defined benefit retirement schemes instrumented by pension funds. The detail
of the actuarial liabilities and assets as per these plans are as follows:

                                                                                             Thousands of euros
                                                           December 31,     December 31,         January 1,
                                                               2010             2009               2009
 Present value of obligation                                 (178,118)        (164,838)          (120,122)
 Fair value of plan assets                                    167,415          144,320             100,741
 Net asset / (net provision)                                 (10,703)          (20,518)           (19,381)
 Amounts recognised in the Consolidated Statement
 of Financial Position:
   - Other non-current financial investments (Note 11.d)       31,972                    -                -
   - Other liabilities                                               -           4,033               (240)
   - Provision for pensions and similar obligations          (42,675)          (24,551)            (19,141)
 Net asset / (net provision)                                 (10,703)          (20,518)           (19,381)




                                                                                                              97
                          / CONSOLIDATED FINANCIAL STATEMENTS




 The movement in the present value of the obligation is as follows:



                                                                      Thousands of euros


Present value of obligation at 1 January 2009                              120,122
Normal cost (Note 33)                                                          744
Actuarial deviations credited to reserves                                  (1,809)
Employee contributions                                                       1,149
Finance cost (Note 38)                                                     14,532
Payments                                                                   (12,117)
Translation differences                                                    42,217
Present value of obligation at 31 December 2009                            164,838
Normal cost (Note 33)                                                          331
Actuarial deviations credited to reserves                                  (4,806)
Employee contributions                                                         542
Finance cost (Note 38)                                                     17,925
Payments                                                                   (19,212)
Translation differences                                                     18,500
Present value of obligation at 31 December 2010                            178,118

 The movement in the fair value of the plan assets is as follows:



                                                                      Thousands of euros


Fair value at 1 January 2009                                                100,741
Actuarial deviations credited to reserves                                     6,466
Estimated revaluation (Note 37)                                             11,928
Company contributions                                                         3,843
Employee contributions                                                       1,149
Payments                                                                   (11,787)
Translation differences                                                     31,980
Fair value at 31 December 2009                                             144,320
Actuarial deviations credited to reserves                                     3,366
Estimated revaluation (Note 37)                                             16,559
Company contributions                                                         4,906
Employee contributions                                                         542
Payments                                                                   (19,212)
Translation differences                                                      16,934
Fair value at 31 December 2010                                              167,415




98    Annual Consolidated Financial Statements
 The main assumptions used in the actuarial studies undertaken to determine the provision required at 31
December 2010 and 2009 to cover the aforementioned obligations were as follows:

                                                2010                                      2009
                                 Discount    CPI/ Wage     Survivorship     Discount    CPI/ Wage        Survivorship
                                   rate       inflation       tables           rate      inflation          tables
 Other defined
 benefit plans in                 10.77%    4.50% / 6.59% UP – 94 AT 2000   10.77%     4.00%-6.59%      UP – 94 AT2000
 other companies


  All these plan assets do not include equity of debt instruments issued by the IBERDROLA Group nor any
tangible or intangible assets.
  In addition, the employees of some IBERDROLA Group companies are covered by certain commitments, other
than those described above, which are met by in-house pension provisions.
  The changes in 2010 and 2009 in the provision recognised to meet the commitments set out are as follows:

                                                                                                     Thousands of euros


 Balance at 1 January 2009                                                                                 18,160
 Normal cost (Note 33)                                                                                      1,089
 Finance cost (Note 38)                                                                                      716
 Actuarial deviations (Note 33)                                                                             3,068
 Payments and other                                                                                       (3,540)
 Balance at 31 December 2009                                                                               19,493
 Normal cost (Note 33)                                                                                     3,339
 Finance cost (Note 38)                                                                                     1,563
 Transfers                                                                                                 19,956
 Actuarial deviations
  To profit and loss (Note 33)                                                                              (159)
  To reserves                                                                                              8,746
 Payments and other                                                                                        (4,152)
 Balance at 31 December 2010                                                                               48,786



b)     Defined contribution plans

The active employees of IBERDROLA Group and employees who have retired since October 9, 1996, contributors
or beneficiaries of IBERDROLA Group pensions plan are covered by an occupational, defined-contribution
retirement pension system independent of the social security system.
  In accordance with this system and the IBERDROLA Group’s effective Collective Labour Agreement, the
periodic contribution to be made is calculated as a percentage of the annual pensionable salary of each
employee, except for employees hired since 1 January 1996, for whom the company contributes one-third and
the employee contributes two-thirds. The pertinent subsidiaries finance the contributions for all their current
employees.
  The contributions made by the IBERDROLA Group in 2010 and 2009 amounted to EUR 22,626 thousand and
EUR 21,829 thousand, respectively. These amounts are recognised under “Staff costs” in the Consolidated Income
Statements.
  Employees of SCOTTISH POWER hired after 1 April 2006 have the choice to be included by a defined
contribution plan. The contribution made on account of these employees in 2010 and 2009 amounted to EUR
1,486 thousand and EUR 1,277 thousand and is recognised under “Staff costs” in the Consolidated Income
Statements.




                                                                                                                     99
                          / CONSOLIDATED FINANCIAL STATEMENTS




c)     Restructuring plans

In 1997, the Board of Directors of IBERDROLA resolved to adapt, by various means, the labour force of
IBERDROLA and of certain of its subsidiaries to the demands of the new competitive environment with the
intention of establishing in the period from 1998 through 2004 specific early retirement plans and other
means of reducing the headcount until the targets had been met. These restructuring plans were put before the
company’s employees’ representatives, and an agreement was reached.
   From 1998 to 2001, fulfilling the intention expressed previously, the IBERDROLA Group proposed to
employees who met the stipulated conditions certain early retirement plans and a “special labour situation”
arrangement prior to adhesion to the early retirement plan.
   The obligations to the employees who, having availed themselves of the above-mentioned retirement plans,
were retired at 30 November 2000, were externalised at December 2000, and a single premium was paid to a
third party for the actuarial value relating to the aforementioned obligations.
   Without prejudice to the maintenance of the restructuring plans agreed on in prior years, in 2003 the
IBERDROLA Group reached an agreement with the trade union representatives to implement a collective
redundancy procedure applicable to all employees reaching 58 or more years of age before December 31, 2006,
which was approved by the Ministry of Employment and Social Affairs.
   At 31 December 2010 a total of 2,333 employees had opted for this redundancy programme, 633 of whom
were already part of the restructuring plans established earlier. Prior to 31 December 2006, the IBERDROLA
Group, after reaching the corresponding agreement with the trade union representatives, extended the 2003
collective redundancy program to employees turned 58 in 2007. The faculty to so extend the program was
provided for in the initial agreement and approved by the Labour Authorities in 2003. A total of 431 employees
had taken advantage of the aforementioned extension.
   Subsidiary Iberdrola Generación, S.A.U. has initiated a headcount restructuring procedure to adapt to new
circumstances and following the conclusion of the useful life of certain plants involved. This company will
promote a reorganisation over the next three years affecting a maximum of 144 employees. This restructuring
plan was notified to and agreed by the company’s employee representatives. At 31 December 2010, a provision
amounting to EUR 19,215 thousand for this plan had been recognised.
   The discount to present value of the provisions is charged to “Finance costs” in the Consolidated Income
Statement.
   The changes in 2010 and 2009 in the provision recognised to meet these commitments are as follows:

                                                                                             Thousands of euros
                                                                                               Restructuring
                                                                                                   plans
 Balance at 1 January 2009                                                                        186,114
 Normal cost (Note 33)                                                                             13,021
 Finance cost (Note 38)                                                                            4,320
 Actuarial deviations and other (Note 33)                                                          16,514
 Payments and translation differences                                                            (52,747)
 Balance at 31 December 2009                                                                      167,222
 Normal cost (Note 33)                                                                            19,597
 Finance cost (Note 38)                                                                             5,176
 Actuarial deviations and other (Note 33)                                                          (1,400)
 Payments and translation differences                                                            (52,812)
 Balance at 31 December 2010                                                                      137,783




 100 Annual Consolidated Financial Statements
 The main assumptions used in the actuarial studies undertaken to determine the provision required at 31
December 2010 and 2009 to cover the Group’s obligations in relation to the aforementioned restructuring plans
were the following:

                                                                 2010                                                        2009
                                            Discount                            Survivorship         Discount                                Survivorship
                                              rate                CPI              tables              rate                   CPI               tables
                                                                              PERM/F 2000P                                                  PERM/F 2000P
 Collective redundancy program and
                                         3.25% - 3.67%           2.50%       GRM/F 95 GRM/F       3.25% -3.77%               2.50%         GRM/F 95 GRM/F
 other restructuring plans
                                                                                 80 (-2)                                                       80 (-2)




22. OTHER PROVISIONS

The detail of “Other Provisions” on the liability side of the Consolidated Statements of Financial Position and of
the movements therein in 2010 and 2009 are as follows:

                                                                                                                                         Thousands of euros
                                                         Provisions                             Provision for
                                                        for litigation,                        facility closure     Other provisions
                                                         indemnity        Provision for CO2          costs          for contingencies
                                                       payments and          emissions          (Notes 4.t and        and expenses           Total other
                                                        similar costs        (Note 4.s)              6.a)(*)            (Note 4.u)           provisions
 Balance at 1 January 2009                                 859,920             484,042              741,727                949,457           3,035,146
 Change in consolidation scope                                     -                    -                  -                47,798               47,798
 Charge for the year with a charge to
 “Property, Plant and Equipment” (Note 4.g)                        -                    -            74,122                          -           74,122
 Charge for discount to present value (Note 38)               6,010                     -            41,876                (17,106)             30,780
 Charge for the year to income Statement                     73,997            388,427                8,203                 82,259             552,886
 Reversal due to overprovision                            (128,830)            (10,240)              (2,697)               (54,857)           (196,624)
  Payments made, translation differences,
                                                             35,671           (476,790)            (20,472)               (211,894)           (673,485)
 transfers and other
 Balance at 31 December 2009                               846,768             385,439             842,759                 795,657           2,870,623
 Charge for the year with a charge to
  “Property, Plant and Equipment” (Note 4.g)                       -                    -            81,383                          -           81,383
 Charge for discount to present value (Note 38)              54,283                     -            27,170                  6,365               87,818
 Charge for the year to income Statement                    141,093            368,074                     -                41,206             550,373
 Reversal due to overprovision                            (161,344)             (4,453)              (5,740)               (31,735)           (203,272)
  Payments made, translation differences,
                                                           230,763            (407,952)              22,769               (350,334)           (504,754)
 transfers and other
 Balance at 31 December 2010                              1,111,563            341,108             968,341                 461,159            2,882,171


  (*) The breakdown by facility plant type at 31 December 2010 and 2009 is as follows:

                                                                                                           Thousands of euros
                                                                          December 31,                   December 31,
                                                                              2010                           2009
 Fossil-fuel plants                                                           137,494                           98,177
 Nuclear plants                                                               539,316                          522,214
 Wind-powered facilities and other alternative stations                      180,921                           136,671
 Combined cycle plants                                                         86,931                           84,623
 Other facilities of property, plants and equipment                           23,679                              1,074
                                                                              968,341                          842,759


                                                                                                                               101
                                               / CONSOLIDATED FINANCIAL STATEMENTS




                          The IBERDROLA Group records provisions for responsabilities arising from litigation
                        in progress and from indemnity payments, obligations, collateral and other similar
                        guarantees. These provisions include those aimed at covering environmental risks
                        determined on the basis of a case-by-case analysis of the status of the polluted assets and
                        the cost that will have to be incurred in cleaning them.
                          The IBERDROLA Group records provisions for the costs that have to be incurred in
                        decommissioning its nuclear and fossil-fuel plants and wind farms and certain electricity
                        distribution facilities which it has undertaken to bury.
                          The IBERDROLA Group expects to have to meet these obligations in the following years:

                                                                                                            Thousands of euros


                         2011                                                                                     500,028
                         2012                                                                                     569,961
                         2013                                                                                     137,564
                         2014                                                                                     100,468
                         2015 and subsequent years                                                            1,574,150
                                                                                                               2,882,171




23. BANK BORROWINGS AND OTHER FINANCIAL LIABILITIES-
LOANS AND OTHERS

The detail of the bank borrowings at 31 December 2010, 31 december 2009 and 1 January 2009, and the
repayment schedules are as follows:

                                                                                                                                      Thousands of euros
                                                                                              Borrowings at 31 December 2010
                                                                       Current
                                                                       maturity                            Non current maturity
                                                                                                                              2015 and
                          Balance at     Balance at    Balance at                                                          subsequent          Total non
                           01.01.09       12.31.09      12.31.10        2011 (*)       2012           2013         2014         years           current
 Euros
 Finance leases              172,890        204,647        192,124         11,935        10,858         11,113         11,655      146,563        180,189
  Debentures and
                           9,715,578     13,003,115     12,373,810     1,096,872        199,189      1,661,063        966,911    8,449,775     11,276,938
 bonds
  Other financing
                           8,541,805      5,648,292      8,450,760     3,259,435      2,650,823        510,694        266,082    1,763,726      5,191,325
 transactions
  Unpaid accrued
                             174,735        285,302        302,966       296,592                -             -              -        6,374          6,374
 interest
                          18,605,008      19,141,356    21,319,660     4,664,834      2,860,870     2,182,870       1,244,648 10,366,438 16,654,826
 Foreign currency
 US Dollars                8,634,868      6,449,694      5,122,809       223,236        613,646       148,990         799,369     3,337,568     4,899,573
 Pounds sterling           3,145,032      4,263,371       4,101,147      629,852         63,446         14,359        714,042    2,679,448      3,471,295
 Brazilian reals             682,137        862,956      1,093,680       202,828        206,925       155,068         199,841      329,018        890,852
  Unpaid accrued
                             143,715        168,868        181,345        181,202               -             -              -          143            143
 interest
 Other                          32,026        25,455           205            205               -             -              -             -               -
                          12,637,778     11,770,344     10,499,186      1,237,323       884,017        318,417      1,713,252    6,346,177      9,261,863
                          31,242,786     30,911,700     31,818,846     5,902,157      3,744,887     2,501,287       2,957,900    16,712,615    25,916,689

 (*) At 31 December 2010 and 2009, the balance of the bank borrowings includes EUR 1,825,101 thousand and EUR 860,641 thousand, respectively, short-term
 maturity that correspond to lines of credit arrangements with a maturity exceeding December 2011 and 2010, respectively.




                          102 Annual Consolidated Financial Statements
   The IBERDROLA Group considers more representative the presentation of the maturities by year of the
financial debt pending of amortization at its present value.
   The foregoing loan balances correspond to amounts drawn down and not repaid at 31 December 2010 and
2009. At 31 December 2010 and 2009, the IBERDROLA Group had undrawn loans and credit facilities amounting
to EUR 6,510,082 thousand and EUR 7,892,450 thousand, respectively, maturing between 2011 and 2015
(Note 48).
   The most significant financing transactions performed by the IBERDROLA Group during 2010 are as follows:
     - In January 2010, an issue under the Euromarket bond programme was held, entailing USD 100 million
       bonds maturing in January 2013.
     - In February 2010, the Group drew down the EUR 300 million 10-year loan agreed with the European
       Investment Bank (EIB) in December 2009 to fund the extension of the San Esteban II, San Pedro II and La
       Muela II hydroelectric plants.
     - In March, the Group tapped its EMTN programme again, issuing EUR 500 million of 10-year bonds.
     - In May 2010, the Group arranged a loan with the EIB to finance the construction and start-up of a 103 MW
       wind farm in Mexico. The loan was drawn down in November 2010 at 10 years.
     - In early July, an EUR 2,000 million syndicated loan was arranged, which was subsequently extended by an
       additional EUR 150 million. The loan, with a syndicate of 16 top-tier domestic and foreign banks, falls due
       at the end of July 2015.
     - During the first half of September, IBERDROLA successfully completed the largest bond swap transaction
       ever undertaken by a Spanish company, totalling EUR 600 million. A total of EUR 436.4 million was applied
       to redeem serie 79 bonds maturing in 2011 and the remaining EUR 163.6 million to redeeming series 76
       bonds maturing in 2013. The new issue has a March 2020 maturity date and a 4.125% annual coupon.
     - In the first half of October, IBERDROLA completed a public placement in the Eurobond market for a total
       amount of EUR 750 million and October 2016 maturity. The final coupon of this issue was 3.50%.
     - To diversify its funding sources and tap market opportunities, in December IBERDROLA INTERNATIONAL
       raised a total of EUR 50 million in “Schuldschein” loans with a 5-year maturity.
   Two bank deals were signed in December. The first was with Caja Madrid for a nominal EUR 60 million
maturing in 10 years. The second was with German-based bank Landesbank Hessen-Thuringen Girozentrale
(Helaba) for a nominal EUR 50 million maturing in 2015.
   The main financing transactions performed by the IBERDROLA Group during 2009 were as follows:
     - On 21 January 2009, the company extended its bond issuance programme by amounts of EUR 450 million
       and EUR 550 million, issuing bonds maturing in three and seven years, respectively.
     - On 29 January and 4 March 2009, it carried out bond issues for amounts of GBP 500 million and EUR 1,500
       million, maturing in 15 and 5 years, respectively.
     - On 6 February 2009, IBERDROLA Group entered into an agreement with a syndicate of national and
       foreign credit entities to restructure the bridge loan taken out on 28 November 2006 to finance the
       acquisition of SCOTTISH POWER. As a result of this transaction, the term of the outstanding balance of
       EUR 3,826 million was extended in two sections of EUR 1,913 million and EUR 1,913 million, respectively,
       maturing on 28 January 2011 and 28 January 2012, respectively, maintaining the amount of EUR 1,436
       million, maturing on 25 November 2009.
     - In May and June 2009, the company tapped the US capital markets with respective issues for a combined
       amount of USD 300 million and both maturing in 2019.
     - On 8 September 2009, IBERDROLA Group issued USD 2,000 million worth of bonds in two sections:
            • Section A bonds, for USD 1,000 million, with a 5-year maturity.
            • Section B bonds, for USD 1,000 million, with a 10-year maturity.
     - On 22 December 2009, IBERDROLA reconfigured the EUR 3,000 million “Club Deal” credit facility,
       extending the maturity to 22 December 2012.
   Most of the debt borrowed from non-Group third parties, is concentrated in IBERDROLA, IBERDROLA
INTERNATIONAL, IBERDROLA FINANZAS and IBERDROLA FINANCE IRELAND. An insignificant portion – less
than 1% – of these borrowings is subject to financial covenants (relating total debt to equity ratios) that if not
met could trigger the early repayment of covenanted borrowings and all other borrowings with a cross default
covenant. However, the IBERDROLA Group amply meets the required financial ratios and there is therefore no
risk of breach.




                                                                                                              103
                    / CONSOLIDATED FINANCIAL STATEMENTS




   Some of the Group’s investment projects, mainly in the renewable energy segment, have been funded in a very
specific manner, i.e. via loans that include covenants with respect to key financial ratios and the obligation to
pledge all the shares of the project-companies to creditors. The outstanding balance of loans of this type at 31
December 2010 and 2009 was EUR 1,383 million and EUR 1,453 million, respectively.
   In relation to credit ratings covenants, at 31 December 2010 and 2009 the IBERDROLA Group had arranged
funding with the European Investment Bank amounting to EUR 2,230 million and EUR 1,943 million,
respectively, which may have to be renegotiated or shored up with additional guarantees in the event of a ratings
downgrade. In addition, at 31 December 2010 and 2009, the IBERDROLA Group had EUR 4,216 million and EUR
3,484 million, respectively, in drawn borrowings the cost of which would be adjusted in the event of a ratings
down grade. However, the potential increase in cost would not be significant.
   At 31 December 2010 and 2009, the IBERDROLA Group was fully up to date on all its outstanding financial
debt obligations. Therefore, none of the amounts in the table above had contractual maturities before 31
December 2010.
   At the date of preparation of these Consolidated Financial Statements, neither IBERDROLA nor any of its
material subsidiaries were in breach of their financial commitments or of any kind of obligation that could
trigger the early redemption of their financial undertakings.
   The IBERDROLA Group’s average cost of debt in 2010 and 2009 was 4.16% and 4.37%, respectively.
   The estimated market value of bank borrowings bearing fixed interest at 31 December 2010 and 2009
amounted to EUR 18,630,602 thousand and EUR 20,745,776 thousand, respectively. The market value was
determined by discounting the future cash flows at market interest rates. The interest rate curve used to make
this calculation takes into account the risks associated with the electricity industry and the credit rating of
IBERDROLA. The sensitivity of the aforementioned market value to exchange and interest rate fluctuations is as
follows:

                                                                                                Thousands of euros
                                                               2010                             2009
                                                    Interest rate fluctuation        Interest rate fluctuation
                                                    +0.25%            -0.25%         +0.25%            -0.25%
 Change in the value of borrowings                 (227,609)          232,613       (268,411)          275,584




 104 Annual Consolidated Financial Statements
24. DERIVATIVE FINANCIAL INSTRUMENTS

 The detail of the balances of the derivative financial instruments at 31 December 2010 and 2009 is as follows:

                                                                                                                                       Thousands of euros
                                                                  2010                                                       2009
                                               Assets                          Liability                   Assets                        Liability
                                       Short-term Long-term Short-term Long-term Short-term Long-term Short-term Long-term
INTEREST RATE HEDGE:                     27,769         36,140            (8,013)     166,433         15,217        21,276             555      115,867
Cash flow hedge                           1,545          3,996            50,791      162,709             8              -           35,761     101,041
  - Interest rate swap                       10            639            49,386      154,730             8              -          33,728       94,925
  - Collar                                1,535          3,357             1,405           7,979           -             -           2,033           6,116
Fair value hedge                         26,224         32,144       (58,804)              3,724     15,209         21,276         (35,206)      14,826
  - Interest rate swap                   24,319         24,593       (48,466)              (153)     15,209         20,434         (31,053)          8,650
  - Others                                1,905          7,551           (10,338)          3,877           -          842           (4,153)          6,176
FOREIGN EXCHANGE HEDGE:                 110,105     370,568              186,029      149,290       453,111     394,533             180,199     143,361
Cash flow hedge                         105,637         (5,964)          108,452       92,545        36,290     (37,736)           106,984       91,805
  - Currency swap                         9,082     (15,207)             (12,988)      87,654       (65,572)    (59,994)             37,001      84,453
  - Foreign exchange hedge               96,555          9,243           121,440           4,891    101,862         22,258          69,983           7,352
Fair value hedge                          8,679     133,333               14,995       28,979         4,984     185,999             52,624       45,737
  - Currency swap                         8,679     132,984               15,238       28,979         4,984     185,999             52,641       45,553
  - Others                                     -           349             (243)               -           -             -             (17)           184
 Hedge of a net investment in a
                                         (4,211)    243,199               62.582       27,766       411,837     246,270             20,591           5,819
foreign country:
  - Currency swap                        (4,211)    243,199                (327)       27,766       254,975     246,270               (379)          5,819
  - Foreign exchange hedge                     -              -           62,909               -    156,862              -          20,970               -
RAW MATERIAL HEDGE:                     130,740         63,567           380,105       72,913       254,361         30,547         422,304      265,445
Cash flow hedge                         130,740         63,567           379,641       73,142       254,361         30,547          418,814     265,004
 - Forward                               87,191         35,685           152,134       63,744        26,044           645           19,362            343
 - Collar                                15,253            246            30,849           1,907           -             -                -              -
 - Others                                28,296         27,636           196,658           7,491    228,317         29,902         399,452      264,661
Fair value hedge                               -              -              464           (229)           -             -           3,490            441
 - Others                                      -              -              464           (229)           -             -           3,490            441
NON-HEDGING DERIVATIVES:                687,643         51,708           477,197       92,225       676,689         95,728         706,430      135,500
Derivatives on treasury shares            2,046               -           19,827               -        128            66            3,567       16,503
 - Equity swap                            2,046               -           19,827               -        128            66            3,567       16,503
Derivatives on foreign exchange         221,583          3,295            (7,090)          1,126       3,196         7,724                -              -
  - Currency swap                       220,689               -           (3,517)              -       (364)         7,724                -              -
  - Collar                                     -              -                 -              -      3,560              -                -              -
  - Foreign exchange hedge                  894          3,295            (3,573)          1,126           -             -                -              -
Derivatives on raw material             464,014         47,881           465,521       64,186       670,946         67,008         702,481       43,023
 - Forward                              254,968         29,471           256,989       43,915        90,343         37,009          43,757       13,267
 - Others                               209,046         18,410           208,532       20,271       580,603         29,999         658,724       29,756
Interest rate derivatives                      -              -           (1,061)           755        2,419        19,977             382       50,532
 - Interest rate swap                          -              -           (1,061)           755        2,419        19,977             171           1,365
 - Others                                      -              -                 -              -           -             -             211       49,167
Other non-hedging derivatives                  -           532                  -      26,158              -          953                 -      25,442
                                        956,257     521,983         1,035,318         480,861      1,399,378    542,084        1,309,488        660,173




                                                                                                                             105
                                             / CONSOLIDATED FINANCIAL STATEMENTS




                           The detail, by maturity, of the notional amounts of the derivative financial instruments
                         arranged by the IBERDROLA Group outstanding at 31 December 2010 is as follows:



                                                                                                                          Thousands of euros
                                                                                                              2015 and
                                             2011             2012             2013            2014           beyond             Total
INTEREST RATE HEDGE:                      1,792,628        1,688,868          891,489        1,428,380       2,690,428        8,491,793
Cash flow hedge                             746,278          308,781          235,139        1,064,719       2,343,428        4,698,345
  - Interest rate swap                      702,569          303,986         230,298          459,649         2,294,941        3,991,443
  - Collar                                   43,709            4,795            4,841         605,070           48,487          706,902
Fair value hedge                          1,046,350        1,380,087         656,350          363,661          347,000        3,793,448
  - Interest rate swap                    1,040,445        1,373,987         650,000          355,586          196,050         3,616,068
  - Others                                    5,905            6,100            6,350            8,075         150,950          177,380
FOREIGN EXCHANGE HEDGE:                   8,203,175        1,785,066          120,814          142,173        1,850,468       12,101,696
Cash flow hedge                           6,478,869          843,810           67,508           64,686         788,940        8,243,813
  - Currency swap                            42,764          207,604                  -         26,657         774,999        1,052,024
  - Foreign exchange hedge                6,436,105          636,206           67,508           38,029           13,941        7,191,789
Fair value hedge                            168,732          134,419           53,306           77,487          475,101         909,045
  - Currency swap                           168,732          134,419           51,288           77,487          475,101         907,027
  - Others                                          -                -          2,018                 -               -            2,018
 Hedge of a net investment in a
                                          1,555,574          806,837                  -               -        586,427        2,948,838
foreign country:
  - Currency swap                            78,704          806,837                  -               -        586,427         1,471,968
  - Foreign exchange hedge                1,476,870                  -                -               -               -        1,476,870
RAW MATERIAL HEDGE:                       6,795,363        1,619,744          219,071           29,537          22,244        8,685,959
Cash flow hedge                           6,794,899        1,619,517          219,069           29,537          22,244        8,685,266
 - Forward                                3,971,680        1,062,615          179,120           29,537          22,244         5,265,196
 - Collar                                   510,828           26,061                  -               -               -         536,889
 - Others                                 2,312,391          530,841           39,949                 -               -        2,883,181
Fair value hedge                                464              227                  2               -               -             693
 - Others                                       464              227                  2               -               -             693
NON-HEDGING DERIVATIVES:                 18,393,952        2,361,474          681,580          42,070          509,642       21,988,718
Derivatives on treasury shares               62,093                  -                -               -               -          62,093
 - Equity swap                               62,093                  -                -               -               -          62,093

Derivatives on foreign exchange           1,366,674          197,636           31,313                 -               -       1,595,623
  - Currency swap                           496,323                  -                -               -               -         496,323
  - Foreign exchange hedge                  870,351          197,636           31,313                 -               -       1,099,300
Derivatives on raw material              16,965,185        2,161,838          647,249           37,745         322,442       20,134,459
 - Forward                               11,534,558        1,110,896          164,356           37,745         322,442       13,169,997
 - Others                                 5,430,627        1,050,942         482,893                  -               -       6,964,462
Interest rate derivatives                           -                -                -               -         50,000           50,000
 - Interest rate swap                               -                -                -               -         50,000           50,000
Other non-hedging derivates                         -           2,000            3,018           4,325          137,200          146,543


                            The information presented in the table above includes notional amounts of derivative
                         financial instruments arranged in absolute terms (without offsetting asset and liability
                         or purchase and sale positions) and, therefore, do not constitute the risk assumed by the
                         IBERDROLA Group since this amount only records the basis on which the calculations to
                         settle the derivative are made.



                          106 Annual Consolidated Financial Statements
  “Finance costs” in the 2010 and 2009 Consolidated Income Statements includes EUR 161,218 thousand and
EUR 143,710 thousand, respectively, in connection with derivatives linked to financial indices. Either they fail to
meet the conditions to qualify as hedging instruments or, having met the conditions, they are partly ineffective
as hedging instruments for cash flows as explained in Notes 4.m and 38. “Finance income” in the Consolidated
Income Statement for the same years also includes EUR 127,658 thousand and EUR 140,351 thousand,
respectively, for the abovementioned items (Note 37).
  The IBERDROLA Group uses derivatives as foreign exchange hedges to mitigate the possible adverse effect of
exchange rate fluctuations on transactions and loans in currencies other than the functional currency of certain
Group companies.

   The detail of the nominal value of the main liabilities on which foreign exchange hedges have been arranged
is as follows:



                                                                          2010
                       Thousands of           Thousands of        Thousands of         Thousands of       Thousands of
   Type of hedge        US Dollars            Japanese Yen       Pounds Sterling      Norwegian Krone     Mexican Pesos
 Cash Flow                  412,000                      -                       -                   -       1,500,000
 Fair Value               1,075,032            31,000,000                        -           350,000                 -




                                                                          2009
                       Thousands of           Thousands           Thousands of         Thousands of       Thousands of
   Type of hedge        US Dollars         of Japanese Yen       Pounds Sterling      Norwegian Krone     Mexican Pesos
 Cash Flow                1,697,000                      -                       -                   -       1,500,000
 Fair Value                 484,858             33,000,000                 200,000                   -               -


  The IBERDROLA Group carries out interest rate hedging transactions in accordance with its risk management
policy. The purpose of these transactions is either to mitigate the effect of interest rate fluctuations on future
cash flows from credit facilities and loans tied to floating interest rates or to mitigate the change in the fair value
of loans and credit facilities that bear fixed interest rates.
  The nominal value of the most significant liabilities for which interest rate hedges have been arranged is as
follows:




                                                                          2010
                         Thousands of               Thousands of                 Thousands of        Thousands of Pounds
   Type of hedge            Euros                   Brazilian reals               US Dollars               Sterling
 Fair Value                   2,320,000                      123,678                            -             400,000
 Cash Flow                     1,571,894                              -                883,143                150,000




                                                                          2009
                                                Thousands of Brazilian       Thousands of       US   Thousands of Pounds
   Type of hedge     Thousands     of Euros            reals                       Dollars                 Sterling
 Fair Value                   2,770,000                               -                         -             400,000
 Cash Flow                     1,606,904                              -                804,950                200,000




                                                                                                                         107
                      / CONSOLIDATED FINANCIAL STATEMENTS




25. OTHER NON-CURRENT PAYABLES

The detail of “Other non-current payables” on the liability side of the Consolidated Statements of Financial
Position at 31 December 2010, at 31 December 2009 and at 1 January 2009 is as follows:

                                                                                                Thousands of euros
                                                           December 31,        December 31,         January 1,
                                                               2010                2009               2009
 Long-term guarantees and deposits received (Note 11)         157,036               153,995          132,229
 GAMESA                                                           689                 28,600          28,600
 Others                                                      138,905                144,437         245,889
                                                              296,630                 327,032        406,718




26. DEFERRED TAXES AND INCOME TAX EXPENSE

As in 2009, in 2010 IBERDROLA as the Parent of Group 2/86 filed a Consolidated Income Tax return in Spain.
The Group will continue to be taxed under this tax regime indefinitely for as long as the related requirements are
met and the Group does not expressly waive application of the regime by filing the related taxpayer registration
form.
  Without prejudice to this special tax regime in Spain applicable to IBERDROLA and certain of its consolidated
Spanish subsidiaries, other Spanish and foreign subsidiaries file individual or aggregated Income Tax returns, in
accordance with the legislation applicable to them.
  The difference between the tax charge allocated to 2010 and 2009 and the tax payable for those years,
recorded under “Deferred tax assets” and “Deferred tax liabilities”, as appropriate, in the Consolidated Statements
of Financial Position at 31 December 2010 and 2009, arose as a result of the temporary differences relating
to the difference between the carrying amount of certain assets and liabilities and their tax bases. The main
temporary differences are the following:
    - Temporary differences generated by the measurement of available-for-sale investments, assets and
      liabilities related to derivatives and assets that were measured at their market value in business
      combinations for which the difference between the tax base and carrying amount is not deductible for tax
      purposes.
    - Temporary differences arising from the application of profits from immediate or accelerated depreciation
      compared to depreciation recognised in the accounts.
    - Temporary differences arising from the non-deductibility for tax purposes of certain liabilities, including
      those recognised in relation to pension obligations and to collective redundancy procedures (Notes 4.q, 4.r
      and 21).
    - Temporary differences arising from changes in the value of investment securities whose carrying amount is
      not fully deductible for tax purposes or where deductions are not considered for accounting purposes.
    - Temporary differences arising from the tax treatment of financial goodwill generated by the acquisition of
      equity stakes in non-resident entities.
  The detail of current and deferred Income Tax expense is as follows:

                                                                                                Thousands of euros
                                                                             2010                    2009
 Current tax                                                               705,956                (317,430)
 Deferred tax                                                               193,314              1,036,200
                                                                          899,270                 718,770




 108 Annual Consolidated Financial Statements
  The detail of the heading “Deferred Tax Assets” and “Deferred Tax Liabilities” in the Consolidated Statements of
Financial Position therein is as follows:

                                                                                                                                                                                             Thousands of euros
                                                                        Transla-                Credit                                      Transla-                Credit
                                                                       tion diffe-           (charge) to                                   tion diffe-           (charge) to
                                                               Credit  rences on              asset and                            Credit  rences on              asset and Change in
                                                              (charge)   foreign   Credit to liability re-                        (charge)   foreign   Credit to liability re- conso-
                                                             to income currency     “Other    valuation                          to income currency     “Other    valuation lidation
                                         01.01.09            statement balance reserves” reserve                  12.31.09       statement balance reserves” reserve           method                     12.31.10
 Deferred tax assets:
 Measurement of avalilable-for-
                                                     -                -              -             -       433             433              -             -              -         (433)              -
 sales assets
 Measurement of derivative financial
                                          399,086              (97,148)       (75,648)             -    286,172    512,462         (64,988)        125,966               -     38,418                 -    611,858
 instruments
 Pension and similar commitments          638,068             (163,915)        (8,424)       48,232           -    513,961 (195,499)                16,662        51,673                 -     (23,688)    363,109
 Allocation of non-deductible
 negative goodwill arising on               83,501              12,612               -             -          -        96,113         (2,272)             -              -               -            -     93,841
 consolidation
 Provision for facility closure costs      68,935               (4,450)         3,857              -          -        68,342          7,225         2,640               -               -            -     78,207

 Tax loss and tax credit carryforwards    405,534              (20,879)       (34,841)             -          -    349,814         510,143          12,938               -               -            -    872,895

 Other deferred tax assets               1,647,773             (10,852)       (35,593)             -          - 1,601,328             75,051      (197,696)              -               -     (10,861) 1,467,822

                                         3,242,897 (284,632) (150,649)                       48,232    286,605 3,142,453           329,660         (39,490)       51,673       37,985          (34,549) 3,487,732




                                                                                                                                                                                             Thousands of euros
                                                                          Translation                                                                Translation   Charge
                                                                          differences        Charge (cre-                                            differences (Credit) to
                                                                Charge    on foreign         dit) to asset Change in                       Charge    on foreign asset and Change in
                                                              (credit) to currency           and liability  conso-                       (credit) to currency     liability  conso-
                                                               Income balance and            revaluation lidation                         Income balance and revaluation lidation
                                          01.01.09            Statement      others            reserve      method         12.31.09      Statement      others    reserve    method                       12.31.10
 Deferred tax liabilities:
 Measurement of available-for-sale
                                                         -                -              -         1,580               -         1,580                -          (749)        2,060                   -       2,891
 assets
 Measurement of derivative financial
                                            391,122              (54,495)       (120,735)       178,939                -     394,831        (52,631)          (14,286)        49,146                  -     377,060
 instruments
 Accelerated depreciation                 1,928,872              875,493          56,995               -               -   2,861,360            510,295       151,634                -        (112,666)   3,410,623
 Overprice assigned in business
                                          4,234,691              147,399        (174,216)              -     (20,218)      4,187,656       (137,448)          192,095                -                -   4,242,303
 combinations
 Other deferred tax liabilities            449,896              (214,972)        200,209               -               -     435,133        202,758           102,936                -                -     740,827

                                          7,004,581              753,425         (37,747)        180,519     (20,218)      7,880,560            522,974       431,630         51,206          (112,666)   8,773,704




             At 31 December 2010 and 2009, there were no deferred tax assets or other significant tax credits that
           had not yet been recognised by the IBERDROLA Group companies. In the presentation of deferred tax
           assets and liabilities, no unaccrued amounts in the same periods are offset.
             In addition, the headings “Other reserves” and “Unrealised asset and liability revaluation reserve” in the
           2010 and 2009 Consolidated Statements of Financial Position include credits of EUR 38,452 thousand
           and EUR 154,318 thousand, respectively, relating to the tax charge on actuarial variances and on cash flow
           hedge valuation adjustments and available-for-sale investments.




                                                                                                                                                                             109
                        / CONSOLIDATED FINANCIAL STATEMENTS




           The income tax expense for 2010 and 2009 is calculated as follows:



                                                                                                                    Thousands of euros
                                                                                      2010                             2009
 Consolidated profit before taxes                                                  3,840,985                         3,657,458
 Non-deductible expenses and non-computable income:
  - Individual companies                                                              91,934                           37,771
  - Consolidation adjustments                                                        (85,156)                        (188,181)
 Offset of tax assets                                                               (10,920)                           (4,493)
 Net result of companies accounted for using the equity
                                                                                     (27,356)                        (32,437)
 method
 Adjusted accounting profit                                                        3,809,487                         3,470,118
 Gross tax calculated at the tax rate in force in each country (a)                  1,144,171                        1,022,881
 Tax credits due to reinvestment of extraordinary profits and
                                                                                   (126,575)                        (205,861)
 other tax assets
 Adjustment of prior years Income Tax expense                                       (14,480)                          (55,374)
 Net movement in provisions for litigation, indemnity pay-
                                                                                     (51,030)                        (43,427)
 ments, similar costs and other provisions
 Adjustments of deferred tax assets and liabilities due to chan-
                                                                                     (81,492)                                 -
 ges in the tax rates
 Taxes related to non-distributed earnings                                            26,217                                  -
 Other                                                                                 2,459                               551
 Income tax expense                                                                  899,270                           718,770

  (a) The foreign fully and proportionately consolidated subsidiaries calculate the Income Tax expense and the resulting tax charge
 under the taxes applicable to them in accordance with the legislation applicable to them and on the basis of the tax rates in force in
 each country. Also, the subsidiaries subject to Basque Country tax legislation apply the tax rate in force there.



  British (HRMC) and US (IRS) Tax Authorities have reviewed the tax aspects related to some financial operations
between SCOTTISH POWER and Iberdrola Renewable Holding Inc. (formerly PacifiCorp Holding Inc.). The
IBERDROLA Group considers the liabilities related to this tax risk are correctly provisioned.
  In general, the IBERDROLA Group companies have all years since 2007 and beyond open for review by the
tax inspection authorities for the main taxes applicable to it. However, this period may differ in the case of the
Group companies taxed in different tax jurisdictions.




 110 Annual Consolidated Financial Statements
27. TAX RECEIVABLES AND PAYABLES

The detail of “Tax receivables” and “Current tax liabilities and Other tax payables” on the asset and liability sides,
respectively, of the Consolidated Statements of Financial Position at 31 December 2010, 31 December 2009 and
1 January 2009 is as follows:



                                                                                                    Thousands of euros
                                                             December 31,         December 31,          January 1,
                                                                 2010                 2009                2009
 Tax receivables
 Income tax refundable                                         588,732               661,031            484,641
 VAT refundable                                                 287,420              165,857            205,594
 Tax withholdings and prepayments                                40,532               31,865              31,345
 Other tax receivable                                           222,747              303,158            295,045
 Social security tax receivable                                  18,662                  957                1,132
                                                              1,158,093            1,162,868           1,017,757
 Tax payables
 Income tax payable                                             743,724             384,520              477,352
 VAT payable                                                   126,335                70,463            100,865
 Tax withholdings payable                                        68,325               147,863             37,634
 Other tax payable                                              325,622              528,503             768,416
 Social security tax payable                                      21,907              15,535              13,854
                                                               1,285,913            1,146,884           1,398,121




28. TRADE PAYABLES

The detail of this heading in the Consolidated Statements of Financial Position at 31 December 2010, 31
December 2009 and 1 January 2009 is as follows:

                                                                                                    Thousands of euros
                                                             December 31,         December 31,          January 1,
                                                                 2010                 2009                2009
 Suppliers                                                     4,643,794            3,766,358           4,183,935
 Suppliers of services provided                               1,076,417            1,447,217            800,635
 Trade payables                                                 299,745              104,733              59,214
 Customer advances                                             188,272               145,599            359,851
                                                             6,208,228             5,463,907          5,403,635


  The majority of these accounts payable do not bear interest.




                                                                                                                     111
                       / CONSOLIDATED FINANCIAL STATEMENTS




29. INFORMATION ON DEFERRED PAYMENTS TO SUPPLIERS.
THIRD ADDITIONAL PROVISION. “DUTY OF INFORMATION” OF
LAW 15/2010, OF 5 JULY


The IBERDROLA Group has analysed the periods of the accounts payable to suppliers in accordance with the
criteria contained in the Law:
       a) At 31 December 2010, the accounts payable to suppliers and trade payables included under “Current
           liabilities” in the Consolidated Statement of Financial Position for accounts payable to providers of
           goods and services.
       b) The maximum legal period was calculated from the date the services were provided by the third party
           or the goods were received by the IBERDROLA Group, or from the date this Law (7 July 2010) came
           into force, in the event this date is subsequent to the former.
       c) In accordance with the transitional regime provided for in Law 15/2010, the deferral period calculated
           was 85 days. The IBERDROLA Group did not acquire any fresh or perishable food products.
   The detail of the information required for 2010 is as follows:

                                                         Made and outstanding payments at the balance day in the
                                                               Consolidated Statement of Financial Position
                                                         Amount in million of euros                %
 Within the maximum legal limit                                      6,096.4                        99.81
 Other                                                                  11.9                           0.19
 Payments made in the year                                           6,108.3                       100.00
 APP (days)                                                             11.2
 Deferred payments which exceed the maximum
                                                                         7.8
 legal limit at the year end


  The information included in the table above was prepared in accordance with Resolution 29 of December
2010, of the Institute of Accounting and Auditors of Accounts regarding the information to be included in the
Financial Statements regarding deferred payments to suppliers in commercial transactions. This information was
prepared with the following specifications:


    • Total payments for the year: total amount of payments made to suppliers during the year after 7 July
      2010, where a distinction is made between those that exceed the legal deferral limit (85 days in 2010) and
      payments within the maximum legal period.
    • Average payment period (APP): amount in days remaining of the coefficient between the sum of the
      products from each of the payments to suppliers made subsequent to 7 July 2010 with a deferral greater
      than the legal payment period and the number of days the deferral exceeded the respective period, and the
      denominator of the total amount of the payments made in the year with a deferral greater than the legal
      payment period.
    • Outstanding amounts to suppliers that at year end accumulate a deferral greater than the legal payment
      period at 31 December 2010.
    • Only signed contracts entered into after the date the Law, of 7 July 2010, came into force were taken into
      account.
    • Suppliers: trade payables included under "Current liabilities" in the balance sheet for accounts payable to
      providers of goods and services.
    • Suppliers of tangible assets and obligations under finance leases are outside the scope of information.
    • Items relating to dues, fees, indemnities, etc. are outside the scope of information since they are not
      commercial transactions.
    • The table only includes information relating to Spanish entities included in the scope of consolidation. This
      consolidated information relates to payments made by Spanish companies to suppliers once the reciprocal
      receivables and payables of the subsidiaries and, if applicable, those of jointly controlled companies are
      removed in accordance to the provisions in the basis of consolidation.




 112 Annual Consolidated Financial Statements
30. NET REVENUE

The detail of this heading in the Consolidated Income Statements for 2010 and 2009 is as follows:

                                                                                              Thousands of euros
                                                                      2010                      2009
 Deregulated business Spain                                         10,545,376                  7,193,373
 Ordinary regime sales to wholesale generation market                1,205,375                  1,634,540
 Cogeneration sales (special regime)                                  337,458                   334,272
 Electricity sales on deregulated market                             4,236,592                  2,580,111
 Gas sales on deregulated market                                      315,189                       207,205
 Deviations, logistical transfers and other wholesale gas revenue      140,919                      106,801
 Wholesale transactions and other sales                                566,839                      336,543
 Last resort supplier sales (Note 2.c)                               3,743,004                  1,993,901
 Regulated revenue Spain                                            1,845,091                  1,685,729
 Electricity distribution (Note 4.y)                                 1,681,932                  1,546,245
 Gas infrastructure                                                          532                     37,204
 Other sales                                                           162,627                      102,280
 Non-energy                                                          1,916,911                 2,293,389
 Renewables segment                                                  2,241,077                 2,009,085
 Renewables USA                                                        605,160                      452,817
 Renewables UK                                                         165,746                      212,565
 Spain and rest of the world                                        1.203,788                   999,347
 Non-renewables                                                        266,383                      344,356
 South America                                                       1,598,131                  1,196,008
 Generator sales                                                        63,068                      122,646
 Distributor sales                                                  1,469,429                  1,089,395
 Other sales                                                            65,634                      (16,033)
 Mexico-Guatemala                                                    1,640,980                  1,456,156
 Disposal of power plant capacity (Mexico)                             265,418                      257,723
 Sales to private customers and other generator sales                1,159,417                      961,816
 Distributor sales                                                     153,322                      182,546
 Other sales                                                            62,823                       54,071
 SCOTTISH POWER                                                      8,347,785                  7,555,622
 Distribution and transmission of electricity (regulated)             732,179                       612,565
 Deregulated business sales                                           7,577,138                 6,895,928
 Gas sales Canada                                                       35,336                       47,129
 Other sales                                                             3,132                             -
 IBERDROLA USA                                                      3,132,026                  3,010,164
 Structure and inter-group adjustments                               (836,343)                  (507,588)
 Net Revenue                                                        30,431,034                 25,891,938




                                                                                                               113
                         / CONSOLIDATED FINANCIAL STATEMENTS




31. CONSTRUCTION CONTRACTS

The accumulated amounts relating to uncompleted contracts at 31 December 2010 are as follows:



                                                                                                  Thousands of euros
                                Revenue recognised
                                   by reference to     Amount billed to
                                degree of completion   clients since the                         Advances received
                                 since the beginning   beginning of the    Work in progress at     from clients at
                                    of the contract        contract        December 31, 2010     December 31, 2010
 Engineering Contracts                  4,417,997            4,088,898            466,290               137,191


  The amount registered during the year 2010 for these contracts totalizes EUR 1,011,282 thousand.


32 PROCUREMENTS

The detail of this heading in the Consolidated Income Statements for 2010 and 2009 is as follows:

                                                                                                  Thousands of euros
                                                                                   2010                2009
 Deregulated business Spain                                                      7,977,713            5,001,669
  Gas purchases                                                                   1,685,109           1,595,547
  Spanish wholesale generation market and other transactions                     1,741,338             473,043
  Consumption of fossil and nuclear fuel                                           153,601              163,215
  Tolls for electricity and gas sales                                            1,976,221             929,772
  Last resorts supplies (third parties) (Note 2.c)                               2,421,444            1,840,092
 Non-energy                                                                     1,366,498            1,585,480
 Renewables                                                                        215,843              193,565
   Energy and similar purchases                                                   215,843              193,565
 South America                                                                     863,076              589,749
  Distributor supplies                                                            732,828              606,062
  Generator supplies                                                                54,976               36,677
  Tariff assets and other supplies                                                 75,272              (52,990)
 Mexico-Guatemala                                                                 1,120,104           1,000,408
  Distributor supplies                                                            120,288              144,426
  Generator supplies                                                               961,782              795,409
  Other supplies                                                                   38,034               60,573
 SCOTTISH POWER                                                                  6,467,777            5,575,326
  Distribution and transmission of electricity (regulated)                          27,945               26,316
  Deregulated business supplies                                                   6,374,147            5,548,210
  Gas supplies Canada                                                               12,717                  800
  Other supplies                                                                    52,968                     -
 IBERDROLA USA                                                                  1,583,250             1,643,117
 Structure and inter-group adjustments                                            (808,426)            (485,360)
 Total supplies                                                                18,785,835            15,103,954




 114 Annual Consolidated Financial Statements
33. STAFF COSTS

The detail of this heading in the Consolidated Income Statements for 2010 and 2009 is as follows:



                                                                                                Thousands of euros
                                                                               2010                  2009
 Wages and salaries                                                           1,621,105             1,619,407
 Employer social security costs                                                 222,894                217,514
 Additional provisions for pensions and simila obligations and defined
                                                                               176,073                170,767
 contributions to the external pension plan (Notes 4.q and 21)
 Bylaw-stipulated Directors’ emoluments (Note 44)                                28,709                28,243
 Other employee welfare expenses                                               109,942               125,497
                                                                              2,158,723              2,161,428
 Capitalised staff costs:
   - Intangible assets and investment property (Notes 8 and 9)                  (61,306)              (70,793)
        - Property, plant and equipment (Note 4.g)                           (392,652)              (388,260)
                                                                              (453,958)              (459,053)
                                                                             1,704,765              1,702,375


  In 2010 and 2009 the IBERDROLA Group’s average workforce totalled 31,344 and 32,711 employees, of which
8,043 and 8,554 were female workers, respectively.

  The average number of employees in the consolidated Group is calculated based on the ownership percentage
held by IBERDROLA in the jointly controlled entities consolidated using proportionate consolidation and the
total number of employees of fully-consolidated subsidiaries.



34. OPERATING LEASES

The heading “Outside services” in the Consolidated Income Statements for 2010 and 2009 includes EUR 138,736
thousand and EUR 134,329 thousand, respectively, relating to operating leases. The detail of the total future
minimum lease payments under non-cancellable operating leases at 31 December 2010 is as follows:



                                                                                                 Thousands of euros


 2011                                                                                                 73,390
 2012– 2014                                                                                          166,541
 2015 and subsequent years                                                                           374,110
                                                                                                     614,041


  The contracts for leasing for most of the lands on which the IBERDROLA Group’s wind power facilities are
located have renewal on expiry or early termination clauses. The payments detailed in the table above relate
to the period of remaining useful life of the facilities as well as the expenditure which the termination of the
contract at the end of its term would entail.
  On the other hand, IBERDROLA Group acts as a lessor in certain operating leases consisting basically on the
assignment of capacity from generating facilities in Mexico (Note 4.j), the rental of investments property (Note 9)
and the lease of fibre optics.




                                                                                                                 115
                        / CONSOLIDATED FINANCIAL STATEMENTS




  “Net revenue” in the Consolidated Income Statements in 2010 and 2009 includes EUR 301,110 thousand and
EUR 264,936 thousand related to this concept and the detail of the estimated future minimum collections under
non-cancellable leases at 31 December 2010 is as follows:
                                                                                               Thousands of euros


 2011                                                                                                240,341
 2012– 2014                                                                                          757,216
 2015 and subsequent years                                                                      3,723,822
                                                                                                    4,721,379



35. DEPRECIATION AND AMORTISATION CHARGE, ALLOWANCES
AND PROVISIONS

The detail of this heading in the Consolidated Income Statements for 2010 and 2009 is as follows:
                                                                                              Thousands of euros
                                                                          2010                      2009
 Property, plant and equipment depreciation charge:
  - Property, plant and equipment (Note 10)                              2,278,253             2,104,670
  - Investment property (Note 9)                                            3,920                     4,072
 Intangible asset depreciation charge (Note 8)                             427,913                  314,227
 Grants related to assets transferred to income for the year              (48,440)               (88,926)
 Changes in provisions, allowances and impairment of assets                 36,582                  (27,961)
                                                                         2,698,228             2,306,082



36. GAINS ON DISPOSAL OF NON-CURRENT ASSETS

The detail of “Gains on Disposal of Non-Current Assets” in the Consolidated Income Statements for 2010 and
2009 is as follows:

                                                                                              Thousands of euros
                                                                          2010                      2009
 Gain on the disposal of land, buildings and other structures             22,394                    14,614
 Gain on the disposal of equity investments (Notes 11.a,11.b and 11.c)   253,715               226,493
                                                                         276,109                241,107




2010
   In October 2010, the IBERDROLA Group signed an agreement to sell Empresas Públicas de Medellín E.S.P. all
its indirect interests in the following Guatemalan companies:
     • 49% of Distribuidora Eléctrica Centroamericana Dos, S.A., which in turn holds interests including 80.88%
       of Empresa Eléctrica de Guatemala, S.A.
     • 100% of Gestión de Empresas Eléctricas, S.A.
     • 51% de Generadores Hidroeléctricos, S.A.
     • 3.12% of Hidronorte, S.A.
   This sale, completed prior to 31 December 2010, generated a cash inflow of EUR 232,912 thousand. The gain
obtained of EUR 96,556 thousand is recognised under the “Gain on disposal of non-current assets” caption of
the 2010 Consolidated Income Statement.




 116 Annual Consolidated Financial Statements
  Furthermore, prior to 2010 year end, the IBERDROLA Group completed the sale of its interests in Connecticut
Gas Corporation. The Southern Connecticut Gas Company and The Berkshire Gas Company, companies which
provide natural gas-related services in the United States of America, for a total selling price of approximately USD
1,250 million. The gain obtained of EUR 62,600 thousand is recognised under the “Gain on disposal of non-
current assets” caption of the 2010 Consolidated Income Statement.
  The companies sold through this transaction are not presented as discontinued operations in these
Consolidated Financial Statements, as the IBERDROLA Group considers that they are not sufficiently relevant to
be treated as such.
  The figures contributed by these companies to the Consolidated Income Statement for 2010 and 2009 are as
follows:



                                                                                                Thousands of euros
                                                    Mexico-Guatemala                     IBERDROLA USA
                                                  2010              2009              2010              2009
 Net revenue                                     216,104          236,576           470,690           529,268
 Procurements                                  (158,564)         (205,229)         (268,551)         (300,313)
 Other operating expenses                       (12,249)          (19,649)         (153,527)         (185,837)
 Operating profit                                 45,291            11,698            48,612            43,118
 Financial results                                 1,145             8,562          (20,227)          (23,492)
 Profit before tax                               46,436            20,260            28,385             19,626
 Income tax expense                             (12,765)             (143)           (9,752)             1,524
 Profit for the period                            33,671            20,117            18,633            21,150
 Non controlling interest                        (5,850)            (2,103)             (66)                (7)
 Net profit for the year attributable to the
                                                  27,821            18,014            18,567             21,143
 equity holders of the parent


  Additionally, in 29 December 2010, IBERDROLA Group sold its stake in NEO-SKY 2002, S.A. The gain obtained
of EUR 23,185 thousand is recognised under the “Gain on disposal of non-current assets” caption of the 2010
Consolidated Income Statement.


2009
In March 2009, the IBERDROLA Group sold its 26.95% in Navega.com, S.A., the cash obtained, amounted EUR
34,489 thousand. The resulting gain of EUR 28,699 thousand was recognised in “Gains on the disposal of non-
current assets” in the Consolidated Income Statement for the year ended 31 December 2009.
  In addition, on 24 June 2009, the IBERDROLA Group sold its 94.74% investment in Iberoamericana de Energía
Ibener, S.A. The sale price agreed was USD 281,550 thousand and the capital gain realised, amounting EUR
74,634 thousand, was recognised in “Gains on the disposal of non-current assets” in the Consolidated Income
Statement for the year ended 31 December 2009.
  On the other hand, on 30 June 2009, the IBERDROLA Group reached an agreement to sell its respective 30%
and 25% interests in Planta de Regasificación de Sagunto, S.A. and Bahía de Bizkaia Gas, S.L. The interests were
sold in December, with combined cash proceeds amounting to EUR 58,925 thousand and total capital gains to
EUR 4,141 thousand, recognised in “Gains on the disposal of non-current assets” in the Consolidated Income
Statement for the year ended 31 December 2009.




                                                                                                                  117
                        / CONSOLIDATED FINANCIAL STATEMENTS




37. FINANCE INCOME

The detail of “Finance income” in the Consolidated Income Statements for 2010 and 2009 is as follows:



                                                                                              Thousands of euros
                                                                        2010                     2009
 Income from equity investments                                           38,717                   48,689
 Income from other marketable securities                                 13,147                   37,823
 Other interest and finance income                                      181,642                  150,562
 Other interest and finance income due to credits to associates
                                                                          5,205                    5,722
 companies
 Gains on ineffective derivatives not designated as hedging ins-
                                                                        127,658                  140,351
 truments (Note 24)
 Estimated revaluation of provisions for pensions and other similar
                                                                         381,276                  318,250
 obligations (Note 21)
 Exchange gains for financing activities                                640,236                  344,771
 Other exchange gains                                                   132,971                  191,609
 Capitalised finance costs                                              105,402                  122,401
                                                                       1,626,254                1,360,178




38. FINANCE COST

The detail of “Finance costs” in the Consolidated Income Statements for 2010 and 2009 is as follows:



                                                                                              Thousands of euros
                                                                        2010                     2009
 Finance and similar costs                                             1,352,286                1,373,594
 Other finance and similar cost                                         158,294                   29,797
 Losses on ineffective derivatives not designated as hedging
                                                                        161,218                  143,710
 instruments (Note 24)
 Exchange losses on financing activities                                649,080                  310,566
 Other exchange losses                                                  129,641                  252,198
 Discount to present value of other provisions (Note 22)                  87,818                   30,780
 Finance costs attributable to the provisions for pensions and
                                                                        375,804                  328,978
 similar obligations (Note 21)
                                                                       2,914,141               2,469,623




 118 Annual Consolidated Financial Statements
39. SWAPS

In 2010 and 2009 the IBERDROLA Group did not carry out any material transaction other than through the
delivery of cash.


40. BUSINESS COMBINATIONS

In 2010 and 2009, the IBERDROLA Group did not enter into any business combinations considered material to
these Consolidated Financial Statements.


41. CONTINGENT LIABILITIES

The IBERDROLA Group companies are party to legal and out-of-court disputes arising as part of their ordinary
course of business, ranging from conflicts with suppliers, clients, administrative authorities (including tax
authorities), individuals, environmental activists, and employees.
   The IBERDROLA Group’s legal advisors believe that these proceedings will not have a material impact on its
financial position. The most important proceedings are described below:
a) In February 2002 the California Public Utilities Commission (CPUC) and the California Energy Oversight
    Board (CEOB), both US-based entities, filed a claim with the Federal Regulatory Energy Commission
    (FERC) against IRHI, an IBERDROLA RENOVABLES subsidiary. The claim alleges that the tariffs charged
    in accordance with the contract signed between IRHI and the California Department of Water Resources
    (CDWR) are unreasonable.
    In the event the FERC were to consider the tariffs charged to be unfair and unreasonable, IRHI could be
    ordered to reimburse the corresponding amounts received. However, the IBERDROLA Group considers the
    chance of losing these claims to be very slight and the related amounts not significant.
b) Centrica Energía, S.L. has taken several legal proceedings against the Royal Decree 1556/2005, establishing
    the electricity tariff for 2006, as well as against Royal Decree 809/2006, establishing the electricity tariff for
    2007. Through these proceedings, Centrica Energía, S.L. asked for the nullity of the guarantee of the tariff
    deficit (Note 4.y) to the electricity distributors and the repeal of the before mentioned Royal Decrees. The
    Supreme Court has rejected these proceedings for several reasons, including the consideration that the tariff
    shortfall returns to the companies the amounts they paid to finance it during the year. Even though Centrica
    Energía, S.L. has appealed to higher Courts, no significant harm is expected for the IBERDROLA Group as a
    result of these further proceeding.
c) There is various employment, civil and tax claims imposed on different companies of the Neoenergy Group
    in Brazil (39% owned by the IBERDROLA Group). The IBERDROLA Group considers the chance of losing
    these claims to be very slight and the related amounts not significant.
d) The US Environmental Protection Agency has filed claims against various subsidiaries of IBERDROLA USA
    (wholly owned by IBERDROLA) for failing to comply with environmental issues. The IBERDROLA Group
    considers that the possibility of these claims being lost is remote and that the amount involved would not be
    significant.
e) In Greece, a group of claimants (including landowner associations) challenged the licenses for the
    construction and operation of a 43.7 MW wind farm located in the Akarifnia and Opountii municipalities
    and owned by Rokas Aeoliki Komito, S.A. (100% owned by C. Rokas, S.A.) and therefore 100% owned by the
    IBERDROLA RENOVABLES Group. In response to this claim, in March 2006 the Greek High Administrative
    Court ordered precautionary measures involving the suspension of construction work on the wind farm.
    If an unfavourable ruling were to be handed down, the wind farm could not be built with the current
    licenses. Applications for new licenses have been filed in order to mitigate this risk.
f) On 26 April 2010, Società Energie Rinnovabili S.p.A (SER) and Società Energie Rinnovabili 1 S.p.A. (SER
    1), in which IBERDROLA RENOVABLES has an indirect 49.9% holding, were notified of a court ruling
    to provisionally suspend operations at their 66.35 MW wind farm at Sant’Agata in the municipality of
    Sant’Agata de Puglia. The order suspending the wind farm’s operations was a provisional measure taken in
    light of a criminal case that was being prepared against a number of municipal officers and third parties,
    for incompetence in granting a number of building permits. This provisional suspension of operations has
    been partly lifted on 18 turbines after the estimate of the appeals lodged by SER and SER1. Also, the judge
    authorised the operation of the remaining 33 turbines, under the condition that the income from the sale of
    energy would be deposited into an account overseen by the court. The injunction was appealed before the
    Supreme Court and the visit is forecast for April 2011.


                                                                                                                  119
                                                           / CONSOLIDATED FINANCIAL STATEMENTS




                           g) IBERDROLA RENOVABLES is aware of several legal proceedings in relation to the
                              voluntary tender offer by IBERDROLA RENOVABLES for all share capital of C. Rokas,
                              S.A. and the subsequent squeeze out, which IBERDROLA RENOVABLES began
                              subsequent to this voluntary tender offer, in which the plaintiffs are demanding
                              a fair price of EUR 21.75 for each ROKAS ordinary share and EUR 21.50 for each
                              preference share held, instead of the EUR 16 and EUR 11 for ordinary and preference
                              shares, respectively, offered by IBERDROLA RENOVABLES in its voluntary tender offer
                              and subsequently applied to the squeeze out. Both the voluntary tender offer and
                              the squeeze out were authorised by the Greek Capital Markets Commission (CMC).
                              The prices being claimed as fair consideration correspond to the highest prices that
                              IBERDROLA RENOVABLES paid for ROKAS ordinary and preference shares, respectively,
                              over the 12 months from the date when, according to the plaintiffs, it reached the
                              threshold to mount the squeeze out offer. The amount of the claims that IBERDROLA
                              RENOVABLES is aware of to date totals EUR 13,172 thousand in connection to
                              economic losses and EUR 9,650 thousand for damages. Late-payment interest and
                              processing costs must be added to these amounts.



                           42. INTERESTS IN JOINT VENTURES

                           The detail of the most significant economic aggregates in 2010 and 2009 relating to the
                           main joint ventures involving the IBERDROLA Group is as follows:



                                                                                                                                                                   Thousands of euros
                           Nuclear and fossil-fuel plant joint property entities
                                                                                                                                                                              Corporación
                                                                                                                                  Bahía de Renewables Neoenergía   Deca           IBV
                                                                                            A.I.E.         A.I.E.                  Bizkaia    Subgroup Subgroup Subgroup       Subgroup
                                                                                          Almaraz-       Vandellós-   Nuclenor, Electricidad,   joint    joint     joint         joint
2010                    Almaraz         Trillo       Vandellós     Ascó       Aceca         Trillo         Ascó         S.A.         S.A.     ventures ventures  ventures      ventures
Intangible assets                 -              -           -            -           -      4,313                -        244     16,207        941 3,274,245            -      46,396
Property, plant and
                                                                                                                                                                          -
equipment
Technical
                        1,108,910     1,157,316      1,163,325    917,764          966               -            -    129,324    188,622 1,036,784     885,087           -            -
installations
Other items of
property, plant and          525          7,159        15,098             -     1,811        2,427                -      3,013     39,921      4,498    728,600           -      35,979
equipment
Non-current financial
                          31,292         21,833         62,108     14,420       2,430          851          71,730      29,410        90     226,795   1,197,736          -      38,202
assets
Current assets            191,136       85,086         95,886      75,920      14,467       69,052         210,274     122,502     72,317    146,626 2,842,497            -     443,444

Total assets            1,331,863     1,271,394      1,336,417   1,008,104     19,674       76,643        282,004      284,493    317,157   1,415,644 8,928,165           -     564,021
Non-current
                         219,032       188,154        147,794     193,838       9,698       56,884         156,551     124,740     34,690    842,266 2,441,909            -      92,404
liabilities
Current liabilities     1,168,233     1,100,999      1,163,093    805,743       3,802       19,759         126,859      36,790     78,900    181,221 1,330,608            -     218,309

Income                   544,182       291,258        323,264     270,796      28,515      119,571        326,625      147,481    243,309     22,746 4,212,662            -    1,182,663

Expenses                 474,169       283,908        284,074     231,862     23,987       117,794        252,098      162,349    201,093     23,722 3,439,826            -    1,162,633




                             120 Annual Consolidated Financial Statements
                                                                                                                                                                   Thousands of euros
                            Nuclear and fossil-fuel plant joint property entities
                                                                                                                                                                               Corporación
                                                                                                                                  Bahía de Renewables Neoenergía   Deca            IBV
                                                                                            A.I.E.         A.I.E.                  Bizkaia    Subgroup Subgroup Subgroup        Subgroup
                                                                                          Almaraz-       Vandellós-   Nuclenor, Electricidad,   joint    joint     joint          joint
 2009                    Almaraz        Trillo       Vandellós     Ascó       Aceca         Trillo         Ascó         S.A.         S.A.     ventures ventures  ventures       ventures
 Intangible assets                 -             -           -            -           -      4,227                -          -     23,080      1,250 2,986,183       205,217       47,145
 Property, plant and
 equipment
 Technical
                         1,119,624     1,189,231     1,174,850    922,746       1,208                -            -    159,623    202,773   762,688     383,617      125,577         139
 installations
 Other items of
 property, plant and          547         7,537         15,165            -     1,811        2,516                -      3,145     38,585      4,041    544,097       49,043      40,975
 equipment
 Non-current financial
                           35,070        22,421         47,081     14,944       2,430           89          53,949      22,509      1,147   194,800     881,300       28,251       44,163
 assets
 Current assets           176,766        90,649        72,869      93,734      15,915       71,774         191,853     105,198     45,352    101,825 2,079,313       152,328     760,480

 Total assets            1,332,007 1,309,838 1,309,965           1,031,424     21,364       78,606        245,802      290,475    310,937 1,064,604    6,874,510     560,416     892,902
 Non-current
                          220,763       185,289       145,172     184,660       9,281       62,185         122,313     123,034     37,160    717,245   1,887,780     174,648      74,466
 liabilities
 Current liabilities      787,739 1,044,706          1,142,677    719,974     10,559        16,421        143,567       29,664     95,106    158,074    977,719       85,209     382,379

 Income                   556,948       285,474       211,025     304,999     18,434       106,504        265,790      145,399    227,692   135,853    3,114,347     517,147    1,135,442

 Expenses                 354,003       254,900       223,485     223,476     18,558       106,504        238,738      144,865    207,855     87,855   2,410,760     480,887    1,102,053




43. GUARANTEE COMMITMENTS TO THIRD PARTIES AND OTHER
CONTINGENT LIABILITIES
Guarantee Commitments to third parties

IBERDROLA and its subsidiaries are required to provide the bank or corporate guarantees associated with the
customary management of the Group’s activities. These include guarantees provided to market operators to
enable IBERDROLA and its subsidiaries to participate in the energy markets.


a) Market guarantees

Guarantees required by the clearing and settlement bodies of the electricity market, MEFF, OMEL and OMI Clear
in which IBERDROLA guarantees mainly Iberdrola Generación and subsidiaries, Iberdrola Distribución. and
Iberdrola Comercializadora de Último Recurso, S.A.U. The most significant are:
    - Counter-guarantees to the Mercado Español de Futuros Financieros Services, S.A. (MEFF), at 31 December
      2010 and 2009, total EUR 150,300 thousand and EUR 170,223 thousand, respectively, to operate in that
      market.
    - Counter-guarantees to the Operador del Mercado Ibérico de Energía, Polo Español, S.A. (OMEL), at 31
      December 2010 and 2009, total EUR 135,372 thousand and EUR 137,327 thousand, respectively.
    - Counter-guarantees to OMI Clear-Sociedade de Compensaçao de Mercados de Energia, S.A. at 31 December
      2010 and at 31 December 2009, total EUR 35,000 thousand, respectively.
    - Counter-guarantees to OMEL MERCADO AGENTE DE VALORES, S.A. at 31 December 2010 and 2009 total
      EUR 80,500 and 274,784 thousand, to participate in CESUR auctions.




                                                                                                                                                       121
                      / CONSOLIDATED FINANCIAL STATEMENTS




b) Execution guarantees

These are guarantees to secure the fulfilment of various obligations assumed by Group subsidiaries relating to
the nature of the business. The most significant of these are:
    - EUR 33,678 thousand (EUR 79,093 thousand at 31 December 2009) to the Mexican Federal Electricity
      Commission to secure electricity supplies and the completion of combined cycle plants.
    - The IBERDROLA Group has contracted guarantees for fulfilment of the various obligations deriving from
      the exercise of its business activities.


c) Financial guarantees

At 31 December 2010 and 2009, the IBERDROLA Group had provided guarantees to other companies, as detailed
below:

                                                                                                             Thousands of euros
                                                                                 2010                           2009
 Elcogás, S.A. (*)                                                               32,502                         32,502
 Tirme, S.A.                                                                     11,500                         11,800
 Fudepor, S.L.                                                                          -                       1,738

 (*) Additionally, IBERDROLA provided 12.31% of a guarantee line ELCOGAS, S.A. amounting EUR 1 million and a credit line of EUR
 15 million. At 31 December 2010 and 2009 none of these amounts have been drawn down.




 IBERDROLA Group considers that the liabilities that might exceed the amount of the provisions recorded at 31
December 2010 and 2009, in this connection as a result of the guarantees provided at those dates would not be
material.




 122 Annual Consolidated Financial Statements
d) Real guarantees

Certain of the IBERDROLA Group companies, in compliance with the contractual obligations associated with
loans received from banks, had fully or partially pledged their shares at 31 December 2010 and 2009. The detail,
by company, of the shares pledged is as follows:

                                                                       2010                                         2009
                                                                             Carrying amount                                 Carrying amount
                                                       Number of             by percentage of    Number of shares            by percentage of
                                                     shares pledged         IBERDROLA Group         pledged by              IBERDROLA Group
                                                    by percentage of         ownership at 31       percentage of             ownership at 31
                                                   IBERDROLA Group            December 2010      IBERDROLA Group              December 2009
                     Company                           ownership          (thousands of euros)      ownership             (thousands of euros)
 Desarrollo de Energías Renovables de
                                                          534,732                    8,093             534,732                       7,912
 La Rioja, S.A.
 Molinos del Cidacos, S.A.                                260,555                    6,975             260,555                       6,754
 Sistemas Energéticos Torralba, S.A.                       14,789                    3,570              14,789                       2,888
 Sistemas Energéticos Mas Garullo, S.A.                    10,056                    2,165              10,056                       2,115
 Sistemas Energéticos La Muela, S.A.                       20,400                    3,130              20,400                       3,158
 Sistemas Energéticos del Moncayo, S.A.                    19,260                    3,454               19,260                      3,317
 Eólicas de Campollano, S.A.                              217,940                    5,134              217,940                      3,258
 Biovent Energía, S.A.                                      1,520                  58,528                 1,520                    58,051
 Energías Renovables de la Región de
                                                        4,098,320                  54,728             4,098,320                    53,437
 Murcia, S.A.
 Molinos de La Rioja, S.A.                                101,664                    2,547              101,664                      2,435
 Energías Eólicas de Cuenca, S.A.                          89,997                  12,043               89,997                       9,618
 Iberdrola Energías Renovables de la Rioja, S.A.           50,886                   47,012              50,886                      46,018
 Energía de Castilla y León, S.A.                       1,299,670                    2,824            1,299,670                      2,298
 Fitou (acciones de Perfect Wind)                              82                       27                  82                          47
 Eólica 2000, S.L.                                          5,478                    1,495                5,478                      1,376
 Societá Energie Rinnovabili, S.p.A.                          399                    (562)                 399                       (652)
 Societá Energie Rinnovabili, S.R.L.                          399                     254                  399                       3,110
 Energías Renovaveis do Brasil, S.A.                       81,656                   36,121               81,656                    33,044
 La Rose des Vents Lorrains, SAS                            1,510                  (3,426)                1,510                      (215)
 Ferme Eolienne Welling, SAS                                1,646                  (3,082)                1,646                    (3,242)
 Iberdrola México, S.A. de C.V.                     6,030,699,135                 528,671         6,030,699,135                   560,361
 Enertek, S.A. de C.V.                                 40,549,208                  94,930            40,549,208                     74,014
 Iberdrola Energía del Golfo, S.A. de C.V. (*)      3,173,981,665                 213,757         3,173,981,665                   156,036
 Iberdrola Energía Tamazunchale, S.A. de C.V.(*)    2,643,564,883                 166,536         2,643,564,883                   127,095
 Iberdrola Energía Altamira, S.A. de C.V. (*)       3,044,934,739                 286,150         3,044,934,739                   238,172
 Iberdrola Energía Monterrey, S.A. de C.V. (*)      2,708,637,550                  210,199        2,708,637,550                   210,991
 Iberdrola Energía La Laguna, S.A. de C.V. (*)      2,282,510,239                 139,374         2,282,510,239                   109,861
 Tirme, S.A.                                               25,500                    8,673              25,500                       1,533
                                                                                1,889,320                                        1,712,790

 (*) 99% of these shares are in trusteeship.




                                                                                                                    123
                     / CONSOLIDATED FINANCIAL STATEMENTS




  Also, at 31 December 2010 and 2009 there were items of Property Plant and equipment in Iberdrola
Inmobiliaria Group amounting EUR 142,764 thousand, that worked as guarantee for the fulfilment of the
obligations arised from mortgage loans.
  Also, at 31 December 2010 and 2009, there were items of property, plant and equipment in IBERDROLA USA
amounting EUR 580,369 and 777,350 thousand, respectively, that worked as guarantee for the fulfilment of the
obligations arised from bonds issued in USA.


Commitments

The Company estimates that any liabilities that could arise from the guarantees outstanding on commitments
acquired at 31 December 2010, if any, would be immaterial.


44. REMUNERATION OF DIRECTORS

1.     2010 Bylaw-stipulated remuneration

Article 50 of IBERDROLA’s bylaws provides that “The Company shall assign, as an expense, an amount equal to up
to 2% of the profit obtained in the year by the consolidated Group, in the case that the profit of the year is enough to
cover the needs of the legal reserve and other reserves that are required and after provide to shareholders, at least, a
dividend of four percent (4%) of share capital” for Directors’ remuneration.
  On the proposal of the Appointments and Remuneration Committee, the Board of Directors has agreed to
propose to shareholders at the General Meeting the assignment of bylaw-stipulated remuneration of EUR 28,709
thousand, equivalent to 1% of 2010 consolidated net profit, which is below the 2% ceiling established in article
50 of IBERDROLA’s Bylaws.
  The amounts of EUR 28,709 thousand and EUR 28,243 thousand assigned in this connection in 2010 and
2009, which have been registered under “Staff costs” in the Consolidated Income Statements (Note 33), break
down as follows:


a) Fixed Remuneration

The fixed remuneration earned by members of the Board of Directors with a charge to the bylaw-stipulated
remuneration amounted to EUR 4,754 thousand and EUR 4,329 thousand in 2010 and 2009, respectively. The
difference bettween year 2010 and 2009 is due to two factors:
    - Creation of the Corporate Social Responsibility Committee.
    - Addition to different committees of those Directors who were not members of them during year 2009.
  The fixed remuneration received by the Board members depends on the duties assigned to them in the Board
of Directors and its Commissions, the detail of which is as follows:



                                                                                                    Thousands of euros
                                                                          2010                         2009
 Chairman                                                                  567                          567
 Vice – Chairman                                                           440                          440
 Committee Chairmen                                                        440                         440
 Committee Members                                                         253                          253
 Board Members                                                             165                          165




 124 Annual Consolidated Financial Statements
 The detailed fixed remuneration to the members of Board of Directors during year 2010 is detailed as follows:

                                                                                                               Thousands of euros
                                                                                                     Fixed remuneration (*)
Chairman
Don José Ignacio Sánchez Galán                                                                                   567
Vice-Chairman
Don Juan Luis Arregui Ciarsolo (2)                                                                                102
Don Víctor de Urrutia Vallejo                                                                                    440
Committee Chairmen
Don Ricardo Álvarez Isasi (a)                                                                                    440
Don José Ignacio Berroeta Echevarria                                                                             440
Don Sebastián Battaner Arias                                                                                     440
Committee Members
Don Julio de Miguel Aynat                                                                                        253
Don Xabier de Irala Estévez                                                                                      253
Don Íñigo Víctor de Oriol Ibarra (c)                                                                             253
Doña Inés Macho Stadler (c)                                                                                      253
Don Braulio Medel Cámara (b)                                                                                     253
Don José Luis Olivas Martínez                                                                                    253
Doña Samantha Barber (b)                                                                                         253
Doña María Helena Antolín Raybaud (b) (3)                                                                        253
Don Santiago Martínez Lage (d) (3)                                                                               253
Board Members that resigned during the year 2010
Don José Orbegozo Arroyo (1)                                                                                       24
Don Lucas María de Oriol López-Montenegro (1)                                                                      24
                                                                                                               4,754

(*) Amounts accrued in 2010, not satisfied until the approval of the bylaw stipulated remuneration by the Shareholders General
Meeting.

(1) Ceased as a member of the Board of Directors on 22 February 2010
(2) Not renewed as a member of the Board of Directors on 26 March 2010
(3) Appointed member of the Board of Directors by the Shareholders meeting on 26 March 2010

On the proposal of the Nominating and Compensation Committee, the Board of Directors approved during 2010 the following
appointments:

(a) Chairman of the Corporate Social Responsibility Committee
(b) Member of the Corporate Social Responsibility Committee
(c) Member of the Nominating and Compensation Committee
(d) Member of the Audit and Risk Supervision Committee

Currently, all members of the Board of Directors of IBERDROLA, assume responsibility for any of the four committees with which the
Board has.




                                                                                                                                 125
                        / CONSOLIDATED FINANCIAL STATEMENTS




b) Attendance fees
The attendance fees paid to the members of the Board of Directors with a charge to the bylaw-stipulated
remuneration amounted to EUR 850 thousand and EUR 770 thousand in 2010 and 2009, respectively.
  The attendance fees paid to the directors in 2010 and 2009 for attending the meetings of the Board of
Directors and its commissions, based on the duties discharged in each case, were as follows:

                                                                                                      Thousands of euros
                                                                                  2010                  2009
 Chairman                                                                          4                      4
 Board Members                                                                      2                     2




c) Remuneration of the Chief Executive Officer and President for discharging his executive duties

The remuneration earned in 2010 and 2009 by the President and Chief Executive Officer for his executive duties,
and which is also recognised with a charge to the bylaw-stipulated remuneration for the year, is indicated below:

                                                                                                      Thousands of euros
                                                                                 2010                  2009
 Fixed remuneration                                                             2,250                  2,250
 Variable annual remuneration (*)                                               2,250                  2,250
 Compensation in kind                                                              58                     58

  (*) Amount relates variable remuneration of year 2009 and 2008, received in year 2010 and 2009. .




d) Provisions and guarantees provided by the Company for Directors

This account includes the following items:
    - The premium incurred to cover benefits payable in the event of the death or disability of current directors,
      amounting to EUR 308 thousand and EUR 293 thousand in 2010 and 2009, respectively.
    - The premium paid to cover directors’ civil liability insurance in the same years, amounting to EUR 201
      thousand and EUR 364 thousand in 2010 and 2009, respectively.
    - The premium for regularising the insurance policy covering the vested pensions of retired Directors,
      amounting to EUR 327 thousand in 2010, having no charge for this concept in 2009.
  In addition, EUR 3,072 thousand and EUR 2,990 thousand respectively in 2010 and 2009, corresponding to
other insurance premiums and chargeable against previous years’ allocations to bylaw stipulated remuneration.




 126 Consolidated Financial Statements
e) Other

The expenses of the Board of Directors for external services and other items during 2010 and 2009 amounted to
EUR 923 thousand and EUR 778 thousand, respectively.
   Those members of the Board of Directors with executive duties have received during 2010 and 2009 the
amount of 613,837 and 613,836 shares of IBERDROLA RENOVABLES according to the share –based payment
plan of IBERDROLA RENOVABLES described in Note 18, chargeable against previous years’ allocations to bylaw
stipulated. With 2010 payment this share-based payment has been liquidated.
   Also, during year 2010 a compensation of EUR 692 thousand was paid to those Directors who have left the
Board of Directors prior to the period they were assigned for. There is no amount for this concept in 2009.
   The undistributed portion of compensation stipulated in the by-laws for 2010, amounting to EUR 16,750
thousand, was used to provision the obligations incurred by the Company in the case they should materialise.


2.    Remuneration for being in other Group companies Board of Directors

Also, the Directors of IBERDROLA active on the Boards of IBERDROLA Group subsidiaries accrued a combined
total of EUR 151 thousand and EUR 128 thousand in attendance fees in 2010 and 2009, respectively.
  At 31 December 2010 and 2009, the IBERDROLA Group had granted no loans or advances to members of the
Board of Directors of IBERDROLA.


3.    2011 by-law - stipulated remuneration

On the proposal of the Appointments and Remuneration Committee, the Board of Directors unanimously agreed
to freeze, for the 2011 financial year, annual remuneration based on position, meeting attendance fees, and the
maximum annual fixed and variable remuneration to be received by each member of the Board with executive
duties.


45. INFORMATION REGARDING COMPLIANCE WITH ARTICLE 229
OF THE SPANISH COMPANIES LAW

Pursuant to Article 229 of the Spanish Companies Law, introduced by Royal Decree Law 1/2010 of 2 July 2010,
any direct or indirect conflicts of interest disclosed by the members of IBERDROLA’s Board of Directors which
may affect the Company are as follows:




                                                                                                            127
                                                      / CONSOLIDATED FINANCIAL STATEMENTS




              Directors                                                     Description of conflict of interest
Mr. José Ignacio Sánchez Galán           a) All resolutions related to the compensation and evaluation of the Chairman & Chief Executive Officer
                                            have been adopted without his presence.
                                         b) The resolution to submit to the shareholders at the General Shareholders’ Meeting the re-election of
                                            Mr. José Ignacio Sánchez Galán as a member of the Board of Directors was adopted without the presence
                                            of such Director.
                                         c) Mr. José Ignacio Sánchez Galán left the meeting at which the resolution regarding his re-election as
                                            Chairman & Chief Executive Officer and as a member of the Executive Committee was approved on
                                            March 26, 2010.
Mr. Víctor de Urrutia Vallejo            a) The resolution to submit to the shareholders at the General Shareholders’ Meeting the re-election of
                                            Mr. Víctor de Urrutia Vallejo as a member of the Board of Directors was adopted without the presence of
                                            such Director.
                                         b) Mr. Víctor de Urrutia Vallejo left the meeting at which the resolution regarding his re-election as a
                                            member of the Executive Committee was approved on March 26, 2010.
Mr. Ricardo Álvarez Isasi                a) The resolution to submit to the shareholders at the General Shareholders’ Meeting the re-election of
                                            Mr. Ricardo Álvarez Isasi as a member of the Board of Directors was adopted without the presence of
                                            such Director.
                                         b) Mr. Ricardo Álvarez Isasi left the meeting at which the resolution regarding his re-election as a member
                                            of the Audit and Risk Supervision Committee was approved on May 25, 2010.
                                         c) The resolution whereby Mr. Ricardo Álvarez Isasi was appointed as Chairman of the Corporate Social
                                            Responsibility Committee, dated October 19, 2010, was adopted without the presence of such Director.
Mr. José Ignacio Berroeta Echevarria     a) The resolution to submit to the shareholders at the General Shareholders’ Meeting the re-election of
                                            Mr. José Ignacio Berroeta Echevarria as a member of the Board of Directors was adopted without the
                                            presence of such Director.
                                         b) Mr. José Ignacio Berroeta Echevarria left the meeting at which the resolution regarding his re-election as
                                            a member of the Executive Committee was approved on March 26, 2010.
Mr. Julio de Miguel Aynat                a) The resolution to submit to the shareholders at the General Shareholders’ Meeting the re-election of
                                            Mr. Julio de Miguel Aynat as a member of the Board of Directors was adopted without the presence of
                                            such Director.
                                         b) Mr. Julio de Miguel Aynat left the meeting at which the resolution regarding his re-election as a member
                                            of the Audit and Risk Supervision Committee was approved on May 25, 2010.
                                         c) The resolution whereby Mr. Julio de Miguel Aynat was appointed as Secretary of the Audit and Risk
                                            Supervision Committee, dated October 19, 2010, was adopted without the presence of such Director.
Mr. Sebastián Battaner Arias             a) The resolution to submit to the shareholders at the General Shareholders’ Meeting the re-election of
                                            Mr. Sebastián Battaner Arias as a member of the Board of Directors was adopted without the presence of
                                            such Director.
                                         b) Mr. Sebastián Battaner Arias left the meeting at which the resolution regarding his re-election as a
                                            member of the Audit and Risk Supervision Committee was approved on May 25, 2010.
Mr. Iñigo Víctor de Oriol Ibarra         a) The resolution whereby Mr. Iñigo Víctor de Oriol Ibarra was appointed as a member of the Nominating
                                            and Compensation Committee, dated October 19, 2010, was adopted without the presence of such
                                            Director.
Ms. Inés Macho Stadler                   a) Ms. Inés Macho Stadler left the meeting at which the resolution regarding her appointment as a member
                                            of the Nominating and Compensation Committee was approved on April 27, 2010.
                                         b) The resolution whereby Ms. Inés Macho Stadler was appointed as a member of the Executive Committee,
                                            dated October 19, 2010, was adopted without the presence of such Director.
Mr. Braulio Medel Cámara                 a) The resolution whereby Mr. Braulio Medel Cámara was appointed as a member of the Corporate Social
                                            Responsibility Committee, dated October 19, 2010, was adopted without the presence of such Director.
Mr. José Luis Olivas Martínez            a) All information relating to the sale of gas provided at meetings of the Board of Directors and of the
                                            Executive Committee of Iberdrola was submitted without the presence of the proprietary Director Mr.
                                            José Luis Olivas Martínez, the individual representative of the Director Caja de Ahorros de Valencia,
                                            Castellón y Alicante, Bancaja at Enagás, S.A.
                                         b) In his capacity as individual representative of the Director Caja de Ahorros de Valencia, Castellón y
                                            Alicante, Bancaja at Enagás, S.A., the proprietary Director Mr. José Luis Olivas Martínez abstained from
                                            participating in the deliberations and voting in connection with all the procedural steps affecting Enagás,
                                            S.A. and which were submitted to the Board for authorization.
Ms. Samantha Barber                      a) The resolution whereby Ms. Samantha Barber was appointed as a member of the Corporate Social
                                            Responsibility Committee, dated October 19, 2010, was adopted without the presence of such Director.
Ms. María Helena Antolín Raybaud         a) The resolution whereby Ms. María Helena Antolín Raybaud was appointed as a member of the Corporate
                                            Social Responsibility Committee, dated October 19, 2010, was adopted without the presence of such
                                            Director.
Mr. Santiago Martínez Lage               a) Mr. Santiago Martínez Lage left the meeting at which the resolution regarding his appointment as a
                                            member of the Nominating and Compensation Committee was approved on April 27, 2010.
                                         b) The resolution whereby Mr. Santiago Martínez Lage was appointed as a member of the Audit and Risk
                                            Supervision Committee, dated October 19, 2010, was adopted without the presence of such Director.




                                   128 Consolidated Financial Statements
  Likewise, all directors abstained from taking part in discussions regarding their type of directorships -
executive, external proprietary and external independent.
  Additionally, following is a detail of the companies engaging in an activity that is identical, similar or
complementary to the activity that constitutes the corporate purpose of IBERDROLA, in which the members of
the Board of Directors own equity interests, and of the functions, if any, that they discharge thereat:

                                                                                                                     Position or
            Directors                                     Company                             % of ownership         functions
 Mr. José Ignacio Sánchez Galán                   Iberdrola Renovables, S.A.                      0.044              Chairman
                                                     Scottish Power, Ltd.                             -              Chairman
 Mr. Ricardo Alvarez Isasi                        Iberdrola Renovables, S.A.                      0.003                   None
 Mr. Iñigo Víctor de Oriol Ibarra    Empresa de Alumbrado Eléctrico de Ceuta, S.A.                  0.04              Director
 Mr. Braulio Medel Cámara                       Abertis Infraestructuras, S.A.                     0.001                  None
 Mr. José Luis Olivas Martínez                   Iberdrola Renovables, S.A.                       0.000                   None
                                         Fomento de Construcciones y Contratas, S.A.              0.000                   None
                                               Abertis Infraestructuras, S.A.                     0.007                   None
                                                    Martinsa Fadesa, S.A.                         0.000                   None


  Moreover, following is the information required under the aforementioned legislation concerning the
performance by the directors, as independent professionals or as employees, of activities that are identical, similar
or complementary to the activity that constitutes the corporate purpose of IBERDROLA:



                              Director                                           Company                   Position or functions
 Mr. José Luis Olivas Martínez                                                 Enagás, S.A.                   Vice Chairman


  Finally, pursuant art. 229.2 of the Spanish Companies Law, following is the detail of companies engaging
in an activity that is identical, similar or complementary to the activity that constitutes the corporate purpose
of IBERDROLA in which the persons related with members of the Board of Directors owns direct or indirect
ownership and the functions or positions held by them, if any, at 31 December 2010:


    Companies engaging in an identical or similar activity                 % of ownership                  Position or function
 Empresa de Alumbrado Eléctrico de Ceuta, S.A.                                     2.110                              -
 Gamesa Corporación Tecnológica, S.A.                                             0.005                               -
 Iberdrola Renovables, S.A.                                                       0.000                               -




                                                                                                                                   129
                        / CONSOLIDATED FINANCIAL STATEMENTS




46. REMUNERATION OF SENIOR EXECUTIVES

Senior Executives are considered those Executives who answer directly to the Company’s Board of Directors,
Chairman and Chief Executive Officer and, in all cases, the Internal Audit Director, and any other Directors to
whom the Board of Directors recognized that status.
  At 31 December 2010 and 2009, the Company had 7 and 8 Senior Executives, respectively.
  The staff costs relating to Senior Executives amounted to EUR 7,681 thousand and EUR 7,220 thousand in
2010 and 2009, respectively, are recognised under “Staff costs” in the 2010 and 2009 Consolidated Income
Statements.
  The remuneration and other compensation received by Senior Executives in 2010 and 2009 is detailed below.

                                                                                                Thousands of euros
                                                                           2010                    2009
 Salary                                                                   5,285                    5,096
 Compensation in kind                                                       320                      389
 Payments to account not charged                                             44                       50
 Social Security                                                             70                       85
 Pension plans                                                               54                       46
 Complementary policy accrued                                              1,632                    1,176
 Complementary policy risk                                                  276                     378
 Total staff costs                                                         7,681                   7,220
 Share-based payment plan of Iberdrola Renovables, S.A. (*) (1)           1,711                    1,720

 (*) A provision for this amount was made in previous years.
 (1) Note 18.



   In addition, as it is described in Note 18, there is an incentive plan for the Company’s Senior Managers and
a hundred ninety one (191) managers, including Executive Directors, for the achievement of the 2008-2010
Strategic Plan targets entailing the delivery of a certain number of shares. If the targets are met, this bonus
would be settled in equal parts in 2011, 2012 and 2013. At 31 December 2010, a provision of EUR 9,476
thousand was established to guarantee commitments incurred by the Company should they materialise. The
amount corresponding to Executive Directors would be recognised, as appropriate, with a charge to bylaw-
stipulated remuneration.
   The employment contracts of Senior Executives, including Executive Directors, of IBERDROLA and its Group
contain golden parachute clauses for cases of termination or changes of control. These contracts have been
approved by the Company’s Board of Directors.
   IBERDROLA has been including this type of clause in the contracts of its Executives since the 1990s; however,
most contracts containing golden parachute clauses were entered into in October 2000.
   The objective is to achieve a level of loyalty among top-ranking Executives that is effective and sufficient
for the management of IBERDROLA and thereby avoid the loss of experience and skills that could jeopardise
the achievement of strategic objectives. In essence, these clauses recognise termination benefits based on the
length of service at the Company of the members of the Executive Team, with annual salary payments ranging
from a minimum of one to a maximum of five years.The new Retribution Policy for Senior Executives, approved
on 14 December 2010, establishes that for new contracts with Senior Executives, the maximum will be two (2)
annuities.




 130 Annual Consolidated Financial Statements
47. BALANCES AND TRANSACTIONS WITH OTHER RELATED
PARTIES

The transactions detailed below are specific to the Company’s ordinary business activity and were carried out on
an arm’s-length basis:



Transactions carried out by Iberdrola, S,A, with significant shareholders

The most noteworthy transactions in 2010 and 2009 were as follows:

                                                                                                                                                   Thousands of euros
                                                                                             Significant Shareholder
                                                                         2010                                                          2009
                                             Bilbao                                                         Bilbao
                                             Bizkaia                                                        Bizkaia
                                             Kutxa           Bancaja            Natixis      Grupo ACS      Kutxa          Bancaja            Natixis     Grupo ACS
 Type of transaction
 Expenses and incomes
 Financial expenses                              149              112                 -               -       2,251           1,367                 -                -
 Operating leases                                    -               -                -               -            -               -                -               5
 Receipt of services                                 -               -                -           4,240            -               -                -       31,885
 Purchase of goods (finished or
                                                     -               -                -               -            -               -                -               17
 under construction)
 Financial income                                    -               -                -               -         192             449                 -                -
 Receive dividend                                    -               -                -             23             -               -                -                -
 Lease income                                        -               -                -               -            -               -                -               97
 Rendering of services                               -               -                -             27             -               -                -                3
 Sale of goods (finished or under
                                                     -               -                -               -            -               -                -                9
 construction)
 Other transactions
 Finance arrangements:
 borrowings and capital                        4,237              272                 -               -            1          1,009                 -                -
 contributions (lender)
 Finance arrangements:
 borrowings and capital                        8,890          10,000                  -               -       4,976         10,000                  -                -
 contributions (borrower) (*)
 Repayment or cancellation of
 loans and lease arrangements                  9,992          21,443                  -               -     59,411          30,319                  -                -
 (lessee)
 Guarantees and deposits given                       -               1                -               -            -               5                -                -
 Guarantees and deposits
                                                     -               -                -               -         103             126                 -                -
 received
 Commitments/guarantees
                                                     -               -                -               -            -          1,964                 -                -
 cancelled
 Dividends and other earnings
                                             70,439          103,038                  -      248,852       168,909         141,603                  -      259,060
 distributed (**)

 (*) Includes, inter alia, deposits, debt derivatives, promissory notes, current accounts, etc.
 (* *) The amounts indicated as profit distributed or other dividends paid relate to the bonus issue rights arising from the capital increase at no charge to the
 shareholders, resolved by the General Shareholders’ Meeting in 2010, which were sold at a guaranteed fixed price in accordance with the conditions of the
 aforementioned increase.




                                                                                                                                        131
                                                    / CONSOLIDATED FINANCIAL STATEMENTS




                         Transactions of other IBERDROLA Group companies with significant shareholders

                         The most noteworthy transactions in 2010 and 2009 were as follows:



                                                                                                                                          Thousands of euros
                                                                                          Significant Shareholder
                                                                     2010                                                     2009
                                         Bilbao                                                         Bilbao
                                         Bizkaia                                                        Bizkaia
                                         Kutxa            Bancaja           Natixis      ACS Group      Kutxa       Bancaja          Natixis    ACS Group
Type of transaction
Expenses and incomes
Financial expenses                           417             831             1,176               -         813       1,573            1,626            -
Operating leases                                -                -               -               9            -          -                -           10
Receipt of services                             -                -               -         17,994             -          -                -      26,878
Purchase of goods (finished or
                                                -                -               -           7,606            -          -                -      43,158
under construction)
Financial income                                5                -                -              -          16          1                 -            -
Rendering of services                           -                -                -              -            -          -                -         980
Other transactions
Finance arrangements:
borrowings and capital                   44,948              199                  -              -      33,963         40                 -            -
contributions (lender)
Finance arrangements:
borrowings and capital                   23,461           54,565            17,992               -      26,230      58,151           24,006            -
contributions (lessor) (*)
Finance arrangements:
borrowings and capital                          -                -          8,398                -            -          -            9,496            -
contributions (borrower)
Repayment or cancellation of
loans and lease arrangements               3,151           4,400             1,821               -       3,455       4,028            2,652            -
(lessee)
Guarantees and deposits given             3,201           26,893                  -              -       4,201      19,485                -            -
Guarantees and deposits
                                                -          5,489                  -              -       1,706       8,112                -            -
received
Commitments and guarantees
                                                -                -               -               -            -       421                 -            -
cancelled

(*) Includes, inter alia, deposits, debt derivatives, promissory notes, current accounts, etc.




                           132 Annual Consolidated Financial Statements
Transactions with associates

The detail of the transactions with associates which are related parties and have not been eliminated on
consolidation (Note 2.b) is as follows:

                                                                                                                              Thousands of euros
                                                2010                                                         2009
                                                         Sales and                                                        Sales and
                      Purchases     Trade   Trade recei- services    Services    Purchases     Trade         Trade         services   Services
                       of assets   payables    vables    provided    received     of assets   payables    receivables     provided    received
 GAMESA               2,000,664    962,927      18,772           -    50,580      780,098     459,293        10,712               -     55,311
 Amara, S.A.U.            3,932       5,636      1,651      2,088       9,221        6,141           -        9,181          2,066       8,945
 Anselmo León, S.A.           -       3,279        237           -          -            -        887           141               -          -
 Elcogás, S.A.                -           -            -   13,867           -            -           -              -       22,349           -
 Gas Natural
 México, S.A.                 -           -            -         -          -            -           -              -        3,510           -
 de C.V.
 Tecnatom, S.A.              65           -            -         -      7,099         196            -              -             -     10,058
 Other                    1,496      11,654     20,393      2,675         610      15,229        7,967      179,160          2,626         271
                       2,006,157    983,496      41,053     18,630      67,510     801,664      468,147      199,194         30,551      74,585


   In 2006, the IBERDROLA Group reached an agreement with GAMESA for the supply of wind turbines with
total capacity of 2,700 MW valued at over EUR 2,300 million. GAMESA has installed these turbines in Spain,
the rest of Europe, Mexico and the USA. The contract extends to assembly and operational start-up as well as
operating and maintenance services during the guarantee period.
   Also, in the same year, the IBERDROLA Group signed a purchase agreement with GAMESA for the acquisition
of wind farms located in the USA with capacity of approximately 1,000 MW, the value of which is expected to
range between USD 700 and 1,100 million depending on the total MW actually acquired and on production.
   Furthermore, on 13 June 2008, the IBERDROLA Group and GAMESA signed the biggest turbine supply
contract in the history of the wind power sector, for generating capacity of 4,500 MW to be delivered between
2010 and 2012. These turbines will be deployed on similar terms as the previous contract, with GAMESA
responsible for their installation and start-up as well as their operation and maintenance during the guarantee
period. The investment associated with this wind capacity will amount to approximately EUR 6,300 million,
a figure that includes the turbines, transport, civil works and interconnections, both those at the wind farms
themselves and those made to the grid.
   In October 2005, the IBERDROLA Group reached an agreement with GAMESA for the acquisition of certain
wind-powered facilities with an installed capacity of 700 MW. This acquisition had taken place in the period
from 2006 to 2009 for an amount of approximately EUR 900,000 thousand. The acquisition period may be
extended to 2012.
   Meanwhile, on 13 June 2008, the governing bodies of the IBERDROLA Group and GAMESA entered into a
strategic agreement to set up two vehicles to promote, develop and manage wind projects in Spain and abroad.
On 23 September 2009, a new agreement was signed with GAMESA establishing the terms and structure for
implementing the initial Strategic Agreement in two phases:
     - From the signing of the Strategic Agreement until 30 June 2011: the IBERDROLA Group will have pre-
       emptive rights on the wind developments without P.L.A. (permits, licenses and authorisations for the start
       of construction of a wind farm) that GAMESA intends to sell to third parties.
     - From 1 July 2011 to 31 December 2011: when there will be cross options; i.e., the IBERDROLA Group could
       potentially acquire GAMESA’s wind development businesses. Alternatively, a joint venture may be set up to
       manage GAMESA’s businesses and the IBERDROLA Group’s wind projects.




                                                                                                                    133
                        / CONSOLIDATED FINANCIAL STATEMENTS




  At 31 December 2010 and 2009, the IBERDROLA Group companies had provided the following guarantees to
the related parties indicated in the following table:

                                                                                                 Thousands of euros
                            Related parties                                 2010                     2009
 Bilbao Bizkaia Kutxa                                                       3.201                    4.201
 Bancaja                                                                   26.894                   19.490
                                                                           30,095                   23,691



Transactions with Directors and Senior Executives
In addition to the remuneration earned in 2009, the members of the Board of Directors and Senior Executives
also received dividends and other profit distributions amounting to EUR 33,606 thousand.
  In 2010 no amount was included as profit distributed or other dividends paid since they relate to the
bonus issue rights arising from the capital increase at no charge to the shareholders, resolved by the General
Shareholders’ Meeting on 26 March 2010, and the amounts received by the members of the Board of Directors
and Senior Executives were not sold to the Company at a guaranteed fixed price in accordance with the
conditions of the aforementioned increase, these free rights were either converted into bonus shares or sold on
the market.



48. FINANCIAL POSITION AND EVENTS AFTER 31 DECEMBER 2010

Financial position
In order to finance the investments planned for 2011 and fund the cash needs arising from its financial position
at 31 December 2010, the IBERDROLA Group will need to obtain financing of approximately EUR 835,000
thousand.
  As indicated in Note 23, at 31 December 2010 the IBERDROLA Group had undrawn loans and credit facilities
of approximately EUR 6,510,082 thousand.
  As indicated in Note 17, at 31 December 2010 the IBERDROLA Group had EUR 214,328 thousand in cash and
equivalents and EUR 1,887,529 thousand in short-term deposits.
  Subsequent to 2010 year-end and prior to the preparation of these Consolidated Financial Statements, the
IBERDROLA Group agreed to loans of debt issuances of EUR 45,000 thousand and EUR 750,000 thousand. These
amounts guarantee to cover the Group’s cash needs for 2011.


Events after 31 December 2010
On 19 January 2011, the IBERDROLA Group entered into a purchase agreement with Ashmore Energy
International by virtue of which it will acquire, through the payment in cash of USD 2,400 million, all direct and
indirect ownership interest of the 99.68% held by Elektro Electricidade e Servicios, S.A., a Brazilian company that
provides electricity distribution services to the municipalities of Sao Paulo.
  The final purchase of the ELEKTRO shares is subject to meeting a series of conditions precedent that are
common in this type of transaction, which include obtaining the related regulatory and administrative
authorisations and the absence of negative material effects, among others. The deadline to meet these
conditions and, therefore, to complete the purchase, is six months from entering into the agreement.
  In January and February 2011, the Deficit Securitisation Fund of Electric System has issued two bond
amounting to EUR 2,000 million each. IBERDROLA has received from these securitizations EUR 1,200 million
(EUR 600 million each).




 134 Annual Consolidated Financial Statements
49. FEES FOR SERVICES PROVIDED BY THE STATUTORY AUDITOR

Fees paid for audit services and other related services delivered to the companies belonging to the IBERDROLA
Group related with the audit by the statutory auditor and its related parties during years 2010 and 2009 total
EUR 11,413 and EUR 10,667 thousand, respectively. Also, the fees paid for the same concept to other auditors
participating in the audit of IBERDROLA Group amount EUR 3,565 and EUR 4,455 thousand, respectively.
  Fees paid to the statutory auditor and its related parties for other professional services in 2010 and 2009
amount EUR 372 and EUR 398 thousand, respectively, while the fees paid for other services delivered by other
auditors amount EUR 718 and EUR 1,067 thousand, respectively.


50. EARNING PER SHARE

The reconciliation at 31 December 2010 and 2009, of the weighted average number of ordinary shares used in
the calculation of the earning per share (Note 4.ac) is as follows:

                                                                           2010                    2009
 Average number of shares during the year                            5,483,843,000           5,368,089,575
 Average number of treasury shares held                                (39,098,718)            (60,398,027)
 Average number of shares outstanding                                 5,444,744,282           5,307,691,548



  Basic earnings per share for 2010 and 2009 are as follows:


                                                                           2010                    2009
 Net profit for the year (thousands of euros)                             2,870,924              2,824,335
 Average number of shares outstanding                                 5,444,744,282           5,307,691,548
 Basic earning per share (euros)                                              0.527                  0.532



  Since the number of shares outstanding at year end 2010 has increased as a result of the two capital increases
described in Note 18, the average number of outstanding shares has been adjusted retroactively. Consequently,
the calculation of basic earnings per share for the year 2009 has also been adjusted retroactively.
  At 31 December 2010 and 2009, Iberdrola, S.A., the Parent of the IBERDROLA Group, has not issued financial
instruments or other contracts that enable its owner to receive IBERDROLA ordinary shares. As a result, diluted
earnings per share are the same as basic earnings per share.


51. PREPARATION OF THE CONSOLIDATED FINANCIAL
STATEMENTS

The Consolidated Financial Statements for the year ended 31 December 2010, were formally prepared by the
Directors of IBERDROLA on 22 February 2011.


52. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH

These Consolidated Financial Statements are presented on the basis of IFRSs, as adopted by the European Union.
Certain accounting practices applied by the Group that conform to IFRSs may not conform to other generally
accepted accounting principles in other countries.




                                                                                                              135
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




APPENDIX
Set forth below is the detail of the proportion of direct or indirect ownership that IBERDROLA, S.A. holds in its subsidiaries. The
proportion of decision-making votes in the bodies of these companies controlled by IBERDROLA corresponds basically with the
proportion of ownership.

INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                           Proportion of direct
                                                                                          or indirect ownership
                       Company                          Location      Line of business    12.31.10     12.31.09     Auditor       Method (*)
 Amara, S.A.U.                                           Spain            Services        100.00       100.00         PWC             E
 Anselmo León Distribución Eléctrica, S.L.               Spain             Energy         100.00       100.00     Ernst & Young       E
 Anselmo León Hidráulica, S.L.                           Spain             Energy         100.00       100.00     Ernst & Young       E
 Anselmo León, S.A.                                      Spain             Energy         100.00       100.00     Ernst & Young       E
 Arrendamiento de Viviendas Protegidas Siglo
                                                         Spain            Real state      100.00       100.00         PWC             F
 XXI, S.L.
 Camarate Golf, S.A.                                     Spain            Real state       26.00        26.00       Deloitte          P
 Distribuidora de Energía Eléctrica Enrique García
                                                         Spain             Energy         100.00       100.00           -             E
 Serrano, S.L.
 Eléctrica Conquense Distribución Eléctrica, S.A.        Spain             Energy          53.59        53.59     Ernst & Young       F
 Eléctrica Conquense, S.A.                               Spain             Energy          53.59        53.59     Ernst & Young       F
 Electrodistribuidora Castellano Leonesa, S.A.           Spain             Energy         100.00       100.00           -             F
 Empresa Eléctrica del Cabriel, S.L.                     Spain             Energy         100.00       100.00           -             E
 Euskaltel, S.A.                                         Spain      Telecommunications     11.79        11.43         PWC             E
 Fiuna, S.A                                              Spain            Real state       70.00        70.00         PWC             F
 Gamesa Corporación Tecnológica, S.A.                    Spain            Holding          19.58        14.10       Deloitte          E
 Gedapex, S.A                                            Spain            Real state         -          50.00           -             -
 Herederos María Alonso Calzada, S.L.                    Spain             Energy         100.00       100.00           -             E
 Hidroeléctrica San Cipriano de Rueda, S.L.              Spain             Energy         100.00       100.00           -             E
 Iberdrola Distribución de Gas, S.A.U.                   Spain               Gas          100.00       100.00     Ernst & Young       F
 Iberdrola Distribución Eléctrica, S.A.U.                Spain             Energy         100.00       100.00     Ernst & Young       F
 Iberdrola Financiación, S.A.                            Spain     Instrumental Finance   100.00       100.00     Ernst & Young       F
 Iberdrola Finanzas, S.A.U.                              Spain     Instrumental Finance   100.00       100.00     Ernst & Young       F
 Iberdrola Infraestructuras Gasistas, S.L.               Spain               Gas          100.00       100.00           -             F
 Iberdrola Inmobiliaria Catalunya, S.A.                  Spain            Real state      100.00       100.00         PWC             F
 Iberdrola Inmobiliaria, S.A.                            Spain            Real state      100.00       100.00         PWC             F
 Iberdrola Inversiones 2010, S.A.                        Spain            Holding         100.00       100.00           -             F
 Iberd-Ros, S.L.                                         Spain            Real state       50.00        50.00           -             P
 Infraestructuras Gasistas de Navarra, S.L.              Spain               Gas           50.00        50.00        KPMG             P
 Investigación y Desarrollo de Equipos
                                                         Spain        Telemarketing       100.00       100.00           -             E
 Avanzados, S.A.U.
 Klimt XXI 22.000, S.L.                                  Spain            Real state      100.00       100.00         PWC             F
 Las Pedrazas Golf, S.L.                                 Spain            Real state       50.00        50.00       Deloitte          P
 Medgaz, S.A.                                            Spain               Gas           20.00        20.00         PWC             E
                                                                     Telecommunica-
 Neo-Sky 2002, S.A.                                      Spain                               -          98.93           -             -
                                                                           tions




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                           136 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                             Proportion of direct
                                                                                            or indirect ownership
                     Company                               Location      Line of business   12.31.10     12.31.09     Auditor       Method (*)
New Klimt Terciario 2001, S.L.                               Spain          Real state         -         100.00            -            -
Norapex, S.A.                                                Spain          Real state       50.00        50.00           PWC           P
Oceanic Center, S.L.                                         Spain          Real state       50.00        50.00     Ernst & Young       P
Promotora la Castellana de Burgos, S.A.                      Spain          Real state      100.00       100.00           PWC           F
Sociedad Distribuidora de Electricidad de Elorrio, S.A.      Spain           Energy          96.86        96.86            -            E
Corporación IBV Participaciones Empresariales
                                                             Spain           Holding         50.00        50.00       Deloitte          P
Subgroup
Torre Iberdrola, A.I.E.                                      Spain          Real state       65.00        65.00       Deloitte          P
Urbanizadora Marina de COPE, S.L                             Spain          Real state       60.00        60.00           PWC           P
Valle verde Promotora Cántabro Leonesa, S.L.                 Spain          Real state       50,00        50.00           PWC           P
Vector M, S.A.U.                                             Spain          Marketing       100.00       100.00            -            E
Promociones Inmobiliarias Renfapex 2000, S.A.                Spain          Real state       51.00        51.00           PWC           F
Amara Brasil Ltda.                                           Brazil      Purchase agent      99.99        99.99           PWC           F
Lanmara Ltda.                                                Brazil      Purchase agent      30.00        30.00            -            E
Iberdrola Inmobiliaria Real State Investment
                                                           Bulgaria         Real state      100.00       100.00           PWC           F
EOOD
Ergytech Inc.                                                USA        Agente de compras   100.00       100.00           PWC           F
Iberdrola Inmobiliaria Investment in Real State,
                                                            Greece          Real state      100.00       100.00           PWC           F
A.E.
                                                                          Instrumental
Iberdrola International, B.V.                             Netherlands                       100.00       100.00     Ernst & Young       F
                                                                             Finance
Iberdrola Finance Ireland Limited                           Ireland          Finance        100.00       100.00            -            F
Iberdrola Reinsurance, S.A.                               Luxemburg         Insurance       100.00       100.00     Ernst & Young       F
Amergy Mexicana, S.A. de CV                                 Mexico          Marketing       100.00       100.00           PWC           F
Amergy Servicios de México S.A. de CV                       Mexico          Services         99.00        99.00           PWC           F
Desarrollos Inmobiliarias Laguna del Mar, S.A.
                                                            Mexico          Real state      100.00       100.00           PWC           F
de C.V.
Iberdrola Participaçoes SGPS, S.A.                         Portugal          Holding        100.00       100.00     Ernst & Young       F
Iberdrola Portugal Electricidad e Gas, S.A.                Portugal          Energy         100.00       100.00     Ernst & Young       F
Torre Occidente Inmobiliaria, S.A.                         Portugal         Real state       25.00        25.00       Deloitte          P




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                                    137
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                         Proportion of direct
                                                                                        or indirect ownership
                     Company                            Location     Line of business   12.31.10     12.31.09     Auditor       Method (*)
IBERDROLA GENERACIÓN SUBGROUP
Iberdrola Generación, S.A.U.                             Spain             Energy       100.00       100.00     Ernst & Young       F
Asociación Nuclear Ascó – Vandellós II, A.I.E.           Spain             Energy        14.59        14.59        KPMG             P
Bahía de Bizkaia Electricidad, S.L.                      Spain             Energy        25.00        25.00     Ernst & Young       P
Centrales Nucleares Almaraz – Trillo, A.I.E.             Spain             Energy        51.41        51.41     Ernst & Young       P
Cobane, A.I.E.                                           Spain             Energy       100.00       100.00           -             F
Cofrusa Cogeneración, S.A.                               Spain             Energy        50.00        50.00        Other            P
Cogeneración Gequisa, S.A.                               Spain             Energy        50.00        50.00         PWC             P
Cogeneración Tierra Atomizada, S.A.                      Spain             Energy        50.00        50.00        Other            P
Enercrisa, S.A.                                          Spain             Energy        50.00        50.00        KPMG             P
Energía Portátil de Cogeneración, S.A.                   Spain             Energy        50.00        50.00        Other            P
Energyworks Aranda, S.L.                                 Spain             Energy        99.00        99.00     Ernst & Young       F
Energyworks Carballo, S.L.                               Spain             Energy        99.00        99.00     Ernst & Young       F
Energyworks Cartagena, S.L.                              Spain             Energy        99.00        99.00     Ernst & Young       F
 Energyworks Fonz, S.L.                                  Spain             Energy       100.00       100.00     Ernst & Young       F
 Energyworks Milagros, S.L.                              Spain             Energy       100.00       100.00     Ernst & Young       F
 Energyworks Monzón, S.L.                                Spain             Energy       100.00       100.00     Ernst & Young       F
 Energyworks San Millán, S.L.                            Spain             Energy       100.00       100.00     Ernst & Young       F
 Energyworks Villarrobledo, S.L.                         Spain             Energy        99.00        99.00     Ernst & Young       F
Energyworks Vit-Vall, S.L.                               Spain             Energy        99.00        99.00     Ernst & Young       F
Fudepor, S.L.                                            Spain             Energy        50.00        50.00        Other            P
Fuerzas Eléctricas de Navarra, S.A.                      Spain             Energy       100.00       100.00     Ernst & Young       F
Hidroeléctrica Ibérica, S.L.                             Spain             Energy       100.00       100.00     Ernst & Young       F
Hispagen Cogeneración, S.A.                              Spain             Energy        50.00        50.00        Other            P
Iberdrola Cogeneración, S.L.U.                           Spain            Holding       100.00       100.00     Ernst & Young       F
Iberdrola Comercialización Último Recurso, S.A.          Spain            Marketing     100.00       100.00     Ernst & Young       F
Iberdrola Operación y Mantenimiento, S.A.U.              Spain            Services      100.00       100.00     Ernst & Young       F
Iberduero, S.L.U.                                        Spain             Energy       100.00       100.00           -             F
Intermalta Energía, S.A.                                 Spain             Energy        50.00        50.00     Ernst & Young       P
Italcogeneración, S.A.                                   Spain             Energy        50.00        50.00           -             P
Navidul Cogeneración, S.A.                               Spain             Energy        55.00        55.00     Ernst & Young       P
Nuclenor, S.A.                                           Spain             Energy        50.00        50.00       Deloitte          P
Peninsular de Cogeneración, S.A.                         Spain             Energy        50.00        50.00        KPMG             P
Productos y Servicios de Confort, S.A.                   Spain            Services      100.00       100.00           -             F
S.E.D.A. Cogeneración, S.A.                              Spain             Energy        50.00        50.00     Ernst & Young       P
Tarragona Power, S.L.                                    Spain             Energy       100.00       100.00     Ernst & Young       F
Subgrupo Tirme                                           Spain             Energy        20.00        20.00        KPMG             P
Zirconio Cogeneración, S.A.                              Spain             Energy        50.00        50.00        Other            P
Iberdrola Generación-Energia e Serviços
                                                        Portugal          Services      100.00       100.00           -             F
Portugal, Unipessoal Ltda.
Energyworks Venezuela, S.A.                            Venezuela           Energy       100.00       100.00        Other            E



(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                           138 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                        Proportion of direct
                                                                                       or indirect ownership
                       Company                          Location    Line of business   12.31.10     12.31.09     Auditor       Method (*)
IBERDROLA ENERGÍA SUBGROUP
Iberdrola Energía, S.A.U.                                Spain          Holding        100.00       100.00     Ernst & Young       F
Compañía Administradora de Empresas – Bolivia, S.A.      Bolivia        Services        59.26        59.26          PWC            E
Electricidad de La Paz, S.A.                             Bolivia        Energy         56.77        56.77          PWC             E
Empresa de Luz y Fuerza Eléctrica de Oruro, S.A.         Bolivia        Energy          58.85        58.85           PWC           E
Empresa de Servicios, S.A.                               Bolivia       Services         56.35        55.73           PWC           E
Iberbolivia de Inversiones, S.A.                         Bolivia        Holding         63.39        63.39           PWC           E
Iberdrola de Inversiones, S.A.                           Bolivia        Holding         99.99        99.99           PWC           F
Afluente Geraçao de Energía Elétrica, S.A.                Brazil        Energy          42.76        42.76     Ernst & Young       P
Afluente Transmissao de Energía Elétrica, S.A.            Brazil        Energy          42.76          -       Ernst & Young       P
Baguari Geraçao de Energía Eléctrica, S.A.                Brazil        Energy          39.00        39.00     Ernst & Young       P
Bahia PCH I, S.A.                                         Brazil        Energy          39.00        39.00     Ernst & Young       P
Belo Monte Participaçoes, Subgrupo                        Brazil        Energy          39.00          -       Ernst & Young       P
Capuava Energy, Ltda.                                     Brazil        Energy          99.99        99.99     Ernst & Young       F
Companhia de Eletricidade do Estado do Bahia, S.A.        Brazil        Energy          42.76        42.76     Ernst & Young       P
Companhia Energética de Pernambuco, S.A.                  Brazil        Energy          34.96        34.96     Ernst & Young       P
Companhia Energetica do Rio Grande do Norte, S.A.         Brazil        Energy          39.95        39.95     Ernst & Young       P
Energetica Aguas da Pedra, S.A.                           Brazil        Energy          19.89        19.89     Ernst & Young       P
Energyworks do Brasil, Ltda.                              Brazil        Energy          99.99        99.99     Ernst & Young       F
Geraçao Ceu Azul, S.A.                                    Brazil        Energy          39.00        39.00     Ernst & Young       P
Geraçao CIII, S.A.                                        Brazil        Energy          39.04        39.04     Ernst & Young       P
Goias Sul Geraçao de Energía, S.A.                        Brazil        Energy          39.00        39.00     Ernst & Young       P
Iberdrola Energía do Brasil, Ltda.                        Brazil        Holding         99.99        99.99     Ernst & Young       F
Itapebí Geraçao de Energía, S.A.                          Brazil        Energy          38.98        38.98     Ernst & Young       P
Neoenergía Investimentos, S.A.                            Brazil       Services         39.00        39.00     Ernst & Young       P
Neoenergía, S.A.                                          Brazil    Holding-Energy      39.00        39.00     Ernst & Young       P
Rio PCH I, S.A.                                           Brazil        Energy          39.00        39.00            -            P
S.E. Narandiba, S.A.                                      Brazil        Energy          29.25        29.25     Ernst & Young       P
NC Energía Subgroup                                       Brazil        Energy          39.00        39.00     Ernst & Young       P
Termoaçu, S.A.                                            Brazil        Energy          39.00        39.00     Ernst & Young       P
Termopernambuco, S.A.                                     Brazil        Energy          9.02         9.02            KPMG          E
Empresa Eléctrica Lican, S.A.                             Brazil        Energy          39.00        39.00     Ernst & Young       P
Iberdrola Energía Chile, Ltda.                            Chile         Energy          54.99        54.99            -            F
Almacenaje y Manejo de Materiales Eléctricos, S.A.      Guatemala      Services           -          48.97            -            -
Comercializadora Eléctrica de Guatemala, S.A.           Guatemala       Energy            -          39.63            -            -
Credieegsa, S.A.                                        Guatemala      Services           -          39.63            -            -
Distribuidora Eléctrica Centroamericana II, S.A.        Guatemala       Energy            -          49.00            -            -
Empresa Eléctrica de Guatemala, S.A.                    Guatemala       Energy            -          39.63            -            -
Enérgica, S.A.                                          Guatemala       Energy            -          39.63            -            -
Generadores Hídroeléctricos, S.A.                       Guatemala       Holding           -          51.00            -            -




 (*) The consolidation method is detailed as follows:
     F: Full Consolidation
     E: Integration by the Equity Method
     P: Proportional Consolidation


                                                                                                               139
                                                  / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                             Proportion of direct
                                                                                            or indirect ownership
                      Company                            Location        Line of business   12.31.10     12.31.09     Auditor       Method (*)
Gestión Empresas Eléctricas, S.A.                       Guatemala           Services           -          99.99           -             -
Hidronorte, S.A.                                        Guatemala            Energy            -          51.00           -             -
Inmobiliaria y Desarrolladora Empresarial de
                                                        Guatemala           Real state         -          39.63           -             -
América, S.A.
Inversiones Eléctricas Centroamericanas, S.A.           Guatemala            Holding           -          39.63           -             -
Transportista Eléctrica Centroamericana, S.A.           Guatemala            Energy            -          39.63           -             -
                                                        British Virgin    Instrumental
Garter Properties, Inc.                                                                      39.00        39.00     Ernst & Young       P
                                                           Islands           Finance
Cinergy, S.R.L. de C.V.                                   Mexico            Services        100.00       100.00     Ernst & Young       F
Electricidad de Veracruz II, S.A. de C.V.                 Mexico             Energy          99.99        99.99     Ernst & Young       F
Electricidad de Veracruz, S.A. de C.V.                    Mexico             Energy          99.99        99.99     Ernst & Young       F
Enertek, S.A. de C.V.                                     Mexico             Energy          99.99        99.99     Ernst & Young       F
Iberdrola Energía Altamira de Servicios, S.A. de C.V.     Mexico            Services        100.00       100.00     Ernst & Young       F
Iberdrola Energía Altamira, S.A. de C.V.                  Mexico             Energy         100.00       100.00     Ernst & Young       F
Iberdrola Energía del Golfo, S.A. de C.V.                 Mexico             Energy         100.00       100.00     Ernst & Young       F
Iberdrola Energía La Laguna, S.A. de C.V.                 Mexico             Energy         100.00       100.00     Ernst & Young       F
Iberdrola Energía Monterrey, S.A. de C.V.                 Mexico             Energy          99.99        99.99     Ernst & Young       F
Iberdrola Energía Tamazunchale, S.A. de C.V.              Mexico             Energy          99.99        99.99     Ernst & Young       F
Iberdrola México, S.A. de C.V.                            Mexico             Holding        100.00       100.00     Ernst & Young       F
Iberdrola Servicios Monterrey, S.A. de C.V.               Mexico            Services        100.00       100.00     Ernst & Young       F
Servicios Administrativos Tamazunchale, S.A. de C.V.      Mexico            Services        100.00       100.00     Ernst & Young       F
Servicios de Operación Altamira, S.A. de C.V.             Mexico            Services        100.00       100.00     Ernst & Young       F
Servicios de Operación La Laguna, S.A. de C.V.            Mexico            Services        100.00       100.00     Ernst & Young       F
Servicios Industriales y Administrativos del
                                                          Mexico            Services         51.12        51.12     Ernst & Young       F
Noreste, S.R.L. de C.V.
Sistemas de Administración y Servicios, S.A. de C.V.      Mexico            Services         13.00        13.00         PWC             E
Gas Natural México Subgroup                               Mexico               Gas           13.25        13.25         PWC             E




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                           140 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                      Proportion of direct
                                                                                     or indirect ownership
                       Company                         Location   Line of business   12.31.10     12.31.09     Auditor       Method (*)
IBERDROLA RENOVABLES SUBGROUP
Iberdrola Renovables , S.A.                             Spain         Energy          80.00        80.00     Ernst & Young       F
Aerocastilla, S.A.                                      Spain         Energy          45.60        45.60            -            P
Biocantaber, S.L.                                       Spain         Energy          40.00        40.00            -            P
Bionor Eólica, S.A.                                     Spain         Energy          45.60        45.60            -            P
Biovent Energía, S.A.                                   Spain         Energy          76.00        76.00     Ernst & Young       F
Ciener, S.A.U.                                          Spain         Energy          80.00        80.00     Ernst & Young       F
Desarrollos Energéticos del Val, S.L.                   Spain         Energy          38.00          -              -            P
Desarrollo de Energías Renovables de
                                                        Spain         Energy          32.41        32.41     Ernst & Young       P
La Rioja,S.A.
Ecobarcial, S.A.                                        Spain         Energy          35.03        35.03     Ernst & Young       P
Eléctra de Layna, S.A.                                  Spain         Energy          38.00        38.00     Ernst & Young       P
Electra de Malvana, S.A.                                Spain         Energy          38.40        38.40            -            P
Electra de Montánchez, S.A.                             Spain         Energy          32.00        32.00            -            P
Electra Sierra de Los Castillos, S.A.                   Spain         Energy          77.60          -              -            F
Electra Sierra de San Pedro, S.A.                       Spain         Energy          64.00        64.00            -            F
Eléctricas de la Alcarria, S.A.                         Spain         Energy          32.00        32.00            -            P
Eme Calahorra Dos, S.L.                                 Spain         Energy          80.00        80.00            -            F
Eme Calahorra Uno, S.L.                                 Spain         Energy          80.00        80.00            -            F
Eme Hueneja Cuatro, S.L.                                Spain         Energy          80.00        80.00            -            F
Eme Hueneja Dos, S.L.                                   Spain         Energy          80.00        80.00            -            F
Energía de Castilla y León, S.A.                        Spain         Energy          68.40        68.40     Ernst & Young       F
Energía I Vent, S.A.                                    Spain         Energy          72.00        72.00            -            F
Energías Ecológicas de Fuerteventura, S.A.              Spain         Energy          40.00        40.00            -            P
Energías Ecológicas de La Gomera, S.A.                  Spain         Energy            -          40.00            -            -
Energías Ecológicas de La Palma S.A.                    Spain         Energy          40.00        40.00            -            F
Energías Ecológicas de Lanzarote S.A.                   Spain         Energy            -          40.00            -            -
Energías Ecológicas de Tenerife, S.A.                   Spain         Energy          40.00        40.00            -            F
Energías Eólicas de Cuenca, S.A.                        Spain         Energy          80.00        80.00     Ernst & Young       F
Energías Ecológicas de Fuencaliente, S.A.               Spain         Energy          40.00        40.00            -            F
Energías Renovables de Fisterra, S.A.                   Spain         Energy          64.00        64.00            -            F
Energías Renovables de la Región de Murcia, S.A.        Spain         Energy          80.00        79.91     Ernst & Young       F
Energías Renovables de la Ria de Muros, S.A.            Spain         Energy          40.80        40.80            -            F
Eólica 2000, S.L.                                       Spain         Energy          39.20        39.20     Ernst & Young       P
Eólicas de Campollano, S.A.                             Spain         Energy          20,00        20.00           KPMG          P
Eólicas de Euskadi, S.A.                                Spain         Energy          80,00        80.00     Ernst & Young       F
Eólicas Fuente Isabel, S.A.                             Spain         Energy          45.60        45.60            -            P
Generación de Energía Eólica, S.A.                      Spain         Energy          45.60        45.60            -            P
Iberdrola Energía Marinas de Cantabria, S.A.            Spain         Energy          48.00        48.00            -            F
Iberdrola Energía Solar Puertollano, S.A.               Spain         Energy          72.00        72.00     Ernst & Young       F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                             141
                                                  / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                          Proportion of direct
                                                                                         or indirect ownership
                      Company                            Location     Line of business   12.31.10     12.31.09     Auditor       Method (*)
Iberdrola Renovables Asturias, S.A. (**)                  Spain            Energy         80.00        80.00           -             F
Iberdrola Renovables Andalucía, S.A.U.                    Spain            Energy         80.00        80.00     Ernst & Young       F
Iberdrola Renovables Aragón, S.A.U.                       Spain            Energy         80.00        80.00     Ernst & Young       F
Iberdrola Renovables Canarias, S.A.                       Spain            Energy         80.00        80.00     Ernst & Young       F
Iberdrola Renovables Cantabria, S.A.                      Spain            Energy         80.00        80.00           -             F
Iberdrola Renovables Castilla – La Mancha, S.A.U.         Spain            Energy         80.00        80.00     Ernst & Young       F
Iberdrola Renovables Castilla y León, S.A.                Spain            Energy         76.00        76.00     Ernst & Young       F
Iberdrola Renovables Galicia, S.A.U.                      Spain            Energy         80.00        80.00     Ernst & Young       F
Iberdrola Renovables La Rioja, S.A.                       Spain            Energy         50.84        50.84     Ernst & Young       F
Iberdrola Renovables de Valencia, S.A.                    Spain            Energy         80.00        80.00           -             F
Iberenova Promociones, S.A.U.                             Spain            Energy         80.00        80.00     Ernst & Young       F
Iberjalón, S.A.                                           Spain            Energy         64.00        64.00           -             F
Subgrupo Inversiones Financieras Perseo                   Spain            Holding        86.00        86.00           -             F
Minicentrales del Tajo, S.A.                              Spain            Energy         53.26        53.26     Ernst & Young       F
Molinos de La Rioja, S.A.                                 Spain            Energy         33.89        33.89     Ernst & Young       P
Molinos del Cidacos, S.A.                                 Spain            Energy         25.42        25.42     Ernst & Young       P
Operador Logístico Agroenergético de Galicia, S.A.
                                                          Spain            Energy         17.60        17.60           -             P
(OLA GALICIA)
Parque Eólico Cruz de Carrutero, S.L.                     Spain            Energy         60.80        60.80           -             F
Parques Eólicos Puerto de Málaga, S.L.                    Spain            Energy           -          80.00           -             -
Peache Energías Renovables, S.A.                          Spain            Energy         45.60        45.60           -             P
Producciones Energéticas de Castilla y León, S.A.         Spain            Energy         68.40        68.40     Ernst & Young       P
Productora de Energía Eólica, S.A.                        Spain            Energy         45.52        45.52           -             P
Saltos de Belmontejo, S.A.                                Spain            Energy         19.87        19.87     Ernst & Young       P
Sistema Eléctrico de Conexión Huenéja, S.L.               Spain            Energy         37.89        37.89     Ernst & Young       P
Sistemas Energéticos Altamira, S.A.                       Spain            Energy         80.00        80.00     Ernst & Young       F
Sistemas Energéticos Alto del Abad, S.A.                  Spain            Energy         80.00          -             -             F
Sistemas Energéticos Chandrexa, S.A.                      Spain            Energy         76.85        76.85     Ernst & Young       F
Sistemas Energéticos de Cádiz, S.A.                       Spain            Energy         68.00        68.00           -             F
Sistemas Energéticos de Levante, S.A.                     Spain            Energy         48.00        48.00           -             F
Sistemas Energéticos del Moncayo, S.A.                    Spain            Energy         60.00        60.00     Ernst & Young       F
Sistemas Energéticos El Centenar, S.A.U.                  Spain            Energy         80.00          -             -             F
Sistemas Energéticos El Saucito, S.A.U.                   Spain            Energy         80.00          -             -             F
Sistemas Energéticos Gomera, S.A.                         Spain            Energy         80.00          -             -             F
Sistemas Energéticos La Higuera, S.A.                     Spain            Energy         52.73        52.73     Ernst & Young       F
Sistemas Energéticos La Linera, S.A.                      Spain            Energy         80.00        80.00     Ernst & Young       F
Sistemas Energéticos La Muela, S.A.                       Spain            Energy         40.00        40.00     Ernst & Young       F
Sistemas Energéticos La Retuerta, S.AU.                   Spain            Energy         80.00          -             -             F
Sistemas Energéticos La Tallisca, S.A.U.                  Spain            Energy         80.00          -             -             F
Sistemas Energéticos La Torrecilla, S.A.                  Spain            Energy         80.00        80.00     Ernst & Young       F




 (*) The consolidation method is detailed as follows:
     F: Full Consolidation
     E: Integration by the Equity Method
     P: Proportional Consolidation
 (**) Formerly Energías Renovables de Tambre, S.A.

                            142 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                       Proportion of direct
                                                                                      or indirect ownership
                     Company                           Location    Line of business   12.31.10     12.31.09     Auditor       Method (*)
Sistemas Energéticos Las Cabezas, S.A.U.                Spain          Energy          80.00          -               -           F
Sistemas Energéticos Los Lirios, S.A.                   Spain          Energy          80.00          -               -           F
Sistemas Energéticos Majal Alto, S.A.U.                 Spain          Energy          80.00          -               -           F
Sistemas Energéticos Mas Garullo, S.A.                  Spain          Energy          40.80        40.80     Ernst & Young       F
Sistemas Energéticos Nacimiento, S.A.                   Spain          Energy          80.00        80.00     Ernst & Young       F
Sistemas Energéticos Tacica de Plata, S.A.              Spain          Energy          80.00        80.00     Ernst & Young       F
Sistemas Energéticos Torralba, S.A.                     Spain          Energy          48.00        48.00     Ernst & Young       F
Sistemas Energéticos Valdefuentes, S.A.                 Spain          Energy          80.00          -               -           F
Sistemes Energetics Conesa II, S.A.                     Spain          Energy          80.00          -               -           F
Sistemes Energetics Savalla del Comtat, S.A.            Spain          Energy          80.00          -               -           F
Sociedad Gestora Parques Eólicos Andalucía, S.A.        Spain          Energy          44.00        44.00     Ernst & Young       F
Somozas Energías y Recursos Medioambientales,
                                                        Spain          Energy          72.00        72.00     Ernst & Young       F
S.A. (SOERMASA)
Sotavento Galicia, S.A.                                 Spain          Energy          6.40         6.40              -           E
Vientos de Castilla y León, S.A.                        Spain          Energy          45.60        45,60             -           P
Iberdrola Renovables Deutschland, Gmbh                 Germany         Energy          80.00        80.00     Ernst & Young       F
Iberdrola Renovables Offshore Deutschland,
                                                       Germany         Energy          80.00          -       Ernst & Young       F
Gmbh
Windpark Julicher Land                                 Germany         Energy          80.00        80.00     Ernst & Young       F
Hazelwood Finance LP                                   Australia       Holding         10.04        10.04     Ernst & Young       -
ScottishPower Hazelwood, Pty. Ltd.                     Australia       Holding         80.00        80.00     Ernst & Young       F
Energias Renováveis do Brasil, S.A.                     Brazil         Energy          80.00        80.00     Ernst & Young       F
Iberdrola Energias Renováveis do Brasil, S.A.           Brazil         Energy          80.00        80.00             -           F
Iberdrola Renewables Bulgaria, EOOD                    Bulgaria        Energy          80.00        80.00             -           F
Iberdrola Renewables Canada, Ltd.                      Canada          Holding         80.00        80.00             -           F
Ousaúhing Raisner, A.S.                                Estonia         Energy          52.00        52.00             -           F
Energie Rose des Vents, SAS                             France         Energy          40.80        40.80           Other         F
Energie Eolienne Fitou, SAS                             France         Energy          80.00        80.00           Other         F
Eolia Mer du Nord, SAS                                  France         Energy          80.00        80.00           KPMG          F
Eoliennes de Pleugriffet, SAS                           France         Energy          39.20        39.20           Other         P
Ferme Eolienne de Welling, SAS                          France         Energy          39.20        39.20     Ernst & Young       P
Foye Energies, SAS                                      France         Energy          56.00        56.00           Other         F
Haute Marne Energies, SAS                               France         Energy          40.80        40.80     Ernst & Young       F
Iberdrola Renovables France, SAS                        France         Energy          80.00        80.00     Ernst & Young       F
Jazeneuil Energies, SAS                                 France         Energy          56.00        56.00           Other         F
La Rose des Vents Lorrains, SAS                         France         Energy          40.80        40.80           Other         F
Le Moulins de la Somme, SARL                            France         Energy          40.00        40.00             -           P
Pamproux Energies, SAS                                  France         Energy          56.00        56.00           Other         F
 Perfect Wind, SAS                                      France         Energy          80.00        80.00           Other         F
Societe d’explotacion du Parc Eolien Talizat
                                                        France         Energy          39.20        39.20       Deloitte          P
Rezentieres II, SAS




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                              143
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                           Proportion of direct
                                                                                          or indirect ownership
                         Company                        Location       Line of business   12.31.10     12.31.09     Auditor       Method (*)
Sefeosc, SAS                                             France             Energy         39.20        39.20     Ernst & Young       P
Teillay Energies, SAS                                    France             Energy         56.00        56.00        Other            F
Parc Eolien les Landes du Tertre, SAS                    France             Energy           -          80.00        Other            -
C. Rokas Industrial Commercial Company, S.A.             Greece             Energy         80.00        80.00     Ernst & Young       F
Energiaki Alogorachis, Anonimi Eteria                    Greece             Energy         80.00        80.00     Ernst & Young       F
PPC Renewables Rokas, S.A.                               Greece             Energy         40.80        40.80     Ernst & Young       F
Rokas Aeoliki Achladopotopos, S.A.                       Greece             Energy         79.79        79.50     Ernst & Young       F
Rokas Aeoliki Viotia, S.A.                               Greece             Energy         79.99        79.99     Ernst & Young       F
Rokas Aeoliki Cyrus, Ltd.                                Greece             Energy         60.00        60.00     Ernst & Young       F
Rokas Aeoliki Evia, S.A.                                 Greece             Energy         79.70        79.30     Ernst & Young       F
Rokas Aeoliki Komito, S.A.                               Greece             Energy         79.99        79.99     Ernst & Young       F
Rokas Aeoliki Kozani I, Ltd.                             Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Kozani II, Ltd.                            Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Kriti, S.A.                                Greece             Energy         79.89        79.70     Ernst & Young       F
Rokas Aeoliki Macedonia I, Ltd.                          Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Macedonia II, Ltd.                         Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Macedonia III, Ltd.                        Greece             Energy           -          80.00     Ernst & Young       -
Rokas Aeoliki Peloponisos I, Ltd.                        Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Peloponisos II, Ltd.                       Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Sterea Ellas I, Ltd.                       Greece             Energy           -          80.00     Ernst & Young       -
Rokas Aeoliki Thraki II, S.A.                            Greece             Energy         79.69        79.27     Ernst & Young       F
Rokas Aeoliki Thraki III, S.A.                           Greece             Energy         79.79        79.50     Ernst & Young       F
Rokas Aeoliki Thraki, S.A.                               Greece             Energy         79.66        79.20     Ernst & Young       F
Rokas Aeoliki Thessalia I, S.A.                          Greece             Energy         79.79        79.50     Ernst & Young       F
Rokas Aeoliki Thessalia II, S.A.                         Greece             Energy           -          79.50     Ernst & Young       -
Rokas Aeoliki Vorios Ellas I, Ltd.                       Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Vorios Ellas II, Ltd.                      Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Aeoliki Zarakes, S.A.                              Greece             Energy         79.70        79.30     Ernst & Young       F
Rokas Aeoliki, S.A.                                      Greece             Energy         79.68        79.20     Ernst & Young       F
Rokas Aeolos, Ltd.                                       Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Construction, S.A.                                 Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Energy, S.A.                                       Greece             Energy         79.90        79.71     Ernst & Young       F
Rokas Hidroelectric I, Ltd.                              Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Hidroelectric II, Ltd.                             Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Hidroelectric III, Ltd.                            Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Iliaki I, S.A.                                     Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Iliaki II, Ltd.                                    Greece             Energy         80.00        80.00     Ernst & Young       F
Rokas Iliaki III, S.A.                                   Greece             Energy         80.00        80.00     Ernst & Young       F
Iberdrola Renovables Magyarorszag Megujulo              Hungary             Energy         60.00        80.00     Ernst & Young       F
Kaptar Széleromu, KFT                                   Hungary             Energy         60.00        80.00     Ernst & Young       F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                             144 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                            Proportion of direct
                                                                                           or indirect ownership
                     Company                             Location       Line of business   12.31.10     12.31.09     Auditor       Method (*)
Mistral Energetika Villamosenergia-Termelo, KFT          Hungary            Energy          60.00        80.00     Ernst & Young       F
Vento Energetika Villamosenergia-Termelo, KFT            Hungary            Energy          60.00        80.00     Ernst & Young       F
Eólica Lucana, S.R.L.                                      Italy            Energy          80.00        80.00           -             F
Iberdrola Renovables Italia, S.p.A.                        Italy            Energy          80.00        80.00           -             F
Societa Energie Rinnovabili, S.p.A.                        Italy            Energy          39.92        39.92     Ernst & Young       P
Societa Energie Rinnovabili, S.p.A.                        Italy            Energy          39.92        39.92     Ernst & Young       P
Iberdrola Renewables Latvija, SIA                         Latvia            Energy          80.00        80.00           -             F
BII NEEStipa Energia Eólica, S.A. de C.V.                 Mexico            Energy          80.00          -       Ernst & Young       F
Energías Renovables Venta III, S.A. de C.V.               Mexico            Energy          80.00        80.00           -             F
Iberdrola Renovables México, S.A. de C.V.                 Mexico            Energy          80.00        80.00     Ernst & Young       F
Parqués Ecológicos de México, S.A. de C.V.                Mexico            Energy          80.00        80.00     Ernst & Young       F
Servicios Operación Eoloeléctrica de México, S.A.
                                                          Mexico           Services         79.99        79.99     Ernst & Young       F
de C.V.
Elektrownie Wiatrowe Podkarpacia, SP ZOO                  Poland            Energy          60.00        80.00           -             F
Energia Wiatrowa Karscino S.P. ZOO EWK                    Poland            Energy          60.00        80.00     Ernst & Young       F
Iberdrola Renewable Polska, SP ZOO                        Poland            Energy          60.00        80.00     Ernst & Young       F
Aeolia Produçao de Energía, S.A.                         Portugal           Energy          62.40        62.40     Ernst & Young       F
Eonergi Energía Eólica, S.A.                             Portugal           Energy          80.00        80.00     Ernst & Young       F
Iberdrola Renewable Portugal, S.A.                       Portugal           Energy          80.00        80.00     Ernst & Young       F
P.E. Serra Do Alvao, S.A.                                Portugal           Energy          80.00        80.00     Ernst & Young       F
Celtpower Limited                                      United Kingdom       Energy          40.00        40.00       Deloitte          P
Coldham Windfarm Limited                               United Kingdom       Energy          64.00        64.00     Ernst & Young       F
East Anglia Offshore Wind, Ltd.                        United Kingdom       Energy          40.00          -       Ernst & Young       P
East Anglia One Ltd.                                   United Kingdom       Energy          40.00          -             -             F
Mark Hill Power Limited                                United Kingdom       Energy            -          80.00           -             -
Morecambe Wind Limited                                 United Kingdom       Energy          26.66        26.66           -             P
ScotPower Limited                                      United Kingdom       Energy            -          80.00           -             -
ScotPower UK                                           United Kingdom       Energy          80.00        80.00     Ernst & Young       F
Scottish Power Renewable UK, Ltd.                      United Kingdom       Energy          80.00        80.00           -             F
Scottish Power Renewables Woods Ltd.                   United Kingdom       Energy          80.00          -             -             F
Scottish Power Renewable Energy Holdings Ltd.          United Kingdom       Holding         80.00        80.00     Ernst & Young       F
Scottish Power Renewable Energy Limited                United Kingdom       Holding         80.00        80.00     Ernst & Young       F
Iberdrola Renewables Romania, SRL                        Rumanía            Energy          80.00        80.00           -             F
Iberdrola Yenilenebilir Enerji                            Turkey            Energy          80.00        80.00           -             F
Aeolus Wind Power I, LLC                                   USA              Holding         44.00        44.00     Ernst & Young       F
Aeolus Wind Power II, LLC                                  USA              Holding         60.00        60.00     Ernst & Young       F
Aeolus Wind Power III, LLC                                 USA              Holding         60.00        60.00     Ernst & Young       F
Aeolus Wind Power IV, LLC                                  USA              Holding         60.00        60.00     Ernst & Young       F
Aeolus Wind Power V, LLC                                   USA              Holding         85.00        85.00     Ernst & Young       F
Aeolus Wind Power VI, LLC                                  USA              Holding         85.00          -             -             F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                                   145
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                        Proportion of direct
                                                                                       or indirect ownership
                       Company                          Location    Line of business   12.31.10     12.31.09     Auditor       Method (*)
Atlantic Renewable Projects II, LLC                       USA            Holding        60.00        60.00     Ernst & Young       F
Atlantic Renewable Projects, LLC                          USA            Holding        60.00        60.00     Ernst & Young       F
Atlantic Renewables Energy Corporation                    USA            Holding        80.00        80.00     Ernst & Young       F
Atlantic Wind LLC                                         USA            Holding        80.00        80.00     Ernst & Young       F
Aurora Solar LLC                                          USA            Energy         80.00        80.00     Ernst & Young       F
Baca Wind, LLC                                            USA            Energy         40.00        40.00     Ernst & Young       P
Barton Chapel Wind, LLC                                   USA            Energy         80.00        80.00     Ernst & Young       F
Barton Windpower, LLC                                     USA            Energy         80.00        80.00     Ernst & Young       F
Benson Wind Farm, LLC                                     USA            Energy         80.00        80.00     Ernst & Young       F
Big Horn II Wind Project LLC                              USA            Energy         80.00        80.00     Ernst & Young       F
Big Horn Wind Project LLC                                 USA            Energy         60.00        60.00     Ernst & Young       F
Blue Creek Wind Farm, LLC                                 USA            Energy         80.00          -       Ernst & Young       F
Blue Northem, LLC                                         USA            Energy         80.00        80.00     Ernst & Young       F
Buffalo Ridge I, LLC                                      USA            Energy         85.00        85.00     Ernst & Young       F
Buffalo Ridge II, LLC                                     USA            Energy         85.00        85.00     Ernst & Young       F
Buffalo Ridge III, LLC                                    USA            Energy         80.00        80.00     Ernst & Young       F
Caledonia Energy Partners, LLC                            USA            Energy         80.00        80.00     Ernst & Young       F
Casselman Wind Power                                      USA            Energy         60.00        60.00     Ernst & Young       F
Cep Energy Services, LLC                                  USA            Energy           -          80.00           -             -
Colorado Green Holdings, LLC                              USA            Holding        40.00        40.00         PWC             F
Colorado Wind Ventures, LLC                               USA            Energy         40.00        40.00         PWC             F
Columbia Community Windpower, LLC                         USA            Energy         80.00        80.00     Ernst & Young       F
Conestoga Winds, LLC                                      USA            Energy         80.00        80.00     Ernst & Young       F
Copper Crossing Solar, LLC                                USA            Energy         80.00          -       Ernst & Young       F
County Line Wind, LLC                                     USA            Energy         80.00        80.00     Ernst & Young       F
Deerfields Wind, LLC                                      USA            Energy         80.00        80.00     Ernst & Young       F
Dillon Wind, LLC                                          USA            Energy         60.00        60.00     Ernst & Young       F
Dry Lake Wind Power, LLC                                  USA            Energy         80.00        80.00     Ernst & Young       F
Dry Lake Wind Power II, LLC                               USA            Energy         80.00          -       Ernst & Young       F
E.O. Resources, LLC                                       USA            Energy         80.00        80.00     Ernst & Young       F
Elk River WindFarm, LLC                                   USA            Energy         60.00        60.00     Ernst & Young       F
Elm Creek Wind II, LLC                                    USA            Energy         85.00        85.00     Ernst & Young       F
Elm Creek Wind, LLC                                       USA            Energy         85.00        85.00     Ernst & Young       F
Enstor Sundance Storage and Transportation,
                                                          USA            Energy         80.00        80.00     Ernst & Young       F
LLC
Enstor Columbia Gas Storage, LLC                          USA            Energy         80.00        80.00     Ernst & Young       F
Ernstor Grama Ridge Storage and
                                                          USA            Energy         80.00        80.00     Ernst & Young       F
Transportation, LLC
Enstor Houston Hub Storage and Transportation,
                                                          USA            Energy         80.00        80.00     Ernst & Young       F
Ltd.
Enstor Inc.                                               USA            Holding        80.00        80.00     Ernst & Young       F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                          146 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                      Proportion of direct
                                                                                     or indirect ownership
                       Company                         Location   Line of business   12.31.10     12.31.09     Auditor       Method (*)
Enstor Katy Storage and Transportation, LP               USA          Energy          80.00        80.00     Ernst & Young       F
Enstor Louisiana, LLC                                    USA          Energy          80.00        80.00     Ernst & Young       F
Enstor Operating Company, LLC                            USA          Holding         80.00        80.00     Ernst & Young       F
Enstor Waha Storage and Transportation, LP               USA          Energy          80.00        80.00     Ernst & Young       F
Farmers City Wind, LLC                                   USA          Energy          80.00        80.00     Ernst & Young       F
Flat Rock Windpower, LLC                                 USA          Energy          30.00        30.00     Ernst & Young       P
Flat Rock Windpower II, LLC                              USA          Energy          30.00        30.00     Ernst & Young       P
Flying Cloud Power Partners, LLC                         USA          Energy          44.00        44.00     Ernst & Young       F
Freebird Assets, Inc.                                    USA          Holding         80.00        80.00     Ernst & Young       F
Freebird Gas Storage, LLC                                USA          Energy          80.00        80.00     Ernst & Young       F
Gemine Capital, LLC                                      USA          Energy          80.00        80.00     Ernst & Young       F
Goodland Wind, LLC                                       USA          Energy          80.00        80.00     Ernst & Young       F
Groton Wind, LLC                                         USA          Energy          80.00        80.00     Ernst & Young       F
Hamlin Wind, LLC                                         USA          Energy          80.00        80.00     Ernst & Young       F
Hardscrabble Wind Power, LLC                             USA          Energy          80.00        80.00     Ernst & Young       F
Hay Canyon Wind, LLC                                     USA          Holding         80.00        80.00     Ernst & Young       F
Hays Wind, LLC                                           USA          Energy          80.00        80.00     Ernst & Young       F
Hazelwoods Australia, Inc.                               USA          Holding         80.00        80.00     Ernst & Young       F
Hazelwoods Ventures, Inc.                                USA          Holding         80.00        80.00     Ernst & Young       F
Heartland Wind, LLC                                      USA          Holding         80.00        80.00     Ernst & Young       F
Helix Wind Power Facility, LLC                           USA          Energy          80.00          -       Ernst & Young       F
Houck Mountain Wind, LLC                                 USA          Energy          80.00        80.00     Ernst & Young       F
Iberdrola Renewables Energies USA Limited                USA          Energy            -          80.00           -             -
Iberdrola Renewables Holding, Inc.                       USA          Holding         80.00        80.00     Ernst & Young       F
Iberdrola Renewables, Inc.                               USA          Holding         80.00        80.00     Ernst & Young       F
Jordanville Wind, LLC                                    USA          Energy          80.00        80.00     Ernst & Young       F
Juniper Canyon Wind Power II, LLC                        USA          Energy          80.00        80.00     Ernst & Young       F
Juniper Canyon Wind Power, LLC                           USA          Energy          85.00        80.00     Ernst & Young       F
Kimberly Run Windpower, LLC                              USA          Energy          60.00        60.00     Ernst & Young       F
Klamath Energy, LLC                                      USA          Energy          80.00        80.00     Ernst & Young       F
Klamath Generation, LLC                                  USA          Energy          80.00        80.00     Ernst & Young       F
Klondike Wind Power II, LLC                              USA          Energy          85.00        85.00     Ernst & Young       F
Klondike Wind Power III, LLC                             USA          Energy          60.00        60.00     Ernst & Young       F
Klondike Wind Power, LLC                                 USA          Energy          44.00        44.00     Ernst & Young       P
Lakeview Cogeneration, LLC                               USA          Energy          80.00        80.00     Ernst & Young       F
Land Holding Wind, LLC                                   USA          Energy          80.00        80.00     Ernst & Young       F
Laramie County Wind, LLC                                 USA          Energy          80.00        80.00     Ernst & Young       F
Leaning Juniper Wind Power II, LLC                       USA          Energy          85.00        80.00     Ernst & Young       F
Lempter Wind, LLC                                        USA          Energy          85.00        85.00     Ernst & Young       F
Locust Ridge II, LLC                                     USA          Energy          80.00        80.00     Ernst & Young       F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                             147
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                        Proportion of direct
                                                                                       or indirect ownership
                      Company                           Location    Line of business   12.31.10     12.31.09     Auditor       Method (*)
Locust Ridge Wind Farms, LLC                              USA            Energy         37.04        37.04     Ernst & Young       F
Manzana Wind, LLC                                         USA            Energy         80.00        80.00     Ernst & Young       F
Matton Wind Farm, LLC                                     USA            Energy         80.00        80.00     Ernst & Young       F
Midland Wind, LLC                                         USA            Energy         80.00        80.00     Ernst & Young       F
Midwest Renewable Energy Proyect II, LLC                  USA            Holding        80.00        80.00     Ernst & Young       F
Minndakota Wind, LLC                                      USA            Energy         60.00        60.00     Ernst & Young       F
Montague Wind Power Facility, LLC                         USA            Energy         80.00          -       Ernst & Young       F
Moraine Wind II, LLC                                      USA            Energy         80.00        80.00     Ernst & Young       F
Moraine Wind, LLC                                         USA            Energy         44.00        44.00     Ernst & Young       F
Mount Pleasant Wind, LLC                                  USA            Energy         80.00        40.00     Ernst & Young       F
Mountain View Power Partners III, LLC                     USA            Energy         44.00        44.00     Ernst & Young       F
New England Wind, LLC                                     USA            Energy         80.00        80.00     Ernst & Young       F
New Harvest Wind Project, LLC                             USA            Energy         80.00        80.00     Ernst & Young       F
Northem Iowa WindPower II, LLC                            USA            Energy         60.00        60.00     Ernst & Young       F
Nrh Power Technologies Fund I, L.P.                       USA            Energy         15.20        15.20     Ernst & Young       -
Otter Creek Wind Farm, LLC                                USA            Energy         80.00          -       Ernst & Young       F
Pacific Harbor Capital, Inc.                              USA             Other         80.00        80.00     Ernst & Young       F
Pacific Klamath Energy, Inc.                              USA            Holding        80.00        80.00     Ernst & Young       F
Pacific Solar Investments, Inc.                           USA            Energy         80.00        80.00     Ernst & Young       F
Pacific Wind Development, LLC                             USA            Energy         80.00        80.00     Ernst & Young       F
Pebble Springs Wind, LLC                                  USA            Energy         80.00        80.00     Ernst & Young       F
Peñascal Wind Proyect, LLC                                USA            Energy         80.00        80.00     Ernst & Young       F
Peñascal II Wind Proyect, LLC                             USA            Energy         80.00        80.00     Ernst & Young       F
Phoenix Wind Power, LLC                                   USA            Energy         80.00        80.00     Ernst & Young       F
PPM Colorado Wind Ventures, Inc.                          USA            Energy         80.00        80.00     Ernst & Young       F
PPM Roaring Brook, LLC                                    USA            Energy         80.00        80.00     Ernst & Young       F
PPM Technical Services, LLC                               USA            Services       80.00        80.00     Ernst & Young       F
PPM Wind Energy, LLC                                      USA            Holding        80.00        80.00     Ernst & Young       F
PPM Wind Management, LLC                                  USA            Holding        80.00        80.00     Ernst & Young       F
Providence Heights Wind, LLC                              USA            Energy         85.00        85.00     Ernst & Young       F
Rugby Wind, LLC                                           USA            Energy         80.00        80.00     Ernst & Young       F
San Luis Solar, LLC                                       USA            Energy         80.00          -       Ernst & Young       F
Shiloh I Wind Project, LLC                                USA            Energy         60.00        60.00     Ernst & Young       F
ScottishPower Financial Services, Inc.                    USA            Holding        80.00        80.00     Ernst & Young       F
ScottishPower Group Holdings Company                      USA            Holding        80.00        80.00     Ernst & Young       F
ScottishPower International Group Holdings
                                                          USA            Energy         80.00        80.00     Ernst & Young       F
Company
South Chestnut, LLC                                       USA            Energy         80.00          -       Ernst & Young       F
Spring Creek Wind, LLC                                    USA            Energy         80.00        80.00     Ernst & Young       F
Start Point Wind Project, LLC                             USA            Energy         80.00        80.00     Ernst & Young       F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                          148 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                      Proportion of direct
                                                                                     or indirect ownership
                      Company                          Location   Line of business   12.31.10     12.31.09     Auditor       Method (*)
Streator Cayuga Ridge Wind Power                         USA          Energy          80.00        80.00     Ernst & Young       F
Streator Deer Run Wind Farmer, LLC                       USA          Energy          80.00          -       Ernst & Young       F
Trimont Wind I, LLC                                      USA          Energy          60.00        60.00     Ernst & Young       F
Tule Wind, LLC                                           USA          Energy          80.00        80.00     Ernst & Young       F
Twin Buttes Wind, LLC                                    USA          Holding         60.00        60.00     Ernst & Young       F
Union County Wind, LLC                                   USA          Energy          80.00        80.00     Ernst & Young       F
Wauneta Wind, LLC                                        USA          Energy          80.00        80.00     Ernst & Young       F
West Valley Leasing Company, LLC                         USA          Energy          80.00        80.00     Ernst & Young       F
Wilder Wind, LLC                                         USA          Energy          80.00        80.00     Ernst & Young       F
Wind Ventures Holdings, LLC                              USA          Energy            -          80.00            -            -
Wildhorse Mountain Wind, LLC                             USA          Energy          80.00        80.00     Ernst & Young       F
Winnebago Windpower, II, LLC                             USA          Energy          80.00        80.00     Ernst & Young       F
Winnebago Windpower, LLC                                 USA          Energy          85.00        85.00     Ernst & Young       F
IBERDROLA INGENIERÍA Y CONSTRUCCIÓN
SUBGROUP
Iberdrola Ingeniería y Construcción, S.A.U.             Spain       Engineering      100.00       100.00           PWC           F
Adicora Servicios de Ingeniería, S.L.                   Spain       Engineering      100.00       100.00            -            F
Empresarios Agrupados Internacional, S.A.               Spain       Engineering       25.46        25.46           PWC           E
Empresarios Agrupados, A.I.E.                           Spain       Engineering       25.46        25.46           PWC           E
Ghesa Ingeniería y Tecnología, S.A.                     Spain       Engineering       41.18        41.18           PWC           E
Iberdrola Ingeniería de Explotación, S.A.U.             Spain       Engineering      100.00       100.00            -            F
Ingeniería, Estudios y Construcción, S.A.               Spain       Engineering      100.00       100.00           PWC           F
Keytech Sistemas Integrales, S.A.                       Spain       Engineering       37.00        37.00            -            E
Iberdrola Engineering and Construction
                                                       Germany      Engineering      100.00       100.00            -            F
Germany Gmbh
Iberdrola Construçao e Serviços, Ltda.                  Brazil      Engineering       99.99        99.99            -            F
Iberdrola Consultoría e Serviços do Brasil, Ltda.       Brazil      Engineering      100.00       100.00            -            F
Iberdrola Engineering and Construction Bulgaria        Bulgaria       Inactive       100.00       100.00            -            -
Iberdrola Engineering and Construction Middle
                                                        Dubai         Inactive       100.00       100.00            -            -
East, Ltd.
Iberinco Hellas Techniki kai Kataskevastiki EPE        Greece       Engineering      100.00       100.00            -            F
Iberdrola Magyarország Mernoki es Epitö
                                                       Hungary      Engineering      100.00       100.00           PWC           F
Korlatolf
Iberdrola Ingegnieria e Construzioni Italia, SRL         Italy      Engineering      100.00       100.00            -            F
Iberdrola Engineering and Construction Kenya
                                                        Kenya         Inactive       100.00       100.00            -            -
International
Enermón, S.A. de C.V.                                  Mexico       Engineering       99.99        99.99           PWC           F
Iberdrola Ingeniería y Construcción México, S.A.
                                                       Mexico       Engineering       99.99        99.99           PWC           F
de C.V.
Iberservicios, S.A. de C.V.                            Mexico       Engineering      100.00       100.00           PWC           F
Iberdrola Engineering and Construction Poland,
                                                       Poland       Engineering      100.00       100.00           PWC           F
SP




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                             149
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                            Proportion of direct
                                                                                           or indirect ownership
                       Company                           Location       Line of business   12.31.10     12.31.09     Auditor       Method (*)
Iberdrola Engenhaaria e Construçao Portugal,
                                                         Portugal         Engineering      100.00          -             -             F
Unipessoal Lda.
Iberdrola Engeneering and Construction
                                                       United Kingdom     Engineering      100.00       100.00         PWC             F
Networks, Ltd
Iberdrola Engineering and Construction UK
                                                       United Kingdom     Engineering      100.00       100.00         PWC             F
Limited
Iberdrola Engineering and Construction Ro, SRL.          Rumanía          Engineering      100.00       100.00           -             F
Iberdrola Inzhiniring I Stroiteistvo Limited liable
                                                          Russia          Engineering      100.00       100.00         PWC             F
Company
Iberdrola Engineering and Construction US, Inc.            USA            Engineering      100.00       100.00           -             F
IEC California, Inc.                                       USA            Engineering      100.00          -             -             F
Iberdrola Ingeniería y Construcción Venezuela, S.A.     Venezuela         Engineering       99.81        99.81         PWC             F
SCOTTISH POWER SUBGROUP
Scottish Power Limited                                 United Kingdom       Holding        100.00       100.00     Ernst & Young       F
Iberdrola Canada Energy Services Limited                  Canada            Energy         100.00       100.00     Ernst & Young       F
ScottishPower Storage Holdings, Limited                   Canada            Energy         100.00          -             -             F
                                                         Cayman
Damhead Creek Finance Limited                                               Inactive       100.00       100.00           -             F
                                                         Islands
Dornoch International Insurance Limited                   Ireland          Insurance       100.00       100.00     Ernst & Young       F
ScottishPower Insurance Limited                        Man Islands         Insurance       100.00       100.00     Ernst & Young       F
Caledonian Gas Limited                                 United Kingdom       Inactive       100.00       100.00           -             F
Camjar Plc                                             United Kingdom       Inactive       100.00       100.00           -             F
Cityscape Internet Services Ltd.                       United Kingdom       Holding           -         100.00           -             -
Cityscape Ltd.                                         United Kingdom       Holding           -         100.00           -             -
Clubcall Telephone Services Limited                    United Kingdom       Inactive       100.00       100.00           -             F
Clubline Services Limited                              United Kingdom       Inactive       100.00       100.00           -             F
Copperteam Ltd.                                        United Kingdom        Other            -         100.00           -             -
Demon Internet Limited                                 United Kingdom       Inactive       100.00       100.00           -             F
Dispatch Publishing Ltd.                               United Kingdom       Holding           -         100.00           -             -
Emeral Power Generation Limited                        United Kingdom       Inactive       100.00       100.00           -             F
Genscot Limited                                        United Kingdom       Inactive       100.00       100.00     Ernst & Young       F
Lancastrian Holdings Ltd.                              United Kingdom       Holding           -         100.00           -             -
Locomotive Software Developments Ltd.                  United Kingdom       Holding           -         100.00           -             -
Locomotive Software Group Ltd.                         United Kingdom       Holding           -         100.00           -             -
Manweb Contracting Services Limited                    United Kingdom       Inactive       100.00       100.00           -             F
Manweb Energy Consultants Limited                      United Kingdom       Inactive       100.00       100.00           -             F
Manweb Gas Limited                                     United Kingdom       Inactive       100.00       100.00           -             F
Manweb Generation Holdings Limited                     United Kingdom       Inactive       100.00       100.00           -             F
Manweb Holdings Limited                                United Kingdom       Inactive       100.00       100.00           -             F
Manweb Limited                                         United Kingdom       Inactive       100.00       100.00           -             F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                           150 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                                Proportion of direct
                                                                                               or indirect ownership
                     Company                             Location        Line of business      12.31.10     12.31.09     Auditor       Method (*)
Manweb Nominees Limited                                United Kingdom         Inactive         100.00       100.00            -            F
Manweb Pensions Trustee Limited                        United Kingdom         Inactive         100.00       100.00            -            F
Manweb Services Limited                                United Kingdom         Energy           100.00       100.00     Ernst & Young       F
Manweb Share Scheme Trustees Limited                   United Kingdom         Inactive         100.00       100.00            -            F
                                                                         Telecommunica-
Megafone (UK) Ltd.                                     United Kingdom                             -         100.00            -            -
                                                                               tions
N.E.S.T. Markers Limited                               United Kingdom         Energy            50.00        50.00           PwC           E
NGET/SPT Upgrades Limited                              United Kingdom         Energy            50.00          -              -            E
Psychic Companions Ltd.                                United Kingdom         Holding             -         100.00            -            -
Scotash Limited                                        United Kingdom          Other            50.00        50.00     Ernst & Young       E
Scottish Power Trustees Limited                        United Kingdom         Inactive         100.00       100.00            -            F
Scottish Power UK Group Limited                        United Kingdom         Holding          100.00       100.00     Ernst & Young       F
Scottish Power UK Holdings Limited                     United Kingdom         Holding          100.00       100.00     Ernst & Young       F
Scottish Power UK Plc                                  United Kingdom         Holding          100.00       100.00     Ernst & Young       F
ScottishPower (DCL) Limited, Subgroup                  United Kingdom         Energy           100.00       100.00     Ernst & Young       F
ScottishPower (DCOL) Limited                           United Kingdom   Operational services   100.00       100.00     Ernst & Young       F
ScottishPower (SCPL) Limited                           United Kingdom         Energy           100.00       100.00     Ernst & Young       F
ScottishPower (SOCL) Limited                           United Kingdom   Operational services   100.00       100.00     Ernst & Young       F
ScottishPower Energy Management (Agency)
                                                       United Kingdom        Services          100.00       100.00     Ernst & Young       F
Limited
ScottishPower Energy Management, Limited               United Kingdom         Energy           100.00       100.00     Ernst & Young       F
ScottishPower Energy Retail Limited                    United Kingdom         Energy           100.00       100.00     Ernst & Young       F
ScottishPower Generation Limited                       United Kingdom         Energy           100.00       100.00     Ernst & Young       F
ScottishPower Investments Limited                      United Kingdom         Holding          100.00       100.00     Ernst & Young       F
ScottishPower NA 1 Limited                             United Kingdom         Holding          100.00       100.00     Ernst & Young       F
ScottishPower NA 2 Limited                             United Kingdom         Holding          100.00       100.00     Ernst & Young       F
ScottishPower Overseas Holdings Limited                United Kingdom         Holding          100.00       100.00     Ernst & Young       F
ScottishPower Share Scheme Trustees Limited            United Kingdom         Inactive         100.00       100.00            -            F
ScottishPower Sharesave Trustees Limited               United Kingdom         Inactive         100.00       100.00            -            F
ScottishPower Telecommunications Ltd.                  United Kingdom         Holding             -         100.00            -            -
SMW Limited                                            United Kingdom         Energy           100.00       100.00     Ernst & Young       F
SP Dataserve Limited                                   United Kingdom   Data management        100.00       100.00     Ernst & Young       F
SP Distribution Limited                                United Kingdom         Energy           100.00       100.00     Ernst & Young       F
SP Finance                                             United Kingdom         Inactive         100.00       100.00            -            F
SP Finance 2 Limited                                   United Kingdom        Finanzes          100.00       100.00     Ernst & Young       F
SP Finance 4 Limited                                   United Kingdom         Holding          100.00       100.00     Ernst & Young       F
SP Finance 5 Limited                                   United Kingdom         Holding          100.00       100.00     Ernst & Young       F
SP Gas Limited                                         United Kingdom         Inactive         100.00       100.00     Ernst & Young       F
SP Gas Transportation Cockenzie Limited                United Kingdom         Inactive         100.00       100.00            -            F




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                                       151
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                                   Proportion of direct
                                                                                                  or indirect ownership
                      Company                            Location         Line of business        12.31.10     12.31.09     Auditor       Method (*)
SP Gas Transportation Hatfield Limited                 United Kingdom          Inactive           100.00       100.00           -             F
SP Manweb Plc                                          United Kingdom          Energy             100.00       100.00     Ernst & Young       F
SP Network Connections Limited                         United Kingdom   General Use Connections   100.00       100.00           -             F
SP Power Systems Limited                               United Kingdom   Assets management serv.   100.00       100.00     Ernst & Young       F
SP Transmission Limited                                United Kingdom          Energy             100.00       100.00     Ernst & Young       F
Spotlight Trading Ltd.                                 United Kingdom          Holding               -         100.00           -             -
SPPT Limited                                           United Kingdom          Inactive           100.00       100.00           -             F
Sterling Collection Limited                            United Kingdom          Inactive           100.00       100.00           -             F
Teledata (Holdings) Limited                            United Kingdom          Inactive           100.00       100.00           -             F
Teledata (Outsourcing) Limited                         United Kingdom          Inactive           100.00       100.00           -             F
Teledata Scotland Limited                              United Kingdom          Inactive           100.00       100.00           -             F
Telephone Information Services Plc                     United Kingdom          Inactive           100.00       100.00           -             F
Telephone International Media Holdings Limited         United Kingdom          Inactive           100.00       100.00           -             F
Telephone International Media Limited                  United Kingdom          Inactive           100.00       100.00           -             F
The CallCentre Service Limited                         United Kingdom          Inactive           100.00       100.00           -             F
The Information Service Limited                        United Kingdom          Inactive           100.00       100.00           -             F
The IP Systems Operation Ltd.                          United Kingdom          Holding               -         100.00           -             -
TIM Limited                                            United Kingdom          Inactive           100.00       100.00           -             F
Turnpike 1996 Ltd.                                     United Kingdom          Holding               -         100.00           -             -
Turnpike Ltd.                                          United Kingdom          Holding               -         100.00           -             -
Watermark Games Ltd.                                   United Kingdom          Holding               -         100.00           -             -
ScottishPower Finance (US), Inc.                           USA                 Finance            100.00       100.00     Ernst & Young       F
ScottishPower, Inc.                                        USA                 Inactive           100.00       100.00           -             F
IBERDROLA USA SUBGROUP
Iberdrola USA, Inc.                                        USA                 Holding            100.00       100.00         PWC             F
Berkshire Energy Resources                                 USA                 Holding               -         100.00           -             -
Carthage Energy, LLC                                       USA               Generation           100.00       100.00           -             F
Cayuga Energy, Inc.                                        USA                 Energy             100.00       100.00         PWC             F
Central Maine Power Company                                USA               Electricity          100.00       100.00         PWC             F
Chester SVC Partnership                                    USA               Electricity           50.00        50,00           -             P
CMP Group, Inc.                                            USA                 Holding            100.00       100.00         PWC             F
CNE Energy Services Group, Inc.                            USA                Services            100.00       100.00         PWC             F
CNE Peaking, LLC                                           USA                   Gas              100.00       100.00           -             F
CNE Power I, LLC                                           USA                 Energy             100.00       100.00           -             F
Connecticut Energy Corporation                             USA                 Holding               -         100.00           -             -
Connecticut Natural Gas Corporation                        USA                   Gas                 -         100.00           -             -
CTG Resources, Inc.                                        USA                 Holding               -         100.00           -             -
Connecticut Yankee Atomic Power Company                    USA               Electricity           6.00         6.00            -             E




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                          152 Annual Consolidated Financial Statements
INFORMATION RELATED TO IBERDROLA’S SUBSIDIARIES, MULTIGROUP COMPANIES, ASSOCIATES AND INVESTEES
                                                                                         Proportion of direct
                                                                                        or indirect ownership
                     Company                           Location    Line of business     12.31.10     12.31.09     Auditor   Method (*)
Energetix, Inc.                                          USA          Marketing         100.00       100.00           PWC       F
Iberdrola USA Enterprises, Inc.                          USA           Holding          100.00       100.00           PWC       F
Iberdrola USA Management Corporation                     USA           Services         100.00       100.00           PWC       F
Iberdrola USA Solutions, Inc.                            USA          Marketing         100.00       100.00           PWC       F
Iroquois Gas Transmission System LP                      USA             Gas             4.87         4.87             -        E
LNG Marketing Partners                                   USA           Holding          100.00       100.00           PWC       F
LNG Storage Partners                                     USA           Holding          100.00       100.00           PWC       F
Maine Electric Power Company, Inc.                       USA           Energy            78.28        78.28            -        F
Maine Natural Gas Corporation                            USA             Gas            100.00       100.00           PWC       F
Maine Power                                              USA          Marketing         100.00       100.00           PWC       F
Maine Yankee Atomic Power Company                        USA          Electricity        38.00        38.00            -        E
MaineCom Services                                        USA      Telecommunications    100.00       100.00           PWC       F
New Hampshire Gas Corporation                            USA             Gas            100.00       100.00           PWC       F
New York State Electric & Gas Corporation                USA      Electricity and Gas   100.00       100.00           PWC       F
NORVARCO                                                 USA           Holding          100.00       100.00            -        F
                                                                    Other lines of
Nth Power Technologies Fund                              USA                             7.90         7.90             -        E
                                                                      business
NYSEG Solutions, Inc.                                    USA          Marketing         100.00       100.00            -        F
PEI Power II, LLC                                        USA           Energy            50.10        50.10            -        F
RGS Energy Group, Inc.                                   USA           Holding          100.00       100.00           PWC       F
Rochester Gas and Electric Corporation                   USA      Electricity and Gas   100.00       100.00           PWC       F
Seneca Lake Storage, Inc.                                USA             Gas            100.00       100.00           PWC       F
South Glens Falls Energy, LLC                            USA           Energy            85.00        85.00            -        F
TEN Companies, Inc.                                      USA           Energy           100.00       100.00            -        F
TEN Transmission Company                                 USA             Gas            100.00       100.00            -        F
The Berkshire Gas Company                                USA             Gas               -         100.00            -        -
The Energy Network, Inc.                                 USA           Holding          100.00       100.00           PWC       F
                                                                    Other lines of
The Hartford Steam Company                               USA                            100.00       100.00            -        F
                                                                      business
The Southern Connecticut Gas Company                     USA             Gas               -         100.00            -        -
The Union Water Power Company                            USA           Services         100.00       100.00           PWC       F
Utility Shared Services Corporation                      USA           Services            -         100.00            -        -
Total Peaking Services, LLC                              USA             Gas            100.00       100.00            -        F
Vermon Yankee Nuclear Power Company                      USA          Electricity        7.50         7.50             -        E
Yankee Atomic Electric Company                           USA          Electricity        9.50         9.50             -        E




(*) The consolidation method is detailed as follows:
    F: Full Consolidation
    E: Integration by the Equity Method
    P: Proportional Consolidation


                                                                                                                153
                                                 / CONSOLIDATED FINANCIAL STATEMENTS




MOST REPRESENTATIVE GROUP COMPANIES AND ASOCIATED AND INVESTEES IN WHICH IBERDROLA HOLDS PROPORTION OF SHARE CAPITAL OF
MORE THAN 3%, CLASSIFIED AS UNRESTRICTED INVESTMENTS FOR SALE IN 2010 AND 2009:
                                                                                                         Proportion of direct or indirect ownership
                        Company                               Location           Line of business              12.31.10             12.31.09
Cartera Nuevo Santa Teresa                                     Spain                Real state                  22.22                22.22
Cartera Park, S.A.                                             Spain                 Energy                    100.00                100.00
Ciudad Real Aeropuertos, S.L.                                  Spain                 Services                    9.92                 9.92
Corporación Empresarial de Extremadura, S.A.                   Spain        Business Develope Activity          18.74                 18.74
Hidroeléctrica Española, S.L.U.                                Spain                 Inactive                  100.00                100.00
Hidrola I, S.L.U.                                              Spain                 Inactive                  100.00                100.00
Iberdrola Corporación, S.A.                                    Spain                 Services                  100.00                100.00
Iberdrola Infraestructuras y Servicios de Redes, S.A.          Spain          Telecommunications               100.00                100.00
Iberdrola Redes, S.A.                                          Spain          Telecommunications               100.00                100.00
Inkolan, A.I.E.                                                Spain                 Services                   14.28                20.00
Ocoval, A.I.E.                                                 Spain                 Services                   16.66                16.66
NNB Development Company                                       Belgium                Services                   50.00                50.00
Nugeneratiion Limited                                      United Kingdom            Services                   37.50                37.50
Iberdrola Generación Subgroup
Elcogás, S.A.                                                  Spain                 Energy                     11.96                11.96
Iberdrola Servicios Energéticos, S.A.U.                        Spain                 Services                  100.00                   -
Oficina Cambio de Suministrador, S.A.                          Spain                 Services                   20.00                18.20
Palencia 3 Investigación, Desarrollo y Explotación, S.L.       Spain                 Services                   37.00                   -
Tecnatom, S.A.                                                 Spain                 Services                   30.00                30.00
Iberdrola Energie Deutschland, Gmbh                           Germany                Services                  100.00                100.00
Iberdrola Energie France, S.A.S.                               France                Services                  100.00                100.00
Iberdrola Energía Italia, S.R.L.                                Italy                Services                  100.00                100.00
Iberdrola Energía Polska Spolka, Z.O.O.                        Poland                Energy                    100.00                100.00
Iberdrola Energie Ceska Republika, S.R.O.                  Csech Republic            Energy                    100.00                100.00
Iberdrola Energie Romania, S.R.L.                             Rumanía                Energy                    100.00                100.00
Energonuclear                                                 Rumanía                Energy                      6.20                 6.20
Iberdrola Energía Subgroup
Controladora LNG Manzanillo, S.A.                             Mexico                 Energy                     99.99                99.99
Energías de Portugal, S.A.                                    Portugal               Energy                      6.79                 9.08
Iberdrola Renovables Subgroup
Molinos de Linares, S.A.                                       Spain                 Energy                     25.42                25.42
Parque Eólico Carriles, S.L.U.                                 Spain                 Energy                     32.00                32.00
Parque Eólico Cerro Mingarrón, S.L.U.                          Spain                 Energy                     32.00                32.00
Parque Eólico Fuente Romana, S.L.U.                            Spain                 Energy                     32.00                32.00
Parque Eólico La Cava, S.L.U.                                  Spain                 Energy                     32.00                32.00
Parque Eólico Maraña, S.L.U.                                   Spain                 Energy                     32.00                32.00
Parque Eólico Montalvo, S.L.U.                                 Spain                 Energy                     32.00                32.00
Rioglass Photovoltaica, S.A.                                   Spain                 Energy                     19.60                19.60
Sogecam Industrial, S.A.                                       Spain                 Services                    8.00                 8.00
Arizona 1 Energía Renovável, S.A                               Brazil                Energy                     59.50                   -
Caetité 1 Energía Renovável, S.A.                              Brazil                Energy                     59.50                   -
Caetité 2 Energía Renovável, S.A                               Brazil                Energy                     59.50                   -




                           154 Annual Consolidated Financial Statements
MOST REPRESENTATIVE GROUP COMPANIES AND ASOCIATED AND INVESTEES IN WHICH IBERDROLA HOLDS PROPORTION OF SHARE CAPITAL OF
MORE THAN 3%, CLASSIFIED AS UNRESTRICTED INVESTMENTS FOR SALE IN 2010 AND 2009:
                                                                                              Proportion of direct or indirect ownership
                      Company                                Location      Line of business         12.31.10             12.31.09
Caetité 3 Energía Renovável, S.A                              Brazil           Energy                59.50                   -
Calango 1 Energía Renovável, S.A.                             Brazil           Energy                59.50                   -
Calango 2 Energía Renovável, S.A.                             Brazil           Energy                59.50                   -
Calango 3 Energía Renovável, S.A.                             Brazil           Energy                59.50                   -
Calango 4 Energía Renovável, S.A.                             Brazil           Energy                59.50                   -
Calango 5 Energía Renovável, S.A.                             Brazil           Energy                59.50                   -
Força Eolica do Brasil, S.A.                                  Brazil           Energy                59.50                   -
Mel 2 Energía Renovável, S.A.                                 Brazil           Energy                59.50                   -
Aviation Investment Fund Company Ltd.                     United Kingdom       Energy                15.07                15.07
Iberdrola Ingeniería y Construcción Subgroup
Iberica del Espacio, S.A.                                     Spain          Engineering             17.74                 17.74
Iberdrola Engineering and Construction Bulgaria              Bulgaria        Engineering            100.00                100.00
Iberdrola Engineering and Construction Middle East Ltd.       Dubai          Engineering            100.00                100.00
Iberdrola Engineering and Construction Kenya
                                                              Kenya          Engineering            100.00                100.00
International
Scottish Power Subgroup
DCUSA Limited                                             United Kingdom       Energy                11.10                 11.10
Electralink Limited                                       United Kingdom       Energy                13.36                13.36
Gemserv Limited                                           United Kingdom       Energy                13.38                13.38
Selectusonline Limited                                    United Kingdom       Holding               20.00                33.00
NFPA Holdings Limited                                     United Kingdom       Energy                 8.33                 8.33
Scottish Power Wholesale & Retails Holdings Ltd.          United Kingdom       Energy               100.00                   -
Scottish Power Energy Networks Holdings                   United Kingdom       Energy               100.00                   -
St. Clements Services Limited                             United Kingdom       Energy                12.50                12.50




                                                                                                             155
                                               / CONSOLIDATED FINANCIAL STATEMENTS




GROUP COMPANIES AT 31 DECEMBER 2009 WHICH IN 2010 WERE EXCLUDED FROM CONSOLIDATION BECAUSE THEY WERE DISPOSED, MERGED
OR LIQUIDATED:
                                                                                              Proportion of direct or indirect ownership
                      Company                             Location        Line of business          12.31.10             12.31.09
Desaladora de la Costa del Sol, S.A.                       Spain               Agua                    -                   8.16
Eme Alcudia Uno, S.L.                                      Spain               Energy                  -                  80.00
Eme Dólar Dos, S.L.                                        Spain               Energy                  -                  80.00
Eme Ferreira Uno, S.L.                                     Spain               Energy                  -                  80.00
Eme Hueneja Cinco, S.L.                                    Spain               Energy                  -                  80.00
Eme Hueneja Uno, S.L.                                      Spain               Energy                  -                  80.00
Energías Ecológicas de la Gomera, S.A.                     Spain               Energy                  -                  40.00
Energías Ecológicas de Lanzarote, S.A.                     Spain               Energy                  -                  40.00
Frio Condal, S.A.                                          Spain             Real state                -                  100.00
Gas Nostrum, S.A.U.                                        Spain              Inactive                 -                  100.00
Gedapex, S.A.                                              Spain             Real state                -                  50.00
Neo Sky 2002, S.A.                                         Spain         Telecommunications            -                  98.93
New Klimt Terciario 2001, S.L.                             Spain             Real state                -                  100.00
Parques Eólicos Puerto de Málaga, S.A.                     Spain               Energy                  -                  80.00
Refineria Balboa, S.A.                                     Spain               Energy                  -                  10.00
Parc Eolien les Landes du Tertre, S.A.S.                   France              Energy                  -                  80.00
Rokas Aeoliki Macedonia III, Ltd.                          Greece              Energy                  -                  80.00
Rokas Aeoliki Sterea Ellas I, Ltd.                         Greece              Energy                  -                  80.00
Rokas Aeoliki Thessalia II, S.A.                           Greece              Energy                  -                  79.50
Almacenaje y Manejo de Materiales, S.A.                  Guatemala             Energy                  -                  48.97
Comercializadora Eléctrica de Guatemala, S.A.            Guatemala             Energy                  -                  39.63
Credieegsa                                               Guatemala            Services                 -                  39.63
Distribuidora Eléctrica Centroamericana II, S.A.         Guatemala            Holding                  -                  49.00
Empresa Eléctrica de Guatemala, S.A.                     Guatemala             Energy                  -                  39.63
Energica, S.A.                                           Guatemala            Services                 -                  39.63
Generadores Hidroeléctricos, S.A.                        Guatemala             Energy                  -                  51.00
Gestión de Empresas Eléctricas, S.A.                     Guatemala             Energy                  -                  99.99
Hidronorte, S.A.                                         Guatemala             Energy                  -                  51.00
Inmobiliaria y Desarrolladora Empresarial de
                                                         Guatemala             Energy                  -                  39.63
America, S.A.
Inversiones Eléctricas Centroamericana, S.A.             Guatemala            Holding                  -                  39.63
Mo, S.A.                                                 Guatemala             Energy                  -                  51.00
Transportista Eléctrica Centroamericana, S.A.            Guatemala             Energy                  -                  39.63
Petroceltic International PLC                              Ireland             Energy                  -                  15,68
Cityscape Ltd.                                         United Kingdom         Holding                  -                  100.00
Cityscape Internet Services Ltd.                       United Kingdom         Holding                  -                  100.00
Copperteam Ltd.                                        United Kingdom          Other                   -                  100.00
Dispatch Publishing Ltd.                               United Kingdom         Holding                  -                  100.00
Lancastrian Holdings Ltd.                              United Kingdom         Holding                  -                  100.00
Locomotive Software Developments Ltd.                  United Kingdom         Holding                  -                  100.00
Locomotive Software Group Ltd.                         United Kingdom         Holding                  -                  100.00
Megafone (UK) Ltd.                                     United Kingdom    Telecommunications            -                  100.00
Pyschic Companions Ltd.                                United Kingdom         Holding                  -                  100.00
ScottishPower Telecommunications Ltd.                  United Kingdom         Holding                  -                  100.00




                          156 Annual Consolidated Financial Statements
GROUP COMPANIES AT 31 DECEMBER 2009 WHICH IN 2010 WERE EXCLUDED FROM CONSOLIDATION BECAUSE THEY WERE DISPOSED, MERGED
OR LIQUIDATED:
                                                                                    Proportion of direct or indirect ownership
                      Company                  Location          Line of business         12.31.10             12.31.09
Spotlight Trading Ltd.                      United Kingdom           Holding                 -                  100.00
The IP Systems Operation Ltd.               United Kingdom           Holding                 -                  100.00
Turnpike 1996 Ltd.                          United Kingdom           Holding                 -                  100.00
Turnpike Ltd.                               United Kingdom           Holding                 -                  100.00
Watermark Games Ltd.                        United Kingdom           Holding                 -                  100.00
Mark Hill Wind Power Ltd.                   United Kingdom           Energy                  -                  80.00
ScotPower Ltd.                              United Kingdom           Holding                 -                  80.00
Wind Ventures Holdings LLC                       USA                 Energy                  -                  80.00
Berkshire Energy Resources                       USA                 Energy                  -                  100.00
Connecticut Energy Corporation                   USA                 Energy                  -                  100.00
Connecticut Natural Gas Corporation              USA                 Energy                  -                  100.00
CTG Resources, Inc.                              USA                 Energy                  -                  100.00
The Berkshire Gas Company                        USA                 Energy                  -                  100.00
The Southern Connecticut Gas Company             USA                 Energy                  -                  100.00
Utility Shared Services Corporation              USA                 Energy                  -                  80.00
Iberdrola Renewables Energies USA                USA                 Energy                  -                  80.00
CEP Energy Services                              USA                 Energy                  -                  80.00




                                                                                                     157
3
Consolidated
Management
Report
                    / CONSOLIDATED FINANCIAL STATEMENTS




CONSOLIDATED MANAGEMENT
REPORT 2010

1. SIGNIFICANT EVENTS IN 2010

Iberdrola’s results for 2010 should be interpreted within the difficult macroeconomic environment which since
the third quarter of 2008 has affected world economies. Therefore, the slowing demand for electricity, the low
prices of energy, even taking into account the trend followed by the raw material markets in recent months,
and, finally, the effect of interest rate pressures on the fixed-income markets are some of the factors which have
influenced the results. In this respect, the following are noteworthy of mention:
    - In Spain the period was characterised by high rainfall and a certain recuperation of the electricity demand
      (slightly higher than at the end of 2008), with a 3.3% increase on 2009, where the industrial segment was
      the most dynamic in comparison to the residential or service segment.
    - The electricity demand in the UK and in Iberdrola’s area of influence in the US, remained stable at +0.1%
      and -1.9% (due to the divestments in Connecticut), respectively.
    - Brazilian demand grew at a robust 8.1% compared to 2009.
  The IBERDROLA Group’s total production during the year has increased by 8% to 154,233 GWh. By
geographical areas, these figures include 72,422 GWh generated in Spain (+10.9%), 27,969 GWh (+6.5%) for the
United Kingdom, 13,635 GWh on the U.S. (with a growth of 21% driven by the new wind capacity), Latin America
for 38,023 GWh (-0.4%) and 2,184 GWh from renewables in other countries (22.2%).
  In late 2010, IBERDROLA has 44,991 MW installed (+3%), of which 57% (55% in 2009) produce emissions-free
energy at low variable cost.
  Also, the average trend of the euro as compared to Iberdrola’s reference currencies was as follows: US dollar
+4.9%; Pound sterling+3.7%; Brazilian real +16.2%.


1.1 Income statement highlights

The growth in the Group’s production together with the improvements of regulated businesses both in Spain,
as a result of the application of the reference network model, and in the US and Latin America, as a result
of the demand and regulatory improvements, allowed gross profit to increase 7.9%. This, together with the
improvement in the efficiency of all businesses, allowed an EBITDA of EUR 7,528 million (+10.5%) to be reached,
also favoured by the trend in exchange rates in the year (GBP, USD and BRL). Lastly, the year´s net recurrent
profit increases on 5.6% and the net profit for 2010 stood at EUR 2,871 million (+1.6%).
    • EBITDA
    - The Spanish Energy Business (excluding Renewables) has recorded an increase of 19% in EBITDA up to EUR
       2,848 million. These results were obtained in a market characterized by the energy prices maintenance and
       the increase on demand (3.3%), both factors leading to a higher EBITDA up to EUR 1,483 million (+11%) in
       the liberalized business and up to a EUR 1,389 million as contribution of the Regulated Business (+24%).
    - EBITDA for IBERDROLA RENOVABLES reaches EUR 1,456 million (+9.8%). The eolic division increases a
       19% due to the highest production achieved (+18.2%) from the increased operational installed capacity
       (12,532 MW; +16.6%) The average price of renewable energy was in line with the previous year’s levels and
       stood at EUR 73.4/MWh. Meanwhile the gas division reduces its contribution due to price evolution.
    - EBITDA for SCOTTISH POWER reaches EUR 1,349 million (-7%), due to a reduction in wholesale margins
       and the increase of the Regulated activities.
    - IBERDROLA USA´s contribution reaches EUR 710.8 million in EBITDA, (+58%), due to the tariff review for
       their investees in New York Statate and the efficiency action plans carried on.
    - Latin America: recorded a 12% increase in EBITDA, to EUR 963 million. Brazil increases in 10.9% in
       EBITDA. In addition, Mexico recorded increases a 13.8% in EBITDA.
    - EBITDA for the Engineering and Non-Energy businesses reached EUR 201 million.




 160 Consolidated Management Report
    • Accumulated depreciation and provisions
  Accumulated depreciation and provisions increased 17% to EUR 2,698 million (EUR 2,662 million in
depreciation and EUR 36 million in provisions) mainly as a result of investments in desulphurisation equipment
and the increase in wind power in operation as well as the increase in the provisions for doubtful debts.
    • Financial profit/(loss)
  Financial result increased by EUR 178 million due to the decrease in the average cost of debt, 23 basis points,
and the maintenance of the average balance payable during 2010 was not able to offset the finance cost of the
outstanding revenue shortfall.
    • Taxes
  Income tax expense amounted to EUR 899 million, up 25% on 2009. The effective rate stood at 23.4%,
which arose from the effects of the higher tax rate on the capital gains on the divestments in 2010, mainly the
divestments in Guatemala and gas companies in the US.
  Therefore, net recurrent profit increases in 5.6% and net profit amounted to EUR 2,871 million, up 1.6% on
2009.


1.2 Main operating figures


SPAIN

   - Production
     The production of IBERDROLA in Spain reaches 72,422 GWh, an increase of 10.9% in comparison to 2009.
     As a result of the positive performance of the hydroelectric power which reached 19,819 GWh (+105.7%),
     wind power and mini-hydroelectric plants which stood at 11,571 GWh (+13.4%), nuclear production of
     26,111 GWh (+14.4%) and cogeneration of 2,632 GWh (+8.2%) offset the decrease in production of gas-
     fired plants to 11,082 GWh (-38.8%) and coal-fired plants to 1,168 GWh (-43.3%).

   - Commercial

     Spain
     IBERDROLA ended 2010 with a portfolio of 4,614,238 contracts, of which 53% relate to electricity
     suppliers (2,451,527 contracts), 13% to gas customers (607,099 contracts) and the remaining (1,555,612
     contracts) to products and services related to energy.
     The energy supplied in the deregulated market during 2010 reached 37,926 million kWh compared to
     23,363 million kWh delivered in the same period in 2009, representing an increase of 62%.
     Concerning gas activity, during 2010 IBERDROLA supplied 9,828 GWh representing a 39% increase
     compared to 7,053 GWh supplied in 2009. The breakdown among segments for 2010 data shows that
     6,473 GWh were sold in the industrial segment and 3,355 GWh in the residencial one.

     Portugal
     Since 2009, the regulatory situation in Portugal allows marketing electricity on the free market. In 2010
     IBERDROLA has sold over three times the amount of energy sold in 2009 totalling 3,927 million kWh as
     compared to the 1,285 million kWh supplied in 2009, therefore, becoming the second largest retailer in
     Portugal only behind the state-owned company.




                                                                                                                 161
                   / CONSOLIDATED FINANCIAL STATEMENTS




   - Gas Procurements
     010 was characterised by a certain recovery in the demand for gas in the traditional market (industrial and
     domestic), with a moderate demand in combined cycle power plants as a result of the high rainfall and
     wind level contributions.
     In the last quarter of 2010, Iberdrola launched its regasification capacity and access to the British gas
     system in the Isle of Grain terminal, near London in the UK, which will allow it to streamline its contract
     portfolio and make spot purchases to provide gas through the National Balancing Point (NBP) hub, which
     connects with ScottishPower.

   - Regulated Business
     At the end of 2010, IBERDOLA reaches more than 10 million users in Spain, and the total distributed
     energy reaches 102,071 GWh, with an increase of 2.6% in comparison to the previous year.


UNITED KINGDOM – SCOTTISH POWER
   - Production
     At year end 2010, the installed capacity of SCOTTISH POWER in UK (excluding IBERDROLA RENOVABLES)
     reaches 6,036 MW.
     Referring to the traditional generation of IBERDROLA in the UK, in 2010 reached 26,530 GWh compared
     to 24,499 GWh in the same period last year with an increase of 8.3%. The increase in production is due to
     a large extent to the increase in coal-based generation as a result of greater availability.
     The market share of the generation business in the UK is 8.3% against 7.8% in the same period last year.

   - Commercial
     During 2010, 23,268 GWh of electricity have been sold and 35,149 GWh of gas, compared to 23,432 GWh
     of electricity and 33,892 GWh of gas sold in 2009.
     The company has 3.2 million electric customers and 2 million gas customers at 31 December 2010.

   - Regulated business
     IBERDROLA has 3.5 million supply points of distribution in the UK at 31 December 2010. The volume of
     energy distributed in 2009 was of 36,452 GWh, implying a decrease of 0.1% over the previous year.


RENEWABLES
   IBERDROLA RENOVABLES has an installed capacity of 12,530 MW at the end of 2010.
      In 2010, added installed capacity represents an increase of 1,789 MW, 16.6% more, when comparing the
     end of 2009. Due to these capacity additions, the geographical diversification of the assets of IBERDROLA
     has improved, with 54% of the total capacity installed outside Spain.
     Referring to the operational capacity, it reaches 12,006 MW, with an increase of 1,722 MW (16.7% more), of
     which 974 MW have been installed in the US, where are currently over the 37% of them.


LATIN AMERICA
     Total production in Latin America has decreased over last year, reaching 37,863 GWh (-0.8%).
     In the last quarter, IBERDROLA reaches the amount of 10 million of users in the region, and the distributed
     power reaches 33,353 GWh, with a slight rise of 4.6% over the same period of the previous year.


IBERDROLA USA
   - Electricity
     At 31 December 2010, IBERDROLA USA has 1.85 million electricity points of supply in the United States.
     The volume of energy distributed during the year was 31,214 GWh.

   - Gas
     The number of gas users in the US at 31 December 2010 was 0.56 million, with 45,675 GWh supplied in
     2010, 13.9% less than the year-ago period. This result was caused by the sale of Connecticut Natural Gas,
     Southern Connecticut Gas and Berkshire Gas, which took effect as of 16 November.




 162 Consolidated Management Report
1.3 Financial resources

The most significant financial transactions carried out by the IBERDROLA Group in 2010 are as follows:
   • In January 2010, the first issue under the Euromarket bond programme was held, entailing USD 100
     million maturing in January 2013.
   • In February 2010, the Group drew down the EUR 300 million from the 10-year loan arranged with the
     European Investment Bank (EIB) in December 2009 to fund the extension of the San Esteban II, San Pedro
     II and La Muela II hydroelectric plants.
   • In March, the Group tapped its EMTN programme again, issuing EUR 500 million of 10-year bonds.
   • In May 2010, the Group arranged a loan with the EIB to finance the construction and start-up of a 103 MW
     wind farm in Mexico. The loan was drawn down in November 2011 at 10 years.
   • In early July, a EUR 2,000 million syndicated loan was arranged, which was subsequently extended by an
     additional EUR 150 million. The loan, with a syndicate of 16 top-tier domestic and foreign banks, falls due
     at the end of July 2015.
   • During the first half of September, Iberdrola successfully completed the largest bond swap transaction ever
     undertaken by a Spanish company, totalling EUR 600 million. A total of EUR 436.4 million was applied to
     redeem bonds maturing in 2011 and the remaining EUR 163.6 million to redeeming bonds maturing in
     2013. The new issue has a March 2020 maturity date and a 4.125% annual coupon.
   • In the first half of October, IBERDROLA completed a public placement in the Eurobond market for a total
     amount of EUR 750 million and an October 2016 maturity. The final coupon of this issue was 3.50%.
   • To diversify its funding sources and tap market opportunities, in December Iberdrola Internacional BV
     raised a total of EUR 50 million in “Schuldschein loans” with a 5-year maturity.
   • Two bank deals were signed in December. The first was with Caja Madrid for a nominal EUR 60 million
     maturing in 10 years. The second was with German-based bank Landesbank Hessen-Thuringen Girozentrale
     (Helaba) for a nominal EUR 50 million maturing in 2015.


2. MAIN RISKS RELATED TO THE ACTIVITIES OF THE IBERDROLA
GROUP

The IBERDROLA Group is subjected to various inherent risks related to different countries, sectors and markets
where it operates and to its own activities, which they might not permit to achieve its objectives and implement
its strategies successfully.


2.1 Market and business risks

    The IBERDROLA Group’s activities are subjected to a range of business risks, such as changes in demand,
      factors affecting hydroelectric and wind power production, and fuel prices and the CO2 emission
      allowances. These risks are evident in:
      • The electricity generation and retailing business, in which the IBERDROLA Group is exposed to variations
        in the price of CO2 emission rights and in the sale price of electricity, as well as to variations in fuel costs
        (mainly gas and coal).
      • The gas retailing business, in which an important portion of the IBERDROLA Group’s operating expenses
        are linked to the purchase of gas to be supplied to its customers. The IBERDROLA Group is, therefore,
        exposed to the risk of variations in the price of gas.
      • Energy transactions (discretionary trading).
  Exposure to these risks is managed and mitigated by monitoring the positions, arranging derivatives, and
diversifying the agreements and various clauses contained in the related purchase and sale agreements.




                                                                                                                     163
                     / CONSOLIDATED FINANCIAL STATEMENTS




Electricity generation and retailing business
In both the Spanish market, which is IBERDROLA’s main market, and the UK, which is the group’s second most
important market, the current generation mix, specifically the range of generation technologies available,
provides a substantial natural hedge against the market and business risks associated with supplying, producing
and selling energy to final customers.
  The remaining risk is mitigated through an appropriate diversification and management of supply contracts,
taking into account:
    • Index price, as far as possible, towards indices which replicate the changes in revenue on the demand side.
    • Inclusion of revision and re-opener clauses which help to adequate prices to market changes.
    • Complementary financial hedging operations, to maintain risk within established global limits, mainly in
      the short and medium term.
  In the Mexican market, the IBERDROLA Group does not have a significant commodity price risk, with the
main contracts being of the pass-through variety. In the electricity and gas distribution regulated businesses,
the risk of variations in prices is limited since the regulatory regimes allow this cost to be transferred to the final
consumer.


Discretionary trading transactions
Regarding transactions involving trading of energy or by-products carried out by the IBERDROLA Group on
international markets, there are strict limits on volumes of open positions, in terms of the monetary amount and
the time horizons, as well as stop-loss limits.


Gas business
With regard to the measurements of the risk of a change in the market price of gas, the IBERDROLA Group uses,
among other control indicators, the value at risk (VaR), establishing limits for each business. VaR figures are
calculated with a confidence level of 99% and a holding period of five days.


Renewable energy business
Specifically, it should be noted that in the wind power business outside of Spain and the United Kingdom, the
market risk is mitigated mainly by the signing of long-term sales contracts that ensure the investment yield.


2.2 Risk credit

The IBERDROLA Group is exposed to the credit risk arising from the possibility that counterparties (customers,
suppliers, financial institutions, partners, etc.) might fail to comply with contractual obligations. This exposure
may arise with regard to unsettled amounts, to the cost of substituting products that are not supplied, as well
as, in the case of dedicated plants, to amounts on which amortisation is pending.
  Credit risk is managed and limited in accordance with the type of transaction and the creditworthiness of the
counterparty. Specifically, there is a corporate credit risk policy which establishes criteria for admission, approval
systems, authorisation levels, qualification tools, exposure measurement methodologies, etc.
  Regarding the credit risk corresponding to trade accounts receivable, the cost of doubtful debts has remained,
in historical terms, at moderate, stable levels despite the difficult current economic environment. Regarding
other exposure (counterparties in transactions with derivatives, placement of cash surpluses, sale transactions
involving energy and guarantees received from third parties), in 2010 and 2009 there have been no material
non-payments or losses.


2.3 Financial risks

Information related to the policy for managing financial risks is contained in Note 5 of the Consolidated
Financial Statements.
  Turbulence in international financial markets has affected spreads on Spanish debt, translating into a delay
in the securitisation of the entire tariff deficit in Spain. On the other hand, it should be pointed out that
subsequent to the closing date of these financial statements, a first, EUR 2,000 million tranche was floated on
the markets, with the expectation that the entire deficit accumulated, thus, far in 2011 would be securitised.




 164 Consolidated Management Report
2.4 Regulatory risks

Companies in the IBERDROLA Group are subjected to a complex framework of laws and regulations concerning
prices and other aspects of their activities in Spain and other countries in which they operate. The introduction
of new laws and regulations, and modifications to the existing ones, may have a negative effect on the company’s
activities, financial situation and on the results of its operations.
  The risk policies includes continuous analysis and monitoring of regulatory changes, together with
decision-making based on reasonable assumptions concerning regulatory behaviour, both domestically and
internationally.
  Specifically in the United Kingdom, it should be noted that the government has opened a debate in order
to change the energy model over the medium term, which might affect the yields of IBERDROLA Group’s
businesses there.


2.5 Operational risks

During the operation of all IBERDROLA Group activities, there may occur direct or indirect losses as a result of
inadequate internal procedures, technical failures, human errors, or as a result of external factors.
  Specifically, the IBERDROLA Group is exposed, among other risks, to malfunctions, explosions, fire, toxic spills
or polluting emissions at its gas and electricity distribution networks and generating plants. It could also be
negatively affected by sabotage, adverse meteorological conditions or events of force majeure. Any of these risks
could cause damage or destruction to the IBERDROLA Group’s facilities, as well as injuries to third parties or
damage to the environment, along with the ensuing lawsuits, especially in the event of power outages caused by
accidents at our distribution networks and possible penalties imposed by the authorities.
  Although many of these risks are unpredictable, the IBERDROLA Group mitigates them by carrying out the
necessary investments, conducting operation and maintenance procedures and programs (supported by quality
control systems), planning appropriate employee training, and taking out the required insurance covering both
material damages and civil liability.
  However, this insurance does not completely eliminate operational risk, since it is not always possible to
transfer it to insurance companies and, in addition, coverage is always subject to certain limitations.


2.6 Environmental risks

The IBERDROLA Group’s activities are subject to risks related to the existence of wide-ranging regulations and
environmental standards, such as Environmental Liability Law 26/2007, of 23 October, in Spain, transposing
Directive 2004/65/EC on environmental liability.
  Environmental regulations and standards, among other things, require the company to conduct environmental
impact studies for future projects and obtain licenses, permits and other authorizations and comply with the
terms and conditions of said licenses, permits and authorizations. In addition, the IBERDROLA Group’s activities
involve inherent environmental risks relating to waste management, emissions, spills and the land where
facilities are based or where biodiversity might be affected, and these could give rise to lawsuits for damages, or
penalties which might affect the group’s image and reputation.
  It is important to note that IBERDROLA Group’s facilities fall within the ambit of the European Union
directives for the trading of CO2 emission allowances and rules governing the emission of certain atmospheric
pollutants from large combustion plants.
  IBERDROLA Group’s nuclear plants in Spain are also exposed to risks related to their operations and risks
arising from the storage and handling of radioactive materials. Current Spanish Law caps the liability of nuclear
plant operators in the event of a nuclear accident at EUR 700 million. This liability for a nuclear accident must
be insured by the operator of Spanish nuclear power stations. IBERDROLA meets this obligation by taking out
Nuclear Civil Liability insurance policies for each plant. However, the government is proposing in the Law on
Civil Liability for Nuclear Damage, brought forward as a result of Spain’s ratification of the 12 February 2004
amendment to the Paris Convention, to raise the limit on the operator’s liability and consequently the limit on
the mandatory insurance to EUR 1,200 million for nuclear power plants. If the Law is approved, it will enter into
force when all signatory countries of the Paris Convention and Brussels Convention ratify the aforementioned
amendment.
  The Group’s risk policies aim to mitigate environmental risks by implementing environmental management
systems for the company’s production and distribution facilities and through a continuous cooperation with
regulatory bodies and any parties affected, and by signing up the appropriate insurance policies.




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2.7 Risks related to new investments

All new investments are subjected to a range of market, credit, business, regulatory, operational and other risks,
which might undermine the objectives or profitability of the project.
   An investment is subjected to considerable and complex risks during the construction of new electricity
generating facilities:
   Risks affecting the company’s ability to construct these plants include:
     • Delays in obtaining permits and authorisations, including environmental permits.
     • Fluctuations in the price of equipment, materials and labour.
     • Opposition from political, social or ethnic groups.
     • Unfavourable changes in the political or regulatory environment occur during the construction period.
     • Adverse weather conditions that could delay the completion of the works.
     • Natural disasters, accidents and other unforeseen events.
     • An inability to raise finance at acceptable interest rates.
     • The breach of critical contracts by suppliers.
   Any of these risks could delay the construction of the project or the start of operations and, therefore, increase
its cost. If we fail to manage these projects properly, any resultant cost overruns may not be recoverable.
   The risk policy for new investments cover such risks and establishes specific limits on forecast profitability
and expected profitability risk which must be complied with before a project can be authorised. Furthermore,
specific procedures are in place for the approval of major investments, which require an investment dossier to be
prepared including a risk analysis before a project can be approved.


2.8 Country risk

All of the Group’s activities are, to a greater or lesser extent depending on their nature, also exposed to the risks
described above and also to other risks inherent to the country in which they operate:
    • Imposition of monetary and other restrictions on the movement of capital.
    • Economic crisis, political instability and social unrest which affects activities.
    • Government expropriation of assets.
    • Exchange rate movements.
  The results of all our international subsidiaries, their market value, and the transfer of these to the Group, may
be affected by all such risks.
  The IBERDROLA Group manages this risk through adequate geographical diversification. Therefore, its
presence in countries with sovereign ratings below the investment grade is not significant.


2.9 Reputational risk

The Company’s reputation is part of its value creation cycle. In this cycle, stakeholders’ perceptions of the
company reflect the reputational impact of the company’s actions; every organisation in the IBERDROLA Group
is committed to the Group’s vision, values and policies.
   The framework policy for reputational risk establishes the basic principles for managing this risk within the
Group, and also establishes monitoring indicators; specific risk policies also cover the same areas and implement
actions which contribute to limiting or mitigating such effects.


3. ENVIRONMENT AND SUSTAINABILITY

IBERDROLA recognises that the environment places constraints on all human activities and is a factor of
companies’ competitiveness, and it is committed to promoting innovation in this field and eco-efficiency, to
gradually reducing the environmental impact of its activities, facilities, products and services as well as to
striving to ensure that its activities are congruent with future generations’ legitimate right to an appropriate
environment.
   The Group undertakes and promotes this commitment through its policies. IBERDROLA currently has three
specific policies in place to manage environmental issues: its Environmental Policy (updated in 2010), its Anti-
Climate Change Policy and its Biodiversity Policy, which set forth the principles through which the company is to
continue improving its environmental management.




 166 Consolidated Management Report
  Moreover, IBERDROLA was included, for the eleventh consecutive year, on the global Dow Jones Sustainability
Index, a worldwide benchmark for recognising companies’ contributions to sustainable development, as well as
on other prestigious international sustainability indices. It is the only utility to have earned this distinction since
the Index was created in 1999.


4. RESEARCH AND DEVELOPMENT ACTIVITIES

Over the last decade, IBERDROLA has resorted to an innovating strategy in terms of both management and
technology. Set forth in the Strategic R&D+i Plan for 2008-2010, the strategy has entailed an investment of close
to EUR 300 million, with a portfolio of more than 150 projects. Specifically, in 2010, the Group’s R&D+i activities
represented EUR 130 million, up 44% on 2009.
  The certification perimeter of the R&D+i management system has been broadened in accordance with
standard UNE 166.002, and four areas have how received this certificate: IBERDROLA, S.A., IBERDROLA
Ingeniería, IBERDROLA Generación and IBERDROLA Renovables.
  The following R&D+i activities in strategic areas are noteworthy of mention:


4.1 Technology

The main technological challenges facing the Group are:


Renewable energies:
Iberdrola Renovables participated in the TWENTIES project co-financed by the European Union to demonstrate
that massive integration of wind power in the network, ensuring its stability, is possible. In off-shore activity, the
EMERGE project is noteworthy of mention, which is led by IBERDROLA Renovables, to develop the technology
of floating platforms in deep water. The CENIT AZIMUT project expands on the technical knowledge to optimise
the development of off-shore wind farms. In the field of other off-shore energies (waves and currents), the
CENIT OCEAN LIDER project, led by IBERDROLA Ingeniería, to develop off-shore generation technologies and
the ORCADIAN project, which focuses on the construction and deployment of the second generation of wave
energy converters with PELAMIS technology off the coasts of Scotland, are noteworthy of mention. In the field
of biomass, the LIGNOCROP demonstration project was launched to demonstrate the value chain based on
lignocelulosic biomass energy cultivation.


Clean generation technologies
IBERDROLA’s efforts in R&D+i in the area of generation are aimed at optimising the operating conditions,
improving safety and reducing the environmental impact, by means of reducing emissions or new more efficient
generation plants. An extensive portfolio of projects are being developed in line with CO2 capture in the coal-
fired plant of Longannet (Scotland). The COEBEN project, the objective of which is to develop and validate the
combination of advanced NOx reduction technologies, is carried out in the Velilla plant. IBERDROLA Ingeniería
participates in the CENIT VIDA project, which investigates active CO2 capture techniques, together with
environmental modelization and its application in urban environments.


Smart grids
IBERDROLA has promoted various initiatives which have placed it among the most innovative companies in
this field, both on the European level (Open Node, Open meter, Address projects) and in Spain, where the
Network Automation and Tele-management Systems project (STAR) was launched in Castellón, an ambitious
initiative to carry out a technological transformation in the field of intelligent networks. The Advanced Metering
Infrastructure (AIM) project has been launched in the US, which will allow 600,000 customers to be integrated
in an intelligent network infrastructure, and has received a grant of USD 96 million from the US Department of
Energy. A project for testing intelligent networks to improve their electricity supply reliability and quality was
launched through the Company’s subsidiary ScottishPower in Glasgow.




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Energy storage
An agreement with the US Department of Energy has been entered into to carry out the first stage of the
Compressed Air Energy Storage project (CAES technology). Among other benefits, this system will encourage the
integration of renewable energies into the grid. The agreement covers the first stage, which includes design and
engineering tasks as well as a complete viability study.


Electric vehicles
In 2010 IBERDROLA strengthened its focus on electric vehicles throughout the entire value chain, entering
into agreements with Public Authorities, the main vehicle manufacturers and recharge system suppliers, and
actively participating in standardisation groups and in both national and international R&D projects. This year
the Movilidad Verde Iberdrola plan was launched, the first integral Spanish solution providing citizens with actual
access to electric mobility whereby offering the customer the purchase of the vehicle, the installation of the
charge point, financing and the supply of 100% renewable energy.


PERSEO - Disruptive innovation in sustainable energy
Perseo is the capital development initiative of IBERDROLA aimed at investment in innovative technologies
generating renewable electricity and reducing the environmental impact of the existing generation systems.
The first Perseo awards were held in 2010 with two categories: CO2 and carbon capture and sequestration
technologies, in which Westec Environmental Solutions was selected as the winner and Carbozyme received
second prize; and energy storage technologies aimed at using electrical networks, where Bright Energy Storage
Technologies was the winner and Ecovoltz came in second.


4.2 R&D awards

   • IBERDROLA Ingeniería received the Príncipe Felipe Award for Quality and Industrial Innovation.
   • The Business Innovation Prize in the nineteenth edition of La Noche de la Empresa Vasca awards.
   • The Spanish electricity company that most invested in the sector according to the European Commission’s
     R&D Scoreboard.
   • The British Institution of Engineering and Technology (IET) Award for a project from ScottishPower
     Networks on intelligent networks.


5. TREASURY SHARES AND CAPITAL REDUCTION

The General Shareholders’ Meeting, held on 20 March 2009, agreed to authorize the Board of Directors,
according to the article 75 of the Spanish Companies Law, to carry out the derivative acquisition of treasury
shares by the company and/or by its subsidiaries, for a maximum term of five years and for up to the maximum
amount permitted by Law at any given time (10% as of the date of adoption of the agreement by the General
Meeting.
  As a result of this authorisation, in 2010, IBERDROLA Group acquired 69,273,846 treasury shares (from which
69,199,425 were acquired by Iberdrola, S.A.) for EUR 358 million, with a nominal value of EUR 52 million. In
addition, 57,342,482 (from which 57,257,619 shares were sold by Iberdrola, S.A.) treasury shares were disposed
for EUR 306 million.
  At the end of 2010, the company had 27,562,415 shares (25,410,259 shares in Iberdrola, S.A.) and there were
three swaps of 16,145,138 and 17,012,040 in other derivatives on treasury shares.




 168 Consolidated Management Report
6. REPORT ON ASPECTS OF CAPITAL STRUCTURE AND
GOVERNANCE AND CONTROL OF IBERDROLA, SA (ARTICLE 116 BIS
OF LAW ON THE SECURITIES MARKET)

a)    Equity structure, including the securities that are not traded on a regulated market in the
European Community, specifying, if applicable, the different classes of shares and, for each class of
shares, the rights and obligations attaching thereto and the percentage of share capital that they
represent.

As provided in Chapter II of Title I, Articles 5 through 8, of the By-Laws, IBERDROLA’s share capital is four
billion one hundred twelve million eight hundred eighty-two thousand two hundred fifty (4,112,882,250)
euros, represented by five billion four hundred eighty-three million eight hundred forty-three thousand
(5,483,843,000) ordinary shares having a par value of seventy-five (0.75) euro cents each, numbered
consecutively from one (1) to five billion four hundred eighty-three million eight hundred forty-three thousand
(5,483,843,000), both such numbers inclusive, belonging to a single class and series, fully subscribed and paid
up. The shares are represented by book entries. Each share confers the status of shareholder on the lawful holder
thereof and grants him the rights established in the Law and the Company’s Corporate Governance System.


b)     Any restriction on the transferability of shares

As a result of the integration of IBERDROLA USA (formerly “Energy East Corporation”) into the IBERDROLA
Group, effective as from September 16, 2008, the acquisition of an equity interest giving rise to the ownership of
shares in an amount equal to or greater than ten (10%) percent of the share capital of IBERDROLA is subject to
prior approval by the Federal Energy Regulatory Commission of the United States of America and the regulatory
authorities of the various States of the Union in which IBERDROLA USA or any company of the IBERDROLA
Group carries out its activities in the United States of America, without prejudice to any other authorizations
that might be required.
  Specifically, the final order of the New York State Public Service Commission, published on January 6, 2009,
which sets forth the complete text of the authorization of the acquisition of IBERDROLA USA by IBERDROLA,
provides that, pursuant to Section 70 of the Public Service Law, any transfer or lease of all or part of the gas
or electricity network, infrastructure or system, the execution of any contracts for the operation of such
infrastructure or systems, as well as the transfer of an interest resulting in ownership of a percentage greater
than ten (10%) percent of the share capital of IBERDROLA, shall require the prior approval of such Commission.
  However, the By-Laws establish no restrictions on the transferability of the securities representing the share
capital.


c)     Significant direct and indirect interests in share capital

Listed in the table below are those shareholders that, as of December 31, 2010 and to the extent known by the
Company, are the direct and indirect holders of a significant interest in the share capital of IBERDROLA:

                                                       Number of direct   Number of indirect    % of total voting
           Shareholder’s corporate name                 voting rights      voting rights (*)          rights
 ACS, Actividades de Construcción y Servicios, S.A.      211,762,961       895,973,325              20.200
 (“ACS”)
 Bilbao Bizkaia Kutxa, Aurrezki Kutxa eta Bahitetxea          -            359,380,724               6.553
 (“BBK”)
 Caja de Ahorros de Valencia, Castellón y Alicante            -                                      5.494
                                                                            301,282,820
 (“Bancaja”)
 TOTAL                                                   211,762,961       1,556,636,869             32.247

 (*) Through




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                                                                                    Number of direct                 % of total
                Corporate name of direct holder of shares                            voting rights                  voting rights
 ACS (1)
 Residencial Monte Carmelo, S.A.                                                       360,619,672                        6.576
 Nexgen Capital Limited, S.A.                                                          277,971,800                       5.069
 Corporate Funding, S.L.                                                               173,517,307                        3.164
 Roperfeli, S.L.                                                                        70,577,059                        1.287
 Villa Áurea, S.L.                                                                      13,287,487                       0.242
 BBK
 Kartera 1, S.L.(2)                                                                     359,380,724                       6.553
 Bancaja
 Bancaja Inversiones, S.A. (3)                                                          301,282,820                       5.494
 TOTAL                                                                              1,556,636,869                       28.385

 (1) On December 30, 2010, ACS gave notice that its equity interest in IBERDROLA had exceeded 20% of share capital. ACS’ indirect
     interests in IBERDROLA are held by Residencial Monte Carmelo, S.A., Corporate Funding, S.L., Roperfeli, S.L. and Villa Áurea, S.L.,
     companies that are directly or indirectly 100%-owned by ACS.
    The 5.069% interest through Nexgen Capital Limited, S.A. refers to an “equity swap” contract, of which notice was given on Dec-
    ember 10, 2008, pursuant to which the exercise of the political rights attaching to the underlying shares of IBERDROLA belonged
    to ACS, with Nexgen Capital Limited, S.A. agreeing to be represented at the next General Shareholders’ Meeting of IBERDROLA by
    a representative appointed by ACS, which can freely cast its vote.
    According to information published in the official records of the CNMV, Nexgen Capital Limited, S.A. is a wholly-owned subsidiary
    of Nexgen Financial Holdings, which in turn is a 100%-owned subsidiary of Natixis, S.A., which is the direct holder of 0.056%
    (3,067,362 shares) of the share capital of IBERDROLA.
 (2) Kartera 1, S.L. is a wholly-owned subsidiary of BBK.
 (3) Bancaja is the owner of 69.98% of the voting rights of Bancaja Inversiones, S.A.




d)      Any restrictions on voting rights

Section 34 of Royal Decree-Law 6/2000, of June 23, on Urgent Methods to Intensify Competition in the Goods
and Services Markets, as amended by Law 14/2000 of December 29, by Royal Decree-Law 5/2005, of March 11
and by Law 17/2007, of July 4, provides that individuals or legal entities that have a direct or indirect interest
in the share capital or voting rights of two or more companies that qualify as a Principal Operator in the same
market or industry among those specified in the aforementioned provision (including electric power generation
and supply and natural gas production and supply) in a proportion equal to or greater than three (3%) percent,
may not exercise the voting rights corresponding to the excess over such percentage in more than one entity.
The same rule applies in the event that a company that qualifies as a Principal Operator holds an interest in the
capital or voting rights of another Principal Operator in the same economic industry.
  However, and in either of both cases, the competent industry regulator (i.e., the National Energy Commission
(Comisión Nacional de Energía) in the case of energy markets) may grant an authorization allowing for the free
exercise of voting rights in excess of such three (3%) percent.
  In addition, as provided in Article 29 of the By-Laws, no shareholder may cast a number of votes greater than
those corresponding to shares representing ten (10%) percent of share capital, even if the number of shares held
exceeds such percentage of capital. This limitation does not affect votes corresponding to shares in respect of
which a shareholder holds a proxy, provided, however, that the above-mentioned limitation shall also apply to
the number of votes attaching to the shares of each shareholder represented by proxy.
  The limitation set forth in the preceding paragraph shall also apply to the maximum number of votes that may
be collectively or individually cast by two or more shareholders which are entities or companies belonging to the
same group. Such limitation shall also apply to the number of votes that may be cast collectively or individually
by an individual and the shareholder entity, entities or companies controlled by such individual. A group shall
be deemed to exist under the circumstances set forth in Section 42 of the Spanish Commercial Code, and an
individual shall be deemed to control one or more entities or companies under the circumstances of control set
forth in such Section 42.
  Furthermore, Article 30 of the By-Laws, which governs shareholders’ voting rights in the event of a conflict of
interest, provides that shareholders participating in a merger or split-off with the Company or who are called to
subscribe to an increase in capital with the exclusion of pre-emptive rights or to acquire by overall assignment all
of the Company’s assets, may not exercise their voting rights for the approval of such resolutions at the General
Shareholders’ Meeting. The foregoing shall also apply when the resolutions affect (i) in the case of an individual
shareholder, the entities or companies controlled by such individual, and (ii) in the case of shareholders which


 170 Consolidated Management Report
are legal entities, the entities or companies belonging to its group, even when these latter companies or entities
are not shareholders.


e)    Private shareholders’ agreements (pactos parasociales)

The Company is not aware of the existence of any private shareholders’ agreements.


f)    Regulations applicable to the appointment and replacement of the members of the Board of
Directors and to the amendment of the by-laws of the Company


Appointment and withdrawal of the members of the Board of Directors
Articles 36, 37 and 38 of the By-Laws and Articles 11, 12, 13, 14, 15 and 16 of the Regulations of the Board of
Directors, as well as Articles 3, 4, 5 and 6 of the Regulations of the Nominating and Compensation Committee,
set forth the procedures for appointment, re-election, resignation and withdrawal of the members of the Board
of Directors of IBERDROLA, the content of which is summarized below:

Power: The power to appoint Directors lies with the shareholders at the General Shareholders’ Meeting,
pursuant to the provisions of the By-Laws and the Companies Law (Ley de Sociedades de Capital).
  The proposals for the appointment of Directors that the Board of Directors submits to the shareholders for
consideration at a General Shareholders’ Meeting, and the appointment decisions made by the Board in the
exercise of the legally assigned power to make interim appointments to fill vacancies, shall be preceded by the
corresponding proposal or report of the Nominating and Compensation Committee (depending on whether
they are an independent or other type of Director, respectively), which shall place the new Director in one of the
categories contemplated in the By-Laws.
  Along these lines, in the case of independent Directors, the Nominating and Compensation Committee will
prepare proposals for interim appointments or, if applicable, for submission by the Board of Directors to a
decision by the shareholders at a General Shareholders’ Meeting.
  Furthermore, in the case of other categories of Directors, the Nominating and Compensation Committee must
prepare a prior well-reasoned report on the proposed nominations that the Board of Directors will submit for
consideration by the shareholders at a General Meeting and the decisions on appointment made by the Board
by virtue of the powers of interim appointment legally attributed thereto. Such report must also address any
individual that is to represent a Director that is a legal entity. In the case of proprietary Directors, the report must
also include and assess the circumstances of the shareholder or shareholders, who propose, request or decide on
the appointment, whatever the method or procedure for appointment, to the extent legally possible.

  In all cases, the Nominating and Compensation Committee must verify compliance with all requirements
established by Law and by IBERDROLA’s Corporate Governance System (made up of the By-Laws, the Corporate
Policies, the Internal Corporate Governance Rules and the other internal Codes and Procedures approved by the
Company’s decision-making bodies) applicable to any candidate for Director of the Company.

Incompatibilities: The following may not be appointed as Directors or individuals representing a Director that
is a legal entity
(i) Domestic or foreign companies competing with the Company in the energy or other industries, or the
      directors or senior managers thereof, or the persons, if any, who are proposed by such companies in their
      capacity as shareholders.
(ii) Individuals or legal entities holding the position of director in more than four (4) companies with shares
      trading on domestic or foreign Securities Exchanges.
      If the By-Law amendment that the Board of Directors proposes to submit at the next General Shareholders’
      Meeting is approved, the maximum number of listed companies at which a candidate for the Board may hold
      the position of director would be reduced from four (4) to three (3), in line with the provisions of Article 13
      of the current restated text of the Regulations of the Board of Directors, the effectiveness of which is subject
      to such approval of the By-Laws.
(iii) Persons who, during the two (2) years prior to their appointment, have occupied high-level positions in the
      government which are incompatible with the simultaneous performance of the duties of a director of a listed
      company under national or autonomous community legislation, or positions of responsibility with entities




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                     / CONSOLIDATED FINANCIAL STATEMENTS




     regulating the energy industry, the securities markets or other industries in which the Company or the
     Group operates.
(iv) Individuals or legal entities that are under any other circumstance of incompatibility or prohibition governed
     by provisions of a general nature, including those who have, in any manner, interests opposed to those of the
     Company.

Directors’ qualifications: The Board of Directors (and the Nominating and Compensation Committee within
its area of authority) shall endeavor to ensure that the candidates proposed to the shareholders at the General
Shareholders’ Meeting for appointment or re-election as Directors, and the Directors directly appointed by the
Board to fill vacancies in the exercise of its power to make interim appointments, are respectable, qualified
persons who are widely recognized for their expertise, competence, experience, qualifications, training,
availability and commitment to their duties. It shall also endeavor to ensure that the selection of candidates
achieves a proper equilibrium in the Board of Directors as a whole, which enriches decision-making and provides
a plurality of viewpoints in debating the matters within its power.
   In the case of a Director that is a legal entity, the individual representing it in the performance of the duties
inherent in the position of Director shall be subject to the same requirements set forth above, and in his
personal capacity shall also be subject to the incompatibilities and bound to perform the duties established for
Directors in the Company’s Corporate Governance System.

Term of office: The Directors shall serve in their positions for a term of five (5) years, so long as the shareholders
acting at a General Shareholders’ Meeting do not resolve to remove or dismiss them and they do not resign from
their position. Directors may be re-elected to one or more terms of five (5) years. Vacancies which occur may,
pursuant to the Law, be filled by the Board of Directors on an interim basis until the next General Shareholders’
Meeting, whereat the shareholders shall confirm the appointments or elect the persons who should replace
Directors which are not ratified, or it shall withdraw the vacant positions.
   If the By-Law amendment that the Board of Directors proposes to submit at the next General Shareholders’
Meeting of the Company is approved, the term of office of a Director of the Company would be reduced from
five (5) to four (4) years, in line with the provisions of Article 14 of the current restated text of the Regulations of
the Board of Directors, the effectiveness of which is subject to such approval of the By-Laws.

Re-election: The proposals for re-election of Directors that the Board of Directors decides to submit to a decision
of the shareholders at the General Shareholders’ Meeting shall be the result of a process of preparation, which
shall include a proposal (in the case of independent Directors) or a report (in the case of the other Directors)
issued by the Nominating and Compensation Committee containing an assessment of the quality of the work
performed and the dedication to the position shown by the proposed Directors during the preceding term of
office, as well as an express assessment of their respectability, qualifications, expertise, competence, availability,
and commitment to their duties.

Resignation, removal and withdrawal: The Directors shall cease to hold office upon the expiration of the
term of office to which they were appointed or when so resolved by the shareholders at a General Shareholders’
Meeting in the exercise of the powers attributed thereto.
  The Directors shall tender their resignation to the Board of Directors and formally resign from their position in
the following cases:

(i)   When, due to supervening circumstances, they are involved in any circumstance of incompatibility or
      prohibition governed by provisions of a general nature, the By-Laws or the Regulations of the Board.
(ii) When, as a result of any acts or conduct attributable to the Director, serious damage is caused to the value
      or reputation of the Company or there is a risk of criminal liability for the Company.
(iii) When they no longer have the respectability, qualifications, expertise, competence, availability or
      commitment to duties required of a Director of the Company.
(iv) When they are seriously reprimanded by the Board of Directors because they have breached any of their
      duties as Directors, by means of a resolution adopted by two-thirds of the Directors.
(v) When their continuance in office on the Board of Directors may for any reason jeopardize, either directly,
      indirectly or through Related Persons (as defined in the Regulations of the Board), the loyal and diligent
      performance of their duties in furtherance of the corporate interests.
(vi) When the reasons why the Director was appointed cease to exist, and particularly in the case of proprietary
      Directors, when the shareholder or shareholders who proposed, requested or decided on his appointment
      sell or transfer all or a part of their interest, such that it is no longer significant or sufficient to justify the
      appointment.




  172 Consolidated Management Report
(vii) When an independent Director is affected, at any time following his appointment as such, by any of the
       prohibitions to hold office established in Article 10.2 of the Regulations of the Board.
(viii) When the activities carried out by the Director, or the companies directly or indirectly controlled thereby, or
       the individuals or legal entities holding shares therein or individuals or legal entities related to any of them,
       or the individual representative of the legal entity acting as Director, might compromise the Director’s
       qualifications for holding office.
   In any of the instances set forth above, the Board of Directors shall request the Director to resign from his
position and, if applicable, shall propose his removal to the shareholders at the General Shareholders’ Meeting.
By way of exception, the resignation provisions set forth in paragraphs (vi) and (vii) above shall not apply when
the Board of Directors believes that there are reasons which justify the Director’s continuance in office, after
a report from the Nominating and Compensation Committee, without prejudice to the effect that the new
supervening circumstances may have on the classification of the Director.
   In the event that an individual representing a legal entity acting as a Director falls under any of the instances
set forth above, such individual shall be disqualified from acting as a representative of such legal entity.
   The Board of Directors may propose the removal of an independent Director before the passage of the period
provided for in the By-Laws only upon sufficient grounds, evaluated by the Board of Directors after a report of
the Nominating and Compensation Committee. For the purposes hereof, such grounds shall include a breach
of the duties inherent to the position or subsequently becoming affected by any of the circumstances provided
for above. Such removal may also be proposed as a consequence of public tender offers, mergers or other similar
corporate transactions resulting in a significant change in the structure of the Company’s share capital.


Amendment of the By-Laws
The procedure for amendment of the By-Laws of IBERDROLA is based on the general procedure set forth in
Sections 285 to 290 of the Companies Law (Ley de Sociedades de Capital), which requires the approval of the
shareholders at the General Shareholders’ Meeting of the Company, with the quorums and majorities established
in Sections 194 and 201 of the Companies Law, respectively.
   As an exception to the foregoing, paragraph two of Article 21 of the By-Laws provides that shareholders
representing two-thirds of subscribed capital with voting rights must be in attendance at the General
Shareholders’ Meeting on first call, and shareholders representing sixty (60%) percent of such capital must be
in attendance at the General Shareholders’ Meeting on second call, in order to adopt resolutions regarding a
change in the corporate purpose, transformation, total split-off, dissolution of the Company and amendment of
the aforementioned paragraph two of such article.
   In addition, pursuant to Article 56 of the By-Laws, all resolutions intended to eliminate or amend the
provisions contained in Title III (regarding the neutralization of limitations in the event of tender offers), in
Article 29 (paragraphs three to five, regarding limitations on voting rights) and in Article 30 of the By-Laws
(regarding voting rights in cases of conflict of interest) shall require the affirmative vote of three-fourths of the
share capital in attendance at a General Shareholders’ Meeting.


g)     Powers of the members of the Board of Directors and, specifically, those regarding the possibility
of issuing or repurchasing shares

Pursuant to the provisions of Article 46 of the By-Laws and Article 18 of the Regulations of the Board of
Directors, the Chairman of the Board of Directors shall be the President of the Company and of all of the
decision-making bodies thereof of which he is a member, which he shall permanently represent with the
broadest powers and the resolutions of which he shall implement, being authorized in urgent cases to adopt
such measures as he deems advisable in furtherance of the corporate interest.
  In addition, the Board of Directors has the following powers which have not been exercised, or which have
been exercised only in part and are therefore in full force and effect:
      (i) Convertible debentures
           The shareholders at the General Shareholders’ Meeting held on March 20, 2009 resolved under item
           nine on the agenda to delegate to the Board of Directors, with the express power of substitution, for
           a term of five (5) years, the power to issue debentures or bonds that may be exchanged for and/or
           converted into shares of the Company or other companies, whether of the Group or otherwise, and to
           issue warrants on newly-issued or outstanding shares of the Company or other companies, whether
           of the Group or otherwise, without the power to exclude the pre-emptive rights of the shareholders
           and holders of convertible securities, up to a maximum limit of five (5) billion euros, including, in the
           case of convertible debentures and bonds and warrants on newly-issued shares, the delegation of the
           powers to increase capital to the extent necessary to meet requests for the conversion of debentures or
           the exercise of warrants.



                                                                                                                    173
                     / CONSOLIDATED FINANCIAL STATEMENTS




             The Board of Directors has not used this power to date.
       (ii) Authorized capital
             The shareholders at the General Shareholders’ Meeting held on March 30, 2006 resolved under item
             four of the agenda to delegate to the Board of Directors, with the express power of substitution, for
             a term of five (5) years, the power to increase the share capital by up to one-half of the then-current
             share capital, on one or more occasions, and at the time and in the amount that it deems appropriate
             pursuant to the provisions of Section 153.1.b) of the Companies Law (Ley de Sociedades de Capital),
             with the power to exclude pre-emptive rights and to amend Article 5 of the By-Laws as a result.
             Following the capital increases approved by the Board of Directors of the Company on June 26. 2007
             and June 16, 2009, in the nominal amount of 255 and 187.5 million euros respectively, by means of
             an “accelerated bookbuilt offer,” the nominal amount that remains available under such delegation is
             909.824 million euros, representing 22.12% percent of the share capital. All of the foregoing is as of
             the date of this report.
       (iii) Simple fixed-income securities
             The shareholders at the General Shareholders’ Meeting held on March 26, 2010 resolved under item
             nine of the agenda to delegate to the Board of Directors, with the express power of substitution, for
             a term of five (5) years, the power to issue: a) simple bonds or debentures and other fixed-income
             securities of a like nature (other than notes) as well as preferred stock up to a maximum amount of
             twenty (20) billion euros and b) notes up to a maximum amount at any time, independently of the
             foregoing, of six (6) billion euros (maximum amount outstanding), and also resolved to grant the
             Board authorization for the Company to guarantee, within the limits set forth above, new issuances of
             securities by subsidiaries.
             As of the date of this report, the Board of Directors of IBERDROLA has not made use of such delegated
             power.
       (iv) Increase in share capital for the fee-of-charge allocation of newly-issued shares to
             shareholders of the Company
             In addition, at the General Shareholders’ Meeting held on March 26, 2010, the shareholders
             resolved under item six of the agenda to delegate to the Board of Directors, with the express power
             of substitution, the powers necessary to set, to the extent not provided by the shareholders at
             the General Shareholders’ Meeting, the terms of an increase in share capital for the free-of-charge
             allocation of newly-issued ordinary shares of IBERDROLA to the shareholders of the Company at a
             maximum reference market value of one thousand eight hundred sixty-six (1,866) million euros,
             offering to the shareholders the acquisition of their free-of-charge rights (pursuant to the commitment
             to be assumed by the Company at a guaranteed fixed price), as well as taking all actions necessary for
             the implementation thereof on one or at most two occasions (without the reference market value
             exceeding one thousand forty-eight (1,048) million euros on the first installment or eight hundred
             eighteen (818) million euros on the second installment, if any), revising the text of Article 5 of the By-
             Laws on each installment.
             In the exercise of such delegated powers, the Company’s Board of Directors implemented such capital
             increase on June 30 and December 20, 2010.
       (v) Shares of the Company’s own stock
             As regards the possibility of acquiring the Company’s own shares, at the General Shareholders’
             Meeting of March 26, 2010, the shareholders resolved under item eight of the agenda to authorize the
             Board of Directors, with the express power of substitution, to make a derivative acquisition of shares of
             its own stock by the Company and/or its subsidiaries, for a maximum term of five (5) years) and in the
             maximum amount permitted by Law at any time (ten (10%) percent as of the date of adoption of the
             resolution by the shareholders).


h     Significant agreements entered into by the Company and which are to become effective, to be
amended or to terminate upon a change of control in the Company as a result of a public tender offer,
and effects thereof, except in those cases where the disclosure thereof would be seriously detrimental
to the Company. Such exception shall not apply when the Company is under a legal duty to make such
information public

IBERDROLA and its subsidiaries have loans or other agreements with financial institutions, the acceleration of
which might be affected in the event of a change of control, the most significant of which are as follows:




 174   Consolidated Management Report
       (i) There are loans that may be accelerated or under which additional guarantees may be required in
             the event of a change of control due to a public tender offer, amounting in the aggregate to the
             approximate sum of 2,171 million euros worth of agreements that would be affected unless the
             change of control is not deemed to be detrimental.
       (ii) In addition, approximately 2,623 million euros worth of loans would be affected unless
             IBERDROLA’s credit rating is maintained or improved.
       (iii) Similarly, approximately 1,913 million euros worth of loans would be affected by corporate mergers
              unless such mergers occur as a result of intra-group reorganizations or are permitted by the lenders.
       (iv) An additional amount of approximately 10,657 euros in relation to the issuance of securities on
             the Euromarket may be accelerated in the event of a change of control if IBERDROLA’s credit rating
             falls below “investment grade” or, if already below investment grade, falls a notch and so long as the
             Rating Agency indicates that the downgrade in the credit rating is a result of the change of control.
       (v) Finally, approximately 748 million dollars and 304 million euros worth of loans may be accelerated
              in the event of a change of control of the borrower.


i)     Agreements between the Company and its directors and managers or employees that provide
for indemnification if such directors, managers or employees resign or are dismissed without cause or
if the employment relationship is terminated as a result of a public tender offer


      (i) Chairman & Chief Executive Officer
          As provided in his individual contract, the Chairman & Chief Executive Officer is entitled to receive
          indemnification in the event of termination of his relationship with the Company (including his
          non-reelection as Director by the shareholders at a General Shareholders’ Meeting) or in the event of a
          change of control in the Company, so long as the relationship is terminated other than due to a breach
          attributable to the Chairman & Chief Executive Officer or to his own decision to sever it. The amount
          of the indemnification is five (5) times annual salary.
          Notwithstanding the foregoing, the “Director Compensation Policy of Iberdrola, S.A.,” approved by the
          Board of Directors on December 14, 2010, limits the amount of indemnification for new contracts with
          executive Directors to two (2) times annual salary.

      (ii) Senior Managers
           The contracts with the Senior Managers of IBERDROLA contain specific indemnification provisions.
           The purpose of such provisions is to attain a suitable and sufficient degree of loyalty from the senior-
           level executives whose services are required for the management of the Company and thus avoid a loss
           of experience and knowledge that might jeopardize the achievement of the strategic objectives. The
           amount of indemnification is set based on seniority in the position and the reasons for the withdrawal
           of the Senior Manager, up to a maximum of five (5) times annual salary.
           Notwithstanding the foregoing, the “Senior Management Compensation Policy of Iberdrola, S.A.,”
           approved by the Board of Directors on December 14, 2010, limits the amount of indemnification for
           new contracts with Senior Managers to two (2) times annual salary.
      (iii) Employees
           The contracts with employees whose ties to IBERDROLA stem from an ordinary employment
           relationship generally do not contain specific indemnification provisions and, accordingly, in the event
           of termination of the employment relationship, the common labor laws and regulations apply.


7. SUBSEQUENT EVENTS

Subsequent events at the end of 2010 are described in Note 48 of the Consolidated Financial Statements.




                                                                                                                175
               / CONSOLIDATED FINANCIAL STATEMENTS




176 Annual Corporate Governance Report
Annual
Corporate
Governance
Report
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               A. OWNERSHIP STRUCTURE OF THE
                               COMPANY
                               A.1. COMPLETE THE FOLLOWING TABLE ABOUT THE SHARE CAPITAL OF THE COMPANY:

                                       DATE OF LAST                     SHARE CAPITAL
                                         CHANGE                            (EUROS)                     NUMBER OF SHARES                       NUMBER OF VOTING RIGHTS

                                         12-20-2010                       4,112,882,250                    5,483,843,000                               5,483,843,000



                               State whether there are different classes of shares with different rights attaching thereto:

                                  YES                        NO       X


                                                                     NUMBER OF                   NOMINAL VALUE                NUMBER OF VOTING
                                           CLASS                      SHARES                       PER SHARE                  RIGHTS PER SHARE                 DIFFERENT RIGHTS




                               A.2. BREAKDOWN OF DIRECT AND INDIRECT HOLDERS OF SIGNIFICANT SHAREHOLDINGS IN
                               THE COMPANY AS OF THE END OF THE FISCAL YEAR, EXCLUDING DIRECTORS:

                                                                                                                                       NUMBER OF
                                                                                                           NUMBER OF                    INDIRECT
                                          INDIVIDUAL OR CORPORATE NAME OF                                 DIRECT VOTING                  VOTING               % OF TOTAL VOTING
                                                    SHAREHOLDER                                              RIGHTS                     RIGHTS (*)                  RIGHTS

                                   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS, S.A.                        211,762,961               895,973,325                     20.200

                                   BILBAO BIZKAIA KUTXA, AURREZKI KUTXA ETA                                         0                  359,380,724                      6.553
                                   BAHITETXEA (BBK)

                                   CAJA DE AHORROS DE VALENCIA, CASTELLÓN Y                                         0                  301,282,820                      5.494
                                   ALICANTE, BANCAJA



                                                                                             THROUGH: INDIVIDUAL
                                     INDIVIDUAL OR CORPORATE NAME                           OR CORPORATE NAME OF                      NUMBER OF
                                       OF INDIRECT HOLDER OF THE                            DIRECT HOLDER OF THE                     DIRECT VOTING            % OF TOTAL VOTING
                                                INTEREST                                          INTEREST                              RIGHTS                      RIGHTS

                                   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y                     RESIDENCIAL MONTE                            360,619,672                      6.576
                                   SERVICIOS, S.A.                                        CARMELO, S.A.

                                   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y                     NEXGEN CAPITAL LIMITED                        277,971,800                     5.069
                                   SERVICIOS, S.A.

                                   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y                     CORPORATE FUNDING, S.L.                       173,517,307                     3.164
                                   SERVICIOS, S.A.

                                   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y                     ROPERFELI, S.L.                               70,577,059                      1.287
                                   SERVICIOS, S.A.

                                   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y                     VILLA ÁUREA, S.L.                             13,287,487                      0.242
                                   SERVICIOS, S.A.

                                   BILBAO BIZKAIA KUTXA, AURREZKI                         KARTERA 1, S.L.                              359,380,724                      6.553
                                   KUTXA ETA BAHITETXEA (BBK)

                                   CAJA DE AHORROS DE VALENCIA,                           BANCAJA INVERSIONES, S.A.                    301,282,820                      5.494
                                   CASTELLÓN Y ALICANTE, BANCAJA


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               178 Annual Corporate Governance Report
Indicate the most significant changes in the shareholding structure that have occurred during the fiscal year:

           INDIVIDUAL OR CORPORATE NAME OF                                   DATE OF
                     SHAREHOLDER                                           TRANSACTION                   DESCRIPTION OF TRANSACTION

   BLACKROCK INC.                                                            01-28-2010             Increase to above 3% of share capital.

   BLACKROCK INC.                                                           02-09-2010              Decrease to below 3% of share capital.

   BLACKROCK INC.                                                           02-26-2010              Increase to above 3% of share capital

   BLACKROCK INC.                                                            03-10-2010             Decrease to below 3% of share capital

   BLACKROCK INC.                                                            03-12-2010             Increase to above 3% of share capital

   BLACKROCK INC.                                                           03-22-2010              Decrease to below 3% of share capital.

   BNP PARIBAS, S.A.                                                         03-11-2010             Increase to above 3% of share capital

   BNP PARIBAS, S.A.                                                        03-23-2010              Decrease to below 3% of share capital

   NATIXIS, S.A.                                                            05-28-2010              Increase to above 5% of share capital

   NATIXIS, S.A.                                                             07-16-2010             Decrease to below 5% of the share capital

   NATIXIS, S.A.                                                            08-26-2010              Increase to above 5% of share capital

   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS, S.A.                        12-02-2010             Increase to above 15% of share capital

   ACS, ACTIVIDADES DE CONSTRUCCIÓN Y SERVICIOS, S.A.                        12-27-2010             Increase to above 20% of share capital



A.3. COMPLETE THE FOLLOWING TABLES ABOUT MEMBERS OF THE BOARD OF DIRECTORS OF
THE COMPANY WHO HAVE VOTING RIGHTS ATTACHING TO SHARES OF THE COMPANY:

                                                                        NUMBER OF                     NUMBER OF
         INDIVIDUAL OR CORPORATE NAME OF                               DIRECT VOTING                INDIRECT VOTING                 % OF TOTAL
                     DIRECTOR                                             RIGHTS                        RIGHTS (*)                 VOTING RIGHTS

   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                                           2,732,866                           95,417                    0.052

   MR. VÍCTOR DE URRUTIA VALLEJO                                            2,337,230                       8,525,183                     0.198

   MR. RICARDO ÁLVAREZ ISASI                                                   220,000                      1,421,000                     0.030

   MR. JOSÉ IGNACIO BERROETA ECHEVARRIA                                         29,375                        168,091                     0.004

   MR. JULIO DE MIGUEL AYNAT                                                   180,495                                 0                  0.003

   MR. SEBASTIÁN BATTANER ARIAS                                                113,055                                 0                  0.002

   MR. XABIER DE IRALA ESTÉVEZ                                                 189,417                                 0                  0.003

   MR. IÑIGO VÍCTOR DE ORIOL IBARRA                                             42,019                                 0                  0.001

   MS. INÉS MACHO STADLER                                                       44,740                                 0                  0.001

   MR. BRAULIO MEDEL CÁMARA                                                     41,538                                 0                  0.001

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                                                32,098                                 0                  0.001

   MS. SAMANTHA BARBER                                                              706                                0                  0.000

   MS. MARÍA HELENA ANTOLÍN RAYBAUD                                                    0                               0                  0.000

   MR. SANTIAGO MARTÍNEZ LAGE                                                     8,325                                0                  0.000
NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      179
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                                                                              THROUGH: INDIVIDUAL OR                         NUMBER OF                  % OF TOTAL
                                   INDIVIDUAL OR CORPORATE NAME OF                           CORPORATE NAME OF DIRECT                       DIRECT VOTING                 VOTING
                                    INDIRECT HOLDER OF THE INTEREST                           HOLDER OF THE INTEREST                           RIGHTS                     RIGHTS

                                   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                         MS. ISABEL GARCÍA-TABERNERO                                95,417                   0.002
                                                                                          RAMOS

                                   MR. VÍCTOR DE URRUTIA VALLEJO                          LIMA, S.A.                                             8,525,183                    0.155

                                   MR. RICARDO ÁLVAREZ ISASI                              MS. PILAR BASTERRA ARTAJO                                755,000                    0.014

                                   MR. RICARDO ÁLVAREZ ISASI                              DOPISA ALTERRA, S.L.                                     666,000                    0.012

                                   MR. JOSÉ IGNACIO BERROETA                              MS. MARIA JOSEFA AURRECOECHEA                            109,901                    0.002
                                   ECHEVARRIA                                             ZUBIAUR

                                   MR. JOSÉ IGNACIO BERROETA                              IGOPER, S.L.                                               58,190                   0.001
                                   ECHEVARRIA



                                   Total percentage of voting rights held by the board of directors                                                                     0.295



                               Complete the following tables about members of the Company’s board of directors who hold rights to
                               shares of the Company:

                                                                                  NUMBER OF                   NUMBER OF                    NUMBER
                                   INDIVIDUAL OR CORPORATE                      DIRECT OPTION              INDIRECT OPTION                OF SHARE                  % OF TOTAL
                                       NAME OF DIRECTOR                             RIGHTS                      RIGHTS                   EQUIVALENTS               VOTING RIGHTS




                               A.4. DESCRIBE, IF APPLICABLE, THE FAMILY, COMMERCIAL, CONTRACTUAL OR CORPORATE
                               RELATIONSHIPS BETWEEN SIGNIFICANT SHAREHOLDERS, TO THE EXTENT KNOWN TO THE
                               COMPANY, UNLESS THEY ARE IMMATERIAL OR RESULT FROM THE ORDINARY COURSE OF
                               BUSINESS:

                                      INDIVIDUAL OR CORPORATE NAME OF                                DESCRIPTION OF THE
                                              RELATED PARTIES                                          RELATIONSHIP                               TYPE OF RELATIONSHIP




                               A.5. DESCRIBE, IF APPLICABLE, THE COMMERCIAL, CONTRACTUAL OR CORPORATE
                               RELATIONSHIPS BETWEEN SIGNIFICANT SHAREHOLDERS AND THE COMPANY AND/OR
                               ITS GROUP, UNLESS THEY ARE IMMATERIAL OR RESULT FROM THE ORDINARY COURSE OF
                               BUSINESS:

                                                                                    TYPE OF
                                      INDIVIDUAL OR CORPORATE                      RELATION-
                                      NAME OF RELATED PARTIES                        SHIP                                         BRIEF DESCRIPTION

                                   ACS, ACTIVIDADES DE                             Corporate          (1) IBERDROLA and ACS both hold indirect interests in ELECTRA DE
                                   CONSTRUCCIÓN Y SERVICIOS, S.A.                                         MONTÁNCHEZ, S.A. with stakes of 32% and 40%, respectively.
                                                                                                      (2) IBERDROLA and ACS both hold indirect interests in SISTEMA
                                                                                                          ELÉCTRICO DE CONEXIÓN HUÉNEJA, S.L. with stakes of 37.89%
                                                                                                          and 5.9%, respectively.
                                                                                                      (3) IBERDROLA AND ACS BOTH HOLD INDIRECT INTERESTS IN TIRME,
                                                                                                          S.A., WITH STAKES OF 20% EACH.
                                                                                                      (4) IBERDROLA and ACS both hold direct interests in NEOTEC
                                                                                                          CAPITAL RIESGO SOCIEDAD DE FONDOS, S.A., S.C.R. de régimen
                                                                                                          simplificado [venture capital company under a simplified
                                                                                                          system] with stakes of 7.92% and 1.58%, respectively.



NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               180 Annual Corporate Governance Report
                                                    TYPE OF
      INDIVIDUAL OR CORPORATE                      RELATION-
      NAME OF RELATED PARTIES                        SHIP                                         BRIEF DESCRIPTION

   BILBAO BIZKAIA KUTXA, AURREZKI                  Corporate          (1) IBERDROLA and BBK both hold interests in EUSKALTEL, S.A., with
   KUTXA ETA BAHITETXEA (BBK)                                             stakes of 11.79% and 35.05%, respectively.
                                                                      (2) IBERDROLA and BBK both hold interests in FIUNA, S.A., with
                                                                          stakes of 70% and 30%, respectively.
                                                                      (3) IBERDROLA and BBK both hold interests in OPERADOR DEL
                                                                          MERCADO IBÉRICO DE ENERGÍA-POLO ESPAÑOL, S.A., with stakes
                                                                          of 5.14% and 2.70%, respectively.
                                                                      (4) IBERDROLA and BBK both hold interests in SEED CAPITAL DE
                                                                          BIZKAIA, S.G.E.C.R., S.A., with stakes of 5% and 10%, respectively.
                                                                      (5) IBERDROLA and BBK both hold interests in URAGUA, S.A. EN
                                                                          LIQUIDACIÓN, with stakes of 49% and 23%, respectively.
                                                                      (6) IBERDROLA and BBK both hold interests in TORRE IBERDROLA,
                                                                          S.A., with stakes of 65% and 35%, respectively.

   CAJA DE AHORROS DE VALENCIA,                    Corporate          (1) IBERDROLA and BANCAJA both hold indirect interests in
   CASTELLÓN Y ALICANTE, BANCAJA                                          URBANIZADORA MARINA DE COPE, S.L., with stakes of 60% and
                                                                          20%, respectively.
                                                                      (2) IBERDROLA and BANCAJA both hold indirect interests in
                                                                          SISTEMAS ENERGÉTICOS DE LEVANTE, S.A., with stakes of 48%
                                                                          and 40%, respectively.



A.6. INDICATE WHETHER ANY PARACORPORATE (SHAREHOLDERS’) AGREEMENTS AFFECTING
THE COMPANY PURSUANT TO THE PROVISIONS OF SECTION 112 OF THE SECURITIES MARKET
LAW (LEY DEL MERCADO DE VALORES) (LMV) HAVE BEEN REPORTED TO THE COMPANY. IF SO,
BRIEFLY DESCRIBE THEM AND LIST THE SHAREHOLDERS BOUND BY THE AGREEMENT:

  YES                        NO       X


               INDIVIDUAL OR CORPORATE NAME                                             BRIEF DESCRIPTION OF THE AGREEMENT




Indicate whether the Company is aware of the existence of concerted actions among its shareholders.
If so, briefly describe them:

  YES                        NO       X


               INDIVIDUAL OR CORPORATE NAME                                             BRIEF DESCRIPTION OF THE AGREEMENT




Expressly indicate whether any of such agreements, arrangements or concerted actions have been
modified or terminated during the fiscal year.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      181
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               A.7. INDICATE WHETHER THERE IS ANY INDIVIDUAL OR LEGAL ENTITY THAT EXERCISES OR
                               MAY EXERCISE CONTROL OVER THE COMPANY PURSUANT TO SECTION 4 OF THE SECURITIES
                               MARKET LAW. IF SO, IDENTIFY IT:

                                  YES                        NO       X


                                                                                       INDIVIDUAL OR CORPORATE NAME




                                                                                                      COMMENTS




                               A.8. COMPLETE THE FOLLOWING TABLES ABOUT THE COMPANY’S TREASURY STOCK:

                               As of year-end:

                                   NUMBER OF DIRECT SHARES                         NUMBER OF INDIRECT SHARES (*)                              TOTAL % OF SHARE CAPITAL

                                               25,410,259                                               0                                                   0.463%


                               (*) Through:

                                      INDIVIDUAL OR CORPORATE NAME OF DIRECT SHAREHOLDER                                                 NUMBER OF DIRECT SHARES




                               Describe any significant changes, pursuant to the provisions of Royal Decree 1362/2007, that have
                               occurred during the fiscal year:

                                                                      TOTAL DIRECT SHARES                   TOTAL INDIRECT SHARES
                                      DATE OF NOTICE                       ACQUIRED                               ACQUIRED                         TOTAL % OF SHARE CAPITAL

                                          09-06-2010                          54,390,638                                    0                                      1.011

                                          12-29-2010                           2,886,845                                    0                                      0.052



                                   Gains/(Losses) on the Company’s own stock transferred during the period                                                                 0




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               182 Annual Corporate Governance Report
A.9. DESCRIBE THE TERMS AND CONDITIONS AND THE DURATION OF THE POWERS
CURRENTLY IN FORCE GIVEN BY THE SHAREHOLDERS ACTING AT THE GENERAL
SHAREHOLDERS’ MEETINGS TO THE BOARD OF DIRECTORS IN ORDER TO ACQUIRE OR
TRANSFER COMPANY STOCK:
The treasury stock transactions carried out during fiscal year 2010 were made pursuant to authorizations granted
by the shareholders acting at a General Shareholders’ Meeting who, at their meetings of March 20, 2009 and
March 26, 2010, resolved to expressly authorize the Board of Directors, with the power of substitution, pursuant
to Section 75 of the now repealed Companies Law (as of the date of this report, Sections 146 and 509 of the
Companies Law (Ley de Sociedades de Capital), to carry out the derivative acquisition of the stock of Iberdrola,
S.A. (“Iberdrola” or the “Company”) on the following terms:
   a) Purchases may be made by Iberdrola directly, or indirectly through its subsidiaries. Subsidiaries carrying
   out regulated activities are excluded pursuant to the provisions of the Electricity Industry Law and the
   Hydrocarbons Law.
   b) Purchases shall be made by means of a purchase and sale agreement, a swap arrangement or any other
   transaction whatsoever permitted by law.
   c) Purchases may be made up to the maximum sum permitted by law at any time (up to 5% of the share
   capital as of the date of adoption of the previously-mentioned resolution of March 20, 2009 and up to 10% of
   the share capital as of the date of adoption of the resolution of March 26, 2010).
   d) Purchases may not be made at a higher price than that quoted on the Stock Exchange or at a price lower
   than the share’s nominal value.
   e) In 2009, authorization was granted for a period not exceeding 18 months, while in 2010, authorization was
   granted for a period not to exceed 5 years and up to the maximum amount permitted by Law.
   f) In the net worth of the acquiring company there shall be established a restricted reserve equal to the
   amount of the stock of the controlling company recorded under assets. Such reserve shall be maintained while
   the stock is not transferred or redeemed, in compliance with the provisions of the Companies Law.
Both authorizations expressly provided that the shares, if any, purchased as a result thereof could be used
both for transfer or redemption or could be applied to the compensation systems provided for in the Companies
Law; added to the foregoing alternatives was the possible development of programs fostering the acquisition
of interests in the Company such as, for example, dividend reinvestment plans, loyalty bonds or similar
instruments.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      183
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               A.10. INDICATE, IF APPLICABLE, ANY LEGAL OR BY-LAW RESTRICTIONS ON THE EXERCISE OF
                               VOTING RIGHTS, AND ANY LEGAL RESTRICTIONS ON THE ACQUISITION OR TRANSFER OF
                               INTERESTS IN SHARE CAPITAL.


                               Indicate whether there are legal restrictions on the exercise of voting rights:

                                  YES       X                NO


                                 Maximum percentage of voting rights that a shareholder may exercise due to legal                                                       3.000
                                 restrictions

                               Indicate whether there are by-law restrictions on the exercise of voting rights:

                                  YES       X                NO


                                 Maximum percentage of voting rights that a shareholder may exercise due to by-law
                                                                                                                                                                       10.000
                                 restrictions


                                                  DESCRIPTION OF LEGAL AND BY-LAW RESTRICTIONS ON THE EXERCISE OF VOTING RIGHTS

                                   1) Legal restrictions
                                   Section 34 of Royal Decree-Law 6/2000, of June 23, on Urgent Measures to Intensify Competition in the Goods and
                                   Services Markets, as amended by Law 14/2000, of December 29, by Royal Decree-Law 5/2005, of March 11, and by Law
                                   17/2007, of July 4, provides that individuals or legal entities that have a direct or indirect interest in the share capital or
                                   voting rights of two or more companies that qualify as a Principal Operator in the same market or industry among those
                                   specified in the aforementioned provision (including electric power generation and supply and natural gas production
                                   and supply) in a proportion equal to or greater than 3 percent, may not exercise the voting rights corresponding to the
                                   excess over such percentage in more than one entity. The same rule applies in the event that a company that qualifies
                                   as Principal Operator holds an interest in the capital or voting rights of another Principal Operator in the same economic
                                   industry.
                                   However, and in either of both cases, the competent industry regulator (i.e., the National Energy Commission (Comisión
                                   Nacional de Energía)] in the case of energy markets) may grant an authorization allowing for the free exercise of voting
                                   rights in excess of the above-mentioned percentage.

                                   2) By-law restrictions
                                   As provided in Article 29.3 of the By-Laws, “No shareholder may cast a number of votes greater than those
                                   corresponding to shares representing ten (10%) percent of share capital, even if the number of shares held exceeds such
                                   percentage of capital.”
                                   In addition, pursuant to Article 30.1 of the By-Laws, “Shareholders participating in a merger or split-off with the
                                   Company or who are called to subscribe to an increase in capital with the exclusion of pre-emptive rights or to acquire by
                                   overall assignment all of the Company’s assets, may not exercise their voting rights for the approval of such resolutions
                                   by the shareholders.”
                                   The foregoing restrictions equally apply (i) in the case of an individual shareholder, to the entities or companies
                                   controlled by such individual, and (ii) in the case of shareholders which are legal entities, to the entities or companies
                                   that belong to the same group pursuant to the provisions of Section 4 of Securities Market Law 24/1988, of July 28,
                                   which, in turn, contains a cross-reference to Section 42 of the Commercial Code.
                                   Article 54 of the By-Laws provides that the by-law restrictions described above shall have no effect “upon the occurrence
                                   of the following circumstances:
                                   (a) when the Company is the target of a public tender offer aimed at the share capital as a whole; and
                                   (b) when, as a result of the public tender offer, an individual or a legal entity, or several of them acting jointly, acquire
                                       an interest equal to two-thirds of the voting capital of the Company, provided the full consideration thereof consists
                                       only of cash; or, alternatively,
                                   (c) when, as a result of the public tender offer, an individual or a legal person, or several of them acting jointly, acquire an
                                       interest equal to three-quarters of the voting capital of the Company, provided the consideration thereof consists, in
                                       whole or in part, of securities, without giving the recipient an alternative right to receive such consideration wholly in
                                       cash.”




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               184 Annual Corporate Governance Report
Indicate if there are legal restrictions on the acquisition or transfer of interests in the share capital:

  YES       X                NO


     DESCRIPTION OF THE LEGAL RESTRICTIONS ON THE ACQUISITION OR TRANSFER OF INTERESTS IN THE SHARE
                                                CAPITAL

   As a consequence of the merger of Energy East Corporation (now Iberdrola USA, Inc.) into the Iberdrola Group, effective
   as from September 16, 2008, the acquisition of an interest that may give rise to the holding of a percentage equal to or
   greater than 10% of the share capital of Iberdrola shall be subject to the prior approval of the Federal Energy Regulatory
   Commission of the United States of America and of the regulatory authorities of the States in which Iberdrola USA, Inc.
   or any company of the Iberdrola Group carries out its activities in the United States of America, without prejudice to any
   other approvals that might be required of such acquiring party in the United States of America.
   Specifically, the final order of the Public Service Commission of the State of New York, published on January 6, 2009,
   which sets forth the complete text of the authorization for Iberdrola, S.A. to acquire Iberdrola USA, Inc., provides that,
   pursuant to section 70 of the Public Service Law, any transfer or lease of all or part of the gas or electricity network,
   infrastructure or system, the execution of any contracts for the operation of such infrastructure or systems, as well as
   the transfer of an interest resulting in ownership of a percentage greater than 10% of the share capital of Iberdrola, S.A.,
   shall require the prior approval of such Commission


A.11. INDICATE WHETHER THE SHAREHOLDERS ACTING AT A GENERAL SHAREHOLDERS’
MEETING HAVE APPROVED THE ADOPTION OF BREAKTHROUGH MEASURES IN THE EVENT
OF A PUBLIC TENDER OFFER PURSUANT TO THE PROVISIONS OF LAW 6/2007:

  YES                        NO       X


If applicable, describe the approved measures and the terms on which the restrictions will become
ineffective.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      185
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               B. STRUCTURE OF THE COMPANY’S
                               MANAGEMENT
                               B.1. BOARD OF DIRECTORS

                               B.1.1. Describe the maximum and minimum number of Directors set forth in the By-Laws:

                                   Maximum number of directors                                                                                                                15

                                   Minimum number of directors                                                                                                                9



                               B.1.2. Complete the following table identifying the members of the Board of Directors:


  INDIVIDUAL OR CORPORATE NAME                      REPRESEN-                                   DATE FIRST             DATE LAST
           OF DIRECTOR                                TATIVE              POSITION             APPOINTMENT            APPOINTMENT                   ELECTION PROCEDURE

   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                           -         CHAIRMAN - CEO              05-21-2001              03-26-2010           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MR. VÍCTOR DE URRUTIA VALLEJO                            -         VICE-CHAIRMAN               02-17-1978              03-26-2010           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MR. RICARDO ÁLVAREZ ISASI                                -             DIRECTOR                10-18-1990              03-26-2010           VOTE AT GENE-RAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MR. JOSÉ IGNACIO BERROETA                                -             DIRECTOR                05-10-1993              03-26-2010           VOTE AT GENERAL
   ECHEVARRIA                                                                                                                                  SHAREHOLDERS’ MEETING

   MR. JULIO DE MIGUEL AYNAT                                -             DIRECTOR                10-29-2003              03-26-2010           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MR. SEBASTIÁN BATTANER ARIAS                             -             DIRECTOR                05-26-2004              03-26-2010           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MR. XABIER DE IRALA ESTÉVEZ                              -             DIRECTOR                04-20-2005              03-29-2007           VOTE AT GENE-RAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MR. IÑIGO VÍCTOR DE ORIOL IBARRA                         -             DIRECTOR                04-26-2006              03-29-2007           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MS. INÉS MACHO STADLER                                   -             DIRECTOR                06-07-2006              03-29-2007           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MR. BRAULIO MEDEL CÁMARA                                 -             DIRECTOR                06-07-2006              03-29-2007           VOTE AT GENERAL SHAREHOL
                                                                                                                                               DERS’ MEETING

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                            -             DIRECTOR                07-24-2007              07-24-2007           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MS. SAMANTHA BARBER                                      -             DIRECTOR                07-31-2008              07-31-2008           VOTE AT GENERAL
                                                                                                                                               SHAREHOLDERS’ MEETING

   MS. MARÍA HELENA ANTOLÍN                                 -             DIRECTOR                 3-26-2010               3-26-2010           VOTE AT GENERAL
   RAYBAUD                                                                                                                                     SHAREHOLDERS’ MEETING

   MR. SANTIAGO MARTÍNEZ LAGE                               -             DIRECTOR                 3-26-2010               3-26-2010           VOTE AT GENE-RAL
                                                                                                                                               SHAREHOLDERS’ MEETING




                                   Total Number of Directors                                                                                                                  14




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               186 Annual Corporate Governance Report
Indicate vacancies on the Board of Directors during the period:

                                                                                       STATUS OF THE DIRECTOR AT                         DATE OF
         INDIVIDUAL OR CORPORATE NAME OF DIRECTOR                                         THE TIME OF VACANCY                            VACANCY

   MR. JOSÉ ORBEGOZO ARROYO                                                                       Independent                          02-22-2010

   MR. LUCAS MARÍA DE ORIOL LÓPEZ-MONTENEGRO                                                      Independent                          02-22-2010

   MR. JUAN LUIS ARREGUI CIARSOLO                                                                 Independent                          03-26-2010

   MR. JOSÉ MARÍA LOIZAGA VIGURI                                                                   Proprietary                         03-26-2010


B.1.3. Complete the following table about the members of the Board and each member’s status:

EXECUTIVE DIRECTORS
   INDIVIDUAL OR CORPORATE NAME                       COMMITTEE THAT HAS PROPOSED                         POSITION WITHIN THE COMPANY’S
            OF DIRECTOR                                THE DIRECTOR’S APPOINTMENT                                   STRUCTURE

   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                     NOMINATING AND COMPENSATION                        CHAIRMAN & CEO
                                                      COMMITTEE



   Total number of executive directors                                                                                                         1

   Total % of Board members                                                                                                                 7.143


EXTERNAL PROPRIETARY DIRECTORS
                                                                                                         INDIVIDUAL OR CORPORATE NAME
                                                                                                         OF THE SIGNIFICANT SHAREHOLDER
                                                             COMMITTEE THAT HAS                           REPRESENTED BY THE DIRECTOR
   INDIVIDUAL OR CORPORATE NAME                            PROPOSED THE DIRECTOR’S                          OR THAT HAS PROPOSED THE
            OF DIRECTOR                                         APPOINTMENT                                  DIRECTOR’S APPOINTMENT

   MR. XABIER DE IRALA ESTÉVEZ                         NOMINATING AND COMPENSATION                       BILBAO BIZKAIA KUTXA, AURREZKI
                                                       COMMITTEE                                         KUTXA ETA BAHITETXEA (BBK)

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                       NOMINATING AND COMPENSATION                       CAJA DE AHORROS DE VALENCIA,
                                                       COMMITTEE                                         CASTELLÓN Y ALICANTE, BANCAJA



   Total number of proprietary directors                                                                                                       2

   Total % of Board members                                                                                                                14.286




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      187
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               EXTERNAL INDEPENDENT DIRECTORS
                                         INDIVIDUAL OR CORPORATE
                                             NAME OF DIRECTOR                                                                       PROFILE

                                   MR. VÍCTOR DE URRUTIA VALLEJO                          Madrid, 1942.
                                                                                          Doctorate in Economics from Universidad Complutense de Madrid and
                                                                                          degree in Law from Universidad de Oviedo.
                                                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                                                          Energy and industrial engineering sectors.
                                                                                          He served as a member of the Board of Hidroeléctrica Española, S.A. and of
                                                                                          Babcock Wilcox Española, S.A.
                                                                                          Other industries:
                                                                                          He has been a member of the board of Firestone Hispania, S.A., of
                                                                                          International Business Machines, S.A. (IBM), of Corporación IBV, Servicios y
                                                                                          Technologías, S.A.U. and as Chairman of Bebidas Gaseosas del Noroeste, S.A.
                                                                                          He is currently Chairman of Compañía Castellana de Bebidas Gaseosas, S.A.
                                                                                          (CASBEGA) and of Compañía Vinícola del Norte de España, S.A. (CVNE, a
                                                                                          listed company in the wine-growing industry), and a member of the Board
                                                                                          of Barclays Bank, S.A., Vocento, S.A., El Norte de Castilla, S.A.; Diario El
                                                                                          Correo, S.A. and Viñedos del Contino, S.A.
                                                                                          While sitting on the Board of Firestone Hispania, S.A., he was a member of
                                                                                          the Executive Committee of the Board of Directors of that company.

                                   MR. RICARDO ÁLVAREZ ISASI                              Bilbao, 1940.
                                                                                          Doctorate in Industrial Engineering from Escuela Técnica-Superior de
                                                                                          Ingenieros Industriales de Bilbao and Professor of Electric Engineering, with
                                                                                          extensive teaching and research experience.
                                                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                                                          Energy and industrial engineering sectors:
                                                                                          He served as member of the Board of Directors of Ente Vasco de la Energía
                                                                                          and has as a long track record in the industrial engineering industry.
                                                                                          Other industries:
                                                                                          In the financial sector, he has been General Director of Caja de Ahorros
                                                                                          Municipal de Bilbao.
                                                                                          He has been a member of the Board of Directors of Centro para el Ahorro y
                                                                                          Desarrollo Energético y Minero (CADEM) and has been a member of various
                                                                                          boards of trustees and foundations, including, among others, Fundación
                                                                                          “Víctor Tapia-Dolores Sainz” and Fundación Escuela de Ingenieros de Bilbao.
                                                                                          He has been member of the Steering Committee of the Social Board of
                                                                                          Universidad del País Vasco.
                                                                                          He has held a number of positions with academic and research institutions,
                                                                                          such as the position of Director of Escuela de Ingeniería de Bilbao.

                                   MR. JOSÉ IGNACIO BERROETA                              Bilbao, 1939.
                                   ECHEVARRIA                                             Degree in Economics from Universidad del País Vasco (Sarriko School of
                                                                                          Economics and Business Management).
                                                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                                                          Energy and industrial engineering sectors:
                                                                                          He is a Director of Construcciones y Auxiliar de Ferrocarriles, S.A. (CAF, a
                                                                                          listed company) and part of his career is related to the electricity industry.
                                                                                          He has held senior management positions at General Eléctrica Española, S.A.
                                                                                          and Fabrelec-Westinghouse.
                                                                                          Other industries:
                                                                                          He was Executive Chairman of Bilbao Bizkaia Kutxa, Aurrezki Kutxa eta
                                                                                          Bahitetxea (BBK), Vice-Chairman of the Confederación Española de Cajas de
                                                                                          Ahorros (CECA), and a member of the board of other entities in the financial
                                                                                          industry.
                                                                                          He was Assistant General Manager of Banco Bilbao Vizcaya, S.A.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               188 Annual Corporate Governance Report
         INDIVIDUAL OR CORPORATE
             NAME OF DIRECTOR                                                                       PROFILE

   MR. JULIO DE MIGUEL AYNAT                              Valencia, 1944.
                                                          Degree in Law from Universidad de Valencia.
                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                          Energy and industrial engineering sectors:
                                                          He has been a member of the Board of Directors of Abertis Infraestructuras,
                                                          S.A., of Autopistas del Mare Nostrum, S.A. (AUMAR), of Enagás, S.A. and of
                                                          Áurea Concesiones de Infraestructura.
                                                          Other industries:
                                                          In the financial industry, he was Chairman of Caja de Ahorros de Valencia,
                                                          Castellón y Alicante, Bancaja, Banco de Valencia, S.A. and Banco de Murcia,
                                                          S.A. He was Vice-Chairman of Federación Valenciana de Cajas de Ahorros, as
                                                          well as a member of the Board of Directors of Confederación Española de
                                                          Cajas de Ahorros (CECA) and of the Instituto Valenciano de Investigaciones
                                                          Económicas (IVIE).
                                                          He has also been a member of the Board of Directors of Metrovacesa, S.A. (a
                                                          listed company).
                                                          He has been a member of the Audit and Compliance Committee of the
                                                          Board of Directors of Enagás, S.A. He is currently a member of the Instituto
                                                          Español de Analistas Financieros.

   MR. SEBASTIÁN BATTANER ARIAS                           Salamanca, 1941.
                                                          Degree in Economics from the School of Economics and Business
                                                          Administration (La Comercial) of Universidad Comercial de Deusto and
                                                          degree in Law from Universidad de Valladolid.
                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                          Energy and industrial engineering sectors:
                                                          He was the founder and Executive Chairman of Grupo de Negocios Duero,
                                                          S.A.U., a company with interests in companies within the Spanish energy
                                                          industry. In the industrial sector, he served as a member of the Board of
                                                          Directors of Uralita, S.A. It should be noted that he began his professional
                                                          career at Aceros de Llodio, S.A. and Tubos Especiales Olarra, S.A.
                                                          Other industries:
                                                          In the financial industry, he was a member of the Board of Directors
                                                          and Executive Chairman of Caja de Ahorros de Salamanca y Soria (Caja
                                                          Duero), and founder and Executive Chairman of companies controlled by
                                                          Caja Duero, such as Leasing del Duero, S.A., Unión del Duero de Seguros
                                                          Generales, S.A. and Unión del Duero de Seguros de Vida, S.A. He was
                                                          founder of Gesduero, S.A., a financial risk analysis company, co-founder
                                                          and a member of the Board of Asociación Española de Banca de Negocios
                                                          and a member of the Board of Confederación Española de Cajas de Ahorro
                                                          (CECA). He was also co-founder of European Group of Financial Institutions
                                                          – EGFI (the first European economic interest grouping). He has also held
                                                          management positions at other financial institutions such as Banco
                                                          Atlántico, S.A., Unicaja, and Banco Europeo de Finanzas, of which he was
                                                          Chairman.
                                                          He is an economist and a practicing attorney.
                                                          His professional experience in the management of financial and insurance
                                                          entities ensures his competence to discharge his duties at the helm of the
                                                          Audit and Risk Supervision Committee.
                                                          In addition to his extensive experience in the financial and insurance
                                                          industries, he has taught at Universidad de Deusto and at the Instituto
                                                          Internacional de Dirección de Empresas (INSIDE).




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      189
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                         INDIVIDUAL OR CORPORATE
                                             NAME OF DIRECTOR                                                                       PROFILE

                                   MR. IÑIGO VÍCTOR DE ORIOL IBARRA                       Madrid, 1962.
                                                                                          Bachelor of Arts in International Business, graduate of the Executive
                                                                                          Corporate Management Program of the Management School of Instituto
                                                                                          de Estudios Superiores de la Empresa de la Universidad de Navarra (IESE
                                                                                          Business School) and Certified European Financial Analyst (CEFA) from the
                                                                                          Instituto Español de Analistas Financieros.
                                                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                                                          Energy and industrial engineering sectors:
                                                                                          He is currently a Director of Empresa de Alumbrado Eléctrico de Ceuta,
                                                                                          S.A. He has also been a member of the Board of Directors of Neoenergía,
                                                                                          S.A. (Brazil), Electricidad de la Paz, S.A. (Bolivia), Empresa de Luz y Fuerza
                                                                                          Eléctrica de Oruro, S.A. (Bolivia) and Empresa Eléctrica de Guatemala, S.A.
                                                                                          He has served as Director of Corporate Governance for the Americas and
                                                                                          has held the positions of Director of Management Control at Amara, S.A.
                                                                                          and of financial analyst at the Financial Division of Iberdrola, S.A., among
                                                                                          other positions.

                                   MS. INÉS MACHO STADLER                                 Bilbao, 1959.
                                                                                          Degree in Economics from Universidad del País Vasco, Masters in Economy
                                                                                          from l’École des Hautes Études en Sciences Sociales (Paris) and Doctorate
                                                                                          in Economics (Ph.D.) from the same academic institution and from l’École
                                                                                          Nationale de la Statistique et de l’Administration Économique (ENSAE).
                                                                                          Noteworthy experience for the holding of her positions at Iberdrola:
                                                                                          Energy industry:
                                                                                          She is a member of the International Scientific Advisory Committee of the
                                                                                          Basque Center for Climate Change (bc3) and has served as Chairman of the
                                                                                          Scientific Committee of the 2011 Conference of the Asociación Española
                                                                                          para la Economía Energética (the Spanish affiliate of the International
                                                                                          Association for Energy Economics – IAEE).
                                                                                          Other industries:
                                                                                          She is currently a Professor of Economics in the Economics and Economic
                                                                                          History Department of Universidad Autónoma de Barcelona, as well as
                                                                                          Professor of the Graduate School of Economics in Barcelona. She has taught
                                                                                          and performed research at Universidad del País Vasco and at Universidad
                                                                                          Autónoma de Barcelona, and has been a visiting professor in California,
                                                                                          Copenhagen, Leuven, Montreal and Munich.
                                                                                          She is a member of the Executive Committee of the European Association
                                                                                          for Research in Industrial Economics, an elected member of the Council of
                                                                                          the European Economic Association, Honorary Member of the European
                                                                                          Economic Association and of the Asociación Española de Economía, and a
                                                                                          member of the Advisory Council of the Studies Service of Caja de Ahorros y
                                                                                          Pensiones de Barcelona (“la Caixa”).
                                                                                          She has been President of Asociación Española de Economía, as well
                                                                                          as coordinator of Agencia Nacional de Evaluación y Prospectiva and
                                                                                          representative at the European Science Foundation.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               190 Annual Corporate Governance Report
         INDIVIDUAL OR CORPORATE
             NAME OF DIRECTOR                                                                       PROFILE

   MR. BRAULIO MEDEL CÁMARA                               Marchena, Seville, 1947.
                                                          Degree in Economics and Business Administration from Universidad
                                                          Complutense de Madrid and Doctorate in Economics and Corporate
                                                          Sciences from Universidad de Málaga. Professor of Public Finance at
                                                          Universidad de Málaga.
                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                          Energy and industrial engineering sectors:
                                                          He is member of the Board of Directors of the listed company Acerinox, S.A.
                                                          and was a member of the Board of Directors of Abertis Infraestructuras, S.A.
                                                          Other industries:
                                                          He is Chairman of Monte de Piedad y Caja de Ahorros de Ronda, Cádiz,
                                                          Almería, Málaga, Antequera y Jaén (Unicaja) as well as of Alteria Corporación
                                                          Unicaja. He is also Chairman of Federación de Cajas de Ahorros de Andalucía
                                                          and Aquagest Sur, S.A.. He is Vice-Chairman of Confederación Española
                                                          de Cajas de Ahorros (CECA), of which he was CEO until 1998, and Vice-
                                                          Chairman of Ahorro Corporación, S.A., a member of the Board of Directors
                                                          of Caja de Seguros Reunidos, Compañía de Seguros y Reaseguros, S.A.
                                                          and of the AZVI, S.L. group of companies. He has been a member of the
                                                          governance bodies of Agrupación Europea de Cajas de Ahorros, of which he
                                                          was Vice-President between 1992 and 1998.
                                                          He is a member of the Board of Agencia de Innovación y Desarrollo de
                                                          Andalucía (IDEA), a member of Fundación CIEDES (Centro de Investigaciones
                                                          Estratégicas y Desarrollo Económico y Social), of Fundación de Ayuda Contra
                                                          la Drogadicción, of Fundación Tres Culturas del Mediterráneo, of Fundación
                                                          El Legado Andalusí, of Fundación IMABIS (Instituto Mediterráneo para el
                                                          Avance de la Biotecnología y la Investigación Sanitaria) and of Fundación
                                                          Doñana 21.
                                                          He was Deputy Minister for Economy and Finance of the Junta de Andalucia
                                                          and Chairman of Consejo Andaluz de Colegios de Economistas.

   MS. SAMANTHA BARBER                                    Dunfermline, Fife, Scotland, 1969.
                                                          Bachelor of Arts in Applied Foreign Languages and European Politics from
                                                          the University of Northumbria, Newcastle (England, United Kingdom), with
                                                          subjects (Value Units) of the University General Studies Diploma (Diplôme
                                                          d’Études Universitaires Générales) in Applied Foreign Languages and Business
                                                          Economics from the University of Dijon, France and Graduate Course in EC
                                                          Law from the University of Nancy, France.
                                                          Noteworthy experience for the holding of her positions at Iberdrola:
                                                          Currently, she is a non-executive Director of Centre for Scottish Public
                                                          Policy and a member of the Business Advisory Board of Glasgow Caledonian
                                                          University.
                                                          For nine years, she was the chief executive of Scottish Business in
                                                          the Community (SBC), a non-profit organization that promotes the
                                                          development of sustainable economy in Scotland. She was also a board
                                                          member of Business for Scotland.
                                                          She served as consultant at the European Parliament in Brussels.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      191
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                         INDIVIDUAL OR CORPORATE
                                             NAME OF DIRECTOR                                                                       PROFILE

                                   MS. MARÍA HELENA ANTOLÍN RAYBAUD                       Toulon, France, 1966.
                                                                                          Degree in International Business & Business Administration from Eckerd
                                                                                          College, St. Petersburg, Florida (United States of America) and Masters
                                                                                          in Business Administration from Anglia University, Cambridge (United
                                                                                          Kingdom) and from Escuela Politécnica de Valencia (Spain).
                                                                                          Noteworthy experience for the holding of her positions at Iberdrola:
                                                                                          Energy and industrial engineering sectors:
                                                                                          She was an external independent Director of Iberdrola Renovables, S.A. and
                                                                                          is a member of the Board of Directors and Corporate Industrial Director of
                                                                                          Grupo Antolín.
                                                                                          At Grupo Antolín-Irausa, she held the positions of Director of Human
                                                                                          Resource Development, Total Quality Manager and Manager of
                                                                                          Communications.
                                                                                          She has also held other positions within Grupo Antolín, such as Corporate
                                                                                          Director of Strategy, manager of Organization and Methods and Deputy to
                                                                                          Management. She has also served as Managing Director of Grupo Antolín-
                                                                                          IPV (Valencia).

                                   MR. SANTIAGO MARTÍNEZ LAGE                             Betanzos, La Coruña, 1946.
                                                                                          Degree in Law from Universidad de Madrid. He continued his studies at the
                                                                                          Escuela de Funcionarios Internacionales de Madrid, the Escuela Diplomática,
                                                                                          The Hague Academy of International Law, the “Europa Instituut” in
                                                                                          Amsterdam (The Netherlands) and the INSEAD in Fontainebleau (France).
                                                                                          A career diplomat on leave, he was posted to Algiers, Libreville, Sofia and
                                                                                          Paris.
                                                                                          Noteworthy experience for the holding of his positions at Iberdrola:
                                                                                          Energy and industrial engineering sectors:
                                                                                          He served as external independent Director of Iberdrola Renovables, S.A.,
                                                                                          a member of its Executive Committee and Chairman of the Nominating
                                                                                          and Compensation Committee. He is Secretary of the Board of Directors
                                                                                          of SKF Española, S.A. In the past, he was a member of the boards of other
                                                                                          companies, such as Fujitsu Services and Telettra España, S.A.
                                                                                          Other industries:
                                                                                          He served as Secretary of the Board of Directors of Empresa Nacional Elcano
                                                                                          de la Marina Mercante, S.A.
                                                                                          As a lawyer and corporate consultant, in 1985 he established the Martínez
                                                                                          Lage & Asociados law firm. In 2007, the firm merged with the U.S. law firm
                                                                                          Howrey LLP, and he is currently Managing Partner of Howrey Martínez Lage,
                                                                                          S.L.



                                   Total number of independent directors                                                                                                      11

                                   Total % of Board members                                                                                                                78.571


                               OTHER EXTERNAL DIRECTORS
                                                                                                                                 COMMITTEE THAT HAS PROPOSED THE
                                             INDIVIDUAL OR CORPORATE NAME OF DIRECTOR                                                DIRECTOR’S APPOINTMENT




                                   Total number of other external directors

                                   Total % of Board members




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               192 Annual Corporate Governance Report
Describe the reasons why they cannot be considered proprietary or independent directors as well as
their ties, whether with the company, its management or its shareholders.

     INDIVIDUAL OR CORPORATE                      COMPANY, MANAGER OR SHAREHOLDER
         NAME OF DIRECTOR                              WITH WHICH HE HAS TIES                                                REASONS




Indicate the changes, if any, in the type of director during the period:

                                                                                DATE OF
     INDIVIDUAL OR CORPORATE NAME OF DIRECTOR                                   CHANGE               FORMER STATUS                CURRENT STATUS




B.1.4. Describe, if applicable, the reasons why proprietary directors have been appointed at the
proposal of shareholders whose shareholding interest is less than 5% of share capital.

      INDIVIDUAL OR CORPORATE NAME OF DIRECTOR                                                                 REASON




State whether formal petitions for presence on the Board have been received from shareholders whose
shareholding interest is equal to or greater than that of others at whose proposal proprietary directors
have been appointed. If so, describe the reasons why such petitions have not been satisfied.

  YES       X                NO


      INDIVIDUAL OR CORPORATE
        NAME OF SHAREHOLDER                                                                      REASON

   Residencial Monte Carmelo, S.A.                  Mr. José María Loizaga Viguri was appointed Director of Iberdrola, S.A. at the
                                                    2010 General Shareholders’ Meeting, under the proportional representation
                                                    system, at the proposal of the shareholder Residencial Monte Carmelo, S.A.
                                                    Having the General Shareholders’ Meeting declared a direct and permanent
                                                    structural and competition conflict between the Group of which the controlling
                                                    company is ACS, Actividades de Construcción y Servicios, S.A., sole shareholder
                                                    of Residencial Monte Carmelo, S.A., and the Group of which Iberdrola, S.A. is the
                                                    controlling company, the shareholders at the General Shareholders’ Meeting
                                                    resolved, upon the favorable vote of 81.52% of the shares present in person
                                                    and by proxy, to remove the Director Mr. José María Loizaga Viguri, The above-
                                                    mentioned direct and permanent structural and competition conflict also applies
                                                    to the appointed alternate, Residencial Monte Carmelo, S.A.


B.1.5. State whether any director has withdrawn from his/her position before the expiration of his/
her term of office, whether the director has given reasons to the Board and by what means, and in
the event that he/she gave reasons in writing to the full Board, describe at least the reasons given
by the director:

  YES       X                NO




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      193
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                         NAME OF THE DIRECTOR                                                       REASON FOR WITHDRAWAL

                                   MR. JOSÉ ORBEGOZO ARROYO                         On February 22, 2010, the Director Mr. José Orbegozo Arroyo resigned from his
                                                                                    position as Director, for personal reasons, by letter addressed to the Board of
                                                                                    Directors.

                                   MR. LUCAS MARÍA DE ORIOL LÓPEZ-                  On February 22, 2010, the Director Mr. Lucas María de Oriol López-Montenegro
                                   MONTENEGRO                                       resigned from his position as Director, for personal reasons, by letter addressed
                                                                                    to the Board of Directors.

                                   MR. JUAN LUIS ARREGUI CIARSOLO                   On March 26, 2010, the Director Mr. Juan Luis Arregui Ciarsolo resigned from his
                                                                                    position as Director in order to prevent any possible conflict of interest.

                                   MR. JOSÉ MARÍA LOIZAGA VIGURI                    Mr. José María Loizaga Viguri was appointed as a Director of Iberdrola, S.A. at
                                                                                    the 2010 General Shareholders’ Meeting, under the proportional representation
                                                                                    system, at the proposal of the shareholder Residencial Monte Carmelo, S.A.
                                                                                    Having the General Shareholders’ Meeting declared a direct and permanent
                                                                                    structural and competition conflict between the Group of which the controlling
                                                                                    company is ACS, Actividades de Construcción y Servicios, S.A., sole shareholder
                                                                                    of Residencial Monte Carmelo, S.A., and the Group of which Iberdrola, S.A. is the
                                                                                    controlling company, the shareholders at the General Shareholders’ Meeting
                                                                                    resolved, upon the favorable vote of 81.52% of the shares present in person
                                                                                    and by proxy, to remove the Director Mr. José María Loizaga Viguri, The above-
                                                                                    mentioned direct and permanent structural and competition conflict also applies
                                                                                    to the appointed alternate, Residencial Monte Carmelo, S.A.


                               B.1.6. Indicate the powers delegated to the CEO(s), if any:

                                        INDIVIDUAL OR CORPORATE NAME OF
                                                    DIRECTOR                                                                     BRIEF DESCRIPTION

                                   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                                   The Chairman & Chief Executive Officer, as an individual decision-
                                                                                                    making body, has all the powers that may be delegated under the
                                                                                                    law and the By-Laws.


                               B.1.7. Identify the directors who are managers or directors of companies within the listed
                               company’s group, if any:

                                       INDIVIDUAL OR CORPORATE NAME OF                               CORPORATE NAME OF ENTITY WITHIN
                                                   DIRECTOR                                                    THE GROUP                                             POSITION

                                   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                                  IBERDROLA RENOVABLES, S.A.                                        CHAIRMAN

                                   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                                  SCOTTISH POWER LTD.                                               CHAIRMAN


                               B.1.8. Identify the directors of your company, if any, who are members of the Board of Directors of
                               other companies listed on official stock exchanges in Spain other than those of your Group, that
                               have been reported to your company:

                                      INDIVIDUAL OR CORPORATE NAME OF
                                                  DIRECTOR                                                         LISTED COMPANY                                      POSITION

                                   MR. VÍCTOR DE URRUTIA VALLEJO                                 COMPAÑÍA VINÍCOLA DEL NORTE DE ESPAÑA, S.A.                          CHAIRMAN

                                   MR. VÍCTOR DE URRUTIA VALLEJO                                 VOCENTO, S.A.                                                         DIRECTOR

                                   MR. JOSÉ IGNACIO BERROETA ECHEVARRIA                          CONSTRUCCIONES Y AUXILIAR DE                                          DIRECTOR
                                                                                                 FERROCARRILES, S.A.

                                   MR. XABIER DE IRALA ESTÉVEZ                                   TUBACEX, S.A.                                                         DIRECTOR

                                   MR. BRAULIO MEDEL CÁMARA                                      ACERINOX, S.A.                                                        DIRECTOR

                                   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                                 BANCO DE VALENCIA, S.A.                                              CHAIRMAN

                                   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                                 ENAGÁS, S.A.                                                      VICE-CHAIRMAN


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               194 Annual Corporate Governance Report
B.1.9. Indicate and, if applicable, explain whether the Company has established rules regarding the
number of boards of which its directors may be members:

  YES       X                NO


                                                              DESCRIPTION OF RULES

   Pursuant to the provisions of Article 13.b) of the Regulations of the Board of Directors, individuals or legal entities
   serving as directors in more than three (3) companies with shares trading on domestic or foreign securities exchanges
   may not be appointed as Directors or, if applicable, as the individuals to represent a Director who is a legal entity.
   To the extent that Article 13.b) of the current restated text of the Regulations of the Board of Directors differs from Article
   36.2.b) of the By-Laws, pursuant to the Sole Interim Provision of the Regulations of the Board, the effectiveness thereof
   is contingent upon the corresponding amendment of the By-Laws. The Board of Directors intends to submit the relevant
   proposed resolutions in this regard to the shareholders for discussion at the 2011 ordinary General Shareholders’ Meeting.


B.1.10. In connection with recommendation number 8 of the Unified Code, indicate the Company’s
general policies and strategies reserved for approval by the full Board:

   The investment and financing policy                                                                                                       YES

   The definition of the structure of the group of companies                                                                                 YES

   The corporate governance policy                                                                                                           YES

   The corporate social responsibility policy                                                                                                YES

   The strategic or business plan, as well as management objectives and annual budgets                                                       YES

   The policy regarding compensation and evaluation of performance of senior management                                                      YES

   The risk control and management policy, as well as the periodic monitoring of the internal                                                YES
   information and control systems

   The dividend policy, as well the treasury stock policy and, especially, the limits thereto                                                YES


B.1.11. Complete the following tables regarding the aggregate compensation of Directors accrued
during the fiscal year:

a) At the Company covered by this report:
                                                                                                                       DATA IN THOUSANDS OF
                                           COMPENSATION ITEM                                                                   EUROS

   Fixed compensation                                                                                                              2,250
   Variable compensation                                                                                                           2,250
   Daily fees                                                                                                                         850
   Token payments                                                                                                                  4,754
   Share options and/or other financial instruments                                                                                      0
   Other                                                                                                                              815
   TOTAL                                                                                                                          10,919

                                                                                                                       DATA IN THOUSANDS OF
                                              OTHER BENEFITS                                                                   EUROS

   Advances                                                                                                                              0
   Loans granted                                                                                                                         0
   Pension funds and plans: Contributions                                                                                                0
   Pension funds and plans: Obligations incurred                                                                                         0
   Life insurance premiums                                                                                                              23
   Guarantees given by the company for the benefit of directors                                                                   16,951


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      195
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               b) On account of membership by the Company’s directors on other boards of directors and/or in
                               the senior management of Group companies:
                                                                           COMPENSATION ITEM                                                        DATA IN THOUSANDS OF EUROS

                                   Fixed compensation                                                                                                                     0
                                   Variable compensation                                                                                                                  0
                                   Daily fees                                                                                                                         151
                                   Token payments                                                                                                                         0
                                   Share options and/or other financial instruments                                                                                       0
                                   Other                                                                                                                                  0
                                   TOTAL                                                                                                                              151


                                                                              OTHER BENEFITS                                                        DATA IN THOUSANDS OF EUROS

                                   Advances                                                                                                                               0
                                   Loans granted                                                                                                                          0
                                   Pension funds and plans: Contributions                                                                                                 0
                                   Pension funds and plans: Obligations incurred                                                                                          0
                                   Life insurance premiums                                                                                                                0
                                   Guarantees given by the company for the benefit of directors                                                                           0


                               c) Total compensation by type of director:
                                                       TYPE OF DIRECTOR                                             PER COMPANY                                PER GROUP

                                   Executive                                                                              5,228                                       119
                                   External Proprietary                                                                     642                                           0
                                   External Independent                                                                   5,049                                        32
                                   Other External                                                                              0                                          0
                                   TOTAL                                                                                 10,919                                       151


                               d) As a percentage of the profits attributable to the controlling company:
                                   Total compensation of directors (in thousands of euros)                                                                        11,070

                                   Total compensation of directors / profits attributable to the controlling company                                                0.4
                                   (as a %)

                               B.1.12. Identify the members of the Company’s senior management who are not executive
                               directors and state the total compensation accruing to them during the fiscal year:

                                             INDIVIDUAL OR CORPORATE NAME                                                                  POSITION

                                   MR. JOSÉ LUIS SAN PEDRO GUERENABARRENA                                  GENERAL BUSINESS DIRECTOR OF THE GROUP

                                   MR. JULIÁN MARTÍNEZ-SIMANCAS SÁNCHEZ                                    GENERAL SECRETARY AND SECRETARY OF THE BOARD OF DIRECTORS

                                   MR. JOSÉ SÁINZ ARMADA                                                   CHIEF FINANCIAL OFFICER

                                   MR. FERNANDO BECKER ZUAZUA                                              CHIEF CORPORATE RESOURCES OFFICER

                                   MR. LUIS JAVIER ARANAZ ZUZA                                             DIRECTOR OF INTERNAL AUDIT

                                   MR. PEDRO AZAGRA BLÁZQUEZ                                               DIRECTOR OF DEVELOPMENT

                                   MR. JUAN CARLOS REBOLLO LICEAGA                                         DIRECTOR OF ADMINISTRATION AND CONTROL



                                   Total senior management compensation (in thousands of euros)                                                                    7,681


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               196 Annual Corporate Governance Report
B.1.13. Identify, on an aggregate basis, if there are indemnity or “golden parachute” provisions for
the benefit of senior management, including executive directors, of the Company or its Group in
the event of dismissals or changes of control. Indicate whether such agreements must be reported
to and/or approved by the decision-making bodies of the Company or its Group:

   Number of beneficiaries                                                                                                            8



                                                                                                                     SHAREHOLDERS (AT THE
                                                                                                                    GENERAL SHAREHOLDERS’
                                                                             BOARD OF DIRECTORS                           MEETING)

   Decision-making body approving the provisions                                         YES                                        NO



   Is information about these provisions provided to the shareholders at the General                                                YES
   Shareholders’ Meeting?


B.1.14. Describe the process to set the compensation of the members of the Board of Directors
and the relevant provisions of the By-Laws with regard thereto.

   PROCESS TO SET THE COMPENSATION OF THE MEMBERS OF THE BOARD OF DIRECTORS AND BY-LAW PROVISIONS

   Article 50 of the By-Laws provides that the compensation of the members of the Board of Directors shall not exceed
   2% of consolidated group profits for the fiscal year, which are annually submitted for approval by the shareholders at
   the General Shareholders’ Meeting. The aforementioned article provides that the compensation of Directors may also
   consist of “the delivery of shares or options thereon, as well as a payment which takes as its reference the value of the
   Company’s shares.”
   In this connection, Article 34.2.d) of the By-Laws specifically grants the Board the power to set “the compensation policy
   and the compensation of Directors, at the proposal of the Nominating and Compensation Committee.”
   In addition, Article 45.2.d) of the By-Laws provides that the Nominating and Compensation Committee has, among
   other powers, the power to propose to the Board of Directors “the system and amount of annual Director compensation,
   as well as the individual compensation of executive Directors and other terms and conditions of their contracts, in all
   cases pursuant to the provisions of the By-Laws.”
   The Director Compensation Policy of Iberdrola, S.A. was updated by resolution of the Board of Directors adopted at its
   meeting of December 14, 2010 and may be viewed on the Company’s corporate website (www.iberdrola.com). The
   principal amendments, in line with best corporate governance practices, are the following:
   - Compensation is tied to individual performance.
   - The variable portion of compensation is tied to the achievement of pre-established and quantifiable objectives in line
     with the corporate interest.
   - A mechanism for the return of variable compensation is established when there is a restatement that has an adverse
     impact on the financial statements.
   - The annual Director compensation policy report is submitted to a consultative vote of the shareholders at the General
     Shareholders’ Meeting.
   - Plans providing for compensation in shares have a timeframe of 3 years as a guideline, periods of partial retention of
     the shares and little dilution potential for the shareholders.
   - New contracts with Directors shall provide for indemnification, the amount of which shall not exceed two annual
     compensation payments.
   - Personalized information is provided on the compensation of each Director.
   In this regard, in order to set the compensation of the Directors and Senior Managers of Iberdrola for fiscal year 2011,
   the Board of Directors of the Company has drawn upon the proposal made by the Nominating and Compensation
   Committee, approved by such Committee at its meeting of January 24, 2011. In preparing such proposal, the
   Nominating and Compensation Committee has also taken into account the Director Compensation Policy and the Senior
   Management Compensation Policy approved by the Board of Directors, the performance of corporate business and
   the conclusions from the process of evaluation of the management decision-making bodies and of the consultative
   committees that the Company’s Board of Directors started on October 19, 2010 and which finished on January 25, 2011.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      197
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               State whether the full Board has reserved the right to approve the following decisions:


                                   At the proposal of the Company’s chief executive, the appointment and, if                                                        YES
                                   applicable, the removal of senior managers, as well as their indemnity provisions.

                                   The compensation of directors and, in the case of executive directors, the                                                       YES
                                   additional compensation for their executive duties and other terms and
                                   conditions that must be included in their contracts.


                               B.1.15. State whether the Board of Directors approves a detailed compensation policy and specify
                               the matters covered thereby:

                                  YES       X                NO


                                   Amount of fixed components, with a breakdown, if applicable, of fees payable for                                                 YES
                                   attendance at meetings of the Board and its Committees and estimated annual
                                   fixed compensation arising therefrom.

                                   Variable compensation items.                                                                                                     YES

                                   Main characteristics of the social security systems, with an estimate of the amount                                              YES
                                   thereof or equivalent annual cost.

                                   Terms and conditions that must be included in the contracts with executive                                                       YES
                                   directors performing senior management duties, which will include (i) duration,
                                   (ii) amount of prior notice, and (iii) any other clauses regarding hiring bonuses
                                   as well as indemnification or “golden parachute” provisions in the event of early
                                   termination or dissolution of the contractual relationship between the company
                                   and the executive director.



                               B.1.16. State whether the Board submits a report on director compensation policy to the vote of
                               the shareholders at a General Shareholders’ Meeting for consultative purposes. If so, describe the
                               relevant portions of the report regarding the compensation policy approved by the Board for the
                               following years and the most significant changes experienced by such policies vis-à-vis the policy
                               applied during the fiscal year, and provide an outline of the manner in which the compensation policy
                               was applied during the fiscal year. Describe the role of the Compensation Committee and, if external
                               advice has been provided, state the name of the external advisors that have given such advice:

                                  YES       X                NO


                                                                   ISSUES THAT THE COMPENSATION POLICY REPORT PASSES UPON

                                   In compliance with Article 31.6 of the Regulations of the Board, the Board of Directors of Iberdrola approves, on an
                                   annual basis, a report on fixed compensation, variable compensation items (describing the parameters and assumptions
                                   or objectives taken as a reference), social security systems and the main terms and conditions to be observed by
                                   the contracts with Executive directors, including the Director compensation policy for the current fiscal year and the
                                   application of the compensation policy in effect in the previous fiscal year. It also includes personalized information on
                                   the compensation of Directors.
                                   Pursuant to the provisions of the Regulations of the Board of Directors and the Director Compensation Policy, such
                                   report will be made available to the shareholders on the occasion of the call to ordinary General Shareholders’ Meeting
                                   and will be submitted to the consultative vote of the shareholders at such meeting, as a separate item on the agenda.



                                                                                 ROLE OF THE COMPENSATION COMMITTEE

                                   Pursuant to Article 7 of its Regulations, the Nominating and Compensation Committee has participated in the approval
                                   and application of the compensation policy for fiscal year 2010 by performing the following consultative and proposal-
                                   making tasks:
                                   • Report in advance on the proposed Director Compensation Policy to the Board of Directors.
                                   • Propose the compensation of Directors for the fiscal year to the Board of Directors.
                                   • Submit the proposed report on Director compensation policy to the Board of Directors.



NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               198 Annual Corporate Governance Report
Has external advice been provided?

  YES                        NO       X


                                                         NAME OF EXTERNAL ADVISORS




B.1.17. Indicate the identity of the members of the Board of Directors, if any, who are also members
of the board of directors, managers or employees of companies that hold a significant interest in
the listed company and/or in companies within its Group:

     INDIVIDUAL OR CORPORATE                     INDIVIDUAL OR CORPORATE NAME
         NAME OF DIRECTOR                          OF SIGNIFICANT SHAREHOLDER                                            POSITION

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                 CAJA DE AHORROS DE VALENCIA,                        CHAIRMAN OF BANCAJA
                                                 CASTELLÓN Y ALICANTE, BANCAJA


Describe, if applicable, any significant relationships other than the ones contemplated in the prior
item, of the members of the Board of Directors linking them to significant shareholders and/or at
companies within the Group:

                                                    INDIVIDUAL OR CORPORATE
     INDIVIDUAL OR CORPORATE                       NAME OF RELATED SIGNIFICANT
         NAME OF DIRECTOR                                 SHAREHOLDER                                    DESCRIPTION OF RELATIONSHIP

   MR. XABIER DE IRALA ESTÉVEZ                   BILBAO BIZKAIA KUTXA, AURREZKI                     Proprietary Director of Iberdrola
                                                 KUTXA ETA BAHITETXEA (BBK)                         appointed at the proposal of BBK and
                                                                                                    a member of the Board of Directors of
                                                                                                    BBK Bank, S.A., a company wholly owned
                                                                                                    by BBK, of which he was Chairman until
                                                                                                    January 1, 2011.

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                 CAJA DE AHORROS DE VALENCIA,                       Proprietary Director of Iberdrola
                                                 CASTELLÓN Y ALICANTE, BANCAJA                      appointed at the proposal of BANCAJA
                                                                                                    and Chairman of Banco de Valencia,
                                                                                                    S.A., a company that is wholly owned by
                                                                                                    BANCAJA.


B.1.18. State whether the Regulations of the Board of Directors have been amended during the
fiscal year:

  YES       X                NO




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      199
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                                                                        DESCRIPTION OF AMENDMENTS

                                   On November 23, 2010, the Board of Directors of the Company, within the framework of the amendment of Iberdrola’s
                                   Corporate Governance System, approved a new amended text of the Regulations of the Board of Directors, the main
                                   new provisions of which are the following:
                                   - Managers reporting to the Board of Directors, its Chairman or the Chief Executive Officer, as well as any other manager
                                     to whom the Board of Directors attributes such status, shall be deemed to be Senior Managers.
                                   - Directors hold office for a term of four (4) years.
                                   - The powers of the lead independent director are substantially strengthened.
                                   - The Secretary of the Board of Directors is responsible for providing advice on the ongoing evaluation and update of
                                     the Corporate Governance System.
                                   - The Audit and Compliance Committee is re-named the Audit and Risk Supervision Committee and, as such, takes over
                                     such duties.
                                   - A Corporate Social Responsibility Committee is created, with the duties of reviewing the Corporate Governance
                                     System and supervising compliance therewith, as well as of promoting and supervising the Company in connection
                                     with corporate social responsibility and reputation.
                                   - Provision is made for a consultative vote on the Director Compensation Policy.
                                   The Regulations of the Board of Directors include a Single Interim Provision pursuant to which certain amendments,
                                   in order to be fully effective and valid, require a corresponding amendment of the By-Laws. The Board of Directors
                                   intends to submit the relevant proposed resolutions for such purpose to the shareholders for discussion at the next
                                   2011 ordinary General Shareholders’ Meeting.


                               B.1.19. Indicate the procedures for the appointment, re-election, evaluation and removal of
                               Directors. List the competent bodies, the procedures to be followed and the criteria applied in each
                               of such procedures.

                               1. Appointment of Directors
                               The appointment and removal of Directors is the purview of the shareholders at the General Shareholders’
                               Meeting (Article 17.1.a of the By-Laws).
                                 Vacancies which occur may be filled by the Board of Directors on an interim basis until the next General
                               Shareholders’ Meeting, whereat the shareholders shall confirm the appointments or elect the persons who
                               should replace Directors which are not ratified, or it shall withdraw the vacant positions (Article 49.3 of the By-
                               Laws).
                                 The Nominating and Compensation Committee must advise the Board of Directors regarding the most
                               appropriate composition of the Board of Directors and of its Committees as regards size and equilibrium among
                               the various classes of Directors existing at any time. For such purpose, the previously-mentioned Committee
                               shall review the structure of the Board of Directors and of its Committees on a regular basis, especially when
                               vacancies occur within such bodies (Article 3.a) of the Regulations of the Nominating and Compensation
                               Committee).
                                 For such purpose, this Committee must report on and review the criteria that should be followed in composing
                               the Board of Directors and in selecting candidates, defining their duties and necessary qualifications and assessing
                               the time and dedication required for the proper performance of their duties. In the exercise of this power, the
                               Committee shall take into account, regarding external Directors, the relation between the number of proprietary
                               Directors and the number of independent Directors, such that this relation reflects, as far as possible, the ratio of
                               the Company’s voting capital pursuant to the provisions of the By-Laws represented by proprietary Directors to
                               the rest of the share capital (Article 3.b) of the Regulations of the Nominating and Compensation Committee).
                                 In particular, the Nominating and Compensation Committee, at the request of the Board of Directors, must
                               select potential candidates for appointment as Directors of the Company, and must present its proposals or
                               reports, as the case may be, to the Board of Directors through the Chairman of such entity, with authority to do
                               the following (Article 4 of the Regulations of the Nominating and Compensation Committee):
                                 a) Review the criteria that should be followed for the selection of candidates to serve as Directors and
                                 assist the Board of Directors in the definition of the desired profiles of such candidates, taking into account
                                 the needs of the Board of Directors as well as the areas within the Board that it is deemed appropriate to
                                 strengthen, ensuring that there is no implied bias in selection procedures that might entail any discrimination,
                                 and, in particular, that may hinder the selection of women Directors.
                                 b) Select the possible candidates for appointment as Directors of the Company, if appropriate, and submit
                                 their proposals or reports, as the case may be, to the Board of Directors through the Chairman thereof.
                                 c) Verify that all candidates for Director of the Company meet the general requirements in accordance with
                                 the provisions of the Law and its Corporate Governance System.



NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               200 Annual Corporate Governance Report
   d) Evaluate the qualities of the various candidates and assign them to one of the categories of Directors
   contemplated by the By-Laws of the Company.
   e) Submit the proposals for appointment of independent Directors to the Board of Directors (for appointment
   on an interim basis or for submission to the shareholders for decision at the General Shareholders’ Meeting).
   f) Verify compliance with the specific requirements applicable to independent Directors established in the
   Law and in the Company’s Corporate Governance System and gather adequate information regarding their
   personal qualities, experience, knowledge, and effective availability.
   g) Report, at the behest of the Chairman of the Board of Directors or of any other member of the Board of
   Directors, the proposals for appointment of the other Directors (for appointment on an interim basis or for
   submission to the shareholders for decision at the General Shareholders’ Meeting).
   h) Report the proposals made by the Directors who are legal entities of the individuals to act as their
   representatives.
   i) Report, in the case of proprietary Directors, on the circumstances of the shareholder or shareholders
   proposing, requesting or determining their appointment, regardless of the method and procedure followed
   for the appointment, provided it is legally possible.
   j) Request all information and documentation deemed necessary or appropriate on candidates to serve as
   Directors, on the individuals who are to represent the Directors who are legal entities and, in the case of
   proprietary Directors, on the shareholders who nominate, request or decide the appointment thereof, in order
   to prepare the proposals and reports mentioned in the preceding paragraphs.

Pursuant to Article 36.2 of the By-Laws and Article 13 of the Regulations of the Board of Directors, the following
may not be appointed as Directors or, if applicable, as the individuals who are to represent a Director that is a
legal entity:
  a) Domestic or foreign companies competing with the Company in the energy or other industries, or the
  directors or senior managers thereof or the persons, if any, proposed by them in their capacity as shareholders.
  b) Individuals or legal entities holding the position of director in more than three (3) companies with shares
  trading on domestic or foreign Securities Exchanges.
  To the extent that Section 13.b) of the current restated text of the Regulations of the Board of Directors differs
  from Article 36.2.b) of the By-Laws, pursuant to the Sole Interim Provision of the Regulations of the Board,
  the effectiveness thereof is contingent upon the corresponding amendment of the By-Laws, and the Board of
  Directors intends to submit the relevant proposed resolutions in this regard to the shareholders for discussion
  at the 2011 ordinary General Shareholders’ Meeting.
  c) Persons who, during the two (2) years prior to their appointment, have occupied high-level positions in the
  government which are incompatible with the simultaneous performance of the duties of a director of a listed
  company under national or autonomous community legislation, or positions of responsibility with entities
  regulating the energy industry, the securities markets or other industries in which the Company or the Group
  operate.
  d) Individuals or legal entities who may be subject to any incompatibility or general prohibition, including
  those who have any interests inconsistent with those of the Company or the Group.

In any event, the Board of Directors (and the Nominating and Compensation Committee within its area
of authority) shall endeavor to ensure that the candidates proposed to the shareholders at the General
Shareholders’ Meeting for their appointment or re-election as Directors, and the Directors directly appointed
by the Board to fill vacancies in the exercise of its power to make interim appointments, shall be respectable,
qualified persons who are widely recognized for their expertise, competence, experience, qualifications,
educational background, availability and commitment to their duties (Article 11.1 of the Regulations of the
Board of Directors).
   When the Board of Directors deviates from the proposals and reports of the Nominating and Compensation
Committee, it shall give reasons for so acting and shall record such reasons in the minutes (Article 12.3 of the
Regulations of the Board of Directors).

2. Re-election of Directors
Pursuant to Article 15.1 of the Regulations of the Board of Directors, the proposals for re-election of Directors
that the Board of Directors resolves to submit to the decision of the shareholders at the General Shareholders’
Meeting will be subject to a process of preparation, which shall include a proposal (in the case of independent
Directors) or a report (in the case of other Directors) issued by the Nominating and Compensation Committee.
  In this regard, Article 5.c) of the Regulations of the Nominating and Compensation Committee provides
that, prior to the end of the term for which a Director has been appointed, the Committee must examine
the advisability of his re-election, as well as his continuance, if applicable, on the Committees of the Board of
Directors of which he is a member.


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      201
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                  For the foregoing purposes, the Committee must verify that the Director to be re-elected continues to meet
                               the general requirements, to be met by all Directors of the Company, pursuant to the provisions of the Law and
                               the Corporate Governance System, as well as evaluate the quality of the work and the dedication to his position
                               of the Director in question during his previous term of office and, specifically, his respectability, capability,
                               expertise, competence, experience, qualifications, availability and commitment to his duties.
                                  Once the procedure described above has been completed, the Committee must present its proposal (in the
                               case of independent Directors) or report (in the case of other Directors) regarding the re-election of the Directors.

                               3. Evaluation of Directors
                               Pursuant to Article 7.8 of the Regulations of the Board of Directors, the Board shall annually evaluate (i)
                               its operation and the quality of its work, (ii) the performance of his duties by the Chairman of the Board of
                               Directors and by the Chief Executive Officer, based on the report submitted thereto by the Nominating and
                               Compensation Committee, and (iii) the operation of its Committees, in light of the report submitted thereto
                               by such Committees. To such end, the Chairman of the Board of Directors shall organize and coordinate
                               the aforementioned evaluation process with the Chairmen of the Committees. Starting in fiscal year 2011,
                               pursuant to the new Article 21 of the current Regulations of the Board of Directors, the evaluation of the
                               Chairman of the Board of Directors shall be conducted by Ms. Inés Macho Stadler, acting under the powers
                               vested in the lead independent Director.
                                  For the evaluation of fiscal year 2010, the company relied on PricewaterhouseCoopers Asesores de
                               Negocios, S.A.” (“PwC”), which prepared the evaluation reports of which the Board of Directors has taken due
                               note, endorsing the conclusions of the evaluation and the opportunities for improvement identified by such
                               consultant.
                                  Specifically, the above-mentioned evaluation process for fiscal year 2010 was structured into the following
                               stages:
                               	 •	First	stage:	Definition	of	the	indicators	(based	on	Iberdrola’s	Corporate	Governance	System,	the	
                                  recommendations of the Unified Good Governance Code and international best practices) and of the
                                  parameters for comparison with other leading domestic and international companies, in order to evaluate
                                  of each of the management decision-making bodies and advisory committees.
                               	 •	Second	stage:	Evaluation	based	on	the	previously-defined	indicators	and	parameters,	as	well	as	corporate	
                                  governance trends.
                               	 •	Third	stage:	Presentation	and	approval	of	conclusions	and	opportunities	for	improvement.

                               In view of the reports issued by PwC, it may be concluded that the result of the evaluation of the management
                               decision-making bodies and of the consultative committees for fiscal year 2010 is highly positive overall,
                               making the Company a top-notch international leader. The following opportunities for improvement were
                               identified:
                                 1) Promote the measures necessary to maintain a high level of attendance by Directors at meetings of the
                                 Board of Directors and the Committees thereof, such that none of them attends less than 75% of regular
                                 meetings.
                                 2) Consider the advisability of avoiding the participation of the Chairman and Chief Executive Officer in the
                                 Board of Directors of the subsidiaries of the Group, in line with the Group’s governance model.
                                 3) Adjust the Curricula Vitae of the Directors to better convey their qualifications to the shareholders.
                                 4) Gradually reduce the number of listed companies other than Iberdrola at which a Director may serve
                                 as such in order to ensure that the Director’s other professional duties do not detract from the dedication
                                 thereof.
                                 5) Gradually reduce the term of office for Directors and thus foster more frequent evaluations of their
                                 performance by the shareholders at the General Shareholders’ Meeting.
                                 6) Promote the holding of one or two meetings a year of the external Directors with the lead independent
                                 Director.
                                 7) Foster the use of external support in the search for candidates to serve as Directors of the Company.
                                 8) Improve coordination of the schedules of meetings of the Board and of the Committees thereof.
                                 9) Ensure that processes are in place that permit the regular update of the Succession Plan.

                               4. Removal of Directors
                               Pursuant to the provisions of Article 49.1 of the By-Laws, the Directors “shall serve in their position for a term
                               of five (5) years, so long as the shareholders acting at the General Shareholders’ Meeting do not resolve to
                               remove or dismiss them and they do not resign from their position.”
                                 Notwithstanding the foregoing, Article 14 of the current text of the Regulations of the Board of Directors,
                               approved on November 23, 2010, sets the term of office at four (4) years, although, in accordance with
                               the Sole Interim Provision of the previously-mentioned Regulations, such amendment is contingent upon


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               202 Annual Corporate Governance Report
the corresponding amendment of Article 49 of the By-Laws, which is expected to be submitted to the
shareholders for discussion at the next ordinary General Shareholders’ Meeting.
  The Nominating and Compensation Committee shall exercise the powers granted thereto by the
Company’s Corporate Governance System in connection with the removal of Directors. In this regard,
Article 6 of the Regulations thereof provides that the Committee shall report to the Board of Directors
regarding proposals for removal due to noncompliance with the duties inherent in the position of Director
or where a Director is affected by supervening circumstances requiring his resignation or mandatory
removal, and may propose the removal of Directors in the event of incompatibility, structural conflict
of interest or any other grounds for resignation or removal under the Law or pursuant to Iberdrola’s
Corporate Governance System.
  The Board of Directors may propose the withdrawal of an independent Director before the passage of
the period provided for in the By-Laws only upon sufficient grounds, evaluated by the Board of Directors
after a report of the Nominating and Compensation Committee, or as a consequence of public tender
offers, mergers or other similar corporate transactions resulting in a significant change in the structure of
the Company’s capital (Article 16.6 of the Regulations of the Board of Directors), as recommended by the
Unified Code.

B.1.20. Indicate the circumstances under which the resignation of Directors is mandatory.

The Directors must submit their resignation from the position and formalize their withdrawal upon the
occurrence of any of the instances of incompatibility or prohibition against performing the duties of director
provided by Law or by Iberdrola’s Corporate Governance System.
  In this connection, Article 16.2 of the Regulations of the Board of Directors sets forth that the Directors
shall tender their resignation to the Board of Directors and formally resign from their position in the following
cases:
  a) When, owing to supervening circumstances, they are involved in any circumstance of incompatibility
  or prohibition governed by provisions of a general nature, the By-Laws or the Regulations of the Board of
  Directors.
  b) When, as a result of any acts or conduct attributable to the Director, serious damage is caused to the value
  or the reputation of the Company or there is any risk of criminal liability for the Company.
  c) When they cease to possess the respectability, capability, expertise, competence, availability or
  commitment to their duties necessary to be Directors of the Company. Pursuant to the last part of Article
  37.4 of the Regulations of the Board of Directors, lack of competence shall be deemed to exist in the
  event of a conflict of interest situation that is, or can reasonably be expected to be, of such nature that
  it constitutes a structural or permanent situation of conflict between the Director (or a person related to
  him or, in the case of a proprietary Director, the shareholder or shareholders that proposed or made his
  appointment or persons directly or indirectly related thereto) and the Company or the companies forming
  part of the Iberdrola Group.
  d) When they are seriously reprimanded by the Board of Directors for having breached any of their duties as
  Directors by a resolution adopted by a two-third majority of the Directors.
  e) When their continuance on the Board of Directors may, for any reason, jeopardize directly, indirectly or
  through their Related Persons (as such term is defined in the Regulations of the Board of Directors) the
  faithful and diligent performance of their duties in accordance with the corporate interest.
  f) When the reasons why the Director was appointed cease to exist and, in particular, in the case of
  proprietary Directors, when the shareholder or shareholders who nominated, requested or decided the
  appointment thereof totally or partially sell or transfer their equity interests, with the result that such
  shareholder or shareholders lose the status of being a significant shareholder or having an interest sufficient
  to justify the appointment thereof.
  g) When an independent Director is affected, at any time following his appointment as such, by any of the
  prohibitions to hold office provided for in Article 10.2 of the Regulations of the Board of Directors.
  h) When the condition of the activities carried out by the Director or of the companies controlled by him,
  directly or indirectly, or of the individuals or legal entities who are shareholders or related to any of them,
  or of the individual representing the Director who is a legal entity, might compromise his capability to hold
  such position.

The resignation provisions set forth under f) and g) above shall not apply when the Board of Directors believes
that there are reasons which justify the Director’s continuance in office, following a report of the Nominating
and Compensation Committee, without prejudice to the effect that the new supervening circumstances may
have on the classification of the Director.



NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      203
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               B.1.21. Explain whether the powers of the top executive of the Company are vested in the
                               Chairman of the Board. If so, indicate the measures that have been taken to mitigate the risks of
                               accumulation of powers in a single person:

                                  YES       X                NO


                                                                                           RISK MITIGATION MEASURES

                                   At Iberdrola, the duties of Chairman of the Board of Directors and of Chief Executive Officer of the Company are performed by the
                                   same person, which circumstance is specifically taken into account by the Nominating and Compensation Committee and by the
                                   Board of Directors upon evaluating the performance of the Chairman & Chief Executive Officer.
                                   Following the reviews carried out, the fact that Mr. José Ignacio Sánchez Galán holds the positions of Chairman of the Board
                                   and chief executive of the Company, while not a sine qua non requirement, is of undoubted benefit to the Company, as has
                                   been amply demonstrated by the performance of the Iberdrola Group and the achievements obtained in recent years. Boards
                                   of Directors are heterogeneous. There is no single operating model that has been proven to deliver better performance and
                                   greater benefit for the various stakeholders of the Company. Hence, different leadership structures of the Board of Directors
                                   may be equally valid for different companies. In this regard, it is believed that the fact that the same person holds both positions
                                   is advantageous because the Company is thus provided with clear leadership both internally and externally, with the Group’s
                                   management control being handled by the same person and with a broad margin for cooperation and coordination between
                                   the management decision-making body and the Company’s management being established as a result. This structure makes
                                   it possible to rapidly adjust to instances of change and provides the organization with a greater capacity for response, thus
                                   reducing reporting and coordination costs while enhancing the integration of the Company’s functions and its operation as a
                                   whole.
                                   However, the main measures adopted to mitigate the risks of accumulation of powers are as follows:
                                   - It should be noted, first, that Iberdrola has a decentralized model, established in Section 19 of the General Corporate
                                     Governance Policy (available on the Company’s corporate website www.iberdrola.com) which provides that “the
                                     Group’s corporate and governance structure is an essential part of the Company’s Corporate Governance System and
                                     entails a separation between two areas of decision and responsibility”.
                                    On the one hand is the Board of Directors of the Company, as the parent company of the Group, which is responsible
                                    for establishing the overall management policies, strategies and guidelines of the Group, supervising the development
                                    of such strategies and guidelines and deciding on matters of strategic significance at the Group level, and on the other,
                                    are the Chairman of the Board of Directors, the Chief Executive Officer and the management team, who are responsible
                                    for the organization and coordination of the Group and the dissemination and implementation of management policies
                                    and guidelines at the Group level.
                                    On the other hand, decentralized executive responsibilities fall upon the subholding companies of the Group, which
                                    are in charge of the day-to-day and effective management of each of the business groups as well as of day-do-day
                                    control, through their respective boards of directors (which include independent directors) and governing bodies. The
                                    Group’s subholding companies also have their own audit committees and internal audit areas.
                                    Within the Group’s corporate and governance structure, the Operating Committee is an internal committee of the
                                    Company that provides technical information and management support, both with respect to the functions of
                                    definition, supervision, organization and monitoring of the general management guidelines and to the strategic
                                    planning of the business managed by the subholding companies of the Group.
                                    At the behest of the Chairman of the Board of Directors, Territorial Commissions may be set up, which, while not
                                    bodies of the Corporate Governance System of the Company or part of the executive corporate structure thereof, are
                                    established as external advisory committees for purposes of better information and knowledge by the Company of the
                                    unique characteristics of the various territories in which the Company and its Group do business.”
                                   - Article 17 of the General Corporate Governance Policy, and Article 21 of the Regulations of the Board of Directors, specifically
                                     intended for instances where the same person holds the positions of Chairman and Chief Executive Officer, establish the
                                     position of Lead Independent Director, with the following powers: (i) to request that the Chairman of the Board of Directors call a
                                     meeting of the Board of Directors whenever he/she deems appropriate, (ii) to request the inclusion of matters on the agenda for
                                     the meetings of the Board of Directors, (iii) to coordinate and voice the concerns of external Directors, for which purpose he/she
                                     may hold informal meetings with them and (iv) to conduct the evaluation of the Chairman of the Board of Directors.
                                    On September 22, 2009, the Board of Directors, at the proposal of the Nominating and Compensation Committee, approved the
                                    appointment of Ms. Inés Macho Stadler as lead independent Director. Ms. Inés Macho Stadler is also a member of the Executive
                                    Committee.
                                   - The Board shall also meet when so requested by one-fourth of the Directors or by a Vice-Chairman.
                                   - In the three cases contemplated in the preceding paragraphs, the meeting must be held within 10 days of the request.
                                   - The duties attributed to the Board of Directors, both in the By-Laws and in its own Regulations.
                                   - The duties attributed to the Executive Committee (Article 43 of the By-Laws and the delegation resolution adopted by the Board
                                     of Directors at its meeting held on July 3, 1991).




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               204 Annual Corporate Governance Report
                                                           RISK MITIGATION MEASURES

   - The duties attributed to the Audit and Risk Supervision Committee, to the Nominating and Compensation Committee and to
     the Corporate Social Responsibility Committee (Articles 44 and 45 of the By-Laws and 24, 25, 26 and 27 of the Regulations of the
     Board of Directors). The Nominating and Compensation Committee is responsible for the annual evaluation of the Chairman’s
     performance, although starting in fiscal year 2011, such evaluation will be conducted by Ms. Inés Macho Stadler, complying with
     the duties of the lead independent Director.
   - The General Risk Control and Management Policy of Iberdrola described in sections D.1 and D.2 of this report, developed on
     the basis of the general duty of supervision assigned to the Board of Directors, which is required to identify the main risks to
     which the Company is exposed and to organize appropriate internal monitoring and information systems (Article 34.3.c) of the
     By-Laws).
   - The activities of cooperation and support entrusted to the Operating Committee within the framework of Iberdrola’s General
     Risk Control and Management Policy, as set forth in section D.3 of this report.
   Also worth noting are the following powers granted to the Directors under the Regulations of the Board of Directors:
   - Each and every Director may contribute to the scheduling of meetings of the Board of Directors, whose schedule of ordinary
     meetings must be set by the Board of Directors itself prior to the commencement of each fiscal year (Article 28.2).
   - The Chairman shall decide on the agenda for each meeting, but shall be required to include therein the matters requested by
     any of the Directors not less than two (2) days in advance of the date set for the meeting (Article 28.6).
   - Directors have the broadest powers to obtain information regarding any aspect of the Company, to examine its books, records,
     documents and other records of corporate transactions, to inspect its facilities, and to communicate with the Senior Managers of
     the Company. Exercise of such powers shall be previously channeled through the Secretary of the Board of Directors, acting on
     behalf of the Chairman of the Board of Directors (Article 32).
   - In order to be assisted in the performance of his duties, any Director may request the hiring of legal, accounting, technical,
     financial, commercial or other expert advisors, whose services shall be paid for by the Company. The engagement shall
     necessarily deal with specific problems of a certain significance and complexity arising in the performance of the Director’s
     duties. The hiring request shall be channeled through the Secretary of the Board of Directors, who may subject it to the prior
     approval of the Board of Directors (Article 33).
   Finally, it must also be stressed that no qualified majorities are required to approve the removal of the Chairman & Chief Executive
   Officer when the Board of Directors deems it necessary. Therefore, the Board of Directors’ power of censure with respect to such
   positions could materialize through a resolution for removal adopted upon a simple majority.


Indicate and, if applicable, explain whether rules have been established whereby one of the
independent directors is authorized to request that a meeting of the Board be called or that other
items be included on the agenda, to coordinate and hear the concerns of external directors and to
direct the evaluation by the Board of Directors.

  YES       X                NO


                                                           DESCRIPTION OF THE RULES

   In the event that the Chairman of the Board of Directors has executive duties, the Board of Directors shall, at the
   proposal of the Nominating and Compensation Committee, authorize a lead independent Director to:
   a) Request that the Chairman of the Board of Directors call a meeting of the Board when he/she deems it appropriate.
   b) Request the inclusion of matters on the agenda for the meetings of the Board of Directors as provided in article 28 of
      the Regulations of the Board of Directors.
   c) Coordinate and voice the concerns of external Directors.
   d) Conduct the evaluation of the Chairman of the Board of Directors.



B.1.22. Are qualified majorities, different from the statutory majorities, required to adopt any type
of decision?

  YES       X                NO




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      205
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               Describe the method used by the Board of Directors to adopt resolutions, including at least the
                               minimum quorum required to hold a valid meeting and the majorities required to adopt resolutions:

                                                                                          DESCRIPTION OF RESOLUTION

                                   Amendment of the Regulations of the Board of Directors (Article 5.1 of the Regulations of the Board) and serious
                                   reprimand of a Director for having breached any of his duties (Article 16.2.d) of the Regulations of the Board of Directors).



                                                                                     QUORUM                                                                             %

                                   A majority of the Directors                                                                                                         50.01



                                                                              TYPE OF MAJORITY                                                                          %

                                   Two-thirds of the Directors present in person or by proxy                                                                           66.67



                               B.1.23. Explain whether there are specific requirements, other than the requirements relating to
                               Directors, to be appointed Chairman.

                                  YES                        NO       X


                                                                                        DESCRIPTION OF REQUIREMENTS




                               B.1.24. Does the Chairman have a tie-breaking vote?

                                  YES       X                NO


                                                                        MATTERS ON WHICH A TIE-BREAKING VOTE MAY BE CAST

                                   Pursuant to Article 40 of the By-Laws and Article 30.7 of the Regulations of the Board of Directors, the Chairman shall,
                                   in the event of a tie, have a tie-breaking vote on any matter unless he becomes subject to a conflict of interest, in which
                                   case he must abstain from participating in the deliberation and voting stages of the respective resolution as provided in
                                   Article 37 of the aforementioned Regulations.


                               B.1.25. Indicate whether the By-Laws or the Regulations of the Board of Directors set forth any age
                               limit for directors:

                                  YES                        NO       X


                                    AGE LIMIT FOR THE CHAIRMAN                                 AGE LIMIT FOR THE CEO                              AGE LIMIT FOR DIRECTORS

                                                         -                                                     -                                                   -


                               B.1.26. Indicate whether the By-Laws or the Regulations of the Board of Directors establish any limit
                               on the term of office for independent directors:

                                  YES                        NO       X


                                   Maximum term of office                                                                                                                      -




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               206 Annual Corporate Governance Report
B.1.27. If the number of women directors is scant or nil, describe the reasons therefor as well as the
initiatives adopted to correct such situation.

                                                 DESCRIPTION OF REASONS AND INITIATIVES

   Section 12 of the General Corporate Governance Policy (available on the Company’s corporate website
   www.iberdrola.com) provides that “when new candidates for membership on the Board of Directors are selected, and
   in order to ensure at all times the pre-eminence of the corporate interest within the Board of Directors, the Nominating
   and Compensation Committee ensures that nominees are respectable and qualified persons, widely recognized for
   their expertise, competence, experience, qualifications, training, availability and commitment to their duties, seeking
   to ensure that the selection of candidates results in an appropriate equilibrium on the Board of Directors that enriches
   decision-making and contributes multiple points of view to the debate on the matters within its purview.”
   Moreover, the Board has entrusted the Nominating and Compensation Committee with responsibility for ensuring that
   when new vacancies are filled or new Directors are appointed, the selection procedures are free from any implied bias
   entailing any kind of discrimination and, in particular, that they do not hinder the selection of women Directors. This
   is expressly provided by Articles 26.6.d) of the Regulations of the Board of Directors and 4.a) of the Regulations of the
   Nominating and Compensation Committee, as well as in Section 12 of the General Corporate Governance Policy, in the
   Corporate Social Responsibility Policy and in the Policy for the Reconciliation of Personal and Working Life and Equal
   Opportunity.
   On June 7, 2006, the Board of Directors appointed the Director Ms. Inés Macho Stadler on an interim basis to fill a
   vacancy; such appointment was ratified by the shareholders at the General Shareholders’ Meeting held on March 29,
   2007, where the shareholders also approved her re-election for a five-year period. It must be noted that on September
   22, 2009, Ms. Inés Macho Stadler was appointed as lead independent Director, a position governed by the provisions of
   Article 21 of the Regulations of the Board of Directors.
   At its meeting of July 31, 2008, the Board resolved to appoint the Director Ms. Samantha Barber on an interim basis to fill
   a vacancy; such appointment was ratified by the shareholders at the General Shareholders’ Meeting held on March 20,
   2009.
   In addition, the shareholders at the General Shareholders’ Meeting held on March 26, 2010 approved the proposal for the
   appointment of Ms. María Helena Antolín Raybaud, who is classified as an external independent Director.


In particular, indicate whether the Nominating and Compensation Committee has established
procedures to ensure that selection processes are free from any implied bias hindering the selection of
women directors, and deliberately searches for women candidates that meet the required profile:

  YES       X                NO




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      207
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                                                                       DESCRIBE THE MAIN PROCEDURES

                                   The Nominating and Compensation Committee, acting at the request of the Board of Directors, shall select possible
                                   candidates for appointment as Directors of the Company and shall present its proposals or reports, as the case may be,
                                   to the Board of Directors through the Chairman of such body, for which purpose it shall take the following actions in
                                   compliance with the procedure set forth in Article 4 of the Regulations of such Committee:
                                   a) Review the criteria that should be followed for the selection of candidates to serve as Directors and assist the Board
                                      of Directors in the definition of the desired profiles of such candidates, taking into account the needs of the Board
                                      of Directors as well as the areas within the Board that it is deemed appropriate to strengthen, ensuring that there is
                                      no implied bias in selection procedures that might entail any discrimination, and, in particular, that may hinder the
                                      selection of women Directors.
                                   b) Select the possible candidates for appointment as Directors of the Company, if appropriate, and submit its proposals
                                      or reports, as the case may be, to the Board of Directors through the Chairman thereof.
                                   c) Verify that all candidates for Director of the Company meet the general requirements provided in the Law and in its
                                      Corporate Governance System.
                                   d) Evaluate the qualities of the various candidates and assign them to one of the categories of Directors contemplated
                                      by the By-Laws of the Company.
                                   e) Submit the nominations for independent Director to the Board of Directors (for appointment on an interim basis or
                                      for submission to the shareholders for decision at the General Shareholders’ Meeting).
                                   f) Verify compliance with the specific requirements for independent Director provided by the Law and by the Company’s
                                      Corporate Governance System, and gather adequate information regarding the personal qualities, experience,
                                      knowledge, and effective availability of the candidates.
                                   g) At the request of the Chairman of the Board of Directors or of any other member of the Board of Directors, report
                                      nominations for the other positions as Director (for appointment on an interim basis or for submission to the
                                      shareholders for decision at the General Shareholders’ Meeting).
                                   h) Report the individuals proposed by Directors who are legal entities as their representatives.
                                   i) Report, in the case of proprietary Directors, on the circumstances of the shareholder or shareholders proposing,
                                      requesting or determining the appointment, regardless of the method or procedure followed for the appointment, to
                                      the extent legally possible.
                                   j) Request all information and documentation deemed necessary or appropriate on candidates to serve as Director, on
                                      the individuals who are to represent the Directors who are legal entities and, in the case of proprietary Directors, on
                                      the shareholders who nominate, request or decide the appointment thereof, in order to prepare the proposals and
                                      reports mentioned in the preceding paragraphs.


                               B.1.28. Indicate whether there are formal procedures for proxy-voting at meetings of the Board of
                               Directors. If so, briefly describe them.

                               Pursuant to Articles 40.2 of the By-Laws and 30.2 and 34.2.b) of the Regulations of the Board of Directors,
                               Directors shall use their best efforts to attend the meetings of the Board of Directors and, when unable to attend
                               in person for well-founded reasons, they shall endeavor to give a proxy to another Director, to whom they shall
                               give any appropriate instructions. They may not grant a proxy in connection with any matter in respect of which
                               they are involved in a conflict of interest.
                                  The proxy shall be a special proxy for the Board meeting in question, and may be communicated by any means
                               allowing for receipt thereof.

                               B.1.29. Indicate the number of meetings that the Board of Directors has held during the fiscal year.
                               In addition, specify the number of meetings, if any, at which the Chairman was not in attendance:

                                   Number of meetings of the Board                                                                                                            13

                                   Number of meetings of the Board at which the Chairman was not in attendance                                                                 0

                               Indicate the number of meetings held by the different committees of the Board of Directors during the
                               fiscal year:
                                   Number of meetings of the Executive Committee                                                                                              24

                                   Number of meetings of the Audit Committee                                                                                                  13

                                   Number of meetings of the Nominating and Compensation Committee                                                                            10

                                   Number of meetings of the Nominating Committee                                                                                              0

                                   Number of meetings of the Compensation Committee                                                                                            0

NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               208 Annual Corporate Governance Report
B.1.30. Indicate the number of meetings held by the Board of Directors during the fiscal year at
which not all of its members have been in attendance. Proxies granted without specific instructions
must be counted as absences:

   Number of absences of directors during the fiscal year                                                                                      6

   % of absences over total votes during the fiscal year                                                                                    0.036



B.1.31. Indicate whether the annual individual financial statements and the annual consolidated
financial statements that are submitted to the Board of Directors for approval have been previously
certified:

  YES       X                NO


Identify, if applicable, the person/persons that has/have certified the annual individual and
consolidated financial statements of the Company for preparation by the board:

                                      NAME                                                                        POSITION

   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                                                      CHAIRMAN & CHIEF EXECUTIVE OFFICER

   MR. JOSÉ LUIS SAN PEDRO GUERENABARRENA                                              GENERAL BUSINESS DIRECTOR OF THE GROUP

   MR. JUAN CARLOS REBOLLO LICEAGA                                                     DIRECTOR OF ADMINISTRATION AND CONTROL


B.1.32. Explain the mechanisms, if any, adopted by the Board of Directors to avoid any
qualifications in the audit report on the annual individual and consolidated financial statements
prepared by the Board of Directors and submitted to the General Shareholders’ Meeting.

Article 3, sub-sections f), i), j) and k) of the Regulations of the Audit and Risk Supervision Committee, provides that:
  “The Committee shall have the following main duties:
  f) Supervise the process for preparing and submitting regulated financial information.
  i) Establish appropriate relationships with the auditors in order to receive information regarding matters that
  could put their independence at risk, for review thereof by the Committee, as well as regarding any other
  matters relating to the conduct of audits and all other communications provided for in legislation governing
  the audit of financial statements and in other auditing regulations.
  In any event, it shall receive from the auditors, on an annual basis, written confirmation of their independence
  in respect of the Company or entities directly or indirectly related thereto, as well as information regarding
  additional services of any kind provided to such entities by the said auditors or by the persons or entities
  related thereto, pursuant to the legislation governing the audit of financial statements.
  j) Issue, on an annual basis and prior to the issuance of the auditor’s report, a report setting forth an opinion
  on the independence of the auditors. This report shall, in all cases, pass upon the provision of the additional
  services referred to in the preceding paragraph.
  k) Report in advance to the Board of Directors regarding the financial information that the Company must
  disclose on a regular basis because of its status as a listed company; the Committee shall make sure that the
  interim financial statements are prepared in accordance with the same accounting standards as the annual
  financial statements and, for such purpose, it shall consider the appropriateness of a limited review by the
  auditors.”
For its part, Article 48.5 of the Regulations of the Board of Directors provides that:
  “The Board of Directors shall use its best efforts to prepare the annual financial statements such that there is
  no room for comments by the auditors. However, when the Board of Directors believes that its opinion must
  prevail, it shall provide a public explanation of the content and scope of the discrepancy.”
  Moreover, Article 6, sub-sections d) and h) of the Regulations of the Audit and Risk Supervision Committee,
establishes the principal duties of such Committee:
  “d) Review the content of the Auditors’ Reports and of the reports on the limited review of interim financial
  statements, if any, as well as other mandatory reports to be prepared by the auditors prior to the issuance
  thereof, in order to avoid qualified reports.
  h) Act as a channel of communication between the Board of Directors and the auditors.”


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      209
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               Pursuant to the above-cited articles, the Audit and Risk Supervision Committee reports on the economic and
                               financial information of the Company throughout the fiscal year and prior to the approval thereof by the Board
                               of Directors and its submission to the National Securities Market Commission (Comisión Nacional del Mercado
                               de Valores) (CNMV). The reports of the Committee, which the Chairman thereof presents to the full Board of
                               Directors, are mainly intended to disclose such aspects, if any, as may give rise to qualifications in the audit
                               report of Iberdrola and its consolidated Group, making the appropriate recommendations to avoid any such
                               qualifications.
                                  Accordingly, during fiscal year 2010, the Audit and Risk Supervision Committee submitted the following
                               reports to the Board of Directors:
                                  - Report dated April 26, 2010 on the interim management statement for the first quarter of 2010.
                                  - Report dated July 19, 2010 on the financial report for the first half of 2010.
                                  - Report dated October 18, 2010 on the interim management statement for the third quarter of 2010.
                                  - Report dated February 21, 2011 on the annual financial statements of Iberdrola and its consolidated Group
                                  for fiscal year 2010.
                               As disclosed in the information about Iberdrola posted on the website of the CNMV (www.cnmv.es), the audit
                               reports on the individual and consolidated annual financial statements prepared by the Board of Directors have
                               historically been issued without qualifications.

                               B.1.33. Is the Secretary of the Board of Directors a Director?

                                  YES                        NO       X


                               B.1.34. Describe the procedures for appointment and removal of the Secretary of the Board, stating
                               whether the appointment and removal thereof have been reported upon by the Nominating
                               Committee and approved by the full Board.

                                                                              PROCEDURE FOR APPOINTMENT AND REMOVAL

                                   Pursuant to Article 22.1 of the Regulations of the Board of Directors, the Board of Directors shall appoint its Secretary at
                                   the proposal of the Chairman and after a report of the Nominating and Compensation Committee. The same procedure
                                   must be followed in order to approve the removal of the Secretary.



                                   Does the Nominating Committee report on the appointment?                                                                                  YES

                                   Does the Nominating Committee report on the removal?                                                                                      YES

                                   Does the full Board approve the appointment?                                                                                              YES

                                   Does the full Board approve the removal?                                                                                                  YES


                               Is the secretary of the Board especially responsible for ensuring compliance with good governance
                               recommendations?

                                  YES       X                NO


                                                                                                      COMMENTS

                                   Under Section 17.d) of the General Corporate Governance Policy, further developed by Article 22.4.b) of the Regulations
                                   of the Board of Directors (available on the Company’s corporate website www.iberdrola.com), the Secretary has the
                                   duty to ensure the formal and substantive legality of all actions taken by the collective management decision-making
                                   bodies and conformity thereof with the Company’s Corporate Governance System. To such end, the Secretary of the
                                   Board of Directors shall take into account, among other things, the provisions issued by regulatory authorities and their
                                   recommendations, if any.
                                   Among other duties, he is also responsible for advising on the evaluation and update of the Corporate Governance
                                   System and for reporting on new corporate governance initiatives at the domestic and international levels.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               210 Annual Corporate Governance Report
B.1.35. Indicate the mechanisms, if any, used by the Company to preserve the independence of
the auditors, the financial analysts, the investment banks and the rating agencies.

1. Mechanisms to preserve the independence of the auditor
Iberdrola’s Auditor Hiring Policy, approved by the Audit and Risk Supervision Committee at its meeting of
November 23, 2005 and updated by resolutions adopted at its meetings of March 10, 2008, April 20, 2009 and
December 13, 2010 contains the internal regulations of the Company that have been established in order to
preserve the independence of the Company’s Auditor, namely:

Independence of the Auditor

“The Company’s Corporate Governance System provides that the Audit and Risk Supervision Committee shall
receive information from the auditors regarding matters that might put their independence at risk.
   The Audit and Risk Supervision Committee shall not submit a proposal to the Board of Directors, and
the Board of Directors shall not submit a proposal to the General Shareholders’ Meeting of the Company
for appointment of a firm as auditor when it has evidence that such firm is affected by any circumstance of
incompatibility pursuant to applicable legislation or does not satisfy the independence requirements established
by the Company’s Corporate Governance System.
   In addition, the Audit and Risk Supervision Committee shall ensure the “de facto” and “apparent”
independence of the Auditors by authorizing, prior to the formalization thereof, any contract for services other
than the audit of financial statements with the firms conducting audits of financial statements at companies
of the Group. The Audit and Risk Supervision Committee shall be informed of any engagement of the firms
conducting audits of financial statements at companies of the Group for the provision of audit and non-audit
services.
   The Audit and Risk Supervision Committee shall receive from the auditors, on an annual basis, written
confirmation of their independence in respect the Company or entities directly or indirectly related thereto, as
well as information regarding additional services of any kind provided to such entities by the said auditors or by
the persons or entities related thereto, pursuant to the legislation governing the audit of financial statements.
   The Audit and Risk Supervision Committee shall issue, on an annual basis and prior to the issuance of the
auditors’ report, a report setting forth an opinion on the independence of the auditors. This report shall, in all
cases, pass upon the provision of the additional services referred to in the preceding paragraph. Furthermore,
the Audit and Risk Supervision Committee shall supervise the internal quality assurance and independence
safeguarding procedures implemented by the Group’s auditors.
   The audit firms carrying out audits of financial statements at companies of the Group shall provide to the
Audit and Risk Supervision Committee, on an annual basis, information regarding the profiles and professional
record of the persons making up the audit teams working for the Company, the Group and the subholding
companies, with specific mention of the changes in the composition of such teams compared to the immediately
preceding fiscal year.
   In addition, the Audit and Risk Supervision Committee shall receive information on professionals joining the
Group who were formerly employed by the audit firms.”
In this connection, the audit firms of the Iberdrola Group appeared on a total of 4 occasions before the full Audit
and Risk Supervision Committee in 2010 to report on various matters relating to the audit process.
   In addition, such Committee granted authorization for a total of 11 engagements of such audit firms for
non-audit work. In every such case, the audit partner of the respective firm responsible for liaising with the
Committee signed a letter of independence confirming the absence of any independence restrictions prior to
accepting the engagement.
   Moreover, and as part of the process of preparation of the annual financial statements for the fiscal year,
the respective audit firms have sent the Chairman of the Audit and Risk Supervision Committee their annual
certificate of independence of the firm as a whole and of the members of the team participating in the audit
process. Last, the Committee was informed, where applicable, that the Iberdrola Group had hired professionals
from the audit firms.

2. Mechanisms to preserve the independence of financial analysts, investment banks and rating
agencies
The principles which form the basis of the relations of the Company with financial analysts, investment banks
and rating agencies are transparency, non-discrimination, truthfulness and trustworthiness of the information
supplied. The Economy and Finance Division, through the Investor Relations Division, coordinates the relations
with them and deals with all their requests for information and with the requests submitted by institutional
or retail investors (in the case of retail investors, through the Office of the Shareholder). The Economic and
Financial Division grants mandates to investment banks. The Development Division grants the appropriate


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      211
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               advisory mandates to investment banks within the scope of its activities and in coordination with the Economic
                               and Financial Division.
                                  The independence of financial analysts is protected by the existence of a specific Division in charge of
                               dealing with analysts, the Investor Relations Division. This guarantees an objective, fair and non-discriminatory
                               treatment of analysts.
                                  To actualize the principles of transparency and non-discrimination, always in strict compliance with
                               regulations regarding the Securities Market, the Company has a number of communication channels:
                                  - Personalized assistance for analysts, investors and rating agencies.
                                  - Publication of the information relating to quarterly results and other specific events, such as those relating to
                                  the submission of the Strategic Plan or to corporate transactions.
                                  - E-mail through the Company’s corporate website (accionistas@iberdrola.com) and a toll-free line for
                                  shareholders (+34 900 100 019).
                                  - Presentations either in person or re-transmitted over the telephone and the Internet.
                                  - Release of announcements and news.
                                  - Visits to Company facilities.
                               All this information is also available on the Company’s corporate website (www.iberdrola.com). There is also
                               a document delivery system available for the shareholders and investors registered in the databases for such
                               purpose.

                               B.1.36. Indicate whether the company has changed the external auditor during the fiscal year. If so,
                               identify the incoming and the outgoing auditor:

                                  YES                        NO       X


                                                     OUTGOING AUDITOR                                                              INCOMING AUDITOR




                               If there has been any disagreement with the outgoing auditor, describe the content thereof:

                                  YES                        NO       X


                                                                                     DESCRIPTION OF THE DISAGREEMENT




                               B.1.37. Indicate whether the audit firm performs other non-audit work for the Company and/or its
                               Group. If so, state the amount of the fees paid for such work and the percentage they represent of
                               the aggregate fees charged to the Company and/or its Group.

                                  YES       X                NO


                                                                                                               COMPANY                     GROUP                        TOTAL

                                   Amount of other non-audit work                                                   116                      256                          372
                                   (thousands of euros)

                                   Amount of non-audit work / Aggregate amount                                     3.92                      2.90                        3.16
                                   billed by the audit firm (%)




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               212 Annual Corporate Governance Report
B.1.38. State whether the audit report on the Annual Financial Statements for the prior fiscal year
has observations or qualifications. If so, state the reasons given by the Chairman of the Audit
Committee to explain the content and scope of such observations or qualifications.

  YES                        NO       X


                                                            DESCRIPTION OF REASONS




B.1.39. Indicate the consecutive number of years for which the current audit firm has been
auditing the annual financial statements of the Company and/or its Group. In addition, state the
percentage represented by such number of years with respect to the total number of years in
which the annual financial statements have been audited:

                                                                                                     COMPANY                           GROUP

   Number of consecutive years                                                                             5                               5



                                                                                                     COMPANY                           GROUP

   Number of years audited by the current audit firm / Number of                                          28                              28
   years in which the company has been audited (%)


B.1.40. Indicate the interests of members of the Board of Directors in the share capital of companies
that engage in the same, similar or complementary activities, both with respect to the company and
its group, and which have been reported to the company. In addition, state the position or duties of
such Directors in such companies:

    INDIVIDUAL OR CORPORATE NAME                           NAME OF COMPANY IN                                                      POSITION OR
             OF DIRECTOR                                  WHICH SHARES ARE HELD                       % INTEREST                     DUTIES

   MR. IÑIGO VÍCTOR DE ORIOL IBARRA                     EMPRESA DE ALUMBRADO                                   0.04                  DIRECTOR
                                                        ELÉCTRICO DE CEUTA, S.A.

   MR. BRAULIO MEDEL CÁMARA                             ABERTIS INFRAESTRUCTURAS, S.A.                      0.001                       NONE

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                        ABERTIS INFRAESTRUCTURAS, S.A.                      0.007                       NONE

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                        FOMENTO DE                                          0.000                       NONE
                                                        CONSTRUCCIONES Y
                                                        CONTRATAS, S.A.

   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                        MARTINSA FADESA, S.A.                               0.000                       NONE



B.1.41. Indicate whether there is any procedure for Directors to hire external advisory services, and
if so, describe it:

  YES       X                NO




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      213
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                                                                          DESCRIPTION OF PROCEDURE

                                   Pursuant to Article 33 of the Regulations of the Board of Directors, any Director may, in order to be assisted in the
                                   performance of his duties, request the hiring of legal, accounting, technical, financial, commercial or other expert
                                   advisors, whose services shall be paid for by the Company. The assignment must deal with specific issues of certain
                                   significance and complexity arising during the performance of the Director’s duties. The request must be channeled
                                   through the Secretary of the Board of Directors, who may subject it to the prior approval of the Board of Directors; such
                                   approval may be denied in well-founded instances, including the following circumstances:
                                   a) That it is not necessary for the proper performance of the duties entrusted to the Directors.
                                   b) That the cost thereof is not reasonable in light of the significance of the issues and the assets and income of the
                                   Company.
                                   c) That the technical assistance sought may be adequately provided by the Company’s own experts and technical
                                   personnel.
                                   d) That it may entail a risk to the confidentiality of the information that must be made available to the expert.
                                   Furthermore, Article 18.2 of the Regulations of the Nominating and Compensation Committee, Article 25.2 of the
                                   Regulations of the Audit and Risk Supervision Committee and Article 16.2 of the Regulations of the Corporate Social
                                   Responsibility Committee provide that such Committees may obtain advice from outside professionals, who will send
                                   their reports directly to the Chairman of the respective Committee.


                               B.1.42. Indicate whether there is any procedure for Directors to obtain sufficiently in advance the
                               information required to prepare for meetings of management-level decision-making bodies and, if
                               so, describe it:

                                  YES       X                NO


                                                                                          DESCRIPTION OF PROCEDURE

                                   Section 13 of the General Corporate Governance Policy (available on the company’s corporate website
                                   www.iberdrola.com) states that “the Company has a program to provide Directors with information and updates in
                                   response to the need for professionalization, diversification and qualification of the Board of Directors.
                                   Furthermore, in order to improve their knowledge of the Group, presentations may be made to the Directors in
                                   connection with the business of the Group. In addition, at each meeting of the Board of Directors, a specific portion of
                                   the meeting may be devoted to a presentation on legal or economic matters of significance to the Group.
                                   The Directors have access to a specific application, the Directors’ website, that facilitates performance of their duties and
                                   the exercise of their right to information. Such information as is deemed appropriate for the preparation of meetings
                                   of the Board of Directors and the Committees thereof in accordance with the agenda set forth in the respective calls, as
                                   well as materials relating to the Director training programs and the presentations made to the Board of Directors, shall
                                   be posted on such website.
                                   In addition, there shall be posted on the Directors’ website, once duly approved, the minutes of meetings of the Board
                                   of Directors and of the Committees thereof or an abstract or summary thereof, as well as such information as the Board
                                   of Directors may decide to include.”
                                   For its part, Article 28.4 of the Regulations of the Board of Directors, further developing the provisions of Article 39.2
                                   of the By-Laws, provides that “The call to meeting of the Board of Directors shall be carried out by the Secretary of the
                                   Board of Directors or whoever acts in his stead, with the authorization of the Chairman of the Board of Directors, by any
                                   means allowing for receipt thereof. Notice of the call shall be given as much in advance as is necessary for the Directors
                                   to have access to it not later than the third day prior to the date of the meeting, except in the case of urgent meetings.
                                   Together with the call to meeting, which shall always, in the absence of well-founded reasons, include the agenda for the
                                   meeting, any information that is deemed necessary shall be sent or made available through the Directors’ website The
                                   call to meetings of the Board of Directors may be cancelled, the meetings suspended, or the date, agenda or place of the
                                   meeting changed following the same procedure.”
                                   In addition, Article 34.2.a) of the Regulations of the Board of Directors provides that the Director is specifically required
                                   to “properly prepare the meetings of the Board of Directors and, if applicable, the meetings of the Executive Committee
                                   or of the Committees of which the Director is a member, for which purposes the Director must diligently inform himself
                                   of the running of the Company and the matters to be discussed at such meeting.”
                                   In order to facilitate the Directors’ discharge of their duties, the following initiatives have been implemented:
                                   - The delivery of the Directors’ Code of Ethics of Iberdrola, which provides the Directors with an overall view of the rights
                                     and duties inherent in their position and is continuously updated.
                                   - The Director’s website.
                                   - The delivery of the information program to the Directors of Iberdrola pursuant to Article 12.4 of the Regulations of the
                                     Board of Directors, seeks to achieve the ongoing update of Directors and consists of presentations and the delivery of
                                     informational notes to the Directors at each ordinary meeting of the Board regarding matters of interest to Directors
                                     because of their status as Directors of the Company, information of general interest and specific information on
                                     corporate governance and corporate social responsibility.


NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               214 Annual Corporate Governance Report
B.1.43. State whether the Company has established any rules requiring Directors to inform
the Company —and, if applicable, resign from their position— in cases in which the credit and
reputation of the Company may be damaged. If so, describe such rules:

  YES       X                NO


                                                              DESCRIPTION OF RULES

   Section 14 of the General Corporate Governance Policy (available on the Company’s corporate website www.iberdrola.com)
   sets forth the rights and duties of the Directors. Exhibit I of such policy is devoted to the ethical duties of Directors.
   As provided by sub-sections c) and d) of Article 42.2. of the Regulations of the Board of Directors, Directors must
   disclose to the Company any judicial, administrative or other proceedings instituted against the Director which,
   because of their significance or characteristics, may seriously reflect upon the reputation of the Company. In particular,
   in the event that a Director becomes subject to an order for further criminal prosecution upon indictment (resultar
   procesado) or an order for the commencement of an oral trial is issued against him for the commission of any of the
   crimes contemplated in Section 213 of the Companies Law, such Director shall give notice thereof to the Company, in
   the person of its Chairman. In such instance, the Board of Directors shall review the case as soon as practicable and shall
   adopt the decisions it deems fit taking into account the corporate interests.
   Directors must also disclose to the Company any fact or event that may be relevant in connection with the holding of
   office as Directors of the Company.
   Additionally, Directors shall tender their resignation to the Board of Directors and formally resign from their position in
   the following cases, among others set forth in Article 16.2 of the Regulations of the Board of Directors:
   (a) When, due to supervening circumstances, they are involved in any circumstance of incompatibility or prohibition
       governed by provisions of a general nature, the By-Laws or the Regulations of the Board of Directors.
   (b) When, as a result of any acts or conduct attributable to the Director, serious damage is caused to the value or
       reputation of the Company or there is a risk of criminal liability for the Company.
   (c) When they cease to deserve the respectability or to have the capability, expertise, competence, availability or
       commitment to their duties required to be a Director of the Company.
   (d) When they are seriously reprimanded by the Board of Directors because they have breached any of their duties as
       Directors and such reprimand is approved by a two-thirds majority of the Directors.
   (e) When their continuance in office on the Board of Directors may, for any reason, jeopardize directly, indirectly or
       through Persons Related to them (as such term is defined in these Regulations), the loyal and diligent performance of
       their duties in furtherance of the corporate interests.
   (f) When the reasons why the Director was appointed cease to exist and, in particular, in the case of proprietary
       Directors, when the shareholder or shareholders who nominated, requested or decided the appointment thereof
       totally or partially sell or transfer their equity interests, with the result that such shareholder or shareholders lose the
       status of being a significant shareholder or having an interest sufficient to justify the appointment thereof.
   (g) When an independent Director is affected, at any time following his appointment as such, by any of the prohibitions
       to hold office provided for in Article 10.2 of the Regulations of the Board of Directors.
   (h) When the condition of the activities carried out by the Director, or the companies directly or indirectly controlled by
       the Director, or the individuals or legal entities that are shareholders or related to any of them may compromise the
       Director’s capacity to hold office as such.
   In any of the instances set forth in sub-section 2 of Article 16 of the Regulations of the Board of Directors, the Board of
   Directors shall request the Director to resign from his position and, if applicable, shall propose his removal from office to
   the shareholders at the General Shareholders’ Meeting.
   By way of exception, the resignation provisions set forth in the above-cited letters f) and g) of Article 16.2 of the
   Regulations of the Board of Directors, shall not apply when the Board of Directors believes that there are reasons which
   justify the Director’s continuance in office, following a report of the Nominating and Compensation Committee, without
   prejudice to the effect that the new supervening circumstances may have on the classification of the Director.



B.1.44. State whether any member of the Board of Directors has informed the Company that he has
become subject to an order for further criminal prosecution upon indictment or that an order for
the commencement of an oral trial has been issued against him for the commission of any of the
crimes contemplated in Section 124 of the Companies Law:

  YES                        NO       X


                      NAME OF DIRECTOR                                        NAME OF DIRECTOR                           NAME OF DIRECTOR




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      215
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                               Indicate whether the Board of Directors has analyzed the case. If so, provide a duly substantiated
                               explanation of the decision adopted regarding whether or not the Director should remain in office.

                                  YES                        NO       X


                                           DECISION ADOPTED                                                 DULY SUBSTANTIATED EXPLANATION




                               B.2. COMMITTEES OF THE BOARD OF DIRECTORS

                               B.2.1. List all the committees of the Board of Directors and the members thereof:

                               EXECUTIVE COMMITTEE
                                                                          NAME                                                       POSITION                          CLASS

                                   MR. JOSÉ IGNACIO SÁNCHEZ GALÁN                                                                   CHAIRMAN                        EXECUTIVE

                                   MR. VÍCTOR DE URRUTIA VALLEJO                                                                      MEMBER                      INDEPENDENT

                                   MR. JOSÉ IGNACIO BERROETA ECHEVARRIA                                                               MEMBER                      INDEPENDENT

                                   MR. XABIER DE IRALA ESTÉVEZ                                                                        MEMBER                      PROPRIETARY

                                   MR. JOSÉ LUIS OLIVAS MARTÍNEZ                                                                      MEMBER                      PROPRIETARY

                                   MS. INÉS MACHO STADLER                                                                             MEMBER                      INDEPENDENT



                               AUDIT AND RISK SUPERVISION COMMITTEE
                                                                          NAME                                                         NAME                            CLASS

                                   MR. SEBASTIÁN BATTANER ARIAS                                                                      CHAIRMAN                     INDEPENDENT

                                   MR. JULIO DE MIGUEL AYNAT                                                                  SECRETARY - MEMBER                  INDEPENDENT

                                   MR. SANTIAGO MARTÍNEZ LAGE                                                                         MEMBER                      INDEPENDENT


                               NOMINATING AND COMPENSATION COMMITTEE
                                                                          NAME                                                         NAME                            CLASS

                                   MR. JOSÉ IGNACIO BERROETA ECHEVARRIA                                                             CHAIRMAN                      INDEPENDENT

                                   MS. INÉS MACHO STADLER                                                                             MEMBER                      INDEPENDENT

                                   MR. IÑIGO VÍCTOR DE ORIOL IBARRA                                                                   MEMBER                      INDEPENDENT


                               CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
                                                                          NAME                                                         NAME                            CLASS

                                   MR. RICARDO ÁLVAREZ ISASI                                                                         CHAIRMAN                     INDEPENDENT

                                   MR. BRAULIO MEDEL CÁMARA                                                                           MEMBER                      INDEPENDENT

                                   MS. SAMANTHA BARBER                                                                                MEMBER                      INDEPENDENT

                                   MS. MARÍA HELENA ANTOLÍN RAYBAUD                                                                    MEMBER                      INDEPENDENT




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               216 Annual Corporate Governance Report
B.2.2. State whether the Audit Committee has the following duties:

   Supervise the process of preparation and the integrity of the financial information relating to                                           YES
   the Company and, if applicable, to the Group, monitoring compliance with legal requirements,
   the proper delimitation of the scope of consolidation, and the correct application of accounting
   principles.

   Periodically review the internal control and risk management systems, in order for the main                                               YES
   risks to be properly identified, managed and made known.

   Ensure the independence and effectiveness of the internal audit area; make proposals                                                      YES
   regarding the selection, appointment, re-election and withdrawal of the head of the internal
   audit area; propose the budget for such area; receive periodic information regarding its
   activities; and verify that senior management takes into account the conclusions and
   recommendations contained in its reports.

   Establish and supervise a mechanism whereby the employees may give notice, on a                                                           YES
   confidential basis and, if deemed appropriate, anonymously, of any potentially significant
   irregularities, especially of a financial and accounting nature, that they notice at the Company.

   Submit to the Board proposals for the selection, appointment, re-election and replacement of                                              YES
   the external auditor, as well as the contractual terms under which it should be hired.

   Regularly receive from the external auditor information regarding the audit plan and                                                      YES
   the results of the implementation thereof, and verify that senior management takes its
   recommendations into account.

   Ensure the independence of the external auditor.                                                                                          YES

   In the case of groups of companies, favor the auditor of the group as the auditor responsible                                             YES
   for audit work at the companies that form part thereof.


B.2.3. Describe the rules of organization and operation of, and the duties assigned to, each of the
Board committees.

        NAME OF THE COMMITTEE                                                             BRIEF DESCRIPTION

   EXECUTIVE COMMITTEE                                Pursuant to Article 43 of the By-Laws, the Executive Committee shall be
                                                      composed of the number of members decided by the Board of Directors,
                                                      with a minimum of five (5) Directors and a maximum of eight (8). In all cases,
                                                      members shall include the Chairman of the Board of Directors, who shall
                                                      preside over meetings of the Executive Committee, the Vice-Chairman or
                                                      Vice-Chairmen and the Chief Executive Officer, if any. The Secretary of the
                                                      Board of Directors or, in the absence thereof, the Assistant Secretary of the
                                                      Board of Directors or, in the absence of both, the member of the Committee
                                                      appointed from among the members attending the meeting in question, shall
                                                      act as Secretary of the Committee.
                                                      The Executive Committee shall meet at the intervals deemed appropriate
                                                      by the Chairman thereof and at least twenty (20) times a year. Resolutions
                                                      adopted by the Executive Committee shall be reported to the Board of
                                                      Directors at its next meeting.
                                                      Resolutions of the Executive Committee shall be adopted by the majority of
                                                      its members present at the meeting in person or by proxy. In the event of a
                                                      tie, the Chairman shall have the tie-breaking vote.
                                                      The duties of this Committee consist of making proposals or reporting to the
                                                      Board regarding strategic decisions, investments and divestitures that are
                                                      significant for the Company or the Group, assessing their conformity to the
                                                      Budget and the Strategic Plan and analyzing and monitoring business risks.
                                                      The provisions of the By-Laws regarding the operation of the Board of
                                                      Directors will apply to the Executive Committee, to the extent they are not
                                                      incompatible with the nature thereof.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      217
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                        NAME OF THE COMMITTEE                                                             BRIEF DESCRIPTION

                                   AUDIT AND RISK SUPERVISION                         Pursuant to Article 9 of the Regulations of the Audit and Risk Supervision
                                   COMMITTEE                                          Committee, the Committee shall be composed of a minimum of three (3)
                                                                                      Directors and a maximum of five (5), appointed by the Board of Directors
                                                                                      from among the external Directors who are not members of the Executive
                                                                                      Committee.
                                                                                      The Board of Directors shall appoint a Chairman of the Committee from
                                                                                      among the independent Directors sitting on the Committee and a Secretary,
                                                                                      who need not be a Director.
                                                                                      The members of the Audit and Risk Supervision Committee shall carry out
                                                                                      their duties for a maximum term of three (3) years, and may be re-elected
                                                                                      one or more times for terms of the same maximum length. The position of
                                                                                      Chairman shall be held for a maximum term of three (3) years, after which
                                                                                      period such person may not be re-elected until the passage of at least one
                                                                                      year from ceasing to act as such, without prejudice to such person continuing
                                                                                      or being re-elected as a member of the Committee.
                                                                                      The Committee shall meet as many times as needed, in the opinion of its
                                                                                      Chairman, and at the request of at least two (2) of its members.
                                                                                      The Committee shall validly meet when the majority of its members are
                                                                                      present in person or by proxy, and shall adopt its resolutions by majority of
                                                                                      the votes of the members present at the meeting in person or by proxy. In the
                                                                                      event of a tie, the Chairman of the Audit and Risk Supervision Committee shall
                                                                                      have the tie-breaking vote.
                                                                                      It should be noted that, at the meeting of May 20, 2008, the Audit and Risk
                                                                                      Supervision Committee and the Board of Directors approved a “Procedure for
                                                                                      the management of the channel of communication with the Audit and Risk
                                                                                      Supervision Committee,” in line with the provisions of Recommendation 50.1
                                                                                      d) of the Unified Good Governance Code. No communications were received
                                                                                      in this regard during fiscal year 2010.

                                   NOMINATING AND COMPENSATION                        Pursuant to Article 45 of the By-Laws, the Nominating and Compensation
                                   COMMITTEE                                          Committee is an internal informational and consulting body without executive
                                                                                      powers, which has the information, advisory and proposal-making powers
                                                                                      within its scope of action.
                                                                                      The Nominating and Compensation Committee shall be composed of a
                                                                                      minimum of three (3) and a maximum of five (5) Directors, appointed by the
                                                                                      Board of Directors from among the external Directors. The Board of Directors
                                                                                      also appoints the Chairman thereof from among the members of such
                                                                                      Committee, as well as its Secretary, who need not be a Director.
                                                                                      The members of the Nominating and Compensation Committee shall hold
                                                                                      office for a maximum term of three (3) years, and may be re-elected one or
                                                                                      more times for terms of the same maximum length.
                                                                                      For purposes of operation of the Committee, it shall meet as many times as
                                                                                      needed, in the opinion of its Chairman, and when so requested by at least two
                                                                                      (2) of its members.
                                                                                      The Committee shall be validly convened when the majority of its members
                                                                                      are present in person or by proxy, and shall adopt its resolutions by majority
                                                                                      vote of the members present at the meeting in person or by proxy. In the case
                                                                                      of a tie, the Chairman of the Nominating and Compensation Committee shall
                                                                                      have the tie-breaking vote.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               218 Annual Corporate Governance Report
        NAME OF THE COMMITTEE                                                             BRIEF DESCRIPTION

   CORPORATE SOCIAL RESPONSIBILITY                    Pursuant to Article 27 of the Regulations of the Board of Directors, the
   COMMITTEE                                          Corporate Social Responsibility Committee is a permanent internal
                                                      informational and consultative body without executive powers, with
                                                      information, advisory and proposal-making powers within its scope of action.
                                                      The Committee shall be made up of a minimum of three (3) and a maximum
                                                      of five (5) Directors appointed by the Board of Directors, at the proposal of
                                                      the Nominating and Compensation Committee, from among the external
                                                      Directors, and the majority of such Directors shall be independent. The Board
                                                      of Directors shall appoint a Chairman of the Committee from among the
                                                      Directors sitting thereon, and a Secretary, who need not be a Director.
                                                      The members of the Corporate Social Responsibility Committee shall hold
                                                      office for a maximum term of three (3) years and may be re-elected one or
                                                      more times for terms of the same maximum length.
                                                      The Committee shall meet as many times as needed, in the opinion of its
                                                      Chairman, and at the request of at least two (2) of its members.
                                                      The Committee shall be validly convened when the majority of its members are
                                                      present in person or by proxy and its resolutions shall be adopted by majority
                                                      vote of the members present at the meeting in person or by proxy. In the event
                                                      of a tie, the Chairman of the Corporate Social Responsibility Committee shall
                                                      have the tie-breaking vote.


B.2.4. Indicate the advisory and consulting powers as well as the delegated powers, if any, of each
of the committees:

     NAME OF THE COMMITTEE                                                             BRIEF DESCRIPTION

   EXECUTIVE COMMITTEE                           There are delegated to it all matters within the power of the Board of Directors
                                                 which, in the sole judgment of the Committee, should be resolved without further
                                                 delay, excepting only the drawing-up of the financial statements, the presentation
                                                 of the balance sheets at the General Shareholders’ Meeting and those powers
                                                 which are given by the shareholders to the Board of Directors without the power of
                                                 delegation.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      219
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                     NAME OF THE COMMITTEE                                                             BRIEF DESCRIPTION

                                   AUDIT AND RISK SUPERVISION                   The main duties of the Audit and Risk Supervision Committee are the following:
                                   COMMITTEE                                    a) Regularly review Risk Policies and propose the amendment and update thereof
                                                                                to the Board of Directors.
                                                                                b) Approve the Auditor Hiring Policy.
                                                                                c) Report to the General Shareholders’ Meeting with respect to matters raised
                                                                                therein by shareholders regarding its powers.
                                                                                d) Supervise the effectiveness of the internal control of the Company and its
                                                                                Group as well as of its risk management systems.
                                                                                e) Review, together with the auditors, the significant weaknesses in the internal
                                                                                control system detected in the course of the audit.
                                                                                f) Supervise the process for preparing and submitting regulated financial
                                                                                information.
                                                                                g) Propose to the Board of Directors, for submission to the shareholders at the
                                                                                General Shareholders’ Meeting, the appointment, re-election or replacement of the
                                                                                auditors, in accordance with applicable law.
                                                                                h) Supervise the activities of the Internal Audit Area, which will be functionally
                                                                                controlled by the Audit and Risk Supervision Committee.
                                                                                i) Establish proper relationships with the auditors in order to receive information
                                                                                regarding matters that might jeopardize the independence thereof and any other
                                                                                information relating to the conduct of the audit.
                                                                                In any event, it shall receive from the auditors, on an annual basis, written
                                                                                confirmation of their independence in respect the Company or entities directly or
                                                                                indirectly related thereto, as well as information regarding additional services of
                                                                                any kind they have provided.
                                                                                j) Issue on an annual basis, prior to the issuance of the auditor’s report, a report
                                                                                setting forth an opinion on the independence of the auditors. This report shall,
                                                                                in all cases, pass upon the provision of the additional services referred to in the
                                                                                preceding paragraph.
                                                                                k) Inform the Board of Directors in advance regarding the financial information
                                                                                that the Company must periodically make public because of its status as a listed
                                                                                company. In this regard, the Committee shall make sure that the interim financial
                                                                                statements are prepared in accordance with the same accounting standards as the
                                                                                annual financial statements and, for such purpose, it shall consider the suitability
                                                                                of a limited review by the auditor.
                                                                                l) Report to the Board of Directors, prior to the adoption by it of the corresponding
                                                                                decision, regarding the creation or acquisition of interests in special purpose
                                                                                entities or entities registered in countries or territories regarded as tax havens,
                                                                                as well as on any other transactions or operations of a similar nature that, due
                                                                                to the complexity thereof, might detract from the transparency of the Group.
                                                                                By exception, such transactions shall not be subject to a prior report of this
                                                                                Committee when they are carried out by listed companies of the Group which have
                                                                                in place corporate governance rules similar to those of the Company, whereby
                                                                                such transactions are placed within the purview of their own corporate decision-
                                                                                making bodies.
                                                                                m) Report on proposed amendments to the Code of Ethics.
                                                                                n) Issue such other reports and carry out such other activities as may fall within its
                                                                                purview pursuant to the Company’s Corporate Governance System.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                               220 Annual Corporate Governance Report
     NAME OF THE COMMITTEE                                                             BRIEF DESCRIPTION

   NOMINATING AND                                The main duties of the Nominating and Compensation Committee are the
   COMPENSATION COMMITTEE                        following:
                                                 a) Conduct a periodic review of the Director Compensation Policy and the Senior
                                                 Management Compensation Policy and propose the amendment and update
                                                 thereof to the Board of Directors.
                                                 b) Report on and review the criteria that should be followed in composing the
                                                 Board of Directors and in selecting candidates, defining their duties and necessary
                                                 qualifications and assessing the time and dedication required for the proper
                                                 performance of their duties. In the exercise of this power, the Nominating and
                                                 Compensation Committee shall take into account, regarding external Directors,
                                                 the relation between the number of proprietary Directors and the number of
                                                 independent Directors, such that this relation reflects, as far as possible, the
                                                 ratio of the Company’s voting capital (as set forth in the By-Laws) represented by
                                                 proprietary Directors and the rest of the share capital.
                                                 c) Supervise the procedure for selecting candidates to serve as members of the
                                                 Board and Senior Managers of the Company.
                                                 d) Ensure that when new vacancies are filled or new Directors are appointed to the
                                                 Board, the selection procedures are free from any implied bias that might entail
                                                 any kind of discrimination and, in particular, that may hinder the selection of
                                                 women Directors.
                                                 e) Bring to the Board of Directors the proposals for appointment of independent
                                                 Directors, as well as the proposals for re-election or removal of such Directors by
                                                 the shareholders at the General Shareholders’ Meeting.
                                                 f) Report the proposals for appointment (for appointment on an interim basis
                                                 or for submission to the shareholders for decision at the General Shareholders’
                                                 Meeting) of the remaining Directors, as well as the proposals for re-election
                                                 or removal of such Directors by the shareholders at the General Shareholders’
                                                 Meeting.
                                                 g) Report the nominations for internal positions on the Board of Directors as well
                                                 as of the members who are to be members of each Committee, verifying and
                                                 confirming the existence of the knowledge and experience required in connection
                                                 with the duties of the Committee in question and, in particular, in the case of the
                                                 Audit and Risk Supervision Committee.
                                                 h) Establish and supervise an annual plan for the evaluation and ongoing review
                                                 of qualifications, educational background and, if appropriate, independence, as
                                                 well as of maintenance of the conditions of respectability, capability, expertise,
                                                 competence, availability and commitment to duties necessary to hold the position
                                                 of Director and of member of a given Committee, and propose to the Board
                                                 of Directors such measures as it deems appropriate in that respect, for which
                                                 purpose it may gather any information or documentation it deems necessary or
                                                 appropriate.
                                                 i) Examine or organize the succession of the Chairman of the Board of Directors
                                                 and of the Chief Executive Officer, if any, of the Company and, if applicable, make
                                                 proposals to the Board of Directors for such succession to occur in an orderly and
                                                 well-planned fashion.
                                                 j) Propose to the Board of Directors the system and amount of annual Director
                                                 compensation, as well as the individual compensation of executive Directors and
                                                 other basic terms and conditions of their contracts, including any compensation
                                                 or indemnification that may be established in the event of removal, in all cases
                                                 pursuant to the provisions of the Company’s Corporate Governance System.
                                                 k) Report on the proposals of the Chairman of the Board of Directors or of
                                                 the Chief Executive Officer concerning the appointment or removal of Senior
                                                 Managers.




NOTICE. This document is a translation of a duly approved Spanish-language document, and is provided for informational purposes only. In the event of any discrepancy between the text
of this translation and the text of the original Spanish-language document which this translation is intended to reflect, the text of the original Spanish-language document shall prevail.
                                                                                                                                                      221
                                                         / CONSOLIDATED FINANCIAL STATEMENTS




                                     NAME OF THE COMMITTEE                                                             BRIEF DESCRIPTION

                                   NOMINATING AND                               l) Report on and submit to the Board of Directors the proposals of the Chairman of
                                   COMPENSATION COMMITTEE                       the Board of Directors or of the Chief Executive Officer regarding the compensation
                                                                                structure of Senior Managers and the basic terms and conditions of their contracts,
                                                                                including any compensation or indemnification that may be established in the
                                                                                event of removal.
                                                                                m) Provide information regarding incentive plans and pension supplements for the
                                                                                entire workforce of the Group.
                                                                                n) Periodically review the general compensation programs for the Group’s
                                                                                workforce, evaluating the adequacy and results thereof.
                                                                                o) Ensure compliance with the compensation programs of the Company and
                                                                                report on the documents to be approved by the Board of Directors for general
                                                                                dissemination in connection with information on compensation, including the