Slide 1: Endesa's supply strategy in the current regulatory and market environment
June 8, 2006 Endesa's supply strategy in the current regulatory and market environment General Management for Spain and Portugal
Slide 2: Pool prices trend and the tariff deficit
Pool prices trend and the tariff deficit 75 65 35 45 55 ene-00 ene-01 ene-02 ene-03 ene-04 ene-05 ene-06 Deficit 05: (euro)3,830mn Est. deficit 06*> (euro)7,000mn o In mid-2005 some players began to abandon deregulated supply business : 522mn o contracts not renewed o Penalties for early cancellatio
Slide 3: Regulatory uncertainty
Regulatory uncertainty o Mid-2005 outlook: rising spot prices over medium-long term: o Increasing fuel prices and CO2 emission rights o Ongoing electricity demand growth in Spain oIn this scenario an average tariff increase of 26,5% would be necessary (and of up to 120% in certain segments). oAs Reg
Slide 4: Revenue management alternatives
Revenue management alternatives Endesa can operate in two highly differentiated selling options Sales to the pool Direct Sales to customers in the deregulated market Short term contracting (daily) Medium/long term contracting (1-3 years) Volatile and uncertain revenues Reasonable return guaranteed o
Slide 5: Not all customers add the same value to a vertically integrated company
44 Not all customers add the same value to a vertically integrated company The value of customers* to Endesa varies dramatically (*) excludes residential customers, large customers with sliding tariffs and G.4 customers Energy costs included in the regulated tariff (euro)/MWh Percentage of customers
Slide 6: Vertical integration: Generation-supply
Vertical integration: Generation-supply o Vertical integration of generation-supply allows: o Reasonable and stable medium term return on generation investments o Reduced price volatility and regulatory risk oCustomer contracting decisions taken to: o ensure reasonable return on generation assets o
Slide 7: Decision on commercial policy
Decision on commercial policy Endesa analyzed possible pool price scenarios and regulatory risk associated with the calculation basis for the deficit Most appropriate commercial supply policy for each scenario High Pool price scenario Average Low 0% 50% 100% Increase Maintain selectively Abandon Inc
Slide 8: Endesa's commercial policy
Endesa's commercial policy o Endesa's selective commercial policy allows to improve its customer portfolio* profitability : o Renewing and capturing 6.392 GWh at an average price of 56,6 (euro)/MWh. o Returning to regulated tariff 3.138 GWh at an average price of 48 (euro)/MWh on average Annual GWh
Slide 9: Regulatory framework
Regulatory framework o Pool prices hit record highs in Jan-Feb, 2006. oRDL(*) 3/2006 set a provisional price of 42,35 (euro)/MWh (including capacity payment) for netted pool sales and purchases made by generators and distributors of the same group. oRegulator will revise this price based on "objecti
Slide 10: Impact of regulatory changes on ENDESA
Impact of regulatory changes on ENDESA Endesa's commercial policy based on diversifying risk, offsets the impact of RDL 3/2006. Portfolio New 2006 contracts** Generation revenues ((euro)/MWh) TWh 2006 92.4 51.2 41.2 2006 Total revenues 51,56 56,59 (guaranteed*) 2006 sales 42,35Total revenues (provis
Slide 11: Customer portfolio performance overview
Customer portfolio performance overview Annualized sales evolution to customers on deregulated market reflects operators' two different commercial policies. ANNUALIZED (TWh b/c) Jun-05 Dec-05 Apr-06 TOTAL OTHER COMPETITOR 4 COMPETITOR 3 COMPETITOR 2 COMPETITOR 1 ENDESA 33.9 36.4% 32.0 34.5% 10.8 11.
Slide 12: Impact avoided by ENDESA
Impact avoided by ENDESA Abandoning the supply business would have had a net impact of -270 M(euro) for ENDESA in 2006 Estimation of the impact avoided by Endesa due to its commercial policy Jan-Feb. 2.006 + Revenue increase for selling energy to the pool vs. selling to customers Mar.-Dec. 2.006 -27
Slide 13: Conclusions
Conclusions o Endesa is implementing a diversification policy allowing to meet its shareholder return commitment while reducing regulatory and market risk. o Other operators chose the apparently more profitable but higher risk option: the pool. o High pool prices have triggered a regulatory change (
Slide 14: Forward looking statements
Forward looking statements This presentation contains certain "forward-looking statements" regarding anticipated financial and operating results and statistics and other future events. These statements are not guarantees of future performance and are subject to material risks, uncertainties, changes
Slide 15: Endesa's supply strategy in the current regulatory and market environment
June 8, 2006 Endesa's supply strategy in the current regulatory and market environment General Management for Spain and Portugal SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, t