Annual Reports

  • 20-F (Apr 3, 2014)
  • 20-F (Mar 21, 2013)
  • 20-F (Feb 25, 2013)
  • 20-F (Oct 17, 2012)
  • 20-F (May 31, 2011)
  • 20-F (Nov 26, 2010)

 
Other

Enersis S.A. 20-F 2011

Table of Contents

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

o

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

 

 

OR

 

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010

 

 

OR

 

 

o

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

 

 

OR

 

 

o

SHELL COMPANY REPORT PURSUANT TO SECTION 23 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report

 

For the transition period from                       to                    

 

Commission file number: 001-12440

 

ENERSIS S.A.

(Exact name of Registrant as specified in its charter)

 

ENERSIS S.A.

(Translation of Registrant’s name into English)

 

CHILE

(Jurisdiction of incorporation or organization)

 

SANTA ROSA 76, SANTIAGO, CHILE

(Address of principal executive offices)

 

Nicolás Billikopf, phone: (56-2) 353-4639, fax: (56-2) 378-4789, nbe@enersis.cl, Santa Rosa 76, Piso 15, Santiago, Chile

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

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

 

 

Title of Each Class

 

Name of Each Exchange on Which Registered

 

 

American Depositary Shares representing Common Stock

 

New York Stock Exchange

 

 

Common Stock, no par value *

 

New York Stock Exchange

 

 

$ 249,734,000 7.40% Notes due December 1, 2016

 

New York Stock Exchange

 

 

$ 858,000 6.60% Notes due December 1, 2026

 

New York Stock Exchange

 

 


*Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 



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

 

 

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

 

Shares of Common Stock:

32,651,166,465

 

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:

x Yes   o No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934:

o Yes   x No

 

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

x Yes   o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

o Yes   o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP o

International Financial Reporting Standards as issued
by the International Accounting Standards Board
x

Other o

 

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

o Item 17   x Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

o Yes   x No

 



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“Enersis’ Simplified Organizational Structure” (*)

 

 


(*) Only principal operating subsidiaries are presented here. The percentages listed for each of our subsidiaries represents Enersis’economic interest in such subsidiary.

 

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TABLE OF CONTENTS

 

 

 

Page

 

 

 

GLOSSARY

 

4

INTRODUCTION

 

9

Financial Information

 

9

Technical Terms

 

10

Calculation of Economic Interest

 

10

Forward-Looking Statements

 

10

PART I

 

12

Item 1.

Identity of Directors, Senior Management and Advisers

 

12

Item 2.

Offer Statistics and Expected Timetable

 

12

Item 3.

Key Information

 

12

Item 4.

Information on the Company

 

23

Item 4A.

Unresolved Staff Comments

 

84

Item 5.

Operating and Financial Review and Prospects

 

85

Item 6.

Directors, Senior Management and Employees

 

115

Item 7.

Major Shareholders and Related Party Transactions

 

126

Item 8.

Financial Information

 

127

Item 9.

The Offer and Listing

 

129

Item 10.

Additional Information

 

131

Item 11.

Quantitative and Qualitative Disclosures about Market Risk

 

145

Item 12

Description of Securities Other Than Equity Securities

 

149

PART II

 

150

Item 13.

Defaults, Dividend Arrearages and Delinquencies

 

150

Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

 

150

Item 15.

Controls and Procedures

 

150

Item 16A.

Audit Committee Financial Expert

 

151

Item 16B.

Code of Ethics

 

151

Item 16C.

Principal Accountant Fees and Services

 

152

Item 16D.

Exemptions from Listing Requirements for Audit Committees

 

153

Item 16E.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

153

Item 16F.

Change in Registrant’s Certifying Accountants

 

153

Item 16G.

Corporate Governance

 

154

PART III

 

155

Item 17.

Financial Statements

 

155

Item 18.

Financial Statements

 

155

Item 19.

Exhibits

 

155

 

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GLOSSARY

 

Acciona

 

ACCIONA, S.A.

 

Spanish construction holding company. Together with Enel, Acciona held a controlling interest in Endesa Spain until June 25, 2009.

 

 

 

 

 

AFP

 

Administradora de Fondos de Pensiones

 

A legal entity that manages a Chilean pension fund.

 

 

 

 

 

Ampla

 

Ampla Energia e Serviços S.A.

 

Brazilian distribution company operating in Rio de Janeiro, owned by Endesa Brasil, a subsidiary of Enersis.

 

 

 

 

 

ANEEL

 

Agéncia Nacional de Energia Elétrica

 

Brazilian governmental agency for electric energy.

 

 

 

 

 

Betania

 

Central Hidroeléctrica de Betania S.A. E.S.P.

 

Endesa Chile’s Colombian subsidiary which merged with Emgesa, another Endesa Chile subsidiary, in 2007.

 

 

 

 

 

Cachoeira Dourada

 

Centrais Elétricas Cachoeira Dourada S.A.

 

Brazilian generation company owned by Endesa Brasil, a subsidiary of Enersis.

 

 

 

 

 

CAM

 

Compañía Americana de Multiservicios Ltda.

 

Enersis’ subsidiary engaged in the electrical parts procurement business.

 

 

 

 

 

CAMMESA

 

Compañía Administradora del Mercado Mayorista Eléctrico S.A.

 

Argentine autonomous entity in charge of the operation of the Mercado Eléctrico Mayorista (Wholesale Electricity Market), or MEM. CAMMESA’s stockholders are generation, transmission and distribution companies, large users and the Secretariat of Energy.

 

 

 

 

 

CDEC

 

Centro de Despacho Económico de Carga

 

Autonomous entity in two Chilean electric systems in charge of coordinating the efficient operation and dispatch of generation units to satisfy demand.

 

 

 

 

 

Celta

 

Compañía Eléctrica Tarapacá S.A.

 

Endesa Chile’s subsidiary that operates in the SING with thermal plants.

 

 

 

 

 

Cemsa

 

Endesa Cemsa S.A.

 

Energy trading company with operations in Argentina, a subsidiary of Endesa Chile.

 

 

 

 

 

Chilectra

 

Chilectra S.A.

 

Chilean electricity distribution company operating in the Santiago metropolitan area, a subsidiary of Enersis.

 

 

 

 

 

CIEN

 

Companhia de Interconexão Energética S.A.

 

Brazilian transmission company, wholly-owned by Endesa Brasil, a subsidiary of Enersis.

 

 

 

 

 

CNE

 

Comisión Nacional de Energía

 

Chilean National Energy Commission, governmental entity with responsibilities under the Chilean regulatory framework.

 

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Codensa

 

Codensa S.A. E.S.P.

 

Colombian distribution company that operates mainly in Bogotá, and is a subsidiary of Enersis.

 

 

 

 

 

Coelce

 

Companhia Energética do Ceará S.A.

 

Brazilian distribution company operating in the state of Ceará. Coelce is controlled by Endesa Brasil, a subsidiary of Enersis.

 

 

 

 

 

CREG

 

Comisión de Regulación de Energía y Gas

 

Colombian Commission for the Regulation of Energy and Gas.

 

 

 

 

 

CTM

 

Compañía de Transmisión del Mercosur S.A

 

Endesa Brasil’s subsidiary transmission company with operations in Argentina.

 

 

 

 

 

DECA

 

Distribuidora Eléctrica de Cundinamarca S.A.

 

Colombian distribution company, subsidiary of Codensa.

 

 

 

 

 

Edegel

 

Edegel S.A.A.

 

Peruvian generation company, subsidiary of Endesa Chile.

 

 

 

 

 

Edelnor

 

Empresa de Distribución Eléctrica de Lima Norte S.A.A.

 

Peruvian distribution company with a concession area in the northern part of Lima, and a subsidiary of Enersis.

 

 

 

 

 

Edesur

 

Empresa Distribuidora Sur S.A.

 

Argentine distribution company with concession area in the south of the Buenos Aires greater metropolitan area, and a subsidiary of Enersis.

 

 

 

 

 

EEB

 

Empresa de Energía de Bogota S.A.

 

Colombian stated-owned financial and energy holding company, with investments in the electricity generation, transmission, commercialization and distribution sectors; and in the natural gas transmission, distribution and commercialization sectors.

 

 

 

 

 

EEC

 

Empresa de Energía de Cundinamarca S.A.

 

Colombian electricity distribution company, subsidiary of DECA.

 

 

 

 

 

El Chocón

 

Hidroeléctrica El Chocón S.A.

 

Endesa Chile’s Argentine generation subsidiary with two hydroelectric plants, El Chocón and Arroyito, both located in the Limay River, Argentina.

 

 

 

 

 

Elesur

 

Elesur S.A.

 

A former Chilean subsidiary of Enersis that absorbed Chilectra, and later changed its name to Chilectra.

 

 

 

 

 

Emgesa

 

Emgesa S.A. E.S.P.

 

Colombian generation company controlled by Endesa Chile.

 

 

 

 

 

Endesa Brasil

 

Endesa Brasil S.A.

 

Brazilian holding company, a subsidiary of Enersis.

 

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Endesa Chile

 

Empresa Nacional de Electricidad S.A.

 

Our generation subsidiary with consolidated operations in four countries in South America.

 

 

 

 

 

Endesa Costanera

 

Endesa Costanera S.A.

 

Argentine generation company controlled by Endesa Chile.

 

 

 

 

 

Endesa Eco

 

Endesa Eco S.A.

 

Chilean electricity company, owner of Central Eólica Canela S.A. and Ojos de Agua mini hydro plant.  Endesa Eco is an Endesa Chile subsidiary.

 

 

 

 

 

Endesa Fortaleza

 

Central Geradora Termelétrica Fortaleza S.A.

 

Operates a combined cycle generating plant, located in the state of Ceará.  Endesa Fortaleza is wholly-owned by our subsidiary Endesa Brasil.

 

 

 

 

 

Endesa Latinoamérica

 

Endesa Latinoamérica, S.A.

 

A subsidiary of Endesa Spain and our direct controller, formerly known as Endesa Internacional, S.A.U.

 

 

 

 

 

Endesa Spain

 

ENDESA, S.A.

 

A Spanish electricity generation and distribution company with a 60.6% beneficial interest in Enersis.

 

 

 

 

 

Enel

 

Enel S.p.A.

 

Italian power company, with a 92.1% controlling ownership of Endesa Spain.

 

 

 

 

 

Enersis

 

ENERSIS S.A.

 

Our company, a publicly held limited liability stock company incorporated under the laws of the Republic of Chile, with subsidiaries engaged primarily in the generation, transmission and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru. Registrant of this report.

 

 

 

 

 

ENRE

 

Ente Nacional Regulatorio de la Energía

 

Argentine national regulatory authority for the energy sector.

 

 

 

 

 

Etevensa

 

Empresa de Generación Termoeléctrica Ventanilla S.A.

 

Peruvian generation company that merged with Edegel in 2006.

 

 

 

 

 

FONINVEMEM

 

Fondo Para Inversiones Necesarias Que Permitan Incrementar La Oferta De Energía Eléctrica En El Mercado Eléctrico Mayorista

 

Argentine fund created to increase electricity supply in the MEM.

 

 

 

 

 

GasAtacama

 

GasAtacama S.A.

 

Company involved in gas transportation and electricity generation in the north of Chile that is 50% owned by Endesa Chile.

 

 

 

 

 

Gener

 

AES Gener S.A.

 

Chilean generation company that competes with the Company in Chile, Argentina and Colombia.

 

 

 

 

 

GNLQ

 

GNL Quintero S.A.

 

Company created to develop, build, finance, own and operate a LNG regasification facility at Quintero Bay (Chile) in which LNG is

 

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unloaded, stored and regasified.

 

 

 

 

 

IFRS

 

International Financial Reporting Standards

 

Accounting standards adopted by the Company on January 1, 2009.

 

 

 

 

 

IMV

 

Inmobiliaria Manso de Velasco Ltda.

 

Enersis’ wholly-owned subsidiary engaged in the real estate business.

 

 

 

 

 

LNG

 

Liquefied Natural Gas.

 

Liquefied natural gas.

 

 

 

 

 

MEM

 

Mercado Eléctrico Mayorista

 

Wholesale Electricity Market in Argentina.

 

 

 

 

 

MME

 

Ministério de Minas e Energia

 

Brazilian Ministry of Mines and Energy.

 

 

 

 

 

NCRE

 

Non Conventional Renewable Energy

 

Energy sources which are continuously replenished by natural processes, such as wind, biomass, mini-hydro, geothermal, wave or tidal energy.

 

 

 

 

 

NIS

 

Sistema Interconectado Nacional

 

National interconnected electric system. There are such systems in Chile, Argentina, Brazil and Colombia.

 

 

 

 

 

ONS

 

Operador Nacional do Sistema Elétrico

 

Electric System National Operator. Brazilian non-profit private entity responsible for the planning and coordination of operations in interconnected systems.

 

 

 

 

 

Osinergmin

 

Organismo Supervisor de la Inversión en Energía y Minería

 

Energy and Mining Investment Supervisor Authority, the Peruvian regulatory electricity authority.

 

 

 

 

 

Pangue

 

Empresa Eléctrica Pangue S.A.

 

Chilean electricity company, owner of the Pangue power station. Pangue is an Endesa Chile subsidiary.

 

 

 

 

 

Pehuenche

 

Empresa Eléctrica Pehuenche S.A.

 

Chilean electricity company, owner of three power stations in the Maule River basin. Pehuenche is an Endesa Chile subsidiary.

 

 

 

 

 

San Isidro

 

Compañía Eléctrica San Isidro S.A.

 

Chilean electricity company, owner of a thermal power station.  San Isidro is wholly-owned by Endesa Chile.

 

 

 

 

 

SEF

 

Superintendencia de Electricidad y Combustible

 

Chilean Superintendency of Electricity and Fuels, a Governmental entity in charge of supervising the Chilean electricity industry.

 

 

 

 

 

SEIN

 

Sistema Eléctrico Interconectado Nacional

 

Peruvian interconnected electric system.

 

 

 

 

 

SIC

 

Sistema Interconectado Central

 

Chilean central interconnected electric system covering all of Chile except the north and the extreme south.

 

 

 

 

 

SING

 

Sistema Interconectado del Norte Grande

 

Electric interconnected system operating in

 

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northern Chile.

 

 

 

 

 

SVS

 

Superintendencia de Valores y Seguros

 

Chilean authority in charge of supervising public companies, securities and the insurance business.

 

 

 

 

 

TESA

 

Transportadora del Energía de Mercosur S.A.

 

Endesa Brasil’s transmission company subsidiary with operations in Argentina.

 

 

 

 

 

UF

 

Unidad de Fomento

 

Chilean inflation-indexed, peso-denominated monetary unit.

 

 

 

 

 

UTA

 

Unidad Tributaria Anual

 

Chilean annual tax unit. One UTA equals 12 UTM.

 

 

 

 

 

UTM

 

Unidad Tributaria Mensual

 

Chilean monthly tax unit used to define fines, among other purposes, which is inflation indexed.

 

 

 

 

 

VAD

 

Valor Agregado de Distribución

 

Value added from distribution of electricity.

 

 

 

 

 

VNR

 

Valor Nuevo de Reemplazo

 

The net replacement value of electricity assets.

 

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INTRODUCTION

 

As used in this report on Form 20-F, first person personal pronouns such as “we,” “us” or “our” refer to ENERSIS S.A.  (Enersis or the Company) and our consolidated subsidiaries unless the context indicates otherwise.  Unless otherwise noted, our interest in our principal subsidiaries, jointly —controlled entities and associates is expressed in terms of our economic interest as of December 31, 2010.

 

We are a Chilean company engaged through our subsidiaries and jointly-controlled entitiesin the electricity generation, transmission and distribution businesses in Chile, Argentina, Brazil, Colombia and Peru.  As of the date of this report, we own 60.0% of Empresa Nacional de Electricidad S.A. (Endesa Chile) and 99.1% of Chilectra S.A.  As of the same date, ENDESA, S.A. (Endesa Spain), a Spanish electricity generation and distribution company, owns 60.6% of Enersis.  Enel S.p.A. (Enel), an Italian generation and distribution company, owns 92.1% of Endesa Spain through a wholly-owned subsidiary.

 

Financial Information

 

In this report on Form 20-F, unless otherwise specified, references to “dollars” or “$,” are to dollars of the United States of America; references to “pesos” or “Ch$” are to Chilean pesos, the legal currency of Chile; references to “Ar$” or “Argentine pesos” are to the legal currency of Argentina; references to “R$”  or “reais” are to Brazilian reals, the legal currency of Brazil; references to “soles” are to Peruvian Nuevo Sol, the legal currency of Peru; references to “CPs” or “Colombian pesos” are to the legal currency of Colombia; references to “€” or “Euros” are to the legal currency of the European Union; and references to “UF” are to Unidades de Fomento.

 

The Unidad de Fomento is a Chilean inflation-indexed, peso-denominated monetary unit.  The UF rate is set daily in advance based on changes in the previous month’s inflation rate.  As of December 31, 2010, UF 1 was equivalent to Ch$ 21,455.55.  The dollar equivalent of UF 1 was $ 45.84 as of December 31, 2010, using the Observed Exchange Rate reported by the Banco Central de Chile (the “Chilean Central Bank,” or the “Central Bank”) as of December 31, 2010 of Ch$ 468.01 per $ 1.00.  As of April 30, 2011, UF 1 was equivalent to Ch$ 21,711.55.  The dollar equivalent of UF 1 was $ 47.19 at April 30, 2011, using the Observed Exchange Rate reported by the Central Bank as of April 30, 2011 of Ch$ 460.09 per $ 1.00.

 

Our Consolidated Financial Statements and, unless otherwise indicated, other financial information concerning Enersis included in this report are presented in pesos.  Until the year ended December 31, 2008, Enersis prepared its financial statements in accordance with generally accepted accounting principles in Chile (Chilean GAAP).  Since January 1, 2009, Enersis has prepared its financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standard Board (IASB).

 

The subsidiaries are consolidated and all their assets, liabilities, income, expenses and cash flows are included in the consolidated financial statements after making the adjustments and eliminations related to intra-Group transactions.

 

Jointly-controlled entities, which are those that do not have a controlling shareholder but are governed by a joint management agreement, are consolidated by the proportional integration method. Enersis recognizes, line by line, its share of the assets, liabilities, income, expenses and cash flow of such entities, subject to accounting eliminations.

 

Investments in associates in which the Company has significant influence, are recorded in our Consolidated Financial Statements under the equity method.

 

For detailed information regarding subsidiaries, jointly-controlled entities and associates, see Appendix No. 1 and No. 3 of the Consolidated Financial Statements.

 

For the convenience of the reader, this report contains translations of certain peso amounts into dollars at specified rates. Unless otherwise indicated, the dollar equivalent for information in pesos is based on the Observed Exchange Rate as of December 31, 2010, as defined in “Item 3. Key Information — A. Selected Financial Data — Exchange Rates” The Federal Reserve Bank of New York does not report a noon buying rate for pesos. No representation is made that the peso or dollar amounts shown in this report could have been or could be converted into dollars or pesos, as the case may be, at such rate or at any other rate (See “Item 3. Key Information — A. Selected Financial Data — Exchange Rates”).

 

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Technical Terms

 

References to “GW” and “GWh” are to gigawatts and gigawatt hours, respectively; references to “MW” and “MWh” are to megawatts and megawatt hours, respectively; references to “kW” and “kWh” are to kilowatts and kilowatt hours, respectively; references to “kV” are to kilovolts, and references to “MVA” are to megavolt amperes.  Unless otherwise indicated, statistics provided in this report with respect to the installed capacity of electricity generation facilities are expressed in MW.  One TW = 1,000 GW, one GW = 1,000 MW, and one MW = 1,000 kW.

 

Statistics relating to aggregate annual electricity production are expressed in GWh and based on a year of 8,760 hours, except for leap years (such as 2008), which are based on 8,784 hours.  Statistics relating to installed capacity and production of the electricity industry do not include electricity of self-generators.  Statistics relating to our production do not include electricity consumed by us by our own generation units.

 

Energy losses experienced by generation companies during transmission are calculated by subtracting the number of GWh of energy sold from the number of GWh of energy generated (excluding its own energy consumption and losses on the part of the power plant), within a given period.  Losses are expressed as a percentage of total energy generated.

 

Energy losses during distribution are calculated as the difference between total energy purchased (GWh of physical demand, including own generation) and the energy sold (also measured in GWh), within a given period.  Losses are expressed as a percentage of total energy purchased.  Losses in distribution arise from illegally tapped energy as well as technical losses.

 

Calculation of Economic Interest

 

References are made in this report to the “economic interest” of Enersis in its related companies.  In circumstances where we do not directly own an interest in a related company, our economic interest in such ultimate related company is calculated by multiplying the percentage of economic interest in a directly held related company by the percentage of economic interest of any entity in the ownership chain of such related company.  For example, if we own 60% of a directly held subsidiary and that subsidiary owns 40% of an associate, our economic interest in such associate would be 60% times 40%, or 24%.

 

Forward-Looking Statements

 

This report contains statements that are or may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These statements appear throughout this report and include statements regarding our intent, belief or current expectations, including but not limited to any statements concerning:

 

·                  our capital investment program;

 

·                  trends affecting our financial condition or results from operations;

 

·                  our dividend policy;

 

·                  the future impact of competition and regulation;

 

·                  political and economic conditions in the countries in which we or our related companies operate or may operate in the future;

 

·                  any statements preceded by, followed by or that include the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “estimates,” “should,” “may” or similar expressions; and

 

·                  other statements contained or incorporated by reference in this report regarding matters that are not historical facts.

 

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements.  Factors that could cause actual results to differ materially include, but are not limited to:

 

·                  changes in the regulatory framework of the electricity industry in one or more of the countries in which we operate;

 

·                  our ability to implement proposed capital expenditures, including our ability to arrange financing where required;

 

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·                  the nature and extent of future competition in our principal markets;

 

·                  political, economic and demographic developments in the emerging market countries of South America where we conduct our business; and

 

·                  the factors discussed below under “Risk Factors.”

 

You should not place undue reliance on such statements, which speak only as of the date that they were made.  Our independent public accountants have not examined or compiled the forward-looking statements, and, accordingly, do not provide any assurance with respect to such statements.  You should consider these cautionary statements together with any written or oral forward-looking statements that we may issue in the future.  We do not undertake any obligation to release publicly any revisions to forward-looking statements contained in this report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

 

For all these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

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PART I

 

Item 1.    Identity of Directors, Senior Management and Advisers

 

Not applicable.

 

Item 2.    Offer Statistics and Expected Timetable

 

Not applicable.

 

Item 3.    Key Information

 

A.            Selected Financial Data

 

The following summary of consolidated financial data should be read in conjunction with our audited Consolidated Financial Statements, included in this report.  Our audited Consolidated Financial Statements as of and for the years ended December 31, 2010, 2009 and 2008 are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the IASB.  For further detail on the adoption of IFRS, please see “Introduction — Financial Information.”  The financial data as of and for each of the three years ended December 31, 2010 in the table below are presented in nominal pesos.

 

Amounts are expressed in millions except for ratios, operating data, shares and ADS (American Depositary Shares) data.  For the convenience of the reader, all data presented in dollars in the following summary, as of and for the year ended December 31, 2010, are translated at the Observed Exchange Rate for December 31, 2010 of Ch$ 468.01 per $ 1.00.  No representation is made that the peso or dollar amounts shown in this report could have been or could be converted into dollars or pesos, at such rate or at any other rate.  For more information concerning historical exchange rates, see “Exchange Rates” below.

 

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The following table sets forth the selected consolidated financial data of Enersis in accordance with IFRS for the periods indicated:

 

 

 

As of and for the year ended December 31,

 

 

 

2008

 

2009

 

2010

 

2010 (1)

 

 

 

Ch$ Million

 

Million of $

 

CONSOLIDATED INCOME STATEMENT DATA

 

 

 

 

 

 

 

 

 

Amounts in accordance with IFRS

 

 

 

 

 

 

 

 

 

Revenues

 

6,579,945

 

6,472,056

 

6,563,581

 

14,024

 

Operating Costs

 

(4,716,294

)

(4,544,611

)

(4,859,280

)

(10,383

)

 

 

 

 

 

 

 

 

 

 

Operating Income

 

1,863,651

 

1,927,445

 

1,704,301

 

3,641

 

Financial Income (Cost), Net

 

(419,366

)

(309,256

)

(270,605

)

(578

)

Total gain (loss) on sale of non-current assets not held forsale

 

2,503

 

50,502

 

11,711

 

25

 

Other non Operating Income (loss), net

 

3,297

 

2,374

 

1,288

 

3

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before Income Taxes

 

1,450,085

 

1,671,065

 

1,446,695

 

3,091

 

Income tax

 

(415,903

)

(359,737

)

(346,007

)

(739

)

 

 

 

 

 

 

 

 

 

 

Net Income

 

1,034,182

 

1,311,328

 

1,100,688

 

2,352

 

Net income attributable to: Owners of parent

 

507,590

 

660,231

 

486,227

 

1,039

 

Net income attributable to: Non-controlling interests

 

526,592

 

651,097

 

614,461

 

1,313

 

Net income (loss) from continuing operations per Share (Ch$/$ per share)

 

15.55

 

20.22

 

14.89

 

0.0318

 

Net income (loss) from continuing operations per ADS

 

777.29

 

1,011.04

 

744.58

 

1.5910

 

Net income (loss) per Share (Ch$/$ per share)

 

15.55

 

20.22

 

14.89

 

0.0318

 

Net income (loss) per ADS (Ch$/$ per ADS)

 

777.29

 

1,011.04

 

744.58

 

1.5909

 

Cash Dividends per Share (Ch$/$ per share)

 

4.95

 

7.02

 

4.64

 

0.0099

 

Cash Dividends per ADS (Ch$/$ per ADS)

 

247.50

 

351.00

 

232.00

 

0.4957

 

Number of shares of common stock (millions)

 

32,651

 

32,651

 

32,651

 

 

 

Number of American Depositary Shares (millions)

 

71

 

81

 

82

 

 

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED BALANCE SHEET DATA

 

 

 

 

 

 

 

 

 

Amounts in accordance with IFRS

 

 

 

 

 

 

 

 

 

Total Assets

 

13,781,176

 

13,210,140

 

13,005,845

 

27,790

 

Non-Current Liabilities

 

5,049,265

 

4,637,749

 

4,084,540

 

8,727

 

Equity Attributable to Owners of parent

 

3,091,315

 

3,518,480

 

3,735,545

 

7,982

 

Equity Attributable to Non-controlling interests

 

2,937,816

 

2,858,524

 

2,778,483

 

5,937

 

 

 

 

 

 

 

 

 

 

 

Other Consolidated Financial Data

 

 

 

 

 

 

 

 

 

Amounts in accordance with IFRS

 

 

 

 

 

 

 

 

 

Capital Expenditures Paid (2)

 

781,542

 

736,474

 

701,341

 

1,499

 

Depreciation, amortization and impairment losses

 

438,064

 

539,655

 

557,391

 

1,191

 

 


(1)              Solely for the convenience of the reader, peso amounts have been translated into dollars at the exchange rate of Ch$ 468.01 per dollar, the Observed Exchange Rate as of December 31, 2010.

(2)              Capex figures represent effective payments for each year.

 

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As of and for the year ended December 31,

 

 

 

2006

 

2007

 

2008

 

2009

 

2010

 

OPERATING DATA OF SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chilectra (Chile)

 

 

 

 

 

 

 

 

 

 

 

Electricity Sold (GWh)

 

12,377

 

12,923

 

12,535

 

12,585

 

13,098

 

Number of Customers (thousands)

 

1,437

 

1,483

 

1,534

 

1,579

 

1,610

 

Total Energy Losses (%)(1)

 

5.4

%

5.9

%

5.9

%

6.1

%

5.8

%

 

 

 

 

 

 

 

 

 

 

 

 

Edesur (Argentina)

 

 

 

 

 

 

 

 

 

 

 

Electricity Sold (GWh)

 

14,837

 

15,833

 

16,160

 

16,026

 

16,759

 

Number of Customers (thousands)

 

2,196

 

2,228

 

2,262

 

2,305

 

2,353

 

Total Energy Losses (%)(1)

 

10.5

%

10.7

%

10.6

%

10.5

%

10.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Ampla (Brazil)

 

 

 

 

 

 

 

 

 

 

 

Electricity Sold (GWh)

 

8,668

 

8,985

 

9,119

 

9,394

 

9,927

 

Number of Customers (thousands)

 

2,316

 

2,379

 

2,466

 

2,522

 

2,571

 

Total Energy Losses (%)(1)

 

21.9

%

21.4

%

20.2

%

21.2

%

20.5

%

 

 

 

 

 

 

 

 

 

 

 

 

Coelce (Brazil)

 

 

 

 

 

 

 

 

 

 

 

Electricity Sold (GWh)

 

6,769

 

7,227

 

7,571

 

7,860

 

8,850

 

Number of Customers (thousands)

 

2,543

 

2,689

 

2,842

 

2,965

 

3,095

 

Total Energy Losses (%)(1)

 

13.0

%

12.5

%

11.7

%

11.6

%

12.1

%

 

 

 

 

 

 

 

 

 

 

 

 

Codensa (Colombia)(2)

 

 

 

 

 

 

 

 

 

 

 

Electricity Sold (GWh)

 

10,755

 

11,441

 

11,822

 

11,837

 

12,141

 

Number of Customers (thousands)

 

2,138

 

2,209

 

2,285

 

2,361

 

2,429

 

Total Energy Losses (%)(1)

 

8.9

%

8.7

%

8.1

%

8.2

%

8.2

%

 

 

 

 

 

 

 

 

 

 

 

 

EEC (Colombia) (3)

 

 

 

 

 

 

 

 

 

 

 

Electricity Sold (GWh)

 

n.a.

 

n.a.

 

n.a.

 

277

 

373

 

Number of Customers (thousands)

 

n.a.

 

n.a.

 

n.a.

 

115

 

117

 

Total Energy Losses (%)(1)

 

n.a.

 

n.a.

 

n.a.

 

15.2

%

17.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Edelnor (Peru)

 

 

 

 

 

 

 

 

 

 

 

Electricity Sold (GWh)

 

4,874

 

5,201

 

5,599

 

5,716

 

6,126

 

Number of Customers (thousands)

 

952

 

986

 

1,028

 

1,061

 

1,098

 

Total Energy Losses (%)(1)

 

8.2

%

8.1

%

8.2

%

8.1

%

8.3

%

 

 

 

 

 

 

 

 

 

 

 

 

Endesa Chile

 

 

 

 

 

 

 

 

 

 

 

Installed capacity in Chile (MW)

 

4,477

 

4,779

 

5,283

 

5,650

 

5,611

 

Installed capacity in Argentina (MW)

 

3,639

 

3,644

 

3,652

 

3,652

 

3,652

 

Installed capacity in Colombia (MW)

 

2,779

 

2,829

 

2,895

 

2,895

 

2,914

 

Installed capacity in Peru (MW)

 

1,426

 

1,468

 

1,467

 

1,667

 

1,668

 

Production in Chile (GWh)(4)

 

19,973

 

18,773

 

21,267

 

22,239

 

20,914

 

Production in Argentina (GWh)(4)

 

13,750

 

12,117

 

10,480

 

11,955

 

10,940

 

Production in Colombia (GWh)(4)

 

12,564

 

11,942

 

12,905

 

12,674

 

11,283

 

Production in Peru (GWh)(4)

 

6,662

 

7,654

 

8,102

 

8,163

 

8,466

 

 

 

 

 

 

 

 

 

 

 

 

 

Endesa Brasil

 

 

 

 

 

 

 

 

 

 

 

Installed capacity in Brazil (MW)(5)

 

980

 

987

 

987

 

987

 

987

 

Production in Brazil (GWh)(4)(5)

 

4,489

 

3,954

 

3,379

 

3,319

 

5,095

 

 

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(1)              Energy losses are calculated as the difference between total energy purchased (GWh of physical demand, including own generation) and the energy sold (GWh), within a given period.  Losses are expressed as a percentage of total energy purchased.  Losses in distribution arise from illegally tapped energy as well as technical failures.

(2)              In February 2009, Codensa, our Colombian distribution subsidiary, acquired approximately 49% of DECA.  On March 13, 2009, DECA acquired 82.3% of EEC.  Beginning in 2010, we started presenting separately the information concerning EEC, a jointly-controlled company of Codensa, explaining the differences between the 2009 figures for Codensa compared to those reported in our 2009 Form 20-F.  This new criterion also affects other 2009 figures relating to Codensa, such as capital expenditures, concession area, transmission lines, substations, transformers and employees.

(3)              The results for 2009 include the period of April through December.

(4)              Energy production is defined as total generation minus energy consumption and technical losses within our own power plants.

(5)              Ampla had generation facilities which were sold in 2006.

 

Exchange Rates

 

Fluctuations in the exchange rate between the peso and the dollar will affect the dollar equivalent of the peso price of our shares of common stock, without par value (the Shares or the Common Stock), on the Bolsa de Comercio de Santiago (the Santiago Stock Exchange), the Bolsa Electrónica de Chile (the Chilean Electronic Exchange) and the Bolsa de Corredores de Valparaíso (the Valparaíso Stock Exchange) (collectively, the Chilean Exchanges).  These exchange rate fluctuations will likely affect the price of the Company’s ADS and the conversion of cash dividends relating to the Shares represented by ADS from pesos to dollars.  In addition, to the extent that significant financial liabilities of the Company are denominated in foreign currencies, exchange rate fluctuations may have a significant impact on earnings.

 

The Ley Orgánica del Banco Central de Chile 18,840 (the Central Bank Act), provides that the Central Bank may require that certain purchases and sales of foreign currency be carried out in the Mercado Cambiario Formal (the Formal Exchange Market), a market comprised of banks and other entities explicitly authorized by the Central Bank.  Purchases and sales of foreign currency, which can take place outside the Formal Exchange Market, can be carried out in the Mercado Cambiario Informal (the Informal Exchange Market), which is a recognized currency market in Chile.  Free market forces drive both the Formal and Informal Exchange Markets.  Foreign currency for payments and distributions with respect to the ADS may be purchased in either the Formal or the Informal Exchange Market, but such payments and distributions must be remitted through the Formal Exchange Market.  The Central Bank publishes the dólar observado (the Observed Exchange Rate) daily, and it is computed by taking the weighted average of the previous business day’s transactions in the Formal Exchange Market.

 

Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been within less than 1% of each other.  The Informal Exchange Rate means the average rate at which transactions are made in the Informal Exchange Market.  On December 31, 2010, the Informal Exchange Rate was Ch$ 468.00, or virtually the same as the published Observed Exchange Rate of Ch$ 468.01 per $ 1.00.  On April 30, 2011, the informal exchange rate was Ch$ 460.35 per $ 1.00, 0.1% higher than the Observed Exchange Rate corresponding to such date of Ch$ 460.09 per $ 1.00.  Unless otherwise indicated, amounts translated to dollars were calculated based on the exchange rates prevailing as of December 31, 2010.

 

The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange Rate reported by the Central Bank.

 

 

 

Observed Exchange Rate(1)
(Ch$  per $ )

 

Year

 

Low

 

High

 

Average(2)

 

Period-
end

 

2006

 

511.44

 

549.63

 

529.64

 

532.39

 

2007

 

493.14

 

548.67

 

521.06

 

496.89

 

2008

 

431.22

 

676.75

 

530.48

 

636.45

 

2009

 

491.09

 

643.87

 

554.22

 

507.10

 

2010

 

468.01

 

549.17

 

510.38

 

468.01

 

 

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Monthly Observed Exchange Rate(1)
(Ch$  per $ )

 

Last six months

 

Low

 

High

 

Average(2)

 

Period-
end

 

2010

 

 

 

 

 

 

 

 

 

November

 

477.05

 

488.04

 

 

487.87

 

December

 

468.01

 

485.34

 

 

468.01

 

 

 

 

 

 

 

 

 

 

 

2011

 

 

 

 

 

 

 

 

 

January

 

466.05

 

499.03

 

 

484.14

 

February

 

468.94

 

481.56

 

 

475.21

 

March

 

472.74

 

485.37

 

 

479.46

 

April

 

460.04

 

476.90

 

 

460.09

 

 


Source: Chilean Central Bank.

(1)          Reflects pesos at historical values rather than in constant pesos.

(2)          The average of the exchange rates on the last day of each month during the yearly period.  This is not applicable to monthly data.

 

Calculation of the appreciation or devaluation of the Chilean peso against the U.S. dollar in any given period is made by determining the percent change between the reciprocals of the Chilean peso equivalent of $1.00 at the end of the preceding period and the end of the period for which the calculation is being made.  For example, to calculate the appreciation of the Chilean peso in 2010, one determines the percent change between the reciprocal of Ch$ 507.10 (the value of one dollar as of December 31, 2009) and the reciprocal of Ch$ 468.01 (the value of one dollar as of December 31, 2010).  In this example, the percentage change between 0.001971 (the reciprocal of 507.10) and 0.002136 (the reciprocal of 468.01) is 8.4%, which represents the appreciation of the Chilean peso against the dollar in 2010.  A positive percentage change means that the Chilean peso appreciated against the dollar, while a negative percentage change means that the peso devaluated against the dollar.

 

The following table sets forth the period-end rates for U.S. dollars for the years ended December 31, 2006 through December 31, 2010 and through the date indicated in the table below, based on information published by the Chilean Central Bank.

 

 

 

Period
End

 

Appreciation
(Devaluation) (1)

 

Chilean Peso Equivalent of $ 1

 

 

 

 

 

Year Ended:

 

 

 

 

 

December 31, 2006

 

532.39

 

(3.7

)%

December 31, 2007

 

496.89

 

7.1

%

December 31, 2008

 

636.45

 

(21.9

)%

December 31, 2009

 

507.10

 

25.5

%

December 31, 2010

 

468.01

 

8.4

%

 


Source: Chilean Central Bank.

(1)          Calculated based on the variation of period-end exchange rates.

 

B.            Capitalization and Indebtedness.

 

Not applicable.

 

C.            Reasons for the Offer and Use of Proceeds.

 

Not applicable.

 

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D.            Risk Factors.

 

A financial crisis in any region worldwide can have a significant impact in the countries in which we operate, and consequently, may adversely affect our operations, as well as our liquidity.

 

The five countries in which we operate are vulnerable to external shocks, which could cause significant economic difficulties and affect their growth. In case any of these economies experience a lower economic growth or a recession, it is likely that our customers will demand less electricity, which could affect our results of operations and financial condition adversely.  Furthermore, some of our customers may experience difficulties in paying their electricity bills, and an increase in uncollectible accounts would also affect our results adversely.

 

In addition, a financial crisis and its disruptive effect on the financial industry can have an adverse impact on our ability to obtain new bank loans under normal terms and conditions. Our ability to tap the capital markets in the five countries where we operate, as well as the international capital markets for other sources of liquidity, may also be diminished, or such financing may be available only at higher interest levels.  Reduced liquidity could, in turn, affect our capital expenditures, our long-term investments and acquisitions, our growth prospects, and our dividend payout policy.

 

South American economic fluctuations are likely to affect our results from operations and financial condition, as well as the value of our securities.

 

All of our operations are located in five South American countries.  Accordingly, our consolidated revenues are sensitive to the performance of South American economies as a whole.  If local, regional or worldwide economic trends adversely affect the economy of any of the five countries in which we have investments or operations, our financial condition and results from operations could be adversely affected.  Moreover, we have investments in relatively risky countries such as Argentina.  Generation and distribution of cash from subsidiaries located in this country have proven to be volatile.

 

A substantial portion of our operations are located in Chile and Brazil and more than 65% of our operating revenues in 2010 were derived from our operations, making our financial condition and results of operations particularly dependent on the performance of these two economies.  In 2010, Chilean GDP increased by 5.2% compared to a 1.7% decrease in 2009.  The latest estimate from the Chilean Central Bank forecast growth for 2011, is in the 5.5% - 6.5% range.  In 2010, Brazilian GDP increased by 7.5% compared to a 0.2% decrease in 2009.  The consensus forecast according to the Brazilian Central Bank is a growth of 4.1% in 2011.  However, such growth may not be achieved and the growth trend may not be sustainable in the future in one or both of that countries.  Future developments in the Chilean and Brazilian economies may impair our ability to proceed with our strategic plans and adversely impact our financial condition or results of operations.

 

In addition, the South American financial and securities markets are, to varying degrees, influenced by economic and market conditions in other countries.  Although economic conditions are different in each country, investor reaction to developments in one country may have a significant contagion effect on the securities of issuers in other countries, including Chile and Brazil.  Chilean and Brazilian financial and securities markets may be adversely affected by events in other countries and such effects may affect the value of our securities.

 

Certain South American economies have been characterized by frequent and occasionally drastic intervention by governmental authorities, which may adversely affect our business.

 

Governmental authorities have changed monetary, credit, tariff and other policies to influence the course of the economies of Argentina, Brazil, Colombia and Peru.  To a lesser extent, the Chilean government has also exercised and continues to exercise a substantial influence over many aspects of the private sector, which may result in changes to economic or other policies.  These governmental actions, intended to control inflation and affect other policies, have often involved wage, price and tariff rate controls as well as other interventionist measures, which in Argentina included freezing bank accounts and imposing capital restrictions in 2001, the nationalization of the private sector pension funds in 2008, and the use of Central Bank reserves of the Argentine Treasury in order to pay down indebtedness maturing in 2010. Changes in the policies of these governmental authorities with respect to tariff rates, exchange controls, regulations and taxation could adversely affect our business and financial results, reducing our profitability, as could inflation, devaluation, social instability and other political, economic or diplomatic developments, including the response by governments in the region to these circumstances.

 

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Table of Contents

 

Our electricity business is subject to risks arising from natural disasters, catastrophic accidents and acts of terrorism, which could adversely affect our operations, earnings and cash flow.

 

Our primary facilities include power plants, transmission and distribution assets, pipelines, LNG terminals and re-gasification plants, storage and chartered LNG tankers.  Our facilities may be damaged by earthquakes, flooding, fires, other catastrophic disasters arising from natural or accidental human causes, as well as acts of terrorism.  We could experience severe business disruptions, significant decreases in revenues based on lower demand arising from catastrophic events, or significant additional costs to us not otherwise covered by business interruption insurance clauses.  There may be an important time lag between a major accident or catastrophic event and the final reimbursement from our insurance policies, which typically carry non-recoverable deductible amounts, and in any event are subject to caps per event.

 

We are subject to refinancing risk and to debt covenants that could affect our liquidity.

 

As of December 31, 2010, our debt in financial terms was $ 7,579 million while, for accounting purposes, it totaled $ 7,864 million.  These amounts differ since financial debt, unlike accounting debt, does not include accrued interest.

 

Our financial debt had the following maturity timetable:

 

·                  $ 1,268 million in 2011;

·                  $ 1,021 million in 2012;

·                  $ 2,693 million in the 2013-2015 period; and

·                  $ 2,596 million thereafter.

 

Set forth below is a breakdown by country of financial debt maturing in 2011:

 

·                  $ 66 million — Chile;

·                  $ 173 million — Argentina;

·                  $ 643 million — Brazil;

·                  $ 265 million — Colombia; and

·                  $ 121 million —  Peru.

 

Our debt agreements are subject to certain debt-to-EBITDA and debt-to-equity financial covenant ratios, among others.  They also contain common affirmative and negative covenants, as well as events of default, and in some cases, mandatory prepayment events.

 

As is customary for certain credit and capital market debt facilities, a significant portion of Enersis and Endesa Chile’s financial indebtedness is subject to cross default provisions, with different definitions, criteria, materiality thresholds, and applicability as to the subsidiaries that could give rise to a cross default.

 

In the event that any of our cross default provisions is triggered and our existing creditors demand immediate repayment, a portion of our indebtedness could become due and payable.

 

We may be unable to refinance our indebtedness or obtain such refinancing on terms acceptable to us.  In the absence of such refinancing, we could be forced to dispose of assets in order to make up for any shortfall in the payments due on our indebtedness under circumstances that might not be favorable to obtaining the best price for such assets.  Furthermore, assets may not be sold quickly enough, or for amounts sufficient to enable us to make such payments.

 

As of the date of this report, Argentina continues to be the country with the highest refinancing risk.  As of December 31, 2010, the third-party financial debt of our Argentine subsidiaries amounted to $ 360.2 million.  As a matter of policy for all of our Argentine subsidiaries as long as fundamental issues concerning the electricity sector remain unresolved, we are rolling over our Argentine outstanding debt.  If our creditors do not continue to accept rolling over debt principal when it becomes due and we are unable to refinance such obligations, we may default on such indebtedness.  For more information on covenants, cross default and relevant provisions for of credit facilities, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources.”

 

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Table of Contents

 

Since our generation business depends heavily on hydrological conditions, drought conditions may hurt our profitability.

 

Approximately 58% of our consolidated installed generation capacity in 2010 was hydroelectric.  Accordingly, extreme hydrological conditions may affect our business and may have an adverse effect on our results.

 

During periods of drought, thermal plants, such as ours that use natural gas, fuel oil or coal as a fuel, are dispatched more frequently.  Operating costs of thermal plants might be considerably higher than those of hydroelectric plants.  Our operating expenses increase during these periods, and depending on our commercial obligations, we may have to buy electricity from the spot market in order to comply with our contractual supply obligations.  The cost of these electricity purchases may exceed the price at which we sell contracted electricity, thus producing losses from those contracts.

 

Governmental regulations may impose additional operating costs which may reduce our profits.

 

We are subject to extensive regulation of tariffs and other aspects of our business in the five countries in which we operate, and these regulations may adversely affect our profitability.  For example, the Chilean government can impose electricity rationing during drought conditions or prolonged failures in power facilities.  On February 9, 2011, the Ministry of Energy promulgated a rationing decree that will be in effect from February 17, 2011 to August 31, 2011.  If, during rationing, we are unable to generate enough electricity to comply with our contractual obligations, we may be forced to buy electricity in the pool market at the spot price, since even a severe drought does not constitute a force majeure event.  The spot price may be significantly higher than our costs to generate the electricity and can be as high as the “cost of failure” set by the National Energy Commission, or the CNE.  This “cost of failure,” which is updated semiannually by the CNE, is a measurement of how much final users would pay for one extra MWh under rationing conditions.  If we are unable to buy enough electricity in the pool market to comply with all of our contractual obligations, then we would have to compensate our regulated customers for the electricity we failed to provide at the rationed price.  If material rationing policies are imposed by regulatory authorities in Chile, our business, financial condition and results from operations may be affected adversely in a material way.

 

Similarly, if material rationing policies are imposed by the local regulatory authority in the other countries in which we operate, as a result of adverse hydrological conditions, our business, financial condition and results from operations may be affected adversely in a material way.  Rationing periods may occur in the future, and consequently our generation subsidiaries may be required to pay regulatory penalties if such subsidiaries fail to provide adequate service under such conditions.

 

In addition, changes in the regulatory framework, including changes that if adopted would significantly affect our operations, are often submitted to the legislators and administrative authorities in the countries in which we operate and, if approved, could have a material adverse impact on our business.  For instance, in 2005 there was a change in the water rights law in Chile that requires us to pay for unused water rights.

 

Regulatory authorities may impose fines on our subsidiaries.

 

Our electricity businesses may be subject to regulatory fines for any breach of current regulations, including energy supply failure, in the five countries in which we operate.  In Chile, such fines may range from 1 Unidad Tributaria Mensual (UTM), or $ 80, to 10,000 Unidades Tributarias Anuales (UTA), or $ 9.6 million, in each case using the UTM, UTA and foreign exchange rate as of December 31, 2010.  In Peru, fines can reach a maximum of 1,300 Unidad Impositiva Tributaria (UIT) or $ 1.7 million as of December 31, 2010; in Colombia fines may range from $ 2,900 to $ 0.6 million; in Argentina, there is no maximum limit for the fines and in Brazil fines may range from $ 0.1 to $ 35.3 million.

 

Our electricity subsidiaries, supervised by their local regulatory entities, may be subject to these fines in cases where, in the opinion of the regulatory entity, operational failures that affect the regular energy supply to the system are the fault of the company; for instance, when the agents are not coordinated with the system operation.  Also, our subsidiaries may be required to pay fines or to compensate customers if those subsidiaries are unable to deliver electricity to them even if such failure is due to forces outside of our control.

 

For example, in Chile in 2005, the Superintendencia de Electricidad y Combustibles (Chilean Superintendence of Electricity and Fuels), or SEF, imposed fines of 1,260 UTA, or $ 1.1 million, on Endesa Chile due to a blackout that occurred in the Metropolitan Region in 2003.  On February 17, 2009, the SEF imposed fines on Endesa Chile, Pehuenche and San Isidro for 200 UTA, 200 UTA and 100 UTA, respectively, or $ 0.4 million in total.  Also in 2009, the SEF fined Chilectra for 2,000 UTA, or $ 1.7 million, due to billing management procedures challenged by our customers.  In June 2009, the SEF imposed fines on Chilectra in the amount of 1,630 UTA, or $ 1.4 million, due to a blackout that occurred in the Metropolitan Region in 2004.  In the case of our foreign subsidiaries, for example, in 2006 in Peru the Comité de Operación

 

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Económica del Sistema (Peruvian Economic Operating Committee of the Interconnected System), or COES-SINAC, ordered Edegel to pay approximately $ 1.3 million to other generating companies that were forced to compensate their clients due to an alleged failure of Edegel to comply with certain quality parameters.  In January 2011, ENRE imposed fines on Edesur in the amount of $ 1.3 million due to a blackout that occurred in Buenos Aires during the last days of December 2010. Also, as compensation to end users with respect to the same blackout, ENRE imposed an additional fine for $ 14.9 million.

 

We depend in part on payments from our subsidiaries, jointly-controlled entities and associates to meet our payment obligations.

 

We have no significant assets other than the stock of our subsidiaries.  Our ability to pay our obligations depends on cash from dividends, loans, interest payments, capital reductions and other distributions from our subsidiaries and equity affiliates.  The ability of our subsidiaries and equity affiliates to pay dividends, interest payments, loans and other distributions to us is subject to legal constraints such as dividend restrictions, fiduciary duties, contractual limitations and foreign exchange controls that may be imposed in any of the five countries where they operate.

 

Historically, we have been able to access the cash flows of our Chilean subsidiaries, but we have not been similarly able to access at all times the cash flows of our non-Chilean operating subsidiaries due to government regulations, strategic considerations, economic conditions and credit restrictions.

 

Our future results from operations outside Chile may continue to be subject to greater economic and political uncertainties than what we have experienced in Chile, thereby reducing the likelihood that we will be able to rely on cash flows from operations in those entities to repay our debt.

 

Dividend Limits and Other Legal Restrictions.  Some of our non-Chilean subsidiaries are subject to legal reserve requirements and other restrictions on dividend payments.  Also, other legal restrictions, such as foreign currency controls, may limit the ability of our non-Chilean subsidiaries and equity affiliates to pay dividends and make loan payments or other distributions to us.  In addition, the ability of any of our subsidiaries which are not wholly-owned to distribute cash to us may be limited by the fiduciary duties of the directors of such subsidiaries to their minority shareholders.  Furthermore, some of our subsidiaries may be forced by local authorities, according to applicable regulation, to diminish or eliminate dividend payments, such as the temporary restrictions for distributing dividends faced by our Argentine subsidiary, Edesur, during 2009 and 2010.  As a consequence of such restrictions, our subsidiaries could, under certain circumstances, be prevented from distributing cash to us.

 

Contractual Constraints.  Distribution restrictions included in some credit agreements of our subsidiaries Endesa Costanera, El Chocón, CIEN and Endesa Fortaleza may prevent dividend distributions and other distributions to shareholders if they are not in compliance with certain financial ratios.  Generally, companies are not allowed to make any kind of distribution in case of default on credit agreements.

 

Operating Results of Our Subsidiaries.  The ability of our subsidiaries and equity affiliates to pay dividends or make loan payments or other distributions to us is limited by their operating results.  To the extent that the cash requirements at any of our subsidiaries exceed available cash, such subsidiary will not be able to make cash available to us.

 

Foreign exchange risks may adversely affect our results, and the dollar value of dividends payable to ADS holders.

 

Most South American currencies in which we and our subsidiaries operate have been subject to large devaluations and appreciations against the dollar and may be subject to significant fluctuations in the future.

 

Historically, a significant portion of our consolidated indebtedness has been denominated in dollars and, although a substantial portion of our revenues are linked to dollars, we generally have been and will continue to be materially exposed to fluctuations of our local currencies against the dollar because of time lags and other limitations to peg our tariffs to the dollar.

 

Because of this exposure, the cash generated by our subsidiaries can decrease substantially when local currencies devalue against the dollar.  Future volatility in the exchange rate of the currencies in which we receive revenues or incur expenditures, may affect our financial condition and results from operations.  For more information on the risks associated with foreign exchange rates, see “Item 11.  Quantitative and Qualitative Disclosures About Market Risk.”

 

As of December 31, 2010, using financial rather than accounting conventions, Enersis’s total consolidated financial debt was $ 7,579 million (net of currency hedging instruments).  Of this amount $ 2,243 million, or 29.6%, was denominated in dollars and $ 1,541 million in pesos.  In addition to the dollar and the peso, our foreign currency denominated consolidated indebtedness included the equivalent of:

 

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·                  $ 174 million in Argentine pesos;

·                  $ 1,590 million in reais;

·                  $ 0.3 million in euros;

·                  $ 1,581million in Colombian pesos; and

·                  $ 450 million in soles.

 

This totals an aggregate of $ 3,795 million in currencies other than dollars or pesos.

 

For the twelve-month period ended December 31, 2010, our operating revenues amounted to $ 15,870 million (before consolidation adjustments) of which:

 

·                  $ 1,007 million, or 6.4%, was denominated in dollars; and

·                  $ 2,691 million, or 16.9%, was linked in some way to the dollar.

 

In the aggregate, 23.3% of our operating revenues (before consolidation adjustments) was either denominated in dollars or linked to dollars through some form of indexation, while 16.3% were in pesos.

 

Revenues, before consolidation adjustments, in other currencies for the year ended December 31, 2010, included the equivalent of:

 

·                  $ 1,395 million in Argentine pesos;

·                  $ 4,822 million in reais;

·                  $ 2,597 million in Colombian pesos; and

·                  $ 776 million in soles.

 

Although we generate revenues and incur debt in these same currencies, we believe that we are subject to risk in terms of our foreign exchange exposure to these four currencies.  The most material case is that of our Argentine generation companies, where most of our debt is denominated in dollars while our revenues are mostly in Argentine pesos.

 

Furthermore, trading of our common stock underlying ADS is conducted in pesos.  Our depositary bank will receive cash distributions that we make with respect to the shares underlying the ADS in pesos.  The depositary bank will convert such pesos to dollars at the then-prevailing exchange rate to make dividend and other distribution payments in respect of ADS.  If the peso depreciates against the dollar, the value of the ADS and any dollar distributions ADS holders receive from the depositary bank will decrease.

 

We are involved in litigation proceedings.

 

We are currently involved in various litigation proceedings, which could result in unfavorable decisions or financial penalties against us, and we will continue to be subject to future litigation proceedings, which could have material adverse consequences to our business.

 

We are a party to a number of legal proceedings, some of which have been pending for several years.  Some of these claims may be resolved against us.  Our financial condition or results from operations could be adversely affected if certain material claims are resolved against us.  See Note 22.2 of our audited Consolidated Financial Statements.

 

The values of our generation subsidiaries’ long-term energy supply contracts are subject to fluctuations in the market prices of certain commodities.

 

We have economic exposure to fluctuations in the market prices of certain commodities as a result of the long-term energy sales contracts we have entered into.  We and our subsidiaries have material obligations as selling parties under long-term fixed-price electricity sales contracts.  Prices in these contracts are indexed according to different commodities, exchange rate, inflation and the market price of electricity.  During 2010, we did not carry out transactions in commodity derivative instruments to manage our exposure to commodity price fluctuations.  For further discussion, please refer to “Item 11. Quantitative and Qualitative Disclosures about Market Risk-Commodity Price Risk.”

 

Our controlling shareholders may have conflicts of interest relating to our business.

 

Enel beneficially owns 92.1% of Endesa Spain, which in turn owns 60.6% of Enersis’ share capital.  Our controlling shareholders have the power to determine the outcome of most material matters that require shareholders’ votes, such as the

 

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election of the majority of our board members and, subject to contractual and legal restrictions, the distribution of dividends.  Our controlling shareholders also can exercise influence over our operations and business strategy.  Their interests may in some cases differ from those of our other shareholders.  Enel and Endesa Spain conduct their business in South America through us as well as through entities in which we do not have an equity interest.

 

Environmental regulations in the countries in which we operate and other factors may cause delays or impede the development of new projects, as well as increase our costs of operations.

 

Our operating subsidiaries are also subject to environmental regulations which, among other things, require us to perform environmental impact studies for future projects and obtain permits from both local and national regulators.  Approval of these environmental impact studies may take longer than originally planned, and also, may be withheld by governmental authorities.  Also, local communities, ethnic or environmental activists may intervene during the approval process in order to prevent the project’s development.  They may also seek injunctive or other relief, with negative implications for us if they should succeed with their claims.

 

In addition to environmental matters, there are other factors that may adversely affect our ability to build new facilities, including delays in obtaining regulatory approvals, shortages or increases in the price of equipment, materials or labor, strikes, adverse weather conditions, natural disasters, accidents or other unforeseen events, and the inability to obtain financing at affordable rates.

 

In addition, delays or modifications to any proposed project and laws or regulations may change or be interpreted in a manner that could adversely affect our operations or our plans for companies in which we hold investments.  See “Item 4.  Information on the Company — B. Business Overview — Electricity Industry Regulatory Framework.”

 

The relative illiquidity and volatility of Chilean securities markets could adversely affect the price of our common stock and ADS.

 

Chilean securities markets are substantially smaller and less liquid than the major securities markets in the United States.  In addition, Chilean securities markets may be affected materially by developments in other emerging markets.  The low liquidity of the Chilean market may impair the ability of holders of ADS to sell shares of our common stock withdrawn from the ADS program into the Chilean market in the amount and at the price and time they wish to do so.

 

Lawsuits against us brought outside of Chile or complaints against us based on foreign legal concepts may be unsuccessful.

 

All of our assets are located outside of the United States.  All of our directors and officers reside outside of the United States and most of their assets are located outside the United States as well.  If any shareholder were to bring a lawsuit against our directors, officers or experts in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce against them, in United States or Chilean courts, judgments obtained in United States courts based upon the civil liability provisions of the federal securities laws of the United States.  In addition, there is doubt as to whether an action could be brought successfully in Chile on the basis of liability based solely upon the civil liability provisions of the United States federal securities laws.

 

New share issuances might not have the rights granted by former Chapter XXVI.

 

The Chilean Central Bank Decision 1333-01-070510 adopted on May 10, 2007 extended the effects of the former Chapter XXVI to capital increases approved after April 18, 2001.  Under the former Chapter XXVI and the Foreign Investment Contracts, the Chilean Central Bank agreed to grant access to the formal exchange market to convert pesos into dollars (See “Item 10.  Additional Information. D — Exchange Rate Controls” for further detail).

 

Enersis formally requested permission from the Central Bank to enter into a new Foreign Investment Contract to include its capital increase approved by Enersis’ shareholders’ meeting held on March 31, 2003, which was granted by the Central Bank on September 7, 2007, subject to the execution and delivery of a new Foreign Investment Contract, dated September 24, 2008.  Nevertheless, the Central Bank’s approval, aimed at extending the effects of the former Chapter XXVI to the capital increase approved in March 31, 2003, is subject to the condition that Enersis inform the Central Bank with respect to the measures adopted in connection with the issuance of new shares prior to such future capital increase in order to differentiate new shares from the shares issued previously under the former Chapter XXVI and enable shareholders to obtain relevant information about such differences.  If Enersis does not comply with this condition, the Central Bank could revoke its approval and the benefits granted to the shares issued in the last capital increase of Enersis by the former Chapter XXVI.  It is not certain that additional Chilean restrictions applicable to the holders of ADRs, the disposition of underlying shares of

 

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common stock or the repatriation of the proceeds from such disposition will not be imposed in the future, nor can there be any assessment of the duration or impact of such restrictions if imposed.

 

Item 4.            Information on the Company

 

A.    History and Development of the Company.

 

History

 

Enersis was originally organized as Compañía Chilena Metropolitana de Distribución Eléctrica S.A., as recorded in a public deed on June 19, 1981.  The existence of our company was authorized, and its bylaws were approved, pursuant to Resolution 409-S on July 17, 1981, issued by the Chilean SVS.  The bylaws have been amended subsequently.  The existence of our company under its current name, Enersis S.A., or Enersis, dates back to August 1, 1988.  Enersis is a publicly held limited liability stock company domiciled in Santiago, Chile, and operates under Chilean law and regulations.

 

Street address:

Santa Rosa 76, Santiago, Código Postal 8330099, Chile.

Telephone:

(562) 353-4639

Fax:

(562) 378-4789

Web Site:

www.enersis.cl

 

The Company’s authorized representative in the United States of America is Puglisi & Associates, whose contact information is:

 

Street address:

850 Library Avenue, Suite 204, Newark, Delaware 19711

Telephone:

1 (302) 738-6680

 

We are an electric utility company engaged, through our subsidiaries and affiliates, in the generation, transmission and distribution of electricity businesses in Chile, Argentina, Brazil, Colombia and Peru.

 

We are one of the largest publicly listed companies in the electricity sector in South America.  We trace our origin to Compañía Chilena de Electricidad Ltda., or CCE, which was formed in 1921 as a result of the merger of Chilean Electric Tramway and Light Co., founded in 1889, and Compañía Nacional de Fuerza Eléctrica, with operations dating back to 1919.  In 1970, the Chilean government nationalized CCE.  In 1981, CCE’s operations were divided into one generation company, the current AES Gener S.A. (Gener), and two distribution companies, one with a concession in the Valparaíso Region, the current Chilquinta S.A., and the other with a concession in the Santiago metropolitan region, Compañía Chilena Metropolitana de Distribución Eléctrica S.A.  From 1982 to 1987, the Chilean electric utility sector went through a process of re-privatization.  On August 1, 1988, Compañía Chilena Metropolitana de Distribución Eléctrica S.A. changed its name to Enersis S.A. and became the new parent company of Distribuidora Chilectra Metropolitana S.A., later renamed Chilectra S.A.  In the 1990s, we diversified into electricity generation and transmission through our increasing equity stakes in Endesa Chile.  We began our international operations in 1992 with the investment in Edesur, an Argentine electricity distribution company.  That same year, Endesa Chile, which at that time was not our subsidiary, also started its international operations with its investment in Endesa Costanera, an electricity generation company.  We then expanded primarily into electricity generation, transmission and distribution businesses in four South American countries: Argentina, Brazil, Colombia and Peru.  We remain focused on the electricity sector, although we have small operations in other businesses that represent less than 2.0% of our consolidated assets, in the aggregate.

 

In 2005, Endesa Brasil was formed as a company to manage all generation, transmission and distribution assets that Endesa Latinoamérica, S.A., or “Endesa Latinoamérica,” (formerly known as Endesa Internacional, a subsidiary of Endesa Spain), Enersis, Endesa Chile and Chilectra held in Brazil; namely, through Ampla, Endesa Fortaleza, CIEN, Cachoeira Dourada and Coelce.  Enersis began consolidating Endesa Brasil in October 2005.  As of December 31, 2010, Enersis directly and indirectly controlled 54.3% of Endesa Brasil’s share capital.

 

In order to optimize taxes, simplify the organizational structure and reduce corporate costs, on April 2006, Enersis decided to merge Elesur S.A. (Elesur) and Chilectra in Chile.  As a consequence of this merger, Elesur absorbed Chilectra; the surviving company retained the name of Chilectra.

 

In order to achieve synergies in Peru, in 2006, we merged Edegel and Etevensa (60% owned by Endesa Spain), a 457 MW thermoelectric generation company.

 

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In September 2007, we merged our generation subsidiaries in Colombia, Emgesa and Betania, resulting in a new company which retained the name Emgesa.  Following the merger, as of December 31, 2010, Enersis indirectly controlled 16.1% of Emgesa’s share capital.  Pursuant to the terms of a shareholders agreement with another Endesa Spain subsidiary, we control and, therefore, consolidate Emgesa through Endesa Chile.

 

In February 2009, Codensa, our Colombian distribution subsidiary, acquired approximately 49% of DECA for Ch$ 23.7 billion.  The remaining 51% was acquired by Empresa de Energía de Bogotá (EEB).  Codensa and EEB jointly control DECA.  On March 13, 2009, DECA acquired 82.3% of Empresa de Energía de Cundinamarca S.A (EEC), a Colombian distribution company, for Ch$ 48.5 billion.

 

On March 26, 2007, Spanish company Acciona, S.A. (Acciona) and Enel, executed an agreement for the joint management of Spanish company, Endesa Spain.  The latter, through its Spanish subsidiary Endesa Latinoamérica, holds 60.6% of the share capital of Enersis. On February 20, 2009, Acciona and Enel reached an agreement whereby Acciona would transfer directly and indirectly to Enel Energy Europe S.L.U., wholly owned by Enel, its 25.0% shareholding in Endesa Spain.  On June 25, 2009, the transaction was completed, making Enel the ultimate controller of Enersis by virtue of its 92.1% shareholding in Endesa Spain.

 

Enel is a publicly-traded company headquartered in Italy, primarily engaged in the energy sector, with presence in 40 countries over 4 continents, and has around 95,000 MW of net installed capacity.  It provides service to more than 61 million clients through its electricity and gas businesses.

 

In October 2009, Endesa Chile purchased an additional 29.4% of Edegel from Generalima, a Peruvian indirect subsidiary of Endesa Spain.  With this transaction, Endesa Chile increased its economic interest in Edegel from 33.1% to 62.5% and in turn, our economic interest increased to 37.5%.  In the same month, we acquired an additional 24.0% of the share capital of our Peruvian subsidiary, Edelnor, increasing our direct and indirect ownership stake in Edelnor from 33.5% to 57.5%.

 

As of December 31, 2010, we had 14,833 MW of installed capacity with 195 power units in the five countries in which we operate, 13.3 million distribution customers covering approximately 50 million inhabitants, consolidated assets of $ 27.8 billion and our operating revenues were $12.8 billion.

 

Recent Developments

 

In December 2010, Buenos Aires experienced unusual meteorological conditions, with the most severe heat wave in the last 58 years lasting nine days with temperatures above 33° Celsius.  These conditions resulted in increased electrical consumption, principally due to the use of air conditioning and ventilation systems.  During the heat wave, Edesur experienced above-average disruptions in the delivery of electricity to its customers and longer periods of power restoration.  As a result of these power cuts, on February 14, 2011, the Argentine Government fined a number of electricity distribution companies, including Edesur.  Edesur was fined $ 16.2 million, of which $ 14.9 million are expected to compensate end users through discounts on future invoices.  Edesur plans to appeal these fines.

 

Investments, Capital Expenditures and Divestitures

 

We coordinate the overall financing strategy, including terms and conditions of borrowings by, and intercompany advances to, our subsidiaries to optimize debt and liquidity management.  Our operating subsidiaries independently plan capital expenditure financed by internally generated funds or direct financings.  One of our goals is to focus on investments that will provide long-term benefits, such as energy loss reduction projects.  Additionally, by focusing on Enersis as a whole and seeking to provide services across the group of companies, we aim to reduce investments at the individual subsidiary level in items such as procurement, telecommunication and information systems.  Although we have considered how these investments will be financed as part of the Company’s budget process, we have not committed to any particular financing structure, and investments will depend on the market conditions at the time the cash flows are needed.

 

Our investment plan is flexible enough so as to adapt to changing circumstances by giving different priorities to each project in accordance with profitability and strategic fit.  Investment priorities are currently focused on developing the capacity plan in Chile and Colombia, to guarantee adequate levels of quality of supply and to manage environmental issues.

 

For the 2011-2015 period, we expect to make capital expenditures of Ch$ 3,206 billion in our controlled subsidiaries, of which Ch$ 687 billion corresponds to investments currently in progress (Ch$ 76 billion in Bocamina II and Ch$ 611 billion in El Quimbo). We anticipate that we will also spend Ch$ 1,837 billion in the maintenance of our distribution network and in our other businesses, Ch$ 592 billion in the maintenance of existing generation plants and Ch$ 90 billion in the studies required

 

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to develop other potential generation projects that are in different stages of progress, including Los Cóndores, Neltume, Choshuenco, HidroAysén, Punta Alcalde and Piruquina in Chile and Curibamba in Perú.  For further detail regarding these projects, please see “Item 4 D. Property, Plants and Equipment-Projects under Development.”

 

The table below sets forth the capital expenditures incurred by our subsidiaries in 2008, 2009 and 2010 and the expected capital expenditures for the 2011-2015 period.

 

 

 

Capital Expenditure (1)

 

 

 

(in million of Ch$)

 

 

 

2008

 

2009

 

2010

 

2011-2015

 

Electricity Generation/Transmission

 

363,698

 

395,107

 

193,689

 

1,368,333

 

Electricity Distribution

 

504,040

 

394,099

 

440,465

 

1,812,575

 

Other Businesses

 

8,980

 

12,108

 

5,206

 

24,709

 

 

 

 

 

 

 

 

 

 

 

Total

 

876,718

 

801,314

 

639,360

 

3,205,617

 

 


(1)          Capex figures represent accrued investments for each year, except for future projections.

 

Capital Expenditures 2008, 2009 and 2010

 

Electricity Generation

 

Our generation capital expenditures totaled Ch$ 194 billion in 2010, of which Ch$ 116 billion were incurred in Chile and Ch$ 77 billion abroad.  In 2009, these expenditures aggregated Ch$ 395 billion, of which Ch$ 313 billion were incurred in Chile and the rest abroad.  In 2008, generation capital expenditures aggregated Ch$ 364 billion, of which Ch$ 252 billion were incurred in Chile and the rest abroad.

 

Investments in Chile

 

In 2010, we incurred total capital expenditures of Ch$ 116 billion.  The main investments during 2010 were related to the construction of the Bocamina II project, which is still in progress.  Ch$ 70 billion was accrued in 2010 in connection with this project.  It is estimated that the total investment will be Ch$ 400 billion.  We also invested Ch$ 27 billion in maintenance of existing installed capacity and Ch$ 19 billion in other minor projects.

 

In 2009, we incurred total capital expenditures of Ch$ 313 billion.  The main investments carried out during 2009 were: the construction of the 60 MW Canela II wind farm (Ch$ 44 billion was accrued in 2009 and the total investment was Ch$ 90 billion); the Quintero thermal plant project (Ch $33 billion was accrued in 2009, and the total investment was approximately Ch$ 90 billion); and the partial construction of Bocamina II, which is still in progress (Ch $152 billion was accrued in 2009, and the total investment is estimated at Ch$ 400 billion).  We also invested Ch$ 48 billion in maintenance of existing installed capacity and Ch$ 35 billion in other minor projects.

 

In 2008, we incurred total capital expenditures of Ch$ 252 billion. The main investments carried out during 2008 were: the construction of the Canela II wind farm (Ch$ 45 billion was accrued in 2008); the Quintero thermal-plant project (Ch$ 41 billion was accrued in 2008); the construction of Bocamina II, which is still in progress (Ch$ 94 billion was accrued in 2008); and the construction of the Ojos de Agua pass-through hydroelectric plant that has an installed capacity of 9 MW(Ch$ 5 billion was accrued in 2008, and the total investment was Ch$ 15 billion). We also invested Ch$ 35 billion in maintenance of existing installed capacity and Ch$ 32 billion in other minor projects.

 

Investments Abroad

 

In 2010, we incurred total capital expenditures abroad of Ch$ 77 billion.  Our main investment during 2010 related to commencement of construction of our 400 MW El Quimbo hydroelectric power plant in Colombia.  Ch$ 16 billion was accrued in 2010 for this project.  It is estimated that the total investment will be Ch$ 630 billion.  We also invested Ch$ 60 billion in maintenance of existing installed capacity, mainly in Argentina, Colombia and Peru, and Ch$ 1 billion in other minor projects.

 

In 2009, we incurred total capital expenditures of Ch$ 82 billion.  Our main investment during 2009 was the installation of a 189 MW turbine at the Santa Rosa plant in Peru.  Ch$ 10 billion was accrued in 2009 for this project.  The total

 

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investment was Ch$ 55 billion.  We also invested Ch$ 67 billion in maintenance of existing installed capacity, mainly in Argentina and Peru, and Ch$ 5 billion in other minor projects.

 

In 2008, we incurred total capital expenditures of Ch$ 111 billion. Our main investment during 2008 was the installation of the new turbine at the Santa Rosa power plant.  Ch$ 45 billion was accrued in 2008 for this project.  We also invested Ch$ 60 billion in maintenance of existing installed capacity, mainly in Argentina and Colombia, and Ch$ 6 billion in other minor projects.

 

Electricity Distribution

 

In 2010, we incurred total capital expenditures of Ch$ 440 billion, principally to better serve the demographic demand growth, new clients, and reduce energy losses.  Of the total capital expenditures, Ch$ 36 billion was incurred in Chile and Ch$ 404 billion abroad.  In 2009, we incurred total capital expenditures of Ch$ 394 billion in order to serve new clients, reduce energy losses, maintain equipment and lines, and improve service, of which Ch$ 46 billion was incurred in Chile and the rest abroad.  In 2008, we incurred total capital expenditures of Ch$ 504 billion, of which Ch$ 59 billion was incurred in Chile and the rest abroad. We detail below how these amounts were allocated for 2008, 2009 and 2010, respectively.

 

Investments in Chile

 

In 2010, Chilectra invested Ch$ 36 billion.  Chilectra made progress on its investment plan for meeting the growth in energy demand and providing an increasingly reliable service to all its customers, as well as supporting service quality, safety and energy loss-prevention projects.

 

The company continued with the upgrade from 12 kV to 23 kV by incorporating a capacity of 24 MVA in the medium tension lines.  In 2010, four new substations started operations: Apoquindo, Andes, Club Hípico and La Reina. We also strengthened the 110 kV lines that connect the substations Vitacura, La Dehesa and Recoleta with the transmission line.

 

Chilectra also continued to develop its intelligent networks plan, which integrates electricity infrastructure with new electronic technologies, information systems and communications.

 

During 2009, Chilectra invested Ch$ 46 billion, allocating a considerable portion of investments to projects related to demand growth, improving service quality and energy loss prevention projects.  During 2008, Chilectra made investments of Ch$ 59 billion, mainly in projects related to improving service quality, environment, safety, and information and remote control systems.

 

Investments Abroad

 

In Argentina, during 2010, Edesur invested Ch$ 53 billion. Among these investments were important electricity infrastructure works, including the elevation of a high voltage line between Endesa Costanera and the Bosques substation and continued progress on medium-term projects to expand the Quilmes and Don Bosco power substations that will benefit 380,000 customers from the districts of Avellaneda, Quilmes, Florencio Varela and Berazategui beginning in 2011.

 

We also continued with the renovation and the construction of 1,079 kilometers of electrical networks and the installation of 789 new medium/low voltage transformers.

 

During 2009, Edesur invested Ch$ 53 billion, mainly in connection with important infrastructure works, such as the capacity increase of the Perito Moreno substation, among others.

 

During 2008, Edesur invested Ch$ 81 billion, in order to maintain quality service and protect public safety. Toward this end, it undertook several projects, such as the capacity increase in the Héroes de Malvinas substation and the construction of a new substation in Glew, among others.

 

In Brazil in 2010, total investments were Ch$ 239 billion, an increase of 28% with respect to 2009.

 

In particular, Ampla’s investments were Ch$ 114 billion, mainly related to projects for reducing energy losses.  Coelce invested Ch$125 billion, with a special focus on “Luz para todos,” a project sponsored by the State of Ceará, that connected 16,865 new customers to the low-tension electricity network. This project involved an investment of Ch$ 32 billion as of December 31, 2010.

 

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As a result of investments in 2009 and 2010, Ampla’s energy losses decreased by 0.7 percentage points to 20.5% in 2010 from 21.2% in 2009.

 

In 2008, Ampla invested in the improvement of its distribution network and obtained an 8.7% rating in 2008 (up from 5.5% in 2007) in terms of quality of energy supply. In addition, due to the investments made during 2008, Coelce connected approximately 148,000 new customers to the low-tension electric power network.

 

In Colombia in 2010, we invested Ch$ 80 billion, mainly focused on expansion projects for servicing new customers and demand growth, as well as improving quality of energy supplies.

 

Among the Ch$ 76 billion of investments made by Codensa were the construction of the new 120 MVA Florida substation that will serve the area of El Dorado airport and the town of Engativá and the expansion of the Fontibón and Sesquilé substations.

 

In EEC, capital expenditures were incurred to improve the quality of service and reduce energy losses.  In 2010, the amount invested was Ch$ 4 billion. Ch$ 2 billion was invested in 2009.

 

During 2009, Codensa invested Ch$ 69 billion, mainly related to expansion projects for servicing new customers and demand growth, and for incorporating equipment and renovating distribution networks in order to continue improving the continuity and quality of energy supplies.

 

During 2008, Codensa invested Ch$ 80 billion, mainly to improve the reliability of distribution systems in Bogotá, Cundinamarca and the NIS

 

In Peru in 2010, Edelnor invested Ch$ 33 billion, focused mainly on demand growth, service quality and security in medium and low-tension feeders and energy loss programs.

 

According to the secondary transmission investment plan, prepared together with the regulator, Osinergmin, the construction of the Zárate substation was completed in 2010 and started its operation in March 2011. The construction of the UNI and Jicamarca substations began in the first quarter of 2010 and are expected to begin their operations in October 2012 and in November 2011, respectively.

 

Edelnor also continued to improve the availability of electricity for new settlement projects, reduce commercial losses, improve street lighting and improve infrastructure of customer service centers.

 

In 2009 Edelnor invested Ch$ 37 billion, focused mainly on the expansion and reinforcement of low and medium-tension networks and the increase in capacity of the transforming substations.

 

In 2008, Edelnor invested Ch$ 44 billion, primarily in expanding its networks and increasing its medium- and low-tension feeders to satisfy demand for electricity that increased 7.8% from 2007 to 2008.

 

Investments currently in progress

 

In general terms, projects are expected to be financed with resources to be provided by external financing as well as internally generated funds for each of the companies described.

 

Investments in Chile

 

Our main investment currently in progress in Chile is the construction of the Bocamina II steam/coal-fired power plant, which is the second unit of our Bocamina power plant.  This project is located in the Coronel district in the Bío-Bío region.  Its installed capacity is estimated at 370 MW and the start-up is planned for the second half of 2011.  The total investment is approximately Ch$ 400 billion.

 

Investments in Other Countries

 

Our main project being developed outside Chile is our 400 MW El Quimbo hydroelectric plant in Colombia.  The principal civil works and equipment supply and assembly contracts have been awarded.  The total estimated investment is approximately Ch$ 630 billion.

 

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Divestitures

 

During the last quarter of 2009, the Board of Directors of Enersis authorized the sale of Compañía Americana Multiservicios (CAM) and Synapsis because they were considered “non-core” businesses.

 

On December 20, 2010, the Board of Directors of Enersis accepted the offer received for its total stake in CAM presented by Graña y Montero S.A.A., a Peruvian company, which offered $ 20 million in cash.  The closing took place on February 24, 2011.

 

At the same meeting, the Board of Directors of Enersis accepted the offer received for its total stake in Synapsis presented by Riverwood Capital L.P., a private equity fund located in the United States, which offered $ 52 million in cash.  The closing took place on March 1, 2011.

 

B.            Business Overview.

 

We are a publicly held limited liability stock company with consolidated operations in Chile, Argentina, Brazil, Colombia and Peru.  Our core business segments are electricity generation, transmission, and distribution.  We also participate in other activities which are not part of our core business.  Since these non-core activities represent less than 1% of our 2010 operating income, we do not report them as a separate business segment for purposes of this discussion, or under IFRS.

 

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Revenues by Business Segment

 

 

 

Year ended December 31,

 

 

 

2008 (1)

 

2009

 

2010

 

% Change

 

 

 

(in million of Ch$)

 

Generation Business Segment

 

 

 

 

 

 

 

 

 

Endesa Chile and subsidiaries(Chile)

 

1,609,158

 

1,373,231

 

1,345,371

 

(2.0

)%

Endesa Costanera (Argentina)

 

240,087

 

231,421

 

295,231

 

27.6

%

El Chocón (Argentina)

 

44,141

 

65,298

 

57,173

 

(12.4

)%

Cachoeira Dourada (Brazil)

 

147,105

 

88,300

 

115,663

 

31.0

%

Endesa Fortaleza (Brazil)

 

72,776

 

138,595

 

150,371

 

8.5

%

CIEN (Brazil)

 

110,163

 

97,961

 

98,909

 

1.0

%

Emgesa (Colombia)

 

401,470

 

500,964

 

507,516

 

1.3

%

Edegel (Peru)

 

208,497

 

213,625

 

211,263

 

(1.1

)%

Less: Intercompany Transactions

 

 

(1,037

)

(904

)

(12.8

)%

Total

 

2,833,397

 

2,708,358

 

2,780,593

 

2.7

%

 

 

 

 

 

 

 

 

 

 

Distribution Business Segment

 

 

 

 

 

 

 

 

 

Chilectra and subsidiaries (Chile)

 

1,083,673

 

1,089,515

 

1,016,997

 

(6.7

)%

Edesur (Argentina)

 

334,164

 

327,088

 

295,539

 

(9.6

)%

Edelnor (Peru)

 

254,641

 

302,295

 

307,159

 

1.6

%

Ampla (Brazil)

 

973,759

 

1,012,342

 

1,046,387

 

3.4

%

Coelce (Brazil)

 

763,592

 

767,993

 

940,654

 

22.5

%

Codensa (Colombia)

 

661,474

 

741,168

 

785,890

 

6.0

%

Total

 

4,071,303

 

4,240,401

 

4,392,626

 

3.6

%

 

 

 

 

 

 

 

 

 

 

Less: Consolidation Adjustments and Other Businesses.

 

(324,755

)

(476,703

)

(609,638

)

27.9

%

Total

 

6,579,945

 

6,472,056

 

6,563,581

 

1.4

%

 


(1) Due to internal reclassifications introduced during 2010, some figures may differ from those presented in our Form 20-F for 2009.  Differences in figures are not significant and do not affect the consolidated net income previously disclosed in our Form 20-F for 2009.

 

For further information related to operating revenues and total income by business segment, see “Item 5. Operating and Financial Review and Prospects — A. Operating Results” and note 33.2 to our Consolidated Financial Statements.

 

Electricity Generation Business Segment

 

As of December 31, 2010, electricity generation represented 39% of our operating revenues and 60% of our operating income, in both cases before consolidation adjustments.

 

Our consolidated physical sales for 2010 were 63,431 GWh and our production was 56,699 GWh, 4.9% and 2.8% lower than in 2009, respectively.  The total installed capacity in 2010 was 14,833 MW as compared to 14,851 MW in 2009.

 

Our electricity generation business is conducted primarily through Endesa Chile, which has operating subsidiaries in Chile, Argentina, Colombia and Peru.  Since October 2005, the generation, transmission and distribution businesses in Brazil have been managed through our subsidiary, Endesa Brasil. Endesa Chile also holds an equity interest in Endesa Brasil.

 

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The following tables summarize the information relating to Enersis’ electricity generation:

 

PHYSICAL DATA PER COUNTRY

 

 

 

As of December 31, each year

 

 

 

2008

 

2009

 

2010

 

Chile

 

 

 

 

 

 

 

Number of generating facilities (1)(2)

 

27

 

29

 

28

 

Installed capacity (MW) (3) (2)

 

5,283

 

5,650

 

5,611

 

Energy generated (GWh) (4)

 

21,267

 

22,239

 

20,914

 

Energy sales (GWh)

 

21,532

 

22,327

 

21,847

 

Argentina

 

 

 

 

 

 

 

Number of generating facilities (1)

 

5

 

5

 

5

 

Installed capacity (MW) (3)

 

3,652

 

3,652

 

3,652

 

Energy generated (GWh) (4)

 

10,480

 

11,955

 

10,940

 

Energy sales (GWh)

 

11,098

 

12,405

 

11,378

 

Brazil

 

 

 

 

 

 

 

Number of generating facilities (1)

 

2

 

2

 

2

 

Installed capacity (MW) (3)

 

987

 

987

 

987

 

Energy generated (GWh) (4)

 

3,379

 

3,319

 

5,095

 

Energy sales (GWh)

 

7,088

 

6,869

 

6,790

 

Colombia

 

 

 

 

 

 

 

Number of generating facilities (1)

 

11

 

11

 

12

 

Installed capacity (MW) (3)

 

2,895

 

2,895

 

2,914

 

Energy generated (GWh) (4)

 

12,905

 

12,674

 

11,283

 

Energy sales (GWh)

 

16,368

 

16,806

 

14,817

 

Peru

 

 

 

 

 

 

 

Number of generating facilities (1) (2)

 

9

 

9

 

9

 

Installed capacity (MW) (3) (2)

 

1,467

 

1,667

 

1,668

 

Energy generated (GWh) (4)

 

8,102

 

8,163

 

8,466

 

Energy sales (GWh)

 

8,461

 

8,321

 

8,598

 

Total

 

 

 

 

 

 

 

Number of generating facilities (1)

 

54

 

56

 

56

 

Installed capacity (MW) (3)

 

14,284

 

14,851

 

14,833

 

Energy generated (GWh) (4)

 

56,133

 

58,349

 

56,699

 

Energy sales (GWh)

 

64,546

 

66,728

 

63,431

 

 


(1)          For details on generation facilities, see “Item 4D. Property Plants and Equipment.”

(2)          Quintero and Canela II generation in Chile have been consolidated since July and December 2009, respectively; Santa Rosa TG8’s generation in Peru since November 2009; and San Antonio mini hydro plant in Colombia since May 2010.

(3)          Total installed capacity is defined as the maximum MW capacity in generation units, under specific technical conditions and characteristics, in most cases confirmed by satisfaction guarantee tests performed by equipment suppliers.  Figures may differ from installed capacity declared to governmental authorities and customers in each country, according to criteria defined by such authorities and relevant contracts.

(4)          Energy generated defined as total generation minus own power plant consumption and technical energy losses.

 

In the electricity industry, it is common to segment the business into hydroelectric and thermoelectric generation, because each method of generation has significantly variable costs.  Thermoelectric generation requires the purchase of fuel rather than the use of water from reservoirs or rivers, thereby increasing the variable costs of generation.  Of our total consolidated generation in 2010, 59% was from hydroelectric sources, 40% came from thermal sources, and wind energy represented less than 1%.

 

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The following table summarizes Enersis’ consolidated generation by type of energy:

 

 

 

Year ended December 31,

 

 

 

2008

 

2009

 

2010

 

 

 

(GWh)

 

%

 

(GWh)

 

%

 

GWh

 

%

 

Hydroelectric

 

35,605

 

63.5

 

37,730

 

64.7

 

33,689

 

59.4

 

Thermal

 

20,479

 

36.5

 

20,563

 

35.2

 

22,867

 

40.3

 

Other generation (1)

 

49

 

0.1

 

56

 

0.1

 

143

 

0.3

 

Total generation

 

56,133

 

100.0

 

58,349

 

100.0

 

56,699

 

100.0

 

 


(1)          Other generation refers to the generation from the wind farm Canela and Canela II.

 

In general, in the countries in which we operate, the potential for contracting electricity is related to the volume of electricity demand.  Customers identified as small volume regulated customers, such as residential customers subject to government regulated electricity tariffs, must purchase electricity directly from a distribution company.  These distribution companies, which purchase large amounts of electricity for small volume residential customers, generally enter into contractual agreements with generators at a regulated tariff price.  Those identified as large volume industrial customers also enter into contractual agreements with energy suppliers.  However, such large volume industrial customers are not subject to the regulated tariff price.  Instead, these customers are allowed to negotiate the price of energy with generators based on the characteristics of the service required.  Finally, the pool market, where energy is normally sold at the spot price, is not carried out through contractual agreements but instead complies with pool market operations.

 

The following table contains information regarding Enersis’ consolidated sales of electricity by type of customer for each of the periods indicated:

 

ENERSIS CONSOLIDATED PHYSICAL SALES BY TYPE OF CUSTOMER (GWh)

 

 

 

Year ended December 31,

 

 

 

2008

 

2009

 

2010

 

 

 

Sales
(GWh)

 

% of Sales
Volume

 

Sales
(GWh)

 

% of Sales
Volume

 

Sales
(GWh)

 

% of Sales
Volume

 

Regulated customers

 

28,532

 

44.3

 

29,600

 

44.4

 

31,530

 

49.7

 

Unregulated customers

 

18,096

 

27.8

 

16,526

 

24.8

 

15,535

 

24.5

 

Electricity pool market sales

 

17,917

 

27.8

 

20,602

 

30.9

 

16,366

 

25.8

 

Total electricity sales

 

64,546

 

100.0

 

66,728

 

100.0

 

63,431

 

100.0

 

 

The specific energy consumption limit (measured in GWh) for regulated and unregulated customers is country specific.  Moreover, regulatory frameworks often require that regulated distribution companies have contracts to support their commitments to small volume customers and also determine which customers can purchase energy in electricity pool markets.

 

The following table contains information regarding Enersis physical sales of electricity per customer segment:

 

ENERSIS CONSOLIDATED PHYSICAL SALES PER CUSTOMER PRICE SEGMENT (GWh) (1)

 

 

 

Year ended December 31,

 

 

 

2008

 

2009

 

2010

 

 

 

Sales
(GWh)

 

% of
Sales
Volume

 

Sales
(GWh)

 

% of
Sales
Volume

 

Sales
(GWh)

 

% of
Sales
Volume

 

Contracted sales

 

46,629

 

72.2

 

46,126

 

69.1

 

47,065

 

74.2

 

Non-contracted sales

 

17,917

 

27.8

 

20,602

 

30.9

 

16,366

 

25.8

 

Total electricity sales

 

64, 546

 

100.0

 

66,728

 

100.0

 

63,431

 

100.0

 

 


(1)          Includes sales to distribution companies not backed by contracts in Chile and Peru.

 

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Operations in Chile

 

We own and operate a total of 28 generation facilities in Chile, directly and through our subsidiaries Pehuenche, Pangue, San Isidro, Celta, Endesa Eco and our jointly controlled company GasAtacama.  Of these generation facilities, 16 are hydroelectric, with a total installed capacity of 3,465 MW.  This represents 61.7% of our total installed capacity in Chile.  There are ten thermal facilities that operate with gas, coal or oil with a total installed capacity of 2,068 MW, representing 36.9% of our total installed capacity in Chile. There are two wind power facilities with 78 MW in the aggregate, representing 1.4% of our total installed capacity in Chile.  All of our generation facilities are connected to the country’s central interconnected electricity systems, Sistema Interconectado Central, or the SIC, except for three power facilities (GasAtacama and two Celta units), which are connected to the northern Sistema Interconectado del Norte Grande, or the SING.

 

The following table sets forth the installed generation capacity for each of the Company’s Chilean subsidiaries:

 

INSTALLED CAPACITY PER SUBSIDIARY IN CHILE (MW)

 

 

 

2008

 

2009

 

2010

 

Endesa

 

3,139

 

3,446

 

3,407

 

Pehuenche

 

699

 

699

 

699

 

Pangue

 

467

 

467

 

467

 

San Isidro

 

379

 

379

 

379

 

Celta

 

182

 

182

 

182

 

GasAtacama (1)

 

390

 

390

 

390

 

Endesa Eco

 

27

 

87

 

87

 

Total

 

5,283

 

5,650

 

5,611

 

 


(1)     Since 2008, we include 50% of GasAtacama’s installed capacity, our jointly-controlled company.

 

Our total electricity generation in Chile (including the SIC and the SING) reached 20,914 GWh in 2010, 6.0% lower than in 2009, and accounted for 35.8% of total electricity production in Chile during 2010.

 

The following table sets forth the electricity generation for each of our Chilean subsidiaries:

 

ELECTRICITY GENERATION IN CHILE (GWh)

 

 

 

Year ended December 31,

 

 

 

2008

 

2009

 

2010

 

Endesa

 

12,204

 

12,265

 

11,539

 

Pehuenche

 

3,589

 

3,613

 

2,970

 

Pangue

 

1,763

 

2,113

 

1,615

 

San Isidro

 

1,289

 

1,616

 

2,157

 

Celta

 

912

 

981

 

995

 

GasAtacama

 

1,460

 

1,558

 

1,445

 

Endesa Eco

 

49

 

94

 

192

 

Total

 

21,267

 

22,239

 

20,914

 

 

Hydroelectric generation in 2010 was 15.1% lower than in 2009, explained by lower hydrology in 2010. At December 31, 2010, Chilean reservoir levels contained 2,198 GWh in lower potential energy than at December 31, 2009, a decrease of 38%.  The main decrease was in the Endeas Chile’s Laja Reservoir where lower reservoir levels resulted in 1,122 GWh of lower potential energy.  The reduced levels of the Laja Reservoir may pose problems for 2011 generation in the event that hydrology does not improve significantly.

 

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The following table shows the potential energy in Chilean reservoirs:

 

 

 

Year ended December 31,

 

 

 

2008

 

2009

 

2010

 

% Change

 

 

 

(GWh)

 

(GWh)

 

(GWh)

 

2009 vs. 2010

 

Reservoir (company)

 

 

 

 

 

 

 

 

 

Laja (Endesa Chile)

 

3,107

 

3,045

 

1,923

 

(37

)

Maule (Colbún and Endesa Chile)

 

1,111

 

957

 

789

 

(18

)

Colbún (Colbún)

 

406

 

485

 

471

 

(3

)

Melado (Endesa Chile)