Letter to Shareholders

Flavio Cattaneo Ladies and Gentlemen Shareholders,

2010 closed with important results that are rewarding for you and thus, for Terna’s entire team. Our action was twofold: core business and the opportunities outside of the traditional activities. With the sale of Rete Rinnovabile, we closed the third M&A operation in two years, in record time, once again creating value to the advantage of the Country, the electricity system and shareholders.

Once again, we demonstrated we can keep our promises. We said that 2010 would be the year of the building sites: works were completed for the construction of SA.PE.I., the submarine cable connecting Sardinia and the mainland, for the “Casellina-Tavarnuzze-Santa Barbara” power line in Tuscany as well as for upgrading the Val d’Ossola grid; several other worksites were opened among which those for the “Sorgente-Rizziconi” connection between Sicily and Calabria and for the Chignolo Po-Maleo power line. The fundamentals of the Terna Group are solid. The 2010 financial statement shows a double digit growth of all key economic indicators.
At the consolidated level and comparing data with the 2009 financial statement, revenues increased by 14% and stood at 1 billion and 589 million euros, the Gross Operating Margin amounted to 1,174.9 million euros increasing by 17% and Profits rose to 466.7 million euros increasing by nearly 32%. The acceleration of investments for the grid’s development continued. Investments reached 1,161.7 million euros (nearly +30%), for over 1,000 km of new power lines and 48 new power stations.

These results allow us to propose, once again, a distribution of dividends per share increased by 10.5% compared to the previous year. With regard to the share’s trend, despite an unfavorable macro-economic situation and high volatility of the principal stock markets, the defensive nature of Terna’s shares was appreciated by the markets and enabled us to achieve the positive performance of 5.3%, in counter-trend with the poor performance of the Italian Blue Chips (FTSE-MIB -13.2%). Moreover, Terna was the only European utility to reach its record high of 3.3925 euros per share in 2010. Our Company’s goals remain focused on achieving greater operational efficiency while ensuring the highest quality in the transmission service and a more efficient and safer management of the energy flows in the electricity system. 2011 will focus on the implementation of the provisions included in the 2011-2015 Strategic Plan. In particular, planned investments will be aimed at increasing interconnections with other countries, reducing grid congestion and removing the constraints caused by the increased renewable sources production.

Moreover, Terna will hold the usual debate with the Authority for Electricity and Gas aimed at ensuring continuity and stability of principles for establishing the tariffs also in the 4th regulatory period (2012-2015). As part of its non-regulated activities in 2011, the Company will also be involved in implementing a second group of PV projects, intended to further enhance the Group’s assets.