The 2010 annual report of Terna S.p.A. has been prepared in accordance with art. 154-ter of Legislative Decree no. 58/98 as introduced by Legislative Decree no. 195 of 6 November 2007 (the “Transparency-Decree”). In implementation of the provision of Italian Legislative Decree no. 38 of 28 February 2005 and EEC Regulation no. 1606/2002, Terna S.p.A. prepares the separate financial statements as at and for the year ended 31 December 2010 in compliance with the international financial reporting standards (IFRS) issued by the International Accounting Standards Board and endorsed by the European Commission (hereinafter “IFRS-EU”). The 2010 annual report has been prepared on a historic cost basis, modified where necessary for certain financial instruments, as well as on a going concern basis.
In compliance with the provisions of art. 2364 of the Italian Civil Code and art. 9.2 of the Company’s Bylaws, the Board of Directors has resolved to call the Shareholders to meet within one hundred and eighty days of the financial year end, in view of the complexity and time required in relation to the extraordinary transactions.

Basis of presentation
The criteria for reporting and measurement applied in this annual financial report comply with that used in the separate financial statements as of 31 December 2009, with the exception of the application of IFRIC 12 - Service concession agreements, which came into effect on 1 January 2010. The Company’s analysis of the adoption of this interpretation identified that it applies solely to Terna’s concession for the provision of dispatching services; accordingly, the property, plant and equipment and intangible assets associated with the dispatching activities identified pursuant to IFRIC 12 have been reclassified to the “Infrastructure rights” caption of intangible assets. In addition, the costs and revenue associated with the investment in dispatching activities have been reclassified as construction costs and revenue. Revenue recognised during the construction phase is limited to the amount of the internal and external construction costs incurred, considering that the fair value of the construction services is equivalent to the construction cost recognised to third-party contractors plus the internal cost of the technical personnel employed on such construction activities. By contrast, tariff revenue continues to be recognised in accordance with IAS 18 and borrowing costs continue to be capitalised pursuant to IAS 23R. The amortisation process of assets, in relation to the concession service agreements, has remained unchanged and continues to be applied considering the methods forecast for obtaining future economic benefits deriving from the use and residual value of the infrastructure, as established by the reference regulatory framework. Following the application of the interpretation in question, with reference to the comparative balances of 2009, the balance referring to property, plant and equipment infrastructures relative to concession arrangements ex IFRIC 12 (net carrying amount of € 85.4 million) was reclassified from the caption “Property, plant and equipment” to “Intangible assets” and the balances capitalised in relation to construction and upgrading of infrastructure, which have been recognised to the extent of the related costs, were reclassified as construction revenue and costs (€ 29.5 million) without any effects on the results of the Company. The EBITDA margin of 2009 has therefore been changed, going from 72.1% to 70.5%.

With reference to the interpretation IFRIC 18 - Transfer of assets from customers, endorsed by the European Commission on 27 November 2009 and applied as from 1 January 2010 in relation to the booking of connection agreements, it is specified that the equity, financial and economic position of 31 December 2010, Terna was not significantly affected.

We should note that following the signing of the sales agreement for the subsidiary RTR, as has been explained in depth in the paragraph entitled “Significant events”, to which we would refer you, the balances in relation to the financial expense of the companies RTR and Valmontone Energia have been reclassified in accordance with that established by accounting standard IFRS 5 - Non-current assets held for sale and discontinued operations.