CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED

MANAGEMENT REPORT
FOR THE YEAR ENDED 31 DECEMBER 2014
 CONTENTS

Page

Consolidated statements of financial position at 31 December 2014 and 2013 4

Consolidated income statements for the years ended

31 December 2014 and 2013 6

Consolidated statements of comprehensive income

for the years ended 31 December 2014 and 2013 7

Consolidated statements of changes in equity for the years ended

31 December 2014 and 2013 8

Consolidated statements of cash flow for the years ended

31 December 2014 and 2013 10

Notes to the Consolidated financial statements

1 Group activities 11
2 Basis of presentation of the Consolidated financial statements 12
3 Industry regulation and functioning of the electricity and gas system 19
4 Accounting policies 25
5 Financing and financial risk management policy 47
6 Use of estimates and sources of uncertainty 50
7 Geographical and business segment reporting 54
8 Intangible assets 59
9 Investment property 62
10 Property, plant and equipment 63
11 Concession arrangements 66
12 Impairment of non-financial assets 67
13 Financial investments 72
14 Non-current trade and other receivables 77
15 Measurement of financial instruments 78
16 Nuclear fuel 82
17 Inventories 83
18 Other current trade and other receivables 84
19 Cash and cash equivalents 85
20 Equity 85
21 Equity instruments having the substance of financial liability 96
22 Deferred income 97
23 Provisions for pensions and similar obligations 97
24 Other provisions 111
25 Bank borrowings and other financial liabilities-loans and others 113
26 Derivative financial instruments 118
27 Other non-current payables 121
28 Deferred taxes and income tax expense 121

2
 Page

29 Tax receivables and payables 126

30 Trade payables 127
31 Information on deferred payments to suppliers. Third additional provision.
“Duty of information” of Law 15/2010, of 5 July 127
32 Net revenue 127
33 Construction contracts 128
34 Procurements 128
35 Staff costs 129
36 Operating leases 129
37 Taxes other than income tax 130
38 Amortisation and provisions 131
39 Gains on disposal of non-current assets 131
40 Finance income 133
41 Finance cost 133
42 Business combinations 133
43 Contingent assets and liabilities 133
44 Interests in joint ventures 138
45 Guarantee commitments to third parties and other contingent liabilities 139
46 Remuneration of Board of Directors 141
47 Information on compliance with article 229 of the Spanish Companies Law 146
48 Remuneration of senior executives 147
49 Balances and transactions with other related parties 148
50 Financial position and events after 31 December 2014 152
51 Fees for services provided by the statutory auditors 153
52 Earnings per share 154
53 Preparation of the Consolidated financial statements 154
54 Explanation added for translation to English 154

Appendix 155

Consolidated management report for 2014 172

3
 Translation of Consolidated financial statements originally issued in Spanish and prepared in accordance with IFRS,
as adopted by the European Union (Note 54). In the event of a discrepancy, the Spanish-language version prevails.

IBERDROLA, S.A. AND SUBSIDIARIES

Consolidated statements of financial position at
31 December 2014 and 2013 and 1 January 2013

ASSETS Thousands of euros

31 December 2013 (*) 1 January 2013 (*)
Note 31 December 2014 Restated (Note 2.a) Restated (Note 2.a)

NON-CURRENT ASSETS:
Intangible assets 8 16,862,230 15,993,006 18,076,334
Goodwill 8,354,186 7,801,237 8,305,656
Other intangible assets 8,508,044 8,191,769 9,770,678
Investment property 9 482,345 488,100 424,370
Property, plant and equipment 10 55,107,302 51,204,089 52,039,887
Property, plant and equipment in use 51,090,101 46,856,966 47,836,997
Property, plant and equipment under construction 4,017,201 4,347,123 4,202,890
Non-current financial assets 3,779,855 5,038,608 4,333,004
Investments accounted for using the equity method 13.a 2,294,597 2,180,387 2,678,525
Non-current equity instruments 13.b 77,309 756,636 670,939
Other non-current financial assets 13.c 769,375 1,848,915 594,110
Derivative financial instruments 26 638,574 252,670 389,430
Non-current trade and other receivables 14 383,481 365,963 385,564
Deferred tax assets 28 5,837,290 6,500,218 4,393,446
82,452,503 79,589,984 79,652,605

CURRENT ASSETS:
Assets held for sale - 103,941 132,282
Nuclear fuel 16 319,972 370,314 293,188
Inventories 17 2,039,298 2,025,774 1,858,059
Current trade and other receivables 5,519,452 5,239,429 5,932,329
Income tax receivables 29 333,223 230,947 252,290
Other tax receivables 29 367,206 708,836 414,335
Other current trade and other receivables 18 4,819,023 4,299,646 5,265,704
Current financial assets 1,634,655 1,125,702 3,970,425
Current equity instruments 4,584 4,582 130,257
Other current financial assets 13.c 1,117,816 872,491 3,324,494
Derivative financial instruments 26 512,255 248,629 515,674
Cash and cash equivalents 19 1,805,533 1,331,735 2,283,963
11,318,910 10,196,895 14,470,246

TOTAL ASSETS 93,771,413 89,786,879 94,122,851

(*) The Consolidated statements of financial position at 31 December 2013 and 1 January 2013 are presented for comparative purposes only.

The accompanying Notes 1 to 54 and the Appendix are an integral part of

the Consolidated statements of financial position at 31 December 2014 and 2013 and 1 January 2013.

4
 Translation of Consolidated financial statements originally issued in Spanish and prepared in accordance with IFRS,
as adopted by the European Union (Note 54). In the event of a discrepancy, the Spanish-language version prevails.

IBERDROLA, S.A. AND SUBSIDIARIES

Consolidated statements of financial position at
31 December 2014 and 2013 and 1 January 2013

EQUITY AND LIABILITIES Thousands of euros

31 December 2013 (*) 1 January 2013 (*)
Note 31 December 2014 Restated (Note 2.a) Restated (Note 2.a)

EQUITY:
Of shareholders of the parent 20 35,039,700 34,584,689 32,882,120
Share capital 4,791,362 4,679,981 4,604,170
Unrealised assets and liabilities revaluation reserve (327,003) (297,440) (492,699)
Other reserves 30,468,867 30,107,507 27,869,848
Treasury shares (815,990) (302,707) (500,124)
Translation differences (1,404,052) (2,174,456) (1,364,168)
Net profit for the year 2,326,516 2,571,804 2,765,093
Of non-controlling interests 199,611 153,093 247,636
Subordinated perpetual obligations 551,197 550,814 -
35,790,508 35,288,596 33,129,756

NON-CURRENT EQUITY INSTRUMENTS HAVING THE SUBSTANCE

OF A FINANCIAL LIABILITY 21 180,371 243,607 370,499

NON-CURRENT LIABILITIES:
Deferred income 22 6,120,911 5,682,568 5,763,154
Provisions 4,852,359 4,065,151 3,738,603
Provisions for pensions and similar obligations 23 1,942,875 1,390,872 1,820,562
Other provisions 24 2,909,484 2,674,279 1,918,041
Bank borrowings 23,314,600 24,473,137 27,492,524
Bank borrowings and other financial liabilities- loans and others 25 22,930,226 24,138,875 27,080,068
Derivative financial instruments 26 384,374 334,262 412,456
Other non-current payables 27 611,213 542,480 431,840
Deferred tax liabilities 28 9,368,955 8,335,612 9,025,699
44,268,038 43,098,948 46,451,820

CURRENT EQUITY INSTRUMENTS HAVING THE SUBSTANCE

OF A FINANCIAL LIABILITY 21 101,350 85,686 106,882

CURRENT LIABILITIES:
Provisions 221,100 294,441 372,680
Provisions for pensions and similar obligations 23 753 7,917 4,256
Other provisions 24 220,347 286,524 368,424
Bank borrowings 5,034,559 3,978,824 4,828,773
Bank borrowings and other financial liabilities - loans and others 25 4,208,674 3,524,042 4,194,905
Derivative financial instruments 26 825,885 454,782 633,868
Trade and other payables 8,175,487 6,796,777 8,862,441
Trade payables 30 5,472,733 4,558,777 5,880,406
Income tax payables 29 418,741 444,336 582,899
Other tax payables 29 996,322 858,954 317,682
Other current liabilities 1,287,691 934,710 2,081,454
13,431,146 11,070,042 14,063,894

TOTAL EQUITY AND LIABILITIES 93,771,413 89,786,879 94,122,851

(*) The Consolidated statements of financial position at 31 December 2013 and 1 January 2013 are presented for comparative purposes only.

The accompanying Notes 1 to 54 and the Appendix are an integral part of

the Consolidated statements of financial position at 31 December 2014 and 2013 and 1 January 2013.

5
 Translation of Consolidated financial statements originally issued in Spanish and prepared in accordance with IFRS,
as adopted by the European Union (Note 54). In the event of a discrepancy, the Spanish-language version prevails.

IBERDROLA, S.A. AND SUBSIDIARIES

Consolidated income statements for the years ended
31 December 2014 and 2013

Thousands of euros
31 December 2013
Restated
Note 31 December 2014 (Note 2.a) (*)

Net revenue 32 30,032,270 31,077,112

Procurements 34 (17,852,727) (19,295,221)
12,179,543 11,781,891

Staff costs 35 (2,318,859) (2,220,293)

Capitalised staff costs 35 458,030 477,939
External services (2,160,099) (2,119,913)
Other operating income 387,154 395,394
(3,633,774) (3,466,873)
Taxes other than income tax 37 (1,581,243) (1,558,108)
6,964,526 6,756,910

Amortisation and provisions 38 (3,023,602) (4,537,452)

OPERATING PROFIT 3,940,924 2,219,458

Result of companies accounted for using the equity method - net of taxes 13.a 135,429 204,965
Finance income 40 893,756 695,618
Finance cost 41 (2,016,205) (1,973,565)
Gains on disposal of non-current assets 39 255,092 28,289
Losses on disposal of non-current assets 39 (7,209) (38,710)

PROFIT BEFORE TAX 3,201,787 1,136,055

Income tax 28 (837,054) 1,466,742

NET PROFIT FOR THE YEAR 2,364,733 2,602,797

Non-controlling interests (16,818) (5,179)

Subordinated perpetual obligations owners 20 (21,399) (25,814)

NET PROFIT FOR THE YEAR ATTRIBUTABLE TO THE PARENT 2,326,516 2,571,804

EARNINGS PER SHARE IN EUROS (BASIC AND DILUTED) 52 0.366 0.396

(*) The Consolidated income statement at 31 December 2013 is presented for comparative purposes only.

The accompanying Notes 1 to 54 and the Appendix are an integral part of

the Consolidated income statements for years ended 31 December 2014 and 2013.

6
 Translation of Consolidated financial statements originally issued in Spanish and prepared in accordance with IFRS,
as adopted by the European Union (Note 54). In the event of a discrepancy, the Spanish-language version prevails.

IBERDROLA, S.A. AND SUBSIDIARIES

Consolidated statements of comprehensive income
for the years ended 31 December 2014 and 2013

Thousand of euros
31 December 2013
31 December 2014 (Restated Note 2.a) (*)

Of non- Of perpetual Of non- Of perpetual

Of the controlling obligations Of the controlling obligations
Parent interests owners Total Parent interests owners Total

NET PROFIT FOR THE YEAR 2,326,516 16,818 21,399 2,364,733 2,571,804 5,179 25,814 2,602,797

OTHER COMPREHENSIVE INCOME/(LOSS) TO BE RECLASIFIED TO PROFIT OR LOSS IN

SUBSEQUENT PERIODS

In unrealised asset and liability revaluation reserves (23,869) (256) - (24,125) 188,157 369 - 188,526
Change in the value of available-for-sale investments (1,835) - - (1,835) 120,089 - - 120,089
Change in the value of cash flow hedges 17,208 (342) - 16,866 149,577 528 - 150,105
Tax effect (39,242) 86 - (39,156) (81,509) (159) - (81,668)

In foreign currency translation differences 770,404 (1,944) - 768,460 (810,288) (1,195) - (811,483)

TOTAL 746,535 (2,200) - 744,335 (622,131) (826) - (622,957)

OTHER COMPREHENSIVE INCOME/(LOSS) NOT TO BE RECLASIFIED TO PROFIT OR LOSS IN

SUBSEQUENT PERIODS

In other reserves (344,544) - - (344,544) 283,433 - - 283,433

Actuarial gains and losses on pension schemes (527,484) - - (527,484) 420,681 - - 420,681
Tax effect 182,940 - - 182,940 (137,248) - - (137,248)

In unrealised asset and liability revaluation reserves (2,399) - - (2,399) 29,104 - - 29,104
Change in the value of cash flow hedges (2,152) - - (2,152) 37,763 - - 37,763
Tax effect (247) - - (247) (8,659) - - (8,659)

TOTAL (346,943) - - (346,943) 312,537 - - 312,537

OTHER COMPREHENSIVE INCOME/(LOSS) FROM COMPANIES ACCOUNTED FOR USING THE

EQUITY METHOD (AFTER TAX)

In other reserves (8,786) - - (8,786) 15,160 - - 15,160

In unrealised asset and liability revaluation reserves (3,295) - - (3,295) (22,002) - - (22,002)

TOTAL (12,081) - - (12,081) (6,842) - - (6,842)

OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR 387,511 (2,200) - 385,311 (316,436) (826) - (317,262)

TOTAL COMPREHENSIVE INCOME FOR THE YEAR 2,714,027 14,618 21,399 2,750,044 2,255,368 4,353 25,814 2,285,535

(*) The Consolidated statement of comprehensive income for 2013 is presented for comparative purposes only.

The accompanying Notes 1 to 54 and the Appendix are an integral part of

the Consolidated statements of comprehensive income for the years ended 31 December 2014 and 2013.

7
 Translation of Consolidated financial statements originally issued in Spanish and prepared in accordance with IFRS,
as adopted by the European Union (Note 54). In the event of a discrepancy, the Spanish-language version prevails.

IBERDROLA, S.A. AND SUBSIDIARIES

Consolidated statements of changes in equity for the years ended 31 December 2014 and 2013

Thousands of euros
Other reserves Unrealised
assets and
liabilities Non- Subordinated
Issued Treasury Legal Revaluation Share Other restricted Retained revaluation Translation Net profit controlling perpetual
capital shares reserve reserves premium reserves earnings reserve differences for the year interests obligations Total
Balance at 1 January 2014 4,679,981 (302,707) 942,177 789,374 14,667,676 199,331 13,508,949 (297,440) (2,174,456) 2,571,804 153,093 550,814 35,288,596

Total comprehensive income for the year - - - - - - (353,330) (29,563) 770,404 2,326,516 14,618 21,399 2,750,044
Transactions with shareholders and owners
Free capital increase (Note 20) 211,481 - - (211,481) - - (1,180) - - - - - (1,180)
Capital reduction (Note 20) (100,100) 616,886 - - - 100,100 (616,898) - - - - - (12)
Distribution of 2013 profit - - 13,842 - - - 2,371,045 - - (2,571,804) - - (186,917)
Acquisition of free-of-charge allocation rights (Note 20) - - - - - - (860,855) - - - - - (860,855)
Transactions with treasury shares (Note 20) - (1,130,169) - - - - 7,890 - - - - - (1,122,279)
Other changes in equity

Equity instruments-based payments (Note 20) - - - - - - 1,473 - - - - - 1,473

Other movements - - - - - - (89,246) - - - 31,900 (21,016) (78,362)
Balance at 31 December 2014 4,791,362 (815,990) 956,019 577,893 14,667,676 299,431 13,967,848 (327,003) (1,404,052) 2,326,516 199,611 551,197 35,790,508

8
 Thousands of euros
Other reserves Unrealised
assets and
liabilities Non- Subordinated
Issued Treasury Legal Revaluation Share Other restricted Retained revaluation Translation Net profit controlling perpetual
capital shares reserve reserves premium reserves earnings reserve differences for the year interests obligations Total
Balance at 1 January 2013 (Restated Note
2.a) 4,604,170 (500,124) 860,284 978,246 14,667,676 86,270 11,277,372 (492,699) (1,364,168) 2,765,093 247,636 - 33,129,756

Total income and expenses recognized - - - - - - 298,593 195,259 (810,288) 2,571,804 4,353 25,814 2,285,535
Transactions with partners or owners
Free capital increase (Note 20) 188,872 - - (188,872) - - (1,084) - - - - - (1,084)
Capital reduction (Note 20) (113,061) 574,907 - - - 113,061 (574,919) - - - - - (12)
Distribution of 2012 profit - - 81,893 - - - 2,499,429 - - (2,765,093) - - (183,771)
Iberdrola scrip dividend
No acquisition of free-of-charge allocation rights:
January 2013
- - - - - - 569,733 - - - - - 569,733
Acquisition of free-of-charge allocation rights: July
2013 (Note 20)
- - - - - - (369,752) - - - - - (369,752)
Transactions with treasury shares (Note 20) - (377,490) - - - - 8,354 - - - - - (369,136)
Other deviation of equity

Equity instruments-based payments (Note 20) - - - - - - 8,472 - - - - - 8,472

Subordinated perpetual obligation issuance (Note 20) - - - - - - (7,709) - - - - 525,000 517,291
Other movements - - - - - - (199,540) - - - (98,896) - (298,436)
Balance at 31 December 2013 4,679,981 (302,707) 942,177 789,374 14,667,676 199,331 13,508,949 (297,440) (2,174,456) 2,571,804 153,093 550,814 35,288,596

(*) The Consolidated statement of changes in equity for 2013 is presented for comparative purposes only.
The accompanying Notes 1 to 54 and the Appendix are an integral part of the Consolidated statements of changes in equity for the years ended 31 December 2014 and 2013.

9
 Translation of Consolidated financial statements originally issued in Spanish and prepared in accordance with IFRS,
as adopted by the European Union (Note 54). In the event of a discrepancy, the Spanish-language version prevails.

IBERDROLA, S.A. AND SUBSIDIARIES

Consolidated statements of cash flow
for the years ended 31 December 2014 and 2013 Thousands of euros

31 December 31 December 2013 (*)

Note 2014 Restated (Note 2.a)

Cash flows from operating activities:

Profit before tax 3,201,787 1,136,055
Adjustments for
Amortisation charge, provisions and staff costs for pensions 35.38 3,448,332 4,919,080
Results of companies accounted for using the equity method net of taxes 13 (135,429) (204,965)
Grants credited to income 22 (203,771) (192,894)
Finance income and costs 40, 41 1,122,449 1,277,947
Gains on disposal of non-current assets 39 (247,883) 10,421

Changes in working capital

Change in trade and other receivables (525,730) 457,224
Change in inventories 36,818 (180,842)
Change in trade and other payables 1,086,552 (526,710)
Effect of translation differences on working capital of foreign companies 11,526 (25,344)
Change in non-current receivables and other payables 17,653 (28,086)
Provisions paid (425,064) (369,164)
Income taxes paid (670,624) (940,761)
Dividends received 83,679 473,538
Net cash flows from operating activities 6,800,295 5,805,499

Cash flows from investing activities:

Investments in intangible assets 8 (202,548) (306,945)
Investments in associates 13 (96,084) (4,742)
Equity instruments 13 (209) 1,839
Other investments 13 (59,572) (31,199)
Investments in investment property 9 (3,786) (5,635)
Investments in property, plant and equipment 10 (3,363,416) (3,091,851)
Capital grants 64,372 117,694
Changes in working capital due to current financial assets 131,027 (183,426)
Interest received 232,336 138,628
Income taxes (57,119) 12,247
Proceeds from disposals of non-financial assets 2,500 28,424
Proceeds from disposals of financial assets 1,000,391 716,797

Net cash flows from investing activities (2,352,108) (2,608,169)

Cash flows from financing activities:

Free-of-charge allocation rights acquisition 20 (860,855) (677,881)
Dividends paid (186,917) (183,771)
Subordinated perpetual obligation issuance (30,188) 517,291
Issues and disposal from borrowings 13,854,033 9,573,956
Repayment of borrowings (16,002,782) (12,957,171)
Interest paid excluded capitalised interest (1,192,073) (1,401,492)
Movement of working capital by revenue shortfall 1,135,244 1,421,865
Cash outflows of capital reduction (12) (12)
Cash outflows of capital increase (1,180) (1,084)
Treasury shares acquisition 20 (897,565) (444,345)
Proceeds from disposals of treasury shares 20 151,230 75,209

Net cash flows from financing activities (4,031,065) (4,077,435)

Effect of exchange rate changes on cash and cash equivalents 56,676 (72,123)

Net increase in cash and cash equivalents 473,798 (952,228)

Cash and cash equivalents at the beginning of the year 1,331,735 2,283,963
Cash and cash equivalents at the end of the year 1,805,533 1,331,735

(*) The Consolidated cash flow statement for 2013 is presented for comparative purposes only.

The accompanying Notes 1 to 54 and the Appendix are an integral part of

the Consolidated cash flow statements for the years ended 31 December 2014 and 2013

10
IBERDROLA, S.A. AND SUBSIDIARIES

Notes to the Consolidated financial statements for the year ended

31 December 2014

1. GROUP ACTIVITIES

Pursuant to article 2 of its By-laws, the corporate purpose of Iberdrola, S.A. (hereinafter, IBERDROLA),
incorporated in Spain is as follows:

- To carry out all manner of activities and construction work and provide services required for, or
related to, the production, transmission, switching and distribution or retailing of electric power
or electricity by-products and their applications, and involving the raw materials or primary
energies required for electric power generation, energy services, engineering, computer and
telecommunication services, services relating to the Internet, the treatment and distribution of
water, the integral provision of urban and gas retailing services, and other gas storage,
regasification, transmission or distribution activities, which will be provided indirectly through
the ownership of shares or other equity investments in companies that do not engage in the
retailing of gas.

- The distribution, representation and marketing of all manner of goods and services, products,
articles, merchandise, computer programs, industrial equipment, machinery, machine and
hand tools, spare parts and accessories.

- To engage in the research, study and planning of investment and corporate organisation
projects, and to promote, set up and develop industrial, commercial and service companies.

- To provide assistance and support services to the group companies and other investees,
providing for them the guarantees and collateral required for this purpose.

The aforementioned activities may be performed in Spain and abroad, and may be performed totally
or partially either directly by IBERDROLA or through the ownership of shares or other equity
investments in other companies, subject in all cases to the legislation applicable at any given time and,
in particular, to the legislation applicable to the electricity industry (Note 3).

In general, the corporate purpose of the subsidiaries consists of the production, switching, distribution
and retailing of electricity and gas, the provision of telecommunication services and the performance
of real estate and other related activities in Spain and abroad.

IBERDROLA's registered address is at Plaza Euskadi 5, in Bilbao.

11
2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

a) Applicable accounting legislation

The IBERDROLA Group’s 2014 Consolidated financial statements were prepared by the directors on
17 February 2015, in accordance with International financial reporting standards (hereinafter, IFRS),
as adopted by the European Union, in conformity with Regulation (EC) no. 1606/2002 of the European
Parliament and of the European Council. The directors of IBERDROLA expect these Consolidated
financial statements to be approved at the General Shareholders’ Meeting without modification.

The IBERDROLA Group’s 2013 Consolidated financial statements were approved at the General
Shareholders’ Meeting on 28 March 2014.

These Consolidated financial statements have been prepared on a historical cost basis, except for
available-for-sale financial assets and derivative financial instruments, which have been measured at
fair value. The carrying amounts of assets and liabilities hedged by fair value hedges are adjusted to
reflect variations in their fair value as a result of the risk hedged.

The accounting policies used in the preparation of these Consolidated financial statements correspond
with those used for the year ended 31 December 2013, except for the application, from January 1
2014, of the following standards, amendments and interpretations published by the International
Accounting Standards Board (IASB) and the IFRS Interpretations Committee and adopted by the
European Union for its use in Europe:

- IFRS 10: "Consolidated financial statements", IFRS 11: "Joint arrangements", IFRS 12:
“Disclosure of interests in other entities”, amendments to IAS 27: “Separate financial statements”,
amendments to IAS 28: “Investments in associates and joint ventures” and amendments to IFRS
10, 11 and 12: “Application guidance”.

These standards and amendments were issued as a whole, and supersede the standards on
consolidation and accounting for investments in subsidiaries, associates and joint ventures that
were in force until 2013.

IFRS 10 amends the definition of “control”, and determines that an investor has control over an
investee only if it meets the following criteria: the investor must have power over the investee, the
investor is exposed to, or has a right to, variable returns from its involvement with the investee,
and the investor has the ability to use its power over the investee to affect the amount of the
investor’s returns.

IFRS 11 changes the analysis approach for joint arrangements and defines only two types of joint
arrangements: joint operation or joint venture. Joint ventures must be accounted for using the
equity method.

IFRS 12 brings within one standard all the requirements for disclosure of interests in other entities.

- Amendments to IAS 32: “Offsetting Assets and Financial Liabilities”.

These amendments have been introduced to clarify the requirements of the standard to offset
financial assets and liabilities when presented in the Consolidated statement of financial position.

- Amendments to IAS 39 and IFRS 9: “Novation of derivatives and continuation of hedge

accounting”:

The amendment indicates that novation of a hedging instrument should not be treated as a
discontinuation of the hedge when one or more clearinghouses replace the original counterparty.

12
Given the features and composition of the IBERDROLA Group’s investees the entry into force of IFRS
10 has not involved any change in the Group’s scope of consolidation.

However, as a result of application of IFRS 11 and the amendments to IAS 28, the IBERDROLA
Group no longer applies the proportional consolidation method to its joint ventures, defined as joint
arrangements whereby the parties that have joint control over the arrangement have rights only to the
net assets of the arrangement. Joint ventures are now accounted for by the equity method. Most of the
effect of applying the new rules lies in the change of criterion applicable to Neoenergía, S.A.
(“NEOENERGÍA”), the company through which the IBERDROLA Group holds interests in several
Brazilian energy firms.

As a result, in accordance with IAS 8: “Accounting Policies, Changes in Accounting, Estimates and
Errors”, the IBERDROLA Group modified the comparative information provided in these Consolidated
Financial Statements, presenting:

- The restated Consolidated statements of financial position for the year ended 31 December
2013 and 1 January 2013. Application of IFRS 11 entailed a total asset reduction of EUR
2,624,032 thousand and 2,693,524 thousand at 31 December 2013 and 1 January 2013,
respectively, as follows:

13
 Application 12.31.2013
Thousands of euros 12.31.2013 of IFRS 11 (restated)
NON-CURRENT ASSETS
Intangible assets 17,177,385 (1,184,379) 15,993,006
Investment property 580,744 (92,644) 488,100
Property, plant and equipment 52,760,069 (1,555,980) 51,204,089
Non-current financial assets 3,742,498 1,296,110 5,038,608
Non-current trade and other receivables 421,557 (55,594) 365,963
Deferred tax assets 6,610,292 (110,074) 6,500,218

CURRENT ASSETS
Assets held for sale 198,998 (95,057) 103,941
Nuclear fuel 387,649 (17,335) 370,314
Inventories 2,050,604 (24,830) 2,025,774
Current trade and other receivables 5,636,443 (397,014) 5,239,429
Current financial assets 1,135,466 (9,764) 1,125,702
Cash and cash equivalents 1,709,206 (377,471) 1,331,735

TOTAL ASSETS 92,410,911 (2,624,032) 89,786,879

EQUITY
Of shareholders of the parent 34,584,689 - 34,584,689
Of non-controlling interests 225,015 (71,922) 153,093
Subordinated perpetual obligations 550,814 - 550,814

NON-CURRENT EQUITY INSTRUMENTS

HAVING THE SUBSTANCE OF A FINANCIAL
LIABILITY 243,607 - 243,607

NON-CURRENT LIABILITIES
Deferred income 5,696,569 (14,001) 5,682,568
Provisions 4,248,936 (183,785) 4,065,151
Bank borrowings 25,922,016 (1,448,879) 24,473,137
Other non-current payables 622,221 (79,741) 542,480
Deferred tax liabilities 8,387,921 (52,309) 8,335,612

CURRENT EQUITY INSTRUMENTS HAVING THE

SUBSTANCE OF A FINANCIAL LIABILITY 85,686 - 85,686

CURRENT LIABILITIES
Liabilities related with assets held for sale 95,057 (95,057) -
Provisions 353,840 (59,399) 294,441
Bank borrowings 4,157,082 (178,258) 3,978,824
Trade and other payables 7,237,458 (440,681) 6,796,777

TOTAL EQUITY AND LIABILITIES 92,410,911 (2,624,032) 89,786,879

14
 Application of 01.01.2013
Thousands of euros 01.01.2013 IFRS 11 (restated)
NON-CURRENT ASSETS
Intangible assets 19,403,188 (1,326,854) 18,076,334
Investment property 519,566 (95,196) 424,370
Property, plant and equipment 53,422,953 (1,383,066) 52,039,887
Non-current financial assets 2,548,183 1,784,821 4,333,004
Non-current trade and other receivables 468,341 (82,777) 385,564
Deferred tax assets 4,514,951 (121,505) 4,393,446

CURRENT ASSETS
Assets held for sale 215,829 (83,547) 132,282
Nuclear fuel 310,442 (17,254) 293,188
Inventories 1,895,831 (37,772) 1,858,059
Current trade and other receivables 6,425,867 (493,538) 5,932,329
Current financial assets 4,047,323 (76,898) 3,970,425
Cash and cash equivalents 3,043,901 (759,938) 2,283,963

TOTAL ASSETS 96,816,375 (2,693,524) 94,122,851

EQUITY
Of shareholders of the parent 32,882,120 - 32,882,120
Of non-controlling interests 324,819 (77,183) 247,636

NON-CURRENT EQUITY INSTRUMENTS HAVING

THE SUBSTANCE OF A FINANCIAL LIABILITY 370,499 - 370,499

NON-CURRENT LIABILITIES
Deferred income 5,785,907 (22,753) 5,763,154
Provisions 3,928,340 (189,737) 3,738,603
Bank borrowings 28,851,208 (1,358,684) 27,492,524
Other non-current payables 515,660 (83,820) 431,840
Deferred tax liabilities 9,093,491 (67,792) 9,025,699

CURRENT EQUITY INSTRUMENTS HAVING THE

SUBSTANCE OF A FINANCIAL LIABILITY 106,882 - 106,882

CURRENT LIABILITIES
Liabilities related with assets held for sale 83,547 (83,547) -
Provisions 434,503 (61,823) 372,680
Bank borrowings 5,100,773 (272,000) 4,828,773
Trade and other payables 9,338,626 (476,185) 8,862,441

TOTAL EQUITY AND LIABILITIES 96,816,375 (2,693,524) 94,122,851

15
- The restated consolidated statement of income for 2013. Even though application of IFRS 11
does not affect net profit attributable to the Parent, it has caused a reduction in operating profit
and profit before tax of EUR 215,255 thousand and EUR 53,980 thousand, respectively,
broken down as follows:

Application of 12.31.2013
Thousands of euros 12.31.2013 IFRS 11 (restated)

Net revenue 32,807,922 (1,730,810) 31,077,112

Procurements (20,231,179) 935,958 (19,295,221)

Staff costs (2,385,640) 165,347 (2,220,293)

Capitalised staff costs 494,170 (16,231) 477,939
Outside services (2,316,699) 196,786 (2,119,913)
Other operating income 412,988 (17,594) 395,394

Taxes other than Income Tax (1,576,523) 18,415 (1,558,108)

Amortisation and provisions (4,770,326) 232,874 (4,537,452)

OPERATING PROFIT 2,434,713 (215,255) 2,219,458

Result of companies accounted for using the equity

method - net of taxes 72,195 132,770 204,965
Finance income 828,401 (132,783) 695,618
Finance cost (2,120,396) 146,831 (1,973,565)
Gains on disposal of non-current assets 32,112 (3,823) 28,289
Losses on disposal of non-current assets (56,990) 18,280 (38,710)

PROFIT BEFORE TAX 1,190,035 (53,980) 1,136,055

Income Tax 1,423,602 43,140 1,466,742

NET PROFIT FOR THE YEAR 2,613,637 (10,840) 2,602,797

Non-controlling interests (16,019) 10,840 (5,179)

Subordinated perpetual obligations owners (25,814) - (25,814)

NET PROFIT FOR THE YEAR ATTRIBUTABLE TO THE

PARENT 2,571,804 - 2,571,804

16
The impact on the Consolidated statement of cash flows for the year ended 31 December 2013 was
as follows:

Thousands of euros
Increase/(Decrease)
Net cash flows from operating activities (90,322)
Net cash flows from investing activities 519,608
Net cash flows from financing activities (126,819)
Effect of changes in exchange rates on cash and cash equivalents 80,000
Net increase in cash and cash equivalents 382,467

The rest of standards referred to above had no material impact on these Consolidated financial
statements.

On the other hand, at the date these Consolidated financial statements were authorised for issuance,
the following standards, amendments and interpretations had been issued, all of which are effective
subsequent to 31 December 2014:
Mandatory application:
annual periods
Standard beginning on or after
2010-2012 annual improvements to several standards At 1 February 2015
2011-2013 annual improvements to several standards At 1 January 2015
Amendments to
IAS 19 Defined benefit plans: employees’ contributions At 1 February 2015
IFRIC 21 Levies At 1 January 2015
IFRS 14 Regulatory deferral accounts At 1 January 2016
Amendments to
IFRS 11 Acquisition of an interest in a joint operation At 1 January 2016
Amendments to
IAS 16 and 38 Acceptable methods of depreciation and amortisation At 1 January 2016
Amendments to
IAS 27 Equity method in separate financial statements At 1 January 2016
Amendments to
IAS 28 and IFRS Sales or contributions of assets between an investor and its
10 associate/joint venture At 1 January 2016
2012-2014 annual improvements to several standards At 1 January 2016
Amendments to
IAS 1 Disclosure initiative At 1 January 2016
Amendments to
IFRS 10, IFRS 12
and IAS 28 Investment Entities: exemption of consolidation At 1 January 2016
IFRS 15 Revenues from contracts with customers At 1 January 2017
IFRS 9 Financial instruments At 1 January 2018

As of the issue date of these Consolidated financial statements the European Union has only adopted
IFRIC 21, amendments to IAS 19 and the improvements to various standards of the 2010-2012 and
2011-2013 cycles.
The IBERDROLA Group has not, for the purpose of preparing these Consolidated financial statements,
made early application of any published standard, interpretation or amendment that has not yet come
into force.

17
The IBERDROLA Group is currently analysing the impact of applying the approved standards,
interpretations and amendments, the application of which is not mandatory for the year ended 31
December 2014. In regards to IFRS 15 and IFRS 9 specifically, such analysis will continue throughout
2015 given the complexity of these two standards. As to the rest of standards, the IBERDROLA Group
believes that their application would not have had a material impact on these Consolidated Financial
Statements, and, furthermore, will not have a material impact when they are applied.

b) Basis of consolidation

The appendix to these Consolidated Financial Statements lists all IBERDROLA subsidiaries, jointly
controlled entities and associates, together with the consolidation or measurement basis used and
other related disclosures.

The subsidiaries over which the IBERDROLA Group exercises control are fully consolidated, except
when they are scantily material with respect to presenting fairly the financial statements of the
IBERDROLA Group.

The IBERDROLA Group considers that it controls a company when it is exposed, or has a right, to
variable returns from its involvement in the company and has the capacity to influence such yields
through that control. For the purposes of these Consolidated financial statements, it is considered that
the Group has control over the companies that are more than 50% owned by it and whose control can
be proved. The appendix to these consolidated financial statements shows the companies that are
less than 50% owned and fully consolidated and those which are more than 50% owned but are not
fully consolidated.

The joint ventures in which the IBERDROLA Group invests were measured by the equity method.

The associates over which the IBERDROLA Group does not exercise control, but does have a
significant influence on are accounted for in the Consolidated statement of financial position by the
equity method. For the purposes of these Consolidated financial statements, it is considered that a
significant influence is exercised over companies in which the Group has an ownership of over 20%
and it can be proved that such significant influence exists.

Despite having a stake of less than 20% in Gamesa Corporación Tecnológica, S.A. (“GAMESA”),
IBERDROLA believes that it has a significant influence over the company, among other reasons,
because IBERDROLA is the leading shareholder and has two directors on a board of ten; and by the
fact that there are significant transactions between both companies.

The appendix to these Consolidated financial statements sets out disclosures on companies in which
the Group has an interest of less than 20% but which have been consolidated by the equity method,
and on companies in which the Group has an interest of more than 20% but less than 50% that have
not been consolidated by the equity method.

At 31 December 2014 and 2013, there were no significant restrictions regarding the Group's capacity
to access or use the assets and liquidate the liabilities of the subsidiaries, joint ventures or associates,
particularly those related to the transfer of cash, dividends or other capital distributions, except the
restrictions imposed by the financial loans regarding the dividend distribution described in Note 25.

The closing date of the Financial statements of subsidiaries, joint ventures and associates is 31
December. These companies’ accounting policies are the same as or have been conformed to those
used by the IBERDROLA Group.

The Financial statements of each of the foreign companies have been prepared in their respective
functional currencies, defined as the currency of the economic environment in which each company
operates and in which it generates and uses cash.

18
The operations of the IBERDROLA Group are consolidated in accordance with the following basic
principles:

1. On the acquisition date, assets, liabilities and contingent liabilities of a subsidiary are
recognised at fair value. Any excess of the subsidiary´s acquisition cost over the market value
of its assets and liabilities is recognised as goodwill, as it corresponds to assets that cannot be
separately identified and measured. If the difference is negative, it is recognised as a credit to
income in the Consolidated income statement.

2. The results of the subsidiaries acquired or disposed during the year are included in the
Consolidated income statement from the effective date of acquisition or until the effective date
of disposal.

3. Gain or losses on acquisitions from non-controlling interests in companies over which the Group
exercises control and sales transactions without loss of control are recognised against or
credited to reserves.

4. The result of accounting for investments using the equity method is classified under "Other
reserves" and "Result of companies accounted for using the equity method-net of taxes" in the
Consolidated statement of financial position and in the Consolidated income statement,
respectively.

5. The interest of minority shareholders in the equity and the results of the fully consolidated
subsidiaries is presented under "Equity – of non-controlling interests" on the liability side of the
Consolidated statement of financial position and "Non-controlling interests" in the Consolidated
income statement, respectively.

6. The financial statements of foreign companies were converted to euros using the year-end
exchange rate method. This method consists of converting to euros all the assets, rights and
obligations at the exchange rates prevailing at the date of the Consolidated financial statements;
the Consolidated income statement items at the average exchange rates for the year; and
equity at the historical exchange rates at the date of acquisition (or in the case of retained
earnings at the average exchange rates for the year in which they were generated provided that
there are no significant transactions that make the use of the average exchange rate
inappropriate), as appropriate. The resulting exchange differences are taken directly to reserves.

7. All balances and transactions between the fully consolidated companies have been eliminated
in the consolidation process. Gains or losses on transactions with associates and joint ventures
are eliminated in proportion to the percentage ownership of the companies concerned.

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

IBERDROLA and some of the Group companies carry out electricity activities in Spain and abroad
(see the appendix to these Consolidated financial statements) that are heavily influenced by the
regulatory frameworks. Below is a summary of the main regulations affecting the IBERDROLA Group
(the management report describes them in detail).

3.1. European Union

The EU member states in which IBERDROLA is present, mainly the UK and Spain, must comply with
the EU regulations.

19
The regulations that have a more direct effect on the energy sector are those aimed at creating single
gas and electricity markets, so that any EU consumer can freely arrange their energy contracts with
any EU suppliers. The regulations have two main action areas: (i) the directives, which establish the
common criteria that must be met by the national markets and which the member states have to
transpose into their national regulations for implementation; and (ii) the regulations, which set out the
rules for the supranational issues, especially those related to gas transportation and electricity
transmission, which are directly implemented.

Another regulation which has an indirect but very significant effect deals with the energy and the
environmental policy approved in 2007, especially related to the fight against climate change. The
European Union has assumed the commitment to reduce greenhouse gas emissions (GGE); to do this,
it has enacted a regulation aimed at stimulating energy efficiency, fostering renewable energy and
establishing emission allowances trading, which condition the action framework for the national energy
policies. In January 2014, the European Commission published a communication on the future of the
European framework for climate change and energy for 2030, opening a debate which will help to
adopt specific measures.

At the European Council of October 2014, new targets for 2030 were agreed, in particular a reduction
of 40% of the GGE compared to 1990, a share of 27% in renewable energies and a reduction of
consumption of 27%. Moreover, it was agreed to ensure that the exchange capacity among countries
will be at least a 10% of the installed power for 2020. The standards arising from these agreements
are still not developed.

3.2. Spain

The electricity sector is currently regulated by Electricity Industry Law 24/2013 of 26 December. That
regulation establishes, among others, the following principles:

 separation of activities (legal, functional, brand and image and accounting),

 competition in the power generation activity, retail activities and in the energy recharge
services,

 the remuneration scheme for renewable, cogeneration and waste that participated in the
former special regime, will be based on their market participation, supplementing these
revenues, where applicable, with a specific regulated remuneration,

 regulated remuneration for the distribution and transmission activities,

 guarantee of proper functioning of the system (including a system operator and market
operator and binding planning to the transmission grid, or a regulated transmission grid plan),

 third-party access to the transmission and distribution facilities. Every supplier has to pay a
regulated access toll in order to finance regulated remunerations,

 minimum service quality levels,

 capacity mechanisms with the objective of providing the system with a suitable coverage
margin and promoting the availability of manageable power,

 all the clients in Spain are free to choose their electricity supplier, although there is a Voluntary
Price for Small Consumers (PVPC), i.e., a regulated price which can be used by clients with a
contracted capacity of up to 10 kW, and

 vulnerable consumer: linked to certain social, consumption and purchase power

characteristics. The law establishes convenient measures to grant an appropriate protection to
these consumers that will have the right to a reduced tariff (last resort tariff) calculated as the
PVPC less tariff subsidy. That tariff will be charged to integrated corporate groups and will
apply to any natural person in his first home.

20
In the last few years, the access tariff revenues were insufficient for recouping the regulated costs
(transmission and distribution remuneration, subsidies to renewables, cogeneration and waste, etc.),
so there was a revenue shortfall that was financed temporarily by some electricity companies and was
recovered through the access tariffs in the subsequent years. That deficit was assigned to financial
institutions through a mechanism that had the State's guarantee until January 2013. To solve that tariff
gap, the Electricity Industry Law establishes the principle of economic and financial sustainability of
the electricity system and includes limits to future deficits.

On the other hand, the natural gas industry in Spain has experienced significant structural and
operational changes in the last 10 years due mainly to the deregulation measures of the EU directives
instituting common rules for the internal market in natural gas (Directive 2009/73/EC is currently in
force), aimed at opening the markets and creating a single European gas market. Such liberalisation
principles were included and implemented in the Spanish Hydrocarbons Law 34/1998.

As in the electricity industry, all the clients in Spain can freely choose their gas supplier, although there
is a last resort rate, i.e., a regulated price which can be used by clients with an annual consumption of
under 50,000 kWh of low pressure natural gas.

In 2014, a number of provisions were approved that affect the energy industry. The main ones are as
follows:

- Order IET/107/2014, which revises the electricity access tolls for 2014. Firstly, there is a
change in the weighting of the fixed part of the access tolls (payable based on the capacity
contracted) which now amounts to 60% of the tariffs.

- Order IET/346/2014, amending Order IET/2013/2013 of 31 October, which regulates the

competitive mechanism assigning the interruptibility demand management service.

- Tariff subsidy:

o Order IET/350/2014 of 7 March, which establishes the distribution percentages of the

amounts to be financed with regard to the tariff subsidy for 2014 by the parent
companies of the groups or, where applicable, by the companies that perform
electricity production, distribution and trading activities simultaneously. According to
this Order, Iberdrola, S.A. is responsible for financing 38.47%.

o Royal Decree 968/2014, of 21 November, which includes the methodology to set the
percentages to distribute annually the amounts to be financed, related to the tariff
subsidy. This percentage will be calculated by the National Market and Competition
Commission for each corporate, taking into account the number of customer that each
wholesale company has.

- Royal Decree 216/2014 of 28 March, which establishes the method for calculating the
voluntary prices for the small consumers (PVPC) of electricity and their legal regime. It sets
out the procedure for calculating the electricity production cost based on the hourly price of the
daily market during the billing period. As established in Law 3/2014, consumers can also
arrange contracts with the reference trading company based on a fixed energy price for one
year.

- Royal Decree 413/2014, which regulates the electricity production activity based on
renewables, cogeneration and waste, establishes the method for the specific remuneration
system which will be applied to the facilities that do not reach the minimum level required for
meeting the costs that will enable them to compete on an equal basis with the other
technologies in the market, obtaining a reasonable return on the standard facilities applicable
in each case.

21
 - Order IET/1045/2014 where the new retribution parameters of each installation type are
approved, applicable to certain electric energy production facilities that use renewable,
cogeneration and energy resources for the first regulatory semi period which ends at 31
December 2016.
- The Law 18/2014, which includes urgent measures for growth, competitiveness and efficiency.
In the energy field, it develops measures addressed to guarantee sustainability, and
accessibility in the hydrocarbons market and to establish a system that provides energy
efficiency in line with the European guidelines.

o Regarding the gas system, the principle of economic and financial sustainability,
reinforced with the obligation to revise automatically the corresponding access tariffs
and rents if they exceed certain limits.

o Regarding the energy efficiency, it structures mechanisms to achieve energy savings

established in the directive which deals with the energy efficiency. Consequently, it
stipulates the creation of a National facility for the energy efficiency managed by the
Institute for Energy Diversification and Saving (IDAE) and financed by contributions
made by marketers depending on their sales: wholesale companies of gas and
electricity, oil products and liquefied gas coming from oil operators.

- Tariff deficit:

o Royal Decree 1054/2014 which regulates the procedure of transfer of the receivables
of the 2013 deficit electrical system and the methodology for calculating the interest
rate for accrued receivables of this deficit is developed and, where appropriate, the
negative subsequent temporary imbalances. From the entry into force of this Royal
Decree the receivables for the 2013 deficit may be fully or partially transferred.

o Finally, on 15 December 2014 the electricity companies signed the debt assignment
agreement with five banks (BBVA, Bankia, CaixaBank, Popular Bank and Santander)
and the transfer of the 2013 deficit occurred.

3.3. United Kingdom

The main laws governing the energy activities in the UK are the Electricity Act 1989 (hereinafter,
Electricity Act) and Gas Act 1986 (hereinafter, Gas Act), which were substantially amended and
completed by numerous subsequent provisions, including the Gas Act 1995, Utilities Act 2000, Energy
Act 2004, Energy Act 2008 and several EU directives. Certain features of the Energy Act 2008 and
Energy Act 2010, as well as the third package of EU Directives, are currently being implemented. A
new Energy Act was presented to the UK Parliament in November 2012 and was finally approved at
the end of 2013 (Energy Act 2013).

In December 2010, the UK government set up the Energy Market Reform (hereinafter, EMR) to
decarbonise electricity generation, ensure continuing security of supply and maintain affordability. The
EMR is based on four features: the introduction of a price floor for the CO2 emitted by the technologies
which will materialise through a tax on the fossil fuels used for generating electricity; a new incentive
for the technologies that do not emit greenhouse gases which will materialise in "contracts for
difference" (the Renewable Obligations system will probably remain until April 2017); payments for
reliable capacity to be available to all the renewable power plants; and an Emissions Performance
Standard, which provides a back-stop to limit CO2 emissions from unabated power stations. The White
Paper with the initial proposals open for debate in July 2011 was followed by other technical and
consultation documents, a process which continued in 2012 and culminated with the new law
approved in 2013.

22
The Green deal is the standard for the UK Coalition Government’s energy efficiency policy and the
cornerstone for the Energy Security and Green Economy Bill. The Green Deal is aimed at reducing
consumers' energy bills by improving energy efficiency in households and was implemented in 2013
but few have taken it up so far. The ECO (Energy Companies Obligation) programme replaced
previous initiatives for improving energy efficiency in vulnerable households and will be in force from 1
January 2013 to 31 March 2015.

Moreover, the previous remuneration for the transmission grids (linked to the CPI-X systems) is being
replaced by the new RIIO (Revenue set to deliver strong Incentives, Innovation and Outputs)
framework, which will affect regulatory periods of 8 years. In that sense, the RIIO-T1 framework has
entered into force for the transmission assets for the 2013-2021 period. The distribution controls were
adapted to the RPI-X in April 2010 (Distribution Price Control Review 5). The revision within the RIIO
framework is nearly complete and there will be a new control from April 2015 to March 2023. The
energy distribution grid of Scottish Power Limited (hereinafter, SCOTTISH POWER) was not fast-
tracked and, in March 2014, the company submitted the business plan for its two distribution areas to
OFGEM. After its assessment, OFGEM issued a new decision on the new controls on 28 November
2014. Once OFGEM implements the new licence conditions, the two licensees must decide on
whether they accept the controls or exercise their right to lodge an appeal at the CMA. On the other
hand, the framework for the distribution grid that will be operational in the period 2015-2023 (RIIO –
ED1) is still under discussion. Currently the DPCRs framework is in force.
In November 2010, OFGEM announced a Retail Market Review, which was aimed at improving the
retail energy market operations in the UK. The UK government's EMR programme was substantially
implemented during 2014. Its main features are as follows:
- a new incentives system which is based on contracts for difference; and
- a capacity mechanism to guarantee security of supply.

3.4. United States

Iberdrola USA’s revenues are essentially regulated, being based on tariffs established in accordance
with administrative procedures negotiated with the various regulatory bodies. The tariffs applied to the
regulated activities in the US are approved by the regulatory commissions of the various states and
based on the service costs. Each regulated company's revenues must be sufficient for meeting its
operating costs, including energy, financial and capital expenses; the latter shows the company's
capital ratio and a "fair" return on own capital.

The main new features during the year were as follows:

- A tariff review at Central Maine Power Co. (hereinafter, CMP). In June 2014, CMP and the
Maine regulatory body (MPUC) reached a tariff review agreement for one year.
- Return on equity (hereinafter, ROE) of the transmission grids of the Federal Energy
Regulatory Commission (hereinafter, FERC). In June 2014, the FERC published the Order on
the request to reduce the ROE applied to the New England transmission facilities submitted by
a group of New England bodies headed by the Massachusetts Attorney General.
In that Order, the FERC amended the ROE calculation method by applying the one used for
the gas and oil sectors. The FERC decided to establish a 10.57% base ROE, with a minimum
limit of 7.04% and a maximum limit of 11.74%.

The ROE for the CMP's MPRP project was established with the maximum limit, i.e., 11.74%.

23
In the renewables sector, many state governments and the Federal government adopted measures
and implemented numerous regulations to foster electricity production based on renewables. The
state programmes are mainly in the form of (1) Renewable Portfolio Standards, which require
companies to generate or buy a minimum amount of renewable energy, and (2) tax credits. To date,
the Federal government has supported renewable energy mainly through production and investment
tax credits and accelerated depreciation. The production tax credits (PTCs) were recently modified,
extending the period in which they were in force to a year, and they will be applicable to project which
construction started before 2015. These PTCs can be transformed into grants for 30% of the
investment amount (Investment Tax Credit, ITC).

3.5. Brazil

The regulatory framework for the Brazilian electricity distribution system is based on maximum tariffs
that are reviewed every four or five years, depending on each company's concession contract, and are
updated annually by the regulator. In November 2011, the regulator published the terms for the third
regulatory cycle, which will be valid until early 2015. Those terms were applied to Elektro Electricidade
e Serviços, S.A. (hereinafter, ELEKTRO) in August 2012 (with retroactive effect to August 2011) and
to the NEOENERGIA companies in April 2013.

The method for the fourth regulatory cycle will be applied to ELEKTRO in August 2015. In June 2014,
ANEEL began the debate on the fourth tariff review cycle by starting a public hearing, which includes
changes to the method for calculating the operating costs, the capital remuneration (WACC), the
regulatory asset base (RAB), the non-recoverable revenues and the distribution losses. For the fourth
cycle, we expect a capital return similar to the current rate and the inclusion of a service quality factor
and the non-technical distribution losses in the calculation for estimating the distributor's efficient
operating costs. The public hearing's results are expected in the first quarter of 2015.

For the electricity generation business, the new model for the Brazilian electricity sector introduced in
2004 made the government responsible for guaranteeing planning and adequate expansion of the
supply of energy to the system, eliminating the risk of further rationing. This expansion is being
pursued via public tendering of generation projects in which the successful bidder is the supplier that
offers the lowest price in Brazilian reals per MWh generated, in exchange for which the bidder is
awarded a concession or permit for between 20 and 35 years (depending on the technology) to
operate the power station under a sale contract and at a price that is predetermined at the time of the
tender.

3.6. Mexico

The Mexican regulatory framework is very stable. The IBERDROLA Group is the largest private
energy company in Mexico thanks to its combined cycle and cogeneration facilities (selling energy to
the Federal Energy Commission and supplying directly to the industrial companies) and its
investments in renewables.

The Mexican regulatory framework is currently being transformed due to the energy reform that began
at the end of 2013. This transformation is aimed at opening up the energy sector to private investment
in the activities that were previously reserved for the State. It also respects the previous regulatory
framework through transitional provisions applicable to the existing businesses and facilities, which
provides stability and legal certainty to the Mexican regulatory context.

Mexico approved the development and financing of renewable energy in the Law for the development
of renewable energy and energy transition financing in November 2008, establishing a nationwide
strategy and financing the instruments to foster the installation of electricity generation based on
renewables. This law especially fostered the development of wind power, and the IBERDROLA Group
was awarded several wind projects.

24
Moreover, the Electricity Industry Law (LIE) was enacted in August 2014 and repealed the Electricity
Public Service Law (LSPEE), which had been in force since 1975, moving towards privatizing
electricity sector. The LIE regulates the electricity activities in Mexico, including electricity generation,
which was previously reserved solely to the Mexican State and has now been opened up to private
companies so that they can generate electricity in a more flexible way. Likewise, the LIE gives
individuals the opportunity to trade electricity.

4. ACCOUNTING POLICIES

a) Goodwill

Goodwill represents future economic benefits arising from other assets acquired in a business
combination that are not individually identified and separately recognized.

Goodwill arising from acquisitions of companies with a functional currency other than the euro is
converted to euros at the exchange rate prevailing at the reporting date of the Consolidated statement
of financial position.

Goodwill acquired on or after 1 January 2004 is measured at acquisition cost and that acquired earlier
is measured at the carrying amount at 31 December 2003 in accordance with Spanish GAAP and as
provided in IFRS 1: “First-time adoption of International Financial Reporting Standards”.

Goodwill is not amortised. However, at the end of each reporting period goodwill is reviewed for its
recoverability and any impairment is written down (see Note 4.i).

b) Other Intangible assets

Concessions, patents, licenses, trademarks and others

The amounts recognised as concessions, patents, licenses, trademarks and others relate to the cost
incurred in their acquisition.

The electricity distribution and transmission concessions held in UK by SCOTTISH POWER and those
linked to the activities of Iberdrola USA, Inc. (hereinafter, IBERDROLA USA), are not subject to any
limits of a legal or other nature. Accordingly, as intangible assets with an indefinite useful life, they are
not amortised by the IBERDROLA Group, although they are assessed for signs of impairment each
year, as described in Note 4.i.

This heading also includes the concession that will permit the IBERDROLA Group to build the hydro-
electric complex in Alto Támega, Portugal.

On the other hand, IFRIC 12: “Service concession arrangements” concerning public-private service
concession arrangements that meet two prerequisites:

 the grantor controls or regulates which services the operator must provide using the assets, to
whom, and at what price; and

 the grantor controls any significant residual interest in the infrastructure at the end of the term of
the arrangement.

Infrastructure within the scope of a service concession arrangement is not recognised as property,
plant and equipment of the operator, because the operator does not have the right to control the use
of the infrastructure.

25
If the operator performs more than one service (i.e. operation services and construction or upgrade
services), the consideration received under the agreement for provision of services is recognised
separately in the Consolidated income statement, pursuant to the standards applicable in each case,
IAS 18: “Revenue recognition” and IAS 11: “Construction contracts”.

IFRIC 12 mainly affects the electricity distribution activities carried out by the IBERDROLA Group in
Brazil. Remuneration for network construction and upgrade work carried out by the IBERDROLA
Group in this country consisted, on the one hand, of an unconditional right to receive cash and, on the
other hand, of the right to charge certain amounts to consumers. As a result, by applying IFRIC 12,
two different assets were recognised for the two types of consideration received:

 A financial asset, which is recognised under "Other non-current financial assets" in the
Consolidated statement of financial position (Note 13.c).

 An intangible asset, amortisable in the concession period, which is recognised under "Other
intangible assets" in the Consolidated statement of financial position (Note 8).

The costs incurred in relation to the other items included under this heading in the Consolidated
statement of financial position are amortised on a straight-line basis over their useful lives, between
five and ten years.

Computer software

The acquisition and development costs incurred in relation to the computer software are recorded with
a charge to “Other intangible assets” in the Consolidated statement of financial position.

Maintenance costs of computer software are recorded with a charge to the Consolidated income
statement for the year in which they are incurred.

Computer software is amortised on a straight-line basis over a period of between three and five years
from the entry into service of each asset.

Other intangible asset

This heading includes, amoung other items, wind farm projects in the development phase which meet
the identifiability requirement under IAS 38: “Intangible assets”, as they are separable and susceptible
to individual sale and are carried at acquisition cost. The IBERDROLA Group transfers these assets to
“Property, plant and equipment” in the Consolidated statement of financial position when construction
of each wind farm commences.

Research and development expenditure

The IBERDROLA Group’s policy is to record research expenses in the Consolidated income statement
for the period when they are incurred. The Consolidated income statements for the years ended 31
December 2014 and 2013 recognised EUR 170,450 thousand and EUR 159,252 thousand,
respectively, for this connection.

Development costs are recognised as an intangible asset on the Consolidated statement of financial
position if the IBERDROLA Group can identify them separately and show the technical viability of the
asset, its intention and capacity to use or sell it, and how it will generate probable future economic
benefits.

c) Investment property

Investment property is recognised at acquisition cost and its carrying amount represents 0.87% and
0.94% of the IBERDROLA Group's total property, plant and equipment at 31 December 2014 and
2013, respectively.

26
Investment properties are depreciated on a straight-line basis, minus material residual value, over
each asset’s estimated useful life which ranges between 50 and 75 years based on the features of
each asset concerned.

The investment property owned by the IBERDROLA Group relates primarily to properties earmarked
for lease. The rental income earned in 2014 and 2013 from the lease of investment property amounted
to EUR 21,230 thousand and EUR 20,897 thousand, respectively. These amounts are presented
under “Net revenue” in the Consolidated income statements. These amounts represented
approximately 0.07% of the net amount of the Group's revenues in 2014 and 2013.

Direct operating expenses arising on the investment property in 2014 and 2013 are not material.

The fair value of the IBERDROLA Group’s investment properties is disclosed in Note 9. The fair value
is determined on the basis of appraisals by independent valuers commissioned each year.

To determine the fair value and the net realisable value of the Group's properties, it engaged Knight
Frank España, S.A. to issue appraisals as at 31 December 2014 and 2013.

The assets have been individually appraised and not as part of a property portfolio.

In general, fair value is determined by referring to the benchmark values of valuations performed by
independent valuers according to the Valuation Standards and Valuer's Guide of the Royal Institution
of Chartered Surveyors (RICS) of Great Britain.

Discounted cash flow was used to calculate fair value, comparing where possible the amounts with
peer valuations to reflect the market paradigm and prices at which transactions involving similar assets
are being carried out.

The discounted cash flow method involves estimating possible net cash flows that a property could
generate over a period, and considering the residual value of the asset at the end of the period. Cash
flows are discounted at a target internal rate of return considered appropriate to each asset in order to
reflect the urbanistic, construction and commercial risk.

For leased property, the key variables and assumptions used in the discounted cash flow analysis are:

 Net income from ownership over a specific period of time, bearing in mind the initial
contractual situation, changes in tenants and expected rent, retailing expenses, disposal costs
(variable percentage of 1%-3% depending on the selling price), etc.

 The discount rate or internal rate of return adjusted to reflect the investment risk based on
location, occupancy, quality of tenant, age of the property, etc.

 The disposal return, which consists of an estimate of the exit (sale) price of the property
applying an estimated of the value at the end of transaction considering criteria of
obsolescence, liquidity returns and market uncertainty.

27
For leased properties without as many variables, with long-term leases, 10 years or longer and a
single tenant, the cost or income capitalisation approaches are used. This method entails the
capitalisation to perpetuity of the contractual rent using a rates subsidy that factors in all the potential
market risks.

d) Property, plant and equipment

Property, plant and equipment are stated at their acquisition cost, modified, when appropriate, as
follows:

 Prior to the transition to IFRSs (1 January 2004), the IBERDROLA Group revalued certain
Spanish assets under “Property, plant and equipment” in the Consolidated statement of
financial position as permitted by the applicable legislation, including Royal Decree-Law
7/1996, and considered the amount of these revaluations as part of the cost of the assets, in
accordance with IFRS 1.

 In case that the IBERDROLA Group is required to dismantle facilities or to recondition the site
on which they are located, the present value of such costs is added to the carrying amount of
the asset, based on their net present value, with a credit to “Provisions - Other provisions” in
the Consolidated statement of financial position (Note 4.r).

The IBERDROLA Group periodically reviews its estimates of this present value and increases
or reduces the carrying amount of the assets on the basis of the results obtained.

On the other hand, the cost of acquisition includes the following items:

1. Finance costs relating to external funding accrued exclusively during the construction period, are
determined as follows:

a) The interests accrued by specific-purpose sources of financing used to build certain

assets are fully capitalised.

b) The interests accued by general-purpose borrowings is capitalised by applying the

average effective interest rate on this financing to the average cumulative investment
qualifying for capitalisation, after deducting the investment financed with specific-
purpose borrowings, provided that it does not exceed the total finance costs incurred
in the year.

The average capitalisation rates used in 2014 and 2013 was 3.56% and 2.52%, respectively
(Note 41).

2. Staff costs relating directly or indirectly to construction in progress (Note 35).

The IBERDROLA Group transfers property, plant and equipment under construction to property, plant
and equipment in use at the end of the related trial period.

The costs of expansion or improvements leading to increased productivity or capacity or to a

lengthening of the useful lives of the assets are capitalised.

Replacements or renewals of complete items are recorded as additions to property, plant and
equipment, and the items replaced are derecognised.

Gains or losses arising on the disposal of items of property, plant and equipment are calculated as the
difference between the amount received on the sale and the carrying amount of the asset disposed of.

28
e) Depreciation of property, plant and equipment in use

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

Average years
of estimated
useful life

Conventional fossil-fuel plants 25 – 50

Combined cycle plants 35
Nuclear plants 40
Windfarms 25
Gas storage facilities 25 – 40
Transmission facilities 40 – 56
Distribution facilities 30 – 54
Conventional meters and measuring devices 15 – 27
Electronic or smart meters 10 – 20
Buildings 50 – 75
Dispatching centres and other facilities 4 – 50

As hydroelectric plants are operated under concessions (Note 11), the depreciation of civil engineering
assets is performed over the life of the concession, while its electromechanical equipment is
depreciated over the lower of the concession period or 35 years.

f) Leases

The IBERDROLA Group classifies as finance leases all arrangements under which the lessor transfers
to the lessee substantially all the risks and rewards incidental to ownership of the asset. All other
leases are classified as operating leases.

Assets acquired under finance leases are recognized as non-current assets in accordance with their
nature and function. Assets are measured at the lower of the fair value of the leased asset and the
present value of the future lease payments, and it is amortised by the useful life of each asset.

The expenses arising from operating leases are allocated to the Consolidated income statement on an
accrual basis over the life of the lease agreement.

g) Nuclear fuel

The IBERDROLA Group measures its nuclear fuel stocks on the basis of the costs actually incurred in
acquiring and subsequently processing the fuel.

Nuclear fuel costs include the finance charges accrued during construction, calculated as indicated in
Note 4.d (Note 41).

The nuclear fuel consumed is recognised under “Procurements” in the Consolidated income statement
from when the fuel loaded into the reactor starts to be used, based on the cost of the fuel and the
degree of burning in each reporting period.

h) Inventories

Energy resources

Energy resources are measured at acquisition cost, calculated using the average weighted price
method, or net realisable value, if the latter is lower.

29
No adjustments to the value of energy sources that are part of the production process are made if it is
expected that the finished products into which they will be incorporated will be sold at above cost.

Real estate inventories

The real estate inventories were measured at acquisition cost, which includes both the acquisition cost
of the land and the costs of urban infrastructures and construction of real estate developments
incurred until the year end. These costs include those incurred by the architecture and construction
departments.

The acquisition cost also includes financial expenses to the extent that such expenses relate to the
period of town planning permits, urbanisation or construction up until the time at which the land or plot
is ready for operation, calculated using the method set out in Note 4.d (Note 41).

Commercial costs are charged to the Consolidated income statement on an accrual basis.

The IBERDROLA Group periodically compares the cost of acquisition of real estate inventories with
their net realisable value, recognising the necessary impairment losses with a charge to the
Consolidated income statement when the latter is lower. If the circumstance leading to the valuation
adjustment no longer exists, it is reversed recognising the corresponding income.

For land, construction in progress and unsold units, net realisable value is used taking into account the
appraisals by independent experts. Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs to finish the production and the necessary costs to carry
on with the sale of the element.

This value is determined using the residual method, where the estimated total cost of the work, is
deducted from the gross value of the completed project, and the allowance for developer’s risk and
profit is added. The key variables of the residual method are:

 The total cost of the development, comprising the potential value of development at the
valuation date based on the best estimates of independent valuers.

 The cost of the development, including all disbursements to be made by the developer of the
work depending on the type (e.g. government-sponsored or private single-family dwellings)
and quality of the construction. In addition to the cost of the work, it includes the cost of
projects and licenses (10%-12% of the physical construction project), legal fees (1%-1.5% of
the material implementation project), marketing and promotional expenses (2%-4% of income)
and unforeseen contingencies (3% of income).

 The developer profit considered for each asset, depending on the zone state of the land, size
and complexity of the development, ranging from 18% to 25% of total costs.

For land with licences, construction in progress and unsold units, the main difference with regard to
unlicensed land is the developer profit, which in this case is lower given the stage of completion of the
work and the decrease in risk as the completion of construction nears.

The heading “Net revenue” in the 2014 and 2013 Consolidated financial statements includes EUR
16,090 thousand and EUR 15,116 thousand, respectively, relating to sales of real state. These
amounts represent the 0.05% and 0.05% of the IBERDROLA Group´s total revenue at those dates.

30
Emission allowances

Emission allowances inventories are valued at acquisition cost, calculated using the average weighted
price method, or net realisable value, if the latter is lower.

Emission allowances which are incorporated into the production processes are not impaired if the
finished products obtained as a result of those processes are sold over their cost.

Emission allowances acquired for the purpose of benefiting from fluctuations in their market price are
measured at fair value with a credit or debit to the Consolidated income statement.

Emission allowances are derecognised from the Consolidated statements of financial position when
they are sold to third parties, have been delivered or expire. When the allowances are delivered, they
are derecognised with a charge to the provision made when the CO2 emissions were produced.

i) Non-Financial assets impairment

Each closing date at every accounting year, the IBERDROLA Group reviews the carrying amounts of
its non-current assets to determine whether there is any indication that those assets have suffered an
impairment loss. If such indication exists, the recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss, if it is necessary. For this purpose, in the case of assets
that do not generate cash flows independent from other asstes’ ones, IBERDROLA Group estimates
the recoverable amount of the cash-generating unit to which belongs.

In the case of goodwill and other intangible assets which have not come into use or which have an
indefinite useful life, the IBERDROLA Group performs the recoverability analysis systematically every
year, except when there are signs of impairment in another moment, in which case recoverability
analysis is performed at the same time.

For purposes of this recoverability analysis, goodwill is allocated to the cash generating units in which
it is controlled for internal management purposes (Note 8).

Recoverable amount is the higher of fair value less selling cost and value in use, which is taken to be
the present value of the estimated future cash flows. The assumptions used in assessing value in use,
in making the estimates include discount rates, growth rates and expected changes in selling prices
and direct costs. The discount rates reflect the time value of money and the risks specific to each
cash-generating unit. The growth rates and the changes in prices and direct costs are based on
contractual commitments that have already been signed, information in the public domain, sector
forecasts and the experience of the IBERDROLA Group (Note 12).

If the recoverable amount of an asset is less than its carrying amount, the difference is registered as a
charge to “Amortisation and provisions” in the Consolidated income statement.

It distinguishes between impairment losses and write-offs depending on whether the impairment is
reversible or not reversible. A write-off involves a decrease of the carrying amount of assets, either
because the impairments are considered definitive and non-reversible, or because the accounting
standards establish that, such as the case of goodwill, or when considering that the value of the asset
is not going to be recovered for its use or disposal. Impairment losses are due to the future economic
for which earnings expected to be obtained are less than the carrying amount.

Impairment losses recognised for an asset are reversed with a credit to the “Amortisation and
provisions” heading when there is a change in the estimates concerning the recoverable amount of the
asset, increasing the carrying amount of the asset, but so the increased carrying amount does not
exceed the carrying amount that would have been determined if no impairment loss had been
recognised.

31
j) Associates and joint ventures

Investments in associates and joint ventures are accounted for using the equity method. Under this
method, investments are measured initially at acquisition cost, subsequently adjusted for changes to
each company’s equity, taking into consideration the percentage of ownership and, if applicable, any
valuation adjustments.

Some investments in associates and joint ventures which in the context of these Consolidated
financial statements are immaterial are recorded at acquisition cost within “Non-current investments –
Non-current equity investments” of the Consolidated statements of financial position for the years
ended 31 December 2014 and 2013 (Note 13.b).

The IBERDROLA Group regularly analyses the existence of impairment at its associates and joint
ventures by comparing the total carrying amount of the associate or joint venture in question, including
goodwill, to its recoverable amount. If the carrying amount exceeds the recoverable amount, the
IBERDROLA Group recognises the related impairment with a charge to the Consolidated income
statement within “Results of companies accounted for using the equity method - net of taxes”.

k) Joint operations

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement
have rights to the assets, and obligations for the liabilities, relating to the arrangement.

l) Financial instruments

Financial assets

The IBERDROLA Group measures its current and non-current financial assets in accordance with the
criteria described below:

1. Financial assets classified at fair value, registering changes through credits or charges in the
Consolidates income statement. These are assets that meet any of the following requirements:

- They have been classified as held-for-trading financial assets, on the basis that intends to
generate a profit from fluctuations in their prices.

- They have been included in this asset category since initial recognition.

The assets included in this category are stated at fair value in the Consolidated statement of
financial position, and changes in fair value are recognised as “Finance cost” or “Finance
income” in the Consolidated income statement, as appropriate.

The IBERDROLA Group includes in this category the derivative financial instruments which do
not satisfy the conditions necessary for hedge accounting based on the requirements
established for this purpose in IAS 39: “Financial Instruments” (Note 26).

2. Loans and receivables: these are initially recognised at fair value and are subsequently
measured at amortised cost using the effective interest rate method.

The IBERDROLA Group records the related provisions for the difference between the amount of
the receivables considered recoverable and the carrying amount of the receivables.

32
3. Held-to-maturity investments: are investments that the IBERDROLA Group has the intention
and ability to hold to the date of maturity, which are also measured at amortised cost.

4. Available-for-sale financial assets: these are other financial assets that do not fall into any of the
aforementioned three categories. These investments are recognised in the Consolidated
statement of financial position at fair value at year-end which, in the case of companies that are
not listed, is obtained using a range of methods such as comparable company transactions or, if
there is sufficient information, by discounting the expected cash flows. Changes in fair value are
recognised with a charge or credit, as appropriate, to the “Unrealised assets and liabilities
revaluation reserve” in the Consolidated statement of financial position (Note 20), until the
disposal or impairment of these assets at which time the cumulative balance of this heading is
recognised in the Consolidated income statement.

Those equity instruments of companies that are not publicly listed, the market value of which
cannot be determined reliably are carried at cost of acquisition.

The IBERDROLA Group determines the most appropriate classification for each asset on acquisition
and reviews the classification at each year-end date.

The IBERDROLA Group recognises conventional financial asset purchases and sales on the date of
operation.

Cash and cash equivalents

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

Impairment of financial assets at amortised cost

The IBERDROLA Group assesses, at least at each reporting date, whether there is any objective
evidence that a financial asset or a group of financial assets is impaired. If it is determined that an
impairment has occurred, the carrying amount of the financial asset is reduced by means of a “change
in measured value” account in the income statement for the period.

Impairment losses are reversed when the amount of the losses declines because of a subsequent
event. Such reversals are recognised in the Consolidated income statement. An impairment loss may
be reversed up to the carrying amount of the asset recognised at the date of reversal had no
impairment loss been recognised previously.

The amount of impairment of debt instruments stated at amortised cost is calculated individually for
material financial assets and collectively for financial assets which are not individually significant.

Impairment losses determined individually

The amount of the impairment loss is measured as the difference between the asset’s carrying
amount and the present value of estimated future cash flows (excluding future expected credit losses
that have not yet been incurred).

33
Impairment losses determined collectively

Financial assets are grouped on the basis of similarity of features relating to credit risk, which are
indicative of the debtor’s ability to pay all amounts due. The credit risk features considered for the
purpose of grouping such assets are, inter alia: debtor’s business sector, geographical area of activity,
type of security or collateral, age of past-due amounts, and any other factor that may be relevant to
estimate future cash flows.

To calculate an impairment loss on a group of financial assets, future cash flows are estimated on the
basis of historical experience of losses for assets having credit risk features similar to those of the
group in question.

Impairment of available-for-sale investments

If there is objective evidence that the impairment losses on such assets are permanent, such losses
are recognised in the Consolidated income statement.

The IBERDROLA Group considers objective evidence of impairment to be a significant or prolonged

decline in the fair value of an investment in an equity instrument below its cost. To this end, for
available-for-sale financial instruments, a significant or prolonged decline in the fair value (stock
market value for listed instruments) is considered to be a 40% fall for at least 3 months or a loss of
value below purchase price for at least 18 months.

A recovery of an impairment loss is not recognised in the Consolidated income statement. Instead, it is
recorded within “Unrealised assets and liabilities revaluation reserve” heading in the Consolidated
statement of financial position.

Financial liabilities and equity instruments

Financial liabilities and equity instruments issued by the IBERDROLA Group are classified on the
basis of the nature of their issue.

The IBERDROLA Group classifies as an equity instrument any contract that evidences a residual
interest in the net assets of the Group.

Equity instruments having the substance of a financial liability

In the United States, the IBERDROLA Group has undertaken several transactions that bring minority
shareholders as external partners of certain of its wind farms in exchange for cash and other financial
assets primarily.

The main characteristics of these transactions are as follows:

- Regardless of the equity stake taken by the minority shareholders, the IBERDROLA Group
retains ownership and management control of the wind farms; accordingly they are fully
consolidated in these Consolidated financial statements.

- The minority shareholders have the right to a substantial portion of the profits and tax credits
generated by these wind farms up to the return level established at the beginning of the
contract.

- The minority shareholders remain in the equity of the wind farms until they achieve the
stipulated returns.

- Once these returns have been obtained, the minority shareholders lose their entitlement to
hold capital in the wind farms, simultaneously renouncing their claim on the profits and tax
credits generated.

34
 - Whether or not the minority shareholders of the IBERDROLA Group obtain the agreed upon
returns depends on the economic performance of the wind farms. Although the IBERDROLA
Group is bound to operate and maintain these facilities in an efficient manner and to take out
the appropriate insurance policies, it is not obliged to deliver cash to the minority shareholders
over and above the aforementioned profits and tax credits.

Following an analysis of the economic substance of these agreements, the IBERDROLA Group
classifies the consideration received at the outset of the transaction under “Equity instruments having
the substance of a financial liability” in the Consolidated statement of financial position. Subsequently,
this consideration is measured at amortised cost (Note 21).

Debentures, bonds and bank borrowings

Loans, debentures and similar items are recorded initially at the amount received, net of transaction
costs. In subsequent periods, all these financial liabilities are measured at amortised cost, using the
effective interest rate method, except for hedged transactions, which are measured using the method
described below in this same note.

Also, obligations under finance leases (Note 4.f) are recognised at the present value of the lease
payments under “Bank borrowings loans and others” in the Consolidated statement of financial
position.

Trade and other payables

Trade payables are caused by ordinary operations initially recognised at fair value and are
subsequently measured at amortised cost.

Contracts to buy or sell non-financial items

The IBERDROLA Group performs detailed analysis of all its contracts to buy or sell non-financial items
to ensure they are classified correctly for accounting purposes.

As a general rule, contracts that are settled net in cash or in another financial asset are classified as
derivatives and are recognised and measured as described in this note, except for contracts entered
into and held for the purpose of the receipt or delivery of a non-financial item in accordance with the
IBERDROLA Group’s purchase, sale, or usage requirements.

Contracts to buy or sell non-financial items to which the treatment described in the IAS 39 does not
apply are designated as own-use contracts and are recognised as the IBERDROLA Group receives or
delivers the rights or obligations originating thereunder.

In the specific case of short-term contracts to buy or sell electricity and gas concluded on certain
highly-liquid markets, the IBERDROLA Group adopts the following accounting treatment:

 Until the month preceding the supply date, the IBERDROLA Group classifies as own-use
contracts only those contracts to buy or sell electricity and gas that reflect its best estimate of
the actual purchase requirements of the IBERDROLA Group.

 In the month preceding the date of supply, and given that demand estimates become more
and more accurate each day, the IBERDROLA Group assumes that all contracts written solely
in response to changes in demand estimates, whether for purchase or sale, are own-use
contracts, and not therefore derivatives.

35
  All contracts entered into with the intention of realising short-term gains on fluctuations in the
market price of electricity and gas, as well as those that do not correspond to the situations
described in the preceding two points are considered derivatives, and are therefore
recognised on the Consolidated statement of financial position at their fair value.

Derivative financial instruments and hedge accounting

Financial derivatives are initially recognised at acquisition cost in the Consolidated statement of
financial position and the required value adjustments are subsequently made to reflect their fair value
at all times. Gains and losses arising from these changes are recognised in the Consolidated income
statement, unless the derivative has been designated as a cash flow hedge or a hedge of a net
investment in foreign countries.

For accounting purposes, hedges are classified as follows:

 Fair value hedges: where the hedged risk is a change in the fair value of an asset or liability or
a firm commitment.

 Cash-flow hedges: where the hedged risk is the variation in cash flows attributable to a
specific risk associated with an asset or liability or a likely transaction, or to exchange rate risk
in a firm commitment.

 Hedge of a net investment in a foreign operation.

Each time a hedge transaction is entered into the IBERDROLA Group formally documents the
transaction to be treated under hedge accounting. This documentation includes its identification as a
hedge instrument, the item hedged, the nature of the risk the hedge is designed to cover and the way
the effectiveness of the hedge is to be measured. In addition, hedges are reviewed periodically to
ensure they are highly effective (between 80% and 125%).

The accounting treatment for hedging transactions is as follows:

 In the fair value hedges, changes in the fair value of the derivative financial instruments
designated as a hedge and changes in the fair value of a hedged item due to the hedged risk
are recognised with a charge or credit to the same heading of the Consolidated income
statement.

 In cash flow hedges and hedges of a net investment in a foreign operation, changes in the fair
value of the hedging derivative are recognised, in respective of the ineffective portion of the
hedges, in the Consolidated income statement, while the effective portion is recognised under
“Unrealised assets and liabilities revaluation reserve” and “Exchange differences”, respectively,
in the Consolidated statement of financial position. The cumulative gain or loss recognised in
these headings is transferred to the relevant heading of the Consolidated income statement as
the hedged item affects net profit or loss.

If a hedge of a forecasted transaction results in the recognition of a non-financial asset or a

liability, its balance is taken into account in the initial measurement of the asset or liabilities
arising from the hedged transaction.

If a hedge of a forecasted transaction results in the recognition of a financial asset or liability,

this balance is recognised in the “Unrealised assets and liabilities revaluation reserve” until the
hedged item affects the Consolidated income statement.

36
 If a forecasted transaction does not result in recognition of an asset or a liability, the amounts
credited or charged, to “Unrealised asset and liabilities revaluation reserve” in the
Consolidated statement of financial position will be recognised in the Consolidated income
statement in the same period in which the hedge transaction is realised.

When hedge accounting is discontinued, the cumulative amount at that date recognised under
“Unrealised asset and liability revaluation reserve” is retained under that heading until the
hedged transaction occurs, at which time the gain or loss on the transaction will be adjusted. If
a hedged transaction is no longer expected to occur, the gain or loss recognised under the
aforementioned heading is transferred to the Consolidated income statement.

Derivatives embedded in other financial instruments are recognised separately when the IBERDROLA
Group considers that their characteristics are not closely related to the financial instruments in which
they are embedded and so long as the entire contract is not carried at fair value through profit or loss,
registering changes in fair value with the gain or loss recognised in the Consolidated Income
statement.

The fair value of the derivative financial instruments is calculated as follows (Note 15):

 For derivatives quoted on an organised market corresponds to its market price at year-end.

 To measure derivatives not traded on an organised market, the IBERDROLA Group uses
assumptions based on market conditions at year-end. Specifically, the fair value of interest
rate swaps is calculated as the value discounted at market interest rates of the interest rate
swap contract spread; currency futures are measured by discounting the future cash flows
calculated using the forward exchange rates at year-end; finally, the fair value of contracts to
trade non-financial items falling under the scope of IAS 39 “Financial instruments” is calculated
on the basis of the best estimate of future price curves for the underlying non-financial items at
the year end on Consolidated financial statement, using, wherever possible, prices established
on futures markets.

These measurement models take into account the risks of the asset or liability, among these, the
credit risk of both the counterparty (Credit Value Adjustment) and the entity itself (Debit Value
Adjustment). The credit risk is calculated according to the following parameters:

- Exposure at default: the amount of the risk arising at the time of non-payment by a
counterparty, having regard to any collateral or setoff arrangements connected with the
transaction.

- Probability of default: the probability that a counterparty will breach its obligations to pay the
principal and/or interests, turning mainly on the features of the counterparty and its credit
rating.

- Loss given default: the estimated loss in the event of default.

Derecognition of financial assets and liabilities

A financial asset is derecognised when:

 The rights to receive cash flows from the asset have expired.

37
  The IBERDROLA Group retains the rights to receive cash flows from the asset, but has
assumed an obligation to pay them in full to a third party and has transferred substantially all
the asset’s benefits and risks or does not retain them substantially.

 The IBERDROLA Group has transferred its rights to receive cash flows from the asset and
either has transferred substantially all the risks and rewards of the asset, or has neither
transferred nor retained substantially all risks and rewards of the asset, but has transferred
control of the asset.

Financial liabilities are derecognised when the obligation under the liability is discharged or cancelled
or expires.

Offsetting of financial instruments

The financial assets and liabilities can be offset: the corresponding net amount must be shown in the
financial statements if the company currently has a legally enforceable right to offset the recognised
amounts and the intention of settling them for the net amount or realising the assets and settling the
liabilities simultaneously.

m) Treasury shares

At year end the IBERDROLA Group’s treasury shares are included under the heading “Equity -
Treasury shares” on the Consolidated statement of financial position and are measured at acquisition
cost.

The gains and losses obtained on disposal of treasury shares are recognised in “Other reserves” in
the Consolidated statement of financial position.

n) Deferred income

Government Grants

This heading includes any non-reimbursable grants provided by the Administration whose purpose is
to finance property, plant and equipment, including the cash received from the US Administration in
the form of investment tax credits as a result of setting up wind power facilities. All the capital grants
are taken to the profit and loss statement under “Depreciation and amortisation charge, allowances
and provisions” of the consolidated income statement as the financed plants are depreciated, thereby
offsetting the depreciation expense.

Transfer of assets from customers

Pursuant to the regulations applicable to electricity distribution in the countries in which it is active, the
IBERDROLA Group occasionally receives cash payments from its customers for the construction of
electricity grid connection facilities or in some cases is directly assigned such facilities by its customers.
Both the cash received and the fair value of the facilities received are credited to “Deferred income”
heading in the Consolidated statement of financial position.

These amounts are subsequently recognised under “Other operating income” in the Consolidated
income statement as the facilities are depreciated.

Other deferred income

“Deferred income” heading also includes amounts received from third parties in relation to the
assignment of the right to use certain facilities which connect to the electricity grid, the IBERDROLA
Group’s fibre optic network and other owned assets. These amounts are taken to profit or loss on a
straight-line basis over the term of each contract under “Other operating income” in the Consolidated
income statement.

38
o) Post-employment and other employee benefits

The contributions to be made to the defined contribution post-employment benefit plans are expensed
under “Staff costs” in the Consolidated income statement on an accrual basis.

In the case of the defined benefit plans, the IBERDROLA Group recognises the expenditure relating to
these obligations on an accrual basis over the working life of the employees by commissioning the
appropriate independent actuarial studies using the projected unit credit method to measure the
obligation accrued at year-end, and the positive or negative actuarial differences are recognised under
“Other reserves” heading when they arise. The provision recognised in this concept represents the
present value of the defined benefit obligation reduced by the fair value of the related plans.

If the fair value of the assets exceeds the present value of the obligation, the net asset is not
recognised in the Consolidated statement of financial position, unless it is practically certain that it
belongs to IBERDROLA Group.

The IBERDROLA Group determinates the discount rate, with reference to the yields market at the end
of the reporting period, corresponding to the bonds or business obligations of high credit quality (rating
equivalent to AA/Aa). In the countries in which does not exist a deep market to such bonds and
obligations, the discount rate is determined with reference to government bonds.

For the Eurozone, United Kingdom and the United States of America, there is a deep bond market
with a period of maturity sufficient to cover all payments expected. In reference to the countries related
to the Eurozone, the depth of the bond or obligation market is evaluated at the level of the monetary
union and not for the particular country. In the case of Brazil, the discount rate has been determined
taking into account the Brazilian Sovereign credit, because it does not exist a deep corporative bond
market.

The Group applies a weighted average discount rate that reflects the estimate timing and amount of
benefit payment, as well as the currency in which the benefits are to be paid.

The calculation methodology is principally based on the following principles:

- The universe and spectrum of the outstanding bonds that meet the criteria of an AA/Aa is
generated. The source of information corresponds with Bloomberg. The IBERDROLA
Group has adopted as the selection criteria the notional emissions that are higher than
EUR 50 million euros or its equivalent in local currency.

- Once the bonds' database is obtained, the result is screened and the bonds that show any
deficiencies are eliminated.

- The sample is grouped based on the bonds' duration, and the return on each duration and
outstanding nominal amount of the issue are shown. As far as possible, the price return is
based on the midpoint of the bid/ask spread.

- It is calculated using a mathematical formula, i.e., the discrete minimum approximation of

the quadratic function, resulting in a market return curve based on the duration. The
market curve result will provide the discount factors for each future maturity date of the
bonds.

39
 - For markets in which government bonds or corporate bonds with maturity dates beyond
25/30 years are not available, it is assume that they will remain at the same level from the
latest maturity date for which there is information available.

The discount rate reflects the time value of money and estimated schedule for the benefits payments.
However, it does not reflect the actuarial, investment, credit or deviation in compliance with the
actuarial assumptions risk.

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

The IBERDROLA Group recognises termination benefits, when there is an agreement with the
employees or a certain expectation that such an agreement will be reached that will enable the
employees to be terminated in exchange for indemnity payment.

The IBERDROLA Group recognises the full amount of the expenditure relating to these plans when
the obligation arises by performing the appropriate actuarial studies to calculate the present value of
the actuarial obligation at year-end. The actuarial gains and losses are recognised in the Consolidated
income statement .

q) Provision for emission allowances

The IBERDROLA Group records a provision for contingencies and expenses in order to recognise the
obligation to deliver CO2 emission allowances in accordance with the methods provided for in the
national assignment plans (Notes 3 and 24).

For the portion of emissions covered by the allowances granted under these plans or by allowances
acquired by the Group, the provision is recognised at the carrying amount of the allowances. If it is
estimated that it will be necessary to deliver more emission allowances, the provision for this shortfall
is calculated based on the market price of the allowances at the statement of financial position date.

Under “Procurements” the 2014 and 2013 Consolidated income statements include EUR 85,273
thousand and EUR 96,484 thousand (Note 24).

r) Production facility closure costs

The IBERDROLA Group will incur in several decommissioning costs of its production plants, among
which include those arising from necessary tasks to fit the land where they are located. Additionally, in
accordance with the current legislation, the Group must perform certain tasks prior to the
decommisioning of its nuclear plants, of which Empresa Nacional de Residuos Radioactivos, S.A.
(hereinafter, ENRESA) is responsible for.

The estimated present value of these costs is capitalised with a credit to “Provisions – Other
provisions” at the beginning of the useful life of the related asset (Note 24).

This estimate is subject to annual revision so that the provision reflects the present value of the full
amount of the estimated future costs. The value of the asset is only adjusted for variances with
respect to the initial one.

Any change in the provision as a result of its discounting is recognised in “Finance cost” in the
Consolidated income statement.

40
s) Other provisions

The IBERDROLA Group recognises provisions to cover present obligations, whether these be legal or
constructive, which arise as a result of past events, provided that it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation and a reliable estimate
can be made of the amount of the obligation (Note 24). A provision is recognised when the liability or
obligation arises, with a charge to the relevant heading in the Consolidated income statement
depending upon the nature of the obligation, for the present value of the provision when the effect of
discounting the value of the obligation to present value is material. The change in the provision due to
its discounting each year is recognised under “Finance cost” in the Consolidated income statement.

These provisions include those recorded to cover environmental damage, which were determined on
the basis of a case-by-case analysis of the situation of the polluted assets and the cost of cleaning
them.

On the other hand, according to labor regulations in force, IBERDROLA Group is obliged to pay
compensations to employees who, under certain conditions, terminate their employment relationship.
IBERDROLA Group does not expect lay offs in the future from which significant liabilities may arise.

t) Current and non-current debt classification

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

u) Revenue recognition

Revenues from sales is measured at the fair value of the assets or rights received as consideration for
the goods and services provided in the normal course of the Group companies’ business, net of
discounts and applicable taxes.

Income from regulated activities where remuneration is based on a fixed margin are booked by the
IBERDROLA Group under “Net revenue” on the Consolidated income statement for the corresponding
year.

In the case of some regulated activities carried out by the IBERDROLA Group, any discrepancies
between costs estimated when setting the annual tariff and costs actually incurred are corrected in the
following years’ tariffs. These discrepancies are recognised as income or expense for the year in
which they arise only if collection or payment is certain, regardless of future sales.

Revenues from service agreements in which the results can be reliably measured are recognised in
accordance with the percentage of completion method.

The IBERDROLA Group has electricity generation capacity assignment agreements with the CFE in
Mexico for a term of 25 years from the date on which each combined cycle plant enters into
commercial operation. These contracts set a pre-established payment timetable for assignments of
electricity supply capacity and for plant operation and maintenance. The IBERDROLA Group
considered the question whether these contracts constitute a lease or service provision in accordance
with the requirements of IFRIC 4: “Determining whether an arrangement contains a lease”. Given that
only IBERDROLA can operate or manage the plant, and that operating revenue is not transferred
solely to CFE as these plants generate additional revenue that is sold to third parties and, further,
because the price of the products is linked to market rates, it was concluded that these contracts are a
service to be recognised in accounting with the percentage of completion method.

41
Revenue from construction contracts is recognised in accordance with the accounting policy described
in Note 4.v.

As to housing sales, the IBERDROLA Group follows the principle of recognising income at the time
when legal title is transferred to the purchaser, which usually matches the date of notarisation of the
respective contracts.

Interest income is accrued on a time proportional basis, by reference to the outstanding principal and
the applicable effective interest rate, which is the rate that exactly discounts estimated future cash
receipts through the expected life of the asset to that asset’s carrying amount.

Dividend income is recognised when the IBERDROLA Group companies are entitled to receive them.

v) Construction contracts

If the income and expenses related to a construction contract can be estimated reliably, the income is
recognised according to the degree of completion of the construction project by measuring the
contract costs incurred to date as a proportion of the total estimated construction costs.

When the income from a contract cannot be reliably estimated, all such income is recognised to the
extent that costs are incurred, provided that such costs are recoverable. No contract margin is
recognised until it can be estimated reliably.

If the estimated costs of a contract exceed revenue from that contract, the loss is recognised
immediately in the Consolidated income statement.

Changes to construction work and any claims are included within contract revenue if negotiations are
at an advanced stage of maturity such that it is more likely than not that the client will accept the claim
and the amount can be measured reliably.

w) Settlements relating to regulated activities and shortfall in revenue

Following is a description of the accounting impact on the Consolidated financial statements of certain
regulatory issues arising in Spain in 2013 and 2014.

2013

a) Electricity distribution.

Royal Decree-Law 9/2013 states that the remuneration of each distribution company from 1 January
2013, until its entry into force (on 14 July 2013), is the proportional share up to said date set out in
Order IET 221/2013, of 14 February, of a final nature and amounting, in the case of the IBERDROLA
Group, to EUR 894,692 thousand.

In addition, Order IET 2442/2013, of 26 December, states that the remuneration of electricity
distribution from the entry into force of Royal Decree-Law 9/2013 to 31 December 2013, without
prejudice to the incentives or loss reduction penalties or to improvement of the quality of service,
amounts to EUR 677,217 thousand.

“Net Revenue” in the Consolidated statement of income of 2013 contains the sum of the two
aforementioned amounts.

42
b) Revenue shortfall

Law 24/2013 recognises the existence of a revenue shortfall of settlements of the electrical system of
2013 amounting to a maximum of EUR 3,600 million, without prejudice to temporary shortfalls that
may occur in the electric settlement system for said year. It further states that said shortfall, in contrast
to previous years, may not be assigned to the Electrical System Amortisation Fund (FADE).

The portion corresponding to the IBERDROLA Group of the financed shortfall to 31 December 2013
amounts to EUR 1,568,631 thousand, of which 345,638 are recognised in “Current financial assets”
and EUR 1,222,993 thousand are recognised in “Non-current financial assets” of the Consolidated
statement of financial position at 31 December 2013 (Note 13.c), as no evidence exists that its
repayment, which is guaranteed independently of future billing, will occur in 2014.

In 2013, securitisations of the shortfall were carried out that have brought the IBERDROLA Group
EUR 2,805,930 thousand.

2014

a) Electricity distribution

Order IET/107/2014, which revises access tolls for electricity for 2014, recognises with respect to the
IBERDROLA Group that it is owed final remuneration for 2014 for its electricity distribution activity in
Spain of EUR 1,568,824 thousand. This amount is recorded in “ Net Revenue” in the Consolidated
income statement for 2014.

b) Revenue shortfall

The estimates made by the IBERDROLA Group of settlements for the Spanish electricity system for
2014 do not point to any material revenue shortfall in relation to these Consolidated financial
statements. In this regard, Electricity Industry Law 24/2013 establishes that, from 2014 onwards, if
there is a revenue shortfall in a specific year, its amount cannot exceed 2% of the revenues estimated
for the system in that year.

Additionally, the debt accumulated as a result of the revenue shortfall in previous years cannot exceed
5% of the revenues estimated for the system in that year. If it is exceeded, the access tolls, where
applicable, or the corresponding charges will be revised by at least the equivalent part of the amount
that exceeds those limits.

Likewise, it establishes that the part of the imbalance that, without exceeding those limits, is not offset
by the increase in tolls and charges will be financed by the players in the settlement system
proportionally to the remuneration corresponding to them as a result of the activity that they perform.
As a result of the foregoing, the IBERDROLA Group financed EUR 435,862 thousand (Note 13.c) for
this mechanism which is recognised under "Current financial investments" in the Consolidated income
statement at 31 December 2014, since a revenue shortfall was not expected in 2014, this amount
must be collected in 2015.

However, in 2014 the IBERDROLA Group issued revenue shortfall securitizations in respect of which it
collected proceeds of EUR 1,164,569 thousand.

x) Onerous contracts

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

43
The IBERDROLA Group records a provision for the present value of the difference between the direct
costs and the economic benefits of the contract.

No provision was deemed necessary under this heading at 31 December 2014 and 2013.

y) Transactions in currencies other than the euro

Transactions carried out in currencies other than the functional currency of the Group companies are
converted at the exchange rates prevailing at the transaction date. During the year, the differences
arising between the exchange rates at which the transactions were recorded and those in force at the
date on which the related collections or payments are made are charged or credited, as appropriate,
to the Consolidated income statement.

Also, debt instrument and receivables and payables denominated in currencies other than those in
which the financial statements of the Group companies are denominated are converted at the year-
end exchange rates at 31 December of each year. Exchange differences are charged to “Finance cost”
or credited to “Finance income” in the Consolidated income statement, as appropriate.

The foreign currency transactions in which the IBERDROLA Group has decided to mitigate foreign
currency risk through the use of financial derivatives or other hedging instruments are recorded as
described in Note 4.l.

z) Income Tax

Since 1986 IBERDROLA has filed Consolidated Tax Returns with certain Group companies.

Foreign companies are taxed according to the current legislation of their respective jurisdiction.

Income Tax is accounted for using the general balance liability method, which consists of determining
deferred tax assets and liabilities on the basis of the carrying amounts of assets and liabilities and
their tax base, using the tax rates that can objectively be expected to be in force when the assets or
liabilities are realised or settled. Deferred tax assets and liabilities arising as a result of direct charges
or credits to equity are also accounted for with a charge or credit to equity.

The IBERDROLA Group recognises deferred tax assets as long as future taxable profits are expected
against which said assets can be recovered.

Deductions in order to avoid double taxation tax credits and other tax credits and tax relief earned as a
result of economic events occurring in the year are deducted from the Income Tax expense, unless
there are doubts as to whether they can be realised.

aa) Final radioactive waste management costs

Royal Decree 1349/2003 was published on 8 of November 2003 regulating the Empresa Nacional de
Residuos Radioactivos, S.A. (hereinafter ENRESA) activities and its financing. This royal decree
grouped together the previous legislation regulating the activities that ENRESA develops as well as its
financing, and repeals, inter alia, Royal Decree 1899/1984, of 1 August.

Meanwhile, Royal Decree-Law 5/2005 and Law 24/2005 established that the costs relating to the
management of radioactive waste and spent fuel from nuclear plants, and to the decommissioning and
shut-down of the plants, attributable to their operation and incurred after 31 March 2005, will be
financed by the owners of the nuclear plants in use.

44
On the other hand, on 7 May 2009, was published the Royal Decree-Law 6/2009, adopting various
energy sector measures and approving the social tariff. The principal measures introduced are as
follows:

 Necessary costs incurred in the management of radioactive waste and nuclear fuel at nuclear
power stations that are definitively decommissioned before the state-owned radioactive waste
management company ENRESA begins operating, which it had still not done at the date of
preparing these Consolidated financial statements, and all necessary costs incurred in
dismantling and closing these power stations, will be treated as diversification and capacity
guarantee costs.

Amounts used to cover the cost of managing radioactive waste generated by research
activities directly related to nuclear electricity generation and the costs deriving from the
reprocessing of spent fuel sent overseas prior to the entry into force of Electricity Industry Law
54/1997, and all other costs that may be specified by royal decree shall also be considered
diversification and capacity guarantee costs.

 Amounts used to establish provisions to cover the costs incurred in managing radioactive
waste and spent fuel generated at operational nuclear power stations after the establishment
of ENRESA as well as dismantling and closure costs will not be treated as supply
diversification and security costs, since these will be borne by the owners of the nuclear power
stations while they are operational, irrespective of the date on which they are generated.

 The balance of ENRESA’s provisions remaining after deduction of the amounts needed to
cover the supply security and diversification costs will be used to cover costs not included in
this category.

 To cover the costs associated with nuclear power stations in operation, the companies owning
the stations must pay a charge directly proportional to the volume of energy generated at each.
The definitive method used to calculate this charge will be approved by resolution of the
Council of Ministers. This fact has not taken place yet as of the date of issue of these
Consolidated financial statements.

After a detailed analysis of the impact of Royal Decree-Law 6/2009, the IBERDROLA Group considers
that the rate is the best estimate available of the accrued expenses originated for that royal decree-law.

The heading “Taxes other than Income Tax” of the Consolidated income statements for 2014 and
2013 includes EUR 174,773 thousand and EUR 163,393 thousand, respectively, in this connection.

ab) Earnings per share

Basic earnings per share are calculated by dividing the net profit for the year attributable to the parent
by the weighted average number of ordinary shares outstanding during the year, excluding the
average number of shares of the parent company held by the Group companies (Notes 20 and 52).

Meanwhile, diluted earnings per share are calculated by dividing the net profit for the year attributable
to ordinary shareholders by the weighted average number of ordinary shares outstanding during the
year, adjusted by the weighted average number of ordinary shares that would have been outstanding
assuming the conversion of all the potential ordinary shares into ordinary shares of IBERDROLA. For
these purposes, it is considered that shares are converted at the beginning of the year or at the date
of issue of the potential ordinary shares, if the latter were issued during the current period.

45
In the Consolidated financial statements of the IBERDROLA Group for the years ended 31 December
2014 and 2013, basic earnings per share coincide with diluted earnings per share, since there were no
potential shares outstanding during these years that could be converted into ordinary shares (see
Note 52).

ac) Dividends

The dividend proposed by the Board of Directors of IBERDROLA to the General Shareholders´
Meeting is not deducted from equity until it has been approved by the latter.

ad) Non-current assets held for sale and discontinued operations

If the carrying amount of a non-current asset (or a disposal group of assets) will be recovered
principally through its sale rather than through continuing use, the IBERDROLA Group classifies it as
held for sale and values it at the lower of carrying amount and fair value less costs to sell.

A discontinued operation is a component of an entity that either has been sold or disposed by other
means or is classified as held for sale and:

 represents a separate major line of business or geographical area of operations that is

significant and can be considered separately from the rest;
 is part of a single coordinated plan to sell or dispose by other means of a separate major line
of business or geographical area of operations and can be considered separately from the rest;
or
 is a subsidiary acquired exclusively with a view to resale.

If it is considered that there are discontinued operations, the IBERDROLA Group recognizes a single
amount in the Consolidated statement of comprehensive income that includes the total amount of:
 profit or loss after tax from discontinued operations, and

 profit or loss after tax recognized by measurement at fair value less costs to sell, or sale or
disposal by other means of the assets or disposal groups of assets of the discontinued
operation.

ae) Consolidated statements of cash flow

In the Consolidated statements of cash flow, which were prepared using the indirect method, the
following terms are considered:

 Operating activities: the principal revenue-producing activities of the Group companies, as well
as other activities that are not investing or financing activities.

 Investing activities: the acquisition and sale or disposal of other means of long-term assets
and other investments not included in cash and cash equivalents.

 Financing activities: activities that result in changes in the size and composition of the equity
and liabilities of the company that are not operating activities.

af) Share-based employee compensation

The delivery of IBERDROLA shares to employees as compensation for their services is recognised
under “Staff costs” in the Consolidated income statement as the workers perform the remunerated
services, with a credit to equity under “Equity – Other reserves” in the Consolidated statement of
financial position at the fair value of the equity instruments on the grant date, defined as the date the
IBERDROLA Group and its employees reach an agreement establishing the terms of the share grant.

46
5. FINANCING AND FINANCIAL RISK MANAGEMENT POLICY

The IBERDROLA Group is exposed to various inherent risks in the countries, industries and markets
in which it operates and the businesses it carries out, which could prevent it from achieving its
objectives and executing its strategies successfully.

In particular, the financing and financial risk policy of the IBERDROLA Group approved by the Board
of Directors identifies the risk factors described below. The IBERDROLA Group has an organisation
and systems which allow the financial risks to which the Group is exposed to be identified, measured
and controlled.

Interest rate risk

The IBERDROLA Group is exposed to the risk of fluctuations in interest rates affecting cash flows and
fair value in respect of items in the statement of financial position (debt and derivatives). In order to
adequately manage and limit this risk, the IBERDROLA Group determines the desired yearly structure
of the debt between a fixed and variable interest rate, taking into account indexing of income at a
certain indicator, either the interest rate or the price index, even though this may entail assuming
greater risk in “Finance cost” of the Consolidated income statement. On a yearly basis, actions to be
carried out are determined throughout the year: new sources of financing (at a fixed, floating or
indexed rate) and/or the use of interest rate derivatives.

The debt structure at 31 December 2014 and 2013, after the effect of hedge accounting, is the
following:

Thousands of euros
12.31.14 12.31.13

Fixed interest rate 12,226,706 16,454,670

Floating interest rate 14,810,770 9,958,247
Limited floating interest rate (*) 101,424 1,250,000
27,138,900 27,662,917

(*) Relating to certain borrowing agreements whose exposure to interest rate

fluctuations is limited by caps and floors.

The reference interest rates for the floating rate borrowings are basically Euribor, Libor- pound sterling
and Libor-dollar and the most liquid local reference rates in the case of the borrowings of the Latin
American subsidiaries.

Exchange rate risk

As the IBERDROLA Group's functional currency is the euro, fluctuations in the value of the foreign
exchange rate, mainly the pound sterling, the US dollar and the Brazilian real against euro in which
borrowings are instrumented and transactions are made, with respect to the euro may have an effect
on the finance costs, on the profit for the year and on the Group's equity.
The following items could be affected by foreign currency risk:
 Debt denominated in currencies other than the local or functional currency arranged by the
IBERDROLA Group companies.

 Collections and payments for supplies, services or equipment acquisition in currencies other
than the local or functional currencies.

 Income and expenses incurred by certain foreign subsidiaries indexed to currencies other than
the local or functional currencies.

47
  Profit or loss in consolidation of the foreign subsidiaries.

 Consolidated carrying amount of investments in foreign subsidiaries.

The IBERDROLA Group reduces this risk by ensuring that all its economic flows are denominated in
the presentation currency of each Group company, provided that this is possible and economically
practicable and efficient. The resulting open positions are integrated and managed through the use of
derivatives, within the approved limits and holding net borrowings in foreign currencies.

Commodity price risk

As a result of the IBERDROLA Group's activities, it needs to acquire and sell raw materials (natural
gas, coal, fuel oil, gas oil, emission allowances, etc.), whose price is subject to the volatility of
international (global and regional) markets where those raw materials are traded. Likewise, the prices
for such raw materials are linked to the price indexes of other raw materials (mainly oil) and, therefore,
they also depend on the volatility of the global oil market. The margin obtained in the operations
depends on the relative competitiveness of the IBERDROLA Group's plants. This relative
competitiveness also depends on raw material prices.

Inherent business risk

The activities of the IBERDROLA Group are exposed to a range of business risks related to the
uncertainty of the main variables affecting it, such as the evolution of the demand for electricity and
gas, the availability of hydroelectric and wind power resources for the variation in the electricity
production (both for IBERDROLA’s and the rest of the competitors that operate in the same market)
and the availability of the electricity production plants.

Liquidity risk

Exposure to adverse situations in the debt or capital markets or the IBERDROLA Group´s economic
and financial situation can hinder or prevent the IBERDROLA Group from obtaining the financing
required to properly carry on its business activities.

IBERDROLA Group’s liquidity policy is designed to ensure that it can meet its payment obligations
without having to obtain financing under unfavourable terms. For this purpose, it uses various
management measures such as the arrangement of committed credit facilities of sufficient amount,
term and flexibility, diversification of the coverage of financing needs through access to different
markets and geographical areas, and diversification of the maturities of the debt issued (Notes 25 and
50).

The balances for cash, liquid assets and available committed credit lines are sufficient for meeting the
Group's liquidity needs for more than 24 months, not including the new financing lines.

The figures relating to the company's debt performance are included in Notes 25 and 50 to the
financial statements.

Credit risk

The IBERDROLA Group is exposed to the credit risk arising from the possibility that counterparties
(customers, suppliers, financial institutions, partners, etc.) might fail to comply with contractual
obligations. This exposure may arise with regard to unsettled amounts, to the cost of substituting
products that are not supplied, as well as, in the case of dedicated plants, to amounts on which
amortisation is pending.

48
Credit risk is managed and limited in accordance with the type of transaction and the creditworthiness
of the counterparty. Specifically, there is a corporate credit risk policy which establishes criteria for
admission, approval systems, authorisation levels, qualification tools, exposure measurement
methodologies, etc.

With regard to credit risk on trade receivables, the historical cost of defaults has remained moderate
and stable at close to 1% of total turnover of this activity, despite the current difficult economic
environment. Regarding other exposure (counterparties in transactions with derivatives, placement of
cash surpluses, sale transactions involving energy and guarantees received from third parties), in
2014 and 2013 there have been no material non-payments or losses.

At 31 December 2014 and 2013, there was no significant concentration of credit risk at the
IBERDROLA Group.

Sensitivity analysis

The following sensitivity analyses show, for each type of risk (without reflecting the interdependence
among risk variables), how income for the year and equity might be affected by reasonably possible
changes in each risk variable at 31 December 2014 and 2013. Therefore the sensitivity analyses do
not show the effect on income for the year and equity that might have arisen if during 2014 and 2013
the risk variables had been different.

The sensitivity of the profit and the equity to the variation of the interest rates is as follows:

Thousands of euros

Increase/ decrease Impact on profit

in interest rate (basis before taxes Direct impact on Impact on equity
points) Income/(Expense) equity before taxes before taxes

2014 +25 2,515 50,859 53,374

-25 (2,515) (50,859) (53,374)

2013 +25 1,301 32,358 33,659

-25 (1,301) (32,358) (33,659)

The sensitivity of the consolidated earnings and equity of the IBERDROLA Group to changes in the
dollar/euro, pound sterling /euro and Brazilian real/euro exchange rate is as follows:

Thousands of euros
Change in the Impact on profit
dollar/euro exchange before taxes Direct impact on Impact on equity
rate Income/(Expense) equity before taxes before taxes

2014 +5% 76 (550,471) (550,395)

-5% (84) 608,416 608,332
2013 +5% (1,115) (544,577) (545,692)
-5% 1,232 601,900 603,132

Thousands of euros
Change in the Impact on profit
pound sterling /euro before taxes Direct impact on Impact on equity
exchange rate Income/(Expense) equity before taxes before taxes

2014 +5% 3,624 (406,801) (403,177)

-5% (4,006) 449,623 445,617
2013 +5% 1,286 (408,349) (407,063)
-5% (1,421) 451,333 449,912

49
 Thousands of euros
Change in the Impact on profit
Brazilian real /euro before taxes Direct impact on Impact on equity
exchange rate Income/(Expense) equity before taxes before taxes

2014 +5% - (120,666) (120,666)

-5% - 133,368 133,368
2013 +5% - (123,439) (123,439)
-5% - 136,433 136,433

The sensitivity of the profit and the equity to changes in the market prices of the main raw materials is
as follows:

2014 Thousands euros

Impact on profit Direct impact on
before taxes equity before Impact on equity
Variation in price Income/(Expense) taxes before taxes

Gas +5% (4,998) 5,694 696

-5% 4,985 (5,694) (709)

Electricity +5% 1,217 5,443 6,660

-5% (1,067) (5,443) (6,510)

CO2 +5% - 4,010 4,010

-5% - (4,010) (4,010)

Coal +5% 709 8,394 9,103

-5% (709) (8,394) (9,103)

2013 Thousands euros

Impact on profit Direct impact on
before taxes equity before Impact on profit
Variation in price Income/(Expense) taxes before taxes

Gas +5% (2,075) 11,858 9,783

-5% 3,334 (11,858) (8,524)

Electricity +5% 46 4,229 4,275

-5% 82 (4,229) (4,147)

CO2 +5% - 3,658 3,658

-5% - (3,658) (3,658)

Coal +5% 526 14,893 15,419

-5% (526) (14,893) (15,419)

6. USE OF ESTIMATES AND SOURCES OF UNCERTAINTY

a) Accounting estimates

The most significant estimates made by the IBERDROLA Group in these Consolidated financial
statements are as follows:

 Unbilled power supplied:

The revenue figure for each year includes an estimate of the power supplied to customers of
deregulated markets but not billed because it had not been metered at year-end for reasons
relating to the regular meter-reading period. The estimated unbilled power at 31 December
2014 and 2013, amounted to EUR 1,414.289 thousand and EUR 1,313,930 thousand,
respectively. This amount is included under "Current trade and other receivables" on the
Consolidated statements of financial position at 31 December 2014 and 2013.

50
 Settlements relating to regulated activities in Spain:

At the end of each year the IBERDROLA Group estimates the definitive settlements relating to
regulated activities in Spain for that year, establishing the shortfall in revenue, if any, that
corresponds, together with the amount that will be recovered in the future on the basis of the
announcements made by the authorities in this connection and the periods during which this
recovery will take place (Note 4.w).

The estimates are made on the basis of the provisional settlements published up to the date of
preparation of the Consolidated financial statements and all available information on the sector.

 Contracts to trade energy supplies:

As mentioned in Note 4.l, the IBERDROLA Group analyses its contracts to trade energy
supplies to ensure they are properly classified for accounting purposes. This analysis involves
estimating final customer demand and other variables. These estimates are revised at regular
intervals.

 Provisions for contingencies and expenses:

As indicated in Note 4.s, the IBERDROLA Group recognises provisions to cover present
obligations arising from past events. For this purpose, it must assess the outcome of certain
procedures of legal on other nature that are ongoing at the date of authorisation for issue of
these Consolidated financial statements based on the best information available.

 Useful lives:

The IBERDROLA Group's tangible assets operate over very prolonged periods of time. The
Group estimates their useful lives for accounting purposes (Note 4.e) taking into account each
asset's technical characteristics, the period over which they are expected to generate
economic benefits and applicable legislation in each case.

 Costs incurred in closing and dismantling electricity production and distribution facilities:

The IBERDROLA Group periodically revises the estimates made concerning the costs to be
incurred in the dismantling of its generating facilities.

 Provision for pensions and similar commitments and restructuring plans:

At each year-end the IBERDROLA Group estimates the current actuarial provision required to
cover obligations relating to restructuring plans, pensions and other similar obligations to its
employees. In several cases, it involves the valuation of the assets affected to certain plans. In
making these estimates, the IBERDROLA Group receives advice from independent actuaries
(Notes 4.o, 4.p and 23).

 Fair value of investment property:

The IBERDROLA Group appraises its investment property each year. While these appraisals
are particularly important given the current situation of the real estate market, the IBERDROLA
Group considers that its appraisals, commissioned by independent valuers, appropriately
reflect this situation.

51
  Impairment of assets:

As described in Notes 4.i and 12, the IBERDROLA Group, in accordance with applicable
accounting regulations, tests the cash-generating units that require testing for impairment
each year. It also conducts specific tests if indications of impairment are detected. These
impairment tests require estimating the future cash flows of the businesses and the most
appropriate discount rate in each case. The IBERDROLA Group believes its estimates in this
respect are appropriate and consistent with the current market situation and reflect its
investment plans and the best available estimate of its future expense and income. Also, the
discount rates reflect the risk of cash-generating units.

 Other intangible assets:

As disclosed in Note 4.b of these Consolidated financial statements, the "Other intangible
assets" heading on the Consolidated statement of financial position includes wind farm
projects and gas storage facilities in the development phase. The IBERDROLA Group
estimates that these projects meet the identifiability requirement under IAS 38 for them to be
capitalised, and that the Group's future investment plans will include the construction of the
facilities proposed in these projects.

- Deferred tax assets:

As mentioned in Note 4.z, the IBERDROLA Group only recognizes deferred tax assets when
future taxable profits are expected against which the recovery of those assets is possible. In
this sense, the IBERDROLA Group performs projections of its taxable earnings to reach a final
conclusion, projections that are consistent with the impairment tests mentioned earlier in this
Note.
Although these estimates were made on the basis of the best information available at the date on
which these Consolidated financial statements were prepared, events that could take place in the
future might make it necessary to change these estimates (upwards or downwards) in coming years.
Changes in estimates would be applied prospectively, recognising the effects of the change in
estimates in the related future Consolidated financial statements.

b) Sources of uncertainty

There are certain aspects that, at the date of the preparation of these Consolidated financial
statements constitute a source of uncertainty concerning the accounting effect:

- Royal Decree-Law 1048/2013 established a remuneration scheme for electricity distribution

activities within Spanish territory. The scheme is based on a system of standard investment
and operation costs. This royal decree-law further provides that in the first year of application
of the system, the remuneration of the distribution facilities must be calculated chiefly having
regard to enterprises’ initial regulatory assets. At the date of authorisation for issue of these
Consolidated financial statements, those standard costs were unavailable. Therefore, Order
IET/2444/2014, specifying electricity access fees for 2015, set distribution remuneration for
2015 based on the method that was previously in place. The IBERDROLA Group believes that
publication of the standards will in no event entail a need to record any material impairment of
the assets assigned to that activity.

- Article 12.5 of the Spanish Companies Law (Ley del Impuesto sobre Sociedades) introduced
under Royal Decree 4/2004 provides that goodwill arising from the acquisition of holdings in
foreign companies is deductible for tax purposes. The IBERDROLA Group elected to use such
deductibility for the acquisitions of SCOTTISH POWER and IBERDROLA USA.

52
 In 2009 and 2011 the European Commission issued two decisions determining that article
12.5 constituted unlawful State aid and ought therefore no longer to apply. However,
deductions could remain in place for acquisitions transacted or agreed before December 2007
(this being the case of the acquisitions made by the IBERDROLA Group) because the
businesses had acted on the ground of legitimate expectations.

In February 2014 the Spanish National High Court (Audiencia Nacional) issued a decision in
which it ruled that article 12.5 does not apply to indirect acquisitions ( i.e. second and lower-
level tier subsidiaries). This decision has been appealed against by the IBERDROLA Group
and other parties concerned.

In October 2014 the European Commission issued a third decision in which it determined that,
because the Spanish tax authorities replied in 2012 to several “binding consultations” as to
whether indirect acquisitions are deductible under article 12.5, it cannot be said that the
businesses that made indirect acquisitions acted on the ground of legitimate expectations.
Therefore, the Commission requested to the Kingdom of Spain, which has appealed against
that decision, to recover the aid given.

Finally, on 7 November, 2014, the General Court of the European Union set aside the two
Commission decisions referred earlier on the ground that the deduction under article 12.5 is
not State aid because it is not selective. This decision has been appealed against by the
European Commission.

The IBERDROLA Group takes the view that the outcome of the legal proceedings described
above will have no material effect on its patrimonial situation.

- In 2009, a series of incentives were established to promote renewable energies in the United
States that were initially applicable only to wind farms that were brought onstream prior to 31
December 2012. Part of these, specifically, the production tax credits (PTC), were extended to
wind farms whose construction has begun before 31 December 2014 (Note 3).

At the date of authorisation for issue of these Consolidated financial statements the
regulations applicable to United States wind farms, the construction of which starts after 31
December 2014, have not yet been issued. Therefore, for the purpose of impairment-testing of
this cash-generating unit, the IBERDROLA Group has made a range of assumptions about
how regulations and the energy market in the United States will evolve in the future (Note 12).
The IBERDROLA Group believes that future regulations will ensure adequate returns on the
new facilities. Therefore, the Group will be able to recover its tangible and intangible assets in
the United States relating to renewable energy sources at the value stated in the Consolidated
Statement of Financial Position at 31 December 2014.

- The IBERDROLA Group has holdings in several nuclear facilities, all of which are located in
Spain.

The Santa María de Garoña nuclear plant, in which the IBERDROLA Group has a 50%
holding, came into operation in 1971. It was disconnected from the electricity grid in 2012.
Royal Decree 102/2014, for the responsible and safe management of spent nuclear fuel and
radioactive waste, authorises Nuclenor, S.A. (hereinafter “NUCLENOR”), the company that
owns the plant, to apply for an extension of the operating licence for the plant for an indefinite
period. On 2 June, 2014, NUCLENOR applied to the Nuclear Safety Council (Consejo de
Seguridad Nuclear, hereinfafter “CSN”) for a new operating licence valid until 2031. The
application was supported by assessment papers and other necessary documents. At the date
of authorisation for issue of these Consolidated Financial Statements the application is being
considered by the CSN.

53
 The operating licences in effect for the rest of nuclear plants have a term of 30 to 40 years
from their coming into operation. Those plants are governed by the Sustainable Economy Law
(Ley de Economía Sostenible), enacted on 15 February, 2011, which provides, with no time
limit, that the share of nuclear power in the production mix must be determined in accordance
with its production timetable and the licence renewals requested by nuclear plant owners
within the framework of prevailing law.

Taking this into account, as well as the investment and maintenance policies followed at its
nuclear plants, the IBERDROLA Group considers that the corresponding operating licences
will be renewed at least until those plants are 40 years old. Accordingly, for accounting
purposes the plants will be depreciated over the resulting period (Note 4.e).

- Note 43 of these Consolidated financial statements describes the principal contingent liabilities
of the IBERDROLA Group, the majority of which have arisen in ongoing litigation, the future
course of which cannot be determined with certainty at the date of authorisation for issue of
these Consolidated Financial Statements.

- The IBERDROLA Group is currently involved in negotiations and/or arbitration regarding some
of its long-term contracts to supply or sell raw materials and believes that their outcomes will
not have a significant change on the amounts shown in the Consolidated financial statements.

The IBERDROLA Group and its legal and tax advisors consider that no losses of assets and no
significant liabilities will arise for the IBERDROLA Group as a result of the matters detailed in the
paragraphs above.

7. GEOGRAPHICAL AND BUSINESS SEGMENT REPORTING

IFRS 8: “Operating segments” provides that an operating segment is a component of an entity:

 that engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the
same entity),

 which operating results are reviewed regularly by the entity's chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance, and

 for which discrete financial information is available.

Transactions among different segments are carried out on market basis.

The operating segments identified by the IBERDROLA Group are as follows:

- Network business: including all the energy transmission and distribution activities, and any
other regulated activity originated in Spain, the United Kingdom, the United States and
Brazil.

- Deregulated business: including electricity generation and sales businesses as well as gas
trading and storage businesses carried on by the Group in Spain, Portugal, the United
Kingdom and North America.

54
 - Renewables: activities relating to renewable energies in Spain, the United Kingdom, the
United States and the rest of the world.

- Other businesses: grouping the engineering and construction businesses and the non-
power businesses.

Additionally, Corporation includes the costs of the Group's structure (Single Corporation), of the
administration services of the corporate areas that are subsequently invoiced to the other companies
through specific service agreements.

The IBERDROLA Group manages globaly not only the financial activities but also the effects of
taxation on profits. Consequently, financial income and expenses and Income Tax have not been
allocated to operating segments.

The key figures for the operating segments identified are as follows:

55
Business segment reporting for 2014

Thousands of euros
Corporation
Other Segment and
Deregulated Renewable Network businesses Total adjustments
Spain and United United Rest of the United
Portugal Kingdom North America Total Spain Kingdom United States world Total Spain Kingdom United States Brazil Total Total Total Total Total

NET REVENUE

External revenues 12,212,827 7,577,141 1,406,655 21,196,623 191,374 36,165 880,272 204,480 1,312,291 1,789,166 1,134,509 2,412,964 1,588,943 6,925,582 593,418 30,027,914 4,356 30,032,270
Inter-segment revenues 297,969 70,531 54,969 423,469 544,154 378,021 - - 922,175 162,748 245,882 - - 408,630 4,814 1,759,088 398 1,759,486
Intercompany eliminations (480,122) - - - (480,122) (1,279,364) (1,759,486)
Total revenues 21,139,970 2,234,466 7,334,212 598,232 31,306,880 (1,274,610) 30,032,270

INCOME STATEMENT

Segment operating profit (loss) 958,166 99,013 218,882 1,276,061 187,277 109,068 153,187 51,354 500,886 1,018,480 752,877 495,340 188,150 2,454,847 (24,242) 4,207,552 (266,628) 3,940,924
Share in net profit of companies accounted for using the
equity method (20,222) 1,363 - (18,859) (411) 549 4,581 4,498 9,217 1,037 - - 78,934 79,971 65,100 135,429 - 135,429

ASSETS

Segment assets 10,064,739 8,182,407 3,326,113 21,573,259 4,941,670 4,906,749 10,231,616 1,018,659 21,098,694 10,720,093 11,054,323 10,886,992 1,646,148 34,307,556 1,678,684 78,658,193 844,362 79,502,555
Investments in companies accounted for using the
equity method 31,235 2,644 - 33,879 55,533 17,968 148,354 99,824 321,679 53,274 - - 1,289,149 1,342,423 596,616 2,294,597 - 2,294,597

LIABILITIES

Segment liabilities 2,431,829 903,971 533,900 3,869,700 547,579 239,473 1,927,594 139,923 2,854,569 6,552,957 1,472,796 1,797,101 419,583 10,242,437 348,010 17,314,716 1,215,767 18,530,483

OTHER INFORMATION

Total cost incurred during the period in the acquisition of

property, plant and equipment and non-current intangible assets 133,577 103,440 184,391 421,408 63,778 463,632 234,724 289,137 1,051,271 538,476 835,388 595,868 68,056 2,037,788 1,779 3,512,246 75,481 3,587,727
Depreciation and amortisation expenses 559,456 357,587 99,077 1,016,120 233,349 157,377 342,081 92,333 825,140 420,066 271,905 276,645 111,332 1,079,948 7,220 2,928,428 95,174 3,023,602
Expenses for the period other than depreciation and amortisation
that did not result in cash outflows 50,036 23,050 2,454 75,540 5,059 1,798 6,890 213 13,960 70,109 33,026 12,305 3,407 118,847 8,095 216,442 77,709 294,151

56
Business segment reporting for 2013

Thousands of euros
Corporation
Other Segment and
Deregulated Renewable Network businesses Total adjustments
Spain and United United Rest of the United
Portugal Kingdom North America Total Spain Kingdom United States world Total Spain Kingdom United States Brazil Total Total Total Total Total

NET REVENUE

External revenues 12,822,904 8,605,011 1,250,730 22,678,645 471,074 24,711 849,261 218,933 1,563,979 1,746,467 978,081 2,301,816 1,259,090 6,285,454 549,034 31,077,112 - 31,077,112
Inter-segment revenues 469,658 90,342 57,740 617,740 515,212 303,300 311 1,021 819,844 158,364 249,929 - - 408,293 8,209 1,854,086 140 1,854,226
Intercompany eliminations (542,403) - - - (542,403) (1,311,823) (1,854,226)
Total revenues 22,753,982 2,383,823 6,693,747 557,243 32,388,795 (1,311,683) 31,077,112

INCOME STATEMENT

Segment operating profit (loss) 787,328 50,231 (850,874) (13,315) 247,493 124,503 (366,492) 61,710 67,214 1,069,206 684,363 491,356 121,554 2,366,479 (51,943) 2,368,435 (148,977) 2,219,458
Share in net profit of companies accounted for using the
equity method 17,904 88 - 17,992 10,413 1,026 229 2,818 14,486 2,040 - - 113,322 115,362 57,125 204,965 - 204,965

ASSETS

Segment assets 10,585,251 7,717,960 2,906,133 21,209,344 4,960,364 4,260,890 9,232,592 959,178 19,413,024 9,802,354 9,726,396 9,226,985 1,624,778 30,380,513 1,800,239 72,803,120 1,397,236 74,200,356
Investments in companies accounted for using the
equity method 95,456 1,195 - 96,651 50,684 16,202 138,584 119,308 324,778 55,608 - - 1,299,678 1,355,286 403,672 2,180,387 - 2,180,387

LIABILITIES

Segment liabilities 2,262,280 905,093 452,276 3,619,649 194,120 242,100 1,727,893 110,456 2,274,569 5,678,226 1,391,282 1,386,589 292,787 8,748,884 604,288 15,247,390 1,023,904 16,271,294

OTHER INFORMATION

Total cost incurred during the period in the acquisition of

property, plant and equipment and non-current intangible assets
Depreciation and amortisation expenses 273,526 129,036 57,231 459,793 110,068 458,610 472,671 125,728 1,167,077 415,074 692,498 615,594 79,107 1,802,273 1,196 3,430,339 125,070 3,555,409
Expenses for the period other than depreciation and amortisation 553,887 270,233 1,175,847 1,999,967 420,899 107,291 814,498 91,233 1,433,921 381,109 254,603 226,812 117,470 979,994 52,394 4,466,276 71,176 4,537,452
that did not result in cash outflows
9,396 25,107 3,965 38,468 1,770 1,676 7,075 220 10,741 15,220 32,521 22,000 8,397 78,138 4,503 131,850 47,254 179,104

57
The breakdown of revenues and non-current assets by geographical area is as follows:

Thousands of euros
12.31.14 12.31.13
Net revenue
Spain 14,363,612 15,289,140
United Kingdom 8,802,847 9,655,169
North America 4,986,068 4,547,560
Brazil 1,640,733 1,281,910
Rest of the world 239,010 303,333
30,032,270 31,077,112

Thousands of euros
12.31.14 12.31.13
Non-current assets (*)
Spain 24,060,090 24,456,256
United Kingdom 22,401,670 20,326,449
North America 23,445,611 20,480,348
Brazil 1,588,521 1,460,139
Rest of the world 955,985 962,003
72,451,877 67,685,195

(*) Excluding non-current financial assets, deferred tax assets and non-current trade and other
receivables.

In addition, the reconciliation between segment assets and liabilities and the total assets and liabilities
in the Consolidated statement of financial position is as follows:

Thousands of euros
12.31.14 12.31.13

Segment assets 79,502,555 74,200,356

Non-current financial assets 3,779,855 5,038,608
Deferred tax assets 5,837,290 6,500,218
Current trade and other receivables 768,097 783,662
Current financial investments 1,377,654 992,517
Current income tax assets 333,223 230,947
Other tax receivables 367,206 708,836
Cash and cash equivalents 1,805,533 1,331,735
Total Assets 93,771,413 89,786,879

Thousands of euros
12.31.14 12.31.13

Segment Liabilities 18,530,483 16,271,294

Equity 35,790,508 35,288,596
Non-current equity instruments having the substance of a
financial liability 180,371 243,607
Non-current bank borrowings 23,314,600 24,473,137
Deferred tax liabilities 9,368,955 8,335,612
Other non-current payables 611,213 542,480
Current equity instruments having the substance of a
financial liability 101,350 85,686
Current bank borrowings 5,034,559 3,978,824
Other current liabilities 839,374 567,643
Total Equity and Liabilities 93,771,413 89,786,879

The operating profit of the different businesses of the IBERDROLA Group located in Spain in the
years 2014 and 2013 amounted to EUR 2,139,682 thousand and EUR 2,052,084 thousand,
respectively.

58
8. INTANGIBLE ASSETS

The changes in 2014 and 2013 in intangible assets accounts and in the related accumulated amortisation and provisions were as follows:
Thousands of euros

Exchange Increase Exchange Increase

differences in Additions or Capitalised (decrease) Disposals, differences in Additions or Capitalised (decrease) Disposals,
Balance at foreign charges for staff costs due to derecognition Write- Balance at foreign charges for the staff costs due to derecognition Write- Balance at
01.01.13 currency the year (Note 35) transfers and reductions offs 12.31.13 currency year (Note 35) transfers and reductions offs 12.31.14

Cost:
Goodwill 8,305,656 (232,853) - - - - (271,566) 7,801,237 552,949 - - - - - 8,354,186
Concessions, patents,
licenses, trademarks and
other 6,146,174 (409,426) 83,463 28,169 (26,366) (11,534) - 5,810,480 360,513 81,958 25,201 (30,562) (9,532) - 6,238,058
Computer software 1,377,688 (17,361) 115,007 18,718 126 (34,880) (117) 1,459,181 48,038 87,437 7,960 2,951 (335,377) - 1,270,190
Emission allowances 190,391 (3,088) 1,107 - (61,223) (127,064) - 123 - - - (23) (12) - 88
Other intangible assets 4,355,061 (149,387) 61,580 - (145,879) (6,745) (29,045) 4,085,585 417,232 5 - (56,951) (2,651) (25,532) 4,417,688
Total cost 20,374,970 (812,115) 261,157 46,887 (233,342) (180,223) (300,728) 19,156,606 1,378,732 169,400 33,161 (84,585) (347,572) (25,532) 20,280,210

Accumulated amortisation
and allowances

Concessions, patents,
licenses, trademarks and
other 514,247 (44,366) 172,617 - 4,181 (3,550) - 643,129 21,561 165,030 - (34) (5) - 829,681
Computer software 998,098 (12,679) 96,188 - 796 (34,875) - 1,047,528 30,283 128,510 - 58 (334,834) - 871,545
Other intangible assets 750,037 (24,844) 72,563 - (22,340) (12) - 775,404 78,791 66,364 - 7,695 - - 928,254
Total accumulated
Amortisation 2,262,382 (81,889) 341,368 - (17,363) (38,437) - 2,466,061 130,635 359,904 - 7,719 (334,839) - 2,629,480
Impairment allowances 36,254 (25,321) 698,687 - 835 (12,916) - 697,539 90,672 289 - - - - 788,500
Total accumulated
amortisation and
allowances 2,298,636 (107,210) 1,040,055 - (16,528) (51,353) - 3,163,600 221,307 360,193 - 7,719 (334,839) - 3,417,980

Total carrying amount 18,076,334 (704,905) (778,898) 46,887 (216,814) (128,870) (300,728) 15,993,006 1,157,425 (190,793) 33,161 (92,304) (12,733) (25,532) 16,862,230

59
The fully amortised intangible assets in use at 31 December 2014 and 2013 amounted to EUR
298,292 thousand and EUR 298,432 thousand, respectively.

The IBERDROLA Group maintains at 31 December 2014 and 2013 commitments to acquire intangible
assets for EUR 6,319 and EUR 3,160 thousand.

In addition, at 31 December 2014 and 2013, there were no significant restrictions on the ownership of
intangible assets.

The allocation of goodwill to the cash generating units at 31 December 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Electricity generation and electricity and gas supply

in the UK 4,767,594 4,484,523
Regulated activities in the UK 735,940 692,242
Renewable energies in the UK 464,805 437,208
Renewable energies in the USA 1,245,303 1,101,368
Regulated activities in the USA 571,819 505,727
Regulated activities in Brazil 182,846 184,886
Corporate activities and others 385,879 395,283
8,354,186 7,801,237

The allocation of indefinite life and in-progress intangible assets at 31 December 2014 and 2013 to the
various cash generating units is as follows:

Thousands of euros
2014
Intangible
assets with Intangible
indefinite assets in
useful lives progress Total

Electricity distribution in Scotland 848,508 - 848,508

Electricity distribution in Wales and England 816,628 - 816,628
Electricity transmission in the UK 322,494 - 322,494
Renewable energies in the UK - 499,381 499,381
Renewable energies in the USA - 276,213 276,213
Electricity and gas distribution in New York
(NYSEG) 971,363 - 971,363
Electricity and gas distribution in New York
(RG&E) 875,537 - 875,537
Electricity transmission and distribution
in Maine (CMP) 241,222 91,088 332,310
Others - 345,088 345,088
4,075,752 1,211,770 5,287,522

60
 Thousands of euros
2013
Intangible
assets with Intangible
indefinite assets in
useful lives progress Total

Electricity distribution in Scotland 798,129 - 798,129

Electricity distribution in Wales and England 768,142 - 768,142
Electricity transmission in the UK 303,347 - 303,347
Renewable energies in the UK - 489,457 489,457
Renewable energies in the USA - 245,344 245,344
Electricity and gas distribution in New York (NYSEG) 859,091 - 859,091
Electricity and gas distribution in New York (RG&E) 774,340 - 774,340
Electricity transmission and distribution in Maine (CMP) 213,341 125,818 339,159
Others - 336,438 336,438
3,716,390 1,197,057 4,913,447

61
9. INVESTMENT PROPERTY

The changes in 2014 and 2013 in the IBERDROLA Group’s investment property were as follows:

Thousands of euros
Increase
Additions/ (decrease) Decreases, Additions/ Decreases,
Balance at (charge for the due to disposals or Balance at (charge for the disposals or Balance at
01.01.13 year)/reversals transfer reductions 12.31.13 year)/reversals reductions 12.31.14

Investment properties 463,447 5,635 93,426 (2,302) 560,206 3,786 (3,445) 560,547
Impairment adjustments (11,497) (27,397) 190 - (38,704) - 640 (38,064)
Accumulated depreciation (27,580) (6,232) - 410 (33,402) (7,186) 450 (40,138)
Carrying amount 424,370 (27,994) 93,616 (1,892) 488,100 (3,400) (2,355) 482,345

The fair value of the investment properties in use at 31 December 2014 and 2013 was EUR 515,707 thousand and EUR 515,342 thousand, respectively.
This fair value was generally calculated as described in Note 4.c.

At 31 December 2014 and 2013, none of the investment properties had been fully depreciated and there were no restrictions on their realisation.
Moreover, there were no contractual obligations to acquire, build, develop, repair or maintain investment property.

62
 10. PROPERTY, PLANT AND EQUIPMENT

The changes in 2014 and 2013 in property, plant and equipment accounts and in the related accumulated amortisation and provisions were as follows:

Thousands of euros

Exchange Exchange
differences in Additions and Increase differences in Additions Increase
Balance at foreign charge for the (decrease) Disposals or Balance at foreign and charge (decrease) Disposals or Balance at
01.01.13 currency year due to transfer reductions Write-offs 12.31.13 currency for the year due to transfer reductions Write-offs 12.31.14
Cost:
Land and buildings 1,137,526 (14,826) 34,775 10,403 (3,534) (5,760) 1,158,584 46,615 37,017 59,268 (4,910) (528) 1,296,046
Operating plants
Hydroelectric plants 6,151,064 (15,969) 855 168,282 (61,365) - 6,242,867 45,985 712 40,058 (10,044) - 6,319,578
Fossil-fuel plants 3,976,058 (58,684) 878 92,385 (1,416,289) - 2,594,348 88,143 (524) 37,721 (9,420) - 2,710,268
Combined cycle plants 6,785,068 (129,302) - 51,553 (13,796) (1,393) 6,692,130 379,048 (24,489) 121,581 (20,950) - 7,147,320
Nuclear plants 7,061,104 - 114,944 162,517 (53,041) (2,394) 7,283,130 - 15,832 110,903 (43,634) - 7,366,231
Wind-powered facilities 18,693,008 (485,930) 629,736 233,971 (393,487) (6,351) 18,670,947 1,369,859 242,229 1,098,273 (23,828) (22,298) 21,335,182
Facilities including:
- Gas storage facilities and
other alternative plants 1,439,536 (75,012) - (35,688) - (128,573) 1,200,263 124,804 - 6,954 (2,563) - 1,329,458
- Electricity transmission
facilities 3,896,795 (132,959) 127,232 206,361 (24,142) - 4,073,287 433,508 132,276 669,229 (38,674) - 5,269,626
- Gas transmission facilities 20,091 (2,728) 4,416 39,932 (44) - 61,667 5,515 120 (21,620) - - 45,682
- Electricity distribution
facilities 23,146,056 (244,578) 234,135 890,832 (114,300) - 23,912,145 802,597 395,247 1,002,205 (51,305) (1,171) 26,059,718
- Gas distribution facilities 1,022,940 (46,746) 65,297 7,847 (7,110) - 1,042,228 142,975 46,121 38,849 (10,122) - 1,260,051
Meters and measuring
devices 1,496,556 (21,136) 99,214 701 (52,197) - 1,523,138 63,767 121,870 4,608 (60,401) (699) 1,652,283
Dispatching centres and
other facilities 1,396,997 (10,896) 7,366 123,189 (8,158) (8,426) 1,500,072 29,966 28,587 76,356 (10,177) (20,622) 1,604,182
Total operating plants
in use 75,085,273 (1,223,940) 1,284,073 1,941,882 (2,143,929) (147,137) 74,796,222 3,486,167 957,981 3,185,117 (281,118) (44,790) 82,099,579
Other items of property,
plant and equipment in
use 1,809,117 (45,923) 89,384 90,917 (73,293) 181 1,870,383 126,711 85,701 1,798 (131,025) (17) 1,953,551
Plants in progress 3,875,250 (67,766) 2,278,423 (1,929,795) (25,377) (48,129) 4,082,606 259,245 2,645,785 (3,125,792) (48,361) (20,370) 3,793,113

Advances and other items

of property, plant and
equipment in progress
327,640 (5,277) 89,489 (56,534) (90,119) (682) 264,517 19,297 183,069 3,845 (139,329) (204) 331,195
Total cost 82,234,806 (1,357,732) 3,776,144 56,873 (2,336,252) (201,527) 82,172,312 3,938,035 3,909,553 124,236 (604,743) (65,909) 89,473,484

(*) Advances at 31 December 2014 and 2013 were EUR 56,455 thousand and EUR 69,618 thousand, respectively .

63
 Thousands of euros

Exchange Exchange
differences in Additions Increase differences in Additions and Increase
Balance at foreign and charge (decrease) Disposals or Balance at foreign charge for (decrease) Disposals or Balance at
01.01.13 currency for the year due to transfer reductions Write-offs 12.31.13 currency the year due to transfer reductions Write-offs 12.31.14

Accumulated depreciation
and allowances:
Buildings 232,270 (3,229) 21,011 (1,893) (1,677) (81) 246,401 10,946 22,678 12,308 (3,872) - 288,461
Plants in use
Hydroelectric plants 3,334,263 (4,382) 113,935 11 (5,044) - 3,438,783 13,957 117,848 - (9,869) - 3,560,719
Fossil-fuel plants 2,941,169 (41,872) 144,457 997 (1,402,234) - 1,642,517 45,255 150,304 - (5,386) - 1,832,690
Combined cycle plants 1,914,275 (38,757) 249,450 (557) (8,250) - 2,116,161 129,656 239,287 - (16,376) - 2,468,728
Nuclear plants 4,680,334 - 246,924 (1) (51,222) - 4,876,035 - 260,577 - (43,007) - 5,093,605
Wind-powered facilities 3,925,514 (85,435) 712,194 (46,758) (71,195) (620) 4,433,700 283,626 767,547 (12,308) (17,742) (4,284) 5,450,539
Facilities including:
- Gas storage facilities
and other alternative
plants 229,417 (13,413) 29,497 (5,602) - (24,955) 214,944 22,095 22,900 - (1,696) - 258,243
- Transmission facilities 1,065,841 (35,273) 85,418 (12,072) (23,447) - 1,080,467 111,807 106,890 13,910 (38,667) - 1,274,407
- Gas transmission
facilities 9,358 (756) 1,506 6,520 (44) - 16,584 1,368 1,150 (8,174) - - 10,928
- Distribution facilities 8,241,764 (87,374) 540,397 12,009 (76,053) - 8,630,743 283,344 570,484 (13,910) (3,848) - 9,466,813
- Gas distribution
facilities 386,410 (17,398) 25,092 (12) (7,110) - 386,982 52,889 27,502 8,174 (10,072) - 465,475
- Meters and measuring
devices 943,494 (9,751) 77,418 - (51,504) - 959,657 32,666 84,225 - (60,399) - 1,016,149
Dispatching centres
and other facilities 709,620 (6,033) 48,265 4,039 (2,683) (4,379) 748,829 17,938 53,720 - (8,240) (8,976) 803,271

Total 28,381,459 (340,444) 2,274,553 (41,426) (1,698,786) (29,954) 28,545,402 994,601 2,402,434 (12,308) (215,302) (13,260) 31,701,567
Other items of property,
plant and equipment
in use 1,160,808 (26,115) 103,912 60,982 (70,276) - 1,229,311 73,466 94,913 2,586 (113,976) (17) 1,286,283
Total accumulated
amortisation 29,774,537 (369,788) 2,399,476 17,663 (1,770,739) (30,035) 30,021,114 1,079,013 2,520,025 2,586 (333,150) (13,277) 33,276,311
Impairment allowances 420,382 (19,396) 569,674 (23,551) - - 947,109 71,369 20,380 62,335 (11,322) - 1,089,871
Total accumulated
Amortisation and allowances 30,194,919 (389,184) 2,969,150 (5,888) (1,770,739) (30,035) 30,968,223 1,150,382 2,540,405 64,921 (344,472) (13,277) 34,366,182
Total cost 52,039,887 (968,548) 806,994 62,761 (565,513) (171,492) 51,204,089 2,787,653 1,369,148 59,315 (260,271) (52,632) 55,107,302

64
 The breakdown by business of the main investments made in 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Spain and Portugal deregulated 131,851 270,606

United Kingdom deregulated 80,026 87,892
North America deregulated 184,127 55,694
Spain renewables 62,970 113,598
United Kingdom renewables 462,985 458,036
United States renewables 232,846 471,318
Rest of the world renewables 285,388 105,190
Spain networks 529,616 405,835
United Kingdom networks 828,858 686,216
United States networks 595,868 570,375
Brazil networks 3,141 138
Corporation and others 33,953 74,080
3,431,629 3,298,978

The " Amortisation and provision" caption, in the Consolidated Income Statement for 2014 includes
EUR 73,012 thousand for impairment of property, plant and equipment of the IBERDROLA Group. In
2013 this caption included a charge of EUR 741,166 thousand.
The breakdown by asset type of impairment charges/(reversals) recognised in 2014 and 2013 is as
follows:

Thousands of euros
12.31.14 12.31.13

Hydroelectric plants - 5,183

Wind-powered facilities (Note 12) 28,183 149,184
Gas storage facilities and other alternative plants - 431,851
Other items of property, plant and equipment in the course of
construction 17,059 1,062
Other items of property plant and equipment 1,581 -
Reversal of provision (26,443) (17,606)
20,380 569,674

The value of fully depreciated items of property, plant and equipment in use at 31 December 2014 and
2013 was EUR 1,930,421 thousand and EUR 1,847,732 thousand, respectively.

The IBERDROLA Group had, at 31 December 2014 and 2013, commitments to acquire property, plant
and equipment to a value of EUR 3,072,514 and EUR 1,821,912 thousand, respectively.

At 31 December 2014 and 2013, “Other items of property, plant and equipment in use” included EUR
176,406 and EUR 183,277 thousand, respectively, for assets held under finance leases corresponding
primarily to IBERDROLA’s corporate offices in Madrid, among other assets. The minimum payments
on the lease at 31 December 2014 and 2013 are as follows:

65
 Thousands of euros
12.31.14

2015 19,536
2016 – 2018 36,016
2019 and beyond 125,604
Total amounts payable 181,156

Finance costs 22,486

Present value of lease payments 158,670
181,156

11. CONCESSION ARRANGEMENTS

th th
In accordance with the Law 29/1985 dated 2 August, as partly amended by Law 46/1999 dated 13
December, all Spanish hydro-electric power plants are subject to temporary service concession
arrangements. The concession terms provide that, when a concession expires, the power plant must
be returned to the State in good working condition. The Group’s service concession arrangements
expire between 2000 and 2067. Those plants whose arrangement has expired at 31 December 2014
account for a negligible amount of installed capacity and were fully depreciated as at that date.

The IBERDROLA Group considers that there is no need to recognise a provision as the Spanish
hydropower plants’ maintenance programs ensure that they will continue to operate correctly.

A description is set out below of electricity distribution service concession arrangements in Brazil
within the scope of IFRIC 12: “Service Concession Arrangements”:

Tariff Last review

Entity Nº of towns Locality Grant date Due date review (1)
Elektro Electricidade
Estado do Sao
e Serviços, S.A. 223 08/27/1998 08/26/2028 4 years August 2011
Paulo
(ELEKTRO)

Elektro Electricidade
Mato Grosso do
e Serviços, S.A. 5 08/27/1998 08/26/2028 4 years August 2011
Sul
(ELEKTRO)

(1) All companies are within the third regulatory cycle.

The duration of each concession is 30 years, and each may be extended for up to 30 years upon
application by the concession holder and at the discretion of the concession grantor, which is the
Agência Nacional de Energia Eléctrica (ANEEL). The main duties and obligations of the concession
holder within the terms of the concession contract are to supply electricity to clients within its
concession area, carry out construction work as necessary to provide service, and maintain the assets
relating to the concession (Note 4.b).

The concession holder may not transfer such assets or use them as collateral without the prior written
consent of the regulatory body.

At the end of a concession the property reverts automatically to the concession grantor and the
amount of indemnification due to the concession holder is assessed and determined.

66
The price of services provided to consumers is regulated, and is composed as follows: Plot A (non-
controllable costs, such as energy purchases, transmission and sector charges, among others) and
plot B (efficient operating costs and capital costs – return on the investment and the regulatory
reimbursement). The adjustment mechanisms are the annual tariffs and the ordinary tariff review
conducted every four years in the case of ELEKTRO.
In late 2014, ELEKTRO’s concession arrangements described above as well as the dealership
distribution agreements of electricity in Brazil belonging to NEOENERGIA (Notes 13.c and 27) have
been edited to ensure that at the end of the concession period they are considered for the calculation
of compensation remaining balances (assets or liabilities) for the eventual failure of recognition or
payment for the rate of plot A and other financial components.

12. IMPAIRMENT OF NON-FINANCIAL ASSETS

Methodology of impairment tests

At least yearly, the IBERDROLA Group analyses its assets for indications of impairment. If such
indications are found, an impairment test is conducted.

In addition, the IBERDROLA Group conducts a systematic analysis of the impairment of cash-
generating units that include goodwill or intangible assets which have not come into use or with
indefinite useful life.

The projections used in the impairment tests are based on the best forecast information held by the
IBERDROLA Group at the date the tests were carried out and include the investment plans for each
country prevailing at that time.

a) Assumptions used in deregulated business:

- Production of the facilities: the hours of operation used are consistent with those in previous
years, and in line with the expected evolution of the energy mix of the countries where
IBERDROLA operates.

- Selling prices of electricity and gas: the selling prices used are the ones agreed upon in the
signed price purchase agreements. For unsold production, future prices in the market where
the IBERDROLA Group operates were used. With reference to the gas storage activity in the
United States and Canada, futures prices from the North American gas market have been
used for the period presenting liquidity, while prices for subsequent periods have been taken
from external sources.

- Gas purchase prices: the prices used are taken from long-term purchase agreements signed
by the IBERDROLA Group, estimating the variables included in them according to external
studies.

- Electricity and gas retail margin: growth forecasts were used for the number of customers and
unit margins based on the knowledge of the markets in which the IBERDROLA Group
operates and the company’s relative position in each of them.

- Investment: the best information available has been used on investment plants due to come
on stream in the coming years.

- Operation and maintenance costs: signed long-term maintenance contracts were considered.
Other operating costs were projected consistent with the expected growth of each cash-
generating unit, assuming its headcount grows at the same pace.

67
b) Assumptions used in the regulated business:

- Regulated remuneration: approved remuneration has been used for years in which it is
available, while in subsequent periods revision mechanisms of such remuneration set in
different regulations have been used, and these have been applied in line with the estimated
costs of the corresponding cash-generating units.

- Investment: the projections were based on investment plans consistent with the expected
demand growth in each concession and with the estimate of future remuneration used.

- Operation and maintenance: the best estimate available of the performance of the operation
and maintenance cost was used, which is in line with the remuneration assumed to be
received in each year.

c) Assumptions used in renewables business:

- Productions of the facilities: because of this, the hours of operation of each plant are
consistent with their historical ouput. In this respect, the long term predictability of wind output,
should be taken into account, which is also covered in almost all countries by regulatory
mechanisms that enable wind farms to produce whenever meteorological and network
conditions allow it.

- Given that the wind facilities in the United States and United Kingdom have signed fixed-price
sale agreements, the prices set out in such agreements have been used.

- As described in Note 6.b, an estimate has been made of the regulation that will apply to USA
facilities whose construction starts at 31 December 2014.

- Investment: the projections were based on the best information available on plants due to
come on-stream in the coming years, taking into account the fixed prices stated in the
contracts to buy turbines from various suppliers, including GAMESA (Note 49) and the
technical and financial capacity of the IBERDROLA Group to successfully complete the
projects planned.

- Operation and maintenance costs: prices set in land leases and maintenance agreements for
the useful life of the facilities were used, where the high predictability of the costs of wind
farms must be taken into account.

d) Forecast period and nominal growth rate:

The forecast period of future cash flows and the nominal growth rate (g) used to extrapolate such
forecast beyond the period under analysis are summarised in the following table:

Cash-generating unit No years g

Electricity generation and electricity and gas retail in the UK Useful life/10 - / 2%
Electricity distribution in Scotland 10 3%
Electricity distribution in England and Wales 10 3%
Electricity transmission in the UK 10 3%
Renewable energies in the UK Useful life -
Renewable energies in the USA Useful life -
Gas storage in the USA Useful life -

68
 Cash-generating unit No years g
Gas storage in Canada Useful life -
Electricity and gas distribution in New York (NYSEG) 10 1%
Electricity and gas distribution in New York (RG&E) 10 1%
Electricity transmission and distribution in Maine (CMP) 10 1%
Regulated activities in Brazil (ELEKTRO) Concession life -

Although IAS 36; “Impairment of assets” recommends the use of projections to five years for
impairment test purposes, the IBERDROLA Group has decided to use the periods included in this
table for the following reasons:

- The most appropriate method for assets in the generation business is using their remaining
useful lives. This is due to the fact that in the generation business there are long-term energy
sale contracts in force and long-term estimated prices curves are frequently used in the
operating activity of the IBERDROLA Group (contracts, hedges, etc.)

- The electricity transmission and distribution concessions include longer regulatory periods and
the method that the regulator will use to calculate the new tariff at the beginning of the new
regulatory period is known.

- IBERDROLA considers its projections to be reliable and that past experience demonstrates its
ability to predict cash flows in periods such as those under consideration.

Also, the nominal growth rate considered in the electricity and gas transmission and distribution
activities in the United Kingdom and the United States is consistent with the market and inflation
growth forecasts used by IBERDROLA for these markets.

e) Discount rate:

The methodology for calculating the discount rate used by the IBERDROLA Group consists of adding
to the temporary value of money or risk-free rate of each market the specific asset risks or risk
premium of the asset or business in question.

The risk-free rate corresponds to 10-year Treasury bonds issued in the market in question, with
sufficient depth and solvency. In countries with economies or currencies lacking sufficient depth and
solvency, a country risk and currency risk is estimated so that the aggregate of all such components
are considered to be the finance cost without the risk spread of the asset.

The asset's risk premium corresponds to the specific risks of the asset, the calculation of which takes
into account the unlevered betas estimated on the basis of comparable companies performing the
same principal activity.

69
The following before-tax discount rates were used in the impairment tests:

Cash-generating unit 2014 rates 2013 rates

Electricity generation and electricity and gas supply

in the United Kingdom 6.61% 6.85%
Electricity distribution in Scotland 5.36% 5.72%
Electricity distribution in England and Wales
5.36% 5.72%
Electricity transmission in the UK 5.36% 5.72%
Offshore/onshore renewable energies in the UK 6.11% / 7.11% 6.40/7.52%
Renewable energies in the USA 6.91% 7.84%
Gas storage in the USA 6.01% 6.05%
Gas storage in Canada 5.98% 6.07%
Electricity and gas distribution in New York
(NYSEG) 5.26% 5.38%
Electricity and gas distribution in New York
(RG&E) 5.26% 5.38%
Electricity transmission and distribution in Maine (CMP) 5.26% 5.38%
Regulated activities in Brazil (ELEKTRO) 10.64% 10.29%

Impairments and write-offs recognised in 2014

The " Amortisation and provisions" caption in the Consolidated Income Statement of 2014 includes
EUR 98,833 thousand for impairment of non-financial assets.

The main concepts are the following:

- During 2014, there was a modification to the remuneration system for renewable energies in
Romania. Consequently, the IBERDROLA Group has booked an impairment of EUR 28,183
million on its facilities in that country.

- As explained in the IBERDROLA Group's consolidated annual accounts for 2013, when these
were drawn up, the details of the remuneration methodology for renewable energies in Spain
established by Royal Decree 9/2013 were not known; hence the IBERDROLA Group
estimated its impact with the best information available. As indicated in Note 3, in 2014 Royal
Decree 413/2014 and Order IET/1045/2014 were published, entailing an impairment in the
cogeneration facilities by the amount of EUR 25,546 million.

In addition, in 2014 other write-offs and impairments have been booked in other fixed assets, both
intangible and material, in the amount of EUR 45,104 million.

Impairments and write-offs recognised in 2013

The "Amortisation and provisions" caption in the Consolidated Income Statement for 2013 includes
EUR 1,801,347 thousand for impairment (EUR 1,329,124 thousand) and write-offs (EUR 472,223
thousand). The key items – described in further detail in the Consolidated Financial Statements for
2013 – are summarised below:

- The IBERDROLA Group decided to bring its portfolio of United States wind farm projects into
line with the new regulatory scenario and declining electricity prices. It accordingly recognised
impairments and provisions in the amount of EUR 511,340 thousand (EUR 39,446 and EUR
471,894 thousand of write-offs and impairment, respectively).

70
 - As a result of the decision to halt development of gas storage in the United States in response
to the entry into the US energy market of shale gas, the IBERDROLA Group recognised
impairments and provisions in respect of the total capitalised cost of those projects, which came
to EUR 536,516 thousand (EUR 104,665 and EUR 431,851 thousand of write-offs and
impairment, respectively). Following impairment testing, the Group wrote off the entirety of
goodwill relating to the gas storage cash-generating units in the United States and Canada, for
a value of EUR 271,562 thousand, and other assets the carrying amount of which was EUR
263,921 thousand (EUR 15,115 and EUR 248,806 thousand of write-offs and impairment,
respectively).

- In addition, given that the return under Royal Decree-Law 9/2013 falls short of the profitability
metrics that the IBERDROLA Group requires from its investments, an impairment was
recognised for the entire carrying amount of renewable energy facility development projects in
Spain, for a value of EUR 64,985 thousand.

- Finally, the IBERDROLA Group recognised impairments in investment property and property
development inventory of EUR 27,397 thousand, EUR 33,368 thousand, respectively, and
corrected the value of Property, plant and equipment in addition to those described above in the
amount of EUR 114,154 thousand (EUR 41,318 and EUR 72,836 thousand of write-offs and
impairment, respectively) and corrected EUR 117 thousand and reversed provisions of
intangible assets amounting EUR 22,013 thousand.

Sensitivity analysis

The IBERDROLA Group has performed several sensitivity analyses of the impairment test results
carried out in a systematic way including reasonable changes in a series of basic assumptions defined
for each cash-generating unit:

- Electricity and gas generation and retail in the United Kingdom:

 A 10% decline in energy output.

 A 10% decline in the margin obtained per kWh.

 A 10% decline in the increase in electricity and gas customers.

 A 10% decline in the margin per kWh of retailing electricity and gas.

 A 10% increase in operating and maintenance costs.

 A 10% increase in investment cost.

- Regulated activities in United Kingdom, United States and Brazil:

 A 10% decline in the rate of return on which the regulated remuneration is

based.

 A 10% increase in operating and maintenance costs.

 A 10% decline in investment (which would lead to a consequent decline in

remuneration).

71
 - Renewable energies in the United Kingdom and the United States:

 A 5% decline in energy output.

 A 10% decline in the total price obtained per kWh, only applicable to
production for which no long-term sales agreements have been entered into.

 A 10% increase in operating and maintenance costs.

 A 10% increase in the investment cost.

- Gas storage in the United States and Canada:

 A 15% decline in the gas storage spread (margin per bcm due to the
seasonality of prices).

 A 10% increase in operating and maintenance costs.

 A 10% increase in the investment cost.

The IBERDROLA Group performed an additional sensitivity analysis of a 100 basis point increase in
the discount rate applicable in each case.

These sensitivity analyses carried out separately for each basic assumption did not detect the
existence of any impairment, except for the following cases:

- Generation of renewable energy in the United States, the value in use of which is EUR 331
million greater than its carrying amount, meaning that an increase of 50 basis points in the
discount rate or a decline in the wind energy output of 4.4% would make the value in use
lower than the carrying amount.
- Gas storage in the United States, whose value in use is similar to its carrying amount,
meaning that any significant variation of the key assumptions would mean that the value in
use of said cash generating unit would be lower than its carrying amount.
- Electricity generation and electricity and gas retail in UK, in which a variation of 100 basis
points in the discount rate would mean that the value in use of said cash generating unit would
be similar to its carrying amount.

13. FINANCIAL INVESTMENTS

a) Investments accounted for using the equity method

The changes in 2014 and 2013 in the carrying amount of investments of the IBERDROLA Group
companies accounted for using the equity method (see Appendix) were as follows:

72
 Thousands of euros
Joint ventures (Note 2.a)
Bahía de
Bizkaia
Associated Neoenergia Electricidad, Flat Rock Other joint
company Subgroup S.A. Subgroup ventures Total

Balance at 01.01.13 375,552 1,811,674 48,480 151,434 291,385 2,678,525

Investment - - - - 4,742 4,742

Profit for the year from continuing
operations 6,347 113,322 20,980 229 (2,330) 138,548
Value adjustment 66,417 - - - - 66,417
Other global result 1,154 (14,581) (99) - 6,684 (6,842)
Dividends (3,988) (383,502) (23,499) (6,992) (21,595) (439,576)
Exchange differences (14,141) (221,320) - (6,087) (13,220) (254,768)
Disposals (2,193) (5,985) - - (7,976) (16,154)
Others 2,488 70 - - 6,937 9,495
Balance at 12.31.13 431,636 1,299,678 45,862 138,584 264,627 2,180,387

Investment 46,481 - - - 49,603 96,084

Tranfers - 25,790 - - 64,397 90,187
Profit for the year from continuing
23,513 83,020 16,660 4,581 (33,167) 94,607
operations
Value adjustment 65,118 - - - (24,296) 40,822
Other global result 198 (8,114) 101 - (4,266) (12,081)
Dividends (5,423) (35,618) (16,249) (14,507) (11,705) (83,502)
Exchange differences 9,247 (16,602) - 17,441 2,526 12,612
Disposals (1,210) (21,702) (46,374) - (23,251) (92,537)
Others 1,085 1,521 - 2,255 (36,843) (31,982)
Balance at 12.31.14 570,645 1,327,973 - 148,354 247,625 2,294,597

Together with the UK operator National Grid, Scottish Power Transmission is a venturer in the joint
venture NGET/SPT Upgrades, Ltd, for the purpose of building a submarine interconnector in the Irish
Sea to increase power transmission capacity between England and Scotland. The IBERDROLA
Group’s investment commitment to this capital-intensive project comes to EUR 328 million and EUR
41 million in 2015 and 2016, respectively. In addition, Scottish Power Renewables is working with
Vattenfall to develop over 7,200 MW of offshore wind power capacity off the coast of East Anglia
through the joint venture East Anglia Offshore Wind, Ltd. At present, work continues on the first phase
of the project – East Anglia One, with a capacity of 1,200 MW – in which the IBERDROLA Group has
committed to invest EUR 22.4 million in 2015.

As to the IBERDROLA Group’s investment in Gamesa Corporación Tecnológica, S.A. (“GAMESA”),

an impairment test was conducted as at 31 December 2013, as indicated in Note 12 of the
Consolidated financial statements for that year. Part of the write-downs made in previous years was
reversed – in the amount of EUR 66,417 thousand. The reversal was recorded in “Results of
companies accounted for using the equity method - net of taxes” of the Consolidated income
statement for 2013.

The IBERDROLA Group performed an impairment test on its ownership interest in GAMESA at 31
December 2013, the basic assumptions of which are as follows:

- 9.25% discount rate (after tax).

- Cash flow projection period of 5 years.
- 1% growth rate in annual terms for subsequents´ cash flows.

73
As a result of that impairment test in 2014 the entirety of the existing impairment was reversed in the
amount of EUR 81,770 thousand. The reversal was recorded in “Results of companies accounted for
using the equity method - net of taxes” in the Consolidated income statement for 2014.

The market value of the GAMESA stake at 31 December 2014 and 2013 amounted to EUR 415,650
thousand and EUR 378,860 thousand, respectively. On the other hand, the book value registered in
the Consolidated statement at 31 December 2014 and 2013 amounts to EUR 475,346 and EUR
320,000 thousand, respectively.

In the IBERDROLA Group’s Consolidated financial statements for 2013, the assets and liabilities of
the Corporación IBV group were included within “Assets held for sale” and “Liabilities relating to assets
held for sale”, because the IBERDROLA Group took the view that their carrying amount would be
recovered through sale, and the conditions were satisfied of IFRS 5: “Non-current Assets Held for Sale
and Discontinued Operations” for those items to be classified to those captions. Given that at the date
of issue of these Consolidated financial statements the requirements of IFRS 5 are no longer satisfied,
and with regard to IFRS 11 (Note 2.a), this joint venture is now accounted using the equity method.

The main transactions performed by the IBERDROLA Group in connection with these equity
investments accounted for using the equity method were as follows:

2014

As described in Note 39, in October 2014 the IBERDROLA Group disposed of its 25% holding in
Bahía Bizkaia Electricidad, S.L. (hereafter BBE).

On the other hand, on 26th June 2014, the sale was finalized of the holding of 50% representing of the
share capital of the Belgian company NNB Development Company, S.A. (hereafter NNB) to the
company Advance Energy UK Limited, a subsidiary of the Toshiba Corporation of Japan (Note 39).

2013

On 27 December 2012, IBERDROLA entered into an agreement to transfer its stake in Medgaz, S.A.
(hereinafter MEDGAZ) for a selling price of EUR 146 million (including subrogation in the loan granted
to MEDGAZ of approximately EUR 16 million), subject to the usual adjustments in transactions of this
nature. The transaction was subject to non-exercise by other MEDGAZ shareholders of their pre-
emptive subscription right and the attainment of certain consents not obtaining as at 31 December
2012. Given that the agreement limited the decision-making capacity of the IBERDROLA Group in
MEDGAZ from the date of signature, the IBERDROLA Group considers that it did not have significant
influence over that stake, and it has accordingly transferred it to "Current equity instruments" in the
Consolidated statement of financial position at 31 December 2012, with the recognised capital gain
amounting to EUR 105,324 thousand, which is recognised in “Financial income” of the Consolidated
income statement of 2012.

On 11 February 2013, Compañía Española de Petróleos S.A.U. (hereinafter, CEPSA) and Sonatrach
S.P.A. (hereinafter, SONATRACH), as shareholders of Medgaz, S.A. (hereinafter, MEDGAZ),
exercised their pre-emptive right of purchase on IBERDROLA's stake in MEDGAZ as per the
agreement between the parties. Consequently, the IBERDROLA Group derecognised its stake in
MEDGAZ, which had been included under "Current equity instruments" in the Consolidated statement
of financial position at 31 December 2012. The amount received by the IBERDROLA Group amounts
to EUR 130,258 thousand.

74
 The summarised financial information as at 31 December 2014 (at 100% and before intercompany
eliminations) for the major subgroups/companies accounted for using the equity method is as follows:

Thousands of euros

Subgroup Neoenergia Subgroup Flat Rock

12.31.14 12.31.13 12.31.14 12.31.13

Segment Networks-Brazil Renewables-USA

Current assets 1,510,920 1,477,381 5,221 7,954

Non-current assets 5,890,861 5,514,600 310,515 290,994
Total assets 7,401,781 6,991,981 315,736 298,948

Current liabilities 1,333,044 1,087,278 344 244

Non-current liabilities 2,668,733 2,529,023 22,448 21,536
Total liabilities 4,001,777 3,616,301 22,792 21,780

Revenue 3,774,964 3,550,876 43,992 31,154

Depreciation and amortization (336,449) (440,757) (18,087) (16,281)
Interest income 166,365 291,439 4 4
Interest expenses (377,614) (267,348) (556) (27)
Tax (expense)/income (43,921) (76,604) - -
Profit for the year from continuing operations
Profit after tax from discontinued operations 195,123 276,308 10,197 458
Other global profit (17,112) (24,896) - -
Total global profit 178,011 251,412 10,197 458

Other information
Cash and cash equivalents 348,798 624,826 3,044 3,969
Current financial liabilities (*) 550,803 582,351 - -
Non-current financial liabilities (*) 2,314,915 2,183,701 - -

(*) Excluding trade and other payables

b) Non-current equity instruments

The carrying amounts of the main investments in non-current equity instruments at 31 December 2014
and 2013 is as follows:

Thousands of euros % of ownership

Company 12.31.14 12.31.13 12.31.14 12.31.13

Energias de Portugal, S.A. (EDP) - 649,867 - 6.656%

Others 77,309 106,769 - -
77,309 756,636

All the financial assets included under this heading in the Consolidated statement of financial position
at 31 December 2014 and 2013 were classified as available-for-sale assets.

In 2014 the IBERDROLA Group disposed of its interest in EDP - Energias de Portugal, S.A. for the
amount of EUR 660,709 thousand which leads to the gross surplus of EUR 96,422 thousand
registered in the heading “Financial income” of the Consolidated Financial Statements of 2014 (Note
40).

75
c) Other financial assets

The detail of “Other non-current financial assets” and “Other current financial assets” in the
IBERDROLA Group’s Consolidated statement of financial position at 31 December 2014 and 2013 is
as follows:
Thousands of euros
12.31.14 12.31.13 Interest rate Maturity
Non-current

Collection rights in Brazil (Note 4.b and 11) 214,364 182,926 Indexed to inflation From 2027 on

Long-term deposits and guarantees 119,211 120,743 - Not set

Fixed-income securities
Related to equity instruments having the
substance of a financial liability 10,701 27,757 5.5% – 6.5% From 2016 on
From 2016 on
Others 18,071 25,804 Various

Concessional guarantee of the sufficiency tariff in

Brazil (Note 11) 86,943 - 10.9% From 2016 on

Revenue shortfall for 2013 (Note 4.w) - 1,222,993 - -

Indexed to From 2016 on

EURIBOR and
Long-term loans and deposits 73,590 23,332 LIBOR

Pension plan financial assets (Note 23) - 38,177 - -

Other investments in companies accounted for Indexed to

using the equity method 197,917 165,066 EURIBOR From 2016 on

Others 48,578 42,117 - From 2016 on

769,375 1,848,915

Current
Indexed to
EURIBOR and
Short-term cash deposits 24,708 33,814 LIBOR Less than a year

Fixed-income securities
Related to equity instruments having the
substance of a financial liability 20,684 16,868 5.5% - 6.5% Less than a year
EURIBOR and
Others 1,552 1,211 LIBOR Less than a year

Concessional guarantee of the sufficiency tariff in

Brazil (Note 11) 153,982 - 10.9% Less than a year

Accounts receivable for financing shortfall in

revenues in 2014 (Note 4.w) 419,097 - - Less than a year
Revenue shortfall for 2013 (Note 4.w) 16,765 345,638 2% Less than a year
Revenue shortfall for 2012 (Note 4.w) - 2,476 2% Less than a year

Other investments in companies accounted for Indexed to

using the equity method 72,517 54,962 EURIBOR Less than a year

Indexed to
EURIBOR and
Short-term deposits and guarantees 189,318 233,459 LIBOR Less than a year

Others 219,193 184,063 - -

1,117,816 872,491

The caption “Collection rights in Brazil” relates to the indemnification receivable by the Brazilian
companies upon expiry of their service concession arrangements. The Law N° 12.783/13 provides that
such indemnification must be determined by the replacement value (Valor Novo de Reposiçao VNR)
of the concession assets which have not been depreciated/amortised by the end of the concession
period.

76
The fair value of the financial asset receivable from the concession grantor at the end of the
concession is determined using the residual value of the “regulatory asset base” (Base de
Remuneração Regulatória BRR) at the end of the contractual term of the concession.
The method specified by the regulator protects the value of the “regulatory asset base” after each
ordinary tariff review. Ordinary reviews are conducted every four years. This means that after the
regulator has conducted a tariff review the value of the “regulatory asset base” prior to that date
cannot be changed except to the extent that it might be updated in accordance with IGP-M. The next
tariff review will determine the value of the “regulatory asset base” only with regard to additions in the
interval between two tariff reviews.
To estimate the amount of the financial asset observable values are used. Specifically, the net
replacement value, as calculated by the energy regulator in the course of the latest tariff review. The
amount is updated in the intervals between tariff reviews by additions to the underlying fixed assets
and currency conversion differences or, as the case may be, any changes in the method of calculation
of the net replacement value and the Brazilian inflation index (IGP-M).

Furthermore, "Long term deposits and guarantees" essentially corresponds to the portion of bonds
and deposits received from customers at the time of recruitment as security of electricity supply (which
are recorded in "Non-Current Liabilities - Other non-current payables" in the consolidated statement of
financial position - Note 27) and have been deposited with the competent public authorities in
accordance with current legislation in Spain.

At 15 December 2014, the IBERDROLA Group assigned their credit right arising from the Credit Right
for 2013 Deficit to a group of financial institutions. However, the Consolidated statement of financial
position as of 31 December 2014 includes EUR 16,765 thousand, that will be recovered in the pending
settlements of the electricity sector for the year 2014 which are to be held in the year 2015.

Finally, as indicated in Note 4.w, the IBERDROLA Group estimates that in the year 2014 significant
revenue shortfall will not occur. The amount of EUR 419,097 thousand shown in the above table as
“Account receivable for financing shortfall in revenues in 2014” corresponds to the amounts that the
IBERDROLA Group had to finance in 2014 in terms of the hedging mechanism established in the
sector settlements and will be reimbursed in the first months of 2015.

14. NON-CURRENT TRADE AND OTHER RECEIVABLES

The detail of “Non-current trade and other receivables” in the Consolidated statements of financial
position at 31 December 2014 and 2013, is as follows:

Thousands of euros
12.31.14 12.31.13 Interest rate Maturity

Receivables from Brazilian customers 19,399 20,025 Local Inflation +1% From 2016 on
Comisión Federal de la Energía (Note 4.u) 330,770 287,679 5,5% From 2016 on
Others 33,312 76,943
Bad debt provision - (18,684) - -
383,481 365,963

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

77
15. MEASUREMENT OF FINANCIAL INSTRUMENTS

The comparison between carrying amount and fair value of the IBERDROLA Group’s financial
instruments at 31 December 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13
Carrying Fair Carrying Fair
amount value amount value
Financial assets

Equity instruments 81,893 81,893 761,218 761,218

Other financial assets 1,887,191 1,887,191 2,721,406 2,721,406
Derivative financial instruments 1,150,829 1,150,829 501,299 501,299
Current trade and other receivables 5,202,504 5,202,504 4,665,609 4,665,609

Financial liabilities

Bank borrowings and other financial liabilities

loans and others 27,138,900 30,297,419 27,662,917 29,077,112
Derivative financial instruments 1,210,259 1,210,259 789,044 789,044
Other non-current payables 611,213 611,213 542,480 542,480
Trade payables 5,472,733 5,472,733 4,558,777 4,558,777
Other current liabilities 1,287,691 1,287,691 934,710 934,710

The fair value of these financial instruments has been calculated as set out in Note 4.l.

The sensitivity of the fair value of the IBERDROLA Group’s borrowings, after the effect of hedge
accounting, to changes in the euro-dollar and euro- pound sterling exchange rates is as follows:

Thousands of euros
2014 2013

Dollar/euro exchange rate variation +5% -5% +5% -5%

Debt’s value variation (139,742) 154,452 (220,462) 243,471

Thousands of euros
2014 2013

Pound/euro exchange rate variation +5% -5% +5% -5%

Debt’s value variation (140,356) 155,130 (181,811) 201,131

The estimated fair value of borrowings bearing fixed interest rates, after the effect of hedge accounting
at 31 December 2014 and 2013, calculated by discounting future cash flows at market interest rates,
amounted to 14,079,357 and EUR 18,925,333 thousand, respectively. The interest rate curve used to
make this calculation takes into account the risks associated with the electricity industry and the credit
rating of the IBERDROLA Group. The sensitivity of that fair value to interest rate fluctuations is as
follows:

Thousands of euros
12.31.14 12.31.13

Interest rate variation +0.25% -0.25% +0.25% -0.25%

Debt’s value variation (194,530) 200,184 (231,407) 237,209

78
The IBERDROLA Group measures certain available-for-sale assets and derivative financial
instruments at fair value, provided they can be measured reliably, classifying them into three levels:

 Level 1: assets and liabilities quoted in liquid markets.

 Level 2: assets and liabilities whose fair value is determined using valuation techniques with
observable market data.

 Level 3: assets and liabilities whose fair value is determined using valuation techniques
without observable market data.

The breakdown of financial instruments measured at fair value by levels is as follows:

Thousands of euros
Value at
12.31.14 Level 1 Level 2 Level 3

Equity instruments (Note 13.b) 1,139 1,139 - -

Other financial investments – Brazil receivables
(Note 13.c) 214,364 - 214,364 -
Derivative financial instruments (financial assets)
(Note 26) 1,150,829 245 1,086,778 63,806
Derivative financial instruments (financial liabilities)
(Note 26) (1,210,259) (28,782) (1,154,937) (26,540)

Thousands of euros
Value at
12.31.13 Level 1 Level 2 Level 3

Equity instruments (Notes 13.b and 13.c) 682,261 682,261 - -

Other financial investment – Brazil receivables 182,926 - 182,926 -
(Note 13.c)
Derivative financial instruments (financial assets) 501,299 6,043 425,238 70,018
(Note 26)
Derivative financial instruments (financial liabilities) (789,044) (6,213) (748,055) (34,776)
(Note 26)

Equity instruments of not listed companies classified as available for sale, measured at acquisition
cost, which fair value cannot be measured reliably, amounts to 80,754 and EUR 78,957 thousand,
respectively.

79
The reconciliation between initial and final balances for financial instruments classified as Level 3 of
the fair-value hierarchy is as follows:

Thousands of euros
Derivative financial
instruments

Balance at 1 January 2013 16,801

Income and expense recognised in the Consolidated
income statement 8,273
Income and expense recognised in the Consolidated
statement of comprehensive income 973
Purchases 7,547
Sales and liquidations 7,022
Transfer outside Level 3 (5,374)
Balance at 31 December 2013 35,242
Income and expense recognised in the Consolidated
income statement 5,240
Income and expense recognised in the Consolidated
statement of comprehensive income (1,195)
Purchases 7,576
Sales and liquidations (20,568)
Translation differences 4,343
Transfer outside Level 3 6,628
Balance at 31 December 2014 37,266

The fair value of Level 3-classified financial instruments has been determined by the discounted cash
flow method. Projections of these flows are based on assumptions not observable in the market, and
mainly correspond to purchase and sale price estimates the IBERDROLA Group normally uses, based
on its experience in the markets.

80
 None of the possible foreseeable scenarios of the indicated assumptions would result in a material
change in the fair value of the financial instruments classified at this level. In addition, financial assets
and liabilities of the IBERDROLA Group are offset and presented net on the Consolidated statement
of financial position when a legally enforceable right exists to offset the amounts recognised and the
Group intends to settle the assets and liabilities net or to settle simultaneously. The breakdown of
netted financial assets and liabilities at 31 December 2014 and 31 December 2013 is as follows:

31 December 2014
Thousands of euros
Uncompensated amounts under netting
agreements
Gross Compensated Financial Financial Net
amount amount Net amount instruments guarantee amount

ASSET DERIVATIVES:
Current
- Raw materials 862,936 (636,319) 226,617 (59,067) (41,233) 126,317
- Others 16,730 (14,317) 2,413 - (893) 1,520
Non-current
- Raw materials 129,008 (49,028) 79,980 (8,310) (12,277) 59,393
- Others 41,922 (3,789) 38,133 - (35,361) 2,772
Total 1,050,596 (703,453) 347,143 (67,377) (89,764) 190,002
OTHER FINANCIAL
ASSETS:
- Receivables 1,270,306 (297,787) 972,519 (17,574) (2,221) 952,724

LIABILITY DERIVATIVES:
Current
- Raw materials 877,016 (636,352) 240,664 (59,034) (26,392) 155,238
- Others 35,200 (14,317) 20,883 - - 20,883
Non-current
- Raw materials 110,108 (48,995) 61,113 (8,342) (7,693) 45,078
- Others 5,353 (3,789) 1,564 - - 1,564
Total 1,027,677 (703,453) 324,224 (67,376) (34,085) 222,763
OTHER FINANCIAL
LIABILITIES:
- Payables 4,899,981 (297,787) 4,602,194 (17,574) (72,262) 4,512,358

81
 31 December 2013
Thousands of euros
Uncompensated amounts under netting
agreements
Gross Compensated Financial Financial Net
amount amount Net amount instruments guarantee amount

ASSET DERIVATIVES:
Current
- Raw materials 639,523 (528,641) 110,882 (26,458) (10,896) 73,528
- Others 10,114 (8,951) 1,163 - - 1,163
Non-current
- Raw materials 181,916 (133,023) 48,893 (10,069) (68) 38,756
- Others 31,359 (1,590) 29,769 - (29,411) 358
Total 862,912 (672,205) 190,707 (36,527) (40,375) 113,805
OTHER FINANCIAL
ASSETS:
- Receivables 1,028,772 (296,305) 732,467 (11,052) (768) 720,647

LIABILITY DERIVATIVES:
Current
- Raw materials 704,797 (526,151) 178,646 (26,438) (53,144) 99,064
- Others 41,310 (8,951) 32,359 - - 32,359
Non-current
- Raw materials 167,084 (135,513) 31,571 (10,089) (10,140) 11,342
- Others 10,197 (1,590) 8,607 - - 8,607
Total 923,388 (672,205) 251,183 (36,527) (63,284) 151,372
OTHER FINANCIAL
LIABILITIES:
- Payables 3,128,783 (296,305) 2,832,478 (11,052) (62,481) 2,758,945

16. NUCLEAR FUEL

The detail of “Nuclear Fuel” in the Consolidated statement of financial position at 31 December 2014
and 2013, and of the changes therein in 2014 and 2013 is as follows:

Thousands of euros
Fuel loaded
into the reactor Nuclear fuel in
core progress Total

Balance at 1 January 2013 215,580 77,608 293,188

Additions 1,548 194,176 195,724
Capitalised financing expenses (Notes 4.g and 40) 55 1,675 1,730
Transfers 151,072 (151,072) -
Fuel consumed (Note 4.g) (120,328) - (120,328)
Balance at 31 December 2013 247,927 122,387 370,314

Additions 688 87,274 87,962

Capitalised financing expenses (Notes 4.g and 40) 44 818 862
Transfers 111,046 (111,046) -
Fuel consumed (Note 4.g) (139,166) - (139,166)
Balance at 31 December 2014 220,539 99,433 319,972

The IBERDROLA Group’s nuclear fuel purchase commitments at 31 December 2014 and 2013
amounted to EUR 870,315 thousand and EUR 1,053,960 thousand, respectively.

82
17. NVENTORIES

The detail of “Inventories” (Note 4.h) in the Consolidated statements of financial position at 31
December 2014 and 2013 is as follows:
Thousands of euros
12.31.14 12.31.13

Energy sources 644,694 616,860

Emission rights 117,167 145,838
Property developments 1,214,220 1,221,954
Other inventories 164,724 140,870
Impartment provision (101,507) (99,748)
2,039,298 2,025,774

The variations in the impairment provision in 2014 and 2013 are as follows:

Thousands of euros
2014 2013

Initial balance 99,748 66,526

Charge for the year - 37,568
Reversals - (2,610)
Exchange differences 2,147 (88)
Utilized and others (388) (1,648)
Final balance 101,507 99,748

At 31 December 2014, the IBERDROLA Group had in place “take or pay” contracts with several
natural and liquefied natural gas (hereinafter LNG) suppliers for the supply of 44 bcm of gas in the
period from 2015 to 2039, earmarked for retailing and for consumption at the Group's electricity
production facilities. The prices under these contracts are determined on the basis of formulas
commonly used in the market, which index the price of gas to the performance of other energy
variables.

At 30 May 2014 the IBERDROLA Group and the US company Corpus Christi Liquefaction, LLC, a
subsidiary of Cheniere Energy Inc, entered into a long-term LNG supply agreement under which
Corpus Christi Liquefaction, LLC will supply IBERDROLA with around one billion cubic metres (1 bcm)
of LNG a year. The term of the contract will extend for 20 years with deliveries of LNG expected to
commence in 2019 with a partial delivery in 2018. IBERDROLA will purchase LNG for a purchase
price indexed to the monthly Henry Hub index plus a fixed component.

83
18. OTHER CURRENT TRADE AND OTHER RECEIVABLES

The detail of this heading in the Consolidated statements of financial position at 31 December 2014
and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13
Trade receivables 4,801,160 4,154,299
Accounts receivables 342,937 414,802
Companies accounted for using the equity method 49,784 31,716
Bad debt provision (374,858) (301,171)
4,819,023 4,299,646

Generally, the amounts included under this caption in the Consolidated statement of financial position
do not bear any interest.

The variations in the bad debt provision in 2014 and 2013 has been as follows:

Thousands of euros
2014 2013

Opening balance 301,171 286,576

Provisions 185,539 168,313
Reversals and exchange differences (117,072) (138,528)
Long-term transfers 19,374 (1,734)
Surplus (14,154) (13,456)
Final balance 374,858 301,171

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

The detail of current and non-current trade and other receivables with regard to their credit-risk status
is as follows:

Thousands of euros

12.31.14 12.31.13

Provisions for non-current trade and other receivables - 18,684

Provisions for current trade and other receivables 374,858 301,171
Non-provisioned financial assets in default 632,248 517,872
Financial assets not in default and not provisioned 4,570,256 4,147,737
Provisions (374,858) (319,855)
5,202,504 4,665,609

84
The breakdown of the age of financial assets in default for which no provision was considered
necessary as at 31 December 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Up to 90 days 410,082 290,580

90-180 days 137,021 149,288
More than 180 days 85,145 78,004
632,248 517,872

19. CASH AND CASH EQUIVALENTS

The detail of this heading in the Consolidated statements of financial position at 31 December 2014
and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Cash and cash equivalent 391,618 289,582

Short-term deposits 1,413,915 1,042,153
1,805,533 1,331,735

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

20. EQUITY

Share capital

Changes in 2014 and 2013 in the different items of share capital of IBERDROLA are as follows:

Number of
Date % Capital shares Nominal Euros
Balance at 1 January 2013 6,138,893,000 0.75 4,604,169,750
Free capital increase 18 January 2013 2.318 142,291,000 0.75 106,718,250
Capital reduction 21 May 2013 2.400 (150,748,416) 0.75 (113,061,312)
Free capital increase 19 July 2013 1.787 109,539,416 0.75 82,154,562
Balance at 31 December 2013 6,239,975,000 0.75 4,679,981,250
Free capital increase 28 January 2014 2.139 133,492,000 0.75 100,119,000
Capital reduction 29 April 2014 2.094 (133,467,000) 0.75 (100,100,250)
Free capital increase 18 July 2014 1.078 67,239,000 0.75 50,429,250
Free capital increase 16 December 2014 1.288 81,244,000 0.75 60,933,000
Balance at 31 December 2014 6,388,483,000 0.75 4,791,362,250

On 18 January 2013, the second free capital increase took place as approved by the General
Shareholders’ Meeting on 22 June 2012, under Agenda item six, introducing the Iberdrola Flexible
Dividend system.

On 19 July 2013 and 28 January 2014, respectively, the first and second capital increase took place
as approved by the IBERDROLA General Shareholders’ Meeting on 22 March 2013, under Agenda
item six, sections A and B, implementing the Iberdrola Flexible Dividend system.

85
In addition, on 18 July 2014 and 16 December 2014, respectively, the first and second bonus share
issues took place as approved by the IBERDROLA General Shareholders’ Meeting on 28 March 2014,
under Agenda item six, sections A and B, implementing the Iberdrola Flexible Dividend system.

Information on the holders of free of charges allocation rights who accepted the irrevocable rights
purchase commitment of IBERDROLA is as follows:

Free of charges allocation rights Rights waived1

Thousands of
Number euros Number
Free capital increase
18 January 2013 2,154,744,961 308,129 23
19 July 2013 2,844,253,055 369,752 25
28 January 2014 1,434,262,964 180,717 4
18 July 2014 3,012,527,967 343,428 33
16 December 2014 2,651,258,966 336,710 4

Furthermore, on 21 May 2013 and 29 April 2014 it was decided to carry out the capital reductions
resolved upon at the General Shareholders’ Meetings of 22 March 2013 and 28 March 2014,
respectively, under agenda item 10, through the redemption of treasury shares.

There were no changes to IBERDROLA’s share capital other than those resulting from the
transactions described above. There are no claims on IBERDROLA’s share capital other than those
provided for in the Spanish Companies Law.

IBERDROLA shares are listed for trading on the Spanish electronic trading system (the “Mercado
Contínuo Español”), forming part of the IBEX-35 and the European Eurostoxx-50 index.

Major shareholders
Since IBERDROLA’s shares are represented by the book-entry system, the exact stakes held by its
shareholders are not known. The table below summarises major direct and indirect shareholdings in
the share capital of IBERDROLA at 31 December 2014 and 2013, as well as the holdings of financial
instruments disclosed by the owners of these stakes in compliance with Royal Decree 1362/2007 of
19 October. This information is based on filings by the owners of the stakes in the official registers of
the National Securities Market Commission (hereinafter, CNMV) or the company’s financial statements
or press releases, and it is presented in the 2014 IBERDROLA Group´s Annual Corporate
Governance Report.

IBERDROLA treats as a significant shareholder any shareholder who exerts a significant influence on
the company’s financial and operating decisions when (i) they have presence in the Board of Directors
or equivalent and (ii) whose ownership interest in the company enables them to exercise the
proportional representation system. Therefore, the company treats Kutxabank, S.A. and Qatar
Investment Authority as significant shareholders, these being the only shareholders who satisfied that
condition at the date of issue of these Consolidated financial statements.

1
IBERDROLA waived certain owned free of charges allocation rights in order to make the number of shares
ultimately issued a whole number.

86
 % of voting rights Financial Directors of
% Total instruments IBERDROLA
Owner % Direct % Indirect % Total 2013 2014 2014

Qatar Investment Authority (1) - 9.647 9.647 9.524 - -

Kutxabank, S,A, (2) - 3.601 3.601 4.006 - 1

(1) Parent company of Qatar Holding Luxembourg II, S.A.R.L. and DGIC Lux, S.A.R.L., direct owners of the holding.

(2) Parent company of Kartera 1, S.L., direct owner of the holding.

In addition, other companies have indirect voting rights in excess of 3% of share capital. These
companies are ACS, Actividades de Construcción y Servicios, S.A. (3.965%) and Blackrock, Inc
(3.023%).
Capital management

The IBERDROLA Group’s main capital management objectives are to ensure short and long-term
financial stability, a positive performance by IBERDROLA shares, appropriate funding of investments
and a reduction in the IBERDROLA Group’s levels of debt, while at all times guaranteeing that the
IBERDROLA Group maintains its financial strength and robust financial ratios to bolster its businesses,
and maximise shareholders value. At this time, the credit ratings granted by Moody’s, Standard &
Poor’s and Fitch are Baa1, BBB and BBB+, respectively.

Leverage at 31 December 2014 and 2013 stood at:

Thousands of euros
12.31.14 12.31.13

Bank borrowings and other financial liabilities

- Loans and other (Note 25) 27,138,900 27,662,917
Equity instruments having the substance of a
financial liability (Note 21) 281,721 329,293
Derivative financial liabilities 770,708 503,965
Gross debt 28,191,329 28,496,175
Derivative financial assets 735,887 283,501
Other current financial assets 31,385 44,626
Cash and cash equivalents (Note 19) 1,805,533 1,331,735
Cash assets 2,572,805 1,659,862
Net debt 25,618,524 26,836,313

Equity
of the parent 35,039,700 34,584,689
of non-controlling interests 199,611 153,093
Subordinated perpetual obligations 551,197 550,814
35,790,508 35,288,596
Leverage 41.7% 43.2%

87
Derivative financial instruments detailed in the table above only include the ones relating to financing
operations which breakdown is as follows (Note 26):

Thousands of euros
2014
Derivative assets Derivative liabilities
Non Non
Current current Total Current current Total

Interest rate hedges 22,119 252,877 274,996 6,194 (143,657) (137,463)

Foreign currency hedges 165,092 278,800 443,892 (462,009) (132,425) (594,434)
Total hedging derivatives 187,211 531,677 718,888 (455,815) (276,082) (731,897)
Foreign currency derivatives 10,826 2,508 13,334 (19,381) (1,630) (21,011)
Interest rate derivatives 1 3,664 3,665 (2,193) (15,607) (17,800)
Total non-hedging derivatives 10,827 6,172 16,999 (21,574) (17,237) (38,811)

198,038 537,849 735,887 (477,389) (293,319) (770,708)

Thousands of euros
2013
Derivative assets Derivative liabilities
Non Non
Current current Total Current current Total

Interest rate hedges 9,045 75,329 84,374 (12,885) (130,489) (143,374)

Foreign currency hedges 61,901 119,942 181,843 (178,671) (136,007) (314,678)
Total hedging derivatives 70,946 195,271 266,217 (191,556) (266,496) (458,052)
Foreign currency derivatives 7,858 1,900 9,758 (18,153) (2,570) (20,723)
Interest rate derivatives - 7,526 7,526 (662) (24,528) (25,190)
Total non-hedging derivatives 7,858 9,426 17,284 (18,815) (27,098) (45,913)

78,804 204,697 283,501 (210,371) (293,594) (503,965)

The General Shareholders' Meeting on 27 May 2011 under the ninth point of the Agenda authorized to
delegate to the Board of Directors the authorisation for a five year period to issue bonds or stock
convertible into Company of group companies shares or other companies´ shares, and warrants on
shares of new issue or IBERDROLA or another group or non-group companies outstanding shares.
The maximum limit is EUR 5,000 million, with the option to exclude the shareholders´ preference
subscription rights.

Legal reserve

Under the Spanish Companies Law, 10% of net profit for each year must be transferred to the legal
reserve until the balance of this reserve reaches at least 20% of the share capital.

The legal reserve can be used to increase capital provided that the remaining reserve balance does
not fall below 10% of the increased share capital amount. Otherwise, until the legal reserve exceeds
20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are
not available for this purpose.

Revaluation reserves

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

88
Share premium

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

Other restricted reserves

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

Subordinated perpetual obligations

On 27 February 2013, the IBERDROLA Group's perpetual subordinated bonds issuance was
completed and disbursed, in the amount of EUR 525 million. The issue price was set at 99.472% of
the face value, with a fixed annual coupon of 5.75% as from the issue date to 27 February 2018. From
the first repricing date on, the coupon will be equal to the applicable five-year swap rate plus a 4.81%
annual spread during the following five years, a 5.06% annual spread during each of the five-year
repricing periods beginning on 27 February 2023, 2028 and 2033, and a 5.81% annual spread during
the following five-year repricing periods.

The interest accruing on these bonds will not be callable but rather cumulative. However, the
IBERDROLA Group will be obligated to settle the interest accrued in the event it distributes dividends.
Although these bonds do not have a contractual maturity date, the IBERDROLA Group has the option
of redeeming them on 27 February 2018.

After analysing the issue conditions, the IBERDROLA Group recognised the cash received with a
credit to "Subordinated perpetual obligations" of the equity on the Consolidated statement of financial
position, as it considers that it does not meet the criteria for classification as a financial liability, given
that the IBERDROLA Group does not have a commitment to deliver cash, as the circumstances that
would require it to do so - namely distribution of dividends and exercise of its right to redeem the
bonds - are fully under its control. As a result, accrued interests from the obligations issue have been
registered amounting to EUR 21,399 and EUR 25,814 thousands, under the heading “Subordinated
perpetual obligations owners” of the Consolidated income statement at 31 December, 2014 and 2013,
respectively.

89
 Unrealised assets and liabilities revaluation reserve

The change in this reserve arising from valuation adjustments to available-for-sale assets and derivatives designated as cash flow hedges at 31 December
2014 and 2013 is as follow:

Thousands of euros
Allocation to
Allocation to the Amounts Change in fair the values of Amounts
Change in fair values of the allocated to value and the assets allocated to
01.01.13 value assets covered income 12.31.13 others covered income 12.31.14
Unrealised assets and liabilities
revaluation reserve of companies
accounted for using the equity
method (net of tax): 28,055 (24,123) - 2,121 6,053 (1,713) - (1,582) 2,758

Available-for-sale assets:
Energías de Portugal, S,A, -
(EDP) (Note 13.b) (91,970) 92,938 889 1,857 - - (1,857) -
Other (26,262) 26,262 - - - 22 - - 22
(118,232) 119,200 - 889 1,857 22 - (1,857) 22
Cash flow hedges:
Interest rate swaps (403,124) 70,606 - 41,195 (291,323) (228,102) - 64,420 (455,005)
Collars (22,262) 10 - 9,419 (12,833) (10) - 8,395 (4,448)
Commodity swaps (153,072) (102,872) - 132,879 (123,065) 15,166 - 140,732 32,833
Trading securities - -
(EDP) (Note 13.b) 84,917 (12,787) (1,193) 70,937 - (70,937) -
Foreign exchange hedge (155,380) (27,231) 52,610 24,704 (105,297) 22,853 32,610 29,929 (19,905)
(648,921) (72,274) 52,610 207,004 (461,581) (190,093) 32,610 172,539 (446,525)
Available-for-sale assets and
cash flow hedge tax effect 246,399 (26,719) (12,935) (50,514) 156,231 22,680 (7,220) (54,949) 116,742
(492,699) (3,916) 39,675 159,500 (297,440) (169,104) 25,390 114,151 (327,003)

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Treasury shares

The IBERDROLA Group buys and sells treasury shares in accordance with prevailing law and the
resolutions of the General Shareholders’ Meeting. Such transactions include purchases and sales of
company shares and of derivative instruments having company shares as the underlying asset.

At 31 December 2014 the balances of the various instruments were as follows:

Thousands of
Number of shares euros

Treasury shares 62,981,699 345,719

Swaps over treasury shares 15,299,795 94,327
(1)
Futures over treasury shares 22,134,200 122,809
Accumulators (exercised shares) 21,551,203 115,909
Accumulators (potential shares) 24,832,346 137,226
146,799,243 815,990
(1) Over the Counter (OTC) futures.

(a) Treasury Shares

The changes in 2014 and 2013 in the shares of IBERDROLA owned by Group companies (Note 4.m)
are as follows:

Thousands of
Number of shares euros

Balance at 1 January 2013 85,723,586 329,668

Acquisitions 111,223,064 444,345
Capital reduction (150,748,416) (574,907)
Disposals (9,487,484) (49,075)
Balance at 31 December 2013 36,710,750 150,031
Acquisitions 176,958,914 897,565
Capital reduction (133,467,000) (616,886)
Disposals (17,220,965) (84,991)
Balance at 31 December 2014 62,981,699 345,719

At 31 December 2014 and 2013, 60,985,277 and 34,519,418 shares belonged to IBERDROLA and
1,996,422 and 2,191,332 shares to SCOTTISH POWER, respectively.

In 2014 and 2013, treasury shares held by the IBERDROLA Group were below the legal limit.

(b) Derivatives settled by physical delivery

The IBERDROLA Group recognised the transaction directly in equity under “Treasury shares” and
recorded the obligation to buy back the shares under “Bank borrowings and other financial liabilities –
loans and others” heading of the liabilities side of the Consolidated statement of financial position.

 Total return swaps

The IBERDROLA Group has arranged four swaps on its own shares with the following features: during
the life of the contract it will pay the financial entity 3-month Euribor plus a spread on the notional
underlying and will receive the dividends in respect of the shares paid out to the financial entity. On the
expiration date IBERDROLA will buy the shares at the exercise price set out in the contract.

91
The characteristics of these contracts at 31 December 2014 and 2013 are as follows:

No. of shares Exercise Maturity 2014

12.31.14 price date Interest Rate Thousands of euros

Total return swap 6,400,000 6.047 01/18/2016 3 month Euribor + 0.55% 38,701
Total return swap 3,300,000 6.047 01/20/2015 3 month Euribor + 0.65% 19,955
Total return swap 2,800,000 6.370 04/17/2015 3 month Euribor + 0.59% 17,836
Total return swap 2,799,795 6.370 04/17/2015 3 month Euribor + 0.45% 17,835
15,299,795 94,327

No. of shares Exercise Maturity 2013

12.31.13 price date Interest Rate Thousands of euros

Total return swap 6,400,000 6.047 01/18/2014 3 month Euribor + 0.72% 38,701
Total return swap 6,400,000 6.047 07/18/2014 3 month Euribor + 0.90% 38,701
Total return swap 5,167,171 6.370 04/14/2014 3 month Euribor + 0.70% 32,915
Total return swap 3,390,587 9.300 04/22/2014 3 month Euribor + 0.90% 31,532
Total return swap 1,699,759 6.370 04/14/2014 3 month Euribor + 0.70% 10,827
23,057,517 152,676

 Futures (OTC or off-exchange trading)

Under these contracts the purchase and sale is agreed of a given number of shares at a specified future
date and a specified price.

The characteristics of these contracts at 31 December 2014 (none being in existence in 2013) are
shown in the following table:

Average Price of the Thousands of

Number of shares period Due date euros

Futures 22,134,200 5.5484 07/01/2015 – 12/02/2015 122,809

 Treasury share accumulators

The IBERDROLA Group holds several purchase accumulators on treasury shares.

These accumulators are obligations to buy in the future, with a notional amount of zero on the start date.
The number of shares to be accumulated depends on the spot price quoted on a range of observation
dates throughout the life of the options – in this case, on a daily basis. A strike price is set, and a
knockout level above which the structured product is “knocked out” and shares are no longer
accumulated.
The accumulation mechanism is as follows:
- when the spot price is below the strike price, two units of the underlying security are
accumulated;
- when the spot price is between the strike price and the knockout level, only one unit of the
underlying security is accumulated; and
- when the spot price is above the knockout level, no shares are accumulated.

92
The characteristics of these contracts at 31 December 2014 (none being in existence in 2013) are as
follows:

Average Price of the

Number of shares period Due date Thousands of euros

(1)
Exercised shares 21,551,203 5.3783 02/03/2015 – 02/13/2015 115,909
(2)
Potential maximum 24,832,346 5.5261 02/03/2015 – 02/13/2015 137,226
(1)
Number of shares accumulated at 31 December 2014 to be received on the maturity date.

(2)
Maximum number of additional shares that might be accumulated in accordance with the mechanism described
above up to maturity of the structured products (assuming that the spot price during the remaining life of the
structured product always remains below the strike price).

Distribution of dividends with charge to 2014 results

The IBERDROLA Board of Directors agreed that when the time came to call the Ordinary General
Shareholders' Meeting, at the meeting it will propose, with charges to 2014 results and the retained
earnings from previous years, a gross dividend of EUR 0.03 for each IBERDROLA share with dividend
entitlement, outstanding at the date on which payment is made.

If the number of IBERDROLA shares outstanding at the date on which the proposed dividend payment
is made will be equal to the number of shares outstanding at the date on which the Consolidated
financial statements are authorised for issue i.e. 6,388,483,000 ordinary shares, the dividend will
amount to EUR 191,655 thousand.

In addition, at the date of preparation of the Consolidated financial statements, IBERDROLA's Board of
Directors resolved to propose to the General Shareholders' Meeting, when the call notice is issued, to
maintain the Iberdrola flexible dividend remuneration scheme that was launched in 2010.

Under this scheme, IBERDROLA offered shareholders an alternative that allowed them to receive
bonus shares of IBERDROLA without limiting their eligibility to receive in cash at least an amount equal
to the paid out as the 2014 final dividend.

This alternative was articulated via a free capital increase subject to authorisation at the General
Shareholders' Meeting of IBERDROLA. In the case of being authorised, the free capital increase would
be executed by the Board of Directors or, by delegation, by the Executive Committee. It would be
executed first on the date on which the shareholders would traditionally be paid the final dividend for
2014.

At the time of free capital increase, each shareholder of IBERDROLA received bonus issue right for
each share of IBERDROLA they hold. These subscription were eligible for trading on the Madrid,
Barcelona, Bilbao and Valencia stock exchanges.

According to the different alternative chosen, each IBERDROLA shareholder would receive new bonus
shares of IBERDROLA or an equivalent amount in cash from the sale of the bonus issue right to
IBERDROLA (by virtue of a commitment that IBERDROLA would assume at a guaranteed fixed price)
or on the market (in which case the consideration would vary in accordance with the price of the rights).

93
The issue was carried out free of fees and expenses for subscribers with regard to the allocation of the
new shares issued. IBERDROLA assumed the issue, subscription and admission to trading expenses,
and any other expenses relating to the issue. However, the entities participating in the Spanish Central
Securities Depository (Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación
de Valores, S.A. or Iberclear) at which the IBERDROLA's shares were deposited were free to establish,
in accordance with prevailing legislation, any administration fees, commissions or expenses chargeable
to the shareholders for maintaining the securities in the accounting records. Furthermore, these
participating entities could freely establish, in accordance with prevailing legislation, any fees,
commissions or expenses chargeable to the shareholders for processing purchase and sale orders of
subscription rights.

Share-based compensation plans

2008-2010 Strategic Bonus Programme

The 2008-2010 Strategic Bonus had a term of three years for the 2008-2010 period and share payment
was implemented on deferred basis throughout 2011, 2012 and 2013.

In the first half of 2013, the third and final payment was made through the delivery of 906,452 shares.

2011-2013 Strategic Bonus Programme

The General Shareholders' Meeting of 27 May 2011 approved, a strategic bonus for executive directors,
senior management and other management personnel of IBERDROLA and its subsidiaries (287
beneficiaries), linked to the attainment of strategic objectives in 2011-2013, and to be settled with the
delivery of IBERDROLA shares.

The 2011-2013 Strategic Bonus had a term of three years for the 2011-2013 period and share payment
will be implemented on deferred basis throughout 2014, 2015 and 2016.

"Staff costs" heading in the 2014 and 2013 Consolidated income statements includes a credit of EUR
1,130 thousand and a charge of EUR 21,647 thousand, respectively, relating to the vested amount of
these incentive schemes, with a credit to "Other reserves - Retained earnings" in the Consolidated
statement of financial position.
On 24 June 2014 the Board of Directors, on the recommendation of the Appointments and
Remuneration Committee, decided to pay the 2011-2013 Strategic Bonus on determining that 93.20%
of the objectives had been met.
In the first half of 2014, therefore, the first of the three annual payments was made in the form of
3,208,800 shares. These shares include those delivered to executive directors (Note 46) and to senior
management (Note 48).

94
2014-2016 Strategic Bonus Programme

The IBERDROLA General Shareholders' Meeting of 28 March 2014 approved, as the seventh item on
the agenda, a strategic bonus for executive directors, senior management and other management
personnel (350 beneficiaries) tied to the IBERDROLA Group’s performance in relation to certain metrics
throughout the assessment period – from 2014 to 2016, relating to:

(a) The performance of consolidated net profit. The target is that annual average growth, taking
year-end 2014 as the baseline, should reach 4%. This target will be treated as unmet if growth
is less than 2%.

(b) Comparative performance of the share price with respect to the Eurostoxx Utilities index and the
shares of the five main European competitors (ENEL, E.ON, RWE, EDF and GDF-Suez). This
target will be treated as having been met if the share outperforms at least three of the
benchmarks.

(c) Improvement of the IBERDROLA’s financial strength as measured by the ratio FFO/net debt >
22%.

The maximum number of shares to be delivered to beneficiaries of the 2014-2016 Strategic Bonus is
19,000,000 equivalent to 0.3% of the equity at the agreement date, corresponding to executive directors
a maximum of 2,200,000 shares.

The payment period for the scheme will run from 2017 to 2019. Payments will be made in the form of
shares on a deferred basis in those three years. At 31 December 2014 EUR 34,837 thousand are
provided for this commitment.

SCOTTISH POWER share bonus

Lastly, SCOTTISH POWER has share-based plans for its employees. There are two types of plan:

 Sharesave Schemes: savings plans in which employees decide the amount they want to
contribute to the plan and this is deducted monthly from their salary. At the end of a three- or
five-year period, as applicable to each plan, employees may decide between being paid in cash
or in shares.

The plan expired at 31 December 2014 and will be renewed with a new one in 2015. Therefore,
the contributions made by the employees have been exercised or have matured. At 31st
December 2013 they gave them the right to 3,814,602 shares or their equivalent in cash. The
transactions on these plans were as follows:

Number of accounts Number of shares

Balance at 1 January 2013 1,539 3,927,391

Additions 1 759
Exercised - (1,214)
Derecognised (44) (112,334)
Balance at 31 December 2013 1,496 3,814,602
Additions - -
Exercised (7) (15,949)
Derecognised (1,489) (3,798,653)
Balance at 31 December 2014 - -

95
  Share Incentive Plan: this plan has an option for purchasing shares with tax credits plus a
contribution from the company. The employees decide on the amount they wish to contribute,
which is deducted from their monthly salary (the maximum contribution allowed by law in the
United Kingdom is GBP 125). The shares purchased with this contribution are called
partnership shares. Additionally, SCOTTISH POWER complements these shares to a maximum
of GBP 50. The shares purchased with the company contribution are called matching shares.
All shares are purchased at market prices at the date of purchase of each month.

The contributions, both from the company and the employees, are contributed to a trust which
buys the shares, and they are held in this trust until withdrawn by the employees. The
partnership shares are owned by the employees who purchase them with their own money.
However, the shares acquired with the contribution from the company (matching shares) are not
consolidated until three years have passed since the purchase date. The cash contributions are
made monthly and are charged to the income statement for the three years the employee must
remain in the company in order to be entitled to these shares.

The heading “Staff costs” of the Consolidated income statements for 2014 and 2013 includes
EUR 3,158 thousand and EUR 4,354 thousand, respectively and the matching shares at those
dates amount to 1,995,813 and 3,879,139 shares.

21. EQUITY INSTRUMENTS HAVING THE SUBSTANCE OF A FINANCIAL LIABILITY

The change in this heading of the Consolidated statements of financial position at 31 December 2014
and 2013 is as follows (Note 4.l):
Thousands of euros

Balance at 1 January 2013 477,381

Finance costs accrued during the year (Note 41) 26,065
Payments (158,427)
Exchange differences (15,726)
Balance at 31 December 2013 329,293
Finance costs accrued during the year (Note 41) 26,628
Payments (109,722)
Exchange differences 35,522
Balance at 31 December 2014 281,721

The balance under this heading of the Consolidated statements of financial position at 31 December
2014 and 2013 accrues interest at an average rate of 8.78% and 8.56%, respectively.

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 22. DEFERRED INCOME

The change in this heading of the Consolidated statements of financial position at 31 December 2014
and 2013 is as follows:

Thousands of euros
Investment Transfer of
Government Tax Credits Emission assets from Other deferred Total deferred
grants (Note 4.n) rights customers income income

Balance at 1 January 2013 307,226 1,340,320 1,023 3,046,463 1,068,122 5,763,154

Additions 11,738 20,212 664 243,298 85,743 361,655
Disposals (11) (25,292) - (1,216) (9,398) (35,917)
Transfers (2,323) - - (994) (133,776) (137,093)
Exchange differences (2,720) (55,646) - (11,137) (5,264) (74,767)
Allocation to the income statement
(Note 4.n) (13,655) (58,587) (1,570) (87,170) (33,482) (194,464)
Balance at 31 December 2013 300,255 1,221,007 117 3,189,244 971,945 5,682,568
Additions 491 - 282 348,221 63,881 412,875
Disposals (10) - - (3,341) (200) (3,551)
Transfers 249 - - (175,711) 175,563 101
Exchange differences 7,269 154,294 - 41,716 29,783 233,062
Allocation to the income statement (15,680) (58,357) (373) (97,764) (31,970) (204,144)
(Note 4.n)
Balance at 31 December 2014 292,574 1,316,944 26 3,302,365 1,209,002 6,120,911

23. PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS

The detail of this heading in the Consolidated statements of financial position is as follows:

Thousands of euros
12.31.14 12.31.13

Defined benefit plans (Spain) 551,549 472,829

Long-service bonuses and other long-term benefits
(Spain) 88,354 82,436
Defined benefit plans (United Kingdom) 393,266 399,064
Defined benefit plans (United States) 671,576 314,799
Defined benefit plans and other long term benefits
(Spain and other countries) 59,740 40,792
Restructuring plans 179,143 88,869
1,943,628 1,398,789

Each year the IBERDROLA Group estimates through independent expert’s actuarial evaluations the
payment amount for pensions and similar commitments in the year ahead. This amount is recorded as a
current liability in the Consolidated statement of financial position.

a) Defined benefit plan and other non-current benefits

Spain

The IBERDROLA Group’s main defined benefit obligations to its employees in Spain, other than
Social Security benefits, are as follows:

- Former employees covered by the IBERDROLA Group’s Collective Labour Agreement

retired before 9 October 1996 are covered by a defined benefit retirement pension scheme,
the actuarial value of which was externalised in full at 31 December 2014 and 2013.

97
 The IBERDROLA Group has no liabilities in relation to these employees nor does it have any
claims on any potential returns from this plan assets in excess of the guaranteed benefits.

- Also, in relation to serving employees and employees who have retired since 1996 and
covered by the IBERDROLA Group’s Collective Labour Agreement and
participant/beneficiary of the Iberdrola Pension Scheme, risk benefits (e.g. widowhood,
permanent disability or orphanage), guaranteeing a defined benefit at the time the event
giving rise to such benefits occurs, are instrumented through a pluriannual insurance policy.
The defined benefit is measured as the difference between the present actuarial value of the
benefit at the time of the contingency and the employees’ consolidated rights at the time of
the event giving rise to the benefits under the aforementioned defined benefit plan, if lower.
The premium paid for this insurance policy in 2014 and 2013 amounted to EUR 10,669
thousand and EUR 11,851 thousand, respectively, and is recorded under “Staff costs” in the
Consolidated income statements.

- In addition, the IBERDROLA Group also has certain commitments to its employees in Spain
other than those indicated above, which are covered by in-house provisions related to social
benefits, consisting mainly of free electricity supply, with an annual consumption limit, for
retired employees, and other long-term benefits, primarily long-service bonuses for active
employees in the 25 and 40 years of service.

The changes in 2014 and 2013 in the provision recognised to meet the commitments set out in
the paragraph above are as follows:

Thousands of euros
Electricity for Long-service
employees bonuses

Balance at 1 January 2013 426,654 77,147

Normal cost (Note 35) 6,043 3,981
Other costs charged to “Staff costs” (Note 35) (678) -
Finance cost (Note 41) 12,662 2,268
Actuarial gain and losses
To profit and loss (Note 35) - 2,458
To reserves 43,343 -
Payments and other (15,195) (3,418)
Balance at 31 December 2013 472,829 82,436
Normal cost (Note 35) 7,269 4,231
Other costs charged to “Staff costs” (Note 35) (5,287) -
Finance cost (Note 41) 13,157 2,233
Actuarial gain and losses
To profit and loss (Note 35) - 8,982
To reserves 76,742 -
Payments and other (13,161) (9,528)
Balance at 31 December 2014 551,549 88,354

98
The main assumptions used in the actuarial valuations undertaken to determine the provision
required at 31 December 2014 and 2013 to cover the aforementioned obligations are as follows:

2014 2013
Wage Wage
inflation/kWh Survivorship Discount inflation/kWh Survivorship
Discount rate price increase tables rate price increase tables
Long-service bonus and PERM/F PERM/F
electricity for employees 1.75%/ 2,00% 2.50% 2000P 2.80% 2.50% 2000P

In both cases, the retirement age has been established pursuant to Law 27/2011, of 1 August, on
the upgrade, adjustment and modernisation of the Social Security system, providing for a gradual
increase in the retirement age in accordance with the law.

The average length at the end of the year of the liability for the Long-service bonus and electricity
for employees’ benefits is 11.3 and 16.8 years, respectively.

The most relevant figures for these commitments over the last years are the following:

Thousands of euros
2014 2013 2012 2011 2010

Present value of obligation (639,903) (555,265) (503,801) (444,893) (452,550)

Experience adjustments 5,442 15,280 (2,067) (8,523) (14,765)

The sensitivity of the present value of the obligation of these commitments to changes in the
discount rate at 31 December 2014 is as follows:

Thousands of euros
Increase/decrease in
discount rate (basis
points) Effect on present value of the obligation

Electricity for employees +10 (10,356)

-10 11,141

Long-service bonus +10 (999)

-10 1,047

United Kingdom

SCOTTISH POWER employees residing in the United Kingdom, hired before 1 April 2006, are
covered by several defined benefit retirement plans.

99
 The key data pertaining to the United Kingdom plans are the following:
Thousands of euros
United Kingdom
12.31.14 12.31.13

Present value of obligation (5,884,621) (5,055,518)

Fair value of plan assets 5,491,355 4,656,454
Net asset / (Net provision) (393,266) (399,064)

Amounts recognised in the Consolidated

statement of financial position:
- Provision for pensions and similar
commitments (393,266) (399,064)
Net asset / (Net provision) (393,266) (399,064)

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

Thousands of euros
United Kingdom

Present value of obligation at 1 January 2013 4,951,415

Normal cost (Note 35) 62,969
Cost for past services (Note 35) 38,970
Finance cost (Note 41) 197,625
Actuarial gain and losses to reserves 78,772
Members contributions 12,602
Payments (186,084)
Exchange differences (100,751)
Present value of obligation at 31 December 2013 5,055,518
Normal cost (Note 35) 59,616
Cost for past services (Note 35) (11,592)
Finance cost (Note 41) 227,044
Actuarial gain and losses to reserves 417,858
Members contributions 12,025
Payments (209,157)
Exchange differences 333,309
Present value of obligation at 31 December 2014 5,884,621

The average lenght at the end of the year of the liability for the employee benefits described
previously is 18.7 years.

100
The movement in the fair value of the plan assets is as follows:
Thousands of euros
United Kingdom

Fair value at 1 January 2013 4,340,301

Estimated revaluation (Note 41) 173,964
Actuarial gain and losses to reserves 250,978
Company contributions 148,934
Members contributions 12,602
Payments (186,084)
Exchange differences (84,241)
Fair value at 31 December 2013 4,656,454
Estimated revaluation (Note 41) 211,242
Actuarial gain and losses to reserves 329,368
Company contributions 182,438
Members contributions 12,025
Payments (209,157)
Exchange differences 308,985
Fair value at 31 December 2014 5,491,355

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

2014
Cash and
Fixed-income cash
Equity securities securities equivalents Other

United Kingdom 27% 49% 4% 20%

2013
Cash and
Fixed-income cash
Equity securities securities equivalents Other

United Kingdom 32% 56% - 12%

The assets associated with these plans include neither financial instruments issued by the
IBERDROLA Group nor tangible nor intangible assets.

The breakdown of asset of the plan measured at fair value by level is as follows:

Thousands of euros
Value at
12.31.14 Level 1 Level 2 Level 3

Assets allocated to plans 5,491,355 168,280 4,793,699 529,376

101
The main assumptions used in the actuarial evaluations undertaken to determine the provision
required at 31 December 2014 and 2013 to cover the aforementioned obligations are as follows:

2014
CPI/ Wage Survivorship table (before retirement/after
Discount rate inflation retirement)

United Kingdom 3.85% 3.20% / 3.70% Men: 85% AMC00/

95% PNMA00 CMI 2011 (1.15%)
Women: 85% AFC00/
105% PNFA00 CMI
2011 (1.15%)

2013
CPI/ Wage Survivorship tables (before retirement/after
Discount rate inflation retirement)

United Kingdom 4.40% 3.40% / 3.90% Men: 85% AMC00/

100% PNMA00 CMI 2011 (1.15%)
Women: 85% AFC00/
105% PNFA00 CMI
2011 (1.15%)

The most relevant figures for this plan over the last years have been the following:

Thousands of euros
2014 2013 2012 2011 2010

Present value of the obligation (5,884,621) (5,055,518) (4,951,415) (4,172,546) (3,886,709)

Fair value of the plan assets 5,491,355 4,656,454 4,340,301 3,918,618 3,699,902
Net asset / (Net provision) (393,266) (399,064) (611,114) (253,928) (186,807)
Experience adjustments in the
plan liabilities 59,629 (471) (45,044) 20,165 20,535
Experience adjustments in the
plan assets 329,368 250,978 204,884 (82,145) 134,775

The sensitivity at 31 December 2014 of the present value of the obligation of these commitments to
changes in the discount rate, survivorship tables and inflation is as follows:

Thousands of euros
Increase/decrease in discount rate
(basis points) Effect on present value of the obligation

+10 (101,709)
-10 101,509

Thousands of euros
Increase/decrease in inflation
(basis points) Effect on present value of the obligation

+10 97,679
-10 (99,209)

Thousands of euros
Increase/decrease in survivorship
tables estimates (years) Effect on present value of the obligation

+1 184,137
-1 (184,137)

102
United States (IBERDROLA USA)
The former employees of SCOTTISH POWER that now form part of the workforce of the IBERDROLA
Group in the United States, most of them belonging to the workforce of the Iberdrola Renewables
Holding Inc, Group (hereinafter, IRHI), are members of various post-employment plans (Supplemental
Executive Retirement Plan, Iberdrola Renewables Retiree Benefits Plan and Iberdrola Renewables
Retirement Plan).

With effect from 30 April 2011, a change affecting all plan participants occurred in the Iberdrola
Renewables Retiree Benefits Plan, whereby the benefit receivable at retirement age was set at the
amount accrued until 30 April 2011 and the plan became a defined-contribution scheme from that date
onwards.

On the other hand, the employees of IBERDROLA USA NETWORKS are affiliated to various defined
benefit retirement pension plans (Qualified Pension Plans, Non Qualified Pension Plans), disability
benefit plans (Long Term Disability Plans) and health insurance plans (Postretirement Welfare Plans).

The most significant data for the IRHI and IBERDROLA USA NETWORKS plans are as follows:

Thousands of euros
United States
United States (IBERDROLA USA
(IRHI) NETWORKS)
12.31.14 12.31.13 12.31.14 12.31.13

Present value of the obligation (73,564) (60,777) (2,460,863) (1,921,426)

Fair value of plan assets 38,519 33,813 1,824,332 1,671,768
Net asset / (net provision) (35,045) (26,964) (636,531) (249,658)

Amounts recognised in
the Consolidated statement
of financial position:
Other non-current financial investment
(Note 13.c) - - - 38,177
Provision for pensions
and similar commitments (35,045) (26,964) (636,531) (287,835)
Net asset / (net provision) (35,045) (26,964) (636,531) (249,658)

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

Thousands of euros
IBERDROLA USA
IRHI NETWORKS
Present value of the obligation at 1 January 2013 70,708 2,270,728
Normal cost (Note 35) 555 33,140
Finance cost (Note 41) 2,650 89,210
Actuarial gain and losses to reserves (3,389) (200,289)
Payments (6,654) (183,501)
Exchange differences (3,093) (87,862)
Present value of the obligation at 31 December 2013 60,777 1,921,426
Normal cost (Note 35) 1,023 27,188
Finance cost (Note 41) 3,055 94,061
Plan modifications (Note 35) - (11,493)
Actuarial gain and losses to reserves 3,968 388,952
Payments (3,604) (234,457)
Exchange differences 8,345 275,186
Present value of the obligation at 31 December 2014 73,564 2,460,863

103
The average duration at the end of the year of the liability for defined benefit plan in IRHI and
IBERDROLA USA NETWORKS is 12.7 and 13.2 years, respectively.
The movement in the fair value of the plan assets is as follows:
Thousands of euros

IBERDROLA USA
IRHI NETWORKS

Fair value at 1 January 2013 38,021 1,754,602

Estimated revaluation (Note 41) 1,380 69,140
Actuarial gain and losses to reserves 1,958 78,020
Company contributions 642 29,582
Payments (6,654) (183,888)
Exchange differences (1,534) (75,688)
Fair value at 31 December 2013 33,813 1,671,768
Estimated revaluation (Note 41) 1,667 82,419
Actuarial gain and losses to reserves 1,805 40,051
Company contributions 410 51,538
Payments (3,604) (234,457)
Exchange differences 4,428 213,013
Fair value at 31 December 2014 38,519 1,824,332

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

2014
Equity Fixed-income Cash and cash
securities securities equivalents Other

United States (IRHI)

Retirement Plan 33% 50% - 17%
Retiree Benefits Plan 46% 54% - -
United States (IBERDROLA USA NETWORKS)
Qualified Pension Plans 31% 45% 2% 22%
Postertirement Welfare Plans 52% 35% - 13%

2013
Equity Fixed-income Cash and cash
securities securities equivalents Other

United States (IRHI)

Retirement Plan 65% 24% - 11%
Retiree Benefits Plan 51% 49% - -
United States (IBERDROLA USA NETWORKS)
Qualified Pension Plans 44% 35% - 21%
Postretirement Welfare Plans 60% 29% - 11%

The assets associated with these plans include neither financial instruments issued by the IBERDROLA
Group nor tangible nor intangible assets.

104
The breakdown of assets in the plan measured at fair value by level is as follows:

Thousands of euros
Value at
12.31.14 Level 1 Level 2 Level 3

Assets allocated to
IBERDROLA USA NETWORKS plans 1,824,332 347,635 1,081,734 394,963
Assets allocated to IRHI plans 38,519 106 35,048 3,365

The main assumptions used in the actuarial valuations undertaken to determine the provision required
at 31 December 2014 and 2013 in connection with these plans are as follows:

2014
CPI/ Wage
Discount rate inflation Health insurance cost Survivorship tables

Based on the year

RX: 2015: 7.50%/7.00%;
[...] RP-2014 fully generational
United States (IRHI) 3.90% 2.20%/ N/A year 2027: 4.50% table

2.20% / Based Based on the year

on the age and RX: 2015: 7.50%/7.00%;
United States (IBERDROLA USA Union/ Non [...] RP-2014 fully generational
NETWORKS) 3.80% Union year 2027: 4.50% table

2013
CPI/ Wage
Discount rate inflation Health insurance cost Survivorship tables

Based on the year

RX: 2014: 7.75%;
(…) RP-2000 fully generational
United States (IRHI) 5.00% 2.40% / N/A year 2025: 4.75% projection

2.40% / Age-
linked wage Based on the year RX:
growth and 2014: 7.75%/7.25%;
United States (IBERDROLA USA Union/Non (…) RP-2000 fully generational
NETWORKS) 4.90% Union year 2027: 4.50% projection

The main figures for IRHI´s pension plans over the past few years have been as follows:

Thousands of euros
2014 2013 2012 2011 2010

Present value of the obligation (73,564) (60,777) (70,708) (60,443) (66,779)

Fair value of the plan assets 38,519 33,813 38,021 35,779 33,653
(Net provision) (35,045) (26,964) (32,687) (24,664) (33,126)
Experience adjustments arising on
plan liabilities (1,955) 2,259 1,040 790 (1,878)
Experience adjustments arising on
plan assets 1,805 1,958 1,974 (3,295) 1,205

105
The main figures for IBERDROLA USA NETWORKS´s pension plans in over the past few years have
been as follows:

Thousands of euros
2014 2013 2012 2011 2010

Present value of the obligation (2,460,863) (1,921,426) (2,270,728) (2,173,148) (2,023,178)

Fair value of the plan assets 1,824,332 1,671,768 1,754,602 1,665,791 1,720,886
(Net provision) (636,531) (249,658) (516,126) (507,357) (302,292)
Experience adjustments arising
on plan liabilities (17,729) (17,831) (22,262) 20,185 10,706
Experience adjustments arising on
plan assets 40,051 78,020 133,925 (141,542) 76,212

The sensitivity at 31 December 2014 of the present value of the obligation of these commitments to
changes in the discount rate, wage increase and health cost is as follows:

Thousands of euros
Effect on present value of the obligation
Increase/decrease in
discount rate (basis IBERDROLA USA
points) NETWORKS IRHI

+10 (29,993) (1,034)

-10 29,993 975

Thousands of euros
Effect on present value of the obligation
Increase/decrease in
wage increase (basis IBERDROLA USA
points) NETWORKS IRHI

+10 3,034 -
-10 (3,066) -

Thousands of euros
Effect on present value of the obligation
Increase/decrease in
health cost (basis IBERDROLA USA
points) NETWORKS IRHI

+25 1,180 626

-25 (1,238) (729)

ELEKTRO

The employees of ELEKTRO are the beneficiaries of a defined-benefit retirement plan.

The most significant data regarding this plan are as follows:

Thousands of euros
ELEKTRO
12.31.14 12.31.13

Present value of the obligation (273,740) (248,859)

Fair value of plan assets 336,762 317,751
63,022 68,892

106
The related amounts have not been recognised in the Consolidated statement of financial position at 31
December 2014 and 2013, respectively, since the requirements set forth in current legislation for their
accounting treatment are not met.

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

Thousands of euros
ELEKTRO

Present value of the obligation at 1 January 2013 398,102

Normal cost (Note 35) 6,461
Finance cost (Note 41) 31,343
Actuarial gain and losses to reserves (119,255)
Members contributions 912
Payments (14,521)
Exchange differences (54,183)
Present value of the obligation at 31 December 2013 248,859
Normal cost (Note 35) 1,595
Finance cost (Note 41) 30,086
Actuarial gain and losses to reserves 13,181
Members contributions 973
Payments (16,922)
Exchange differences (4,032)
Present value of the obligation at 31 December 2014 273,740

The average duration at year-end of defines benefit obligation liability in ELEKTRO is 12 years.

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

Thousands of euros
ELEKTRO

Fair value at 1 January 2013 410,516

Revaluation (Note 41) 32,421
Actuarial gain and losses to reserves (48,654)
Company contributions 758
Members contributions 912
Payments (14,521)
Exchanges differences (63,681)
Fair value at 31 December 2013 317,751
Revaluation (Note 41) 38,643
Actuarial gain and losses to reserves 47
Company contributions 823
Members contributions 973
Payments (16,922)
Exchange differences (4,553)
Fair value at 31 December 2014 336,762

As the surplus was not recognised, the actuarial differences recognised against reserves were adjusted
upwards in 2014 and downwards in 2013 by EUR 13,905 thousand and EUR 64,980 thousand in
application of current legislation IFRIC 14: “IAS 19 - The limit on a defined benefit asset, minimum
funding requirements and their interaction”.

107
The main categories of plan assets, as a percentage of total plan assets, at the close of each year are
shown in the table below:

2014
Fixed-income
Equity securities securities Other

ELEKTRO 18% 74% 8%

2013
Fixed-income
Equity securities securities Other

ELEKTRO 18% 74% 8%

The main assumptions applied in the actuarial reports that determined the provision needed to meet the
abovementioned commitment at 31 December 2014 and 2013 are as follows:

2014 2013
CPI/ Wage Survivorship Discount CPI/ Wage Survivorship
Discount rate inflation tables rate Inflation tables

AT – 2000 AT – 2000
5.40% /
11.90% (1996 US 12.00% 5.20% / 8.36% (1996 US
ELEKTRO 8.56%
Annuity 2000) Annuity 2000)

The most relevant figures for ELEKTRO´s pensions plan are as follows:

Thousands of euros
2014 2013 2012 2011

Obligation present value (273,740) (248,859) (398,102) (315,198)

Fair value of allocated assets 336,762 317,751 410,516 382,626
Net assets 63,022 68,892 12,414 67,428
Experience adjustments in the plan liabilities (3,507) (1,827) 6,142 (1,982)
Experience adjustments in the plan assets 47 (48,654) 55,068 (2,210)

The breakdown of assets in the plan measured at fair value by level is as follows:

Thousands of euros
Value at
12.31.14 Level 1 Level 2 Level 3

Assets allocated to ELEKTRO plans 336,762 193,955 110,821 31,986

108
The sensitivity at 31 December 2014 of the present value of the obligation of these commitments to
changes in the discount rate and wage increase, survivorship inflation and tables is as follows:
Thousands of euros
Increase/decrease in
discount rate (basis points) Effect on present value of the obligation

+10 (2,889)
-10 533

Thousands of euros
Increase/decrease in wages
(basis points) Effect on present value of the obligation

+10 661
-10 (601)

Thousands of euros
Increase/decrease in
survivorship tables (years) Effect on present value of the obligation

+1 2,905
-1 (2,905)

Other commitments with employees

In addition, the employees of some IBERDROLA Group companies have provisions to cover certain
commitments, other than those described above, which are met by in-house pension provisions.

The changes in 2014 and 2013 in the provision recognised to meet the commitments referred to in the
preceding paragraph are as follows:

Thousands of euros

Balance at 1 January 2013 42,141

Normal cost (Note 35) 4,316
Finance cost (Note 41) 1,447
Actuarial gain and losses
To profit and loss (Note 35) (217)
To reserves (2,541)
Payments and others (4,354)
Balance at 31 December 2013 40,792
Normal cost (Note 35) 5,536
Finance cost (Note 41) 2,088
Actuarial gain and losses
To profit and loss (Note 35) (781)
To reserves 11,959
Payments and others 146

Balance at 31 December 2014 59,740

109
b) Defined contribution plans
The active employees of the IBERDROLA Group and employees who have retired since 9 October
1996, beneficiaries of the IBERDROLA Group’s pension plan with joint promoters, are covered by an
occupational, defined-contribution pension system independent from the social security system, for
retirement.

In accordance with this system and the IBERDROLA Group’s effective Collective Labour Agreement,
the periodic contribution to be made is calculated as a percentage of the annual pensionable salary of
each employee, except for employees hired since 1 January 1996, for whom the company contributes
one-third and the employee contributes two-thirds. The pertinent subsidiaries finance the contributions
for all their current employees younger than 65 year old.

The contributions made by the IBERDROLA Group in 2014 and 2013 amounted to EUR 23,720
thousand and EUR 23,191 thousand, respectively. These amounts are recognised under “Staff costs” in
the Consolidated income statements.

Employees of SCOTTISH POWER hired after 1 April 2006 have the choice to be included by a defined
contribution plan. The contribution made on account of these employees in 2014 and 2013 amounts to
EUR 6,973 thousand and EUR 5,062 thousand and is recognised under “Staff costs” in the
Consolidated income statements.

IRHI and IBERDROLA USA NETWORKS have business contribution plans defined as 401 k. The
contributions made by IRHI and IBERDROLA USA NETWORKS through these plans for the years 2014
and 2013 amounted to EUR 14,662 thousand and EUR 11,231 thousand recorded under "Staff costs" in
the Consolidated income statements.

c) Restructuring plans

In 2012, given the interest shown by some employees in requesting early retirement, the IBERDROLA
Group offered these employees a mutually agreed termination of the employment relationship. The
IBERDROLA Group has carried out a process of individual termination contracts in Spain, having
signed a total of 400 contracts prior to 31 December 2012. In 2014 and 2013, 1 and 11 additional
contracts were signed, respectively.

At 19 December 2013, SCOTTISH POWER announced a restructuring plan of up to 355 people of its
sales division, which has been provisioned at 31 December 2013 and has ended prior to 31 December
2014.

Finally, in 2014 the IBERDROLA Group, given the interest shown by some workers to seek early
retirement, has offered these workers the termination with the agreement of the employment related to
them, performing a process of individual contract decoupling in Spain, having signed a total of 389
contracts before 31 December 2014. At year-end the IBERDROLA Group has a provision in this regard
amounting to EUR 130,864 thousand.

The discounted present value of the provisions is charged to “Finance costs” in the Consolidated
income statement.

110
The changes in 2014 and 2013 on the provision recognised to meet these commitments are as follows:
Thousands of euros
Restructuring plans

Balance at 1 January 2013 118,949

Charge (Note 35) 11,689
Finance cost (Note 41) 2,289
Actuarial gain and losses and other (Note 35) 3,729
Payments and exchanged differences (47,787)
Balance at 31 December 2013 88,869
Charge (Note 35) 130,250
Finance cost (Note 41) 1,258
Actuarial gain and losses and other (Note 35) (1,517)
Payments and exchanged differences (39,717)
Balance at 31 December 2014 179,143

The main assumptions used in the actuarial studies undertaken to determine the provision required at
31 December 2014 and 2013 to cover the Group’s obligations in relation to the aforementioned
restructuring plans are the following:

2014 2013
Discount Survivorship Discount Survivorship
rate CPI tables rate CPI tables

Employment regulation plan PERM/F PERM/F

and other restructuring plans 0.47%/ 1.11% 1.00% / 1.50% 2000P 0.80%/ 4.00% 1.00% / 2.30% 2000P

24. OTHER PROVISIONS

The detail and movement of “Other Provisions” on the liability side of the Consolidated statements of
financial position in 2014 and 2013 are as follows:

Thousands of euros
Provisions for
litigation, Provision for
indemnity Provision for facility closure
payments and CO2 emissions costs (Notes 4.r Other Total other
similar costs (Note 4.q) and 6.a) provisions provisions

Balance at 1 January 2013 895,522 124,580 884,721 381,642 2,286,465

Charge or reversals for the year with a
charge to “Property, Plant and
Equipment” (Note 4.d) 973 - 543,380 4,179 548,532
Charge for discount to present value
(Note 41) 23,746 - 30,415 - 54,161
Charge for the year to income
Statement 252,557 96,484 72 123,362 472,475
Reversal due to overprovision (61,776) (4,547) (4,628) (32,847) (103,798)
Payments made, exchange
differences, transfers and other (86,205) (119,040) (46,025) (45,762) (297,032)
Balance at 31 December 2013 1,024,817 97,477 1,407,935 430,574 2,960,803
Charge or reversals for the year with a
charge to “Property, Plant and
Equipment” (Note 4d.) 2,911 - (1,875) 16,157 17,193
Charge for discount to present value
(Note 41) 35,621 - 54,307 - 89,928
Charge for the year to income
Statement 140,781 85,273 75 42,917 269,046
Reversal due to overprovision (22,634) - (7,127) (49,478) (79,239)
Payments made, translation
differences, transfers and other 76,941 (96,767) (15,833) (92,241) (127,900)
Balance at 31 December 2014 1,258,437 85,983 1,437,482 347,929 3,129,831

111
The IBERDROLA Group records provisions for responsabilities arising from litigation in progress and
from indemnity payments, obligations, collateral and other similar guarantees, and those aimed at
covering environmental risks. These last ones have been determined on the basis of a case-by-case
analysis of the polluted assets status and the cost that will have to be incurred in cleaning them.

The IBERDROLA Group also maintains allowances to meet a series of costs needed for
decommissioning work at its nuclear and thermal plants, its wind farms, and at certain other facilities.

The cost arising from dismantling obligations is recalculated on a regular basis to incorporate to the
estimate of future costs our experience of the reasonableness of provisions in the face of actual
decommissioning events, or to take account of new statutory or regulatory requirements.

The detail of provision for facility closure costs is as follows:

Thousands of euros
12.31.14 12.31.13

Fossil-fuel plants 104,117 118,450

Nuclear plants 451,113 518,549
Wind-powered facilities and other alternative stations 765,930 661,302
Combined cycle plants 74,653 98,303
Other facilities 41,669 11,331
1,437,482 1,407,935

The estimated dates on which the IBERDROLA Group considers that it will have to meet the payments
relating to the provisions and allowances included in this caption of the Consolidated statement of
financial position at 31 December 2014 are as follows:

Thousands of euros
2015 220,347
2016 108,538
2017 753,236
2018 and subsequent years 2,047,710
3,129,831

112
 25. BANK BORROWINGS AND OTHER FINANCIAL LIABILITIES-LOANS AND OTHERS

The detail of the bank borrowings pending of amortization at 31 December 2014 and 2013 and the repayment schedules are as follows:

Thousands of euros
Borrowings at 31 December 2014 and maturing in
Current
maturity Non current maturity
2019 and
Balance at Balance at subsequent Total non
12.31.13 12.31.14 2015 (*) 2016 2017 2018 years current
Euros
Finance leases 74,968 71,252 4,143 4,074 4,273 4,482 54,280 67,109
Debentures and bonds 13,802,548 15,440,340 2,501,933 1,010,905 1,620,189 2,287,097 8,020,216 12,938,407
Other financing transactions 4,509,975 4,579,902 907,149 970,028 886,879 187,403 1,628,443 3,672,753
Unpaid accrued interest 293,853 319,040 319,040 - - - - -
18,681,344 20,410,534 3,732,265 1,985,007 2,511,341 2,478,982 9,702,939 16,678,269

Foreign currency
US dollars 4,557,267 2,885,592 219,044 545,947 171,861 3,978 1,944,762 2,666,548
Pound sterling s 3,701,285 2,881,087 89,714 15,534 265,906 201,519 2,308,414 2,791,373
Brazilian reals 525,603 837,095 43,059 246,829 104,811 85,858 356,538 794,036
Unpaid accrued interest 197,418 124,592 124,592 - - - - -
8,981,573 6,728,366 476,409 808,310 542,578 291,355 4,609,714 6,251,957

27,662,917 27,138,900 4,208,674 2,793,317 3,053,919 2,770,337 14,312,653 22,930,226

(*) As at 31 December 2014, financial debt includes EUR 60,970 thousand from drawdowns on credit lines and credit facilities, and EUR 829,322 thousand from
issues of domestic promissory notes and the Euro Commercial Paper (ECP).

113
The foregoing loan balances correspond to amounts drawn down and not repaid at 31 December
2014 and 2013. At 31 December 2014 and 2013, the IBERDROLA Group had undrawn loans and
credit facilities amounting to EUR 8,731,277 thousand and EUR 9,020,105 thousand, respectively,
maturing between 2015 and 2019 (Note 50).

The most significant financing transactions performed by the IBERDROLA Group in 2014 were as
follows:

- Bond issues in the Euromarket:

- On 24 April 2014, the IBERDROLA Group has issued EUR 750 million in a green bond
maturing October 2022 and a coupon of 2.5%. The bond issue has been categorized as
green bonus on the basis that the funds were applied to refinance investments in projects
that meet environmental and sustainability objectives and social responsibility in the
development and management of projects, as rated by Vigeo, an independent expert on
corporate social responsibility.

The refinancing took place through a liability management exercise whereby the emitted
green bond was exchanged for other bonds with short maturities and were issued in 2005,
2010 and 2011, nominal amounts of EUR 320.2, EUR 277.4 and EUR 152.2 million. These
funds were used to finance investments in 2006, 2011 and 2012, respectively, renewable
energy, transmission, distribution and smart meters (smartgrids).

The allocation of funds is shown in the following table:

Thousands of euros
Distribution and
Year Renewables Smart meters Total

2006 320.9 - 320.9

2011 170.8 117.8 288.6
2012 86.2 54.1 140.3
577.9 171.9 749.8

- On 8 October 2014 the IBERDROLA Group has issued bonds totaling 500 million euros to
ten years maturing in October 2024 with a coupon of 1.875%.

- These operations are part of separate bond exchange operations conducted with the aim
of extending the duration of debt, improve liquidity and laminate the medium term maturity
profile. Alongside these emissions offers have been made to repurchase different
IBERDROLA Group outstanding bonds for further exchange with the new references made.
As a result, it has reduced debt maturities by EUR 320 million in 2015, EUR 403 million in
2016 and EUR 527 million in 2017.

- Private Issues in the United States:

- In October 2014 Central Maine Power Co. (hereinafter CMP), a subsidiary of IBERDROLA
Group, conducted a private placement (USPP) amounting to USD 150 million consisting of
three sections of USD 65, 20 and 65 million, with a maturity of ten, fifteen and thirty years,
and coupon of 3.15%, 3.37% and 4.07% respectively. The release of this operation was
completed in January 2015.

114
 - Banking market

- The IBERDROLA Group has executed on 29 April 2014 a syndicated credit facility for an
amount of EUR 2,000 million that consists of two parts: EUR 600 million and EUR 1,400
million both maturing in five years. This is subjected to the bank’s acceptance and it can be
extended for one or two more years.

This is the reconfiguration of two already existing syndicated credit facilities: a EUR 2,150
million syndicated credit facility executed in 2010 maturing in five years; and syndicated
credit facility for the amount of EUR 1,089 million executed on May 2012 maturing in four
and five years for the loan part and the credit part, respectively. With this reconfiguration,
the IBERDROLA Group fits the liquidity volume, decreases the cost of its credit operations
and makes more flexible its management of the liquidity.

- On 11 June 2014 the IBERDROLA Group has exercised its right of extension of the
syndicated credit facility which amounted to EUR 3,000 million of 2016 and 2017.

- On 24 June 2014 the IBERDROLA Group has signed a loan for the amount of EUR 600
million maturing in 2016.

- During June of 2014, ELEKTRO has signed three bank loans with the same number of
foreign entities for an amount of BRL 400 million under the 4131 Law maturing in 2016.
These operations facilitate the access for the Brazilian subsidiary to external financing at a
competitive cost to attend the working capital necessity.

- Loan from the European Investment Bank (EIB)

- The IBERDROLA Group and the EIB signed in January and September of 2014 the first
and second parts of a loan to finance the construction, installation and operation of the
West of Duddon Sands wind plant for an amount of GBP 93 million and GBP 77 million,
respectively, for a total amount of GBP 170 million.

The most significant financing transactions performed by the IBERDROLA Group in 2013 were as
follows:

- Bond issues in the Euromarket:

- On 1 February 2013, EUR 1,000 million in bonds have been issued at 99.623% with
maturity in February 2021 and a coupon of 3.5%.

- In addition, on 11 June 2013, EUR 600 million in bonds have been issued at 99.464%
with maturity November 2020 and a coupon of 2.785%.

- Additionally, the IBERDROLA Group has issued in the month of June 2013 bonds
amounting to NOK 450 million to a period of ten years maturing in June 2023.

- On 13 November 2013, the IBERDROLA Group has issued bonds amounting to EUR 500
million with maturity on January 2022. The issue pays a 3% annual coupon and is priced
at 99.128% of its nominal value.

Parallel to these issuances, offers of repurchase were made on different outstanding

bonds of companies of the IBERDROLA Group for subsequent exchange with new
issuances. As a result, the IBERDROLA Group has reduced the maturities of debt by
EUR 792 million in 2014, EUR 522 million in 2015 and EUR 507 million in 2016.

115
 - Private issues in the United States:

- On January CMP, has collected the second tranche of the mortgage-backed bonds (FMB)
issue signed on May 2012 amounting USD 225 million and maturing in thirty years.

- Subordinated perpetual obligations issuance:

- On 27 February 2013, the IBERDROLA Group has completed the issuance of

subordinated perpetual obligations described in Note 20.

- Banking market:

- On 9 May 2013, the IBERDROLA Group has extended the loan tranche which amounts
to EUR 536 million and matured in three years related to the syndicated loan signed on 9
May 2012, until 9 May 2016.

- On July 2013 the IBERDROLA Group has converted to a revolving credit EUR 745 million
from the loan tranche amounting to EUR 1,500 million under the syndicated operation
signed on June 2011. Thus, the total amount of the revolving credit amounts EUR 2,245
million and the loan tranche is reduced to EUR 755 million.

- On 25 July 2013, the IBERDROLA Group signed two loans with the European Investment
Bank (hereinafter, EIB), one on April 8 of EUR 155 million to improve and expand the
distribution network in the states of São Paulo and Mato Grosso do Sul (Brazil) and
another one on July 25 for the modernization of the distribution network in Spain for EUR
200 million.

- On 26 November 2013, the IBERDROLA Group renegotiated the syndicated loan signed
in December 2009 for EUR 3,000 million, with maturity at five years, to reduce its amount
to EUR 2,000 million and extend maturity to November 2018. The applicable interest rate
is Euribor plus a yearly margin of 0,90%, which is adjustable according to changes in the
rating of IBERDROLA.

Certain Group investment projects, mainly related to renewable energies, have been financed
specifically through loans that include covenants in financing projects such as the compliance with
certain financial ratios or the obligation to pledge in benefit of creditors the shares of the project-
companies (Note 45). The outstanding balance of such loans at 31 December 2014 and 2013
amounted to EUR 801 and EUR 783 million, respectively. In some of these loans, amounting to EUR
336 and EUR 338 thousand at December 2014 and 2013, respectively, the establishment of a
reserved deposit for the fulfilment of the obligations under the loan agreements is required, being the
default ratios and/or the security deposit not reaching the agreed amount, the reason to preclude the
dividends in the year in which they had not been fulfilled.

With regards to the clauses relating to credit ratings, the IBERDROLA Group has agreed with the EIB
financing operations at 31 December 2014 and 2013 amounting to EUR 1,799 and 1,992 million,
respectively, which may require additional guarantees or renegotiation in the event of a rating drop.
Also, at 31 December 2014 and 2013, the IBERDROLA Group has arranged loans and credits
amounting to EUR 803 and 1,124 million, respectively, whose cost would be revised as a result of the
decline in its credit rating. However, in both cases, the increase in cost would not be significant.

116
Additionally, financial entities have facilitated IBERDROLA and its subsidiaries loans and other
agreements with a maturity that can be affected by a change of control being; the most significant
ones at 31 December 2014 the following ones:

- There are loans subject to an anticipated maturity date or that may require additional
guarantees if a change of corporate control takes place in a public offering. In total they
account for EUR 1,710,595 million thousands approximately, except in the case when the
change of control can be prejudicial.

- Moreover, approximately BRL 1,039,125 thousand (equivalent to EUR 318,094 thousand)

in issues and BRL 728,899 thousand (equivalent to EUR 223,129 thousand) in loans
corresponding to ELEKTRO would be affected by a change of control in the issuer, except
for the case when it takes place as a consequence of reorganizations within the group or is
allowed by lenders.

- On the other hand, approximately EUR 9,053,546 thousand corresponding to shares

issued in the Euromarket will be subject to an anticipated maturity date when a change of
control takes place if the credit rating (rating) of Iberdrola drops below the investment grade,
or if it is already below it, it drops a step (notch), provided that the rating agency has
downgraded the rating due to a change of control.

- Lastly, approximately EUR 943,470 thousand, USD 568,200 thousand (equivalent to EUR
465,852 thousand) corresponding to Iberdrola México, S.A. de CV, BRL 285,949 thousand
(equivalent to EUR 87,534 thousand) corresponding to loans belonging to ELEKTRO and
USD 1,150,000 thousand (equivalent to EUR 942,855 thousand) corresponding to issues
by the IBERDROLA Group in the United States would be subject to an anticipated maturity
if a change of control of the lender takes place.

At 31 December 2014 and 2013, the IBERDROLA Group had fulfilled all its obligations relating to its
financial debt. Therefore, as seen in the table above, there are no amounts due prior to 31 December
2014.

At the date of the preparation of these Consolidated financial statements, neither IBERDROLA nor any
of its material subsidiaries were in breach of its financial obligations or any kind of obligation that could
lead to early redemption of their financial commitments.

The average cost of debt of the IBERDROLA Group in 2014 and 2013 was 4.14% and 4.35%
respectively.

117
DERIVATIVE FINANCIAL INSTRUMENTS

The detail of the balances at 31 December 2014 and 2013 that includes the valuation of derivative financial
instruments is as follows:

Thousands of euros
2014 2013
Assets Liabilities Assets Liabilities
Short- Long- Short- Long- Short- Long- Short- Long-
term term term term term term term term

INTEREST RATE HEDGE: 22,119 252,877 6,194 (143,657) 9,045 75,329 (12,885) (130,489)
Cash flow hedge - - (39,064) (128,113) (2,070) 17,354 (44,929) (71,412)
- Interest rate swap - - (38,525) (127,566) (2,070) 17,354 (34,413) (71,034)
- Collar - - (539) (547) - - (10,516) (378)
Fair value hedge 22,119 252,877 45,258 (15,544) 11,115 57,975 32,044 (59,077)
- Interest rate swap 22,119 241,256 42,813 - 11,065 45,904 31,622 (39,880)
- Others - 11,621 2,445 (15,544) 50 12,071 422 (19,197)
FOREIGN EXCHANGE HEDGE: 165,092 278,800 (462,009) (132,425) 61,901 119,942 (178,671) (136,007)
Cash flow hedge 89,449 57,514 (122,251) (80,911) 69,595 (64,672) (121,792) (60,593)
- Currency swap (4,051) 12,165 12,881 (32,934) 16,465 (70,871) 10,694 (39,898)
- Foreign exchange hedge 93,500 45,349 (135,132) (47,977) 53,130 6,199 (132,486) (20,695)
Fair value hedge 25,795 221,286 4,914 (29,759) 5,142 88,456 (2,966) (61,704)
- Currency swap 25,795 217,314 4,831 (29,689) 5,142 86,221 (3,027) (61,753)
- Others - 3,972 83 (70) - 2,235 61 49
Hedge of a net investment in a
foreign country: 49,848 - (344,672) (21,755) (12,836) 96,158 (53,913) (13,710)
- Currency swap 46,583 - (3,590) (21,755) (21,876) 96,158 (2,573) (10,103)
- Foreign exchange hedge 3,265 - (341,082) - 9,040 - (51,340) (3,607)
RAW MATERIAL HEDGE: 274,779 62,955 (325,880) (69,813) 50,887 20,108 (116,363) (74,490)
Cash flow hedge 274,779 62,955 (325,880) (69,813) 50,887 20,108 (116,363) (74,490)
- Forward 274,779 62,955 (325,880) (69,813) 50,887 20,108 (116,363) (74,490)
TREASURY SHARES HEDGE - - - - 2,028 - (17,122) -
Cash flow hedge - - - - 2,028 - (17,122) -
- Others - - - - 2,028 - (17,122) -
NON-HEDGING DERIVATIVES: 700,901 96,759 (694,859) (91,263) 662,360 171,904 (664,843) (130,379)
Derivatives on treasury shares - - - - 2,669 - (1,119) -
- Equity swap - - - - 2,669 - (1,119) -
Derivatives on foreign exchange 10,826 2,508 (19,381) (1,630) 7,858 1,900 (18,153) (2,570)
- Foreign exchange hedge 10,826 2,508 (19,381) (1,630) 7,858 1,900 (18,153) (2,570)
Derivatives on raw materials 690,074 90,587 (673,285) (74,026) 651,833 162,478 (644,909) (103,281)
- Forward 687,768 90,587 (669,275) (63,562) 641,435 162,478 (636,349) (92,801)
- Collar - - - - 7,760 - (8,560) (16)
- Others 2,306 - (4,010) (10,464) 2,638 - - (10,464)
Interest rate derivatives 1 3,664 (2,193) (15,607) - 7,526 (662) (24,528)
- Interest rate swap - 2,224 1,065 - - 6,456 1,421 (3,629)
- Others 1 1,440 (3,258) (15,607) - 1,070 (2,083) (20,899)
NETTED OPERATIONS (Note 15) (650,636) (52,817) 650,669 52,784 (537,592) (134,613) 535,102 137,103
512,255 638,574 (825,885) (384,374) 248,629 252,670 (454,782) (334,262)

118
The detail, by maturity, of the notional amounts of the derivative financial instruments arranged by the
IBERDROLA Group outstanding at 31 December 2014 is as follows:

Thousands of euros
2019 and
subsequent
2015 2016 2017 2018 years Total

INTEREST RATE HEDGE: 242,455 755,451 289,061 357,334 7,124,620 8,768,921

Cash flow hedge 235,455 395,011 57,061 7,334 2,632,776 3,327,637
- Interest rate swap 185,455 395,011 7,061 7,334 2,632,776 3,227,637
- Collar 50,000 - 50,000 - - 100,000
Fair value hedge 7,000 360,440 232,000 350,000 4,491,844 5,441,284
- Interest rate swap - 340,000 232,000 350,000 4,387,794 5,309,794
- Others 7,000 20,440 - - 104,050 131,490
FOREIGN EXCHANGE HEDGE: 10,351,301 1,040,302 491,538 117,881 3,009,384 15,010,406
Cash flow hedge 4,711,032 771,629 482,784 16,086 170,652 6,152,183
- Currency swap - 31,963 409,085 - 59,140 500,188
- Foreign exchange hedge 4,711,032 739,666 73,699 16,086 111,512 5,651,995
Fair value hedge 44,147 268,673 8,754 8,754 2,838,732 3,169,060
- Currency swap 44,147 247,673 8,754 8,754 2,835,132 3,144,460
- Others - 21,000 - - 3,600 24,600
Hedge of a net investment in a foreign 5,596,122 - - 93,041 - 5,689,163
country:
- Currency swap 493,386 - - 93,041 - 586,427
- Foreign exchange hedge 5,102,736 - - - - 5,102,736
RAW MATERIAL HEDGE: 3,330,196 853,657 82,676 5,806 - 4,272,335
Cash flow hedge 3,330,196 853,657 82,676 5,806 - 4,272,335
- Forward 3,330,196 853,657 82,676 5,806 - 4,272,335
NON-HEDGING DERIVATIVES: 6,106,363 898,357 89,313 75,526 125,000 7,294,559
Derivatives on foreign exchange 820,715 89,460 4,496 - - 914,671
- Foreign exchange hedge 820,715 89,460 4,496 - - 914,671
Derivatives on raw materials 5,268,648 618,897 84,817 45,526 - 6,017,888
- Forward 5,248,351 618,897 84,817 45,526 - 5,997,591
-Others 20,297 - - - - 20,297
Interest rate derivatives 17,000 190,000 - 30,000 125,000 362,000
- Interest rate swap - - - - 50,000 50,000
- Others 17,000 190,000 - 30,000 75,000 312,000
Total 20,030,315 3,547,767 952,588 556,547 10,259,004 35,346,221

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

119
The heading “Finance cost” in the 2014 and 2013 Consolidated income statements includes EUR
46,535 thousand and EUR 13,332 thousand, respectively, in connection with derivatives linked to
financial indices that fail to meet the conditions to qualify as hedging instruments or, having met the
conditions, but as explained in Notes 4.l and 41 are partially ineffective. The “Finance income” in the
Consolidated income statements for the same years also includes EUR 40,520 thousand and EUR
47,465 thousand, respectively, for the abovementioned items (Note 40).

The detail of the nominal value of the main liabilities on which foreign exchange hedges (Note 5) have
been arranged is as follows:
2014
Thousands Thousands Thousands Thousands Thousands
of US of Japanese of Norwegian of Mexican of Swiss
Type of hedge dollars yens crowns pesos francs

Cash Flow 847,000 - 450,000 1,500,000 250,000

Fair Value 2,312,255 33,000,000 350,000 - 21,000

2013
Thousands Thousands Thousands Thousands Thousands
of US of Japanese of Norwegian of Mexican of Swiss
Type of hedge dollars yens crowns pesos francs

Cash Flow 1,259,650 - 450,000 1,500,000 250,000

Fair Value 714,765 33,000,000 350,000 - 27,000

The nominal value of the most significant liabilities for which interest rate hedges (Note 5) have been
arranged is as follows:

2014
Thousands Thousands Thousands Thousands
Type of hedge of euros of Brazilian reals of US dollars of pounds Sterling

Fair Value 5,378,784 - - -

Cash Flow 610,286 - 568,200 150,000

2013
Thousands Thousands of Thousands Thousands
Type of hedge of euros Brazilian reals of US dollars of pounds Sterling

Fair Value 3,191,109 17,504 390,000 550,000

Cash Flow 1,574,804 - 615,550 150,000

120
26. OTHER NON-CURRENT PAYABLES

The detail of “Other non-current payables” on the liability side of the Consolidated statements of
financial position at 31 December 2014 and at 31 December 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Long-term guarantees and deposits received (Note 13.c) 138,367 140,477

(1)
Tariff sufficiency concessional guarantee in Brazil (Note 11) 65,990 -
Debts with companies consolidated by using the equity method 31,416 35,271
Others 375,440 366,732
611,213 542,480

(1)
The heading “Other current liabilities” of the Consolidated Statement at 31 December 2014 including EUR
52,574 thousand in relation to the tariff sufficiency concessional guarantee in Brazil.

27. DEFERRED TAXES AND INCOME TAX EXPENSE

As in 2013, in 2014 IBERDROLA as the parent company of the Group 2/86, filed a consolidated return
in Spain. The Group will continue to be taxed under this tax regime indefinitely for as long as the
related requirements are met and the Group does not expressly waive application of the regime by
filing the related taxpayer registration form.

Without prejudice to this special tax regime in Spain applicable to IBERDROLA and certain of its
consolidated Spanish subsidiaries, other Spanish and foreign subsidiaries file individual or aggregated
Income Tax returns, in accordance with the legislation applicable to them.

The difference between the tax charge allocated to 2014 and 2013 and the tax payable for those years,
recorded under “Deferred tax assets” and “Deferred tax liabilities”, as appropriate, in the Consolidated
statements of financial position at 31 December 2014 and 2013, arose as a result of the temporary
differences relating to the difference between the carrying amount of certain assets and liabilities and
their tax bases. The main temporary differences are the following:

- Temporary differences generated by the measurement of available-for-sale investments,

derivatives and assets that have been measured at their fair value in business combinations
for which the difference between the tax base and the carrying amount is not deductible for tax
purposes.

- Temporary differences arising from the application of profits from the free amortization or
accelerated amortization compared to that recognised in the accounts.

- Temporary differences arising from the non-deductibility for tax purposes of certain liabilities,
including those recognised in relation to pension liabilities and to employment regulation plans
(Notes 4.o, 4.p and 23).

- Temporary differences arising from changes in the value of investment securities which
carrying amount is not fully deductible for tax purposes or where deductions are not
considered for accounting purposes.

121
 - Temporary differences arising from the tax treatment of financial goodwill generated by the
acquisition of equity stakes in non-resident entities.

The detail of current and deferred Income Tax expense is as follows:

Thousands of euros
12.31.14 12.31.13

Current tax 676,467 1,002,701

Deferred tax 160,587 (2,469,443)
(Income) / expense 837,054 (1,466,742)

The detail of the headings “Deferred tax assets” and “Deferred tax liabilities” in the Consolidated
statements of financial position therein is as follows:

122
 Thousands of euros
Foreign Credit (charge) Foreign Credit (charge)
currency Credit (charge) to asset and currency Credit (charge) to asset and
translation to Consolidated liability Credit to translation to Consolidated liability Charge to
differences income revaluation “Other differences income revaluation “Other
01.01.13 balances statement reserve reserves” 12.31.13 balances statement reserve reserves” 12.31.14

Deferred tax assets:

Available-for-sale assets
Valuation 19,751 - 252 (20,003) - - - - - - -

Derivative financial instruments

Valuation 739,754 (42,979) 6,474 (71,578) - 631,671 77,767 (54,102) (47,523) - 607,813

Balance sheet revaluation

16/2012 - - 1,848,185 - - 1,848,185 - (665) - - 1,847,520

Pension and similar

commitments 548,978 (10,666) 9,456 - (137,248) 410,520 24,125 (23,324) - 182,940 594,261

Allocation of non-deductible
negative goodwill arising on
consolidation 89,299 - (2,271) - - 87,028 - (16,398) - - 70,630

Provision for facility closure costs 84,296 (329) (13,315) - - 70,652 827 (19,558) - - 51,921

Tax loss and tax credit

deduction 1,256,256 (52,187) 256,160 - - 1,460,229 153,720 90,017 - - 1,703,966

Other deferred tax assets 1,655,112 329,819 7,002 - - 1,991,933 (1,077,248) 46,494 - - 961,179

4,393,446 223,658 2,111,943 (91,581) (137,248) 6,500,218 (820,809) 22,464 (47,523) 182,940 5,837,290

123
 Thousands of euros
Foreign Charge (credit) Foreign Charge (credit) to
currency Charge (Credit) to asset and currency Charge (credit) asset and
translation to Consolidated liability translation to Consolidated liability
differences income revaluation differences income revaluation
01.01.13 balances statement reserve 12.31.13 balances statement reserve 12.31.14

Deferred tax liabilities:

Available-for-sale assets
Valuation - - - 8,397 8,397 - - (8,389) 8

Derivative financial instruments

Valuation 540,634 (3,695) (10,992) (9,651) 516,296 14,491 15,967 270 547,024

Accelerated amortisation 3,913,240 (157,485) 379,038 - 4,134,793 471,598 286,402 - 4,892,793

Overprice assigned in business

combinations 4,008,914 (106,456) (599,759) - 3,302,699 282,772 (175,758) - 3,409,713

Other deferred tax liabilities 562,911 (63,697) (125,787) - 373,427 89,550 56,440 - 519,417
9,025,699 (331,333) (357,500) (1,254) 8,335,612 858,411 183,051 (8,119) 9,368,955

124
At 31 December 2014 and 2013, there were no unrecognised deferred tax assets or other significant
tax credits at any of the IBERDROLA Group companies.

Similarly, based on the information available at the close of the year, including the historic levels of
profits and the IBERDROLA Group's results projections for the coming years, it is considered that
sufficient positive taxable bases will be generated to allow the recovery of the deferred taxation assets
booked at 31 December 2014.

In addition, the headings “Other reserves” and “Unrealised assets and liabilities revaluation reserve” in
2014 and 2013 Consolidated statements of financial position includes charges and credits of EUR
143,451 thousand and EUR 227,416 thousand, respectively, relating to the tax charge on actuarial
deviations and on cash flow hedge valuation adjustments and available-for-sale investments.

Income Tax expense breakdown for 2014 and 2013 is calculated as follows:

Thousands of euros
12.31.14 12.31.13

Consolidated profit before taxes 3,201,787 1,136,055

Non-deductible expenses and non-computable income:
- from individual companies 30,157 (117,604)
- from consolidation adjustments (55,310) 69,179
Net result of companies accounted for using the (135,429) (204,965)
equity method
Adjusted accounting result 3,041,205 882,665
Gross tax calculated at the tax rate in force
in each country (a) 882,153 128,036
Tax credits deductions due to reinvestment of
extraordinary profits and other tax credits (73,157) (62,979)
Adjustment of prior years Income Tax expense (25,251) 15,108
Net movement in provisions for litigation,
indemnity payments, similar costs and other
provisions (b) 83,622 174,043
Adjustments of deferred tax assets and
liabilities (c) (52,795) (2,060,269)
Revaluation of balance sheet single tax (c) - 315,428
Taxes related to non-distributed earnings 23,393 25,152
Others (911) (1,261)
Income Tax expense / (income) 837,054 (1,466,742)

(a) The different foreign companies of IBERDROLA Group calculate the Income Tax expense
and the resulting quotas related to the taxes applicable in accordance with the legislation
and on the basis of the tax rates in force in each country. Also, the subsidiaries subject to the
Basque Country tax legislation apply the tax rate in force in each historic territory.

(b) The amount recorded for this concept in 2014 and 2013 is mainly due to the reassessment
of the necessary provision to deal with the fiscal risk arising from contingencies made by the
IBERDROLA Group.

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 (c) The revenue recorded of this concept in 2014 reflects the effect arising from the recalculation
after the modification of the tax approved in November 2014 by the law 27/2014 of the
anticipated and deferred taxes of the Spanish companies of the IBERDROLA Group,
registered and pending of revision at 31 December 2014, depending on the estimated tax
rate into force at the date of reversal.

This heading in 2013 mainly includes the tax effects of the revaluation by the IBERDROLA
Group of a significant portion of its assets in Spain pursuant to Law 16/2012, of 27
December.

Generally, the companies of the Group keep 2010 and subsequent fiscal years open to fiscal
inspection in relation to the principal taxes in which they are subject to with the exception to the
Income Tax which is open for 2007 and subsequent fiscal years. Nevertheless, the aforementioned
period can change in the case of Group integrated companies submitted to other fiscal regulations.

On 11th March 2014, the State Tax Administration Agency initiated the general inspection of the taxes
of Fiscal Group 2/86. The years and taxes that are being inspected, in various companies of the Fiscal
Group, are the Income Tax for the years 2008 to 2011; the Value Added Tax of the years 2010 and
2011; Personal Income Tax deductions from May 2009 to December 2011 and tax withheld on income
from savings and investments and on non-residents in the years 2010 and 2011.

The IBERDROLA Group's directors and, where appropriate, their tax consultants consider that the
current inspection process will not give rise to additional liabilities of significance for the IBERDROLA
Group.

As a result of inspections by the tax authorities, tax assessments have been raised against several
Group companies. Some tax assessments have been signed in protest and appealed some of these.

28. TAX RECEIVABLES AND PAYABLES

The detail of the account of Public Administration: “Income tax receivables/payables” and “Other tax
receivables/payables” on the asset and liability sides, respectively, of the Consolidated statements of
financial position at 31 December 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Tax receivables
Income Tax receivable 333,223 230,947
VAT receivable 121,292 330,430
Tax withholdings and prepayments 59,140 647
Other tax receivable 186,774 377,759
700,429 939,783

Tax payables
Income Tax payable 418,741 444,336
VAT payable 93,046 59,293
Tax withholdings and prepayments 118,837 72,991
Other tax payable 764,669 708,175
Social Security tax payable 19,770 18,495
1,415,063 1,303,290

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29. TRADE PAYABLES

The detail of this heading in the Consolidated statements of financial position at 31 December 2014
and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Suppliers 3,414,756 3,101,002

Suppliers of services provided 1,435,031 1,068,693
Trade payables 130,993 107,547
Customer advances 491,953 281,535
5,472,733 4,558,777

The majority of these accounts payable do not accrued interest.

30. INFORMATION ON DEFERRED PAYMENTS TO SUPPLIERS. THIRD ADDITIONAL

PROVISION. "DUTY OF INFORMATION" OF LAW 15/2010, OF 5 JULY
In 2014 the average period for payments to suppliers was 14 days (12 days in 2013). A distinction
should be drawn between payments relating to the energy business from the rest of trade suppliers,
as shown in the table below:

2014 2013
Millions of Average period of Millions of Average period
euros payment euros of payment

Energy, fuel, autoproducers and tolls

suppliers 11,914 9.5 15,022 8.7
Rest of the commercial suppliers 1,620 44.7 1,396 45.9
13,534 13.7 16,418 11.9

31. NET REVENUE

The detail of this heading in the Consolidated income statements for 2014 and 2013 is as follows:
Thousands of euros
12.31.14 12.31.13

Deregulated business 21,139,970 22,753,982

Spain and Portugal 12,510,796 13,292,562
United Kingdom 7,647,672 8,695,353
North America 1,461,624 1,308,470
Write off (480,122) (542,403)
Renewable business 2,234,466 2,383,823
USA 880,272 849,572
United Kingdom 414,186 328,011
Spain 735,528 986,286
Rest of the world 204,480 219,954
Network business 7,334,212 6,693,747
Spain 1,951,914 1,904,831
United Kingdom 1,380,391 1,228,010
USA 2,412,964 2,301,816
Brazil 1,588,943 1,259,090
Other businesses 598,232 557,243
Corporation and inter adjustments (1,274,610) (1,311,683)
Net revenue 30,032,270 31,077,112

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32. CONSTRUCTION CONTRACTS

The accumulated amounts relating to uncompleted contracts at 31 December 2014 and 2013 are as
follows:

Thousands of euros
Accumulated
revenue recognised
by reference to Amount billed to
degree of completion clients since the Work in Advances received
since the beginning beginning of the progress at 31 from clients at
of the contract contract December 31December

2014 5,220,726 5,181,695 240,499 201,468

2013 5,155,187 4,994,468 276,527 115,808

The amount registered in Consolidated income statements during the years 2014 and 2013 for these
contracts totalizes EUR 531,136 thousand and EUR 518,653 thousand, respectively.

33. PROCUREMENTS

The detail of this heading in the Consolidated income statements for 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Deregulated business 16,406,523 18,319,136

Spain and Portugal 9,442,437 10,369,953
United Kingdom 6,442,580 7,650,411
North America 1,001,642 841,192
Write off (480,136) (542,420)
Renewable business 200,968 182,476
Spain 7,062 8,108
United Kingdom 45,692 24,463
USA 144,484 145,873
Rest of the world 3,730 4,032
Network business 2,093,608 1,731,686
United Kingdom 49,198 35,493
USA 914,776 833,010
Brazil 1,129,634 863,183
Other businesses 381,897 327,408
Corporation and inter-group adjustments (1,230,269) (1,265,485)
Total procurements 17,852,727 19,295,221

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34. STAFF COSTS

The detail of this heading in the Consolidated income statements for 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Wages and salaries 1,663,807 1,590,443

Employer Social Security costs 242,031 232,057
Additional provisions for pensions and similar
obligations and defined contributions to
the external pension plan (Notes 4.o and 23) 271,044 224,751
By-law stipulated directors’ emoluments art. 52.1 (Note 46) 19,000 25,718
By-law stipulated directors’ emoluments art. 52.2 4,107 3,051
Other employee welfare expenses 118,870 144,273
2,318,859 2,220,293
Capitalised staff costs:
- Intangible assets (Note 8) (33,161) (46,887)
- Property, plant and equipment (Note 4.d) (424,869) (431,052)
(458,030) (477,939)
1,860,829 1,742,354

In 2014 and 2013 the IBERDROLA Group’s average workforce totalled 28,021 and 28,212 employees,
of which 6,565 and 6,657 were female workers, respectively.

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

35. OPERATING LEASES

The heading “External services” in the Consolidated income statements for 2014 and 2013 included
EUR 129,996 thousand and EUR 143,333 thousand, respectively, relating to operating leases. The
detail of the total future minimum lease payments under non-cancellable operating leases at 31
December 2014 is as follows:

Thousands of euros

2015 87,080
2016 – 2018 203,456
2019 and subsequent years 533,065
823,601

The leasing contracts for most of the lands on which the IBERDROLA Group's wind power facilities
are located have renewal on expiry or early termination clauses. The payments detailed in the table
above relate to the period of remaining useful life of the facilities, as well as the expenditure which the
termination of the contract at the end of its term would entail.

On the other hand, the IBERDROLA Group acts as lessor in certain operating leases consisting
basically on the rental of investment property (Note 9) and the lease of fibre optics.

129
The heading “Net revenue” in the Consolidated income statements in 2014 and 2013, includes EUR
53,021 thousand and EUR 51,674 thousand, respectively, related to this concept and the detail of the
estimated future minimum collections under non-cancellable leases at 31 December 2014 is as follows:

Thousands of euros

2015 35,991
2016 – 2018 98,977
2019 and subsequent years 80,150
215,118

36. TAXES OTHER THAN INCOME TAX

The detail of this heading in the Consolidated income statement of 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Deregulated Business 929,637 991,171

Spain 746,808 824,185
United Kingdom 178,138 162,740
USA and Canada 3,151 3,109
Mexico 1,540 1,137
Renewable Business 140,117 163,103
Spain 89,668 107,796
United Kingdom 14,821 12,919
USA 31,743 30,988
Other 3,885 11,400
Network Business 431,947 391,453
Spain 93,714 89,851
United Kingdom 100,361 72,436
USA 235,830 227,586
Brazil 2,042 1,580
Other businesses 3,257 1,774
Corporation and adjustments 76,285 10,607
Total 1,581,243 1,558,108

In addition, Law 15/2012 was published on 28 December 2012, regarding tax measures to ensure
sustainability of the energy sector. The law introduced the following tax figures registered under
“Taxes other than Income Tax” of the Consolidated income statements of 2014 and 2013:

- A tax on the value of electricity output, entailing payment of 7% of the total amount to be
received by the taxpayer for the production of electricity and incorporation thereof in the
Spanish electricity system, measured at power station busbars, during the tax period. This
tax gave rise to an expense of EUR 211,560 thousand and EUR 238,654 thousand in 2014
and 2013, respectively.

- A tax on spent nuclear fuel, amounting to EUR 108,571 thousand and EUR 108,279
thousand in 2014 and 2013, respectively.

- A royalty on the use of inland water affecting production of electricity that is levied on the
economic value of hydroelectric power produced, with a rate of 22%. The corresponding
expense in 2014 and 2013, amounting to EUR 148,689 thousand and EUR 127,655
thousand, respectively.

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 - A green cent tax levied against energy products used in electricity production, entailing a
cost for the IBERDROLA Group of EUR 25,768 thousand and EUR 28,418 in 2014 and
2013, respectively. This payment was recognised under "Procurements" in the
Consolidated income statement.

37. AMORTISATION AND PROVISIONS

The detail of this heading in the Consolidated income statements for 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Tangible assets depreciation allowances:

- Property, plant and equipment (Note 10) 2,520,025 2,399,476
- Investment property (Note 9) 7,186 6,232
Intangible asset depreciation allowances (Note 8) 359,904 341,368
Grants related to assets transferred to income for the year (Note 22) (74,037) (72,242)
Allowances for impairments and write-offs
of non-financial assets (Note 12) 98,833 1,801,347
Changes in provisions 111,691 61,271
3,023,602 4,537,452

38. GAINS AND LOSSES ON DISPOSAL OF NON-CURRENT ASSETS

The detail of “Gains on disposal of non-current assets” in the Consolidated income statements for
2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Gain on the disposal of land, buildings and other structures 4,974 3,057
Gain on the disposal of equity investments 250,118 25,232
255,092 28,289

The breakdown of “Losses on disposal of non-current assets” in the Consolidated income statements
for the year 2014 and 2013 is as follows:

Thousands of euros
12.31.14 12.31.13

Loss on disposal of land, building and other structures (179) (1,877)

Loss on disposal of equity investments (7,030) (36,833)
(7,209) (38,710)

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2014

Iberdrola Energía, S.A. transferred to Termopernambuco, S.A., a wholly-owned subsidiary of

NEOENERGIA, the direct stake it held in the share capital of Itapebi Geração de Energia, S.A. of
Brazil, in other words, 5,650,000 shares representing 22.6 % of its share capital. The price paid was
BRL 325.19 million (equivalent to approximately EUR 99,097 thousand), giving a gross capital gain of
EUR 76,206 thousand. That has been recognised under “Gains on disposal of non-current assets” in
the Consolidated income statement of 2014.

On 26 June 2014, the IBERDROLA Group has completed the sale of its 50% shareholding interest in
NNB Development Company, S.A. of Belgium (hereinafter, NNB) to Advance Energy UK Limited, a
subsidiary of Toshiba Corporation of Japan. NNB owns 100% of the share capital of British company
NuGeneration Limited whose Moorside project aims to develop a new generation nuclear power
station of up to 3.6 GW on land in West Cumbria. The sale price was GBP 86 million (equivalent to
approximately EUR 107 million). The EUR 95,198 thousand gross capital gains generated were
recognised in “Gains on disposal of non-current assets” in the Consolidated income statement of 2014.

At 3 October 2014, the IBERDROLA Group sold its holding in BBE (Note 13.a), representing 25% of
the share capital. The amount received was EUR 111 million, of which EUR 104 million corresponds to
the final price from the sale of the holding and EUR 7 million to the dividends distributed by BBE
before the sale was finalized. The capital gain, which amounted to EUR 64,626 million, was
recognised in “Gains on disposal of non-current assets” in the Consolidated income statement for
2014.

2013

On 26 February 2013, the IBERDROLA Group has signed an agreement to sell all of its wind assets in
Poland to the Polish companies Energa Hydro Sp. Z.O.O. and PGE Polska Grupa Energetyczna S.A.
The transaction was structured through the sale of the entire stake held by the IBERDROLA Group in
Iberdrola Renewables Polska, amounting to 75% of its share capital. At 31 July 2013 the sale has
been consummated since the last of the precedent conditions it was subject to had been fulfilled. The
transaction price amount to PLN 899 million equivalent to EUR 212,182 thousand. The output of the
transaction amounts to EUR 9,361 thousand.

132
39. FINANCE INCOME

The detail of “Finance income” in the Consolidated income statements for 2014 and 2013 is as follows:
Thousands of euros
12.31.14 12.31.13

Income from equity investments 176 49,491

Other interest and finance income 232,159 91,227
Other interest and finance income due to credits to
associated companies 8,522 5,297
Derivatives not designated as hedging
instruments and inefficiencies (Note 26) 40,520 47,465
Exchange gains in foreign currency for financing activities 173,160 194,251
Other positive exchange gains in foreign currency 368,201 254,078
Capitalised finance costs
- Intangible asset (Note 8) 13,302 4,494
- Property, plant and equipment (Note 10) 56,854 46,115
- Nuclear fuel (Note 16) 862 1,730
- Real Estate (Note 17) - 1,470
893,756 695,618

40. FINANCE COST

The detail of “Finance costs” in the Consolidated income statements for 2014 and 2013 is as follows:
Thousands of euros
12.31.14 12.31.13

Finance and similar financing costs 1,159,420 1,293,566

Other finance and similar cost 91,753 63,853
Equity instruments having the substance of a financial
liability (Note 21) 26,628 26,065
Derivatives not designated as hedging
instruments and inefficiencies (Note 26) 46,535 13,332
Exchange losses in foreign currency for financing activities 190,144 202,951
Other negative exchange losses 372,786 257,048
Financial update of other provisions (Note 24) 89,928 54,161
Financial update of the provisions for pensions
and similar obligations (Note 23) 39,011 62,589
2,016,205 1,973,565

41. BUSINESS COMBINATIONS

The IBERDROLA Group carried out no significant business combination in 2014 and 2013.

42. CONTINGENT ASSETS AND LIABILITIES

The IBERDROLA Group companies are party to legal and out-of-court disputes arising as part of their
ordinary course of business (ranging from conflicts with suppliers, clients, administrative or tax
authorities, individuals, environmental activists and employees).

133
The IBERDROLA Group's legal advisors believe that these proceedings will not have a material
impact on its financial position. The most important proceedings are described below:

a) Céntrica Energía, S.L. has taken several legal proceedings against the Royal Decree
1556/2005, establishing the electricity tariff for 2006, as well as against Royal Decree
809/2006, establishing the electricity tariff for 2007 and the subsequent tariff regulation.
Through these proceedings, Céntrica Energía, S.L. asked for the nullity of the recognition of
the revenue shortfall to the deficit financing companies and the repeal of the before mentioned
royal decrees. The Supreme Court has rejected these proceedings for several reasons,
including the consideration that the shortfall recognition supposed the return to the companies
of the amounts they paid to its financing. Even though Céntrica Energía, S.L. has appealed to
higher courts, no significant harm is expected for the IBERDROLA Group as a result of these
further proceeding.

b) There are various employments, civil and tax claims imposed on ELEKTRO and on different
companies of the NEONERGIA Group in Brazil. The IBERDROLA Group considers the
chance of losing these claims to be very slight and the related amounts not significant.

c) The US Environmental Protection Agency has filed claims against various subsidiaries of
IBERDROLA USA for failing to comply with environmental issues. The IBERDROLA Group
considers that the possibility of these claims being lost is remote and that the amount involved
could not be significant.

d) Normal development of building facilities for third parties includes a negotiation phase and
friendly closure at the completion in which aspects of different nature are discussed, and may
give rise to claims for and against the Group. In the year 2014 the Group has opened a claim
filed before a customer consortium amounting to EUR 189 million and a complaint received by
the consortium of which the Group is a partner in the amount of EUR 156 million. The
IBERDROLA Group does not consider probable to thrive customer complaint so it has not
made any provision for the year. Likewise, there has not been further consideration to the
derivative of the selling price of the contract receivable.

134
e) There are seven lawsuits (one administrative and six civil) involving IBERDROLA in relation to
the formulation on 1 July 2008 by its subsidiary Iberdrola Renovables, S.A. (hereinafter
IBERDROLA RENOVABLES) of a takeover bid targeting the ordinary and preference shares
of the Greek investee C. ROKAS, S.A. (hereinafter, ROKAS). On the occasion of the merging
out of existence of IBERDROLA RENOVABLES into IBERDROLA, the latter became
subrogated to all rights and obligations of the former, including those arising from the
proceedings so far referred to. The administrative proceedings consist of an appeal in
cassation against the penalty imposed by the Greek securities market commission (HCMC) on
IBERDROLA RENOVABLES with respect to the takeover bid launched in 2008. The hearing
at which appeal in cassation was to be decided upon had been originally scheduled for 14
May 2013. It was not held on that date and has been postponed on further four occasions,
until 13 January 2015. The remaining civil actions (six) were instituted by shareholders of
ROKAS, and consist of claims for damages equivalent to the difference between the price at
which IBERDROLA RENOVABLES launched the takeover bid (EUR 16 per ordinary share
and EUR 11 per preference share), a price which was authorised by HCMC, and the price
which those shareholders believe ought to have been set (EUR 21.75 per ordinary share and
EUR 21.50 per preference share). On 14 October 2014 the IBERDROLA Group was notified
of the decision issued regarding three of the civil actions, which had been joined into a single
one. The decision was unfavourable. The IBERDROLA Group was ordered to pay EUR 10.9
million plus interest (which, at 24 October 2014, amounted to EUR 4.1 million), of which EUR
0.632 million (plus interest) are a liability of the IBERDROLA Group alone, whereas the rest of
the amount of the damages must be paid jointly and severally by the Group, and by Christos
Rokas and Georgios Rokas. The IBERDROLA Group has not had the claimants’ costs
awarded against it in these proceedings. The IBERDROLA Group has appealed against this
decision. In 2011, a final judgement in favour of the IBERDROLA Group was obtained in one
of the other civil proceedings, while the other two civil proceedings remain at various
procedural stages. It is difficult to determine when a decision upon them will be forthcoming,
given the circumstances of the courts of that country. The total amount now being claimed
(excluding the proceedings where a final judgement has been handed down in favour of
IBERDROLA), after reduction of the claimed amounts, mainly under the head of moral
damages, has been fixed at EUR 15 million, to which must be added any amounts relating to
statutory interest and legal costs.

In addition, the companies of the IBERDROLA Group have instituted a range of legal
proceedings, the highlights of which are:

a) The IBERDROLA Group has begun legal proceedings against BP Exploration Operating
Company Ltd. (hereinafter, BP) in which the Group is claiming GBP 83 million for breach
of a long-term gas supply contract entered into with BP and its joint venture partners
(Talisman North Sea Ltd., ENI TNS Ltd. and JX Nippon Exploration and Production (UK)
Ltd.) whereby SCOTTISH POWER buys gas from Andrew Field. BP ceased to supply gas
to SCOTTISH POWER in May 2011. The trial has been scheduled for 8 June 2015.

135
b) On 28 December 2012, Bolivia nationalised all blocks of shares which the company
Iberbolivia de Inversiones, S.A. (IBERBOLIVIA) held in the companies Electricidad de La
Paz, S.A., Luz y Fuerza de Oruro, S.A., Compañía Administradora de Empresas
Bolivianas, S.A. and Empresa de Servicios Edeser, S.A. IBERDROLA holds 63.39% of
capital in IBERBOLIVIA. The agreement for the reciprocal promotion and protection of
investments between the Kingdom of Spain and the Republic of Bolivia indicates that
expropriations must be accompanied by payment of a prompt, adequate and effective
indemnification. The IBERDROLA Group made the relevant Dispute Notification to Bolivia
in April 2013. Various meetings have been held with representatives of Bolivia without any
agreement having been reached. The minimum term of six months since the notification
having amply elapsed without amicable settlement of the dispute, it became available the
option of international arbitration, which was elected by means of an Arbitration
Notification submitted by the IBERDROLA Group on 29 July 2014.

c) On 21 February 2014 the IBERDROLA Group applied for judicial review of Royal Decree
1048/2013, of 27 December, establishing the method of calculation of remuneration of
electricity distribution activities, and Order IET/2442/2013, of 26 December, establishing
remuneration for the second period of 2013 for electricity transmission and distribution
activities and other measures in relation to the remuneration of transmission and
distribution activities in previous years. The judicial review application has now been
halted as a result of the Constitutional Court (Tribunal Constitucional) having ruled that the
Government of the Generalitat of Catalonia has instituted a positive conflict of powers and
duties in relation to various aspects of Royal Decree 1048/2013, this being the ground on
which the suspension of proceedings was ordered by the Court.

d) The IBERDROLA Group submitted an application for judicial review before the Supreme
Court against Royal Decree 413/2014, of 6 June, regulating electricity production from
renewable energy sources, cogeneration and waste, and against Orden Ministerial
IET/1045/2014, of 16 June, adopting the remuneration metrics for model facilities
applicable to certain facilities for electricity production from renewable energy sources,
cogeneration and waste. The separate challenges to each statutory instrument have been
joined into a single set of proceedings because the “Metrics Order” was adopted by way of
implementing Royal Decree 413/2014, and the two instruments shape the new regulatory
scenario that now governs facilities for producing electricity from renewable energy
sources.

e) On 11 September 2012 execution was sought of the Supreme Court decision of 7

December 2010 which declares that the assignment to IBERDROLA of greenhouse gas
emission allowances under the Council of Ministers resolution of 2 November 2007 within
the 2008-2012 National Plan of Emission Allowances was discriminatory and void. In an
order dated 29 April 2013, the Supreme Court declared that the judgement was incapable
of execution in its own terms. It gave a hearing to the parties as to other forms of
executing the judgement and the relevant amount of damages. Having made the
pleadings referred to above and having submitted an expert report as evidence of the
damages caused, the company is awaiting a final decision on this issue. As a result, the
appeal against dismissal of a claim for Estate liability submitted for this same reason and
amount was abandoned. On 24 September 2014, the expert reports were ratified. The
proceedings are yet to be resolved.

136
f) As to national taxes, and in particular the new electricity taxes created under Law 15/2012,
of 27 December, of tax measures for energetic sustainability, applications for judicial
review have been submitted in respect of the orders (issued by the national government
and the regional governments of the Basque Country and Navarre) adopting self-
assessment forms for the tax on the value of electricity production and the taxes on the
production and storage of spent nuclear fuel and radioactive waste. The National Court
dismissed the application for judicial review submitted against Orden HAP/703/2013, of 29
April, adopting form 583, the tax on the value of electricity production. That decision has
been appealed against the Supreme Court.

g) Other highlights include the proceedings being pursued in the Chamber of Judicial Review
of the High Court of Justice of Andalusia (Tribunal Superior de Justicia de Andalucía), in
which value added tax refunds are being sought in the combined amount of EUR 22.5
million, the Spanish State Tax Administration Agency (Agencia Estatal de la
Administración Tributaria) having refused to comply because a conflict of powers has
arisen between that Agency and the Biscay Provincial Authority (Diputación Foral de
Bizkaia). There is good reason to believe that these proceedings will be successful, in so
far as the right to a refund of the payments has been recognised. The dispute focuses
only on which authority is competent in this matter. The High Court of Justice of Andalusia
has declared that the Chamber is not competent to hear these proceedings, and that the
competent court is the National Court. As to the Extremadura “green tax”, applications for
judicial review have been submitted in respect of the settlements for the period 2006-2013
under the Ley de la Asamblea de Extremadura 8/2005. IBERDROLA has argued that the
tax is unconstitutional and that one of its essential elements of application is absent. As to
the former vice – unconstitutionality – the Supreme Court, in its decision of 4 June 2013,
raised a constitutionality issue in litigation instituted by Gas Natural Fenosa which is
similar to IBERDROLA’s lawsuit, which is likely to be suspended until the Constitutional
Court hands down a ruling. The High Court of Justice of Extremadura (Tribunal Superior
de Justicia de Extremadura) has decided to suspend proceedings until the Constitutional
Court rules upon the issue of unconstitutionality.

137
 43. INTERESTS IN JOINT VENTURES

The detail (at 100%) of the most significant economic aggregates in 2014 and 2013 relating to the
main joint ventures involving the IBERDROLA Group is as follows:

Thousands of euros
Joint property of nuclear and thermal plants

A.I.E. A.I.E. West of

2014 Almaraz- Ascó- Duddon Torre
Almaraz Trillo Vandellós Ascó Aceca Trillo Valdellós Sands Iberdrola

Other
Segment Deregulated Renewables businesses

Intangible assets - - - - - 4,933 - - 11

Property, plant and
equipment
Technical
instalations 1,048,986 1,178,986 1,167,349 779,673 - - - 1,628,982 -
Other fixed assets 435 5,646 14,829 - 1,809 2,074 - 3,108 219,219
Non-Current
financial Assets 23,173 11,290 47,098 9,864 2,435 1,837 85,393 - -
Current assets 455,966 278,433 285,176 234,434 7,021 60,777 217,056 - 9,309
Total assets 1,528,560 1,474,355 1,514,452 1,023,971 11,265 69,621 302,449 1,632,090 228,539

Non-Current
Liabilities 350,901 374,449 362,396 156,822 6,675 45,224 136,852 - 1,333

Current Liabilities 1,252,969 1,191,928 1,177,899 959,661 2,352 24,397 146,363 19,581 1,438

Income 637,091 307,380 373,745 277,059 6,395 136,873 356,161 8,579 10,365

Expenses 723,828 412,225 446,947 381,633 5,073 136,873 288,270 24,594 10,095

2013

Intangible assets - - - - - 4,587 - - 16

Property, plant and
equipment
Technical -
instalations 1,009,165 1,301,617 1,252,406 910,205 - - - 967,344
Other fixed assets 458 6,024 14,896 - 1,811 2,317 - 2,533 203,723
Non-Current
financial Assets 23,848 11,290 51,287 9,864 2,430 1,874 53,658 - 16,931
Current assets 385,473 459,217 197,892 208,543 12,938 58,530 144,940 93,774 8,196
Total assets 1,418,944 1,778,148 1,516,481 1,128,612 17,179 67,308 198,598 1,063,651 228,866

Non-Current
liabilities 227,458 412,236 346,609 228,859 10,193 48,429 65,622 - 1,262

Current liabilities 1,241,873 1,303,250 1,204,901 917,121 10,276 18,879 113,743 96,295 1,843

Income 656,458 344,543 332,212 342,360 14,056 131,999 288,450 19 9,041

Expenses 716,605 293,667 415,573 370,044 18,262 131,999 293,306 31 9,710

138
44. GUARANTEE COMMITMENTS TO THIRD PARTIES AND OTHER CONTINGENT
LIABILITIES

IBERDROLA and its subsidiaries are required to provide the bank or corporate guarantees associated
with the ordinary management of the Group’s activities in the countries where the Group operates.

For its activity of electricity generation, the IBERDROLA Group guarantees the obligations undertaken
in energy purchase agreements and grid access transactions in different energy markets and against
the operators of different electricity systems (MEFF, OMEL, OMI Clear, National Grid, CFE, REE and
EDP Distribución).

With regard to generation from renewable sources, the IBERDROLA Group has provided guarantees
to third parties to cover the construction, bringing into service and dismantling of facilities, in addition
to its responsibilities in long-term energy sales.

Further, as part of its engineering business, the IBERDROLA Group guarantees not only the supply,
but also the design, bringing into service and operation of turnkey construction projects sold to its
customers.

At 31 December 2014 and 2013, there were outstanding obligations resulting from bond issues in the
United States amounting to EUR 1,180,495 and EUR 1,044,050 thousand that were secured by the
items in the property, plant and equipment of the subgroup IBERDROLA USA.

In addition, at 31 December 2014 and 2013, there were no outstanding obligations resulting from
mortgage loans secured by items of the property, plant and equipment.

The IBERDROLA Group in compliance with the contractual obligations associated with loans received
from banks, had fully or partially pledged some of its subsidiaries shares at 31 December 2014 and
2013. The detail, by company, of the shares pledged is as follows:

2014 2013
Carrying Carrying
amount by amount by
percentage of percentage of
IBERDROLA IBERDROLA
Carrying Group´s Carrying Group´s
amount Percentage ownership amount ownership
(thousands of of (thousands of (thousands of Percentage of (thousands of
Company euros) participation euros) euros) participation euros)
Renewables business - Spain
Biovent Energía, S.A. 62,450 95.00% 59,328 73,493 95.00% 69,818
Desarrollo de Energías Renovables
22,065 40.51% 8,939 24,349 40.51% 9,864
de La Rioja, S.A. (1)
Energía de Castilla y León, S.A. 5,613 85.50% 4,799 5,712 85.50% 4,884
Energías Eólicas de Cuenca, S.A. 13,216 100.00% 13,216 14,951 100.00% 14,951
Energías Renovables de la Región de
75,148 100.00% 75,148 77,151 100.00% 77,151
Murcia, S.A.
Eólica 2000, S.L. 4,297 51.00% 2,191 5,177 51.00% 2,640
Eólica de Campollano, S.A. (1) 27,075 25.00% 6,769 27,692 25.00% 6,923
Molinos de La Rioja, S.A. (1) 7,693 42.37% 3,260 7,186 42.37% 3,045
Molinos del Cidacos, S.A. (1) 26,267 31.78% 8,348 25,951 31.78% 8,247
Sistemas Energéticos Torralba, S.A. 4,513 60.00% 2,708 7,340 60.00% 4,404
Iberdrola Renovables La Rioja, S.A. (1) 95,608 63.55% 60,759 - - -
Renewables business – United
States
Colorado Green Holdings, LLC 66,526 50.00% 33,263 59,394 50.00% 29,697

139
 2014 2013
Carrying Carrying
amount by amount by
percentage of percentage of
IBERDROLA IBERDROLA
Carrying Group´s Carrying Group´s
amount Percentage ownership amount ownership
(thousands of of (thousands of (thousands of Percentage of (thousands of
Company euros) participation euros) euros) participation euros)

Renewables business – Brazil

Arizona 1 Energía Renovável, S.A 12,420 69.50% 8,632 27,109 69.50% 18,841
Caetité 1 Energía Renovável, S.A. (1) 19,916 69.50% 13,842 18,784 69.50% 13,055
Caetité 2 Energía Renovável, S.A(1) 20,915 69.50% 14,536 16,937 69.50% 11,771
Caetité 3 Energía Renovável, S.A 18,171 69.50% 12,629 18,815 69.50% 13,076
(1) 69.50%
Calango 1 Energía Renovável, S.A. 14,921 10,370 22,398 69.50% 15,567
Calango 2 Energía Renovável, S.A. 10,289 69.50% 7,151 26,430 69.50% 18,369
Calango 3 Energía Renovável, S.A. 11,826 69.50% 8,219 26,785 69.50% 18,616
Calango 4 Energía Renovável, S.A. (1) 11,564 69.50% 8,037 23,151 69.50% 16,090
Calango 5 Energía Renovável, S.A. (1) 13,131 69.50% 9,126 22,729 69.50% 15,797
Energías Renovaveis do Brasil, S.A. 36,676 100.00% 36,676 27,088 100.00% 27,088
Mel 2 Energía Renovável, S.A. 9,599 69.50% 6,671 20,723 69.50% 14,402
Força Eolica do Brasil 1, S.A (1) 81,891 69.50% 56,914 - - -
(1)
Força Eolica do Brasil 2, S.A 65,812 69.50% 45,739 - - -
Renewables business – Other
Societá Energie Rinnovabili 1, S.p.A.
(1) 16,734 49.90% 8,350 14,448 49.90% 7,210
(1)
Societá Energie Rinnovabili, S.p.A. 18,769 49.90% 9,366 14,759 49.90% 7,365
Network business – Brazil
Baguari Geraçao de Energía
28,009 39.00% 10,924 30,553 39.00% 11,916
Eléctrica, S.A. (1)
Bahia PCH I, S.A. (1) 36,857 39.00% 14,374 38,330 39.00% 14,949
Companhia Hidreletrica Teles Pires,
552,559 19.54% 107,970 535,970 19.54% 104,729
S.A. (1)
Energetica Aguas da Pedra, S.A. 118,764 19.89% 23,622 124,188 19.89% 24,701
Geraçao CIII, S.A. (1) 46,385 39.00% 18,090 48,656 39.00% 18,976
Goias Sul Geraçao de Energía, S.A.
(1) 57,754 39.00% 22,524 60,935 39.00% 23,765
(1)
Rio PCH I, S.A. 37,096 27.30% 10,127 39,885 27.30% 10,889
Belo Monte Participaçoes, S.A. (1) 165,600 39.00% 64,584 - - -
Deregulated business - Mexico
Iberdrola Energía Altamira, S.A. de
283,022 100.00% 283,022 253,213 100.00% 253,213
C.V. (2)
Iberdrola Energía del Golfo, S.A. de
147,210 100.00% 147,210 171,681 100.00% 171,681
C.V. (2)
Iberdrola Energía La Laguna, S.A. de
155,269 99.99% 155,253 140,044 99.99% 140,030
C.V. (2)
Iberdrola Energía Monterrey, S.A. de
88,201 99.99% 88,192 130,901 99.99% 130,888
C.V. (2)
Iberdrola Energía Tamazunchale,
153,217 99.99% 153,202 134,526 99.99% 134,513
S.A. C.V.(2)
Iberdrola Generación México, S.A. de
C.V. (before Iberdrola México, S.A. 579,710 100.00% 579,710 496,938 100.00% 496,938
de C.V.) (2)
Enertek, S.A. de C.V. (2) 89,836 99.99% 89,827 80,919 99.99% 80,911
Deregulated business - Spain
Tirme, S.A. (1) 62,125 20.00% 12,425 57,685 20.00% 11,537

3,374,719 2,316,042 2,952,976 2,058,507

(1) Companies accounted for using the equity method.

(2) The 99% of the shares is in trust.

140
IBERDROLA considers that the additional liabilities that may arise from the guarantees provided at 31
December 2014 and 2013, if any, would not be significant.

45. REMUNERATION OF BOARD OF DIRECTORS

1. 2014 by-law stipulated remuneration

Article 52 of IBERDROLA’s by-laws provides that the Company shall assign, as an expense, an
amount equal to up to 2% of the profit obtained in the year by the consolidated group for the following
purposes:

 To remunerate directors in accordance with the positions they have held, their dedication and
attendance at meetings of corporate bodies.

 To set up a fund to meet the Company's obligations in pensions, life insurance premiums and
payment of indemnities to current and former directors.

Assignment of up to 2% may be accrued only if the yearly profit is sufficient to cover assignments to
the legal reserves and any other obligatory charges, and if shareholders have been allotted a dividend
equal to 4% of the share capital.

On the proposal of the Appointments and Remuneration Committee, the Board of Directors has
decided to propose to the General Shareholders Meeting to assign by-law stipulated remuneration of
EUR 19,000 thousand.

The amounts of EUR 19,000 thousand and EUR 25,718 thousand assigned in this connection in 2014
and 2013, which have been registered under “Staff costs” in the Consolidated income statements
(Note 35), break down as follows:

a) Fixed Remuneration

The fixed annual remuneration received by the board members depends on the duties assigned to
them in the Board of Directors and its commissions in 2014 and 2013. The detail of which is as follows:

Thousands of euros
2014 2013

Chairman 567 567

Committee chairmen 440 440
Committee members 253 253
Board members 165 165

The fixed remuneration earned by members of the Board of Directors with a charge to the by-law
stipulated remuneration amounted to EUR 4,335 thousand and EUR 4,384 thousand in 2014 and
2013, respectively.

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The detailed fixed remuneration accrued by the members of the Board of Directors, individually,
during 2014 and 2013, respectively, is detailed as follows:

Thousands of euros
Fixed Fixed
remuneration remuneration
2014 (*) 2013

Chairman
Mr. José Ignacio Sánchez Galán 567 567

Committee chairmen
Mr. Julio de Miguel Aynat 440 440
Mrs. Inés Macho Stadler 440 440
Mrs. Samantha Barber 440 440

Committee members
Mr. Sebastián Battaner Arias 253 253
Mr. Xabier de Irala Estévez 253 253
Mr. Íñigo Víctor de Oriol Ibarra 253 253
Mr. Braulio Medel Cámara 253 253
Mrs. María Helena Antolín Raybaud 253 253
Mr. Santiago Martínez Lage 253 253
Mr. José Luis San Pedro Guerenabarrena 253 253
Mr. Ángel Jesús Acebes Paniagua 253 253
(1)
Mrs. Georgina Kessel Martínez 253 152
(2)
Mrs. Denise Mary Holt 126 -

Directors that resigned

(3)
Mr. Víctor de Urrutia Vallejo - 136
(4)
Mr. Manuel Lagares Gómez-Abascal 45 185

Total remuneration 4,335 4,384

(*) Amounts accrued in 2014, not satisfied until the approval of 2014 by-law stipulated remuneration by the General
Shareholders Meeting 2015.

(1) Appointed external director by the Board of Directors at their meeting on 23 April 2013. Also, on 23 July 2013 her
appointment was approved as a member of the Audit and Risk Supervision Committee.

(2) Appointed external director by the Board of Directors at its meeting on 24 June 2014. Also, on 22 July 2014 her appointment
was approved as a member of the Audit and Risk Supervision Committee.

(3) Ceased as vice-chairman of Board of Directors at their meeting on 23 April 2013.

(4) Ceased as a director at the Board meeting on 10 April 2014.

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

b) Attendance fee

The attendance fees paid in 2014 and 2013 for attending the meetings of the Board of Directors and
its commissions, based on the duties discharged in each case, were as follows:

Thousands of euros
2014 2013

Chairman of the Board of Directors and committees chairmen 4 4

Committee members and members of the Board of Directors 2 2

The attendance fees paid to the members of the Board of Directors with a charge to the by-law
stipulated remuneration amounted to EUR 590 thousand and EUR 938 thousand in 2014 and 2013,
respectively.

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Below are listed, individually, the attendance fees received by the members of the Board of Directors
during 2014 and 2013, respectively:

Thousands of euros
Attendance fees Attendance fees
2014 2013
Chairman
Mr. José Ignacio Sánchez Galán 88 140

Committee chairmen
Mr. Julio de Miguel Aynat 50 82
Mrs. Inés Macho Stadler 76 110
Mrs. Samantha Barber 54 86

Committee members
Mr. Sebastián Battaner Arias 30 54
Mr. Xabier de Irala Estévez 44 70
Mr. Íñigo Víctor de Oriol Ibarra 30 46
Mr. Braulio Medel Cámara 18 44
Mrs. María Helena Antolín Raybaud 32 50
Mr. Santiago Martínez Lage 30 46
Mr. José Luis San Pedro Guerenabarrena 44 70
Mr. Ángel Jesús Acebes Paniagua 44 62
Mrs. Georgina Kessel Martínez 32 22
Mrs. Denise Mary Holt 14 -

Directors that resigned

Mr. Victor de Urrutia Vallejo - 28
Mr. Manuel Lagares Gómez-Abascal 4 28
Total attendance fees 590 938

c) Remuneration of the executive directors for discharging their executive duties

The remunerations earned in 2014 and 2013 by the chairman and chief executive officer and by the
chief operating officer for their executive duties and which are also recognised with a charge to the by-
law stipulated remuneration for the year are indicated below individually by remuneration components:

Remuneration components of chairman and chief executive officer:

Thousands of euros
2014 2013

Fixed remuneration 2,250 2,250

Variable annual remuneration (1) 3,146 3,250
Compensation in kind 66 61

(1) Amount relates to variable remuneration received in years 2014 and 2013, respectively, based on
attainment of targets and personal performance in 2013 and 2012, respectively.

143
The Board of Directors has resolved to maintain the fixed remuneration for the chairman and chief
executive officer in 2015 at EUR 2,250 thousand. It also decided to maintain the limit of variable
annual remuneration, which may not exceed EUR 3,250 thousand and which will be paid as far as
been agreed in 2016
(2)
Remuneration components of chief operating officer :

Thousands of euros
2014 2013

Fixed remuneration 484 1,000

(1)
Variable annual remuneration 945 646
Compensation in kind 22 47
Other remuneration 16 -
(1) Amount of annual variable remuneration in 2014 and 2013, tied to the achievement of targets, and to personal
performance, for the periods of 2013 and 2012 in which he was a member of the Board of Directors.
(2) Stepped down from his executive duties as Business CEO on 24 June 2014 but remains a member of the Board
of Directors and its Executive Committee.

On the other hand, due to the cease of his executive functions on 24 June 2014, from that date
onwards retributions will only apply as a member of the Board of Directors' committee.

d) Provisions and guarantees provided by the Company for directors

This account includes the following items:

- The premium incurred to cover benefits payable in the event of the death, disability and other
insurance of current directors, amounting to EUR 869 thousand and EUR 908 thousand in
2014 and 2013, respectively.

- The premium paid to cover directors’ Civil Liability Insurance amounts to EUR 86 thousand
and EUR 101 thousand in 2014 and 2013, respectively.

- In 2014 a rebate was received in the amount of EUR 276 thousand in respect of adjustment
of the pension insurance policies relating to former directors. In 2013, however, EUR 230
thousand was paid out of the allocation made under the Company by-laws.

In 2014 no contribution was made to provision schemes additional to the public Social
Security system.

e) Others

The expenses of the Board of Directors related to external services and other items during 2014 and
2013 amounted to EUR 1,189 thousand and EUR 1,117 thousand, respectively.

Moreover, with a charge to the allocation under the by-laws, in 2013 commitments acquired by the
Company totalling EUR 762 thousand were paid. No such payment was recorded in 2014.

144
The undistributed by-law stipulated remuneration for 2014 amounting to EUR 5,278 thousand can be
externalized to cover the obligations incurred by the Company to ensure them, in the event they
should be materialized.

At 31 December 2014 and 2013 there are no loan or advance granted by the IBERDROLA Group to
the members of the Board of Directors of IBERDROLA.

2. Remuneration through the delivery of Company shares

Section 2 of Article 52 of IBERDROLA's by-laws stipulates that independently of the provisions of the
foregoing paragraph, and subject always to the approval of the General Shareholders’ Meeting, the
compensation of directors may also consist of the delivery of shares or options thereon, as well as a
payment which takes as its reference the value of the Company’s shares.

Consequently, remuneration through the delivery of Company’s shares, or any other remuneration
related to such shares is additional, compatible and independent of profit sharing, which is established
in Section 1 article 52 of the by-laws of IBERDROLA.
a) 2011-2013 Strategic Bonus

On 24 June 2014, based on a proposal from the Appointments and Remuneration Committee, the
Board of Directors resolved to settle, having met 93.20% of the targets set, the 2011-2013 Strategic
Bonus, approved as item seven on the agenda at the General Shareholders' Meeting of 27 May 2011
and regulated by the 2011-2013 Strategic Bonus Regulations which were also approved by the Board
of Directors at its meeting on 19 July 2011. Accordingly, the first of the three annual settlements were
made in 2014. The Chairman and the CEO received 536,359 IBERDROLA shares while the Chief
Operating Officer received 90,640 shares. The Chief Operating Officer was appointed on 24 April
2012. Prior to that, he was Group Business CEO.

b) 2014-2016 Strategic Bonus

On 28 March 2014, the General Shareholders' Meeting resolved, in connection with item seven on the
agenda, on the 2014-2016 Strategic Bonus (see Note 20) aimed at executive directors, senior
executives and other management personnel of the Company and its subsidiaries. The maximum
number of shares to be delivered to the beneficiaries (350) of the 2014-2016 Strategic Bonus will be
19,000,000 shares, equal to 0.3% of the share capital at the time this resolution is adopted. A
maximum of 2,200,000 shares will be delivered to the executive directors in compliance with the terms
and conditions of the scheme. The settlement period will be 2017 - 2019 as stipulated in the resolution
approved by the General Shareholders Meeting.

3. Termination benefits

In the event of termination of a non-executive director prior to the end of the period for which he was
appointed not due to non-compliance attributable to such director and not due exclusively to his own
will, the Company will pay such director a termination benefit subject to the director's obligation during
the remaining period of his term (with a maximum of two years) not to accept positions on the
governing bodies of companies in the energy sector or competing companies and not to participate in
the management or advisory of the same in any other form.

Termination benefits are equal to 90% of the fixed amount the director would have received for serving
his or her remaining term as officer (maintaining any annual fixed amount receivable upon leaving the
Board), that could not exceed an amount that is twice 90% of that annual fixed amount.

145
Since the end of the 90s, executive directors, as well as a group of managers, have the right to receive
a termination benefit in the event of termination of the contractual relationship with the Company not
due to non-compliance attribuible to such director and not due exclusively to his own will. The amount
of compensation for the chairman and the chief executive officer is currently set at three annuitties.
The limit shall be two annuitties for new contracts with executive directors and senior executives, since
2011.

In addition, executive director contracts contain a non-compete clause in respect of companies and
activities of a similar nature, applicable throughout the director's relationship with the Company and for
a maximum of two years subsequent to departure. As compensation for this commitment, the
executive directors are entitled to receive a payment equal to the remuneration that would correspond
to these periods.

4. By-law stipulated remuneration in 2015

At the proposal of the Appointments and Remuneration Committee, the Board of Directors
unanimously resolved to freeze, for the 2015 fiscal year, directors' compensation in the form of fixed
annual remuneration based on position and meeting attendance fees, as it has done since 2008.

46. INFORMATION REGARDING COMPLIANCE WITH ARTICLE 229 OF THE SPANISH

COMPANIES LAW

As established in article 229 of the Spanish Companies Law (Ley de Sociedades de Capital)
introduced by Royal Decree-Law 1/2010 of 2 July 2010 and in Law 31/2014, of 3 December 2014,
modifying the Spanish Companies Law for the improvement of corporate governance, the conflicts of
interest, direct or indirect, that the members of the Board have had with the Company, and the
treatment thereof, are indicated below.

When the Board of Directors discussed the appointment, re-election or salary of a Director, the person
in question left the meeting.

Likewise, Mr. Xabier de Irala Estévez left the meeting during the discussion of the resolutions
regarding agreements involving Kutxabank, S.A. (specifically, the cancellation of the mortgage loan to
Norapex, S.A. and the appointment of Norbolsa Sociedad de Valores, S.A. as the agent for the
execution of the Iberdrola dividendo flexible system).

Also, Mr. Ángel Jesús Acebes Paniagua left the meeting during the discussion of a contribution to the
"Fundación V Centenario del Nacimiento de Santa Teresa de Jesús" because he is a member of its
Executive Commission.

Lastly, Mr. Iñigo Víctor de Oriol Ibarra left during the recording in relation to the authorization of the
award of the contract for the supply, transportation, assembly and commissioning of the water
treatment plant of Cogeneración Ramos in Mexico to the company Soil Tratamiento de Aguas
Industriales, S.L. Mr. Iñigo Víctor de Oriol Ibarra indirectly controls 23.4% of Soil Tratamiento de
Aguas Industriales, S.L. and his close relatives indirectly control 39.4%.

Likewise, all directors abstained from taking part in discussions regarding their type of directorships -
executive, external proprietary and external independent.

146
47. REMUNERATION OF SENIOR EXECUTIVES

Senior executives are those who answer directly to the Company's Board of Directors, chairman and
chief executive officer and, in all cases, the Internal audit director, apart from any other director
recognised as senior executive.

At the date of this Consolidated financial statements such condition has been recognized to a director
by the Board of Directors.

At 31 December 2014 and 2013, the Company has 7 and 6 senior executives, respectively.

The staff costs relating to senior executives amounting to EUR 8,189 thousand and EUR 6,841
thousand in 2014 and 2013, respectively, are recognised under “Staff costs” in the Consolidated
income statements of the mentioned years.

The remuneration and other compensation received by senior executives in 2014 and 2013 are
detailed below:

Thousands of euros
(1)
12.31.14 12.31.13

Monetary remuneration 3,630 2,924

Variable remuneration 2,213 2,003
Compensation in kind 386 343
Payments to account not charged 75 71
Social Security 93 75
Promoter contribution pension plan 57 44
Insurance contributions 1,400 1,141
Complementary policy risk 335 240
Total staff costs 8,189 6,841

Number of shares
(2) (3)
Share-based payment plan, strategic bonus 385,057 218,914

(1) Includes remuneration paid to Mr.Francisco Martínez Córcoles since 1 January 2014.

(2) In 2014, 385,057 shares were delivered to senior management (including the Business CEO, Francisco Martínez
Córcoles) tied to the 2011-2013 Strategic Bonus described in Note 20, under which members of senior
management will receive equal amounts of shares of IBERDROLA in 2014, 2015 and 2016.

(3) In 2013, 218,914 shares were delivered to senior executives (included chief operating officer Mr. Jose Luis San
Pedro Guerenabarrena) of the 2008-2010 Strategic Bonus (Note 20) under which members of senior executives
will receive equal amounts of shares of IBERDROLA in 2011, 2012 and 2013. With the delivery of those shares,
during de year 2013, the total settlement of the Startegic Bonus has been met.

A maximum of 2,554,304 shares in aggregate are to be delivered to senior executives under the 2014-
2016 strategic bonus (Note 20), tied to their success in achievement of objectives. As at 31 December
2014, EUR 4,769 thousand have been provisioned for these commitments.

147
For senior executives, including executive directors, there are clauses providing guarantees or
protection against different cases of contract termination. These contracts have been approved by the
Board of Directors of IBERDROLA and are described in Note 46.

The amount of termination benefits is based on the length of service at the Company and the causes
of cease, with a maximum payment of five annuities. Since 2009, for contracts with senior executives,
the maximum will be two annual salary payments.

The contracts for senior executives set in any case an obligation not to compete in relation to
companies and activities similar in nature to those of IBERDROLA and the Group for a period not less
than one year after its termination.

On the other hand, during 2014 and 2013 there were no other transactions with the executives outside
the normal course of the business.

48. BALANCES AND TRANSACTIONS WITH OTHER RELATED PARTIES

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

Transactions carried out by IBERDROLA with major shareholders

The most noteworthy transactions in 2014 and 2013 have been as follows:

Thousands of euros
Major shareholders (2)
2014 2013
Kutxabank, Qatar Investment Kutxabank, Qatar Investment
S.A. Authority S.A. Authority

Transaction type
Expenses and income
Financial expenses 45 - 6 -
Service reception 479 - 329 -

Other transactions
Financing agreements: loans and capital
injection (given) 5,267 - 2,362 -
Dividends and other distributed profit (1) 93,278 244,453 86,582 167,850

(1) The amounts distributed as dividends and other benefits corresponding to the free allotment rights arising from capital
increases agreed by the General Meeting of Shareholders of 28 March 2014 and 22 March 2013, respectively, which have
been sold to IBERDROLA at a guaranteed price according to the terms of the aforementioned increases, as well as the
attendance bonus to the General meeting received from the related party, if applicable.

(2 )IBERDROLA treats as a “significant shareholder” any shareholder who exerts a significant influence on the company’s
financial and operating decisions. “Significant influence” is defined as having at least one director on the Board.
This also applies to those significant shareholders whose ownership interest in the company enables them to exercise the
proportional representation system.

148
 Therefore, the amounts relating to “significant shareholders” reflect transactions with Kutxabank and Qatar Investment
Authority, these being the only shareholders who satisfied that condition at the date of issue of these financial statements.
This criterion is not the same as the one used in 2013, where any shareholder having a stake in excess of 3% was treated
as a “significant shareholder”. For purposes of comparison the amounts for 2013 have been modified with respect to those
stated in the notes to the Consolidated financial statements for that year.

Transactions of other IBERDROLA Group companies with major shareholders

The most noteworthy transactions in 2014 and 2013 were as follows:

Thousands of euros
Major shareholders (2)
2014 2013
Kutxabank, Qatar Investment Kutxabank, Qatar Investment
S.A. Authority S.A. Authority

Transaction type
Expenses and income
Financial expenses 227 - 202 -
Service reception 56 - 40 -
Purchase of goods (finished or in progress) - - 2 -
Financial income 11 - 653 -

Other transactions
Financing agreements: loans and capital
injection (given) 1,410 - 1,125 -
Financing agreements: loans and capital
injection (received)(1) 6,601 - 6,304 -
Amortization or cancellations of credits and
renting contracts (lessee) - - 555 -
Guarantees provided 2,246 - - -
Commitments and guarantees cancelled 10,827 - - -

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

(2) IBERDROLA treats as a “significant shareholder” any shareholder who exerts a significant influence on the company’s
financial and operating decisions. “Significant influence” is defined as having at least one director on the Board.
This also applies to those significant shareholders whose ownership interest in the company enables them to exercise the
proportional representation system.
Therefore, the company treats Kutxabank and Qatar Investment Authority as significant shareholders, these being the only
shareholders who satisfied that condition at the date of issue of these financial statements.
This criterion is not the same as the one used in 2013, where any shareholder having a stake in excess of 3% was treated
as a “significant shareholder”. For purposes of comparison the amounts for 2013 have been modified with respect to those
stated in the notes to the Consolidated financial statements for that year.

149
 Transactions with companies integrated by the equity method

The breakdown of transactions with companies accounted for using the equity method which are related parties that were not eliminated in consolidation
(see Note 2.b) is as follows:

Thousands of euros
2014 2013
Sales and Sales and
Asset Trade Trade services Received Asset Trade Trade services Received
acquisition payables receivables provided services acquisition payables receivables provided services

GAMESA 200,277 270,560 120,854 1,555 65,398 73,217 210,727 39,055 12,798 54,009

Amara, S.A.U. 10,129 5,966 476 2,023 9,908 8,403 2,763 61 1,761 9,768

Others 20,093 45,044 9,383 12,265 8,561 831 52,347 6,004 4,104 30

Total companies accounted

for using the equity method 230,499 321,570 130,713 15,843 83,867 82,451 265,837 45,120 18,663 63,807

East Anglia Offshore Wind, Ltd. 8 4,353 56,309 8,569 - - - 36,446 7,906 -

Societa Energie Rinnovabili,

-
S.p.A. 92 75,718 672 - - 131 104,264 - -

Nuclenor, S.A. - 33,094 23 349 - 5 35,814 - 586 266

Others 82,660 19,726 57,453 66,206 5,520 36,489 19,596 66,813 52,247 3,649

Total companies accounted

for using the equity method 82,668 57,265 189,503 75,796 5,520 36,494 55,541 207,523 60,739 3,915

150
On 21 December 2011, IBERDROLA and Gamesa Eólica, S.L.U (a company belonging to the
GAMESA Group) entered into a framework agreement for the supply and maintenance of wind
turbines whereby:

 IBERDROLA undertakes to acquire from GAMESA a minimum amount of megawatts equal to

50% of the total fleet of onshore wind turbines acquired by IBERDROLA for its renewables
business unit during the term of the framework agreement.

 This commitment will remain in force from 1 January 2013 until 31 December 2022 or until the
number of megawatts acquired by IBERDROLA from GAMESA under the framework
agreement reaches 3,800, whichever occurs first.

 IBERDROLA and GAMESA will work closely together on new opportunities relating to the
offshore wind power business.

 IBERDROLA and GAMESA will work together in the area of maintenance services to enable
GAMESA to become the benchmark company in the maintenance of wind farms for
IBERDROLA's entire scope of activity. In particular, the two companies agreed:

 To establish new areas of study and analysis in the provision of maintenance services
by GAMESA to IBERDROLA and, in particular, in the provision of maintenance
services in the United States, the sale and installation of reliability improvements in
wind turbines, the extension of their useful lives, and the conversion and upgrade of
wind turbines.

 The extension of the current maintenance services, in the following terms and
conditions:

- To award GAMESA a maintenance service contract for installed capacity of

503 MW relating to G5x and G4x wind turbines out of warranty for a three-
year period, for wind farms located in Albacete and Cuenca.

- To commission GAMESA, over a three-year period as from 1 January 2012,

the maintenance service for 584 G47 wind turbines (380 MW) and 1,018 G5x
wind turbines (865.3 MW), which are currently covered by the operation and
maintenance agreement of 1 January 2009, which expires at 31 December
2011.

- To extend the term of the operation and maintenance contract with regard to
the maintenance of 1,156 G8x wind turbines (2,312 MW) out of warranty at
wind farms in Spain and Portugal for an additional one-year period, until 31
December 2012.

151
Transactions with directors and senior executives

In 2014 and 2013 no amount was included as profit distributed or other dividends paid since they
relate to the bonus issue rights arising from the free capital increase (Note 20). These free rights were
either converted into bonus shares or sold on the market.

As described in Note 47, in 2014 a corporate action was executed with the company Soil Tratamiento
de Aguas Industriales, S.L., linked to the director Mr. Iñigo Víctor de Oriol Ibarra. The contract is
valued at USD 1,999,516 (EUR 1,695 million).

The company Soil Tratamiento de Aguas Industriales, S.L. was awarded the contract for the supply,
transportation, assembly and commissioning of the water processing plant of Cogeneración Ramos in
Mexico. The contract was awarded in the framework of an international tender in which 15 companies
were selected for making the most advantageous offer.

Mr. Íñigo Víctor de Oriol Ibarra did not intervene directly or indirectly in any phases of the tender. The
awarding of the contract was carried out respecting the procedure for conflicts of interest and
operations linked to directors, significant shareholders and senior executives.

49. FINANCIAL POSITION AND EVENTS AFTER 31 DECEMBER 2014

Financial position

As indicated in Note 25, at 31 December 2014 the IBERDROLA Group had undrawn loans and credit
facilities of approximately EUR 8,731,277 thousand.

As indicated in Note 19, at 31 December 2014 the IBERDROLA Group had EUR 391,618 thousand in
cash and equivalents and EUR 1,413,915 thousand in short-term deposits.

The IBERDROLA Group’s liquidity position exceeds EUR 10,000 million, which is equivalent to more
than 32 months of the Group’s financing needs.

Thousands of euros
Available
Maturity of Credit facility
2015 812,738
2016 820,229
2017 and subsequent years 7,098,310
Total credit facility 8,731,277
Cash and cash equivalents 1,805,533
Total adjusted liquidity 10,536,810

For the year 2015, the IBERDROLA Group forecasts to deal with the investments ordinary plan and
the cash flow generated by its transactions and the available treasury.

Subsequent events

Bond issues in the Euromarket and bond issue replacement

On 14 January 2015, through its subsidiary Iberdrola International B.V., IBERDROLA launched a bond
issue on the Euromarket with a nominal amount of EUR 600 million and an annual coupon of 1.125%,
maturing 27 January 2023. The issue price was set at 99.393% of its nominal value.

152
 Almost all of these bonds have been exchanged for promissory notes within the following issues of
Iberdrola Finanzas, S.A.U. and Iberdrola International B.V., carrying an unconditional and irrevocable
guarantee given by Iberdrola:

Bonds issued by Iberdrola International, B.V.

- EUR 1,000 million, guaranteed bonds, carrying a coupon of 4.50% and maturing in 2017.

Bonds issued by Iberdrola Finanzas, S.A.U.

- EUR 750 million, guaranteed bonds, carrying a coupon of 3.50% and maturing in 2016.

- EUR 750 million, guaranteed bonds, carrying a coupon of 5.625% and maturing in 2018.
After the closing of the year and before drawing up these Consolidated annual accounts, the
IBERDROLA Group has requested the early repayment of a revolving credit facility maturing in June
2016 and 2017 in the amounts of EUR 60,000 thousand and EUR 2,186,750 thousand, respectively.
In addition, the IBERDROLA Group has finalized a modification of amount and term of the following
revolving credit facilities:

- A transaction of EUR 2,000,000 thousand signed in November 2013 and maturing

in November 2018, increased to EUR 2,500,000 thousand with maturity in February
2020.

- A transaction of EUR 2,000,000 thousand signed in April 2014 and maturing in April
of 2019, increased to EUR 2,500,000 thousand with maturity in February 2020.

Finally, at the time of preparation these consolidated annual accounts, the futures and accumulators
on the Group's own shares have matured (Note 20) and the proceeds of settling them was the
acquisition of 22,134,200 own shares proceeding from the futures in the amount of EUR 122,809
thousand and 33,318,809 shares from the accumulators in the amount of EUR 181.706 million (of the
potential maximum 24,832,346 shares accumulative at 31 December 2014, only 11,767,606 were
accumulated).

50. FEES FOR SERVICES PROVIDED BY THE STATUTORY AUDITOR

The fees resulted from the services provided in 2014 and 2013 by the statutory auditor are detailed in
the chart below:
Thousands of euros

To IBERDROLA To the rest of the Group Companies Total

2014 Primary Other Primary Other Primary Other
auditor auditors Total auditor auditors Total auditor auditors Total

Auditing services 3,078 - 3,078 10,769 190 10,959 13,847 190 14,037
Other services provided related to
260 - 260 979 10 989 1,239 10 1,249
auditing
3,338 - 3,338 11,748 200 11,948 15,086 200 15,286

Other professional services 3 - 3 417 4,823 5,240 420 4,823 5,243

3,341 - 3,341 12,165 5,023 17,188 15,506 5,023 20,529

153
 Thousands of euros

To IBERDROLA To the rest of the Group Companies Total

2013 Primary Other Primary Other Primary Other
auditor auditors Total auditor auditors Total auditor auditors Total

Auditing services 3,194 - 3,194 7,125 2,811 9,936 10,319 2,811 13,130
Other services provided related to
auditing 452 - 452 1,671 598 2,269 2,123 598 2,721
3,646 - 3,646 8,796 3,409 12,205 12,442 3,409 15,851

Other professional services 627 2,217 2,844 523 152 675 1,150 2,369 3,519
4,273 2,217 6,490 9,319 3,561 12,880 13,592 5,778 19,370

51. EARNING PER SHARE

The weighted average number of ordinary shares used in the calculation of the basic and diluted
earnings per share at 31 December 2014 and 2013 (Note 4.ab) is as follows:

2014 2013

Average number of shares during the year 6,434,190,877 6,579,771,310

Average number of treasury shares held (77,550,203) (86,335,042)
Average number of shares outstanding 6,356,640,674 6,493,436,268

Basic and diluted earnings per share for 2014 and 2013 are as follows:

2014 2013

Net profit for the year (thousands of euros) 2,326,516 2,571,804

Average number of shares outstanding 6,356,640,674 6,493,436,268
Basic and diluted earning per share (euros) 0.366 0.396

As described in Note 20 of these Consolidated financial statements, in July and December 2014 two
free capital increases took place in the context of the Iberdrola flexible dividend programme.
According to IAS 33, these free capital increases have entailed the correction of the earnings per
share corresponding to the 2013 year-end included in the Consolidated financial statements for that
year, and they have been taken into account to calculate the 2014 year share basic and diluted
earnings per share.

52. PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated financial statements for the year ended 31 December 2014 have been formally
prepared by the directors of IBERDROLA on 17 February 2015.

53. EXPLANATION ADDED FOR TRANSLATION TO ENGLISH

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

154
 APPENDIX

YEAR 2014 ADDITIONAL INFORMATION RELATED TO GROUP, JOINTLY-CONTROLLED COMPANIES

AND ASSOCIATES OF THE IBERDROLA GROUP

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

(*) The consolidation method by company is detailed as follows:

F: Full consolidation
E: Integration by equity method

Percentage direct
and indirect
participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)

DEREGULATED BUSINESS
Spain & Portugal
Cobane, A.I.E. Spain Energy 100.00 100.00 EY F
Cofrusa Cogeneración, S.A. Spain Energy 50.00 50.00 Others E
Cogeneración Gequisa, S.A. Spain Energy 50.00 50.00 PWC E
Enercrisa, S.A. Spain Energy 50.00 50.00 KPMG E
Energía Portátil Cogeneración, S.A. Spain Energy 50.00 50.00 PWC E
Energyworks Aranda, S.L. Spain Energy 99.00 99.00 EY F
Energyworks Carballo, S.L. Spain Energy 99.00 99.00 EY F
Energyworks Cartagena, S.L. Spain Energy 99.00 99.00 EY F
Energyworks Fonz, S.L. Spain Energy 100.00 100.00 EY F
Energyworks Milagros, S.L. Spain Energy 100.00 100.00 EY F
Energyworks Monzón, S.L. Spain Energy 100.00 100.00 EY F
Energyworks San Millán, S.L. Spain Energy 100.00 100.00 EY F
Energyworks Villarrobledo, S.L. Spain Energy 99.00 99.00 EY F
Energyworks Vit-Vall, S.L. Spain Energy 99.00 99.00 EY F
Fudepor, S.L. Spain Energy 50.00 50.00 PWC E
Fuerzas Eléctricas de Navarra, S.A. Spain Energy 100.00 100.00 EY F
Hidroeléctrica Ibérica, S.L.U. Spain Energy 100.00 100.00 EY F
Iberdrola Clientes, S.A.U. Spain Wholesale 100.00 - EY F
Iberdrola Cogeneración, S.L.U. Spain Holding 100.00 100.00 EY F
Iberdrola Comercialización de Último F
Spain Retail 100.00 100.00 EY
Recurso, S.A.U.
Iberdrola Generación España, S.A.U. Spain Energy 100.00 - EY F
Iberdrola Generación Nuclear, S.A.U. Spain Energy 100.00 100.00 EY F
Iberdrola Generación, S.A.U. Spain Energy 100.00 100.00 EY F
Iberdrola Operación y Mantenimiento, S.A.U. Spain Services 100.00 100.00 EY F
Iberdrola Servicios Energéticos, S.A.U. Spain Services 100.00 100.00 - F
Iberduero, S.L.U. Spain Energy 100.00 100.00 - F
Intermalta Energía, S.A. Spain Energy 50.00 50.00 EY E
Italcogeneración, S.A. Spain Energy 50.00 50.00 - E
Nuclenor, S.A. Spain Energy 50.00 50.00 EY E
(5)
Oficina Cambio de Suministrador, S.A. Spain Services 20.00 20.00 - -
Palencia 3 Investigación, Desarrollo y -
(5) Spain Services 39.00 39.00 Others
Explotación, S.L.
Peninsular Cogeneración, S.A. Spain Energy 50.00 50.00 EY E
Productos y Servicios de Confort, S.A. Spain Services 100.00 100.00 - F
S.E.D.A. Cogeneración, S.A. Spain Energy 50.00 50.00 - E
Subgrupo Tirme Spain Energy 20.00 20.00 KPMG E
Tarragona Power, S.L.U. Spain Energy 100.00 100.00 EY F
(5)
Tecnatom, S.A. Spain Services 30.00 30.00 EY -
Zirconio Cogeneración, S.A. Spain Energy 50.00 50.00 - E
Iberdrola Generación-Energía e Serviços F
Portugal Services 100.00 100.00 -
Portugal, Unipessoal Ltda.

155
 APPENDIX

Percentage direct
and indirect
participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)

United Kingdom
Damhead Creek Finance, Ltd. Cayman Islands Inactive 100.00 100.00 - F
Caledonian Gas, Ltd. United Kingdom Inactive 100.00 100.00 - F
Manweb Energy Consultants, Ltd. United Kingdom Energy 100.00 100.00 EY F
Manweb Gas, Ltd. United Kingdom Inactive 100.00 100.00 - F
Scotash, Ltd. United Kingdom Others 50.00 50.00 EY E
Scottish Power Generation Holdings, Ltd. United Kingdom Holding 100.00 100.00 EY F
ScottishPower (DCL), Ltd. United Kingdom Energy 100.00 100.00 EY F
ScottishPower (DCOL), Ltd. United Kingdom Inactive 100.00 100.00 - F
ScottishPower (SCPL), Ltd. United Kingdom Energy 100.00 100.00 EY F
ScottishPower (SOCL), Ltd. United Kingdom Inactive 100.00 100.00 - F
ScottishPower Energy Management F
United Kingdom Services 100.00 100.00 EY
(Agency), Ltd.
ScottishPower Energy Management, Ltd. United Kingdom Energy 100.00 100.00 EY F
ScottishPower Energy Retail, Ltd. United Kingdom Energy 100.00 100.00 EY F
ScottishPower Generation, Ltd. United Kingdom Energy 100.00 100.00 EY F
SMW, Ltd. United Kingdom Others 100.00 100.00 EY F
SP Dataserve, Ltd. United Kingdom Data Management 100.00 100.00 EY F
SP Gas Transportation Cockenzie, Ltd. United Kingdom Inactive 100.00 100.00 - F
SP Gas Transportation Hatfield, Ltd. United Kingdom Inactive 100.00 100.00 - F
Sterling Collections, Ltd. United Kingdom Inactive 100.00 100.00 - F

Rest of Europe
(5)
Iberdrola Energie Deutschland, GmbH Germany Services 100.00 100.00 - -
(5)
Iberdrola Energie France, S.A.S. France Services 100.00 100.00 EY -
(5)
Iberdrola Energía Italia, S.R.L. Italy Services 100.00 100.00 - -
(5) 100.00 100.00
Iberdrola Energía Polska Spolka, Z.O.O. Poland Services - -
(5)
Iberdrola Energie Romania, S.R.L. Romania Energy 100.00 100.00 - -

Mexico
Hidrola I, S.L.U. Spain Holding 100.00 100.00 EY F
Cinergy, S.R.L. de C.V. Mexico Services 100.00 100.00 EY F
Electricidad de Veracruz, S.A. de C.V. Mexico Energy 100.00 100.00 EY F
Enertek, S.A. de C.V. Mexico Energy 99.99 99.99 EY F
Iberdrola Cogeneración Bajio, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Cogeneración Ramos, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Cogeneración Altamira, S.A. de EY F
Mexico Energy 100.00 -
C.V.
Iberdrola Energía Altamira de EY F
Mexico Services 100.00 100.00
Servicios, S.A. de C.V.
Iberdrola Energía Altamira, S.A. de C.V. Mexico Energy 100.00 100.00 EY F
Iberdrola Energía Baja California, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Energía del Golfo, S.A. de C.V. Mexico Energy 100.00 100.00 EY F
Iberdrola Energía La Laguna, S.A. de C.V. Mexico Energy 99.99 99.99 EY F
Iberdrola Energía Monterrey, S.A. de C.V. Mexico Energy 99.99 99.99 EY F
Iberdrola Energía Norte, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Energía Tamazunchale, S.A. EY F
Mexico Energy 99.99 99.99
de C.V.
Iberdrola Generación México, S.A. de C.V Mexico Holding 100.00 100.00 EY F
Iberdrola México, S.A. de C.V. Mexico Holding 100.00 100.00 EY F
Iberdrola Servicios Monterrey, S.A. de C.V. Mexico Services 100.00 100.00 EY F
Servicios Administrativos EY
Mexico Services 100.00 100.00 F
Tamazunchale, S.A. de C.V.
Servicios de Operación Altamira, S.A. de C.V. Mexico Services 100.00 100.00 EY F
Servicios de Operación La Laguna, EY
S.A. de C.V. Mexico Services 100.00 100.00 F

156
 APPENDIX

Percentage direct
and indirect
participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)
Servicios Industriales y Administrativos EY
Mexico Gas 51.12 51.12 F
del Noreste, S.R.L. de C.V.

United States & Canada

Iberdrola Canada Energy Services, Ltd. Canada Energy 100.00 100.00 EY F
Caledonia Energy Partners, LLC USA Energy 100.00 100.00 EY F
E.O. Resources, LLC USA Energy 100.00 100.00 EY F
Enstor Grama Ridge Storage and F
USA Energy 100.00 100.00 EY
Transportation, LLC
Enstor Houston Hub Storage and F
USA Energy 100.00 100.00 EY
Transportation, Ltd.
Enstor, Inc USA Holding 100.00 100.00 EY F
Enstor Katy Storage and F
USA Energy 100.00 100.00 EY
Transportation, LLC
Enstor Louisiana, LLC USA Energy 100.00 100.00 EY F
Enstor Operating Company, LLC USA Holding 100.00 100.00 EY F
Enstor Sundance Storage and F
USA Energy 100.00 100.00 EY
Transportation, LLC
Enstor Waha Storage and F
USA Energy 100.00 100.00 EY
Transportation, LLC
Freebird Assets, Inc USA Holding 100.00 100.00 EY F
Freebird Gas Storage, LLC USA Energy 100.00 100.00 EY F
Gemini Capital, LLC USA Energy 100.00 100.00 EY F
Iberdrola Energy Holding, LLC USA Holding 100.00 100.00 EY F
Iberdrola Energy Services, LLC USA Energy 100.00 100.00 EY F

157
 APPENDIX

YEAR 2014 ADDITIONAL INFORMATION RELATED TO GROUP. JOINTLY-CONTROLLED COMPANIES

AND ASSOCIATES OF THE IBERDROLA GROUP
% direct and indirect
participation
Company Address Activity 12.31.14 12.31.13 Auditor Method

RENEWABLE BUSINESS
Spain
Biocantaber, S.L. Spain Energy 50.00 50.00 - E
Bionor Eólica, S.A. Spain Energy 57.00 57.00 EY F
Biovent Energía, S.A. Spain Energy 95.00 95.00 EY F
Cantaber Generación Eólica, S.L. Spain Energy 69.01 69.01 EY F
Ciener, S.A.U. Spain Energy 100.00 100.00 EY F
Desarrollo de Energías Renovables de
Spain Energy 40.51 40.51 EY E
La Rioja, S.A.
Ecobarcial, S.A. Spain Energy 43.78 43.78 EY E
Electra de Malvana, S.A. Spain Energy 48.00 48.00 - E
Electra Sierra de los Castillos, S.L. Spain Energy 97.00 97.00 - F
Electra Sierra de San Pedro, S.A. Spain Energy 80.00 80.00 - F
Eléctricas de la Alcarria, S.L. Spain Energy 90.00 90.00 - F
Eme Hueneja Cuatro, S.L. Spain Energy 100.00 100.00 - F
Energías de Castilla y León, S.A. Spain Energy 85.50 85.50 EY F
(3)
Energías Ecológicas de Fuencaliente, S.L. Spain Energy 50.00 50.00 - F
(3)
Energías Ecológicas de La Palma, S.A. Spain Energy 50.00 50.00 - F
(3)
Energías Ecológicas de Tenerife, S.A. Spain Energy 50.00 50.00 - F
Energías Eólicas de Cuenca, S.A.U. Spain Energy 100.00 100.00 EY F
Energías Renovables de la Región
Spain Energy 100.00 100.00 EY F
de Murcia, S.A.U.
Eólica Campollano, S.A. Spain Energy 25.00 25.00 KPMG E
Eólica 2000, S.L. Spain Energy 51.00 51.00 EY F
Eólicas de Euskadi, S.A.U. Spain Energy 100.00 100.00 EY F
Eosoria Aire, S.L. Spain Energy 47.50 47.50 - E
Iberdrola Energía Solar de Puertollano, S.A. Spain Energy 90.00 90.00 EY F
Iberdrola Renewables Solutions, S.A.U. Spain Energy 100.00 100.00 - F
Iberdrola Renovables Galicia, S.A.U. Spain Energy 100.00 100.00 EY F
Iberdrola Renovables Andalucía, S.A.U. Spain Energy 100.00 100.00 EY F
Iberdrola Renovables Aragón, S.A.U. Spain Energy 100.00 100.00 EY F
Iberdrola Renovables Asturias, S.A.U. Spain Holding 100.00 100.00 - F
Iberdrola Renovables Canarias, S.A.U. Spain Holding 100.00 100.00 - F
Iberdrola Renovables Cantabria, S.A.U. Spain Holding 100.00 100.00 - F
Iberdrola Renovables Castilla –
Spain Energy 100.00 100.00 EY F
La Mancha, S.A.U.
Iberdrola Renovables Castilla y León, S.A. Spain Energy 95.00 95.00 EY F
Iberdrola Renovables Energía, S.A.U. Spain Holding 100.00 100.00 EY F
(2)
Iberdrola Renovables La Rioja, S.A. Spain Holding 63.55 63.55 EY E
Iberenova Promociones, S.A.U. Spain Energy 100.00 100.00 EY F
Iberjalón, S.A. Spain Energy 80.00 80.00 - F
Minicentrales del Tajo, S.A. Spain Energy 66.58 66.58 EY F
Molinos de La Rioja, S.A. Spain Energy 42.37 42.37 EY E
Molinos del Cidacos, S.A. Spain Energy 31.78 31.78 EY E
Parque Eólico Cruz del Carrutero, S.L. Spain Energy 76.00 76.00 EY F
Peache Energías Renovables, S.A. Spain Energy 95.00 57.00 - F
Producciones Energéticas Asturianas, S.L. Spain Energy 80.00 81.99 EY F
Producciones Energéticas de Castilla
(2) Spain Energy 85.50 85.50 EY E
y León, S.A.
Productora de Energía Eólica, S.A.U. Spain Energy 95.00 95.00 - F
(5)
Renovables de la Ribera, S.L. Spain Energy 50.00 50.00 - -
Sistemas Energéticos Altamira, S.A.U. Spain Energy 100.00 100.00 EY F
Sistemas Energéticos Chandrexa, S.A. Spain Energy 96.07 96.07 EY F
Sistemas Energéticos del Moncayo, S.A. Spain Energy 75.00 75.00 EY F
Sistemas Energéticos Gomera, S.A.U. Spain Energy 100.00 100.00 EY F

158
 APPENDIX

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method
Sistemas Energéticos La Higuera, S.A. Spain Energy 55.00 55.00 EY F
Sistemas Energéticos de la Linera, S.A.U. Spain Energy 100.00 100.00 EY F
Sistemas Energéticos La Muela, S.A. Spain Energy 80.00 80.00 EY F
Sistemas Energéticos Mas Garullo, S.A. Spain Energy 78.00 78.00 EY F
Sistemas Energéticos Nacimiento, S.A.U. Spain Energy 100.00 100.00 EY F
Sistemas Energéticos Tacica de Plata, S.A.U. Spain Energy 100.00 100.00 EY F
Sistemas Energéticos Torralba, S.A. Spain Energy 60.00 60.00 EY F
Sistemes Energetics Savalla del
Spain Energy 100.00 100.00 EY F
Comtat, S.A.U.
Sociedad Gestora de Parques Eólicos de
Spain Energy 63.91 63.91 EY F
Andalucía, S.A.
Somozas Energías y Recursos
Spain Energy 100.00 90.00 - F
Medioambientales, S.A.
(4)
Sotavento Galicia, S.A. Spain Energy 8.00 8.00 Others E

United Kingdom
Celtpower, Ltd. United Kingdom Energy 50.00 50.00 KPMG E
Coldham Windfarm, Ltd. United Kingdom Energy 80.00 80.00 EY F
East Anglia Four, Ltd. United Kingdom Inactive 50.00 50.00 - E
East Anglia Offshore Wind, Ltd. United Kingdom Energy 50.00 50.00 EY E
East Anglia One, Ltd. United Kingdom Energy 50.00 50.00 - E
East Anglia Three, Ltd. United Kingdom Inactive 50.00 50.00 - E
Morecambe Wind, Ltd. United Kingdom Energy 50.00 50.00 EY E
ScottishPower Renewable Energy, Ltd. United Kingdom Holding 100.00 100.00 EY F
Scottish-Power Renewables (WODS), Ltd. United Kingdom Energy 100.00 100.00 EY F
Scottish-Power Renewables UK, Ltd. United Kingdom Energy 100.00 100.00 EY F

United States
Aeolus Wind Power I, LLC USA Holding 90.00 55.00 (6) EY F
Aeolus Wind Power II, LLC(6) USA Holding 75.00 75.00 EY F
Aeolus Wind Power III, LLC (6) USA Holding 75.00 75.00 EY F
Aeolus Wind Power IV, LLC(6) USA Holding 75.00 75.00 EY F
Aeolus Wind Power V, LLC USA Holding 100.00 100.00 EY F
Aeolus Wind Power VI, LLC USA Holding 100.00 100.00 EY F
Atlantic Renewable Energy Corporation USA Holding 100.00 100.00 EY F
Atlantic Renewable Projects II, LLC (6) USA Holding 75.00 75.00 EY F
Atlantic Renewable Projects, LLC (6) USA Holding 75.00 75.00 EY F
Atlantic Wind, LLC USA Holding 100.00 100.00 EY F
Aurora Solar, LLC USA Energy 100.00 100.00 EY F
Baffin Wind, LLC USA Energy 100.00 100.00 EY F
Bakeoven Wind, LLC USA Energy 100.00 100.00 EY F
Barton Windpower, LLC USA Energy 100.00 100.00 EY F
Big Horn II Wind Project, LLC USA Energy 100.00 100.00 EY F
Big Horn Wind Project, LLC (6) USA Energy 75.00 75.00 EY F
Blue Creek Wind Farm, LLC USA Energy 100.00 100.00 EY F
Buffalo Ridge I, LLC USA Energy 100.00 100.00 EY F
Buffalo Ridge II, LLC USA Energy 100.00 100.00 EY F
Buffalo Ridge III, LLC USA Energy 100.00 100.00 EY F
Casselman Wind Power, LLC (6) USA Energy 75.00 75.00 EY F
Deerfield Wind, LLC USA Energy 100.00 100.00 EY F
Dillon Wind, LLC USA Energy 100.00 100.00 EY F
Elk River Wind Farm, LLC (6) USA Energy 75.00 75.00 EY F
Elm Creek Wind II, LLC USA Energy 100.00 100.00 EY F
Elm Creek Wind, LLC USA Energy 100.00 100.00 EY F
Farmers City Wind, LLC USA Energy 100.00 100.00 EY F
Flat Rock Windpower II, LLC (6) USA Energy 37.50 37.50 EY E

159
 APPENDIX

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method

Flat Rock Windpower, LLC (6) USA Energy 37.50 37.50 EY E

Flying Cloud Power Partners, LLC USA Energy 90.00 55.00 (6) EY F
Goodland Wind, LLC USA Energy 100.00 100.00 EY F
Groton Wind, LLC USA Energy 100.00 100.00 EY F
Hardscrabble Wind Power, LLC USA Energy 100.00 100.00 EY F
Hay Canyon Wind, LLC USA Energy 100.00 100.00 EY F
Hazelwood Australia, Inc. USA Holding 100.00 100.00 EY F
Hazelwood Ventures, Inc. USA Holding 100.00 100.00 EY F
Heartland Wind, LLC USA Energy 100.00 100.00 EY F
Helix Wind Power Facility, LLC USA Energy 100.00 100.00 EY F
Iberdrola Arizona Renewables, LLC USA Energy 100.00 100.00 EY F
Iberdrola Renewables Holdings, Inc. USA Holding 100.00 100.00 EY F
Iberdrola Renewables, LLC USA Holding 100.00 100.00 EY F
Iberdrola Texas Renewables, LLC USA Energy 100.00 100.00 EY F
Juniper Canyon Wind Power II, LLC USA Energy 100.00 100.00 EY F
Juniper Canyon Wind Power, LLC USA Energy 100.00 100.00 EY F
Klamath Energy, LLC USA Energy 100.00 100.00 EY F
Klamath Generation, LLC USA Energy 100.00 100.00 EY F
Klondike Wind Power II, LLC USA Energy 100.00 100.00 EY F
Klondike Wind Power III, LLC (6) USA Energy 75.00 75.00 EY F
Klondike Wind Power, LLC USA Energy 90.00 55.00 (6) EY F
Lakeview Cogeneration, LLC USA Energy 100.00 100.00 EY F
Leaning Juniper Wind Power II, LLC USA Energy 100.00 100.00 EY F
Leipsic Wind, LLC USA Energy 100.00 100.00 EY F
Lempter Wind, LLC USA Energy 100.00 100.00 EY F
Locust Ridge II, LLC USA Energy 100.00 100.00 EY F
(3)
Locust Ridge Wind Farms, LLC USA Energy 46.30 46.30 EY F
Loma Vista, LLC USA Energy 100.00 100.00 EY F
Manzana Power Services, Inc. USA Services 100.00 100.00 EY F
Manzana Wind, LLC USA Energy 100.00 100.00 EY F
Midland Wind, LLC USA Energy 100.00 100.00 EY F
Minndakota Wind, LLC (6) USA Energy 75.00 75.00 EY F
Montague Wind Power Facility, LLC USA Energy 100.00 100.00 EY F
Moraine Wind II, LLC USA Energy 100.00 100.00 EY F
Moraine Wind, LLC USA Energy 90.00 55.00 (6) EY F
Mount Pleasant Wind, LLC USA Energy 100.00 100.00 EY F
Mountain View Power Partners III, LLC USA Energy 90.00 55.00 (6) EY F
New England Wind, LLC USA Energy 100.00 100.00 EY F
New Harvest Wind Project, LLC USA Energy 100.00 100.00 EY F
Northem Iowa WindPower II, LLC (6) USA Energy 75.00 75.00 EY F
Otter Creek Wind Farm, LLC USA Energy 100.00 100.00 EY F
Pacific Harbor Capital, Inc. USA Others 100.00 100.00 EY F
Pacific Solar Investments, Inc. USA Energy 100.00 100.00 EY F
Pacific Wind Development, LLC USA Energy 100.00 100.00 EY F
Pebble Springs Wind, LLC USA Energy 100.00 100.00 EY F
Phoenix Wind Power, LLC USA Energy 100.00 100.00 EY F
PPM Colorado Wind Ventures, Inc. USA Holding 100.00 100.00 EY F
PPM Roaring Brook, LLC USA Energy 100.00 100.00 EY F
PPM Technical Services, Inc. USA Services 100.00 100.00 EY F
PPM Wind Energy, LLC USA Holding 100.00 100.00 EY F
PPM Wind Management, LLC USA Holding 100.00 100.00 EY F
Providence Heights Wind, LLC USA Energy 100.00 100.00 EY F
Rugby Wind, LLC USA Energy 100.00 100.00 EY F
San Luis Solar, LLC USA Energy 100.00 100.00 EY F
ScottishPower Financial Services, Inc. USA Holding 100.00 100.00 EY F
ScottishPower Group Holdings Company USA Holding 100.00 100.00 EY F

160
 APPENDIX

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method
ScottishPower International Group Holdings
USA Holding 100.00 100.00 EY F
Company
Shiloh I Wind Project, LLC (6) USA Energy 75.00 75.00 EY F
South Chestnut, LLC USA Energy 100.00 100.00 EY F
Start Point Wind Project, LLC USA Energy 100.00 100.00 EY F
Streator Cayuga Ridge Wind Power, LLC USA Energy 100.00 100.00 EY F
Streator Deer Run Wind Farmer, LLC USA Energy 100.00 100.00 EY F
Trimont Wind I, LLC (6) USA Energy 75.00 75.00 EY F
Tule Wind, LLC USA Energy 100.00 100.00 EY F
Twin Buttes Wind, LLC (6) USA Energy 75.00 75.00 EY F
West Valley Leasing Company, LLC USA Service 100.00 100.00 EY F
Winnebago Windpower II, LLC USA Energy 100.00 100.00 EY F
Winnebago Windpower, LLC USA Energy 100.00 100.00 EY F

Rest of the World

Iberdrola Renovables Offshore Deutschland
Germany Energy 100.00 100.00 EY F
Zwei GmbH
Iberdrola Renovables Offshore Deutschland,
Germany Energy 100.00 100.00 EY F
GmbH
ScottishPower Hazelwood, Pty. Ltd. Australia Holding 100.00 100.00 EY F
Iberdrola Renewables Bulgaria, EOOD Bulgaria Energy 100.00 100.00 - F
Iberdrola Renewables Canadá, Ltd. Canada Holding 100.00 100.00 - F
Rokas Aeoliki Cyprus, Ltd. Cyprus Energy 74.82 75.00 EY F
Ailes Marine, S.A.S. France Energy 70.00 70.00 EY F
Haute Marne Energies, S.A.S. France Energy 51.00 51.00 EY F
Iberdrola Renovables France, S.A.S. France Energy 100.00 100.00 EY F
Jazeneuil Energies, S.A.S. France Energy 100.00 100.00 EY F
Le Moulins de la Somme, S.A.R.L. France Energy 50.00 50.00 - E
Perle Marine, S.A.S. France Energy 70.00 70.00 EY F
C. Rokas Industrial Commercial Company, S.A. Greece Holding 99.76 100.00 EY F
PPC Renewables Rokas, S.A. Greece Energy 50.88 51.00 EY F
Rokas Aeoliki Achladotopos, S.A. Greece Energy 99.63 99.87 EY F
Rokas Aeoliki Komito, S.A. Greece Energy 99.75 99.99 EY F
Rokas Aeoliki Macedonia I, S.A. Greece Energy 99.76 100.00 EY F
Rokas Aeoliki Macedonia II, S.A. Greece Energy 99.76 100.00 EY F
Rokas Aeoliki Peloponnisos I, S.A. Greece Energy 99.76 100.00 EY F
Rokas Aeoliki Peloponnisos II, S.A. Greece Energy 99.76 100.00 EY F
Rokas Aeoliki Thraki III, S.A. Greece Energy 99.61 99.85 EY F
Rokas Aeoliki Vorios Ellas I, S.A. Greece Energy 99.76 100.00 EY F
Rokas Aeoliki Vorios Ellas II, S.A. Greece Energy 99.76 100.00 EY F
Rokas Aeolos, Ltd. Greece Energy 99.76 100.00 EY F
Rokas Construction, S.A. Greece Energy 99.76 100.00 EY F
Rokas Energy, S.A. Greece Energy 99.72 99.96 EY F
Rokas Hydroelectric, S.A. Greece Energy 99.76 100.00 EY F
Rokas Iliaki I, S.A. Greece Energy 99.76 100.00 EY F
Iberdrola Renovables Magyarorszag KFT Hungary Holding 75.00 75.00 EY F
Kaptar Széleromu Kereskedelmi ès Szolgáltato,
Hungary Energy 75.00 75.00 EY F
KFT.
Mistral Energetika Villamosenergia-
Hungary Energy 75.00 75.00 EY F
Termelo, KFT.
Vento Energetika Villamosenergia-
Hungary Energy 75.00 75.00 EY F
Termelo, KFT.
Eólica Lucana, S.R.L. Italia Energy 100.00 100.00 EY F
Iberdrola Renovables Italia, S.p.A. Italia Holding 100.00 100.00 - F
Societa Energie Rinnovabili 1, S.p.A. Italia Energy 49.90 49.90 EY E
(5)
Uppm-Rokas Cranes Latvia Energy 49.88 50.00 - -
Societa Energie Rinnovabili 2, S.p.A. Italia Energy 50.00 49.90 EY E

161
 APPENDIX

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method
Societa Energie Rinnovabili, S.p.A. Italia Energy 49.90 49.90 EY E
Eonergi Energía Eólica, S.A. Portugal Energy 100.00 100.00 EY F
Iberdrola Renewables Portugal, S.A. Portugal Holding 100.00 100.00 EY F
Parque Eólico da Serra do Alvao, S.A. Portugal Energy 100.00 100.00 EY F
Eolica Dobrogea One, S.R.L. Romania Energy 100.00 100.00 EY F
Iberdrola Renewables Romania, S.R.L. Romania Holding 100.00 100.00 EY F
Eolica Dobrogea (Schweiz) I, GmbH. Switzerland Energy 100.00 100.00 Others F
(5)
Mugla Ruzgar Enerjisinden Electrik Uret Turkey Energy 100.00 100.00 - -
(5)
Yaprak Ruzgar Enerjisinden Electrik Uret Turkey Energy 100.00 100.00 - -

Mexico
BII NEE Stipa Energía Eólica, S.A. de C.V. Mexico Energy 99.99 99.99 EY F
Energías Renovables Venta III, S.A. de C.V. Mexico Energy 100.00 100.00 EY F
Iberdrola Renovables Centro, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Renovables del Bajío, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Renovables del Irapauto, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Renovables del Zacatecas, S.A. de
Mexico Energy 100.00 - EY F
C.V.
Iberdrola Renovables México, S.A. de C.V. Mexico Holding 100.00 100.00 EY F
Iberdrola Renovables Noroeste, S.A. de C.V. Mexico Energy 100.00 - EY F
Iberdrola Renovables Norte, S.A. de C.V. Mexico Energy 100.00 - EY F
Parque Industrial de Energía Renovables, S.A.
(5) Mexico Inactiva 51.00 51.00 - -
de C.V.
Parques Ecológicos de México, S.A. de C.V. Mexico Energy 99.99 99.99 EY F
Pier II Quecholac Felipe Angeles, S.A. de C.V. Mexico Energy 51.00 51.00 EY F
(5)
Pier IV, S.A. de C.V. Mexico Inactive 51.00 51.00 - -
Servicios Operación Eoloeléctrica de México,
Mexico Services 100.00 100.00 EY F
S.A. de C.V.

Brazil
Arizona 1 Energía Renovável, S.A. Brazil Energy 69.50 69.50 EY F
(2)
Caetité 1 Energía Renovável, S.A. Brazil Energy 69.50 69.50 PWC E
(2)
Caetité 2 Energía Renovável, S.A. Brazil Energy 69.50 69.50 PWC E
Caetité 3 Energía Renovável, S.A. Brazil Energy 69.50 69.50 EY F
(2)
Calango 1 Energía Renovável, S.A. Brazil Energy 69.50 69.50 PWC E
Calango 2 Energía Renovável, S.A. Brazil Energy 69.50 69.50 EY F
Calango 3 Energía Renovável, S.A. Brazil Energy 69.50 69.50 EY F
(2)
Calango 4 Energía Renovável, S.A . Brazil Energy 69.50 69.50 PWC E
(2)
Calango 5 Energía Renovável, S.A. Brazil Energy 69.50 69.50 PWC E
(2)
Calango 6 Energía Renovável, S.A. Brazil Energy 69.50 - PWC E
Energias Renováveis do Brasil, S.A. Brazil Energy 100.00 100.00 EY F
FE Participaçoes, S.A. Brazil Holding 69.50 69.50 EY F
(2)
Força Eolica do Brasil 1, S.A . Brazil Holding 69.50 - PWC E
Força Eolica do Brasil 2, S.A. Brazil Holding 69.50 - EY F
(2)
Força Eolica do Brasil, S.A. Brazil Holding 69.50 69.50 PWC E
Iberdrola Renováveis do Brasil, S.A. Brazil Holding 100.00 100.00 EY F
Mel 2 Energía Renovável, S.A. Brazil Energy 69.50 69.50 EY F
(2)
Santana 1, Energía Renovável, S.A. Brazil Energy 69.50 - PWC E
(2)
Santana 2, Energía Renovável, S.A. Brazil Energy 69.50 - PWC E

162
 APPENDIX

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method
Innovation
(5)
Algaenergy, S.A. Spain Energy 20.02 20.00 KPMG -
Arborea Intellbird.S.L. Spain Services 25.97 19.05 - E
GDES Tecnology for services, S.L. Spain Services 40.00 - Others E
Iberdrola Servicios de Innovación, S.L. Spain Services 100.00 100.00 - F
Inversiones Financieras Perseo, S.L. Spain Holding 100.00 100.00 EY F
Oceantec Energías Marinas, S.L. Spain Energy 44.27 44.27 EY E

163
 APPENDIX

YEAR 2014 ADDITIONAL INFORMATION RELATED TO GROUP. JOINTLY-CONTROLLED COMPANIES

AND ASSOCIATES OF THE IBERDROLA GROUP

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)

NETWORK BUSINESS
Spain
(1)
Anselmo León Distribución, S.L. Spain Energy 100.00 100.00 - E
(1)
Anselmo León Hidráulica, S.L. Spain Energy 100.00 100.00 - E
(1)
Anselmo León, S.A.U. Spain Holding 100.00 100.00 - E
(2)
Bidelek Sareak, A.I.E. Spain Others 54.00 54.00 EY E
Distribuidora de Energía Eléctrica
(1) Spain Energy 100.00 100.00 - E
Enrique García Serrano, S.L.
(1)
Distribuidora Eléctrica Navasfrías, S.L. Spain Energy 100.00 100.00 - E
Eléctrica Conquense Distribución
Spain Energy 53.59 53.59 EY F
Eléctrica, S.A.
Eléctrica Conquense, S.A. Spain Energy 53.59 53.59 EY F
(1)
Electro-Distribuidora Castellano-Leonesa, S.A. Spain Energy 100.00 100.00 - E
(1)
Empresa Eléctrica del Cabriel, S.L. Spain Energy 100.00 100.00 - E
Herederos María Alonso Calzada –
(1) Spain Energy 100.00 100.00 - E
Venta de Baños, S.L.
(1)
Hidroeléctrica de San Cipriano de Rueda, S.L. Spain Energy 100.00 100.00 - E
Iberdrola Distribución de Gas, S.A.U. Spain Inactive 100.00 100.00 EY F
Iberdrola Distribución Eléctrica, S.A.U. Spain Energy 100.00 100.00 EY F
Iberdrola Infraestructuras y Servicios
(5) Spain Inactive 100.00 100.00 - -
de Redes, S.A.
(5)
Iberdrola Redes, S.A. Spain Inactive 100.00 100.00 - -
Iberdrola Redes España, S.A. Spain Energy 100.00 - EY F
Sociedad Distribuidora de Electricidad de
(1) Spain Energy 96.86 96.86 - E
Elorrio, S.A.

United Kingdom
Manweb Services, Ltd. United Kingdom Energy 100.00 100.00 EY F
NGET/SPT Upgrades, Ltd. United Kingdom Energy 50.00 50.00 EY E
Scottish Power Energy Networks Holdings, Ltd. United Kingdom Holding 100.00 100.00 EY F
SP Distribution, Plc United Kingdom Energy 100.00 100.00 EY F
SP Gas, Ltd. United Kingdom Inactive 100.00 100.00 - F
SP Manweb, Plc United Kingdom Energy 100.00 100.00 EY F
General
SP Network Connections, Ltd. United Kingdom 100.00 100.00 EY F
Networking
Asset
SP Power Systems, Ltd. United Kingdom Manageme 100.00 100.00 EY F
nt Services
SP Transmission, Plc United Kingdom Energy 100.00 100.00 EY F
SPD Finance UK, Plc United Kingdom Inactive 100.00 100.00 - F

United States
Cayuga Energy, Inc. USA Energy 100.00 100.00 EY F
Central Maine Power Company USA Electricity 100.00 100.00 EY F
(3)
Chester SVC Partnership USA Electricity 50.00 50.00 - F
CMP Group, Inc. USA Holding 100.00 100.00 EY F
CNE Energy Services Group, LLC USA Services 100.00 100.00 EY F
Iberdrola USA Enterprises, Inc. USA Holding 100.00 100.00 EY F
Iberdrola USA Group, LLC USA Holding 100.00 100.00 EY F
Iberdrola USA Management Corporation USA Services 100.00 100.00 EY F
(5)
Iberdrola USA Networks New York TransCo, LLC USA Inactive 100.00 - - -
Iberdrola USA Networks, Inc. USA Holding 100.00 100.00 EY F
Iberdrola USA Solutions, Inc. USA Marketing 100.00 100.00 EY F
Iberdrola USA, Inc. USA Holding 100.00 100.00 EY F
Maine Electric Power Company, Inc. USA Energy 78.28 78.28 - F

164
 APPENDIX

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)
Maine Natural Gas Corporation USA Gas 100.00 100.00 EY F
(5)
Maine Yankee Atomic Power Company USA Electricity 38.00 38.00 - -
Telecomm
MaineCom Services USA 100.00 100.00 EY F
unications
New Hampshire Gas Corporation USA Gas 100.00 100.00 EY F
Electricity
New York State Electric & Gas Corporation USA 100.00 100.00 EY F
and Gas
NORVARCO USA Holding 100.00 100.00 - F
(5)
Nth Power Technologies Fund I, LP. USA Others 26.90 26.90 - -
RGS Energy Group, Inc. USA Holding 100.00 100.00 EY F
Electricity
Rochester Gas and Electric Corporation USA 100.00 100.00 EY F
and Gas
(5)
South Glens Falls Energy, LLC USA Energy 85.00 85.00 - -
TEN Transmission Company USA Gas 100.00 100.00 - F
The Union Water Power Company USA Services 100.00 100.00 EY F

Brazil
(5)
Iberbolivia de Inversiones, S.A. Bolivia Holding 63.39 63.39 PWC -
(5)
Iberdrola de Inversiones, S.A. Bolivia Holding 99.99 99.99 PWC -
Afluente Geraçao de Energía Elétrica, S.A. Brazil Energy 42.76 42.76 PWC E
Afluente Transmissao de Energía Elétrica, S.A. Brazil Energy 42.76 42.76 PWC E
Baguari Geraçao de Energía Eléctrica, S.A. Brazil Energy 39.00 39.00 PWC E
Bahia PCH I, S.A. Brazil Energy 39.00 39.00 PWC E
Bahia PCH II, S.A. Brazil Energy 39.00 - - -
Bahia PCH III, S.A. Brazil Energy 39.00 - - -
Belo Monte Participaçoes, S.A. Brazil Holding 39.00 39.00 PWC E
Capuava Energy, Ltda. Brazil Energy 39.00 39.00 PWC E
Companhia de Eletricidade do Estado PWC
Brazil Energy 42.76 42.76 E
do Bahia, S.A.
Companhia Energética de Pernambuco, S.A. Brazil Energy 34.96 34.96 PWC E
Companhia Energetica do Rio Grande PWC
Brazil Energy 39.95 39.95 E
do Norte, S.A.
(4) PWC
Companhia Hidreletrica Teles Pires, S.A. Brazil Energy 19.54 19.54 E
Elektro Comercializadora de Energía Ltda. Brazil Energy 100.00 100.00 EY F
Elektro Electricidade e Serviços, S.A. Brazil Energy 99.68 99.68 EY F
(4)
Energetica Aguas da Pedra, S.A. Brazil Energy 19.89 19.89 PWC E
(4)
Energética Corumba III, S.A. Brazil Energy 6.08 6.08 Others E
Energyworks do Brasil, Ltda. Brazil Energy 39.00 39.00 PWC E
Geraçao Ceu Azul, S.A. Brazil Energy 39.00 39.00 PWC E
Geraçao CIII, S.A. Brazil Energy 39.00 39.00 PWC E
Goias Sul Geraçao de Energía, S.A. Brazil Energy 39.00 39.00 PWC E
Iberdrola Brasil, S.A. Brazil Holding 100.00 100.00 EY F
Iberdrola Operaçao e Manutençao, Ltd. Brazil Services 99.99 99.99 EY F
Itapebí Geraçao de Energía, S.A. Brazil Energy 39.00 38.98 PWC E
NC Energía, S.A. Brazil Energy 39.00 39.00 PWC E
Neoenergía Investimentos, S.A. Brazil Services 39.00 39.00 PWC E
Neoenergía Operaçao e Manuitençao, S.A. Brazil Services 39.00 39.00 PWC E
Neoenergía Servicios, Ltd. Brazil Services 39.00 39.00 PWC E
Neoenergía, S.A. Brazil Holding 39.00 39.00 PWC E
(4)
Norte Energía, S.A. Brazil Energy 3.90 3.90 EY E
PCH Alto do Rio Grande, S.A. Brazil Energy 39.00 39.00 - E
Potiguar Sul Transmissao de Energía, S.A. Brazil Energy 39.00 39.00 PWC E
Rio PCH I, S.A. Brazil Energy 27.30 27.30 PWC E
S.E. Narandiba, S.A. Brazil Energy 39.00 39.00 PWC E
(4)
Teles Pires Participaçoes, S.A. Brazil Holding 19.72 19.72 PWC E
Termopernambuco, S.A. Brazil Energy 39.00 39.00 PWC E
Brit. Virgin
Garter Properties, Inc. Finance 39.00 39.00 PWC E
Islands.

165
 APPENDIX

YEAR 2014 ADDITIONAL INFORMATION RELATED TO GROUP. JOINTLY-CONTROLLED COMPANIES

AND ASSOCIATES OF THE IBERDROLA GROUP

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)
OTHER BUSINESSES

Engineering
Adícora Servicios de Ingeniería, S.L. Spain Engineering 100.00 100.00 - F
Empresarios Agrupados Internacional, S.A. Spain Engineering 25.46 25.46 PWC E
Empresarios Agrupados, A.I.E. Spain Engineering 25.46 25.46 PWC E
Ghesa Ingeniería y Tecnología, S.A. Spain Engineering 41.18 41.18 PWC E
Iberdrola Ingeniería de Explotación, S.A.U. Spain Engineering 100.00 100.00 EY F
Iberdrola Ingeniería y Construcción, S.A.U. Spain Engineering 100.00 100.00 EY F
Ingeniería, Estudios y Construcciones, S.A. Spain Engineering 100.00 100.00 - F
Iberdrola Engineering and Construction
Germany Engineering 100.00 100.00 - F
Germany GmbH.
Iberdrola Engineering and Construction Saudi
Saudi Arabia Engineering 100.00 100.00 - F
Arabia, LLC
Iberdrola Construçao e Serviços, Ltd. Brazil Engineering 100.00 100.00 - F
Iberdrola Consultoría e Serviços do
Brazil Engineering 100.00 100.00 - F
Brasil, Ltd.
Iberdrola Energy Proyects Canada Corporation Canada Engineering 100.00 100.00 - F
Iberdrola Ingeniería y Construcción Chile, S.A.
(5) Chile Inactive 100.00 - - -
Iberdrola Engineering and Construction
Dubai Inactive 100.00 100.00 - F
Middle East, Ltd.
Iberdrola Energy Project, Inc. USA Engineering 100.00 100.00 - F
IEC California, Inc. USA Engineering 100.00 100.00 - F
Iberdrola Ingenierie et Construction, S.A.S.U. France Engineering 100.00 100.00 - F
Iberinco Hellas Techniki kai Kataskevastiki EPE Greece Engineering 100.00 100.00 - F
Iberdrola Magyarország Mernoki es
Hungary Engineering 100.00 100.00 EY F
Epitö Korlatolf
Iberdrola Ingegnieria e Costruzioni Italia, SRL. Italy Engineering 100.00 100.00 - F
Enermón S.A. de C.V. Mexico Engineering 100.00 100.00 EY F
Iberdrola Ingeniería y Construcción México,
Mexico Engineering 100.00 100.00 EY F
S.A. de C.V.
Iberservicios, S.A. de C.V. Mexico Engineering 100.00 100.00 EY F
Iberdrola Ingeniería y Construcción Panamá,
Panama Engineering 100.00 100.00 - F
S.A.
Iberdrola Engineering and Construction
Poland Engineering 100.00 100.00 EY F
Poland, SP ZOO
Iberdrola Engenhaaria e Construçao
Portugal Engineering 100.00 100.00 - F
Portugal, Unipessoal Lda.
Iberdrola Engeneering and
United Kingdom Engineering 100.00 100.00 EY F
Construction Networks, Ltd.
Iberdrola Engineering and Construction
United Kingdom Engineering 100.00 100.00 EY F
UK, Ltd.
Iberdrola Engineering and Construction
Romania Engineering 100.00 100.00 - F
Ro, SRL.
Iberdrola Inzhiniring I Stroiteistvo, LLC Russia Engineering 100.00 100.00 EY F
Iberdrola Engineering and Construction
South Africa Engineering 100.00 100.00 - F
South Africa
Iberdrola Ingeniería y Construcción
Venezuela Engineering 99.81 99.81 EY F
Venezuela, S.A.

Real Estate
Arrendamiento de Viviendas Protegidas Siglo
Spain Real Estate 100.00 100.00 - F
XXI, S.L.
Camarate Golf, S.A. Spain Real Estate 26.00 26.00 Deloitte E
Fiuna, S.A. Spain Real Estate 70.00 70.00 PWC F
Iberdrola Inmobiliaria Patrimonio, S.A.U. Spain Real Estate 100.00 100.00 EY F
Iberdrola Inmobiliaria, S.A. Spain Real Estate 100.00 100.00 EY F
Las Pedrazas Golf, S.L. Spain Real Estate 50.00 50.00 Deloitte E
Norapex, S.A. Spain Real Estate 50.00 50.00 PWC E

166
 APPENDIX

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)
Oceanic Center, S.L. Spain Real Estate 50.00 50.00 EY E
Promotora la Castellana de Burgos, S.A. Spain Real Estate 100.00 100.00 EY F
(2)
Urbanizadora Marina de Cope, S.L. Spain Real Estate 60.00 60.00 EY E
Iberdrola Inmobiliaria Real State
Bulgaria Real Estate 100.00 100.00 - F
Investment, EOOD
Desarrollos Inmobiliarias Laguna del Mar, S.A.
Mexico Real Estate 100.00 100.00 EY F
de C.V.
Promociones La Malinche, S.A. de C.V. Mexico Real Estate 50.00 50.00 - E
Torre Occidente Inmobiliaria, S.A. Portugal Real Estate 25.00 25.00 Deloitte E

Other Businesses
Services and
(1)
Amara, S.A.U. Spain material 100.00 100.00 EY E
merchandising
Subgrupo Corporación IBV Participaciones
Spain Services 50.00 50.00 Deloitte E
Empresariales
(4)
Gamesa Corporación Tecnológica, S.A. Spain Holding 19.69 19.69 EY E
Iberdrola Inversiones 2010, S.A.U. Spain Holding 100.00 100.00 - F
Investigación y Desarrollo de Equipos
(1) Spain Services 100.00 100.00 - E
Avanzados, S.A.U.
Security
Keytech Sistemas Integrales, S.A. Spain 37.00 37.00 - E
Systems
(1)
Amara Brasil, Ltd. Brazil Services 100.00 100.00 EY E
Lanmóvil Amara Celular da Bahia Ltd
Brazil Retail 65.00 65.00 - E
(Lanmara).
(1)
Ergytech Inc. USA Purchase agent 100.00 100.00 EY E
(1)
Amergy Mexicana, S.A. de C.V. Mexico Retail 100.00 100.00 EY E
(1)
Amergy Servicios de México S.A. de C.V. Mexico Services 99.00 99.00 EY E

167
 APPENDIX

YEAR 2014 ADDITIONAL INFORMATION RELATED TO GROUP. JOINTLY-CONTROLLED COMPANIES

AND ASSOCIATES OF THE IBERDROLA GROUP

% direct and indirect

participation
Company Address Activity 12.31.14 12.31.13 Auditor Method(*)

CORPORATION
(5)
Cartera Park, S.A. Spain Inactive 100.00 100.00 - -
(5)
Iberdrola Corporación, S.A. Spain Inactive 100.00 100.00 - -
Iberdrola España, S.A.U. Spain Holding 100.00 - EY F
Iberdrola Energía, S.A. Spain Holding 100.00 100.00 EY F
Iberdrola Financiación, S.A. Spain Finance 100.00 100.00 EY F
Iberdrola Finanzas, S.A.U. Spain Finance 100.00 100.00 EY F
Iberdrola Corporate Services, Inc. USA Services 100.00 100.00 - F
ScottishPower Finance (US), Inc. USA Finance 100.00 100.00 EY F
Iberdrola International, B.V. Netherlands Finance 100.00 100.00 EY F
Dornoch International Insurance, Ltd. Ireland Inactive 100.00 100.00 EY F
Iberdrola Finance Ireland, Ltd. Ireland Finance 100.00 100.00 EY. F
ScottishPower Insurance, Ltd. Isle of Man Insurance 100.00 100.00 EY F
Iberdrola Re, S.A. Luxembourg Insurance 100.00 100.00 EY F
Iberdrola Portugal Electricidade e Gas, S.A. Portugal Energy 100.00 100.00 EY F
Camjar Plc United Kingdom Inactive 100.00 100.00 - F
Clubcall Telephone Services, Ltd. United Kingdom Inactive 100.00 100.00 - F
Clubline Services, Ltd. United Kingdom Inactive 100.00 100.00 - F
Demon Internet, Ltd. United Kingdom Inactive 100.00 100.00 - F
Iberdrola Finance UK, Ltd. United Kingdom Inactive 100.00 100.00 - F
Manweb Contracting Services, Ltd. United Kingdom Inactive 100.00 100.00 - F
Manweb Nominees, Ltd. United Kingdom Inactive 100.00 100.00 - F
Manweb Pensions Trustee, Ltd. United Kingdom Inactive 100.00 100.00 - F
Manweb Share Scheme Trustees, Ltd. United Kingdom Inactive 100.00 100.00 - F
Scottish Power Trustees, Ltd. United Kingdom Inactive 100.00 100.00 - F
Scottish Power UK Group, Ltd. United Kingdom Inactive 100.00 100.00 - F
Scottish Power UK Holdings, Ltd. United Kingdom Holding 100.00 100.00 EY F
Scottish Power UK, Plc United Kingdom Holding 100.00 100.00 EY F
Scottish Power, Ltd. United Kingdom Holding 100.00 100.00 EY F
ScottishPower Investments, Ltd. United Kingdom Holding 100.00 100.00 EY F
ScottishPower NA 1, Ltd. United Kingdom Inactive 100.00 100.00 - F
ScottishPower NA 2, Ltd. United Kingdom Inactive 100.00 100.00 - F
ScottishPower Overseas Holdings, Ltd. United Kingdom Holding 100.00 100.00 EY F
ScottishPower Share Scheme Trustees, Ltd. United Kingdom Inactive 100.00 100.00 - F
ScottishPower Sharesave Trustees, Ltd. United Kingdom Inactive 100.00 100.00 - F
SP Finance 2, Ltd. United Kingdom Inactive 100.00 100.00 - F
SPPT, Ltd. United Kingdom Inactive 100.00 100.00 - F
SPW Investments Ltd. United Kingdom Holding 100.00 - EY F
Teledata (Holdings), Ltd. United Kingdom Inactive 100.00 100.00 - F
Teledata (Outsourcing), Ltd. United Kingdom Inactive 100.00 100.00 - F
Teledata Scotland, Ltd. United Kingdom Inactive 100.00 100.00 - F
Telephone Information Services, Plc United Kingdom Inactive 100.00 100.00 - F
Telephone International Media Holding, Ltd. United Kingdom Inactive 100.00 100.00 - F
Telephone International Media, Ltd. United Kingdom Inactive 100.00 100.00 - F
The CallCentre Service Limited United Kingdom Others 100.00 100.00 EY F
The Information Service, Ltd. United Kingdom Inactive 100.00 100.00 - F
TIM, Ltd. United Kingdom Inactive 100.00 100.00 - F

168
 APPENDIX

JOINT OPERATIONS OF THE IBERDROLA GROUP STRUCTURED THROUGH AN INDEPENDENT

VEHICLE FOR THE YEARS 2014 and 2013.
% direct and indirect
participation
Company Address Activity 12.31.14 12.31.13

DEREGULATED BUSINESS
Asociación Nuclear Ascó – Vandellós, A.I.E. Spain Energy 14.59 14.59
Centrales Nucleares Almaraz – Trillo, A.I.E. Spain Energy 51.44 51.41

RENEWABLE BUSINESS
Infraestructuras de Medinaceli, S.L. Spain Energy 39.69 39.69
Sistema Eléctrico de Conexión Hueneja, S.L. Spain Energy 47.36 47.36
Colorado Green Holdings, LLC USA Energy 50.00 50.00
Colorado Wind Ventures, LLC USA Holding 50.00 50.00

OTHER BUSINESSES
Torre Iberdrola, A.I.E. Spain Real Estate 68.10 68.10

169
 APPENDIX

GROUP COMPANIES AT 31 DECEMBER WHICH HAVE LEFT THE PERIMETER IN 2014 AS A RESULT
OF DISPOSAL. MERGER OR LIQUIDATION.

% direct and indirect participation

Company Address Activity 12.31.14 12.31.13

DEREGULATED BUSINESS
Bahía de Bizkaia Electricidad, S.L. Spain Energy - 25.00
NNB Development Company Belgium Services - 50.00
Nugeneration, Ltd. United Kingdom Services - 50.00
Iberdrola Energie Ceska Republika, S.R.O. Czeck Republic Services - 100.00
Energyworks Venezuela, S.A. Venezuela Energy - 100.00

RENEWABLES BUSINESS
Desarrollos Energéticos del Val, S.L. Spain Energy - 47.50
Electra de Montánchez, S.A. Spain Energy - 40.00
Energía I Vent, S.A. Spain Energy - 90.00
Energías Renovables de la Ría de Muros, S.A. Spain Energy - 51.00
Eólicas Fuente Isabel, S.A. Spain Energy - 57.00
Iberdrola Energías Marinas de Cantabria, S.A. Spain Energy - 60.00
Sistemas Energéticos de Cádiz, S.A. Spain Energy - 85.00
Sistemas Energéticos de Levante, S.A.U. Spain Energy - 100.00
Sistemas Energéticos La Torrecilla, S.A.U. Spain Energy - 100.00
Vientos de Castilla y León, S.A. Spain Energy - 57.00
Barton Chapel Wind, LLC USA Energy - 100.00
Copper Crossing Solar, LLC USA Energy - 100.00
Dry Lake Wind Power II, LLC USA Energy - 100.00
Peñascal II Wind Project, LLC USA Energy - 100.00
Rokas Aeoliki Evia, S.A. Greece Energy - 99.63
Rokas Aeoliki Kozani I, S.A.. Greece Energy - 100.00
Rokas Aeoliki Kriti, S.A. Greece Energy - 99.83
Rokas Aeoliki Thraki II, S.A. Greece Energy - 99.42
Rokas Aeoliki Thraki, S.A. Greece Energy - 99.57
Rokas Aeoliki Viotia, S.A. Greece Energy - 99.99
Rokas Aeoliki Zarakes, S.A. Greece Energy - 99.63
Rokas Aeoliki,S.A. Greece Energy - 99.57
Rokas Iliaki II, EPE Greece Energy - 100.00
Beta Wind, S.A. Romania Energy - 75.11

NETWORK BUSINESS
Iberdrola Energía Chile, Ltda. Chile Holding - 99.99
CNE Peaking, LLC USA Gas - 100.00
LNG Marketing Partners USA Holding - 100.00
LNG Storage Partners USA Holding - 100.00
PEI Power II, LLC USA Energy - 50.10
Total Peaking Services, LLC USA Gas - 100.00

OTHER BUSINESS
Valle Verde Promotora Cántabro Leonesa, S.L. Spain Real Estate - 50.00
Iberdrola Engineering and Construction
Bulgary Engineering - 100.00
Bulgaria, EOOD
Iberdrola Ingenierie et Construction, S.A.S. France Engineering - 100.00

CORPORATION
Energías de Portugal, S.A. Portugal Energy - 6.66

170
 APPENDIX

(1) Companies that are controlled by the Group but due to their immateriality, have been integrated
using the equity method. At 31 December 2014, the total aggregate assets value and the profit for
the year corresponding to these companies amounts to EUR 85,369 and 4,348 thousands,
respectively.

(2) Companies considered joint ventures, accounted for the equity method, where shareholders
agreements just grant the right to the net assets of the business.

(3) Companies, where despite holding a percentage of voting rights less than 51%, the Group holds
the control through shareholders agreements.

(4) Companies where the Group has significant influence despite holding a percentage of voting
rights less than 20%, since it is represented in the Board of Directors that these companies have.

(5) Companies where the Group holds the control, joint control or significant influence, but given its
scant relevance, they have not been included in the consolidation scope.

(6) The ownership percentage in these companies corresponds to voting rights.

171
CONSOLIDATED MANAGEMENT REPORT

2014

172
1. GROUP ACTIVITIES

1.1 Scope of activities. sectors and geographical areas

IBERDROLA has undergone a wide-ranging transformation over the last ten years which has
enabled it to advance through the ranks to become the number one Spanish energy group, one
of the Spanish main companies in the Ibex 35 by market capitalization, the world leader in wind
energy, and one of the world's top power companies.

Besides consolidating in Spain, our work has led us to an international reference position,
becoming one of the leading operators in the United Kingdom, one of the most important wind
power generators in the United States of America, the largest private generators of Mexico and
has strengthened its leadership as an electricity supplier by number of customers in Brazil.

Since 2011, the IBERDROLA Group's economic-financial and operational information has been
grouped in the following business lines: Network business, Generation and Sales business,
Renewables business, and other businesses. The Corporation includes the costs of the Group's
structure (Single Corporation), of the administration services of the corporate areas that are
subsequently invoiced to the other companies through specific service agreements.

Given the nature of the activities carried out by the IBERDROLA Group, its organization
responds to the strategic business units, rather than product and service lines. These
businesses are managed independently, as they respond to different technologies, regulations,
and geographic markets. We distinguish:

 Network business: includes the energy transmission and distribution activities, and any
other regulated activity originated in Spain, the United Kingdom, the United States and
Brazil.

 Deregulated business: includes the electricity generation and sales businesses as well
as gas trading and storage businesses carried on by the Group in Spain and Portugal,
the United Kingdom and North America (the United States and México).

 Renewables business: activities relating to renewable energies in Spain, the United

Kingdom, the United States and the rest of the world.

 Other businesses: grouping the engineering and construction businesses and the non-
power businesses.

 Corporation: even if it is not strictly a business, it includes the costs of the Group's
structure, of the administration services of the corporate areas that are subsequently
invoiced to the other companies through either specific service.

The IBERDROLA Group manages globaly both the financial activities and also the effects of
taxation on profits.

1.2 Organizational structure of the entity and the entities of the Group.

 Corporate and Governance Structure

The corporate structure comprises the Company (IBERDROLA, S.A.), country subholding
companies, and business subholding companies.

173
The Company is the entity that holds the equity stakes in the country subholding companies.
Each country subholding company, in turn, groups together the business subholding companies
that conduct their activities in each country in which the Group operates and centralises the
common service providing to such companies, always in accordance with the provisions of
applicable law.

The IBERDROLA Group has started a process of decentralisation to ensure decision-making

takes place where the effects of decisions will be felt, shifting this function to the subholding
companies and parent companies of the businesses (detailed information on the subholding
companies and parent companies of the businesses is available at: www.iberdrola.com).

Subholding companies:

The subholding companies group together equity stakes in each of the parent
companies of the businesses carrying out their activities in the various countries in
which the Group operates. They carry out the strategic coordination and organisation
function, disseminating and implementing the Group's management policies and
guidelines, and centralising the provision of common services to these companies,
always in accordance with that envisaged in applicable legislation and, in particular, in
regulations on the separation of regulated activities. These subholding companies have
a board of directors with independent directors and they have their own audit
committees and internal audit departments.

Parent companies of businesses

They carry out decentralised executive duties and are responsible for the day-to-day
administration and effective management of each of the business subgroups, and for
ordinary control.

They are organised through their respective boards of directors and their own
management decision-making bodies.

The Company’s and the Group’s governance conforms to the structure described above:
separates the duties relating to strategy, oversight, and control of the Group as a whole, the
duties of organisation and coordination of the businesses in each country, as well as those of
day-to-day administration and effective management of each business.

It is established on the following bases:

a) The Board of Directors of the Company, which exclusively exercises holding company
duties, has assigned powers relating to the establishment of the Group’s policies and
strategies and of the basic guidelines for the management thereof, as well as general
oversight of the development of such policies, strategies and guidelines and of
decisions on matters that are strategically significant at the Group level.

b) The chairman of the Board of Directors & chief executive officer of the Company, with
the technical support of the Operating Committee, the Group’s Business CEO and the
rest of the management team, assumes the duty of organisation and strategic
coordination of the Group through the dissemination, implementation and monitoring of
the overall strategy and of the basic management guidelines established by the Board
of Directors.

c) This organisation and coordination duty is strengthened through the boards of directors
of country subholding companies, which includes independent directors, and their own
audit committees, internal audit areas, and compliance units or divisions.

174
 d) The business subholding companies of the Group assume decentralised executive
responsibilities. They carry out the day-to-day administration and effective management
of each of the businesses, and are responsible for the day-to-day control thereof. These
business subholding companies are organised through their respective boards of
directors and their own decision-making bodies.

The corporate and governance structure of the Group described above operates jointly with the
Group’s Business Model, which entails the global integration of the businesses and aims to
maximise the operational efficiency of the different units. The Business Model ensures the
dissemination, implementation and monitoring of the overall strategy and of the basic
management guidelines established for each business, primarily through the exchange of best
practices among the various companies of the Group, without detracting from their
independence in decision-making.

In any case, the Company and the Group assume the commitments established by law in
connection with the legal and functional separation of the companies carrying out regulated
activities, while the country subholding companies ensure compliance with the law on this
matter.

Within the Group’s corporate and governance structure, the Operating Committee is an internal
committee of the Company that provides technical, information, and management support, both
with respect to the functions of definition, supervision, organisation, and monitoring of the
general management guidelines and to the strategic planning of the business managed by the
business subholding companies of the Group, in accordance with the aforementioned Business
Model.

At the behest of the chairman of the Board of Directors, territorial committees may be set up
which,not being bodies of the Corporate Governance System of the Company or part of the
executive structure thereof, are established as external advisory committees for purposes of
better information and knowledge by the Company of the unique characteristics of the various
territories in which the Group does business.

The country subholding companies are related to various entities in the nature of foundations,
separated from the Group’s corporate structure and that implement, in their respective
countries, the corporate social responsibility strategy designed by the Board of Directors of the
Company, to the extent consistent with their foundational purposes and as assigned thereto by
the Board of Directors of the country subholding company to which they are related.

Lastly, the Compliance Unit, which is a collective internal and permanent body, linked to the
Company’s Corporate Social Responsibility Committee, has duties in the area of regulatory
compliance and in the Company’s Corporate Governance System, in particular, regarding crime
prevention matters.

1.3 Organization of the Board, or bodies in which it delegates its decision, including
control functions and the policy followed with minority interests.

A comprehensive description of the governance structure of the Company, functions and

internal regulations of the committees can be seen in Appendix C of the Annual Corporate
Governance Report, which forms part of this Management Report.

175
1.4 Vision and values

IBERDROLA works to be an energy Company committed to ethics and respect for the
environment as the foundation for a sense of belonging and for the trust of all persons and its
various stakeholders.

IBERDROLA’s vision, which brings together the economic, social and environmental aspects of
sustainability, is based on six values representing firm commitments of the Company:

• Corporate ethics and responsibility.

• Economic results.

• Respect for the environment.

• Sense of belonging and trust.

• Safety and reliability.

• Customer focus.

1.5 Business model

The business model defined in the IBERDROLA Group aims to supply reliable power of quality
and environmentally respectful, throughout a long term sustainable industrial project.

The model is based on three pillars: a framework of trust based on an advanced corporate
government model; the vision and values of the Group approved by its management; and the
differential elements that make IBERDROLA a different company:

 Focus in regulated businesses.

 International diversification.

 Clean and competitive energy commitment.

 Operational efficiency.

 Strength of the group.

 Global team committed and qualified.

1.6 Regulatory framework of the activities

A comprehensive description of sector regulation and operation of electric and gas system in
the markets in which the Group operates can be seen in section 4 of this report.

176
1.7 Main products and services, production processes

The main products that IBERDROLA offers to its customers are power and natural gas, both in
the wholesale and retail markets reaching the final consumer. Also offers a wide range of
products, services and solutions in the fields of:
- Improving the quality of life, calm and safety of the consumer.
- Efficiency and energy services.
- Caring for the environment: renewable energy and sustainable mobility.
- Power quality and safety of the facilities.
- Installation of electrical infrastructure.
- Global management of facilities and energy supplies.

Through its subsidiaries it also provides engineering and construction services of power
generation facilities, distribution and control; operation and maintenance of power generation
facilities, management and promotion of the ground; and sale and rental of housing, offices and
commercials. More detailed information can be found in www.iberdrola.com, in "customers".
As a general rule, companies directly manage the activities that belong to its core business, and
outsource other estimated to be developed more efficiently by other specialized companies,
which IBERDROLA requires certain quality standards and responsible behaviour in
environmental, social and labour fields.

This information can be extended with corresponding indicators described in the Sustainability
Report.

1.8 Strategic principles for the 2014-2016 period

IBERDROLA 2014-2016 outlook has as key strategic pillars the fact of having a business
portfolio balanced and diversified geographically, its financial strength and its operational
efficiency, together with the final objective of maintaining a sustainable remuneration policy to
the shareholders. The outlook for the period 2014-2016 will allow IBERDROLA to set the basis
for consolidation and future growth. In this sense, the Company expects an average annual
increase of 4% in operating profit (EBITDA) and net profit for the Group for the following three
years as compared to the forecasted results for the year 2014.

The Company strategy will be based on:

 Investments: more than 80% of the investments in regulated businesses and increasing
geographic diversification;

 Operational efficiency: maintain costs in the existing businesses and workforce

reduction under 28,000 workers.

 Financial strength: debt reduction to EUR 25,000 million and continue improving
financial ratios;

 Shareholder remuneration: provide a minimum shareholder remuneration of at least

0.27 euro per share, with potential growth in line with net profit.

Investments

The Group plans to keep expanding their operations internationally and will focus on businesses
and countries with stable and predictable regulation. Investment amounting to EUR 9,600
million net of which EUR 4,400 million, approximately, will be growth investments.

177
By businesses the Company will assign the largest share of investments to transport and
distribution networks, 57% of the total net investments, and to a lesser extent, to renewables
which will receive 22% of the total amount. Generation will receive a 19% and the remainder 2%
to other businesses. The main objective of the Group is to put focus on activities with a high
potential for growth. Therefore the strategy will be:

 Networks: the most important developments will take place in United States, United
Kingdom and Brazil, without discarding opportunities that may arise in Mexico, derived
from the recently approved energy reform. The implementation of the smart grid through
the STAR project will be kept in Spain and we will continue to work to improve the
quality of service and exceed the level record reached in 2014.

 Renewable: United States, United Kingdom, Mexico, and Brazil will be countries in
which the company will put into operation new facilities.

 Generation and retail: the growth in this area will come basically from Mexico and
Brazil.

Geographically the investments will go to the United Kingdom (41%), followed by Latin America
(23%) being Mexico the main destination of the investment. The United States will follow with
the 17% of the investments, 15% to Spain and the remainder 4% to other countries.

 United Kingdom: faces a period of growth in transportation and energy distribution

setting up of both onshore and offshore renewable energy projects.

 United States: it also faces a scenario of growth in the area of networks and onshore
wind developments.

 Latin America: in Mexico, it will enhance its leadership as the first private electricity
generator. In Brazil, it faces several years of growth in hydroelectric capacity.

 Significant projects

- Electricity transmission: in addition to smart grid development in several countries in

which it operates, IBERDROLA will continue major transmission and distribution
infrastructure projects in the United States, including the Maine Power Reliability
Program which connects to Canada, and in the United Kingdom with the first subsea
link between Scotland and England.

- Renewable energy: new wind energy capacity (194 MW) will come on stream during the
period through offshore projects, at West of Duddon Sands (United Kingdom) whose
entry into operation was carried out in 2014 and new onshore wind farms in the United
States, United Kingdom and, Mexico (1.000 MW).

- Regulated generation: construction of 1.500 MW in Mexico with recent project awards

of Comisión Federal de Electricidad (CFE) at Baja California III (300 MW) and Norte III
(900 MW) and expansion of the Monterrey plant (300 MW). In Brazil, through
Neoenergia it will start up new capacity hydro projects of 930 MW.

Operational efficiency

The Company, which is already one of the most efficient among the leading European power
companies, plans to enhance the implementation of additional efficiency measures. On the one
hand, reduce the workforce between 2014 and 2016 by about 1.000 people in existing
businesses, in order to be below the 28.000 employees. On the other hand, will continue to
focus on cost containment, with a target of zero growth in personnel costs and outsourcing.

178
Financial strength

The Company expects to reduce debt by EUR 1,800 million to reach EUR 25,000 million of
debt, which would reduce the leverage from 43% to 40% and continue to improve financial
ratios. Keep operating cash flow generation exceeding investments across all businesses,
which will remain at levels of 3.000 – 3.200 million annually and additional divestments around
500 million in addition to the already announced (divestments would reach 2.500 million in the
period 2012-2016).

Shareholder remuneration

The shareholder remuneration policy is a priority with the objective of setting a floor of 0.27 euro
per share and a pay-out in line with companies with similar business profile around 65% to 75%.

The scrip dividend policy will continue for as long as the tax advantages continue and the
treasury stock redemption continues with the objective of maintaining the number of issued
shares at around 6,240 million.

This caption of the management report of IBERDROLA contains forward-looking information,

including financial projections and estimates and their underlying assumptions, statements
regarding plans, objectives and expectations with respect to future operations, capital
expenditures, synergies, products and services and statements regarding future performance or
administrators estimates which are based on assumptions that are considered reasonable by
them.
Although IBERDROLA believes that the expectations reflected in such forward-looking
statements are reasonable, investors are cautioned that forward-looking information and
statements are subject to various risks and uncertainties, many of which are difficult to predict
and generally beyond the control of IBERDROLA, risks that could cause actual results and
developments to differ materially from those expressed in, or implied or projected by, the
forward-looking information and statements.
Forward-looking statements are not guarantees of future performance and have not been
reviewed by the auditors of IBERDROLA. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date they were made. All subsequent
oral or written forward-looking statements included in this report are expressly qualified in their
entirety by the cautionary statement above. All forward looking statements included herein are
based on the information available on the date hereof. Except for required by applicable law,
IBERDROLA undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

179
2. BUSINESS EVOLUTION AND RESULTS

2.1 Operating Highlights for the period

IBERDROLA’s results in 2014 are to be viewed within a complex operational environment

characterised by the difficult international macroeconomic situation specifically in terms of weak
electricity and gas demand in the Eurozone together with the effect of recent regulatory and
fiscal changes in Spain (started in 2012), that have meant lower revenues from different
businesses especially in Renewables.

In this respect, it is worth noting the following:

 In Spain, the period was characterized by a higher hydraulicity compared to the same
period last year (+5.5%) with a stabilization of the electricity demand adjusted for
working days and temperature (-0.2%). In this sense, we emphasize the evolution of the
industrial sector of large consumers that grows 5% in the last 12 months.

 In the United Kingdom, demand for electricity dropped by 6.0%, whereas demand for
gas decreased by 17.6%, due to the mild climate in the first half of the year and the
effect of energy efficiency measures introduced in recent years.

 IBERDROLA USA’s operational area on the United States saw a +0.4% increase in
electricity demand and a +30.4% in gas demand, as a result of the increase in
consumption from the difficult weather conditions in the first months of the year.

 As for Brazil, the rate of growth of demand stood at 3.4% compared to the same period
of the previous year.

During financial year 2014, international markets of raw materials evolved as follows:

 The average price of Brent oil was $98.88 per barrel compared to $108.79 per barrel for
the previous year (-9.1%).

 The average price of gas (TTF) over the period rose to 20.93 EUR/MWh compared to
27.03 EUR/MWh in 2013 (-22.6%).

 The average price of API2 coal was $75.57/MT compared to $81.7/MT (-7.5%) for the
previous year.

 The average cost of CO2 allowances dropped from EUR 4.87/MT in 2013 to EUR
6.18/MT in 2014 (+26.9%).

During the period, the average evolution of IBERDROLA’s main currencies compared to the
Euro was as follows: the Sterling Pound revaluated by 5% while the US Dollar and the Brazilian
Real devalued by 0.2% and 9% respectively.

In this context, IBERDROLA Group’s total production (data for operational purposes are
presented applying the effects of IFRS 11) in the period increased by 2% to 132,727 GWh
(129,842 GWh in 2013). This figure includes by geographical areas:

180
Net Production (GWh) 2014 2013 % Change
Spain 59,413 56,090 5.9
United Kingdom 18,720 19,634 -4.7
United States 17,158 17,631 -2.7
Mexico 35,846 34,772 140.6
Brazil 344 143 3.1
Rest of the world 1,246 1,572 -20.7
Total 132,727 129,842 2.2

At the end of 2013, IBERDROLA had 43,469 MW installed generation capacity, of which 61%
produces emission-free energy while operating at a very low variable cost.

Installed capacity (GW) 2014 2013 % Change

Spain 24,701 24,703 0.0
United Kingdom 6,447 6,346 1.6
United States 6,294 6,135 2.6
Mexico 5,218 5,176 0.8
Brazil 187 49 281.6
Rest of the world 622 622 0.0
Total 43,469 43,031 1.0

The following exceptional highlights should be noted with regard to the period analysed,
compared with the previous financial year:

 Entry into force of the accounting standard IFRS 11, according to which joint ventures
do not apply proportionate consolidation but rather consolidate by the equity method;
being the main effect for IBERDROLA Group the deconsolidation of Neoenergia. The
2013 figures have been restated in the same terms, as indicated by the standard itself,
in order to standardise the comparison. The affected businesses are Networks in Brazil
(Neoenergia), Deregulated Business in Spain (Nuclenor, BBE and some cogeneration
plants) and Renewables. The detailed breakdown is explained in Note 2.

 The application of RDL 9/2013 since July 2013 had an impact of EUR 617 million in
2014. This RDL established a cut in the Distribution business remuneration in Spain
(EUR -112 million), a reduction of the incentive to invest, with an impact of EUR -70
million on the Deregulated Business in Spain, establishes the financing of the Social
Tariff (“Bono Social”) by the integrated groups (EUR -66 million) and has a particularly
negative effect on renewable energies (EUR -339 million) and cogeneration (EUR -30
million).

 In Brazil, in December 2014, an addendum to the concession contracts was signed,

guaranteeing that, at the end of the concession period, the remaining balance of tariff
assets/ liabilities will be regularised. Thus, with the certainty that they will be recovered
or paid, the accounting regulations, both local and international, allow the records of
these tariff assets/liabilities to be posted into the accounts. Thus, at the close of 2014,
no impact is recorded in the Profit and Loss Account due to drought. In addition, the
balance receivable at December 2013 is recognised. These two effects have a net
positive impact of EUR 75 million in ELEKTRO (at Ebitda level) and EUR 54 million in
Neoenergia (Equity method).

 The Non-current Assets results include basically the sales of Itapebí, the nuclear
development of the United Kingdom (Nugen), and the 25% stake in BBE, whereas the
sale of EdP was accounted in the Financial Result.

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2.2 Business evolution

2.2.1 Relevant information

A. Changes in consolidation

Changes in consolidation (IFRS 11) in 2014: the IFRS 11 has implied changes in the
consolidation method of certain companies, from proportionate consolidation to the equity
method.

At the IBERDROLA Group, the affected businesses and the stakes that go onto being
consolidated by the equity method are the following:

 Deregulated Business Spain: Nuclenor, BBE, investee cogenerator plants.

 Renewables: investees in Spain, United Kingdom, USA, Brazil and Italy.

 South America: Neoenergia Group.

 Non-energy: investee subsidiaries of IBERDROLA Inmobiliaria, IBV.

B. Tariff Insufficiency

Although the Spanish Government does not foresee a tariff shortfall in 2014 following the
measures to reduce regulated costs and increase tax collection, there is a temporary imbalance
over the 2014 settlement period, which is financed (according to Law 24/2013 on the Electricity
Sector) by the subjects of the settlement system in an amount proportional to the remuneration
corresponding to them in each monthly settlement. This way, IBERDROLA reduces its burden
from 35.01% in 2013 to approximately 13% in 2014.

The amount financed by IBERDROLA in cumulative terms at 31 December 2014, is EUR 386
million.

2.2.2 Analysis of the profit and loss account

The key figures for the financial year 2014 are as follows:

%
EUR Millions 2014 change 2013
Revenues 30,032 -3.4 31,077
Gross margin (1) 12,180 3.4 11,782
EBITDA (2) 6,965 3.1 6,757
EBIT (3) 3,941 77.6 2,219
Net profit 2,327 -9.5 2,572

(1)
Gross Margin: Revenues – Procurements
(2)
EBITDA: Operating profit+ Amortisation and provisions
(3)
EBIT: Operating profit

182
2.2.2.1 Gross Margin

Gross Margin came to EUR 12,180 million, a 3.4% increase compared to 2013, even though
sales decreased -3.4%.

The evolution of the average exchange rates for the reference currencies has meant a positive
impact of EUR 95 million.

%
EUR Million 2014 Change 2013
Networks 5,241 5.6 4,962
Deregulated Business 4,733 6.7 4,435
Renewable Business 2,034 -7.6 2,201
Other businesses 216 -6.1 230
Corporation and adjustments -44 -4.3 -46
Gross Margin 12,180 3.4 11,782

 Network business

The Networks business increased its contribution by 5.6% to EUR 5,241 million (EUR 4,962
million in 2013).

%
EUR Million 2014 Change 2013
Spain 1,952 2.5 1,905
United Kingdom 1,331 11.7 1,192
United States 1,498 2.0 1,469
Brazil 460 16.2 396
Total network business 5,241 5.6 4,962

The most significant events in 2014 compared to 2013 were:

− In Spain, the gross margin increases to EUR 1,952 million (EUR 1,905 million in 2013)
due mainly to the negative impact of the new RDL 9/2013 (applying since July 2013),
attached to the accrual of the investments.

− The United Kingdom registers EUR 1,331 million (EUR 1,192 million in 2013) as a result
of a greater asset base being remunerated as a consequence of the investments made
derived from applying the DPCR5, as well as transmission investments under RIIO-T1.

− The contribution of USA in the period was EUR 1,498 million (EUR 1,469 million in
2013) as a result of the Rate Cases in force and the growing contribution of the Maine
HV line.

− Gross Margin in Brazil was EUR 460 million (EUR 396 million in 2013) due to the
upward review of ELEKTRO’s tariffs in August 2014 by 37.8%, the increase in demand
and the positive impact of tariff assets recognised in the month of December (EUR +75
million net, as a result of the drought). The impact of the exchange rate amounted to
EUR 41 million due to the depreciation of the Real (-9%).

183
 Deregulated Business

The Deregulated business increased by 6.7% to EUR 4.733 million (EUR 4.435 million in 2013).

%
EUR Million 2014 Change 2013
Spain 3,068 5.0 2,923
United Kingdom 1,205 15.3 1,045
Mexico 457 0.9 453
United States 3 -78.6 14
Total Deregulated Business 4,733 6.7 4,435

− In Spain, it increases up to EUR 3,068 million (EUR 2,923 million in 2013) due to
greater production of the generation mix based on hydroelectric production (19.9%) and
nuclear production (6.7%), which determined a lower cost of procurements and greater
amount of sales.

− The United Kingdom has a Gross Margin of EUR 1,205 million (EUR 1,045 million in
2013), positively affected by the improvements in the performance of the plants,
especially Longannet, as well as by the rise of the pound (+5%) despite the negative
impact of lower sales due to better weather conditions, the impact of the Carbon Price
Floor applicable to coal and gas purchases.

− Mexico increased its Gross Margin by 0.9%, up to EUR 457 million (EUR 453 million in
2013) as a result of the business evolution and the one-off effect of the redefinition of
several contracts with private clients.

− As to the gas business in the US and Canada, it contributed EUR 3 million (EUR 14
million in 2013, EUR -11 million), due to the exceptional improvement of the margins in
North America as a result of the cold snaps during the first quarter of the year, was
reduced significantly during the rest of the year.

 Renewables business

The Renewables business decreased its Gross Margin by 7.6% to EUR 2,034 million (EUR
2,201 million in 2013).

%
Millions of euros 2014 change 2013
Spain 728 -25.6 978
United Kingdom 369 21.8 303
United States 736 4.5 704
Mexico and Brazil 93 63.2 57
Rest of the world 108 -32.1 159
Total Renewables business 2,034 -7.6 2,201

The main causes of this trend are:

− The effect of the regulatory measures in Spain by which remuneration is modified (RDL
9/2013), which had an impact of EUR 339 million.

− Lower production in Spain (-4.4%) during the year.

184
 − A better margin both in the United Kingdom (+21.8%) and in the United States (+4.5%)
and Latin America (+63.2%), as a result of new capacity coming on line.

− A drop of this item corresponding to the Rest of the World (EUR -51 million) affected by
the sale of wind farms in Turkey, Estonia and Poland during 2013.

− The increase in the operational capacity up to 13,897 MW (+1.2%) even considering

divestments during 2013 (184 MW).

 Other businesses

The contribution of Other Businesses reached EUR 216 million decreasing 6% (EUR 230 million
in 2013).

2.2.2.2 Gross Operating result – EBITDA

Consolidated EBITDA increased by 3.1% up to EUR 6,965 million (EUR 6,757 million in 2013),
where the improvement of deregulated and network businesses offset the negative effect of
RDL 9/2013 on the Renewables businesses, as well as the evolution of the activities in Brazil.

%
EUR Million 2014 Change 2013
Networks 3,535 5.6 3,347
Deregulated Business 2,292 15.3 1,987
Renewable Business 1,326 -11.7 1,501
Other businesses -17 n/a -
Corporation and adjustments -171 119.2 -78
EBITDA 6,965 3.1 6,757

 Net operating expenses

In addition to the already explained Gross Margin, Net Operating Expenses increased by 4.8%
to EUR 3,634 million (EUR 3,467 million in 2013), affected mainly by the drop in activations and
other non-recurring effects, reinforced using efficiency measures effecting future periods.

 Levies

Levies increased by 1.5%, to EUR 1,581 million, mainly due to the financing of the Social Tariff
(“Bono Social”) in Spain and the higher taxes in the UK, despite the favourable sentence over
the decrease of the emission rights.

− Impact of RDL 9/2013 as regards the Social Tariff (“Bono Social”), 38.47% of which
having to be financed by IBERDROLA according to Order IET 350/2014, with an impact
of EUR 66 million.

− In the United Kingdom, levies item amount to EUR 295 million (EUR 44.6 million more
than that of the same period in the previous year), due mainly to higher government
taxes.

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 − End of cost of energy efficiency charged to companies in Spain (EUR +50 million).

2.2.2.3. Net Operating result – EBIT

EBIT totalled EUR 3,941 million, an increase of 77.6% in comparison with EUR 2,219 million in
2013, after the write-offs carried out in June 2013 (gas of the United States, renewable projects
portfolio, and others).

%
EUR Million 2014 Change 2013
Networks 2,455 3.8 2,366
Liberalised Business 1,276 -9,915.4 -13
Renewable Business 501 647.8 67
Other businesses -24 -53.8 -52
Corporation and adjustments -267 79.2 -149
EBIT 3,941 77.6 2,219

 Amortisations and provisions

Amortisations and Provisions dropped by 33.4%, totalling EUR 3,024 million (EUR 4,538 million
in 2013).

− Amortisation increased by 5.2%, to EUR 2,813 million. Its evolution is basically due to
the change of useful life of the networks in the United Kingdom, which has gone from 60
to 40 years, as well as the commissioning of new renewables assets and other assets
in UK.

− The Provisions item is at EUR 211 million with a lower expense of EUR 1,862 million as
a result of the extraordinary write-offs carried out in 2013, mentioned above.

2.2.2.4. Financial Result

Net financial result was EUR -1,122 million, which is 12.2% better than that achieved in the
same period of the previous financial year (EUR -1,278 million in 2013). The following impacts
are worth noting:

Financial result improved:

− The average balance of net debt dropped by 7%, whereas total average cost dropped
21 basis points to 4.14%, against 4.35% in 2013.

− The sale of the stake in EdP generated gross capital gain of EUR 96 million.

Financial result worsened:

− The lower income from deficit of EUR -8 million is due to the decrease of the average
receivable balance.

− In the past financial year EUR 45 million were received in dividends that this year are no
longer received due to the sale of the aforementioned EdP portfolio and EUR 4 million
due to the sale of Medgaz.

− The lower contribution of results hedging derivatives is the main explanatory factor of
the reduction by EUR 53 million in “Derivatives and DVMEs”.

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2.2.2.5 Results of Companies Consolidated by the Equity Method

The item Results of Companies Consolidated by the Equity Method reached EUR 135 million (-
33.9% against EUR 205 million in 2013) due mainly to the lower contribution of Garoña and the
business in Brazil (Neoenergia) as a result of the downward sector tariff review in April 2013,
which is not offset by the annual tariff readjustment of April 2014, along with the exchange rate,
inflation and the positive impact on non-recurrent items in 2013 with no counterpart in 2014,
partially offset by the restatement of Gamesa’s book value, following the positive evolution of its
share price.

2.2.2.6 Income from Non-Current Assets

Income from Non-Current Assets amounted to EUR 248 million, EUR 258 million more than in
2013, period in which EUR 10 million losses was obtained. During this period of 2014, the most
significant operations have been the sale of the portfolio of Itapebí (Brazil) and the NNB
Development (Nuclear, United Kingdom), as well as the 25% equity share in BBE (CCGT in
Spain).

2.2.2.7 Net Profit

As a result of everything mentioned above, Profit before Tax was EUR 3,202 million, bringing an
increase of EUR 2,066 million (EUR 1,136 million in 2013).

With regard to the Corporate Tax item, it stands at EUR 837 million, an effective tax rate of
27%. The difference in this item is due to the balance sheet update carried out in 2013 and its
fiscal treatment. In 2013, as a result of this Balance Sheet Revaluation, IBERDROLA increased
in EUR 6,323 million the value for tax purposes of certain Spanish assets.

Lastly, Net Profit amounted to EUR 2,327 million, a 9.5 % drop compared to the figure obtained
in the same period of 2013 (EUR 2,572 million in 2013).

187
2.3 Operative evolution of the period

2.3.1 Network business

A. Spain

IBERDROLA had almost 10.9 million supply points and its energy distribution for the year
amounted to 92,131 GWh, a 1% drop compared to the previous year (93,082 GWh in 2013)

During 2014, the SAIFI indicator of supply quality was at 55.7 minutes against 62.4 minutes in
2013, a 10.7% drop with regard to the same period in 2013, achieving the best historical value
of this indicator. It should be noted that this index was higher in 2013 due to poor weather
conditions in the Basque Country and the Region of Navarre at the start of that year.

During this financial year the investment made by the business in Spain has made it possible to
commission the facilities included in the following table:

Physical units 2014 Total

Overhead (km) 411
Lines
Underground (km) 625
Transformer (units) 13
Substations Capacity increase (MVA) 453
(1)
Substation (units) 12
(3)
Centers (units) (217)
Transformation centers (2)
Capacity increase (MVA) (21)

(1) This does not take into account the decommissioned substations (7 up to Dec-14).

(2) Replacement of transformers by others with greater capacity.

(3) Reassignment of ownership of transformer substations in Madrid (673 up to Dec-14).

In addition, during this year 1.8 million smart meters with a remote management system were
commissioned, within the STAR smart network project.

In line with this, at the end of 2014, IBERDROLA has completed the installation of 4.2 million
smart meters in Spain. The company has renovated the 40% of its metering fleet in Spain,
overcoming the obligation of renovating 35% of their 10.5 million meters by the end of 2014.
This initiative, underway in ten autonomous communities, will conclude in 2018 and has an
overall investment of EUR 2,000 million.

B. United Kingdom

IBERDROLA has approximately 3.5 million electricity distribution supply points. The volume of
distributed electricity during 2014 was 34,217 GWh (35,319 GWh in 2013), a 3% drop
compared to the previous year.

Customer Minutes Lost (CML) and the number of consumers affected by interruptions per every
100 customers (Customer Interruptions, CI) are:

2014 2013
CML CI CML CI
Scottish Power Distribution (SPD) 34.4 48.0 44.8 52.8
Scottish Power Manweb (SPM) 38.0 33.7 42.5 39.1

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Both CI and CML meet the quality requirements established in the regulation.

C. United States

• Distribution

IBERDROLA USA has 1.8 million supply points in the United States. The distributed volume
of electricity during the year has been 31,934 GWh, a 0.3% increase compared with the
previous year (31,849 GWh).

The System Average Interruption Frequency Index (SAIFI) and the Customer Average
Interruption Duration Index (CAIDI) are as follows:

2014 2013
SAIFI CAIDI SAIFI CAIDI
Central Maine Power (CMP) 1.80 1.86 1.75 2.09
NY State Electric & Gas (NYSEG) 1.03 1.97 1.09 1.93
Rochester Gas & Electric (RGE) 0.76 1.74 0.74 1.82

The indicators of the three companies met in 2014 with the objectives established under the
relevant regulatory agreements.

• Transmission

Construction works continue for the transmission project in Maine, with a total budget of
USD 1.400 million. The investment made since the start of the project amounts to USD 120
million in 2014 (USD 1,267 million accumulated), a 90.5% of the total project.

• Gas

The number of gas users in the United States (in the states of New York and Maine) at the
end of 2014 was 0.6 million with supply during the period rising to 40,870 GWh (31,548
GWh in 2013), up by 30% from the previous year as a consequence of the climate
conditions in the first semester.

D. Brazil

The demand evolution for the Brazilian distributors COELBA, COSERN, CELPE y ELEKTRO
has increased 3.4% up to 54,010 GWh (52,215 GWh in 2013) during 2014:

Energy distributed (GWh)

100% of business 2014 % Change 2013
COELBA 18,380 4.2 17,645
COSERN 5,462 4.8 5,213
CELPE 13,235 4.3 12,694
ELEKTRO 16,933 1.6 16,663
Total 54,010 3.4 52,215

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The number of customers served by the distributors at the end of the year reaches 12.7 million.

Number of
customers (million)100% 2014 2013
COELBA 5.6 5.4
COSERN 1.3 1.3
CELPE 3.4 3.3
ELEKTRO 2.4 2.4
Total 12.7 12.4

With regard to regulated electricity generation, the capacity of the projects in operation at
December 2014 is 1,883 MW (IBERDROLA’s percentage 640 MW).

Regarding the projects under construction, the pace of construction is on schedule, so the dates
remain as planned.

Attributable
Plant MW MW Year
Baixo Iguaçu 350 137 2016
Teles Pires 1,820 356 2014
Belo Monte 11,233 438 2015-2018
Wind farms (tender Jun-14) 84 16 2017
Wind farms (tender Nov-14) 90 18 2019
Total 13,577 965

2.3.2 Deregulated business

A. Spain and Portugal

A.1. Generation

IBERDROLA’S installed capacity in Spain (excluding renewables) totalled 18,836 MW (18,837

MW in 2013):

Installed capacity 2014 % Change 2013

Hydroelectric 8,807 0.0 8,807
Nuclear 3,166 0.0 3,166
Coal 874 0.0 874
Gas combined cycles 5,694 0.0 5,694
Cogeneration 295 -0.3 296
Total net production 18,836 0.0 18,837

In addition, the Spanish peninsular energy balance is characterized by a production based on

hydroelectric and wind (35.8% of the total), with a higher thermal coal production (+10.9%)
compared to the poor contribution of gas generation (-12.8%). The demand shows a drop of
1.2%, despite the small decrease of 0.2% in terms adjusted to number of working days and
temperature. Worthy of note is the evolution of electricity consumption of the group of
companies with a medium/high electricity consumption, which in 2014 showed a 3.2% growth,
broken down as +4.7% for industrial consumers and -1.3% for service consumers.

190
Regarding IBERDROLA, during 2014. production increased by 9% to 47,157 GWh.

The yearly trend analysed by technology is as follows:

GWh 2014 % Variation 2013

Hydroelectric 18,029 18.9 15,169
Nuclear 24,370 7.0 22,782
Coal 2,514 4.9 2,396
Gas combined cycles 633 -33.2 948
Cogeneration 1,611 -18.6 1,980
Total net production 47,157 9.0 43,275

- Hydroelectric production increased 18.9% over the previous year due to the higher
rainfall in the period.

- Hydroelectric reserve levels were 69.9% (equivalent to 7,888 GWh).

A.2 Retailing

Supplied energy (electricity and gas) in Spain came to 55,819 GWh. Electricity sales on the
liberalised market in 2014 amounted to 38,300 GWh compared to 38,873 GWh supplied in the
same period of 2013 (-1%).

2014 was characterised by a lower demand of natural gas across the Spanish territory that was
9.6% lower than that corresponding to the same period of 2013. This was due to both a lower
consumption by clients and lower electricity production using gas.

In Portugal, IBERDROLA supplied 6,563 GWh during 2014 compared to the 6,128 GWh
supplied in 2013, being the second seller in the Medium Voltage industrial clients, and having
started to enter the residential sector.

B. United Kingdom

B.1. Generation

As at 31 December 2013, installed capacity in the UK amounted to 4,835 MW. This includes a
reduction of 30 MW from December 31 due to the sale of Pilkington CHP in August 2014.

(MW) 2014 % Change 2013

Hydroelectric 563 0.0 563
Coal 2,304 0.0 2,304
Gas combined cycles 1,967 -0.4 1,975
Cogeneration 1 -97.6 42
Total United Kingdom 4,835 -1.0 4,884

With regard to production from traditional electricity generation, it decreased by 7.8% to 15,810
GWh compared to 17,142 GWh in 2013.

Coal plant production dropped by 6.0% to 9,630 GWh compared to 10,241 GWh in the same
period of the previous year, partly due to the closure of the Cockenzie plant in March 2013.

The highlights by generation technology are as follows:

191
 GWh 2014 % Change 2013
Hydroelectric 716 7.7 665
Coal 9,630 -6.0 10,241
Gas combined cycles 5,459 -12.3 6,227
Cogeneration 8 -11.1 9
Total United Kingdom 15,813 -7.8 17,142

B.2. Retailing

Regarding sales, during 2014 customers have been supplied with 22,073 GWh of electricity and
30,938 GWh of gas compared to 24,239 GWh of electricity and 36,137 GWh of gas supplied
during 2013. At 31 December 2014, SCOTTISH POWER had 3.3 million electricity customers
and 2.2 million gas customers.

Controlling credit terms continues to be of great importance in customer management. Thus,

more than 85% of IBERDROLA’s customers in the United Kingdom now use a Secure Payment
method (defined as customers who pay by direct debit or use a prepay meter).

C. Mexico

IBERDROLA remains the leading private producer in the country with 5,027 MW (4,987 MW in
2013) in installed capacity.

Currently, there are three new plants in the construction phase, which will enter into operation in
2016: the 300 MW combined cycle plant in Baja California III, a 50 MW cogeneration plant and
a new unit in the Dulces Nombres plant in Monterrey of 300 MW for private customers.

All of the above-mentioned projects will allow IBERDROLA to reach an operating capacity in
thermal generation of 5,700 MW in 2016, strengthening the leadership position IBERDROLA
has maintained over the last years in Mexico as a private producer, and its second position in
the country after the Comisión Federal de Electricidad.

The energy sector in Mexico is being reformed and, within it, the electricity sector. In this line,
the Electricity Sector Law and its Regulations have already been approved by Congress, which
suppose a relevant business growth opportunity for the following years.

The electric energy supplied from the combined cycle and cogeneration plants amounted to
35,175 GWh, equivalent to a load factor of 81% given that generation with natural gas is the
basis for electricity generation in Mexico. Cumulative availability of the Mexico plants was
95.1%, with a reliability of more than 99%.

D. Gas storage in US and Canada

Gas storage facilities operated by the Company in 2014 totalled 2.44 bcm. In addition, the
Company had 1.7 bcm of contracted or managed capacity.

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2.3.3. Renewable business

At the end of 2014, the renewables business had an installed capacity of 14,049 MW (13,560
MW in 2013).

The renewable production decreased by -0.4% to 32,063 GWh (32,193 GWh in 2013).

During the last year, IBERDROLA installed 489 MW in new renewable installations.

Installed MW 2014 2013 MW change

Wind Energy Spain 5,508 5,508 -
Wind Energy USA 5,484 5,282 202
Wind Energy United Kingdom 1,611 1,462 149
Onshore 1,417 1,404 13
Offshore 194 58 136
Wind Energy Mexico 231 231 -
Wind Energy Brazil 187 49 138
Wind Energy Rest of the World 615 615 -
Total wind energy 13,636 13,147 489
Total wind energy onshore 13,442 13,089 353
Total wind energy offshore 194 58 136
Other renewables 413 413 -
Total installed capacity 14,049 13,560 489

A. Onshore Wind Energy

IBERDROLA reached a total installed onshore wind capacity of 13,442 MW after having added
353 MW of onshore wind capacity over the last twelve months.

 United States

The Company is present in 18 States with a total installed capacity of 5,484 MW.

 United Kingdom and Republic of Ireland

Installed capacity at the end of 2014 amounted to 1,402 MW in the United Kingdom and 15 MW
in the Republic of Ireland after having installed 13 MW during the year.

 Brazil y Mexico

During 2014, 138 MW have been installed in Brazil.

During the financial year, a 70 MW farm has been built in the state of Oaxaca, and in the fourth
quarter, works started on a 66 MW wind farm in the state of Puebla.

B. Offshore Wind Energy

Currently, the renewables business is developing offshore wind projects mainly in the United
Kingdom, Germany and France.

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In the United Kingdom, the company is building the West of Duddon Sands project located in
the Irish Sea with a capacity of 389 MW which is being jointly developed at 50% with Dong
Energy (194.5 MW correspond to IBERDROLA). During 2013, the installation of the substation
of the farm and 108 turbines have been completed.

IBERDROLA continues the Wikinger offshore project development, up to 350 MW in the Baltic
Sea (Germany), and is pending final approval. During 2014 agreements have been signed with
the main suppliers of the park (foundations, electrical installation and electrical substation) and
AREVA, selected as a supplier of turbines. In parallel, progress is being made in the work of
detailed engineering, manufacturing and processing of key permits.

Furthermore, IBERDROLA is developing in the United Kingdom, through the 50% joint venture
with Vattenfall, and the “East Anglia” project in the North Sea. In October 2014, the UK
Government has approved the budget for Contract for Differences (CfDs) renewable subsidies.
The budget is split between established technologies and less established technologies. This
second type includes the “offshore” wind projects. As for the budget for less established
technologies in this first allocation round, it amounts to GBP 235 million for projects
commissioning from 2017/2018 onwards. The auction process and the notification of successful
bidders will take place in the first quarter of 2015. Successful bidder farms will have until March
2016 to prove their commitment to build the park in accordance with the rules of the Contracts
for Difference.

In April 2012, the consortium formed by IBERDROLA and the French company EOLE-RES was
awarded by the French Government the exclusive rights for the operation of the offshore wind
farm of Saint-Brieuc, with a capacity of 500 MW. In 2013 the commitments with the French
Government regarding the technical, environmental and industrial viability studies were
completed. In 2014, the consortium started the works corresponding to the following phase,
including the necessary studies for the permit application, as well as continuing the analysis of
technical and economic viability, which concluded with the decision to change the generator
proposed initially, with a unit capacity of 5 MW for a more modern and efficient generator with a
unit capacity of 8 MW, also made by AREVA. This change of generator has been submitted for
the approval of the French government, who has answered positively.

C. Other technologies

The Renewable business has facilities of other renewable technologies in various countries
making a total of 413 MW, which breakdown is presented in the following table:

MW installed 2014 2013 Country

Minihydraulic special regime 130 130 Spain
Minihydraulic ordinary regime 176 176 Spain
Solar thermal hybrid 50 50 Spain
Photovoltaic 56 56 USA (50MW) Greece (6MW)
Waves 1 1 UK
Other Renewables 413 413

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3. LIQUIDITY AND EQUITY RESOURCES

Adjusted net financial debt at 31 December 2014 dropped by EUR 1,218 million to EUR 25,618
million compared to the EUR 26,836 million at 31 December 2013, as a result of the
containment in investment and positive performance of the divestment plan. Financial leverage
stood at 41.7% compared to 43.2% in the same period of the previous year.

Excluding financing of the tariff deficit, which in the case of IBERDROLA amounted to EUR 386
million at 31 December 2014 adjusted net financial debt would be EUR 25.232 million and
adjusted leverage would be 41.3% compared to the EUR 25,265 million and 41.7% at 31
December 2013, respectively.

Dec. 2014 Dec. 2013

Equity 35,791 35,289
Gross Debt 28,191 28,496
Cash 1,806 1,332
Asset Derivatives and others 767 328
Adjusted net debt 25,618 26,836
Leverage 41.7% 43.2%
Tariff Deficit 436 1,571
Adjusted net debt (excl. Deficit) 25,182 25,265
Leverage (excl. Deficit) 41.3% 41.7%

3.1 Credit rating of IBERDROLA senior debt

(1)
Agency Rating Outlook Date
Standard & Poors BBB Stable 9 May 2014
Moody´s Baa1 Negative 9 November 2012
Fitch BBB+ Stable 25 March 2014

(1)
Warning: The above ratings may be revised suspended or withdrawn by the rating agency at any time.

3.2 Debt structure

Regarding the evolution of the financing cost of the Company on 31 December 2014 stood at
4.14% compared to 4.35% in the same period of the previous year (Note 25 of the Consolidated
financial statements).

The structure of the debt by interest rate and currency can be seen in Notes 5 and 25 of the
Consolidated financial statements.

In accordance with the policy of minimizing the financial risks of the Company, foreign currency
risk has continued to be mitigated through the financing of international businesses in local
currencies (British pound, Brazilian real, US dollar, etc.) or in their functional currencies (US
dollar, in the case of Mexico).

IBERDROLA has a strong liquidity position at the end of 2013 exceeding EUR 10.000 million
equivalent to more than 32 months of the company’s financing needs (Note 50 of the
Consolidated financial statements).

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 (Millions of Euros)
Credit line maturities Available
2015 813
2016 820
2017 and onwards 7,098
Total credit lines 8,731
Cash and Short Term Fin. Invest. 1,806
Total adjusted liquidity 10,537

IBERDROLA has a varied debt maturity profile, with an average maturity of approximately six
years, as a result, among other factors, of the active management of liabilities carried out during
this financial year. IBERDROLA’s debt maturity profile at the end of 2014 can be seen in Note
25 of the Consolidated financial statements.

3.3 Working capital

Working capital shows a decrease of EUR 881 million since December 2013 as a result mainly
due to several different effects partially offsetting one another:

 An increase of “Current Financial Investments” mainly due to the inclusion under this
item of the regulatory assets in Brazil, that amount to EUR 154 million.

 Asset and liability balances with Public Administrations amount to, all together, a
reduction of working capital of EUR 352 million.

 The increase in both the Commercial Debtors and Creditors result, all together, in a
decrease of working capital of EUR 747 million.

Dec. 2014 Dec. 2013 Change

Assets held for sale - 104 (104)
Nuclear fuel 320 370 (50)
Inventories 2,039 2,026 13
Current trade and other receivables 4,819 4,300 519
Current financial assets 1,123 877 246
Asset derivative financial instruments (1) 314 170 144
Public Administrations 700 940 (240)
CURRENT ASSETS (1): 9,315 8,787 528
Provisions 221 294 (73)
Liability derivative financial instruments 349 245 104
Trades and other payables (2) 6,760 5,494 1,266
Public Administrations 1,415 1,303 112
CURRENT LIABILITIES (2): 8,745 7,336 1,409
NETWORKING CAPITAL 570 1,451 (881)

(1) Does not include cash or debt asset derivatives.

(2) Does not include financial debt and debt liabilities derivatives.

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

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

4.1 European Union

In the member states of the European Union in which IBERDROLA is present, particularly in the
UK and Spain, it should comply with EU regulations.

The first legislation that was published was aimed at constituting internal gas and electricity
markets, in order to facilitate the exchange of this type of energy and allow any consumer in the
European Union to deal freely with any supplier in the EU. In this respect, there are two types of
legislation, the Directives, which set out common criteria to be observed in internal markets and
which the member states should transpose into national legislation, and the Regulations, which
establish norms for the supranational issues, especially those related to the transit of gas and
electricity, and are applicable directly.

Another set of regulations that indirectly affects the energy sector are those arising from the
energy and climate policy agreed in 2007. They include a strategic aim of reducing greenhouse
gases emissions (GGE) by 20% by 2020 and led to a triple target that included, in addition to
the reduction of emissions, the targets of a renewable share of 20% and a 20% reduction in
consumption, all to be achieved by 2020. To meet these objectives, a different set of regulations
has been developed to meet these targets by 2020.

In October 2014, the European Council agreed new targets for 2030: a 40% reduction in GGE
compared to 1990, a share of 27% for renewable energy and a reduction in consumption, also
of 27%. It also agreed to ensure that in 2020 the electricity exchange capacity among countries
was at least 10% of the installed capacity. The legislation arising from these agreements has
yet to be developed.

The legislation on infrastructures is also relevant. The European Union has powers with regards
to trans-European networks, specifically those of energy. Various regulations and programs
have been created to promote a greater connectivity among the member states. Specifically,
programs like the TEN-E, the EEPR and the Connecting Europe facility. Lastly, in December
2014, the European Council approved the creation of a Strategic Investment Plan for the
European Union, to mobilize EUR 315,000 million in 2015 – 2017. It will be structured as a
European Fund for Strategic Investments destined to investments in infrastructure, including
energy and renewable energy networks. The regulations implementing the Plan will be
developed during 2015.

4.2 Industry regulation in Spain

The Law 3/2013 on the creation of the National Commission for Market and Competition
(CNMC) was published on 5 June 2013, which groups the functions of the different supervisory
and regulatory bodies, including the National Energy Commission (CNE) and the National
Competition Commission (CNC). The CNMC has been created as a public body attached to the
Ministry of Economy and Competitiveness and subjected to parliamentary scrutiny.
Subsequently, the Order ECC/1796/2013 fixed its implementation on 7 October 2013. The
former market regulation and supervision functions carried by the CNE and the CNC are
assumed by this new regulator and both CNE and CNC have consequently disappeared.

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4.2.1 Industry regulation and functioning of the electricity system in Spain

The electricity sector was originally regulated by the Electricity Industry Law 54/1997, of 27
November 1997, which has been replaced by the Law 24/2013, of 26 December.

The mentioned Electricity Industry Law 24/2013, keeps the basic operating scheme of the
industry adding some changes, mainly concerning the special regime, which disappears and
whose installations change their remuneration in an substantive way. This note describes the
principles that govern the new regulation.

1) Separation of activities:

The regulation prescribes a separation between the activities carried out in the competitive
sector and others that are considered to be regulated activities. Companies that carry out any
activities defined by the law as regulated (economic and technical management of the system,
transmission and distribution) must have these as their sole corporate purpose and cannot,
therefore, engage in unregulated activities (generation, retailing, to either eligible or last resort
customers, other activities unrelated to electricity or activities abroad). In addition, it prescribes a
separation between regulated and deregulated activities for accounting purposes.

2) Competition in the power generation activity through the following measures:

 The electricity production is developed in a free competence environment.

 Generation dispatch is stablished by daily market. The producers of electricity,

other than the special cases and exceptions provided for in the law, have tendered
hourly bids for the selling price of electricity of each of the production units owned
by them. The operating order of the production units is established on the basis of
the lowest bids made until demand is satisfied in each programming period and the
energy produced in each programming period remunerated at the price matched
between supply and demand. There is also the option of recourse to the intraday
markets (six every day), where operators can adjust their positions in respect to
their daily programs. Meanwhile, the production facilities contribute to the provision
of whatever additional services may be necessary to guarantee adequate supply,
obtaining additional remuneration for such services.

 In addition to the market remuneration, the Ministry of Industry, Energy and

Tourism may establish remuneration entailing payment for capacity. In this regard,
orders ITC 2794/2007, ITC 3860/2007 and ITC 3127/2011 regulate said payments
for capacity, which consist of an investment incentive, an environmental incentive
and an availability service. Royal Decree-Law 13/2012 temporarily modifies the
investment incentive and the environmental incentive until a new capacity payment
system is developed.

 The installation of new generating facilities is deemed to be liberalised, without

prejudice to the obtainment of the necessary authorisations.

 Producers are entitled to use in their generating facilities the primary energy
sources that they deem most appropriate, subject to such restrictions in respect to
the environment, etc. as might be provided for in current legislation.

 An option is being considered to prioritize the dispatch to facilities that use

domestic fuel (e.g. domestic coal) as their primary energy, provided that it does not
represent more than 15% of the total primary energy required for the production
needed to satisfy domestic demand and that the necessary measures are adopted
to avoid distorting the market price.

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  In this respect, Royal Decree 134/2010 introduced an ongoing procedure until
December 2014, called supply security restrictions, which established an obligation
on certain owners of coal-fired thermal units to acquire set amounts of this
domestic coal at set prices each year according to a secretary of State for Energy
ruling. Furthermore, this royal decree gives priority in the dispatch to said coal-fired
thermal units over the other thermal units in the system, up to a certain maximum
annual amount of electricity production, which is also set in the aforementioned
secretary of State for Energy ruling and which must comply with the 15% limit at all
times. On 10 June 2014, the Royal Decree 413/2014 was published; it regulates
the production of electric power from renewable, cogeneration and waste sources,
and establishes the methodology of the specific remunerative scheme applicable to
installations that do not reach the minimum level necessary to cover the costs
which would allow them to compete on an equal basis with other technologies in
the market. Thus they would obtain a reasonable profitability for the standard
installation applicable in each case.

- The new remuneration for renewables, cogeneration and waste (so-called specific
remuneration and that will be awarded to the new installations exceptionally) will be
additional to the revenues obtained by selling energy in the market and will be set of:

- a remuneration for installed capacity to cover, where applicable, the

investment costs that cannot be recovered from the market so called
investment retribution;

- and a remuneration for the operation to cover, where applicable, the

difference between the operation costs and income coming from the
participation in the market of production so called operation retribution.

This new specific remuneration will be calculated on the basis of a standard

installation during its regulatory lifetime and referenced to the activity carried out by
an efficient and well-run company according to the following:

- the standard revenues for selling the energy valued at market price;

- the standard operation costs needed for the activity; and

- the standard value of the initial investment.

This remuneration regime will be based on a fair-rate of return of the investments,

defined on the basis of 10 years Government’s bonds plus a differential, initially fixed
in 300 basis points for the first regulatory period that ends on 31 December 2019.

Six year regulatory periods and three year regulatory sub-periods have been set.
The remuneration parameters related to the market price forecasts may be changed
every three years, including the deviations produced in the sub period. The standard
parameters of the installations may be changed every six years, except for the initial
investment value and the regulatory lifetime, that will remain unchanged during the
installations’ regulatory lifetime. The investment return rate may be changed by law
also every six years, but only for the remunerations in the future.

The standard value of the investment for new installations will be defined through a
competitive tendering process.

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 This new remuneration is implemented as of July 2013, the date of entry into force of
the Royal Decree-Law 9/2013. During 2013, liquidations are provisionally performed
according to the rules of the Royal Decree 661/2007 so at the date of publication of
these Consolidated financial statements the corresponding reliquidations are being
made.
On the other hand, Royal Decree 413/2014 establishes that an order from the
Ministry of Industry, Energy and Tourism will establish a classification of standard
installations in terms of the technology, installed capacity, age or any another
characteristic that may be considered necessary for the application of this
remunerative scheme. Hence, on 20 June 2014, the ministry published Order
IET/1045/2014, of 16 June; this approved the remuneration parameters for standard
installations. They are applicable to certain installations for the production of electric
power from renewable, cogeneration and waste sources for the first regulatory half-
period, ending on 31 December 2016.

3) Guarantee of the proper functioning of the system, by using the following measures:

- System operation: Red Eléctrica de España, S.A. carries on the transmission

management and system operation activities. As system operator, it is responsible for
managing the adjustment markets to guarantee a balance between energy demand
and generation.

- Functioning of the market: With the creation of the Iberian Electricity Market (MIBEL),
since July 2006 the Portuguese and Spanish forward markets have operated on an
integrated basis, and since July 2007 so have the short-term markets (daily and intra-
day). Currently the Iberian Market Operator (OMI) is responsible for the operation of
MIBEL. OMI originated in the fusion of OMIE, (OMI-Spain) responsible for the
management of the daily and intra-day markets, and OMIP (OMI-Portugal)
responsible for the forward market.

4) Legislation applying to regulated activities:

The Electricity Industry Law establishes that distribution and transmission are classified as
regulated activities that are not subject to the free competition and market regime.

With regard to the network transmission business, Royal Decree 325/2008 established the
remuneration regime for facilities brought into service after 1 January 2008. According to this
royal decree the remuneration of each transmission facility commissioned after 1 January 2008
will consist of two components: a revenue for investment and a revenue for operating and
maintenance costs. The Order ITC 368/2011 approved the reference unit values for investment
costs and operating and maintenance costs for these transmission facilities. The facilities prior
to 1 January 2008 continue to be governed by the model and standard costs established in
Royal Decree 2819/1998.

On 15 February 2008, the government approved Royal Decree 222/2008, establishing the
prevailing remuneration framework for the electricity distribution business based both on costs
(investment, operation and others) and on incentives (quality and losses reduction). Pursuant to
this royal decree, the revenue paid for distribution activities will be set for regulatory periods of
four years and will be calculated using a reference network model as a technical comparison
tool. A reference network model is a model that maps out, the areas in which each distributor is
active and determines the optimum distribution network theoretically needed in order to supply
the final customers under the established quality levels.

The reference remuneration of each distribution company at the beginning of each period will be
calculated by summing together three components: remuneration for investment, remuneration
for operating and maintenance, and remuneration for all other costs necessary to the exercise
of activities which include commercial management, network planning and energy
management.

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Within each period, the annual revenue is calculated by updating the base remuneration of the
previous year, in line with the Consumer Price Index (CPI) and the Industrial Price Index (IPRI),
and adding the remuneration for the new investments made. Annual incentives are also set for
enhancing quality and reducing losses.

The quality incentive is set forth in the Appendix I of the Order ITC/3801/2008 and consists of
comparing quality indicators reached by the companies with target indicators, resulting in
penalties or bonuses. The limits of the incentive, in both the positive and the negative sense,
are 3% of the remuneration.

In parallel, the calculation method for the losses reduction incentive is set out in the Order ITC
2524/2009. The limit for losses reduction incentive, in both the positive and the negative sense,
are 2% of the remuneration. Order IET/3586/2011, of 30 December, which establishes the
electricity tolls applicable from 1 January 2012, made some technical corrections in the
calculation of the incentive.

Royal Decree-Law 13/2012, of 30 March, which transposes directives on internal electricity and
gas markets and on electronic communications, and which adopts measures to correct the
deviations arising from imbalances between costs and revenue in the electricity and gas sectors
has reduced the remuneration for distribution activities indicated in the preceding order for
2012, and has modified the remuneration system, mandating that new facilities commissioned
in a given year (which were remunerated as new investments in the following year) are to be
remunerated two years later. It also provides that financial remuneration must be made for net
assets.

Royal Decree-Law 2/2013, of 1 February, on urgent measures within the electricity system and
the sector and the financial sector replaces the CPI used for the update of the remuneration of
regulated activities with the CPI at constant tax excluding unprocessed food and energy
products. These measures, together with those taken in 2012, are aimed to equilibrate the
electricity system to avoid tariff shortfall generation in 2013.

Finally, the Royal Decree-Law 9/2013 amends the Electricity Industry Law and fixes the
transitory methodology that will govern the transmission and distribution activities until the new
royal decrees related to transmission and distribution are definitely approved. On the one hand,
it establishes that, for the revenue of these activities, an “efficient and well-run company” will be
considered applying uniform criteria throughout the Spanish territory. On the other hand, it
establishes that these economic regimes allow adequate revenue of a low-risk activity. The
methodology used to calculate the revenue for the distribution activity defines a “regulatory
assets base“ for the activity, that evolves upwards according to the investments made and
downwards according to the related depreciation, in order to fix its revenue. In application of
these principles it establishes a rate of return on assets linked to Government bonds plus a
spread.

The publication of this royal decree-law has provided some certainty for 2014 as the
remuneration methodology is defined in the Appendix II of the aforementioned royal decree-law,
but in contrast, the published formulation establishes a series of parameters, not yet quantified,
associated with new investments (both in recognition of investment and operation costs).

Subsequently, the Law 24/2013 on the Electric Industry was published on 26 December,
introducing various changes with respect to the previous Electricity Industry Law (Law 54/1997
which repeals and replaces). The main changes concerning the activities’ remuneration are:

 Introduction of the efficient and well-run company concept, considering these activities
as low risk.

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  The regulatory periods extend to six years.

 For regulatory purposes, the accrual and collection of the remuneration generated by
the installations that entered into operation in the year n starts in the year n+2.

 The assets in operation not fully depreciated will receive an investment remuneration
considering their net value for the financial remuneration. The financial remuneration
rate will be based on the ten years Governments’ bonds plus an appropriate spread for
a low risk activity.

In addition, the Order IET/2442/2013, 26 December, by virtue of which the transmission and
distribution activities’ remuneration for the second half of 2013 resulting from the Royal Decree-
Law 9/2013 is fixed, has been published.

Finally, on 30 December 2103 two royal decrees regulating the new remuneration methodology
of the transmission (Royal Decree 1047/2013) and distribution (Royal Decree 1048/2013)
activities were published, following the regulatory and tax measures that started on the second
half of 2013.

The methodology raised in the transmission royal decree (based on standard investment and
operation costs) continues with the existing methodology. The annual authorised investment will
have a maximum global limit of 0.065% of the Gross Domestic Product (GDP), although this
limit can be overcome in some cases. There is an availability incentive (+2.5% / -3.5%).

The methodology set out in the Distribution Royal Decree is based on new standard investment
and operation costs. The aim is to reduce costs, introducing efficiency mechanisms and
limitations concerning the annual investment volume. The recalculation of the base
remuneration will be carried out during its first year of implementation, which includes the initial
regulatory asset of the companies, that can vary with respect to the one recognised on the
Royal Decree-Law 9/0213. Investment limits are also established (sector’s maximum 0.13%
GDP). The financial remuneration rate of the asset embodies the principles established in the
new Electricity Industry Law, referenced to the ten years Government’s bonds plus an
appropriate spread for a low risk activity.

The royal decree includes changes in the existing incentives, in quality (it may fluctuate
between +2% and -3% of the company’s remuneration) and losses (it may fluctuate between
+1% and -2%). A new incentive regarding fight against fraud is created, which may reach 1.5%
of the company’s remuneration. For the application of the new remuneration model contained in
RD 1048/2013, its regulatory development must be published; until then, as established in the
RD, the remuneration scheme of RDL 9/2013 will be maintained.

5) Tariffs or access tolls:

Access tariffs are uniform across the country and are collected by the distributors and carriers,
which act as the collection agents of the Electricity System.

Royal Decree-Law 14/2010, of 23 December, extended the application of access tolls to

electricity producers of both the ordinary and the special regime, and established that the
producers would be regulated taking into consideration the energy fed into the grid. In addition,
provided that the tolls to be paid by the electricity producers have not been implemented, this
royal decree-law establishes that an access toll of EUR 0.5 per MWh fed into the grid will be
applied to producers that are connected to the grid.

Subsequently, Royal Decree 1544/2011, of 31 October implemented the aforementioned

regulation of access tolls for electricity producers. Also, it included an order for the CNE to send
to the Ministry of Industry, Energy and Tourism, within six months, a proposed methodology for
calculating said access tolls, while temporarily maintaining the toll set in Royal Decree-Law
14/2010 and establishing a specific toll for pumping facilities. The proposed methodology
remains pending.

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On 1 February, the ministry published Order IET/107/2014, of 31 January, which revised the
electric power access tariffs for 2014 and includes two main aspects: firstly, it changes the
weighting of the fixed part of the access tariffs (paid on the basis of the contracted capacity),
which currently represents 60% thereof; secondly, the tariffs were increased to cover the growth
of the regulated costs.

Lastly, Law 32/2014, of 22 December, on Metrology, modifies Law 24/2013 on the Electricity
Sector, clarifying that the legal authority to establish the structure and conditions applicable to
the access tariffs for transportation and distribution networks corresponds to the government.
6) Progressive liberalisation of the electricity supply and introduction of the retailing activity:

The supply of electric power is completely deregulated and all consumers must contract the
supply of electricity with a distributor. From 1 July 2009, those consumers who fulfil certain
criteria have been able to opt to contract electricity with a 'Last Resort' Distributor (CUR), which
from July 2014 will become a Reference Distributor (COR), with the Last Resort Rate, now the
Voluntary Price for the Small Consumer (PVPC). The Last Resort Rate (TUR) has been
retained for vulnerable consumers and those who do not fulfil the requirements for the PVPC,
temporarily do not have a current contract with a free market distributor.

Law 3/2014, of 27 March, obliges the reference distributors to offer contracts in which the price
of electric power is fixed for a specific period for consumers with a right to the PVPC.

Royal Decree 216/2014, of 28 March, establishes the methodology for calculating the voluntary
prices of electric power for the small consumer and their legal regimen for contracting. It
determines the structure of the PVPC that will be applicable to low voltage consumers with a
contracted capacity up to 10 kW. Similarly, it determines the procedure for calculating the
production cost of electric power on the basis of the hourly price in the daily market during the
billing period. In addition, as established by Law 3/2014, it provides the alternative of the
consumer to contracting an electricity price fixed for a year with the reference distributor.

This legislation provides the Spanish electricity sector with three forms in which distributors can
supply power to consumers:

– Reference supply

o PVPC: the method that applies by default from 1 July 2014 if the consumer was
subject to the previous TUR.

o Annual fixed price in a regulated market offered by the reference distributor.

– Contracting in the deregulated market by contracting freely with a distributor.

– Last Resort Supply: a form of supply applicable to vulnerable consumers and those
who do not fulfil the requirements for the PVPC and temporarily do not have a current
contract with a free market distributor.

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7) Price formation and tariff structure:

Law 24/2013 regulates the aspects relating to the PVPCs, which are defined as the maximum
prices that the distributors that assume the reference supply obligations will be able to charge.

They will be calculated as the sum of the following items:

– The production cost of electricity, based on market mechanisms, taking account of the
average price expected in the production market during the period determined by the
regulations, which will be revised independently of the other items making up the
voluntary price for the small consumer.

– The corresponding access tariffs and charges.

– The corresponding distribution costs.

8) Social Tariff:

The Royal Decree-Law 6/2009 was published, adopting certain energy sector measures and
approving the social tariff.

Among the main features, it creates the social tariff for certain consumers with certain social,
consumption and purchase power characteristics supplied at the TUR at their normal residence.
This tariff is calculated as the difference between TUR and the tariff indexed to a reference
value, the so-called reduced tariff. This reduced tariff will be the prevailing tariff applicable to
domestic consumers at the date the royal decree-law takes effect, although it may be modified
via the Ministry of Industry, Energy and Tourism. Until these social and economic indicators are
developed for application, the social tariff will apply to individuals in their normal residence
supplied under the last resort scheme with contracted capacity of less than 3 kW, to large
families or families whose members are all unemployed and to certain pensioners 60 years old
or older receiving minimum pensions.

The Royal Decree-Law 9/2013 sets out the financing of the social tariff costs. Such costs shall
be borne by the parent company of the vertically integrated companies. The allocation of the
social tariff costs among such companies will be made according to the number of supplies
connected to the distribution network and the number of customers of the retail business of the
Group.

Cost allocations had not been finally approved by the end of 2013, and thus the social tariff was
financed through settlements on regulated business.

On 11 March 2014, the ministry published Order IET/350/2014, of 7 March, which set the
percentage shares of the amounts to be financed with regard to the social tariff for 2014.
According to this order, IBERDROLA should finance 38.47%.

Lastly, Royal Decree 968/2014, of 21 November 2014, develops the methodology for fixing the
percentage shares of the amounts to be financed with regard to the social tariff. These
percentages will be calculated annually by the CNMC for each business group, as the relation
among (i) a figure that will be the sum of the annual averages of the number of feeds connected
to the distribution networks of the distributors and of the number of customers of the distributors
in which the group participates and (ii) another figure that will correspond to the sum of all the
annual average values of feeds and customers of all the business groups that should be
considered for the effects of this sharing.

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9) Load Manager:

The Royal Decree-Law 6/2010 introduced the figure of the load manager as another agent in
the system.

Royal Decree 647/2011, which was approved in May 2011, regulates the functions of these load
managers, that are defined as “companies that, as consumers, are authorised to resell
electricity for power recharging services. Load managers are the only subjects with character
wholesale customer under the terms provided for the applicable Community regulations.” The
mentioned royal decree sets forth the requirements and obligations of these agents. It also
created a new super off-peak tariff applicable to contracts of up to 15 kW, thereby creating a
third hour period (from 1 a.m. to 7 a.m.) aimed at encouraging the charging of electric vehicles
in this period.

10) Emission allowances:

Regarding environment regulations, the issue of CO2 emissions rights or allowances should be
noted. This concern establishes the obligation placed on companies by Directive 2003/87/CE to
hold an emission allowance for every CO2 ton emitted by a plant.

In 2009, within the EU's Green Package for energy and climate change, Directive 29/2009 was
approved, introducing changes and extending the EU emissions trading system beyond 2012.
The main changes in the Directive are: the default method of allocating rights is by auction,
although transitional free allocation is envisaged in some cases; extension of the system into
the next compliance period of 2013-2020, to be followed by consecutive periods of eight years
in which the amount of rights is determined on an EU-wide scale; it also provides that rights can
be carried over from one period to the next.

Hence, a new development is that IBERDROLA no longer has free allocation from 2013.

The auctions envisaged in the regulation were delayed beyond the scheduled date, in October
2012. In 2013, auctions took place normally through the two designated platforms, European
Energy Exchange-EEX and Futures Europe - ICE (this one for UK’s emission allowances only).
In accordance with the Auctioning Regulation, the difference between the volumes determined
in the 2013 auction calendars and the figures determined according to Article 10(1) of Directive
2003/87/EC will be added to the volume to be auctioned in 2014.

On 8 January 2014, the European Union governments gathered in the Climate Change
Committee voted to postpone the sale of 900 million carbon allowances from years 2014-2016
until 2019-2020 (i.e., this is the so-called backloading proposal presented by the European
Commission in November 2012 as a way of rebalancing supply and demand and reducing price
volatility without any significant impacts on competitiveness). This implies an amendment in
Regulation No. 1031/2012/EU, of 12 November 2010, on the timing, administration and other
aspects of auctioning of greenhouse gas emission, which will become effective once the
present scrutiny period ends.

11) Revenue shortfall:

Electricity Industry Law 54/1997, of 27 November, introduced the liberalisation of electricity

generation and retailing activities. The difference between the access tariff revenue established
by the Government and real costs related to these tariffs resulted in a revenue shortfall which
led to problems and modifications in the functioning of the system.

To fund this shortfall, which is deferred through the recognition of long-term collection rights
recovered by the annuities incorporated to annual fee, a series of measures have been adopted
that so far have proven to be insufficient.

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The Royal Decree-Law 6/2009, of 30 April, sets limits to the increase of the deficit and defines a
framework for the gradual sufficiency of the access tolls. It also addresses the mechanism for
funding the tariff deficit. This royal decree states that from 1 January 2013, access tolls will be
sufficient to meet the entire cost of regulated activities, preventing the appearance of an ex-ante
deficit. It also regulates the transitional period until that date, limiting the revenue shortfall in the
settlements of regulated activities in the electricity industry for 2009, 2010, 2011 and 2012 to
EUR 3,500 million, EUR 3,000 million, EUR 2,000 million and EUR 1,000 million, respectively.

In addition, it states that if the settlements of regulated activities in each period result in a higher
revenue shortfall than expected, the excess would be recognised in the approving disposals of
the access tolls for the ensuing period.

At the same time, it envisages the assignment of the related present and future collection rights
to a securitisation fund set up for this purpose, which will issue the related liabilities via a
competitive mechanism in the financial market with a Government guarantee.

The Royal Decree-Law 6/2010, of 9 April, reinforces the aim of eliminating the shortfall and is
more precise than the provisions of Royal Decree-Law 6/2009, while it also states that electricity
companies designated to temporarily finance the shortfall are also required to finance the ex-
ante deficits until the securitisation fund makes the related issues. It also requires these
companies to fund any temporary shortfalls above the ex-ante deficit, recognising their right to
receive the amounts financed, plus interest, in the following year through an increase in access
tariffs.

The Royal Decree 437/2010 implementing the securitisation process for the revenue shortfall in
the Spanish electricity system was published on the same date. This legislation specifies the
collection rights and the initial holders, regulates the method for determining the price and
conditions of the assignment, and lays the framework for the procedure for issuing the financial
instruments comprising the fund’s liabilities.

However, as the tariff increases preclude the established limits from being respected, Royal
Decree-Law 14/2010 was published in December 2010 establishing urgent measures to correct
the shortfall. Among other things, this legislation raised the maximum limits for 2010, 2011 and
2012 to EUR 5,500 million, EUR 3,000 million and EUR 1,500 million, respectively, and
simultaneously led to an amendment of the 2011 Spanish Budget Act to include up to EUR
22,000 million of guarantees for the electricity system shortfall securitisation fund.

Due to the temporary shortfall anticipated by the Government for 2012 made the disappearance
of the deficit in 2013 unviable, due to the reduction in income resulting from (i) the fall in
demand and the increase in the special scheme surcharge; (ii) the fact that Law 17/2012, of 27
December, on the central state budget for 2013, suspends the assumption, for this year, of the
EUR 1,217 million surcharge for generation outside the Iberia peninsula in 2012 and (iii) the fact
that the EUR 256 million surcharge for generation outside the Iberia peninsula in 2011 was also
not financed by the 2012 public budgets; in Royal Decree-Law 29/2012, they were reclassified
as a payable cost of the system for the purpose of settlements of regulated activities.

As the Government does not consider it advisable to increase access tolls, this royal decree-law
establishes that the amount of the temporary imbalance from the final settlement of the CNE for
2012 shall be considered a system revenue deficit that will generate collection rights that may
be assigned by holders to the electricity system’s Revenue Shortfall Securitisation Fund, in
addition to the previously recognised EUR 1,500 million shortfall.

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The Government has carried out a process of regulatory and tax measures throughout 2013 for
the electricity sector. As a step prior to this reform, and given the new tariff deficit that was
emerging in 2013 mainly due to the costs increase and the electricity demand decrease, the
Royal Decree-Law 9/2013 of 12 July was approved, adopting urgent measures to guarantee the
financial stability of the electric system.

The objective of this royal decree-law is the elimination of the deficit in 2013, and with that aim
the methodology for the calculation of the remuneration of the transmission and distribution
activities, special regime and capacity payments, is modified, among other measures.

In addition, the maximum deficit for 2012 is fixed in EUR 4,109 million, amount that may be
transferred to the Electricity deficit redeeming fund (FADE). In order to issue the securities
corresponding to this revenue shortfall the Government’s guarantee is increased in EUR 4,000
million. The Royal Decree-Law 6/2009 has been modified concerning the financing of the extra
costs of the extrapeninsular systems. In the said royal decree-law a progressive transfer of the
financing of the extra cost to the General State Budget was established, so that in 2013 they
would assume the 100% of the extra cost. This obligation has been repeatedly modified in the
different Laws of the General State Budget, and the Royal Decree-Law 9/2013 states that the
financing via General State Budget for 2013 will be only of the 50% of the extracost.

The Law 15/2013, 17 October, provides funding from the State General Budget of certain costs
of the special regime, for which an extraordinary credit of EUR 2,200 million is granted by the
Ministry of Industry, Energy and Tourism.

The Electricity Industry Law 24/1013, was approved on 26 December 2013, with the new
framework to be applied from 1 January 2014. This Law cancels the extraordinary credit of EUR
2,200 million and eliminates the financing by the General State Budget of the 50% of the
extrapeninsular extra cost. That’s why it establishes a maximum deficit of EUR 3,600 million for
2013. This deficit will be financed by the business groups according to the Law 54/1997, and it
will be recovered in 15 years. It may be transferred to third parties but not to the FADE.

16 new issues by the FADE took place in 2013, so that the financing companies transferred all
of the amounts financed by the deficits until 2012.
Law 24/2013 is governed by the principle of the economic and financial sustainability of the
electricity system, meaning that any regulatory measure which causes an increase in costs or a
reduction in income for the electricity system should incorporate an equivalent reduction of other
cost items or an equivalent increase in income that ensures the equilibrium of the system. Thus,
the possibility of new deficits accumulating, as occurred in the past, is ruled out.
This principle is reinforced by the establishment of legal restrictions on the appearance of
annual time lags, establishing a corrective mechanism in the form of the obligation of automatic
review of the tariffs and charges that correspond if determined thresholds are exceeded. These
thresholds permit a deviation that can be reversed in the following period without any need to
modify the tariffs and charges. The thresholds are the following:

– 2% of the income estimated for the system in a given year.

– the debt accumulated due to imbalances in preceding periods may not exceed 5% of
the income estimated for the system in a given year.

The part of the imbalance that, without exceeding said limits, is not compensated by increases
in tariffs and charges will be financed by the parties to the settlement system in proportion to the
remuneration that corresponds to them for their activities.

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The amounts thus contributed will be returned in the corresponding settlements after 5 years
together with an interest rate.
In contrast to the previous system, these imbalances will not be financed exclusively by the
large companies and the collection rights corresponding to income deficits may not be ceded to
the Securitization Fund of the Electricity System Debt after 1 January 2013.
With regard to the excess income that could arise, it will be used to compensate imbalances
from previous years, and as long as there are debts pending from previous years, the access
tariffs and charges may not be revised downward.

The Royal Decree 680/2014, of 1 August, regulates the procedure of budgeting, recognition,
settlement and control of the surcharges on the production of electric power in the isolated
electricity systems of the non-peninsular territories charged to the central state budget, thus
developing the provisions of Law 24/2013 on the Electricity Sector, which established that from
1 January 2014 50% of these surcharges would be financed against the central state budget.

On 20 November 2014, the ministry published Order IET/2176/2014, which develops the
calculation methodology and fixes the final interest rate earned by the collection rights of the
income deficits and the time lags of the previous electricity system prior to 2013. This order
establishes a methodology for determining the interest rate in conditions equivalent to those of
the market for the holders of the income deficit collection rights for 2010, 2011 and 2012 until
they are ceded to the Securitization Fund of the Electricity System Debt. Up to now, the
successive access tariff orders have set a provisional interest rate of 2% for 2010, 2011 and
2012.
Subsequently, on 12 December 2014, Royal Decree 1054/2014 was published, regulating the
procedure of ceding the collection rights of the electricity system deficit for 2013 and developing
the calculation methodology and fixing the final interest rate earned by the collection rights of
said deficit and, where appropriate, of the subsequent negative time lags.

Once this royal decree comes into force, the collection rights corresponding to the 2013 deficit
may be wholly or partly ceded. Similarly, it includes the interest rate and the calculation
methodology of the annual payment and of the amount pending collection with regard to the
negative temporary lags generated since 2014 according to the provisions of the Law 24/2013,
of 26 December, on the Electricity Sector:

– In the initial period (1/1/2014 to 26/11/2014) the amount of the deficit is EUR 3,541
million and the interest rate is 0.624%.

– In the final period (27/11/2014 to 31/12/2028) the value of the right at the start of the
period is EUR 3,336 million and the interest rate is 2.195%.

On the other hand, it establishes that the collection rights of the 2013 income deficit, and of the
subsequent lags if any, will take precedence in the collection in the settlements of the electricity
system, in the same way as the collection rights corresponding to the income deficits of the
system of settlements ceded to the Securitization Fund of the Electricity System Debt, without
being affected by any obligation of financing of the imbalances due to the deficit between
income and costs, with regard to the specific amounts corresponding to said right.

Lastly, on 15 December 2014, the electricity companies signed the debt transfer agreement with
five banks, namely BBVA, Bankia, Caixabank, Banco Popular and Santander and the 2013
deficit was transferred.

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12) Self-supply:

Self-supply is regulated for the first time in the Electricity Industry Law (24/2013) and defined as
the electric energy provided by generation installations associated to a consumer. Self-suppliers
must pay the same access tariff for the consumed energy as other customers (both for the
energy taken from the grid and for the self-produced energy). In addition, a mandatory register
for the self-supply installations is created. An standard that develops its regulation must still be
approved.

13) Interruptibility

The interruptibility service for a consumer consists in the reduction of its contracted capacity in
response to a reduction order from the system operator. This order will be given taking account
of the needs that arise in the operation of the electricity system, according to criteria of security
and lowest cost.

The system operator will request the execution of the capacity reduction option, following
economic and technical criteria:

- Technical criteria: As a rapid response mechanism in emergency situations in the

operation of the system.

- Economic criteria: In situations where the application of the service has a lower cost
than that of the adjustment services of the system.

To execute the option, the system operator will send a power reduction order to the service
providers who will reduce their active power demanded to the residual power values committed.

The allocation of the interruptibility service will be carried out through an auction procedure
managed by the system operator, as established in Order IET/2013/2013, thus guaranteeing
the effective provision of said service and its execution at the lowest cost for the electricity
system.

The Resolution of 10 October 2014, of the State Secretariat for Energy, approves the
characteristics of the competitive auction procedure for the allocation of the interruptibility
demand management service for the 2015 electricity season. Among others aspects, this
resolution defines the maximum amounts to be auctioned for each type of product, the starting
price, the period of delivery of the interruptible power and the date of each auction for the
allocation of the interruptibility demand management service for said season. Subsequently, an
extraordinary auction, approved by means of the Resolution of 17 December 2014, was carried
out.

14) Energy efficiency

Energy efficiency is an essential aspect of the European 2020 strategy for sustainable growth
and one of the most profitable forms of strengthening the security of energy supply and
reducing emissions of greenhouse gases and other pollutants. Because of this, the European
Union has set itself the target of achieving a 20% improvement in energy efficiency by 2020.

Law 18/2014, of 15 October, approving urgent measures for growth, competitiveness and
efficiency, contains a set of mechanisms designed to achieve the energy saving targets
established in the Energy Efficiency Directive. To this end, it creates the National Energy
Efficiency Fund, managed by the IDAE and financed by contributions from all the energy
distributors according their sales: distributors of gas and electricity, wholesalers of oil products
and of liquid petroleum gases.

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4.2.2 Industry regulation and functioning of the gas system in Spain

The natural gas sector in Spain has undergone significant changes in its structure and operation
in the last ten years, from a monopoly to a fully open market, driven mainly by the deregulation
measures in European Directives (currently in force 2009/73/EC) aimed at opening up markets
and creating a single European gas market.
These liberalised principles have been incorporated and developed in Spanish law through Law
34/1998 on the Hydrocarbons Sector, which began the deregulation process and, more
recently, through the Law 12/2007 and the Royal Decree-Law 13/2012 which completed it.

The 1998 Hydrocarbons Law laid the foundations for the new gas system, particularly with
regard to the separation of activities (regulated and deregulated), the introduction of third-party
access to the regulated network, the abolition of the former concessions for piped gas supply
and their conversion into regulated administrative permits, and the establishment of a timetable
for progressive market deregulation.

In line with these principles, the gas system has been structured around two types of activities:
regulated activities (regasification, storage, transmission and distribution) and deregulated
activities (trading and supply).

With regard to the separation of activities, Law 34/1998 provided for the legal separation of
deregulated and regulated activities and the segregation for accounting purposes of the various
regulated activities. In addition, with the publication of Law 12/2007, Spain moved a step closer
to achieving functional separation between network activities and deregulated activities and
between network activities and technical system management. In 2012, Royal Decree-Law
13/2012 was approved, transposing Directive 2009/73/EC establishing further measures of
separation in management of the transmission network.

Although the Hydrocarbons Law established the general principles underpinning the new
Spanish gas system, the sector’s deregulation did not come into practice until 2001, following
publication of Royal Decree-Law 6/2000, on urgent measures to intensify competition in the
goods and services markets, and Royal Decree 949/2001, regulating third party access to gas
installations and establishing an integrated economic system for the natural gas sector.

The first of these decrees enacted certain elements of the Hydrocarbons Law with the aim of
fostering measures that would facilitate the elimination of entry barriers for new supply
companies. In particular, it created the Technical System Manager (ENAGAS, S.A.), provided
for a 25% gas release under the contract for natural gas brought from Algeria through of the
Maghreb pipeline, and brought forward the timetable for deregulation.

The second, Royal Decree 949/2001, established firstly the specific terms and conditions for
third-party network access and, secondly, a remuneration system for regulated activities and a
cost-based system of tariffs, tolls and charges structured according to pressure levels and
consumption bands.

The remuneration assigned to each company as well as the tariffs, tolls and charges are
updated periodically by ministerial orders and resolutions.

The economic system also established a settlement procedure that would allow for
redistribution of revenues collected in the form of tariffs, tolls and charges between the various
regulated activities in accordance with the remuneration method established. The body
responsible for effecting this redistribution is the Ministry of Industry, Energy and Tourism.

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Other issues related to the regulation of the transmission, distribution and supply businesses,
the administrative authorisation procedures for natural gas facilities and the regulation of certain
aspects of the supply business are dealt with in Royal Decree 1434/2002.

As for the technical operation of the system, the operating regulations are established in Order
ITC 3126/2005 enacting the gas system technical management rules. Inter alia, these
regulations establish that each operator is individually responsible for maintaining its liquidity
and enact specific protocols for the conduct of the technical system manager in exceptional
operating circumstances.

Despite the sector’s progressive deregulation, prevailing regulations uphold the State's
obligation to ensure the safety and continuity of supply. To this end, Royal Decree 1766/2007
stipulates that direct market suppliers and consumers must maintain minimum security stocks
equivalent to 20 days’ consumption. In addition, it limits the maximum percentage of gas
supplies that may be sourced from a same country to 50%.

The State also maintains responsibility for obligatory planning work for certain infrastructures
(gas pipelines forming the core transmission network, the secondary transmission network,
determining the total liquid natural gas regasification capacity necessary to supply the system
and core natural gas storage facilities). For all other infrastructures, the state’s planning work is
provisional only. In 2012, the Royal Decree-Law 13/2012 has enacted a series of measures to
halt the construction of new infrastructures in a context of falling demand for gas.

As mentioned above, in Spain the deregulation process has been completed with Law 12/2007
transposing Directive 2003/55/EC. The two key changes enacted with this law are the
elimination of regulated supply and the functional separation between network activities and
deregulated activities.

In the Spanish gas system, the market deregulation process was completed on 1 July 2008 with
the elimination of regulated supply for customers and the creation of last resort supply.
Currently, low-pressure customers with annual consumption of less than 50,000 kWh who do
not choose another supply option shall be supplied by a last-resort supplier at a price calculated
automatically. This additive rate is called the last resort tariff.

The Law 18/2014, on measures for growth, competitiveness and efficiency, and previously the
Royal Decree-Law 8/2014, establish the principle of economic and financial sustainability for the
gas system; this principle is reinforced with the obligation to automatically review the
corresponding tariffs and canons if the annual imbalance exceeds the following limits:

– 10% of the income receivable for the year or

– 15% of the sum of the annual imbalance plus annual payments recognized and pending
amortization

The part of the imbalance that, without exceeding the above limits, is not compensated by the
increase in tariffs and canons, will be financed by the parties to the settlement system in
proportion to the remuneration that corresponds to them for their activities. This imbalance may
be received in the following five years and will earn an interest rate equivalent to the market
rate.

The deficit accumulated at 31 December 2014 will be financed by the owners of the installations
during a period of 15 years.

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On the other hand, the remuneration of the regulated activities will be based on the costs
necessary for an efficient and well managed business to carry out the activity, following the
principle of execution of the activity at the least cost to the system. In addition, the remuneration
of the regulated activities will be on the basis of six-year regulatory periods; however, in
exceptional circumstances it will be possible to adjust the remuneration parameters every three
years.

The remuneration system for distribution is based on the remuneration of the previous year,
adjusted to possible efficiencies due to productivity and new customers.

The remuneration system for transportation, storage and regasification is based on the
remuneration of the assets, the associated operating and maintenance costs and premiums for
continuity of service. The net value of the assets will be considered as the basis for the
calculation of the remuneration of investment

At the date of drawing up these Consolidated annual accounts, the new Hydrocarbons Law is
being considered by the parliament.

4.3 Industry regulation in the UK

The principal laws that govern Scottish Power Ltd. (hereinafter, SCOTTISH POWER) activities
are the Electricity Act 1989 (Electricity Act) and the Gas Act 1986 (Gas Act), as substantially
amended and supplemented by numerous subsequent enactments, including the Gas Act 1995,
the Utilities Act 2000, the Energy Act 2004, the Energy Act 2008, the Energy Act 2010, the
Energy Act 2011, the Energy Act 2013 and various EU directives.

Other laws relating to subjects such as environmental protection, health and safety, and
planning and competition are also very important parts of the framework in which SCOTTISH
POWER operates. These laws are enforced respectively by the Environment Agency (or in
Scotland, the Scottish Environmental Protection Agency); the Health & Safety Executive; local
and national planning authorities; and the Competition and Markets Authority (CMA) working
concurrently with the Office of Gas and Electricity Markets (OFGEM). Aspects relating to
consumer protection are enforced by the OFT, OFGEM and Local Authority Trading Standards
departments. Prior to 1 April 2014 the CMA´s function were undertaken by the Office of Fair
Trading (OFT) and the Competition Commission.

The Regulatory Authority

The Utilities Act 2000 replaced individual gas and electricity regulators with one regulatory
authority, the Gas and Electricity Markets Authority (GEMA), comprising a chairman and other
members appointed by the Secretary of State for Energy and Climate Change. GEMA is
supported by a non-ministerial UK Government department, OFGEM. The main instrument of
regulation used by GEMA is the licensing regime which in most cases requires the various
aspects of the energy industry to be carried out under a licence to which standard conditions
apply. In addition, there are a number of statutory obligations, known as relevant requirements,
which are enforced by GEMA as if they were licence conditions.

GEMA's principal objective is to promote the interests of present and future consumers and
promote effective competition. Under the Energy Act 2010, the interests of such consumers
must be taken as a whole, including their interests in the reduction of greenhouse gases and in
the security of the supply of gas and electricity to them.

In furthering this objective they must ensure that all reasonable demands for electricity and gas
are met, ensure that licence holders are able to finance the activities they are obliged to
undertake, and contribute to the achievement of sustainable development. Further provision
concerning the duties of GEMA has been made by the Energy Act 2013, but the provisions in
question are yet to be brought into effect.

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GEMA's functions include the granting of licences (and their revocation in certain limited
circumstances), the proposing of changes to licence conditions (including the operation of price
controls for the monopoly network functions), and the review of industry code modifications and
operating schemes for promoting renewable electricity and energy efficiency and the
enforcement of the industry´s obligations.

GEMA has the power to impose monetary penalties for past and ongoing breaches of licence
conditions and relevant requirements and it can order that redress is provided to consumers.
Fines and redress orders for a particular breach can in aggregate be up to 10% of the licensee's
applicable turnover.

The Secretary of State and GEMA have to provide an annual report to Parliament on the
security of energy supply and also the capacity of the networks to deliver that energy. This will
constitute a key input to the capacity mechanism in the Electricity Market Reform framework.

Companies within the SCOTTISH POWER Group hold licences for various functions including:

 the supply of electricity;

 the generation of electricity;

 the distribution of electricity in the South Scotland area, in the Merseyside and
North of Wales area;

 the supply of gas;

 the shipping of gas (that is, arranging for the insertion, the transmission, and the
removal of it from the public network); and

 the transportation of gas to certain specific sites (such as proposed new gas fired
power stations).

The same company cannot hold both an electricity transmission or distribution licence and an
electricity supply or generation licence. Similarly, the same company cannot hold a gas
transporter licence and a gas supply or gas shipper licence. However, it is possible for different
entities within the same group to hold both licences.

The third package of European Union Directives on electricity (2009/72/EC) establishes

additional restrictions to the ownership of transmission companies. On 19 June 2012, Scottish
Power Transmission Limited (SPTL) was certified by OFGEM, in accordance with the Directive's
Article 9 (9), with the European Commission approval, on the basis that SPTL's arrangements
guarantee more efficient independence than the ITO provisions under the Directive's Chapter V.
As a result, the provisions relating ownership separation do not apply to SPTL.

The conditions of licences regulate such matters as:

 for network licences: the quality of service and the charges that can be made.

 for supply to domestic consumers: consumer protection provisions including rules

on standards of conduct, simpler tariffs, provision of information, debt and
disconnection, cost reflective pricing, in relation to payment methods, information
supply to customers and on fair trading.

 for most types of licence: rules requiring adherence to industry codes that set down
the detailed technical rules for operating the industry, and providing for OFGEM to
determine whether proposed changes to the codes should go ahead.

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The Gas Act 1995 and Utilities Act 2000 introduced standard licence conditions to ensure that
all holders of a particular licence type are subject to the same conditions. The Secretary of State
determined the initial standard licence conditions, although subsequent modifications are made
by GEMA. Under the Electricity and Gas (Internal Markets) Regulations 2011, modifications of
individual or standard licensing terms no longer require the holders´ consent. However, affected
licence holders and other parties can appeal to the CMA (the Competition Commission prior to
April 2014) on both procedure and substance.

The Energy Acts 2008, 2010, 2011 and 2013 contain clauses allowing the Secretary of State to
modify licence conditions (without appeal to the Competition Commission) for certain specified
purposes, including the introduction of smart meters, the introduction of feed-in tariffs for small
scale renewable or CHP generation, the creation of a renewable heat incentive, special
administration regime in the event of supplier insolvency, the implementation of Electricity
Market Reform and the operation of simpler tariffs. In most cases, these powers are time
limited. Changes to licence conditions can also be made without the right of appeal in
pursuance of an European Union obligation, using powers in the European Communities Act.

When OFGEM makes a decision on modifying an industry code which runs contrary to the
views of the relevant industry governance body, the decision can, with certain exceptions, be
appealed to the CMA.

Competition Legislation

GEMA also has concurrent powers with the CMA to apply the Competition Act 1998, the Fair
Trading Act 1973 and the Enterprise Act 2002 to the energy sector in Great Britain. Also, GEMA
can levy fines of up to 10% of turnover for breaches of the prohibitions of anticompetitive
agreements or the abuse of a dominant position.

Under the Enterprise Act, GEMA and the CMA have powers to initiate a market investigation
where it appears that competition has been prevented, restricted or distorted by any feature of a
market, so far as they relate to commercial activities connected with the generation,
transmission and supply of gas and electricity (and where it would not be appropriate to operate
by the provisions of the Competition Act 1998 or using any other powers). Such investigations
assess whether aspects of a market restrict, distort or prevent competition. If they find such
“adverse effects on competition” they are required to take proportionate steps to remedy them.
The CMA’s powers are extensive and can range from changes to licences to forced
divestments, if they are justified by the evidence and findings.

CMA market investigation into Energy

A market investigation was initiated on 26 June 2014 by GEMA. The investigation is into the
operation of retail gas and electricity markets to domestic and small business consumers, and
the wholesale markets that support such supply. A panel of five members was constituted and
on 24 July 2014 published an issues statement which indicated that they would be looking at
various aspects of competition in generation, including vertical integration with supply, as well
as specific retail issues. The retail issues include the role of inactive consumers in the market,
whether there is tacit coordination, and whether the operation of the market has been harmed
by regulatory intervention.

Various documents and updates have been published since then and will continue as the
investigation progresses. The investigation is due to complete by 25 December 2015, though
this can be extended by up to six months.

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EU Regulation on Energy Market Integrity and Transparency (REMIT)

GEMA also enforces REMIT in the UK. It has the power to levy unlimited fines for breaches and
further Regulations have been laid before the UK Parliament and are expected to come into
force in April 2015 which will make breach of the market manipulation element of REMIT a
criminal offence (subject to certain defences) for both companies and the individual employees
involved. In the case of individuals, the penalty can include imprisonment for up to two years.

Price controls

Prices for the sale of electricity and gas by utilities to final consumers are not controlled in the
UK. There is no controlled tariff for certain categories of consumer, although all the major
suppliers do offer special discounts for certain disadvantaged customers under the Warm Home
Discount 2011 Programme. The total cost of discounts of the Warm Home Discount programme
for SCOTTISH POWER in 2013-2014 will be of the order of 6 pounds sterling per customer
account (counting gas and electricity separately) and, like any other cost, suppliers are free to
pass on the cost to tariffs. OFGEM has implemented licence modifications requiring any price
variation by payment method to be cost reflective.

In 2014 and 2015, suppliers must pay the sum of 12 sterling pounds to each person who is a
domestic electricity customer on a specified date in each year, and the UK Government in turn
repays that sum from taxpayer funds to the suppliers upon production of suitable evidence. This
arrangement effectively takes the cost but not the administration of the Warm Home Discount
scheme on to the public purse in those two years. The scheme expires after 2015, as does the
Warm Home Discount itself, and it is not clear what replacement programmes will be put in
place.

Similarly, there are currently no controls other than those established in the Competition Act
1998 and the Transmission Constraint Licence Condition (TCLC), on prices charged to
commercial customers or on the wholesale electricity and gas markets.

TCLC prohibits electricity generators from making excessive profits resulting from balancing
actions. OFGEM has published guidelines on the interpretation and application of the TCLC.
Enforcement decisions under the framework of the TCLC are subject to review by the
Competition Appeal Tribunal, rather than a more limited review by the courts applicable to other
GEMA decisions. The condition expires five years after its enactment, having been
implemented on 29 October 2012, and is renewable for another two years.

GEMA has implemented electricity market liquidity obligations for large integrated supply and
generation businesses including SCOTTISH POWER. These include obligations to facilitate
trading with smaller companies and also an obligation to market make in a number of wholesale
products during two specified “windows” in each business day. Although the prices of bids and
offers are not regulated, the licence condition limits the spread between them. There are rules
designed to give some protection to obligated licensees in fast or volatile markets. To date, no
material costs have arisen from this obligation.

Following the Retail Market Review, OFGEM has implemented limits on the products that can
be sold in the domestic energy market.

The programme includes restrictions on the number and composition of tariffs (with a maximum
of four basic tariffs plus variations according to parameters such as form of payment, meter type
and region), information requirements and requirements for notifying customers of lower tariffs.
Proposals also include rules of conduct for customer treatment covering all aspects of the
supplier-client relationship.

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The networks are however recognised to be a natural monopoly. Their prices have been so far
controlled according to a five-year formula known as RPI-X. The regulator assesses the costs of
an efficient network operator and the likely capital programme in order to calculate the return
needed to meet a target return on investments. Various incentives have been added to the
formula which also takes account of the Retail Prices Index (RPI) and any projected efficiency
improvements (-X) in order to calculate the permissible revenues for the network.

This framework is being replaced by the new RIIO framework (Revenue = Incentives +
Innovation + Outputs). RIIO is similar to RPI-X, but there are several important changes. These
changes are to be applied over the next price reviews which will introduce regulatory periods of
8 years (with a limited revision after 4 years), using a market index for setting the debt cost, and
the phasing in for electricity of an asset depreciation period of 45 years, replacing the 20 year
period used under RPI-X. Under the RIIO framework, there is a greater emphasis on outputs
and innovation, as well as on the role that network companies can play in developing a
sustainable energy sector. Also, the process for setting the controls has changed with a “fast
track” process designed to conclude the negotiation in advance for companies who submit
business plans that are acceptable to OFGEM.

In the transmission business, SPTL’s control of RPI-X ended in March 2013. SPTL was
incorporated in the RIIO process, and the new RIIOT1 framework became effective from April
2013.

Distribution controls in the SCOTTISH POWER network in the south of Scotland and in the
Manweb area were adjusted under RPI-X in April 2010 (Distribution Price Control Review 5). Its
revision within the RIIO framework is nearly complete, with a new control that will run from April
2015 to March 2023. Scottish Power energy networks was not fast-tracked for distribution and
so submitted its revised business plan for its two distribution areas to OFGEM in March 2014.
Following assessment, OFGEM issued a determination of the new controls on 28 November
2014. Once OFGEM implements the new licence conditions, the two licensees must decide
whether to accept the controls or exercise their right to appeal to the CMA.

Other issues

Other key elements of the regulatory regime in the United Kingdom include:

The Renewables Obligation (RO):

The UK government has set out a target of sourcing 30% of electricity from renewable sources
by 2020. The RO scheme is currently the main support scheme for renewable electricity
projects in the UK in order to achieve this aim. The RO Orders (which apply separately to
different parts of the UK within a unified scheme) place obligations on suppliers of electricity to
source an increasing proportion of their electricity from renewable sources (based on the
expected level of renewable energy production in each year plus a 10% spread in order to
prevent certificate prices from falling sharply). Suppliers meet their obligations by presenting
sufficient Renewables Obligation Certificates (ROCs) or by paying an equivalent amount into a
fund. The proceeds of the fund are paid back to those suppliers that have presented ROCs in
proportion to the number of ROCs presented. Since April 2009, the RO has been banded so
that differing technologies receive different levels of support depending on the expected costs.
The revision of this framework concluded in 2012 and, as a result, projects starting after 1 April
2013 (or later for some technologies) will receive revised levels of support.

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The RO ends on 31 March 2027 for projects that started generation before 1 April 2009 and 20
years after the start of generation for later projects. The RO will close for new projects no later
than 31 March 2017, to be replaced by a new aid scheme of Contracts for Differences (CFDs)
which are part of the Electricity Market Reform (EMR). It will continue to operate for new
facilities joining the RO before this date, although the Energy Act 2013 envisages changing the
RO in due course to payment of a premium on substantially similar terms. In the case of solar
photovoltaic generation plants above 5MW, the RO is due to close for new plants in April 2015.

Electricity Market Reform (EMR)

The UK Government’s EMR programme was substantially implemented during 2014. The
principal elements are:

- a new incentive scheme, based on contracts for difference (CFDs) to support low carbon
generation; and

- a capacity mechanism to support security of supply (market-wide auction

mechanism).The CFD allocations will take place within the constraints of a budget for low
carbon support measures known as the Levy Control Framework (LCF). An initial tranche
of contracts were approved during 2014 by the UK Government as part of a transitional
“Final Investment Decision Enabling Process”. The first allocation round is currently
underway with auctions taking place from 29 January until 4 February 2015 in two “pots”;
one for established technologies (mainly onshore wind and solar) and a second one for
less established technologies (mainly offshore wind). It is expected that the second
allocation round will commence in May 2015. The first capacity mechanism auction took
place from 16-18 December 2014, for capacity delivery in winter 2018/19. 49GW of plant
was achieved at a price of GBP 19.40 per kW/year.

European Emissions Trading System (EU-ETS) and UK Carbon Price floor:

As in all EU Member States, generators in the UK participate in the EU Emissions Trading

Scheme (EU-ETS). Since 2013, the Government is required to auction all allocations to the
power sector. The Climate Change Act of 2008 set out a trajectory towards reducing CO2
emissions from 1990 levels by at least 80% by 2050, with interim reduction targets. The carbon
price floor is a UK tax imposed on fossil fuels used for electricity generation at differential rates
which simulate a charge on the CO2 emissions. It was intended to smooth the path of carbon
prices seen by the UK power sector in the event of instability in the EU-ETS, by topping up the
EU-ETS price to a pre-set trajectory. In practice, the EU-ETS price is much lower than expected
and in order to mitigate the impact on electricity prices, the UK Government has capped the
carbon price floor tax at 18 GBP/tonne CO2 until at least 2020.

The Energy Companies Obligation (ECO)

Energy suppliers who supply over 250,000 domestic customers are subject to significant
requirements to achieve energy efficiency improvements among their customers. As with any
other cost, the costs of making those improvements can be factored by suppliers into tariffs,
subject to the need to remain competitive in the market. The Energy Companies Obligation
(ECO) runs from 1 January 2013 to 31 March 2015. A separate phase runs from 1 April 2015 to
31 March 2015. ECO comprises three separate targets: the Home Heating Cost Reduction
Obligation, which requires suppliers to deliver insulation and heating systems to vulnerable
customers living in privately owned properties; the Carbon Saving Community Obligation
(CSCO), which requires suppliers to provide insulation and energy saving measures to
properties in low income areas, including some in rural communities; and the Carbon Emission
Reduction Obligation (CERO) which originally required suppliers to deliver solid wall insulation
or non-standard cavity wall insulation to any applicable property. During 2014, the Government
made major changes to the structure of the scheme in order to reduce the costs on consumer
bills (and the obligated suppliers made price reductions to pass the benefits on to customers).
The most significant was to broaden the list of eligible measures under CERO and to reduce the
CERO target somewhat, but there were also simplifications to the rural element of CSCO and a
large number of other changes.

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Green Deal:

The Green Deal is a mechanism that allows householders and businesses to receive funding for
energy efficiency measures, to be repaid through a surcharge on their electricity bill. Suppliers
are obliged to conduct on behalf of Green Deal Providers the cash collection arrangements and
may also participate as Providers themselves. Measures may only be installed by accredited
providers and must meet the Golden Rule that the expected savings due to reduced
consumption exceed the payments. In some cases, this will be achieved by the consumer
receiving a subsidy through the ECO scheme described above. Consumer interest in Green
Deal finance has been very limited, though the Green Deal “brand” has been used to badge
various other energy efficiency incentives and initiatives.

Pollution Control:

The Integrated Pollution Prevention and Control (IPPC), the Large Combustion Plant Directive
(LCPD) and the Industrial Emissions Directive (IED) cover the regulatory regime for controlling
the pollution from certain industrial activities, including thermal combustion generation, and
imposes limits on various categories of emissions. In particular, the LCPD limits the emission of
sulphur dioxide (SO2), oxides of nitrogen (NOX) and particles from power stations, whereby
operators of such plant had the option of meeting those requirements or accepting a limited
hours derogation prior to closure by the end of 2015. The IED puts in place a similar regime for
2016 and beyond, with more stringent standards. The IED is transposed into UK law through
the Pollution Prevention and Control (Scotland) Regulations 2012 and amendments to the
Environmental Permitting (England and Wales) Regulations 2010.

4.4 Industry regulation in USA

Electricity and natural gas distribution

Some of the most important specific regulatory processes that affected IBERDROLA USA
Networks, Inc. (hereinafter, IBERDROLA USA NETWORKS) were the Maine distribution tariff
stipulation, the Maine transmission Federal Energy Regulatory Commission (FERC) Return on
Equity (ROE) case, Reforming Energy Vision (REV) of New York.

The revenues of IBERDROLA USA NETWORKS are essentially regulated, being based on
tariffs established in accordance with administrative procedures set by the various regulatory
bodies. The tariffs applied to regulated activities in the United States are approved by the
regulatory commissions of the different states and are based on the cost of providing service.
The revenues of each regulated utility are set to be sufficient to cover all its operating costs,
including energy costs, finance costs and the costs of equity, the last of which reflect the
company's capital ratio and the reasonable return on equity.

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Energy costs that are set on the New York and New England wholesale markets are passed on
to consumers. The difference between energy costs that are budgeted for and those that are
actually incurred by the utilities is offset by applying compensation procedures that result in
either immediate or deferred tariff adjustments. These procedures apply to other costs, which
are in most cases exceptional (effects of extreme weather conditions, environmental factors,
regulatory and accounting changes, treatment of vulnerable customers, etc.) that are offset in
the tariff process. Any profit from New York that allows a service company overcome its
profitability objectives (usually due to a better than expected efficiency in cost), is shared among
the service company and its clients; what ends up in a decrease in the future tariff.

Each of the 5 supply companies in IBERDROLA USA NETWORKS, must comply with
regulatory procedures that differ in form but in all cases conform to the basic framework outlined
above. As a general rule, tariff reviews cover various years (three in New York and in Maine)
and provide for reasonable returns on equity, protection and automatic adjustments for
exceptional costs incurred and efficiency incentives.

Maine

- CMP Distribution rate stipulation

On 1 May 2013, CMP submitted its required distribution rate request to the Maine Public Utilities
Commission (PUC). After a 14-month review process, on 3 July 2014, CMP filed a rate
stipulation agreement on the majority of the financial matters with the PUC. The stipulation
agreement was approved by the PUC on 25 August 2014. The stipulation agreement also noted
that certain tariff design matters would be litigated, which was ruled on by the PUC on 14
October 2014.
The tariff stipulation agreement provided for an annual CMP distribution tariff increase of 10.7%
(USD 24.3 million). The rate increase was based on a 9.45% ROE and 50% equity capital.
CMP was authorized to implement a revenue decoupling mechanism (RDM) which protects the
Company from variations in sales due to energy efficiency and weather. CMP’s also adjusted its
storm costs recovery mechanism whereby the Company is allowed to collect in tariffs a storm
allowance and to defer actual storm costs when such storm events exceed USD 3.5 million.
CMP and customers share on a 50/50 basis the storm costs that exceed a certain balance, with
CMP’s exposure limited to USD 3.0 million annually.
CMP will make a separate regulatory filing for a new customer billing system replacement. In
accordance with the stipulation agreement, a new billing system is needed and CMP shall make
a filing by 1 March 2015 and can include a request for a separate rate recovery mechanism.
The tariff stipulation does not have a pre-determined tariff term; CMP has the option to file for
new distribution tariffs at its own discretion.
The tariff stipulation does not contain service quality targets or penalties. The rate stipulation
also does not contain any earning sharing requirements.

Transmission – FERC ROE proceeding

CMP’s transmission tariffs are determined by a tariff regulated by the FERC and administered
by ISO New England (ISO-NE). Transmission tariffs are set annually pursuant to a FERC
authorised formula that allows for recovery of direct and allocated transmission operating and
maintenance expenses, as well as the return on assets invested. The FERC provided a base
return on equity (ROE) of 11.14% and additional incentive applicable to assets based upon
vintage, voltage and other factors.

- Complaint I: In September 2011 the Massachusetts Attorney general filed a complaint

with the FERC saying that the ROE was too high and should be lowered by 1.94%, to a
value of 9.2%. CMP is a member of the New England Transmission Owners (NE-TOs).
On 16 October 2014, the FERC commission issued an order in the ROE case which
concluded:

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  The “base” ROE has been set at 10.57% effective 16 October 2014.

 There is a ROE cap on incentive returns of 11.74%, also effective since 16 October
2014.

 The long-term growth rate used in the two-step DCF analysis should be GDP
4.39% in this proceeding. This aspect of their decision results from the “paper
hearing” that FERC initiated in its June 2014 decision.

 CMP must provide refunds for the period from October 2011 to December 2012
with a base ROE of 10.57% and an ROE cap on incentives of 11.74%.

- Complaint II – Filed at 27 December 2012. On 19 June 2014 the Commission issued an

order setting this case for settlement and hearing, and set the refund effective date on
27 December 2012.

 The parties entered settlement negotiations which ended in late October 2014
when the parties were unable to reach agreement.

 FERC has set a schedule for this case that calls for hearings in June 2015. The
Order estimates a decision by 30 April 2016 (subsequently revised to September
2016).

 On 6 August 2013, the FERC Administrative Law Judge issued its Final Decision
(recommendation) determining that the current base ROE should be adjusted
because it no longer meets Federal Power Act standards. He recommended a
refund period from 1 October 2011 to 31 December 2012 be established based on
a ROE of 10.6%, subject to the FERC approval.

- Complaint III – Filed August 2014, reiterates the same position in Complaint II

CMP reserved for refunds in 2013 and 2014. The 2013 reserve was USD 6.6 million associated
with Complaint I. In 2014, CMP recorded an additional reserve of USD 29.9 million associated
with Complaints I, II, and III.

New York

New York State Electric & Gas Corporation (NYSEG) and Rochester Gas and Electric
Corporation (RG&E) Tariff Plans:

- On 16 September 2010, the New York Public Service Commission (NYPSC) approved
a new tariff plan for electric and natural gas service provided by the companies effective
from 26 August 2010, until 31 December 2013. The tariff plans contain continuation
provisions beyond 2013 if NYSEG and RG&E do not request new tariffs to go into effect
and the current base tariffs will stay in place.

- At 16 September 2010 the Public Service Commission (NYPSC) approved a new tariff
plan for electricity service and gas natural which companies offered and it was in force
from 26 August 2010 until 31 December 2013. The tariff plans contain an extension of
the arrangements going beyond 2013, if NYSEG and RG&E do not apply for the entry
into force of new tariffs, the established tariffs are maintained.

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 - The revenue requirements were based on a 10% allowed ROE applied to an equity
ratio of 48 %. If annual earnings exceed the allowed return, a tiered Earnings Sharing
mechanism (ESM) will capture a portion of the excess for the benefit of customers. The
ESM is subject to specified downward adjustments if the companies fail to meet certain
reliability and customer service measures. Key components of the tariff plan include
electric reliability performance mechanisms, natural gas safety performance measures,
customer service quality metrics and targets, and electric distribution vegetation
management programs that establish threshold performance targets. There will be
downward revenue adjustments if the companies fail to meet the targets. To date, the
companies have met all of the service quality targets.

- The 2010 rate plans established Revenue Decoupling Mechanisms (RDM), intended to
remove company disincentives to promote increased energy efficiency. Under the RDM,
electric revenues are based on revenue per customer class rather than billed revenue,
while natural gas revenues are based on revenue per customer. Any shortfalls
(excesses) between billed revenues and allowed revenues will be accrued for future
recovery (refund).

Reforming Energy Vision (REV):

- April 2014, the NY PSC commenced a proceeding titled Reforming the Energy Vision
(REV), which is an initiative to reform New York State’s energy industry and regulatory
practices. The REV has been divided into two tracks, Track 1 for Market Design and
Technology and Track 2 for Regulatory Reform. REV proposes regulatory changes that
are intended to promote more efficient use of energy, deeper penetration of renewable
energy resources such as wind and solar, wider deployment of “distributed” energy
resources, such as micro grids, on-site power supplies, and storage.

- REV is also intended to promote greater use of advanced energy management

products to enhance demand elasticity and efficiencies. The Track 1 of this initiative
involves a collaborative process to examine the role of distribution utilities in enabling
market-based deployment of distributed energy resources to promote load management
and greater system efficiency, including peak load reductions. NYSEG and RG&E are
participating in the initiative with other NY utilities as well as providing their unique
prospective. PSC Staff is currently conducting public statement hearings across NY
State regarding REV.

- Various proceedings have also been initiated by the PSC which are REV-related, and
each has their own schedule. These proceedings include the Clean Energy Fund,
Demand Response Tariffs, and Community Choice Aggregation.

- The Track 2 (Regulatory reform) undertaken in parallel with the first track, examines
changes in current regulatory, tariff, and market designs and incentive structures to
better align utility interests with achieving the Commission’s policy objectives. The PSC
Staff straw proposal is anticipated in the second quarter 2015. NY Utilities will also be
addressing related regulatory issues in their individual rate cases.

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NY Transco

- Affiliates of National Grid, Central Hudson and NYSEG/RG&E, along with an affiliate of
Con Edison and Orange and Rockland Utilities, are part of a new organization, New
York Transco LLC. New York Transco is focused on developing electric transmission to
meet future electricity needs of all New Yorkers and will develop and New York
transmission projects upon receipt of all necessary regulatory approvals.

- NY Transco members are requesting regulatory approval for a group of transmission

projects expected to cost USD 1,700 million, with NYSEG / RG&E allocated equity
contribution of USD 183 million over the period 2015 through 2018. Additional projects
may be developed in the future. Equity investments will be expressly contingent on
receiving necessary regulatory approvals and acceptable economic returns. The
investment will be made through an IBERDROLA USA Networks affiliate, IBERDROLA
USA Networks New York Transco, LLC, constituted on 3 November 2014.

- NY Transco filed with FERC in early December 2014. The filing requests a formula
base ROE of 10.6%, plus 150 bp ROE incentives. The filing also requests recognition
of construction work in process (CWIP), abandoned plant, regulatory asset for pre-
commercial costs and 60% leverage for five years. Various parties, including the
NYPSC, have protested the filing at FERC. The Company anticipates a FERC decision
in 2015.

Electricity generation from renewable energy resources

In the United States, numerous state Governments and the Federal Government have adopted
measures and implemented numerous regulations designed to foster the development of
electricity production from renewable resources. State programmes have generally come in the
form of 1) Renewable Portfolio Standards (RPSs) that usually require utilities to generate or
purchase a minimum amount of renewable electricity and 2) tax incentives. To date, the Federal
Government has primarily supported renewable energy development through tax credits to
production and investment as well as accelerated tax depreciation.

- Twenty-nine states and the District of Columbia have adopted mandatory RPS
requirements, which vary across the states but will generally range from 15-33% of the
generation by 2025. The requirements are typically implemented through a system of
tradable renewable energy certificates that verify that a kWh of electricity has been
generated from a renewable resource. In 2013, several state legislatures debated
whether to repeal or roll back significantly their RPS requirements and Ohio enacted
legislation to freeze state´s RPS program until 2017.

- Most states also offer a variety of tax incentives to promote investment in renewable
energy resources. For instance, Washington and Colorado, among other states, exempt
the sale and use of renewable energy equipment from taxation, which reduces
development costs substantially. Several states reduce property tax requirements on
renewable generation facilities through enterprise zones or similar designations, while
Minnesota has substituted a property tax in lieu of fix production tax. Other states, such
as Texas, boost the construction of electrical infrastructure (CREZ, Competitive
Renewable Energy Zones) to ease the transportation of renewable electricity towards
load points.

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- In 1992 the US Congress enacted legislation that established a Production Tax Credit
(PTC) of 15 USD/MWh (adjusted for inflation) for the production of electricity from wind
power facilities with 10-year duration. This programme has been renewed on several
occasions and has been expanded to include the production of electricity from several
renewable resources, including biomass, geothermal, solid urban wastes and
hydroelectric power. Subsequently, in 2005 Congress established a 30% investment tax
credit (ITC) for solar power projects. This investment credit is currently applicable to all
solar projects placed in service prior to 1 January 2017. The PTC, which is currently
valued at 23 USD/MWh, was most recently modified and extended by one year and will
apply to those projects that started construction before 2015. These qualifying facilities
may also elect to take a 30% ITC rather than the PTC. The purposes of the PTC and
ITC are to make electricity production from renewable resources more competitive
relative to fossil fuel and nuclear power facilities.

- In addition to the PTC and ITC, renewable energy facilities are eligible for accelerated
five-year tax depreciation on their investments. This programme, which is known as the
Modified Accelerated Cost Recovery System (MACRS), does not have expiration date.
As a result of legislation enacted in 2008, 2009, 2013 and 2014, many facilities placed
in service between 2008 and 2013 qualified for bonus depreciation which allowed a
50% depreciation deduction in the year a facility was placed in service.

- With respect to interstate transmission networks, the FERC has adopted a series of
requirements on transmission operators to improve access and reduce costs for
variable generation like wind and solar power. Adoption of FERC Order 764 is driving
changes in scheduling practices and other activities that will increase forecasting
accuracy and reduce needed reserves, resulting in lower technology integration costs.

4.5 Industry regulation in Mexico

The Mexican regulatory framework is currently being transformed due to the energy reform that
began at the end of 2013. This transformation is aimed at opening up the energy sector to
private investment in the activities that were previously reserved for the State. It also respects
the previous regulatory framework through transitional provisions applicable to the existing
businesses and facilities, which provides stability and legal certainty to the Mexican regulatory
context.

The IBERDROLA Group is the main private electricity company in Mexico, due to its combined
cycle and cogeneration power stations, and its investments in renewable energy. IBERDROLA
sells part of its energy to the Federal Electricity Commission (CFE) and supplies the remainder
directly to industrial companies and self-service store chains.

Mexico approved the development and financing of renewable energy in the Law for the
Development of Renewable Energy and Energy Transition Financing in November 2008,
establishing a nationwide strategy and financing the instruments to foster the installation of
electricity generation based on renewables. This law especially fostered the development of
wind power, and the IBERDROLA Group was awarded several wind projects.

As part of the ongoing reform of the electricity sector, Clean Energy Certificates are expected to
be introduced from 2018 as a mechanism to promote geothermal, solar, wind and cogeneration
projects.

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Although the energy reform is aimed mainly at the hydrocarbons sector, it will also offer new
business opportunities in the generation, distribution and management of electricity
infrastructure.

4.5.1 Energetic reform and industrial transformation

Constitutional reform

The Political Constitution of the United Mexican States, which was amended in December 2013,
establishes that planning and control over the national electricity grid corresponds exclusively to
the Mexican government as well as transmission and distribution of electricity as a public
service. For these activities, the Mexican government will not grant concessions. However, it
may grant contracts to individuals according to terms established by the laws. These same laws
also determine how individuals can participate in other activities related to the electricity
industry.

It is worth mentioning the Constitution grants the Mexican government the right to take
advantage of nuclear energy for electricity generation.

As a consequence of this constitutional reform, 9 laws were enacted during 2014 and 25
regulations were either created or reformed. The enactment of the Energy Transition Law (LTE)
is still pending (currently being reviewed in the Senate) which deals with incentives and goals
for clean energy.

The Electricity Industry Law (LIE) was enacted in August 2014 and repeals the Electricity Public
Service Law (LSPEE) that had been into force since 1975. The LIE regulates activities in the
electricity sector in Mexico including electricity generation. This activity has stopped being
reserved exclusively to the Mexican government so that private companies could generate
electricity in a more flexible way. The LIE also creates an opportunity for individuals to sell
electricity.

Energy Secretariat

The Energy Secretariat (SENER), meanwhile, is responsible for planning and guiding national
energy policy, for guaranteeing efficient supply and for undertaking the technological
developments necessary for promotion of the use of innovative energy sources.

Regulatory bodies

As part of the energy reform in Mexico, the country enacted the new Regulatory Bodies Law in
August 2014 (Regulatory Body Law) that establishes the regulatory bodies in charge of
coordinating activities in the energy field are the National Hydrocarbons Commission (CNH) and
the Energy Regulatory Commission (CRE).

With this law, the CRE and the CNH are granted the most power and authority as regulatory
bodies in the field of energy. They have their own legal status, autonomy with technical matters
and management and self-sufficiency with its budget. The integration of these regulatory bodies
will consist of a government body composed of seven commissioners and an executive
secretary.

In terms of the institutional design of the hydrocarbons sector, the CNH and the CRE is
expected to hold substantial power and authority over the Hydrocarbons and Electricity Industry
Regulation laws while organic elements and essential organization for the fiscal year of its
contributions is envisioned in the Regulatory bodies law.

 CRE:

CRE has existed since 1995 as a public body with power and authority to grant permits and
publish administrative provisions in the fields of electricity, gas transport and some regulated
tariffs for natural gas and liquefied petroleum gas.

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The main powers granted to the CRE concerning electricity are the following: issue future
changes to the wholesale electricity market (MEM) bases, define terms and conditions of
auctions and offers, monitor the (MEM) operation (SENER creates the first bases), issue rules
for transactions between generators and energy providers, authorise contract and auction
models, regulate reliability, potency requirements and operational costs, regulate strategy
behind regulated tariffs and contract models for services involving basic transmission,
distribution and supply of electricity, issue and authorise models related to technical
specifications for connecting power stations and users, issue rules about intelligent networks,
resolve any controversies, regulate contributions, grant permits to MEM participants, issue
Clean Energy Certificates and other documents to promote clean energies, administer the MEM
participant registry, establish recoverable earnings and billing objectives for basic electricity
supply and enforce fines.

For hydrocarbons, the CRE must regulate and promote the development of transportation,
storage, distribution, compression, liquefaction and regasification activities. It must also supply
the public with fuel, natural gas, liquefied petroleum gas, oil wells, petrochemicals as well as
transport by pipelines, storage, distribution and supply of renewable energies to the public.

The LIE establishes that SENER will exceptionally perform the first issue of some general
administrative provisions that correspond to the CRE. Among these provisions worth mentioning
are the MEM rules.

 CNH:

The CNH will have the fundamental objective of regulating and supervising the exploration and
extraction of hydrocarbons. It is responsible for technical administration as well as the
promotion, tendering and undersigning of contracts for this activity.

National Agency for Energy Control

The National Agency for Energy Control (CENACE) changes from being a unit within the CFE to
becoming a decentralised public body that will have operational control of the national electricity
grid and the wholesale electricity market. The entity will have more autonomy to provide
electricity and this represents the separation between the grid and transport managers.

CENACE also operates and oversees the planning and expansion of the entire national
electricity grid through its development programme (PRODESEN). Currently SENER oversees
this programme and it will later move over to the CRE.

National Agency for the Control of Natural Gas

As part of the hydrocarbons sector reform, the National Agency for the Control of Natural Gas
(CENAGAS) was created in August 2014. This decentralised public body is currently in charge
of operating the national pipeline transport system and storing natural gas.

The Hydrocarbons Law establishes that CENAGAS handles the management and
administration of the national integrated transport and storage system for natural gas as an
independent agent. CENAGAS aims to guarantee continuous operations and safety with
providing services in this system by strictly providing them according to open access
requirements and without affecting the ownership of capacity reserve contracts.

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The national integrated transport and storage system of natural gas will be subject to the 5-year
expansion plan proposed by CENAGAS and approved by SENER. CENAGAS will tender
certain projects they consider strategic in accordance with the Hydrocarbons Law and third
parties will handle developing the required infrastructure in this case. For any project deemed
non-strategic, state-owned production companies and individuals can develop the
corresponding infrastructure projects. The National Integrated Transport System of Natural Gas
assets and Pemex transport contracts will transfer to CENAGAS to guarantee open access to
all interested parties.

CFE

Through the enactment of the CFE Law in August 2014, the CFE changes from being a state-
owned production company to being exclusively owned by the Mexican Federal Government. It
will have its own legal status and equity and enjoy full autonomy in terms of technical matters,
operations and management. This law aims to regulate the organisation, administration,
functioning, operation, control, evaluation and accountability of the CFE as well as set up a
special regime of subsidiary and affiliated production companies, compensations, acquisitions,
leases, services and works, goods, responsibilities, state dividends, budget and debt.

The CFE is expected to undergo a legal separation of its generation, transmission, distribution
and sales activities to assure other parties that open access will exist in the wholesale electricity
market.

Petróleos Mexicanos (PEMEX)

The Petróleos Mexicanos Law enacted in August 2014 establishes this company as a state-
owned production company that aims to carry out its business activity while generating
economic worth and being profitable for the Mexican government. Among other things, it must
strive to improve productivity to maximise oil profits for the Mexican government and contribute
to national development.

Petróleos Mexicanos (PEMEX) changes and creates the following affiliates and subsidiaries:
Pemex exploration and production, Pemex industrial transformation, Pemex perforation, Pemex
logistics, Pemex co-generation and services, Pemex fertilizers and Pemex ethylene. Pemex gas
disappears and basic petrochemical functions and activities related to gas sales become
integrated into Pemex industrial transformation.

4.5.2 Electricity Network Operation

With the energy reform currently being implemented, the regulatory framework that oversees
activities changes substantially.

Transmission and distribution

The Mexican government will carry out transmission and distribution activities for electricity as a
public service through public bodies and state-owned production companies (EPE) or their
subsidiaries that will act as carriers or distributors. Given the new personality the CFE will gain
with being an EPE, it will probably become the party that acts as the carrier and distributor of
electricity on the authority and paid by the Mexican government. It also leaves the possibility
open that the Mexican government may form associations or arrange contracts with individuals
through its carriers or distributors to perform the activities related to this public service including
financing, installation, maintenance, management, operation, expansion, rehabilitation,
surveillance and preservation of the required infrastructure to provide this service.

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Generation and retail

The law will require a permit from the CRE for electricity generation either by private companies
or EPEs (such as CFE as an example) when the power plant capacity is greater than or equal
to 0.5 MW or whenever the power plant is represented by a MEM generator regardless of its
capacity.

In accordance with the LIE, generation permits that are issued will only serve for this purpose
and the provisions will only regulate them. Supply of electricity and its sale to end users will
require previous authorization from the CRE under certain modes and the main ones are:

(i) basic supply of electricity at regulated tariffs to any person who requests it. If this person
is not a qualified user, it should come from a supplier (CFE will be the main basic
supplier); or
(ii) certified supply by a certified supplier through the wholesale electricity market to
certified users following market rules and free competition conditions.

SENER will handle determining the levels of consumption and demand that indicate when an
individual is considered a certified user. It expects that industrial or supply sector users with
high consumption levels will fulfil the applicable requirements. The LIE, with its transitional
provisions, establishes the conditions that determine whether a private company can be
considered a certified user as the following:

(i) any company that has a connection contract in place with the CFE that is valid as of the
date when the law becomes effective;
(ii) any company that has an average demand of 3 MW during the first year when the law
becomes effective, 2 MW at the end of the first year and 1 MW at the end of the second
year; and
(iii) any company that fulfils the corresponding provisions issued by SENER for this
purpose.

Geothermal energy

The Mexican government enacted the Geothermal Energy Law and its corresponding
regulations to regulate the inspection, exploration and use of underground geothermal
resources to generate electricity or for different purposes. Through these documents, it allows
the private sector to take advantage and use these natural resources through auctions of
existing geothermal resources that have been surveyed. The Mexican government also
amended the Law on national waters and its regulations to recognise and give different
treatment to geothermal water so that it could be compatible with the Geothermal Energy Law.

Wholesale electricity market

The LIE envisions the creation of an MEM where generators can place their electricity
production and sell it there according to market rules. CENACE will operate this market and
control the national electricity grid.

CENACE will calculate transaction prices based on offers it receives within the market. It will
base these prices on several factors including the electricity generation costs for power plants.
Energy prices will be nodal and marginal.

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National content

The LIE will not demand a minimum percentage of national content. However, it points out that
SENER will establish the minimum percentages and other conditions for national content in
terms of contracts it generates. The Mexican Treasury Secretary will establish the criteria to
measure the level of domestic content in the electricity sector.

Surface use and occupancy

The electricity industry is considered for public use and this proceeds the occupancy or impact,
including easements, that are necessary for electricity transmission and generation as well as
the construction of power plants when necessary in a specific place. Licensed mining
companies and owners of assignments, permits or contracts must permit the installation of
pipelines, cables or other infrastructure for the transmission and distribution of electricity.

It will permit greater access to the facilities and right of way to the national electricity grid in
exchange for fair compensation. The CRE will issue provisions that permit access and fair
compensation. Consideration and terms and conditions for the use and occupancy is negotiated
and agreed upon between land owners and companies and must always respect the rights of
indigenous communities according to the law and international treaties signed by Mexico.
Transparency during negotiations must exist this includes publication of the agreed upon terms
and conditions between both parties.

Continued existence of electricity industry permits, power plants and contracts issued
under the previous regime

Private power generators that currently have a power generation permit granted under the
repealed LSPEE can maintain their valid permits under the same terms and conditions as long
as they do not violate what is established by the LIE.

Once the MEM starts operating, these permit holders will also have the option to change their
LSPEE power generation permit to the one regulated by the LIE for complete or partial capacity.

Permit requests for self-sufficiency, co-generation, independent production, small-scale

production, imports or exports made before the LIE went into effect will be resolved under the
LSPEE terms and conditions. They must meet these requirements and respect the LIE.

Power generators that have connection contracts issued under the previous regime as Legacy
connection contracts (CIL) when the LIE becomes effective must consider these contracts may
not be renewed once they expire.

It is worth mentioning they can still make changes to the CIL in terms of activating, deactivating
and changing power stations, surplus sales and backup services.

Regardless of what has been previously stated, during the transition period to the LIE, there are
some expected scenarios whereby a permit holder can sign a connection contract valid for 20
years that is regulated under the previous regime:

i. When the interested party has requested a permit for the power generation project
and paid for the corresponding rights for this permit;
ii. When the interested party notifies the CRE of its intent to proceed with the
corresponding power generation project within 60 days after the LIE becomes
effective.
iii. When the interested party proves to the CRE no later than 31 December 2016 that
is has secured complete financing for its project, agreed to purchase the main
equipment and invested 30% of the project total to purchase these fixed assets;

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 iv. When the interested party has been assigned transmission capacity through its
participation in an open season organised by the CRE before the LIE becomes
effective.

Facilities must start operating before 31 December 2019.

Even though the LIE has not specified a specific date when the MEM will start operations,
SENER has expressed through various forums that it aims to start it before the end of 2015.

Electricity tariffs

The CRE assumes the responsibility of issuing the regulated electricity tariffs (transport,
distribution, basic supply and last reserve supply). Tariffs will be based, in the most applicable
way possible, to the recovery of generation costs, potency, connection services, transport and
distribution costs, clean energy certificates and other recoverable costs and collection
objectives. It expects that 2015 tariffs will maintain the same formulas as the previous regime to
start off. Adjustments starting in 2016 will be based primarily on the legal separation of CFE
entities, the signature of coverage contracts for basic supply and regulated profitability of CFE
subsidiaries. The CRE embarks on this very ambitious programme to stop consumption of fuel
and losses due to robberies and uses tariff reductions as its fundamental drivers.

4.5.3 Functioning of the Gas System

In August of 2014 the new Hydrocarbons Law entered into effect. It regulates the exploration,
extraction, treatment, processing and refinement of petroleum and other hydrocarbons,
including natural gas. The law and its regulations also govern the transport, storage,
distribution, compression, liquefaction, decompression, re-gasification, marketing and retailing
to the public of natural gas, hydrocarbons, petroleum products and petrochemicals.

The Hydrocarbons Act treats hydrocarbons found in the subsoil as property of the state and
establishes that activities aimed at their exploration and extraction are a public utility and take
precedence over any other activity involving the use or exploitation of the ground surface or
subsoil of land indispensable to carrying out such activities.

It introduces new methods for the state to contract hydrocarbon exploration and extraction
activities, be it through PEMEX or any other productive State enterprise or the private sector.

In the past, private sector agents acted as service providers in the gas and petroleum industries
by virtue of concluding service agreements with PEMEX. They always received cash
considerations, making it less interesting for some contractors to enter into these contracts. Now
the law permits other types of exploitation, including licenses, joint production agreements,
multiple service agreements, etc.

Activities like petroleum treatment and refinement; natural gas processing; exporting and
importing hydrocarbons and petroleum products; the transport, storage, distribution,
compression, liquefaction, decompression, re-gasification, marketing and sale to the public of
natural gas, hydrocarbons, petroleum products and petrochemicals, along with the management
of integrated systems are now governed by the regulations on the activities referred to in Part III
of the Hydrocarbons Law, which replaces regulations on natural gas among other items. That
notwithstanding, the transport permits for own-use with which IBERDROLA transports natural
gas to its power stations in Mexico remain governed by the previous regime under transitional
provisions.

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Where natural gas is concerned, an open market is being created along with the restructuring of
the functions and subsidiary enterprises of PEMEX. In light of the creation of CENAGAS,
PEMEX's role in gas transport is limited to public-interest pipeline projects, and it is now to
become a user. For marketing purposes, only sales executed at production or customs
clearance facilities are now considered to be first-hand sales, which may be executed by
productive subsidiaries on behalf and at the behest of the state, according to the principle of
asymmetrical regulation. Marketing elsewhere in the system is conceived of in terms of
aggregate sales and various agents, including private-sector companies, are expected to
participate under a regime of permits and authorizations.

Advances in gas transport infrastructure

The country has made significant advances in expanding the importation and customs
clearance of natural gas thanks to private investment anchored in transport and compression
agreements concluded with the CFE and PEMEX. The government's strategy contemplates the
development of multiple gas pipelines mainly intended to contribute towards expanding and
enhancing the existing transport system as well as projects to build a new gas pipeline network
and new infrastructure for compressing gas. New infrastructure for providing gas distribution
and utility services by road transport in order to cover the needs of industry, commerce and
households is also to be developed.

In order to prevent discrimination among users, the tariff scheme for gas transport in Mexico
introduced by the CRE provides for all infrastructural additions to the integrated national
transport system to be made with benefits to consumers in mind.

The natural gas transport and storage systems incorporated into the new integrated tariff
scheme must meet the criteria of forming part of an interconnected system; providing benefits,
improving the safety, continuity, redundancy levels and efficiency of integrated systems;
standardizing integrated systems under the existing terms of service provision and guaranteeing
open access.

Certain new projects to build new gas pipelines were launched in 2012 under the auction
processes of the CFE, particularly in the north-east of Mexico (near the Pacific Ocean), on the
basis of the projected production facilities for turning fuel oil into gas. This programme is
expected to produce the desired results sometime between 2015 and 2017 by lowering fuel oil
consumption by 20% to just 4% of the national output and increasing natural gas imports as a
consequence, thus forming the basis for the expected reduction in electricity tariffs.

4.6 Industry regulation in Brazil

The electricity distribution activity carried out by joint ventures, such as Companhia de
Eletricidade do Estado da Bahía, S.A. (Coelba), Companhia Energética do Río Grande do
Norte, S.A. (Cosern), Companhia Energética de Pernambuco, S.A (Celpe) and Elektro
Electricidade e servicos, S.A., which operate in Sao Pauo and Mato Grosso do Sul, is subjected
to the federal regulation in Brazil

The Brazilian regulatory framework is based on a system of maximum tariffs that is revised
every four or five years, depending on each company’s concession contract and is updated
yearly by the regulator. Coelba and Cosern have a five-year term and Celpe and ELEKTRO
have a four-year term. In November of 2011, the regulatory authority announced the terms of
the third regulatory cycle, which are valid until early 2015. These terms were applied to Elektro
in August of 2012 (with retroactive effect up to August 2011) and to the companies of
Neoenergia in April of 2013.

The tariffs are updated annually by the Brazilian National Energy Agency (ANEEL), through the
annual adjustment process that considers inflation, an exante efficiency factor and variations on
the not manageable costs components, such as energy purchase costs and transmission tolls.

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The tariffs have two components:

 Component A: corresponding to energy purchases, power transmission services

contracts and to other costs that are out of a distributor company administration and
passed through to the end tariff.

 Component B: determined as (i) the sum of the return on the non depreciated regulatory
remuneration base (regulatory WACC applied to the replacement cost of non
depreciated distribution installations and other assets), (ii) the return of capital (a
depreciation index applied to the gross asset base) (iii) the operation and maintenance
expenses, and the expense for the uncollectible turnover (the regulator defines late
payment rates depending on the kind of grant). This last subcomponent is calculated
through a benchmarking model which compares all of the power distributors in the
country and determinates efficient cost levels.

The methodology of the fourth regulatory cycle is to be applied to Elektro starting in August
2015. In June of 2014, ANEEL opened a debate on the forth cycle of tariff review in a public
hearing on changes in the methodology used to calculate the company's operating costs, its
cost of capital (WACC), its regulatory asset base (RAB), along with accounts uncollectible and
distribution losses. For the forth reporting cycle, the cost of capital is expected to be similar to
the current rate and a quality-of-service factor and non-technical distribution losses are also to
be factored into the calculations for estimating the efficient operating costs of distributors. The
results of the first public hearing are expected to be announced in the first quarter of 2015.

As mentioned, the aim of the annual revision is to ensure that component A costs are passed
on and that component B costs perform in line with inflation and with the pre-determined
efficiency factor.

For the business of power generation, the review of the sector model introduced in 2004
brought new guidelines for the responsibilities of planning and expansion generation fleet,
significantly reducing the risk of further rationing. This expansion is being pursued via the public
tendering of generation projects in which the successful bidder is the supplier that offers the
lowest price in Brazilian reals per MWh generated, in exchange for which the bidder is awarded
a concession or permit for between 20 and 35 years (depending on the technology) to operate a
power station under a sales contract and at a price that is predetermined at the time of the
tender.

Brazil faced some important structural changes in the electricity regulation during 2014.

By Law 12.783 (the former Provisional Act 579) of 11 January 2013, the Federal Government
made official the decrease in electricity tariffs (which led to the extraordinary tariff revision
applied on 24 January 2013) and established standards for the renewal of concessions for
generation, transmission and distribution expiring between 2015 and 2017. This law allowed
these companies to extend their concessions by early renewal of their contracts under specific
conditions. As a result of the new rules, some generators decided not to renew their
concessions. The energy generated by producers who decided to renew concessions was
distributed through quotas, which, however, were not sufficient to meet market needs.
Additionally, contracts for purchase of new energy distributed in the sixth and seventh auction
due to the termination by ANEEL of the concession contracts of some plants, as well as the
delayed dates of entry into force of other plants whose schedule was postponed by ANEEL
and/or whose contracts were suspended by court resolution.

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Thus, contractual inadequacies compelled distributors to purchase electrical power in the spot
market, raising the costs of purchasing energy and exerting greater impact on cash flow. In
addition, hydraulic conditions have been unfavourable since the final quarter of 2012, when the
reservoirs at hydroelectric plants reached very low levels, resulting in increased production at
thermal power stations at much higher costs. The corollary was a significant increase in energy
costs, which temporarily impacted the earnings of distributors.

Part of this rise in costs was compensated for using funds managed by the government through
the Energy Development Account (Cuenta de Desarrollo Energético, CDE) and by means of
loans underwritten by various financial institutions (ACR). These resources amounted to around
BRL 10,000 million to cover the non-recurring expenses incurred in 2013 and BRL 18,800
million to cover those pertaining to 2014. The part of non-recurring costs not covered by these
funds was passed on to consumers in the annual adjustment of the tariffs.

These financial resources helped minimize distributors' liquidity problems in 2013 and 2014, but
according to IFRS the distributors were not allowed to recognize regulatory assets and liabilities
on their balance sheets. ANEEL therefore opened Public Hearing 61/2014 to debate whether
distributors' concession agreements should be amended with a view to taking the compensation
of regulatory assets and liabilities into consideration at the end of the concession period in order
to allow for their recognition in the distributors' financial statements. The amendment was
signed by the distributors in November 2014, and these assets and liabilities are presently
recognized according to IFRS.

On 6 November 2014 ANEEL opened Public Hearing 64/2014 for the purpose of debating the
merits of assigning energy quotas. Federal Decree 7805/2012 established the assignment of
new energy quotas in conformity with the size of the market, which are subject to review at least
once every three years. On November 25, ANEEL approved an amendment to the mechanism
for assigning quotas that takes both market share and exposure into account.

In 2015, the minimum and maximum energy prices in the spot market were changed from
BRL 15.62 and BRL 822.83 per MWh (2014 prices) to BRL 30.26 and BRL 388.48 per MWh
respectively. This amendment allowed for a significant reduction in the exposure of distributors'
cash flows.

On 29 December 2014, by virtue of Resolution 4947/2014, the introduction of the system of

tariff flags was approved to enter into effect starting in January 2015. The procedure provides
for short-term adjustments to be made to tariffs through the use of triggering indicators in the
energy cost component in the final tariffs. The tariff flags are determined on a monthly basis and
their purpose is to mitigate the exposure of distributors' cash flows to high energy prices by
reducing the difference between the price paid for energy by the distributors in the spot market
and the price paid by the consumer by virtue of the tariff. A green flag signals low energy
purchasing costs in the provision of electrical utilities generally by hydro-electric means and
does not give rise to changes in the tariffs paid by consumers. A yellow flag signals that power
generation costs are rising due to the use of thermal energy in the generation mix and leads to
a BRL 15 increase in the per-MWh price. A red flag signals a situation where the costs of
providing electrical utilities are becoming expensive owing to the use of inefficient thermal
power stations and results in a BRL 30 increase in the final per-MWh tariff.

In consideration of Brazilian distributors' treasuries exposure and a likely rise in costs they
cannot control on account of higher energy prices in early 2015, an extraordinary tariff review is
expected, the terms of which are currently under evaluation. A public hearing is also expected
to be opened to discuss the terms of the aforementioned review.

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4.7 Other EU regulation

For the last years, work has been underway to implement the important regulation approved in
2009 related, first, to internal gas and electricity markets and, second, to the promotion of
renewables and the struggle against climate change.

In relation to internal market, currently, the work is focused on the development of technical
codes and guidelines in order to become operative in 2014, as agreed by the European Council.

The following regulations of significance to the energy sector were approved in 2014:

 On 26 February EU Commission Regulation 176/2014 of 25 February 2014 was

published to amend Regulation 1031/2010, in particular for purposes of determining the
volume of greenhouse-effect gas emission rights to be auctioned in 2013-2020.

 On 25 April, Directive 2014/52/UE of the European Parliament and the Council of 16

April 2014 was published in amendment of Directive 2011/92 on the evaluation of the
repercussions of certain public- and private-sector projects concerning environmental
issues. Its main new feature is that impact assessments now must take new factors like
biodiversity or climate change into account.

 On 12 June, Directive 65/2014 on financial instruments markets (MIFID II) and

Regulation 600/2014 on financial instruments markets (MIFIR) were published,
constituting a single European rulebook applicable to all financial institutions in the
internal market: investment service providers, regulated markets and data supply
service providers. Both items of legislation enter into effect on 3 January 2017.

 Commission Regulation 651/2014 of 17 June 2014 declared certain categories of aid

compatible with the internal market in application of Articles 107 and 108 of the Treaty
and exempt from notification to the Commission. Among these categories are aid for
protecting the environment, aid for promoting energy from renewable sources, and aid
for energy efficiency, if the established conditions are met. The regulation is to take
effect starting on 1 July until the end of 2020.

 On 28 June the Directives concerning state aid for environmental protection and energy
2014-2020 were published. They stipulate the obligation to notify of individual aid
payments under a support scheme, if they exceed certain fixed thresholds. The
directives evaluate the compatibility of aid for energy from renewable sources; aid for
energy efficiency measures, including co-generation and urban heating and
refrigeration networks; aid for efficiency in the use of resources, in particular waste
management; aid for carbon capture and storage; aid for energy infrastructure; for the
suitability of production; for relocating businesses, etc.

 Council Directive 2014/87/Euratom of 8 July 2014 amending Directive 2009/71/Euratom

establishing a Community framework for the nuclear safety of nuclear installations. This
Directive reinforces the general and specific obligations of these power stations along
with their obligation to maintain transparency, determines the application of the goal of
nuclear safety, establishes a system of initial evaluation and periodic safety inspections,
and establishes a readiness and response protocol for on-site emergencies.

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 Directive 94/2014 concerning the introduction of infrastructure for alternative fuels
establishes a minimum level of infrastructure (stations and charging points) in Member
States and the standardization of their design and use for purposes of fostering the
market for electric cars, as well as natural and compressed gas vehicles in the
European Union.

 Decision of the European Commission determining a list of sectors and sub-sectors

which are deemed to be exposed to a significant risk of carbon leakage for the period
2015 to 2019. In order to lower the risk of carbon leakage, every five years, the
European Commission must prepare a list of sectors and sub-sectors considered to be
significantly exposed to this risk. Companies in these sectors receive emission rights
free of charge. The list is prepared according to criteria concerning the costs of CO2
emissions and levels of exposure to trade.

 Regulation 1348/2014 on data reporting in the case of energy contracts subject to the
Regulation on wholesale energy market integrity and transparency (REMIT) establishes
the rules and details of the information to be provided to the agency. This standard is
needed for implementation of REMIT.

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5. MAIN RISKS AND UNCERTAINTIES

5.1 Risk Management System

The IBERDROLA Group is exposed to various inherent risks in the countries, industries and
markets in which it operates and the businesses it carries out, which could prevent it from
achieving its objectives and executing its strategies successfully.

The Company's Board of Directors, aware of the importance of this matter, promoted the
necessary mechanisms so that the risks relevant to all of the Group's activities and businesses
are appropriately identified, measured, managed and controlled, and has established, through
the Group's general risk control and management policy, the basic mechanisms and principles
necessary for the appropriate management of risk-opportunity with a level of risk which allows:

- attain the strategic objectives formulated by the Group with controlled volatility;
- provide the maximum level of assurance to the shareholders;
- protect the results and reputation of the Group;
- defend the interests of customers, shareholders, other groups interested in the progress
of the Company, and society in general; and
- ensure corporate stability and financial soundness in a sustained manner over time.

In the implementation of the aforementioned commitment, the Board of Directors and its
Executive Committee have the cooperation of the Audit and Risk Supervision Committee,
which, as a consultative body, monitors and reports upon the appropriateness of the system for
assessment and internal control of significant risks, acting in coordination with the audit
committees existing at other companies of the Group.

Every action aimed at controlling and mitigating risks will consider the following basic action
principles:

a) Integrate the risk-opportunity vision into the Company’s management, through a definition
of the strategy and the risk appetite and the incorporation of this variable into strategic
and operating decisions.
b) Segregate functions, at the operating level, between risk-taking areas and areas
responsible for the analysis, control, and monitoring of such risks, ensuring an
appropriate level of independence.
c) Guarantee the proper use of risk-hedging instruments and the maintenance of records
thereof as required by applicable law.
d) Inform regulatory agencies and the principal external players, in a transparent way,
regarding the risks facing the Group and the operation of the systems developed to
monitor such risks, maintaining suitable channels that favour communication.
e) Ensure appropriate compliance with the corporate governance rules established by the
Company through its Corporate governance system and the update and continuous
improvement of such system within the framework of the best international practices for
transparency and good governance, and implement the monitoring and measurement
thereof.

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 f) Act at all times in compliance with the law and the Company’s Corporate governance
system and, specifically, the values and standards of conduct established in the Code of
Ethics, and pursuant to the principle of zero tolerance of illegal acts and fraud set forth
in the Crime Prevention and Anti-Fraud Policy.

The General risk control and management policy and its basic principles are implemented by
means of a comprehensive risk control and management system, supported by a Corporate
Risk Committee and based upon a proper definition and allocation of duties and responsibilities
at the operating level and upon supporting procedures, system methodologies and tools
suitable for the various system stages and activities including:
a) The ongoing identification of significant risks and threats based on their possible impact
on key management objectives and the financial statements (including contingent
liabilities and other off-balance sheet risks).
b) The analysis of such risks, both at each corporate business or function and taking into
account their combined effect on the Group as a whole.
c) The establishment of a structure of policies, guidelines, and limits, as well as of the
corresponding mechanisms for the approval and implementation thereof, which
effectively contribute to risk management being performed in accordance with the
Company’s risk appetite.
d) The measurement and monitoring of risks by following consistent procedures and
standards that are homogeneous and common to the Group as a whole.
e) The analysis of risks associated with new investments, as an essential element of
decision-making based upon profitability-risk.
f) The maintenance of a system for internal monitoring of compliance with policies,
guidelines and limits, by means of appropriate procedures and systems, including the
contingency plans needed to mitigate the impact of the materialisation of risks.
g) The periodic monitoring and control of profit and loss account risks in order to control
the volatility of the annual income of the Group.
h) The ongoing evaluation of the suitability and efficiency of applying the system and the
best practices and recommendations in the area of risks for eventual inclusion thereof in
the model.
i) The audit of the system by the Internal Audit Division.

In addition, the General risk control and management policy is further developed and
supplemented by the Corporate risk policies and the Specific risk policies established in
connection with certain businesses and/or companies of the Group, which are listed below and
are also subject to approval by the Company's Board of Directors.

Corporate risk policies structure:

a) Corporate risk policies:

- Corporate credit risk policy

- Corporate market risk policy

- Operational risk market transactions policy

- Insurance policy

- Investment policy

- Financing and financial risk policy

- Treasury share policy

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 - Risk policy for equity interests in listed companies

- Reputational risk framework policy

- Purchasing policy

b) Risk policies for the various businesses of the Group:

- Risk policy for the deregulated business of the IBERDROLA Group

- Risk policy for the renewables business of the IBERDROLA Group

- Risk policy for the network business of the IBERDROLA Group

- Risk Policy for the non-energetic Business of the IBERDROLA Group

The General risk control and management policy, as well as the Summary of the corporate risk
policies and another Summary of the specific risk policies for the various businesses of the
Group are available on the corporate website (www.iberdrola.com).

In order to align the risk impact with the established risk appetite, the Executive Committee of
the Board of Directors, acting at the proposal of the business or corporate divisions involved
and upon a prior report from the Group’s Risk Committee, annually reviews and approves
specific guidelines regarding the Group’s risk limits.
Pursuant to established guidelines, the competent administrative bodies of each company of the
Group, within such company’s area of responsibility, reviews and approves the specific risk
limits applicable to each of them.
The companies and corporate functions of the Group are responsible for implementing, within
their areas of activity, the control systems required for compliance with the General risk control
and management policy and with the limits thereunder.
The risk factors to which the Group is generally subject are listed below:
a) Corporate Governance Risks: the Company assumes the need to safeguard the social
interest of the Company and the strategy of sustained maximisation of the economic
value of the Company and its long-term success, in accordance with social interest,
culture and the Group’s corporate vision, taking into account the legitimate public and
private interests that converge in the conduct of all business activities, particularly those
of the various stakeholders and communities and regions in which the Company and its
employees act. A fundamental requirement for the foregoing is compliance with the
Company’s Corporate governance system, comprising the By-Laws, the Corporate
Policies, the internal corporate governance rules and the other internal codes and
procedures approved by the competent decision-making bodies of the Company and
inspired by the good governance recommendations generally recognised in
international markets.
b) Market risks: defined as the exposure of the Group’s results and assets to changes in
market prices and variables, such as exchange rates, interest rates, commodity prices
(electricity, gas, CO2 emission rights, other fuel, etc.), prices of financial assets and
others.
c) Credit risks: defined as the possibility that a counterparty fails to perform its contractual
obligations, thus causing an economic or financial loss to the Group. Counterparties can
be final customers, counterparties in financial or energy markets, partners, suppliers, or
contractors.
d) Business risks: defined as the uncertainty regarding the performance of key variables
inherent in the business, such as the characteristics of demand, weather conditions, the
strategies of different players, and others.

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 e) Regulatory risks: defined as those arising from regulatory changes made by the various
regulators, such as changes in compensation of regulated activities or in the required
conditions of supply, environmental regulations, tax regulation and others.
f) Operational risks: defined as those related to direct or indirect economic losses
resulting from inadequate internal procedures, technical failures, human error or as a
consequence of certain external events, including the economic, social, environmental,
and reputational impact thereof, as well as legal and fraud risks.
g) Reputational risks: potential negative impact on the value of the Company resulting
from Company’s behaviour below the expectations created among various
stakeholders: shareholders, customers, media, analysts, Government, employees, and
society in general.
Owing to its universal and dynamic nature, the system allows for the consideration of new risks
that may affect the Group following changes in its operating environment or revisions of
objectives and strategies, as well as adjustments resulting from ongoing monitoring, verification,
review and supervision activities.

The Audit and Risk Supervision Committee of the Board of Directors periodically monitors the
evolution of the Company’s risks:

- It reviews the Group’s Quarterly risk reports, which include monitoring compliance
with risk limits and indicators and updated key risk maps, submitted by the Group’s
director of Corporate risks.

- It coordinates and reviews risk reports sent periodically, at least semi-annually, by

the audit and compliance committees of the main subsidiaries of the Group, along
with the risk director appearances are used to prepare a risk report for the Board of
Directors at least semi-annually.

For further details, see the section Control systems and risk management of the Corporate
Governance Report 2014.

5.2 Credit risk

The IBERDROLA Group is exposed to credit risk arising from its counterparties (customers,
suppliers, financial institutions, partners etc.) default on their contractual obligations. Exposure
may arise with regard to unsettled amounts, the cost of substituting products not supplied and
also, in the case of dedicated plants, outstanding amounts.

Credit risk is managed and limited in accordance with the type of transaction and the
creditworthiness of the counterparty. A specific corporate credit risk policy is in place which
establishes criteria for admission, approval systems, authorisation levels, scoring tools,
exposure measurement methodologies, etc.

With regard to credit risk on trade receivables, the historical cost of defaults has remained
moderate and stable at close to 1% of total turnover of this activity, despite the current difficult
economic environment. Regarding other exposure (counterparties in transactions with financial
derivatives, placement of cash surpluses, transactions involving energy and guarantees
received from third parties), no significant defaults or losses were incurred in 2014 or 2013.

At 31 December 2014 and 2013 there is no significant credit risk concentration in the
IBERDROLA Group.

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5.3 Financial risk

5.3.1 Interest rate risk

The IBERDROLA Group is exposed to the risk of fluctuations in interest rates affecting cash
flows and market value in respect of items in the balance sheet (debt and derivatives). In order
to adequately manage and limit this risk, the IBERDROLA Group manages annually the
proportion of fixed and variable debt and establishes the actions to be carried out throughout
the year: new sources of financing (at a fixed, floating or indexed rate) and/or the use of interest
rate derivatives.

Debt arranged at floating interest rates is basically tied to Euribor, Libor-GBP and Libor-USD
and to the most liquid local reference indexes in the case of the borrowings of the Latin
American subsidiaries.

The debt structure at 31 December 2014, once considered the hedge provided by the
derivatives traded, is included in the Note 5 of the Consolidated financial statements.

Given the composition of the IBERDROLA Group's debt at year end, between fixed and floating
interest rate (45% fixed/55% floating), and assuming it remains the same in the future, the
impact on profit and loss of a potential rise of 25 basis points (0.25%) in the benchmark rates
mentioned in the previous paragraph would be EUR 37 million (higher finance cost).

5.3.2 Foreign currency risk

As the IBERDROLA Group's presentation currency is the euro, fluctuations in the value of the
currencies in which borrowings are instrumented and transactions are carried out with respect
to the euro, mainly the sterling pound, the US dollar and the Brazilian real, may have an effect
on the finance costs, profit and equity of the Group.

The IBERDROLA Group reduces this risk by ensuring that all its economic flows are carried out
in the currency of each Group company, provided that this is possible and economically viable
and efficient, through the use of derivatives if not.

The impact on the consolidated net asset value of a hypothetical depreciation of currencies due
to Group’s investment in foreign subsidiaries is mitigated by maintaining foreign currency debt,
as well as through financial derivatives.

The debt structure at 31 December 2014, once considered the hedge provided by the
derivatives traded, is included in the Note 5 of the Consolidated financial statements.

Considering the composition of the finance cost in foreign currency in 2014 (56% EUR, 23%
USD, 16% GBP, 5% BRL), a 5% rise in the main currencies and assuming it remains the same
in the future would have a negative impact on profit and loss of EUR 24 million (higher
consolidated finance cost in euros).

5.3.3 Liquidity risk

Exposure to adverse situations in the debt or capital markets or in relation to the IBERDROLA
Group's own economic/financial situation may hinder or prevent the Group from obtaining the
financing required to properly carry on its business activities.

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The IBERDROLA Group’s liquidity policy is aimed at ensuring that it can meet its payment
obligations without having to obtain financing under unfavourable terms. For this purpose,
various management measures are used such as the arrangement of committed credit facilities
of sufficient amount, deadline and flexibility, diversification of the coverage of financing needs
through access to different markets and geographical areas, and diversification of the maturities
of the debt issued.

The sum of cash, liquid assets and committed undrawn credit facilities would sufficiently cover
the Group's expected liquidity requirements for a period of over 24 months, excluding the
arrangement of any new credit.

The figures relating to changes in the Company's debt are included in Notes 25 and 50 to the
Consolidated financial statements.

5.4 Activity risk

The activities of the different businesses that the IBERDROLA Group developed are submitted
to various risks including market, credit, operational, business, regulatory and reputational risk,
that arise due to the uncertainty of the main variables that affect them.

5.4.1 Regulatory risk

Companies in the IBERDROLA Group are subject to laws and regulations concerning prices
and other aspects of their activities in each of the countries in which they operate. The
introduction of new laws and regulations or amendments to the already existing ones, may have
an adverse effect on the Group’s operations annual results and economic value of businesses.

The most noteworthy developments in Spain were the new regulatory measures enacted in
2013 and under the development or enacted during 2014 to eliminate the revenue shortfall,
which affects the Group's entire energetic business networks, renewable energy and
deregulated businesses. Among these, we could underline:

- the Royal Decree-Law 2/2013, of 1 February, on urgent measures within the electricity
system and the financial sector;
- the Royal Decree-Law 9/2013, of 12 July, on adopting urgent measures to ensure the
financial stability of the electricity system;
- the Law 24/2013, of 26 December, on the Electricity Sector and the various
implementing draft royal decrees;
- the Royal Decree-Law 17/2013, 27 December, determining the tariff for electricity in
contracts subject to the voluntary price for small consumers in the first quarter of 2014;
with a total estimated pre-tax impact on the Group's energetic businesses in Spain of EUR
1,000 million per annum.

The following matters concerning the other countries are also noteworthy:

– United Kingdom: the current review of the remuneration for the Group's electricity
distribution business for the following regulatory period of April 2015-March 2023 and the
ongoing review of the electricity generation and retail market, which could affect the future
profitability of the IBERDROLA Group's existing assets in this country.
– United States: the forthcoming review of tariffs for the gas and electricity distribution
companies, NYSEG and RG&E.

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 – Brazil: successive regulatory measures approved in 2014 aimed at mitigating the impact
over time on the cash flows and profits of distribution companies due to the current
drought and high energy prices, as well as those due for approval in 2015.
– Mexico: the Energy Market Reform currently being drawn up which, according to the best
information available, could affect the profitability of assets dedicated to selling electricity
to private partners and the outlook for plants currently under construction.

5.4.2 Network business risk

The regulations in each country in which the IBERDROLA Group's network businesses operate
establish regularly revised frameworks, guaranteeing that these businesses will receive
reasonable and predictable returns. These frameworks include penalties and bonuses for
efficiency, service quality and, eventually, for default management, which have a minor,
immaterial impact overall. Significant structural amendments to these regulations could pose a
risk to these businesses.

In general, the profitability of the IBERDROLA Group's network businesses is not exposed to
demand risk.

The IBERDROLA Group's network businesses in Spain and the United Kingdom do not sell
energy and, therefore, they are not exposed to any market risk associated with energy prices.

The network businesses in Brazil and some USA sell energy to regulated customers at a price
determined by certain previously approved tariffs. In the event a prudent management policy is
followed regarding supply and in accordance with that established by the regulator, the
regulatory frameworks in both countries guarantee sums will be collected in subsequent tariff
readjustment reviews for possible purchase price deviations from those previously recognised in
the tariff.

Given the above, in the case of extraordinary events (extreme drought in Brazil, catastrophic
storms in the USA, etc.), occasional temporary gaps between payments and collections may
arise with an impact on the cash flows of some of these businesses and ultimately on profits
recognised under IFRS.

5.4.3 Renewable business

The regulations of each country in which the Group operates establish regulatory frameworks
aimed at promoting the development of renewable energies based on formulas which may
include premiums, green certificates, tax or regulated tariff deductions, which allow investors to
obtain sufficient and reasonable return. Any change to the aforementioned regulation may
represent a risk for said business.

In addition to the aforementioned regulatory risk, Group’s renewable energy businesses may be
subject, to a greater or lesser extent, to wind resource risk and market risk.

In the case of the IBERDROLA Group, the annual wind resource risk is mitigated through the
high number of wind power farms available and their geographic diversification, and the trend to
compensate high wind energy periods with those with less wind energy on the medium term.

Regarding the electricity price risk the following should be mentioned:

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 Renewables business – Spain

Subsequent to the approval of the new regulatory framework (Royal Decree-Law 9/2013, of 12
July, Law 24/2013, of 26 December, Royal Decree 413/2014, of 6 June, and Ministerial Order
IET/1045/2014, of 16 June), all renewable energy generated is remunerated at market price
plus a premium per MW. This guarantees a reasonable regulated return based on a recognised
standard investment. This return is readjusted every three years within predetermined bands to
cover any possible deviation in market price. This premium per MW is not applicable for wind
farms brought on line during and before 2003. As a result, initially all output would be fully or
partially exposed to market risk.

 Renewables business – United Kingdom

The renewables business in the UK is partially exposed to the risk of fluctuations in the market
price of electricity in the UK, since the obtained revenue comprise income from the energy sold
and income from the sale of renewable energy certificates.

 Renewables business – United States and other countries

The renewables businesses in the other countries in which the Group operates sell their energy,
preferably at a fixed price, whether through regulated tariffs or through long-term power
purchase agreements (PPAs).

However, in the USA, 25% of the energy produced is sold at market price over more or less
short terms.

With electricity prices around 30 USD/MWh, a 5% change in prices could give rise to an impact
of EUR ±5 million in operating results.

The positions exposed to market risk of the renewables businesses in Spain and the UK are
managed and included in their position in the Deregulated businesses in these countries, to be
hedged in the most efficient manner possible.

5.4.4 Deregulated electricity and gas generation and retailing businesses Commodity
price risk

The activities of the Group's deregulated businesses are subject to a range of market, credit,
operating, business and regulatory risks, coming from the uncertainty of the main variables that
affect them, such as: fluctuations in commodity prices, changes in hydroelectric and wind
energy production (of both the Group's and of third parties), changes in electricity and gas
demand, and plant availability.

The main variable that affects IBERDROLA’s result in terms of raw materials’ market price, is
the electricity price. However, in many countries, electricity prices are strongly correlated with
the price of the fuels used in its production. Therefore, risk studies are carried out on fuel price
trends.

In the case of fuel and CO2 emission allowances, these risks are evident in:

 The electricity generation and retailing business, in which the IBERDROLA Group is
exposed to variations in the price of CO2 emission rights and in the sale price of
electricity, as well as to variations in fuel costs (mainly gas and coal).

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  The gas retailing business, in which a large portion of the IBERDROLA Group's
operating expenses relate to the purchase of gas for customer supplies. The
IBERDROLA Group is therefore exposed to the risk of variations in the price of gas.

 Unhedged energy transactions (discretionary trading).

To a large extent, the mutual closing out of positions by the generation business and retailing
business mitigates the market risk to which the Group is exposed. The remaining risk is
mitigated by diversifying sale and purchase agreements, and specific clauses therein, as well as
by arranging derivatives.

 Deregulated business in Spain

Commodities’ Price risk

Given current market conditions, the production price of the coal-fired power plants defines, to a
large extent, the price of electricity in Spain since coal is the marginal technology necessary to
cover electricity demand. Consequently, the price of coal conditions revenues from the other
less expensive technologies which are used to cover demand. With coal prices around 60
USD/t, a 5% change in the prices could give rise to an impact of EUR -45/+45 million on
operating results.

The price of CO2 influences the cost of production in coal-fired power plants. With coal prices
around 7 EUR/t, a 5% change in the prices could give rise to an impact of EUR - 15/+15 million
on operating results.

The majority of gas supplied in Spain is paid indexed to the price of oil by means of complex
formulas. IBERDROLA has these types of agreements for the supply of gas, as well as other
types of fixed-price supply and with prices not indexed to the market price of oil. These
agreements are used for electricity generation, for the consumption of its final customers and for
sale to other intermediaries. Due to the fact that the electricity generation margin is covered by
the contracting formulas of the system operator, only residual risk remains in sales to final
customers and third parties. The risk assumed is reduced and depends on the correlation
between the price of oil and the European and international gas prices. In the event of a 5%
fluctuation in the oil price, the risk would be EUR -7/+4 million.

Hydraulic risk

Despite having a large water storage capacity, IBERDROLA's results depend significantly on
the flow contributions. The changes in output with respect to the average value can be up to -
4,000 GWh in a dry year and +5,000 GWh in a wet year, the variability would be between EUR -
150/+100 million. The loss of profit is not covered as it is an IBERDROLA’s inherent risk.

Demand risk

Given the current market condition, where price is primarily determined by the generation cost
of coal-fired plants (which make up around 15% of the generation mix), it is not considered that
demand fluctuations will impact on marginal technology in the market. The impact on the market
price of a 1% change in demand is therefore limited, amounting to approximately 0.25
EUR/MWh.

A moderate drop in demand in Spain does not affect the scheduled output of the Group's
nuclear, hydroelectric and wind power plants, since there is a mandatory electricity market in
Spain guaranteeing the efficient dispatch of output from all technologies.

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Nevertheless, there could be an impact if a drop in electricity demand entails an equivalent
reduction in the Group's retail sales and consequent narrowing of margin. This is mitigated to
some extent by increasing sales of own energy on the wholesale market.

Taking both effects into account, it is estimated that a 1% fluctuation in demand would have an
impact of EUR ±15 million overall.

Operational risk

From the perspective of its impact on business results, the main risk arises from nuclear power
plant outages (due to stoppages for fuel reloading, in accordance with a pre-established
schedule) and hydroelectric power plant outages which are not associated with a large storage
reservoir (flow facilities, in which water is not storable). As a result of such outages, production
and, therefore, the margin associated with this production are lost. This risk is managed through
excellence in the operating and maintenance practices of the plants and a culture focused on
total quality and the reduction of operational risks, which allow the impact of this risk to be kept
low.

 Deregulated business – United Kingdom

Commodity price risk

In a market like the British market, geared towards thermal power generation, the clean dark
spread has become the appropriate index to follow the uncertainty of the margins of coal-fired
power plants. Despite the fact that commodities (coal, CO2 and electricity) are listed separately,
the uncertainty of the unit margin is studied since it has been detected that it is a better indicator
of the uncertainty of the results. With clean dark spread levels around 6 GBP/MWh, a 5%
change in the spreads could give rise to an impact of EUR ±3 million on operating results.

Similar to coal, the clean spark spread has become the appropriate index to follow the
uncertainty of the margins of combined cycle power plants. Despite the fact that commodities
(coal, CO2 and electricity) are listed separately, the uncertainty of the unit margin is studied
since it has been detected that it is a better indicator of the uncertainty of the results. With the
clean spark spread levels around 3 GBP/MWh, a 5% change in the spreads could give rise to
an impact of less than EUR 1 million on operating results.

In addition to its use as fuel in combined cycle power plants, IBERDROLA sells gas to
customers in the United Kingdom and has long-term gas agreements to do so. A portion of the
aforementioned agreements has their price linked to the British wholesale markets and,
therefore, they do not represent any risk for the Company. However, there are agreements for
which the price is fixed and which are linked to other indexes. These represent a risk if the price
of gas changes. At the current levels, a 5% change to the price would have an impact of EUR
±10 million on results.

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 Demand risk

Electricity consumption demand is usually one of the most significant risk factors for any
company. However, IBERDROLA currently purchases from third parties a significant portion of
the energy it sells (2,500, 4,100 and 4,150 GWh in 2014, 2013 and 2012, respectively, of a total
amount of electricity sold of 22,000 GWh/year), since it is more profitable to do so under current
market conditions than IBERDROLA producing it using its own thermal power plants. From a
business perspective, fluctuations in electricity demand mean that additional amounts of
electricity need to be purchased or that these acquisitions need to be reduced. In any case, the
profit or loss IBERDROLA obtains from this intermediation is low and much lower than that
obtained from its own output. Thus, demand fluctuations have a small impact on profit or loss of
EUR ±10 million for every 1% fluctuation in customer demand.

Operational risk

From the perspective of its impact on business results, the main risk arises from outages at the
Longannet coal-fire plant and the combined cycle power plants. With regard to these outages,
all profit or loss obtained from production is committed, although the high operating and
maintenance standards of the plants and a culture focused on total quality and the reduction of
operational risks, allow the impact on this risk to be kept low. Loss of profit from this type of
event (material damages or machinery malfunctions) is covered by an insurance policy after a
certain deductible level, which is marked by the risk retention level that IBERDROLA can
assume and the insurance conditions that the market offers for risks of these types.

 Deregulated business – Mexico

Commodity price risk

Electricity generation at IBERDROLA Generación Mexico is gas-intensive. Gas prices therefore

comprise an essential component of this risk.

Approximately 90% of the electricity generated in Mexico is sold through long-term sales
agreements (to CFE and, to a lesser extent, other major industrial customers), whereby the risk
associated with the price of gas for generating this electricity is passed on.

The remaining energy is sold to customers at a price linked to the official tariffs published by
CFE. These tariffs depend on the price of the various fuels, specially fuel-oil, diesel, natural gas
and coal.

As a result, there is a risk associated with the price of these fuels on the international markets:

 A 5% change in fuel-oil or diesel prices (which are closely linked) would give rise to a
EUR ±3 million change in results.
 A 5% change in the natural gas price would give rise to a EUR ±2 million change in
results.
 A 5% change in the price of coal would give rise to a EUR ±0.5 million change in
results.

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 Demand risk

The structure of the agreements IBERDROLA has entered into in Mexico isolates the business
results from electricity demand fluctuations. Revenues come mainly from plant availability and
only the sales indexed at the official Mexican tariff are subject to a certain extent by the
fluctuation in demand. Nonetheless, most of the plants have committed sales exceeding their
production capacity and therefore a shift in demand would not have an impact on their
operations or results as the electricity generated would be sold to another customer. Changes in
electricity demand in Mexico therefore have no effect on results.

Operational risk

From the perspective of its impact on business results, the main risk arises from combined cycle
power plant outages. With regard to these outages, all profit or loss obtained from production is
compromised, although the high operating and maintenance standards of the plants and a
culture focused on total quality and the reduction of operational risks, allow the impact of this
risk to be kept low. Loss of profit from this type of event (material damages or machinery
malfunctions) is covered by an insurance policy after a certain deductible level, which is marked
by the risk retention level that IBERDROLA can assume, and the insurance conditions that the
market offers for risks of these types.

 Deregulated business – United States and Canada

Commodity price risk

IBERDROLA's business in the United States and Canada is geared towards natural gas
transport and storage. As a result, the risk assumed mainly arises from fluctuations in the price
of natural gas over time. There is no risk arising from the price levels but rather from the
difference in the price of natural gas between the period of high prices (winter) and the period of
low prices (summer). In the event the difference between both periods is 0.40 USD/MWh, if the
aforementioned difference were to fluctuate by 5%, the uncertainty of the results would be EUR
±3 million.

Operational risk

The business's gas storage facilities are exposed to operational risks associated with outages
impeding the injection or extraction of gas, gas storage leaks and shifts in geological structures
that hinder recovering injected gas.

IBERDROLA mitigates such risk by conforming to the highest standards of predictive and
corrective maintenance, and permanently monitoring the geological parameters of the storage
facilities. This will enable it to respond quickly to any potential threats that may be identified.

 Gas supply operations

The IBERDROLA Group maintains an adequate balance in the global basket, both in terms of
the number of supplier countries and the type of supply (gas via pipelines or LNG), which is
demonstrated in that it has five suppliers from different areas (Norway, Nigeria, Algeria and
Qatar, among others).

Gas supply in Spain is guaranteed through long-term agreements. 13% of this basket of
agreements is at a fixed price and the remainder is linked to the prices of various fuels on
international markets.

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Approximately 25% of long-term gas agreements in the United Kingdom are at a fixed price,
while the others are indexed to electricity, gas and other petroleum products on international
markets, and to inflation in the UK.

Gas supply in Mexico is secured through long-term agreements with PEMEX and CFE at a price
linked to international natural gas prices in the US.

The gas business in the United States and Canada involves natural gas storage, whereby net
gas purchases are not necessary over and above the fuel needed for the transfer, injection and
extraction thereof. These quantities are small and procured gradually on local gas markets. No
long-term supply agreements have been arranged, at 31 December 2014.

 Unhedged energy transactions (discretionary trading)

Discretionary trading of electricity, gas, emissions allowances and other fuels and associated
products performed by some of the Group's businesses is residual and the overall risk thereof is
mitigated using individual stop-loss limits, whose total aggregate can never exceed 2% of the
net consolidated profit for the period, pursuant to the market risk policy approved by
IBERDROLA, S.A.'s Board of Directors.

IBERDROLA has reduced discretionary trading in recent years in line with the widespread move
away from market speculation. At 31 December 2014, the notional value of derivatives used in
speculative trading (calculated in accordance with the criteria set forth in the European Market
Infrastructure Regulation (EMIR)) was below EUR 200 million versus close to EUR 400 million
at 31 December 2013.

5.4.5 Other operational risks

During all IBERDROLA Group activities, direct or indirect losses may arise as a result of
inadequate internal procedures, technical failures, human error or external events.

Specifically, the IBERDROLA Group is exposed, among other risks, to malfunctions, explosions,
fire, toxic spillages or polluting emissions at its gas and electricity distribution networks and
generating plants. It could also be adversely affected by sabotage, adverse meteorological
conditions or force majeure. Any of these risks could cause damage or destruction to the
IBERDROLA Group's facilities, as well as injuries to third parties or damage to the environment,
along with the ensuing lawsuits, especially in the event of power outages caused by accidents
at our distribution networks and possible penalties imposed by the authorities.

Although many of these risks are unpredictable, the IBERDROLA Group mitigates them by
carrying out the necessary investments, implementing operation and maintenance procedures
and programmes (supported by quality control systems), planning appropriate employee
training, and taking out the required insurance covering both material damages and civil liability.

In relation to the insurance cover, IBERDROLA has international insurance programmes to

cover equity (insurance for material damages, machinery breakdowns, loss of profits, damages
from natural disasters and risks arising from construction work) and third-party liabilities (general
civil liability, liability for environmental risks, professional civil liability, etc.).

247
However, this insurance does not completely eliminate operational risk, since it is not always
possible, or it is not in its interest to pass such risk on to insurance companies and, in addition,
cover is always subject to certain limitations.

The IBERDROLA Group’s nuclear power plants in Spain are also exposed to risks relating to
their operations and risks arising from the use, storage and handling of radioactive materials.

- Current Spanish law caps the liability of nuclear power plant operators in the event of a
nuclear accident at EUR 700 million. This liability for a nuclear accident must be
compulsorily insured by the operator of Spanish nuclear power plants. The
IBERDROLA Group meets this obligation by taking out Nuclear Civil Liability insurance
policies for each plant. However, Law 12/2011, of 27 May, concerning civil liability for
nuclear damage or damage caused by radioactive materials, will increase the operator's
liability ceiling and the consequent ceiling on mandatory insurance to EUR 1.200 million
for nuclear power plants. The law will enter into force when all signatories of the Paris
and Brussels Conventions ratify the 2004 Amendment Protocols, as established in
these conventions.

- Accordingly, it is important to point out the indirect economic risk to which the
aforementioned power plants are exposed as a result of a possible serious incident in
Spain or in other country could affect the periodic renewals of their compulsory
operating licences and the increase in their safety investments.

Market trading conducted by the Group's various energy trading desks and treasury dealers is
also exposed to operational risk due to possible inappropriate processes, technological faults,
human error, fraud or any other external or internal event.

This risk in mitigated by following the operational risk policy when trading on the market based
on a robust risk control culture, a proper segregation of duties, the publication of clear
processes and policies and secure and flexible information systems. This policy sets specific
thresholds and guidelines applicable to all trades performed in accordance with the principle of
proportionality.

5.4.6 Environmental risks

IBERDROLA accepts that the environment places constraints on all human activities and is a
factor of companies’ competitiveness, and it is committed to promoting innovation in this field
and also eco-efficiency, to gradually reducing the environmental impact of its activities, facilities,
products and services, and striving to ensure that its activities’ development is congruent with
future generations’ legitimate right to an appropriate environment.

The Group undertakes and promotes this commitment through its policies. IBERDROLA
currently has three specific policies in order to manage environmental issues: environmental
policy, anti-climate change policy and biodiversity policy, which set forth the principles through
which the Company will continue to improve its environmental management.

IBERDROLA was also included, for the twelfth consecutive year, on the global Dow Jones
Sustainability Index, a worldwide benchmark for recognition of companies’ contributions to
sustainable development, as well as on other prestigious international sustainability indexes. It
is the only utility company to have earned this distinction since the index since was created in
1999.

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5.4.7 Legal risks

IBERDROLA Group companies are party to certain in-court and out-of-court disputes within the
ordinary course of their activities, the final result of which, in general, is uncertain. An adverse
result, or an out-of-court resolution thereof or other proceedings in the future could have an
material adverse effect on our business, financial situation, operating results and cash flows.
However, the Group's legal advisers believe that the outcome of the aforementioned disputes
will not have a significant effect.

Note 43 of the Consolidated financial statements contains a more detailed description of the
most significant matters regarding contingent liabilities.

5.4.8 Country risk

To a greater or lesser extent, and depending on their nature, all the IBERDROLA Group’s
international activities are exposed to the risks described above and also to other risks inherent
to the countries in which they take place:

− Changes to administrative policies and regulations in the country.

− Imposition of monetary and other restrictions on the movement of capital.

− Changes in the market.

− Economic crises, political instability and social unrest which affects operations.

− Public expropriation of assets.

− Exchange rate fluctuations.

The results of our international subsidiaries, their market value and their contribution to the
Group may be affected by such risks.

The main operations of the IBERDROLA Group are concentrated in Spain, the United Kingdom,
the United States, Brazil and Mexico, low- to moderate-risk countries, the credit ratings of which
are as follows:

Country Moody´s S&P Fitch

Spain Baa2 BBB BBB +
United Kingdom Aa1 AAA AA+
United States Aaa AA+ AAA
Brazil Baa2 BBB- BBB
Mexico A3 BBB+ BBB+

The presence in countries other than the aforementioned is not significant at a Group level from
an economic point of view.

5.5 Risks materialised during the year

See Risk management and control systems of the 2013 Corporate governance report.

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6. SIGNIFICANT EVENTS SUBSEQUENT TO YEAR END

Events subsequent to year end are described in Note 50 to the consolidated financial
statements.

7. RESEARCH AND DEVELOPMENT ACTIVITIES

The IBERDROLA Group is aware of the importance of innovation in order to continue

implementing an industrial project which is at the cutting edge of the industry. The R+D+i efforts
are directed at optimising operating conditions, improving safety, reducing environmental impact
and developing technologies which permit future energy challenges to be met. IBERDROLA
also opens up new business opportunities in the energy sector through innovation. EUR 170
million was invested in R&D and innovation during 2014 (2013: EUR 159 million), especially
projects related with smart grids, clean energy generation, offshore wind and new technologies
and business models.

This effort represents 0.6% and 0.5% of consolidated revenue for 2014 and 2013, respectively.

Thanks to the ongoing commitment to innovation, IBERDROLA was recognised as the most
innovative Spanish utility company and the fifth most innovative in Europe according to the
European Commission.

Iberdrola Ventures – PERSEO is IBERDROLA's corporate venture capital programme for

investing in innovative technologies and business models that guarantee a sustainable energy
model. Highlights in 2014 included the acquisition of a stake in the Silicon Valley company
QBotix and the launch of the Open Innovation Ventures programme to collaborate with
IBERDROLA's technology providers. The first project of this programme was to establish GDES
Tech4Services, a joint venture between IBERDROLA and its technology partner Grupo
Dominguis to develop new operations and maintenance solutions in the electricity sector.

As part of a clear strategy, set out in the 2012-2014 R&D and Innovation Plan, innovation is
IBERDROLA's primary tool to guarantee the Company's sustainability, efficiency and
competitiveness, focusing on three main issues:

- Efficiency, geared towards a continuous streamlining of our operations, managing the

lifespans of facilities and equipment, cutting operation and maintenance costs, and
reducing our environmental footprint. More than 200 R&D and innovation projects, all of
which are expected to have an effect on business in the short/medium term, are now
ongoing thanks to the involvement of all IBERDROLA Group employees.

- New products and services, in response to customers' needs in an increasingly global

and competitive market. These projects deploy existing technology to produce business
models offering power supply, facilities and technologies that are increasingly more
efficient and environment-friendly – for example, energy efficiency, electric vehicles,
smart grids and distributed energy resources.

- Disruptive business models and technologies that assist us in undertaking the

energy challenges ahead. Through PERSEO, IBERDROLA's corporate venture capital
programme, we invest in new disruptive technologies and areas of business focusing on
making the energy model sustainable.

Some of the most innovative ventures by major area are as follows.

250
7.1 Renewable energies

The R&D and innovation drive continued throughout 2014, especially in the development of
solutions to reduce the costs of offshore wind energy – a sector in which IBERDROLA is a
leader. Projects in this field included: the SEDAR, INNPACTO OPENFOAM and FP7 EERA
DTOC energy resource projects, the LOW-IMPACT gravity foundations project, the LEANWIND
offshore technologies project, and the various elements of the ambitious OWA (Offshore Wind
Accelerator) programme backed by the UK's Carbon Trust. Fatigue analyses have started
through offshore pilot projects in Scotland for calcareous beds in order to optimise designs and
ensure lasting stability. The TLPWind project also stands out, the aim of which is to design a
cutting-edge floating wind turbine and associated innovative installation system to spur the
development of offshore wind in UK waters where it is not currently viable due to water depth.

The European BEST PATH project has also been launched to demonstrate new technologies
that facilitate the integration of renewable assets into European grids. The SMARTWIND project
is looking into wind energy storage models and simulations.

Work on improving wind farm operations has continued with the evolutionary improvement of
the major operating tools such as CORE, DOMINA, METEOFLOW and the new extension,
METEOFLOW OFFSHORE. New tools are also being developed to better analyse component
reliability through projects such as DARWIND, OLEO and MINEROIL.

7.2 Clean generation technologies

During 2014, efforts in the area of generation focused on operating efficiency and flexibility,
environmental protection, and improved plant safety.

Operating efficiency and flexibility, and improved plant safety: the FILTRACIONES project has
been launched to develop a new methodology for efficiently inspecting waterways. In the field of
plant safety, the INSROCA, SIRO and ECRIGEN projects drew to a close with the development
of experimental prototypes and new methodologies contributing to the structural integrity of
generation assets and lengthening their life cycle.

MIGRES and RESONUC were the stand-out nuclear projects. The first involves identifying and
developing a new end-to-end process for managing control bars and channels used to ensure
they are more sustainably managed. The RESONUC project focuses on identifying and
developing a technological solution for mitigating resonance in critical systems at nuclear
facilities, thereby ensuring they perform as well as possible as a significant contributor to
nuclear plant safety and reliability.

251
Environmental protection: IBERDROLA remains firmly committed to reducing the environmental
impact of its generating plants, backing an ambitious project entitled CO2FORMARE to find a
solution to the problem of macrofouling in the cooling systems of electricity generating plants in
a sustainable manner and mitigating the environmental impact thereof in terms of both air and
water pollution. The DESOx and COEBEN-II projects drew to a successful close in 2014. The
latter was conducted at the Velilla del Rio Carrión thermal power plant and boosted necessary
technical know-how and confirmed the possibility of bringing our facilities into line with
increasingly exacting environmental requirements, offering an alternative to expensive
commercial solutions. This project is not isolated as the technical know-how obtained has been
exploited at the Longannet and Lada thermal power plants. The DESOx project was carried out
at the Lada thermal power plant and has enabled the plant to boost the performance of the
desulphurisation facility and unlock the value of the calcite by-product from this process.

7.3 Commercial Area - New projects and services

Innovation is essential in commercial activity, in order to offer customers the products and
services best adapted to their needs. IBERDROLA is always working to develop new products
and services, and highlights in 2014 include the launch of:

- New products such as the 100% on-line Conect@ energy offerings; in line with these
products, in 2014 we also launched the new customer app that facilitates the
management of energy and provides another on-line channel for our customers to
contact us and receive information.

- New services such as Electrical Home Protection, which provides customers with
security and peace of mind, as it covers the breakdowns of white electrical appliances
and urgent repairs to wiring in the home.

Moreover, IBERDROLA continues working on its initiative in electric mobility, consistent with its
strategy in support of sustainable development and its commitment with innovation, developing
new recharging services and participating in European programs of R+D+i (Green Emotion,
ICT4). Also notable is its participation in the European GRID4EU innovation project on smart
networks, providing the customers with real-time information on their electricity consumption,
together with flexible rates by time periods so that they can manage their consumption more
efficiently.

7.4 Smart grids

The IBERDROLA Group's international R&D and innovation work in connection with electricity
distribution focuses on improving the distribution network, with close attention paid to
occupational safety, environmental aspects, and better supply quality. IBERDROLA is dedicated
to rolling out smart grids through a number of projects focusing on constructing a modern
electricity grid based on remote management. In Europe, IBERDROLA heads up the UPGRID
project through which it intends to strengthen its capability as an integrator of active demand
and low-voltage distributed generation. The IGREENGrid and DISCERN projects continue. The
former aims to develop precise methodologies for integrating renewable assets into the
electricity distribution grid, while the latter is benchmarking the different smart grid solutions and
looking for the best combination of architectures. IBERDROLA is pushing forward with the
PRICE project in Spain, which aims to meet the needs for the development of a smart grid in an
efficient, safe and sustainable manner. In the area of overhead line maintenance and
normalisation, the TABON project (to develop a line inspection and verification solution),
MATUSALEN (to develop a tool for determining the ageing of medium-voltage cables in
underground lines) and SILECTRIC (to develop new insulators for high-voltage overhead lines
and equipment) reached completion.

252
Along the same lines, projects are underway in Scotland to drive the development of smart
grids. The ARC project stands out, which aims to speed up the process of connecting
renewable assets to the distribution grid; as does the FLEXNET project to develop solutions and
technologies for ramping up grid capacity. Innovation projects in Brazil are looking into
distribution grid inspections (VANTS and ROBÔ), the installation of underground networks in
cities to reduce the impact of overhead lines, and improvements to protection, among others.
The ELEKTROBUS project is also noteworthy, which concerns the development of a prototype
electric vehicle using ultra condensers. Key projects in the US include the INTEGRATED
AERIAL DAMAGE ASSESSMENT SYSTEM project looking at an aerial system for evaluating
damage to the electricity grid caused by severe storms.

IBERDROLA now has a smart grid R&D and innovation centre in Qatar. In partnership with the
Qatari company, Kahramaa, it is progressing with the definition and roll-out of the pilot smart
grid project. Under the auspices of the IBERDROLA Chair at the University of Salamanca, an
agreement has been signed for an exchange of lecturers with Qatari institutions and joint
collaboration on R&D projects in the region. An agreement has also been reached with Qatar
University and the University of Salamanca to jointly present an R&D project to the Qatar
National Research Fund (QNRF).

7.5 Iberdrola Ventures – PERSEO

Iberdrola Ventures – PERSEO is IBERDROLA's corporate venture capital programme, which

has a budget of EUR 70 million for investing in innovative technologies and business models
that guarantee a sustainable energy model. Since it was established in 2008, over EUR 48
million has been invested in start-ups which are developing technologies and new businesses in
the global energy industry.

The programme focuses on several areas of interest including:

• Distributed Energy Resources (DER): customer-focused technologies in the areas of

energy efficiency, active demand management, distributed generation and storage,
green mobility, etc.

• Renewable energies: solar (photovoltaic), wind (offshore), ocean (tidal and wave), etc.

• O&M technologies: new technologies for the O&M of energy infrastructures.

• Other technologies aimed at enhancing the energy sector's sustainability.

The most notable activities in 2014 included:

- Investment in the Californian company QBotix, working on the development of sun

tracking solutions using robotics to significantly cut the costs of developing and
operating solar photovoltaic plants.

- Launch of the Open Innovation Ventures programme to foster collaboration with

technology partners in order to accelerate the development of new products of interest
to IBERDROLA. The first action in this programme has been to incorporate the
company GDES Tech4Services, owned by Iberdrola and Grupo Dominguis, the mission
of which is to develop and commercialise technologies and new products related with
the operation and maintenance of electricity sector assets.

253
 8. ACQUISITION AND DISPOSAL OF TREASURY SHARES

The Group's treasury share policy establishes the following:

Treasury share transactions are considered those transactions carried out by the
Company, whether directly or through any of the Group's companies, the object of
which are Company shares, as well as financial instruments or agreements of any type,
traded or not in the stock market or other organised secondary markets, which grant the
right to acquire from, or the underlying security of which are, Company shares.

Treasury share transactions will always have legitimate purposes, such as, among
others, to provide investors with liquidity and sufficient depth in the trading of Company
shares, to execute treasury share purchase programmes approved by the Board of
Directors or General Shareholders' Meeting resolutions, to fulfil legitimate commitments
undertaken in advance or any other acceptable purposes in accordance with applicable
regulations. Under no circumstances shall the purpose of the treasury share transaction
be to interfere with the free establishment of prices. In particular, any conduct referred
to in article 83.ter.1 of the Security Market Law and article 2 of Royal Decree
1333/2005, of 11 November, implementing the Security Market Law related to matters
of market abuse.

The Group's treasury share transactions will not be carried out, under any
circumstances, based on insider information.

Treasury shares will be managed providing full transparency as regards relationships

with market supervisors and regulatory organisations.

Note 20 of the Consolidated financial statements presents the movements of IBERDROLA's

shares in the Group companies’ portfolios in the last years. Likewise, other information on
transactions in 2014 and 2013 is presented in the following chart:

Nominal
value Cost Average Total
(thousands (thousands price outstanding %
Treasury shares No. of shares of euros) of euros) (euros) shares shareholding
Balance at 1 January 2013 85,723,586 64,293 329,668 3.85 6,138,893,000 1.40%
Acquisitions 111,223,064 83,417 444,345 4.00
Disposals (9,487,484) (7,116) (49,075) 5.17
Depreciation (150,748,416) (113,061) (574,907) 3.81
Balance at 31 December
2013 36,710,750 27,533 150,031 4.09 6,239,975,000 0.59%
Acquisitions 176,958,914 132,719 897,565 5.07
Disposals (17,220,965) (12,916) (84,991) 4.93
Depreciation (133,467,000) (100,100) (616,886) 4.62
Balance at 31 December
2014 62,981,699 47,236 345,719 5.49 6,388,483,000 0.99%

In 2014 and 2013, treasury shares held by the IBERDROLA Group were below the legal limit
established.

Lastly, the conditions and time periods of the current mandate of the Board of Directors to
acquire or transfer treasury shares are detailed below.

254
At the General Shareholders’ Meeting on 26 March 2010, shareholders expressly agreed to
delegate powers to the Board of Directors, with powers of substitution, pursuant to the
provisions of the Spanish Corporations Law, to carry out derivative acquisition of shares in
Iberdrola, S.A. under the following conditions:

a) Acquisitions may be made directly by IBERDROLA or indirectly through its

subsidiaries. The process excludes any subsidiaries carrying out regulated
business pursuant to the provisions of the Electricity Sector Act and the
Hydrocarbons Act.

b) Acquisitions may be made by purchase transactions, swaps or any other form

permitted by Law.

c) Acquisitions may be made up to the maximum legal threshold (i.e. 10% of share
capital).

d) Such acquisitions may not be made at a price higher than the market price or lower
than the nominal value of the share.

e) Authorisation was granted for a maximum period of five years since approval of the
resolution.

f) A restricted reserve shall be created under equity in the purchasing company

equivalent to the value of the parent's shares under assets. This reserve must be
maintained as long as the shares are not disposed of or cancelled in accordance
with the Spanish Corporations Law.

Shares acquired under these powers can be transferred or cancelled or used for the
compensation systems as provided for in the Spanish Corporations Law. They may also be
used to develop programmes that encourage participation in the Company's share capital
such as the dividend reinvestment plan, loyalty bonuses and other similar instruments.

 Stock market data

2014 2013
Millions of
Stock market capitalisation (*) euros 35,756 28,922
Earnings per share Euros 0.366 0.396
P.E.R.
(share price at year end/profit per share) Times 15.37 11.44
Price / Carrying amount
(capitalisation on carrying amount at year end) Times 1.00 0.82

(*) 6,388,483,000 shares at 12/31/2014 and 6,239,975,000 shares at 12/31/2013

255
  The IBERDROLA share

Stock market performance of IBERDROLA compared to the indexes:

2014 2013
Number of shares outstanding 6,388,483,000 6,239.975,000
Share price at year end 5.597 4.635
Average share price for the year 5.270 4.110
Average daily volume 39,916,924 39,907,666
Maximum volume (04/10/2014 – 07/04/2013) 422,630,657 316,948,776
Minimum volume (12/24/2014 – 08/26/2013) 8,042,962 8,014,080
Dividends paid (euros) 0.275 0.308
(1)
Gross interim dividend (01/30/2014 –01/22/2013) 0.126 0.143
Gross complementary dividend (07/03 and 07/22/2014 – 07/03 and
(2)
07/22/2013) 0.144 0.160
Attendance bonus 0.005 0.005
(3)
Dividend yield 4.91% 6.65%

(1)
Purchase price of rights guaranteed by IBERDROLA.
(2)
Complementary dividend in cash (07/03/2014 and 07/03/2013 = EUR 0.03 and purchase
price of rights guaranteed by IBERDROLA: 07/22/2014 = EUR 0.126 and 07/22/13 = EUR
0.13).

Complementary dividend in cash (07/04/2012) EUR 0.03 and purchase price of rights
guaranteed by IBERDROLA (07/24/2012) EUR 0.160.
(3)
Interim dividend, complementary dividend and attendance bonus for attending the General
Shareholders' Meeting/share price at period end (not including the purchase price of rights
guaranteed by IBERDROLA over the 2014 interim dividend paid on 19/12/2014 of EUR 0.127
per share (gross).

256
9. FURTHER RELEVANT INFORMATION

9.1 Environmental issues and sustainability

9.1.1 Environmental issues

IBERDROLA accepts that the environment places constraints on all human activities and is a
factor of companies’ competitiveness, and it is committed to promoting innovation in this field
and also eco-efficiency, to gradually reducing the environmental impact of its activities, facilities,
products and services, and striving to ensure that its activities are congruent with future
generations’ legitimate right to an appropriate environment.

The Group undertakes and promotes this commitment through its policies, IBERDROLA
currently has three specific policies in place to manage environmental issues: its Environmental
Policy, its Anti-Climate Change Policy and its Biodiversity Policy, which set forth the principles
through which the Company will continue to improve its environmental management.

Moreover, for the thirteenth consecutive year IBERDROLA featured on the global Dow Jones
Sustainability Index, a worldwide benchmark for recognising corporate contributions to
sustainable development, and also on other internationally renowned sustainability indexes. It is
the only utility to have earned this distinction since the Index was created in 1999.

9.1.2 Sustainability

IBERDROLA's contribution to sustainable development takes form in certain social

responsibility practices which address the needs and expectations of their stakeholders, with
which the Company maintains a series of lines of communication and dialogue open through
which it is able to: communicate objectives, initiatives and achievements obtained in the three
areas of sustainable development (economic, environmental and social) and receive
evaluations and requests from the interested parties.

Sustainability indicators 2014 2013

Contribution to GDP (Gross Margin) (*) 0.58% 0.62%
Contribution to GDP (Revenue) (*) 1.52% 1.66%
Net material investment (millions of euros) 2,846 3,053
Investment in clean energy out of total investment in generation 77.3% 81.7%
Net profit (millions of euros) 2,327 2,572
CO2 Emissions in the period (gr. CO2/kWh): Total 212 236
CO2 Emissions in the period (gr. CO2/kWh): Spain 58 79
CO2 Emissions in the period (gr. CO2/kWh): SPW 605 654
Total production free of emissions (GWh) 78,929 74,473
Production in Spain free of emissions (GWh) 55,381 51,541
Production free of emissions out of total production (%) 57% 55%
Production in Spain free of emissions out of total production (%) 91% 89%
Total installed capacity free of emissions (MW) 27,931 27,524
Total installed capacity in Spain free of emissions (MW) 18,326 18,326
Total installed capacity free of emissions (%) 62% 61%
Total installed capacity in Spain free of emissions (%) 72% 72%
Specific SO2 emission Global mix (g/kWh) 0.052 0.053
Specific particles emission Global mix (g/kWh) 0.006 0.006
Specific NOx emission Global mix (g/kWh) 0.159 0.173
(*) Source: Iberdrola results and Quarterly Spanish National Accounting - Spanish National Institute of
Statistics – INE, Database 2010 (Last data published 3Q 2014)

257
10. IBERDROLA Foundation

In 2014 the Group allocated EUR 11,088 thousand to financing the various foundations,
associations and entities whose goals are in the interest of the general public.

The main recipient of the funding was IBERDROLA Foundation, which received EUR 6,399
thousand. Information on its goals and activities is available at: www.fundacioniberdrola.org.
IBERDROLA Foundation is a private, non-profit, cultural foundation, founded by the Company.
Its mission is to develop initiatives which effectively contribute to improving the quality of life of
the people in the regions and countries where the Group acts, especially in the areas of energy
sustainability, art and culture, as well as solidarity and social initiatives. The foundation may act
independently to achieve its goals and is fully functional and autonomous. Without prejudice to
its collaboration with other entities, IBERDROLA Foundation coordinates and executes the
Group's corporate social responsibility strategy, so that it is in line with the purpose for which it
was created and as assigned thereto by the Board of Directors.

IBERDROLA Foundation coordinates its welfare work in the United Kingdom through the
ScottishPower Foundation, which was granted EUR 947 thousand. In the United States, this
work is carried out through the Iberdrola USA Foundation with a budget of EUR 840 thousand,
and in Brazil through the Instituto Elektro and Instituto Iberdrola Brasil, each receiving EUR 113
thousand and EUR 200 thousand, respectively.

In 2015 the Group intends to follow a policy aimed at financing activities of interest to the
general public in line with that followed in 2014 as regards amount and allocation.

258
 SPECIMEN ANNEX I
ANNUAL CORPORATE GOVERNANCE REPORT
OF LISTED COMPANIES

Data identifying issuer

Ending date of reference financial

31/12/2014
year
Tax Identification Code A-48010615
Registered name IBERDROLA, S.A.
Plaza Euskadi número 5, Bilbao 48009 Bizkaia
Registered address
España

259
A. OWNERSHIP STRUCTURE

A.1. Complete the following table about the share capital of the company:

Number of
Date of last change Share capital (€) Number of shares voting
rights
16/12/2014 4,791,362,250 6,388,483,000 6,388,483,000

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

Yes No x

Number of Nominal value Number of voting

Class Different rights
shares per share rights per share

A.2. Breakdown of direct and indirect holders of significant shareholdings in the

company as of the end of the financial year, excluding directors:

Individual or Indirect voting rights

Number of % of total
company Direct holder Number of
direct voting
name of the of the voting
voting rights rights
shareholder interest rights
QATAR QATAR HOLDING
INVESTMENT - LUXEMBOURG II, 599,911,474
AUTHORITY S.À.R.L.
9.647
QATAR DGIC
INVESTMENT - LUXEMBOURG, 16,395,153
AUTHORITY S.À.R.L.

ACTIVIDADES DE
CONSTRUCCIÓN
- NATIXIS, S.A. 164,352,702
Y SERVICIOS,
S.A.

ACTIVIDADES DE FUNDING
CONSTRUCCIÓN STATEMENT, S.A.
- 164,352,702 3.965
Y SERVICIOS,
S.A.

ACTIVIDADES DE
CONSTRUCCIÓN STATEMENT
- 36,656,815
Y SERVICIOS, STRUCTURE, S.A.
S.A.

KUTXABANK,
- KARTERA 1, S.L. 230,034,187 3.601
S.A.

BLACKROCK, BLACKROCK
- 193.123.841 3,023
INC. GROUP

260
 State the most significant changes in the shareholding structure that have
occurred during the financial year:

Individual or company Date of

Description of transaction
name of the shareholder transaction
ACTIVIDADES DE CONSTRUCCIÓN Y EQUITY INTEREST DECREASED
18-12-2014
SERVICIOS, S.A. BELOW 5%

BANCO FINANCIERO Y DE AHORROS, EQUITY INTEREST DECREASED

03-02-2014
S.A. BELOW 5%

BANCO FINANCIERO Y DE AHORROS, SOLD 100% OF ITS EQUITY

10-04-2014
S.A. INTEREST

EQUITY INTEREST INCREASED

SOCIÉTÉ GÉNÉRALE, S.A. 02-01-2014
ABOVE 5%

EQUITY INTEREST DECREASED

SOCIÉTÉ GÉNÉRALE, S.A. 03-01-2014
BELOW 5%

EQUITY INTEREST DECREASED

SOCIÉTÉ GÉNÉRALE, S.A. 29-01-2014
BELOW 3%

EQUITY INTEREST INCREASED

SOCIÉTÉ GÉNÉRALE, S.A. 03-02-2014
ABOVE 3%

EQUITY INTEREST DECREASED

SOCIÉTÉ GÉNÉRALE, S.A. 06-02-2014
BELOW 3%

EQUITY INTEREST INCREASED

SOCIÉTÉ GÉNÉRALE, S.A. 07-02-2014
ABOVE 3%

EQUITY INTEREST INCREASED

SOCIÉTÉ GÉNÉRALE, S.A. 25-03-2014
ABOVE 5%

EQUITY INTEREST DECREASED

SOCIÉTÉ GÉNÉRALE, S.A. 26-03-2014
BELOW 5%

EQUITY INTEREST DECREASED

SOCIÉTÉ GÉNÉRALE, S.A. 08-04-2014
BELOW 3%

EQUITY INTEREST INCREASED

SOCIÉTÉ GÉNÉRALE, S.A. 11-04-2014
ABOVE 3%

EQUITY INTEREST DECREASED

SOCIÉTÉ GÉNÉRALE, S.A. 16-04-2014
BELOW 3%

EQUITY INTEREST INCREASED

SOCIÉTÉ GÉNÉRALE, S.A. 23-06-2014
ABOVE 3%

EQUITY INTEREST DECREASED

SOCIÉTÉ GÉNÉRALE, S.A. 24-06-2014
BELOW 3%

EQUITY INTEREST INCREASED

COMMERZBANK, AG. 21-03-2014
ABOVE 3%

EQUITY INTEREST DECREASED

COMMERZBANK, AG. 24-03-2014
BELOW 3%

261
A.3. Complete the following tables about members of the board of directors of the
company who have voting rights attaching to shares of the company:

Individual or Indirect voting rights

Number of % of total
company Direct holder Number of
direct voting
name of the of the voting
voting rights rights
director interest rights
MR JOSÉ IGNACIO
6,950,772 - 258,873
SÁNCHEZ GALÁN

MS ISABEL
MR JOSÉ IGNACIO GARCÍA-
- 235,238
SÁNCHEZ GALÁN TABERNERO
RAMOS 0.11

MR PABLO
IGNACIO
MR JOSÉ IGNACIO
- SÁNCHEZ- 23,635
SÁNCHEZ GALÁN
GALÁN GARCÍA-
TABERNERO

MR JULIO DE
230,775 - - 0.00
MIGUEL AYNAT

MR SEBASTIÁN
180,000 - - 0.00
BATTANER ARIAS

MR XABIER DE
232,314 - - 0.00
IRALA ESTÉVEZ

MR IÑIGO VÍCTOR
1,222,863 - - 0.02
DE ORIOL IBARRA

MS INÉS MACHO
56,934 - - 0.00
STADLER

MR BRAULIO
26,111 - - 0.00
MEDEL CÁMARA

MS SAMANTHA
1,634 - - 0.00
BARBER

MS MARÍA HELENA
2,868 - - 0.00
ANTOLÍN RAYBAUD

MR SANTIAGO
14,984 - - 0.00
MARTÍNEZ LAGE

MR JOSÉ LUIS SAN

PEDRO 633,510 - - 0,01
GUERENABARRENA

MR ÁNGEL JESÚS
5,632 - - 0.00
ACEBES PANIAGUA

MS GEORGINA
10 - - 0.00
KESSEL MARTÍNEZ

MS DENISE MARY
204 0.00
HOLT

262
Total percentage of voting rights held by the board of directors 0.13

Complete the following tables about members of the company’s board of

directors who hold rights to shares of the company:

Individual or Number of Indirect rights Number of % of

company direct equivalent total
Number of
name of the rights Direct holder shares voting
voting rights
director rights

A.4. State, if applicable, the family, commercial, contractual, or corporate

relationships between significant shareholders, to the extent known to the
company, unless they are immaterial or result from the ordinary course of
business:

Related individual or
Type of relationship Brief description
company name
There is an equity swap
contractual relationship,
providing for the assignment of
voting rights, between Natixis,
S.A. (“Natixis”) and Actividades
de Construcción y Servicios, S.A.
(“ACS”), because, although ACS
includes it as an indirect holder in
its statement of significant
interest, Natixis (which does not
ACTIVIDADES DE belong to the ACS Group) is
CONSTRUCCIÓN Y required to issue (unlike the
SERVICIOS, S.A. Corporate subsidiaries of ACS, Statement
Structure, and Funding
NATIXIS, S.A. Statement), and does issue, its
own statement of significant
interest. It should be noted that
this situation already existed in
2010, 2011, 2012, and 2013.
Such equity swap contract,
expiring on 30 March 2018, was
amended by both parties in
December 2012 such that it may
only be paid in shares or cash at
the option of ACS.

A.5. State, if applicable, the commercial, contractual, or corporate relationships

between significant shareholders and the company and/or its group, unless they
are immaterial or result from the ordinary course of business:

Related individual or Type of

Brief description
company name relationship
1) Iberdrola, S.A. (“Iberdrola” or the
ACTIVIDADES DE
“Company”) and ACS both hold indirect
CONSTRUCCIÓN Y Corporate
interests in Electra de Montánchez, S.A, each
SERVICIOS, S.A.
with a stake of 40%.

263
 2) Iberdrola and ACS both hold indirect
interests in Sistema Eléctrica de Conexión
Huéneja, S.L. with stakes of 47.37% and
5.34%, respectively.
3) Iberdrola and ACS both hold indirect
interests in Tirme, S.A., each with a stake of
20%.
4) Iberdrola and ACS both hold indirect
interests in Neotec Capital Riesgo Sociedad
de Fondos, S.A., S.C.R. de régimen
simplificado, with stakes of 7.92% and
1.58%, respectively.

1) Iberdrola and Kutxabank, S.A. both hold

interests in Euskaltel, S.A., (2% and 42.83%,
respectively).
2) Iberdrola and Kutxabank, S.A.both hold
interests in Fiuna, S.A. (70% and 30%,
respectively).

3) Iberdrola and Kutxabank, S.A. both hold

interests in Operador del Mercado Ibérico de
Energía-Polo Español, S.A. (5.5% and
0.76%, respectively).
4) Iberdrola and Kutxabank, S.A. both hold
KUTXABANK, S.A. Corporate interests in Seed Capital de Bizkaia, SGECR,
S.A. (5% and 10%, respectively).
5) Iberdrola and Kutxabank, S.A. both hold
interests in Torre Iberdrola, A.I.E. (68.1% and
31.9%, respectively).

6) Iberdrola and Kutxabank, S.A. both hold

interests in Norapex, S.A. (each with a stake
of 50%).
7) Iberdrola and Kutxabank, S.A. both hold
indirect interests in Sociedad Promotora
Bilbao Gas Hub, S.A. (5.71% and 21.71%,
respectively).

1) Iberdrola and BlackRock, Inc. both hold

interests in Gamesa Corporación
BLACKROCK, INC. Corporate
Tecnológica, S.A., with stakes of 19.69% and
3.21%, respectively.

A.6. State whether any private (paracorporate) shareholders’ agreements affecting the
company pursuant to the provisions of sections 530 and 531 of the Companies
Act (Ley de Sociedades de Capital) have been reported to the company. If so,
briefly describe them and list the shareholders bound by the agreement:

Yes No x

Participants in the private Brief description of the

% of share capital affected
shareholders’ agreement agreement

264
 State whether the company is aware of the existence of concerted actions among
its shareholders. If so, briefly describe them:

Yes No x

Participants in concerted Brief description of the

% of share capital affected
action concerted action

Expressly state whether any of such agreements, arrangements, or concerted

actions have been modified or terminated during the financial year:

A.7. State whether there is any individual or legal entity that exercises or may exercise
control over the company pursuant to section 4 of the Securities Market Act (Ley
del Mercado de Valores). If so, identify it:

Yes No x

Individual or company name

Comments

A.8. Complete the following tables about the company’s treasury shares:

As of year-end:

Number of direct Number of indirect Total % of share

shares shares (*) capital
60,985,277 - 0.955

(*) Through:

Individual or company name of direct holder of

Number of direct shares
the interest

Total:

Describe any significant changes, pursuant to the provisions of Royal Decree

1362/2007, which have occurred during the financial year:

Date of Total direct Total indirect Total % of share

notice shares acquired shares acquired capital
04/02/2014 57,665,581 - 0.905

24/04/2014 64,802,456 - 1.017

265
 09/05/2014 5,080,526 - 0.081

25/07/2014 26,377,350 - 0.418

30/12/2014 32,848,911 - 0.514

A.9. Describe the terms and conditions and the duration of the powers currently in
force given by the shareholders to the board of directors in order to issue,
repurchase, or transfer the shares of the company:

The shareholders acting at the General Shareholders’ Meeting held on 28 March 2014 resolved to
expressly authorise the Board of Directors, with the power of substitution, pursuant to the Companies Act
(Ley de Sociedades de Capital), to carry out the derivative acquisition of the shares of Iberdrola, S.A. on
the following terms:
a) Purchases may be made by Iberdrola directly, or indirectly through its subsidiaries. Subsidiaries
carrying out regulated activities are excluded pursuant to the provisions of the Electricity Industry Act
(Ley del Sector Eléctrico) and the Hydrocarbons Act (Ley de Hidrocarburos).
b) Purchases shall be made by means of a purchase and sale agreement, a swap arrangement, or any
other transaction permitted by law.
c) Purchases may be made up to the maximum sum permitted by law (i.e. 10% of the share capital).
d) Purchases may not be made at a higher price than that quoted on the Stock Exchange or at a price
lower than the share’s nominal value.
e) The authorisation was granted for a period not to exceed five years as from the approval of the
resolution.
f) In the net worth of the acquiring company there shall be established a restricted reserve equal to the
amount of the shares of the controlling company recorded under assets. Such reserve shall be
maintained for so long as the shares are not transferred or redeemed, in compliance with the
provisions of the Companies Act.
The shares, if any, purchased as a result of the aforementioned authorisation could be used both for
transfer or redemption or could be applied to the remuneration systems provided for in the Companies
Act; added to the foregoing alternatives was the possible development of programmes fostering the
acquisition of interests in the Company such as, for example, dividend reinvestment plans, loyalty bonds,
or similar instruments.

A.10. State whether there are any restrictions on the transfer of securities and/or any
restriction on voting rights. In particular, disclose the existence of any
restrictions that might hinder a takeover of the company through the acquisition
of its shares in the market.

Yes x No

Description of restrictions
Those having an interest equal to or greater than 3% of the capital or voting rights of two or more
companies that have the status of Principal Operator in certain markets or sectors (including the
generation and supply of electricity) may not exercise rights in excess of such percentage in more than
one entity.
Article 29.2 of the By-Laws provides that no shareholder may cast a number of votes greater than those
corresponding to shares representing 10%. According to article 30.1, shareholders affected by a conflict
of interest may not exercise their voting rights at the General Shareholders’ Meeting with respect to the
matters or proposed resolutions with respect to which the conflict refers.
Section 527 of the restated text of the Companies Act provides that at listed companies (sociedades
anónimas cotizadas), the by-law provisions that directly or indirectly set, as a general rule, the maximum
266
number of votes that may be cast by the same shareholder, by the companies belonging to the same
group, or by those acting in concert with the foregoing shall be of no effect when, following a takeover bid,
the bidder has reached a percentage that is equal to or greater than 70% of the voting share capital,
unless such bidder is not subject to equivalent breakthrough measures or has not adopted them.
Article 56 of the By-Laws provides that the restrictions described above shall have no effect upon the
occurrence of certain circumstances.
As a consequence of the merger of Energy East Corporation (now Iberdrola USA, Inc.), the acquisition of
an interest that may give rise to the holding of a percentage equal to or greater than 10% of the share
capital of Iberdrola shall be subject to the prior approval of the regulatory authorities of the states in which
Iberdrola USA, Inc. carries out its activities.

A.11. State whether the shareholders acting at a general shareholders’ meeting have
approved the adoption of breakthrough measures in the event of a takeover bid
pursuant to the provisions of Law 6/2007:

Yes No x

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

A.12. State whether the company has issued securities that are not traded on a
regulated market within the European Community.

Yes No x

If applicable, specify the different classes of shares, if any, and the rights and
obligations attaching to each class of shares.

267
B. GENERAL SHAREHOLDERS’ MEETING

B.1. State and, if applicable, explain whether there are differences with the minimum
requirements set out in the Companies Act in connection with the quorum
needed to hold a valid general shareholders’ meeting.

Yes x No

Quorum % different from that

Quorum % different from that
established in section 194 of the
established as a general rule in
Companies Act for the special
section 193 of the Companies
circumstances described in section
Act
194
Required quorum upon
- 66.67
1st call
Required quorum upon
- 60.00
2nd call

Description of differences

As the only exception to the rules provided for in the Companies Act (Ley de Sociedades de Capital),
article 21.2 of the By-Laws increases the quorum required to hold a valid meeting “in order to adopt
resolutions regarding a change in the object of the Company, transformation, total split-off, dissolution of
the Company, and the amendment of this section 2”, in which case “shareholders representing two-thirds
(2/3) of subscribed share capital with voting rights must be in attendance at the first call to the General
Shareholders’ Meeting, and shareholders representing sixty (60%) per cent of such share capital must be
in attendance at the second call”.

B.2. State and, if applicable, explain any differences from the rules set out in the
Companies Act for the adoption of corporate resolutions:

Yes x No

Describe how they differ from the rules provided by the Companies Act.

Qualified majority other than

that established in section
Other instances in which a qualified
201.2 of the Companies Act for
majority is required
the cases set forth in section
194.1 of the Companies Act
% established by the
entity for the 75.00% 75.00%
adoption of resolutions

Description of differences

Article 58 of the By-Laws provides that all resolutions intended to eliminate or amend the provisions
contained in title III (neutralisation of limitations in the event of takeover bids), in sections 3 to 5 of article
29 (limitation upon the maximum number of votes that a shareholder may cast), and in article 30 (conflicts
of interest) shall require the affirmative vote of three-fourths (3/4) of the share capital present in person or
by proxy at a General Shareholders’ Meeting.

B.3. State the rules applicable to the amendment of the by-laws of the company. In
particular, disclose the majorities provided for amending the by-laws, and any

268
 rules provided for the protection of the rights of the shareholders in the
amendment of the by-laws.

In addition to the provisions of section 285 et seq. of the Companies Act, the By-Laws of Iberdrola contain
articles 21.2 (qualified quorum) and 58 (qualified majority) mentioned in sections B.1 and B.2 above.

B.4. State the data on attendance at the general shareholders’ meetings held during
the financial year referred to in this report and those of the prior financial year:

Attendance data
Date of % of % of % absentee voting
General shareholders shareholders
Electronic Total
Shareholders’ present in represented by Others
voting
Meeting person proxy

28/03/2014 5.99 76.13 0.06 0.05 82.24

22/03/2013 15.73 65.24 0.04 0.08 81.09

B.5. State whether there are any by-law restrictions requiring a minimum number of
shares to attend the general shareholders’ meeting.

Yes x No

Number of shares required to attend the general shareholders’

1
meeting

B.6. State whether it has been resolved that certain decisions involving a structural
modification of the company (“subsidiarisation”, purchase/sale of core operating
assets, transactions equivalent to the liquidation of the company, etc.) must be
submitted to the shareholders for approval at a general shareholders’ meeting,
even if not expressly required by commercial law.

Yes x No

B.7. State the address and method for accessing the company’s website to access
information regarding corporate governance and other information regarding
general shareholders’ meetings that must be made available to the shareholders
through the company’s website.

www.iberdrola.com > Information for Shareholders and Investors > Corporate Governance.
On this website, one can also access information regarding past general shareholders’ meetings of the
Company: www.iberdrola.com > Information for Shareholders and Investors > Corporate Governance >
General Shareholders’ Meeting.

269
C. STRUCTURE OF THE COMPANY’S MANAGEMENT

C.1 Board of directors

C.1.1. Maximum and minimum number of directors set forth in the by-laws:

Maximum number of directors 14

Minimum number of directors 9

C.1.2. Complete the following table identifying the members of the board:

Individual or
company Position on Date of first Date of last Election
Representative
name of the Board appointment appointment procedure
director
GENERAL
MR JOSÉ IGNACIO
- CHAIRMAN/CEO 21/05/2001 26/03/2010 SHAREHOLDERS’
SÁNCHEZ GALÁN
MEETING
GENERAL
MR JULIO DE
- DIRECTOR 29/10/2003 26/03/2010 SHAREHOLDERS’
MIGUEL AYNAT
MEETING
GENERAL
MR SEBASTIÁN
- DIRECTOR 26/05/2004 26/03/2010 SHAREHOLDERS’
BATTANER ARIAS
MEETING
GENERAL
MR XABIER DE
- DIRECTOR 20/04/2005 22/06/2012 SHAREHOLDERS’
IRALA ESTÉVEZ
MEETING
GENERAL
MR IÑIGO VÍCTOR
- DIRECTOR 26/04/2006 22/06/2012 SHAREHOLDERS’
DE ORIOL IBARRA
MEETING
GENERAL
MS INÉS MACHO
- DIRECTOR 07/06/2006 22/06/2012 SHAREHOLDERS’
STADLER
MEETING
GENERAL
MR BRAULIO
- DIRECTOR 07/06/2006 22/06/2012 SHAREHOLDERS’
MEDEL CÁMARA
MEETING
GENERAL
MS SAMANTHA
- DIRECTOR 31/07/2008 22/06/2012 SHAREHOLDERS’
BARBER
MEETING
GENERAL
MS MARÍA HELENA
- DIRECTOR 26/03/2010 26/03/2010 SHAREHOLDERS’
ANTOLÍN RAYBAUD
MEETING
GENERAL
MR SANTIAGO
- DIRECTOR 26/03/2010 26/03/2010 SHAREHOLDERS’
MARTÍNEZ LAGE
MEETING
MR JOSÉ LUIS SAN GENERAL
PEDRO - DIRECTOR 24/04/2012 22/06/2012 SHAREHOLDERS’
GUERENABARRENA MEETING
GENERAL
MR ÁNGEL JESÚS
- DIRECTOR 24/04/2012 22/06/2012 SHAREHOLDERS’
ACEBES PANIAGUA
MEETING
GENERAL
MS GEORGINA
- DIRECTOR 23/04/2013 28/03/2014 SHAREHOLDERS’
KESSEL MARTÍNEZ
MEETING
MS DENISE MARY INTERIM
- DIRECTOR 24/06/2014 24/06/2014
HOLT APPOINTMENT

Total number of directors 14

270
 State the vacancies on the board of directors during the reporting period:

Individual or company name of Date of

Status of the director at time of vacancy
the director vacancy

MR MANUEL LAGARES
Proprietary director 10/04/2014
GÓMEZ-ABASCAL

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

EXECUTIVE DIRECTORS

Individual or company name of Committee that has reported Position within the company’s
director on the director’s appointment structure

MR JOSÉ IGNACIO SÁNCHEZ APPOINTMENTS AND

Chairman & CEO
GALÁN REMUNERATION COMMITTEE

Total number of executive directors 1

Total % of the board 7.14

EXTERNAL PROPRIETARY DIRECTORS

Individual or company name of

the significant shareholder
Individual or company name of Committee that has reported
represented by the director or
director on the director’s appointment
that has proposed the
director’s appointment

MR XABIER DE IRALA APPOINTMENTS AND

Kutxabank, S.A.
ESTÉVEZ REMUNERATION COMMITTEE

Total number of proprietary directors 1

Total % of the board 7.14

271
 EXTERNAL INDEPENDENT DIRECTORS

Individual or company
Profile
name of director

Degree in Law from Universidad de Valencia.

Throughout his career he has been a member of numerous boards of
directors at companies in the infrastructure Abertis Infraestructuras S.A. y
Autopistas del Mare Nostrum, S.A.), energy (Enagás, S.A.) and finance (Caja
de Ahorros de Valencia, Castellón y Alicante, Bancaja, y Banco de Valencia,
S.A.) sectors.
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HIS POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
He has been a member of the the boards of directors of Abertis
Infraestructuras, S.A., of Autopistas del Mare Nostrum, S.A. (AUMAR), of
Enagás S.A. (2002-2004), and of Áurea Concesiones de Infraestructuras,
S.A.
Other industries
In the financial industry, he was chair of Caja de Ahorros de Valencia,
Castellón y Alicante, Bancaja, Banco de Valencia, S.A., and Banco de
Murcia, S.A. He was vice-chair of Federación Valenciana de Cajas de
Ahorros, as well as a member of the Board of Directors of Confederación
MR JULIO DE MIGUEL Española de Cajas de Ahorros (CECA) and of the Instituto Valenciano de
AYNAT Investigaciones Económicas (IVIE) (1998-2003).
He has also been a member of the Board of Directors of Metrovacesa, S.A. (a
listed company in the real estate industry) (2003-2007).
He is currently a member of the Advisory Board of the Confederation of
Business Organisations of the Valencian Community (Confederación de
Organizaciones Empresariales de la Comunidad Valenciana) (CIERVAL).
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH HE IS A MEMBER:
He has experience in areas connected to his position as a member of the
Audit and Risk Supervision Committee, having been a member of the Audit
and Compliance Committee of the Board of Directors of Enagás, S.A. He is
currently a member of the Instituto Español de Analistas Financieros.
OTHER INFORMATION:
He has also been the chair of Fundación Bancaja, and a trustee of Fundación
Premios Rey Jaime I, of Fundación de Estudios Financieros, and of
Fundación Universidad-Empresa de la Universidad de Valencia (ADEIT).
He is currently a member of the Board of Trustees of the Feria Muestrario
Internacional de Valencia and vice-chair of Fundación Cañada Blanch.

Degree in Economics from the School of Economics and Business

Administration (La Comercial) of Universidad de Deusto (Bilbao) and Degree
in Law from Universidad de Valladolid.
He has spent a large part of his professional career at companies within the
industrial and financial sectors. In this regard, he has served as a director at
Uralita, S.A. and has held management positions at financial institutions like
MR SEBASTIÁN Banco Atlántico, S.A. and Unicaja.
BATTANER ARIAS
He actively practices as an economist and a lawyer
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HIS POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
He was the founder and executive chair of Grupo de Negocios Duero, S.A.U.

272
 (2007-2011), a company with interests in the Spanish energy industry.
In the industrial sector, he served as a member of the Board of Directors of
Uralita, S.A. (2000-2002) and he began his professional career at Aceros de
Llodio, S.A. and Tubos Especiales Olarra, S.A.
Other industries
In the financial industry, he was executive chair of Caja de Ahorros de
Salamanca y Soria (Caja Duero) (2007-2011), and founder and executive
chair of companies controlled by Caja Duero, such as Leasing del Duero,
S.A., Unión del Duero de Seguros Generales, S.A., and Unión del Duero de
Seguros de Vida, S.A. He also founded Gesduero, S.A., a financial risk
analysis company, and was the co-founder of the European Group of
Financial Institutions (EGFI) (leading European economic interest grouping)
and of the Asociación Española de Banca de Negocios, and a member of the
Board of Confederación Española de Cajas de Ahorro (CECA). He has also
held management positions at other financial institutions such as Banco
Atlántico, S.A., Unicaja, and Banco Europeo de Finanzas, of which he was
chair.
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH HE IS A MEMBER:
His professional experience in the management of financial and insurance
entities puts him in an ideal position to discharge his duties at the helm of the
Audit and Risk Supervision Committee
OTHER INFORMATION:
In addition to his extensive experience in the financial and insurance
industries, he has taught at Universidad de Deusto and at the Instituto
Internacional de Dirección de Empresas (INSIDE).
He belongs to the board of trustees of various foundations, such as
Fundación Duques de Soria and Fundación Santa María la Real de Aguilar
de Campoo.
He was a member of the board of trustees of other foundations and
institutions, including Edades del Hombre, Museo de Madera Policromada de
Valladolid, Archivo de la Guerra Civil, and Universidad Pontificia de
Salamanca.

Bachelor of Arts in International Business, he has a graduate degree in the

Executive Corporate Management Programme of the Management School of
Instituto de Estudios Superiores de la Empresa de la Universidad de Navarra
(IESE Business School), and holds the title of certified European financial
analyst (CEFA) from the Instituto Español de Analistas Financieros.
His professional career has been closely linked to the energy industry, in
which he has been at the helm of the board of directors of companies in
various countries, gaining extensive experience in Latin America. He boasts a
long professional career at the Iberdrola group, which gives him broad and
thorough knowledge of the Company.
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HIS POSITIONS
MR ÍÑIGO VÍCTOR DE AT IBERDROLA:
ORIOL IBARRA
Energy and industrial engineering industries
During his career as a senior officer at Iberdrola, he has chaired the board of
directors of electric companies in which the Group has an interest in various
countries (2001-2006). He has been chair of Electricidad de La Paz (Bolivia),
of Empresa de Luz y Fuerza Eléctrica de Oruro (Bolivia), and of
Iberoamericana de Energía Ibener (Chile), as well as a director of
Neoenergia (Brazil) and of Empresa Eléctrica de Guatemala, S.A.
He is also a member of the board of Empresa de Alumbrado Eléctrico de
Ceuta, S.A.
Other industries
Between 2001 and 2006, he was chair of the board of Empresa de Servicios

273
 Sanitarios de Los Lagos (ESSAL) in Chile.
Since 2013, he has been a member of the board of Soil Recovery, S.L., a
company specialised in water and waste treatment and environmental
consulting and engineering services.
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH HE IS A MEMBER:
As regards his position on the Appointments and Remuneration Committee,
he has the experience of holding the position of Director of Corporate
Governance for the Americas (2001-2006), promoting the incorporation of the
principles and values provided for in Iberdrola’s Corporate Governance
System within the subsidiaries and investee companies in this region..
In addition, he boasts a long professional career with the Iberdrola Group,
which gives him broad and thorough knowledge of the Company. Among
other positions, he has served as director of management control at Amara,
S.A. (1989-1992) and as financial analyst at the Financial Division (1992-
1997) and the International Division (1997-2001) of Iberdrola, S.A.

Degree in Economics from Universidad del País Vasco, Masters in Economy

from l’École des Hautes Études en Sciences Sociales (Paris), and Doctorate
in Economics (Ph.D.) from the same academic institution and from l’École
Nationale de la Statistique et de l’Administration Économique (ENSAE)
(Paris, France).
Throughout her academic career, she has taught at universities in Germany,
Belgium, Brazil, Denmark, France, and Portugal, in addition to Spain, and has
been elected as a member of noted associations in the academic, economic,
and business environment, like the European Economic Association.
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HER POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
She is a member of the International Scientific Advisory Committee of the
Basque Centre for Climate Change (bc3) (climate change research centre
linked to Ikerbasque) and has served as chair of the Scientific Committee of
the 2011 Conference of the Asociación Española para la Economía
Energética (the Spanish affiliate of the International Association for Energy
Economics – IAEE).
Other industries
MS INÉS MACHO She is currently a Professor of Economics in the Economics and Economic
STADLER History Department of Universidad Autónoma de Barcelona, as well as
Professor of the Barcelona Graduate School of Economics, where she has
taught post-graduate studies within the “Competition and Market Regulation
Programme”. She has been a visiting professor at universities in America,
Europe, and Asia.
She is currently a member of the Executive Committee of the European
Association for Research in Industrial Economics, as well as of the Board of
the French Economic Observatory (OFCE) since 2013. In addition, she is an
honorary member of the European Economic Association and of the
Asociación Española de Economía, has been an elected member of the
Board of the European Economic Association (2006-2010), and has formed
part of the Advisory Board of the Research Service of Caja de Ahorros y
Pensiones de Barcelona, “la Caixa” (2008-2011).
She has been president of Asociación Española de Economía, as well as
coordinator of Agencia Nacional de Evaluación y Prospectiva and
representative at the European Science Foundation.
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH SHE IS A MEMBER:
She is an expert in scientific research on incentives and contracts, business
strategy, and industrial organisation, matters of specific interest for the
positions she holds on the Executive and Appointments and Remuneration
Committees, to which she has dedicated various publications (including
274
 “Competition for Managers and Market Efficiency” and “Mergers, Investment
Decisions and Internal Organization”).

Degree in Economics and Business Administration from Universidad

Complutense de Madrid and Doctorate in Economics and Corporate
Sciences from Universidad de Málaga.
He has pursued a career primarily in the financial sector and in the academic
world as a professor of Public Finance. He is chair of Fundación Bancaria
Unicaja, executive chair of Unicaja Banco, S.A. and vice-chair of
Confederación Española de Cajas de Ahorros (CECA), of which he was
CEO. He has also served as Deputy Minister for Economy and Finance of the
Autonomous Government of Andalusia and as chair of Consejo Andaluz de
Colegios de Economistas
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HIS POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
He has been a member of the Board of Directors of the listed company
Acerinox, S.A. since 2008 and was a member of the Board of Directors of
Abertis Infraestructuras, S.A. from 2005 through 2010.
Other industries
He has been executive chair of Monte de Piedad y Caja de Ahorros de
Ronda, Cádiz, Almería, Málaga, Antequera y Jaén (Unicaja) since 1991, and
has led the process of transformation of the Caja and its adjustment to the
new regulatory framework through its transformation into Fundación Bancaria
Unicaja, of which he is chair. He is also currently the executive chair of
MR BRAULIO MEDEL Unicaja Banco, S.A. In addition, he is chair of Hidralia, S.A., of Alteria
CÁMARA Corporación Unicaja and of Federación de Cajas de Ahorros de Andalucía.
Furthermore, he is vice chair of Confederación Española de Cajas de
Ahorros (CECA), of which he was CEO until 1998, and a member of the
board of Caja de Seguros Reunidos, Compañía de Seguros y Reaseguros,
S.A. He has been chair of Ahorro Corporación, S.A. and a member of the
governance bodies of Agrupación Europea de Cajas de Ahorros, of which he
was vice-chair between 1992 and 1998.
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH HE IS A MEMBER:
He also has experience in areas connected to his position as a member of
the Corporate Social Responsibility Committee. He is an active member of
various boards of trustees and foundations for social and cultural purposes,
like Fundación CIEDES (Centro de Investigaciones Estratégicas y Desarrollo
Económico y Social), and has been a member of Fundación Tres Culturas
del Mediterráneo, of Fundación El Legado Andalusí, and of Fundación
Doñana 21.
OTHER INFORMATION:
He was Deputy Minister for Economy and Finance of the Autonomous
Government of Andalucía (1984-1987) and chair of Consejo Andaluz de
Colegios de Economistas (2003-2009).
He is a Professor of Public Finance at Universidad de Málaga and has
published over a hundred scientific works, including many books and articles
in specialised publications.

Bachelor of Arts in Applied Foreign Languages and European Politics from

the University of Northumbria, Newcastle (England, United Kingdom). She
has also studied for three years at various French universities, obtaining
degrees that include a Post-Graduate Degree Course in European Union Law
MS SAMANTHA from the University of Nancy.
BARBER
She has spent her professional career in the fields of corporate business and
corporate social responsibility. She has been a consultant within the
European Parliament, a board member of Business for Scotland, and the
chief executive of Scottish Business in the Community.

275
 In 2014 and 2013, she was selected as one of the “Top 100 Women to
Watch” according to the FTSE list and Cranfield University and is a member
of the prestigious Global Scot Network. In addition, she was a finalist and
earned second place in the annual Director of the Year Awards 2012 of IoD
Scotland NED.
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH SHE IS A MEMBER:
She possesses management experience at business organisations that
promote corporate social responsibility. She began her professional career as
a consultant within the European Parliament providing support to the
Economic and Monetary Affairs Committee, a position she held for four years.
Prior to that she was appointed as a board member of Business for Scotland
(1998-2000, and was also the chief executive of Scottish Business in the
Community (2000-2009), an organisation chaired by HRH The Prince of
Wales.
Between 2007 and 2008 she was a member of the Advisory Council of
Scottish Power following the integration of the Scottish company into the
Iberdrola Group.
During nine years, she was a member of the Board of Directors of Right
Track Scotland, an organisation dedicated to advancing educational, training,
and employment opportunities for youths at risk of social exclusion, which
has afforded her wide experience in corporate social responsibility matters.
OTHER INFORMATION:
She is chair of Scottish Ensemble, vice-chair of Scotland’s 2020 Climate
Group, a member of the Advisory Board for Breakthrough Breast Cancer, and
undertakes consultancy and business coaching.

Degree in International Business & Business Administration from Eckerd

College, St. Petersburg, Florida (United States of America) and Master’s in
Business Administration from Anglia University, Cambridge (United Kingdom)
and from Escuela Politécnica de Valencia (Spain).
She has spent her career in the industrial sector and is currently a director, a
member of the Managing Board, and corporate director of Marketing,
Communication, and Institutional Relations of Grupo Antolin.
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HER POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
She has experience as a member of the board of energy and industrial
companies as an external independent director of Iberdrola Renovables, S.A.
and a member of its Related-Party Transactions Committee from 2007
through 2010.
MS MARÍA HELENA
ANTOLÍN RAYBAUD She is currently a member of the Managing Board of Sernauto (Asociación
Española de Fabricantes de Equipos y Componentes para Automoción)
since 2011.
She has been in charge of the corporate Industrial and Strategy divisions of
Grupo Antolin, where she is currently a board member, a member of the
Management Committe, and corporate director of Marketing, Communication,
and Institutional Relations.
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH SHE IS A MEMBER:
She has domestic and international experience in areas relating to her
position as a member of the Corporate Social Responsibility CommitteeAt
Grupo Antolín-Irausa, she held the positions of director of Human Resources
Development and head of Total Quality, and as a corporate director has
performed her duties at the global level within the group, where she began
her career taking on successive responsibilities at subsidiaries based in
Germany, France, and Italy.

276
 OTHER INFORMATION:
She is a member of the Permanent Commission of the Club Excelencia en
Gestión and a board member of France Foreign Trade (Comercio Exterior de
Francia), Spain section

Degree in Law from Universidad Complutense de Madrid. He continued his

studies at the Escuela de Funcionarios Internacionales de Madrid, the
Escuela Diplomática, The Hague Academy of International Law, the “Europa
Institut” in Amsterdam (The Netherlands), and INSEAD in Fontainebleau
(France).
A career diplomat on leave, he is the chairman of the law firm Martínez Lage,
Allendesalazar & Brokelmann.
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HIS POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
He has experience as a board member in the engineering and energy
industries. In the energy sector, he was an external independent director of
Iberdrola Renovables, S.A. between 2007 and 2010. In the industrial sector,
he is secretary of the boards of directors of companies belonging to
multinational groups like SKF Española, S.A. In the past, he was a member
of the boards of other companies such as Fujitsu Services y Telettra España.
Other industries
He has also served in the position of secretary of the Board of Directors of
Empresa Nacional Elcano de la Marina Mercante, S.A.
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH HE IS A MEMBER:
A career diplomat on leave, he has wide experience and expertise in the area
of institutional relations at the international level. He has been posted to
Algiers (Algeria), Libreville (Gabon), Sofia (Bulgaria), and Paris (France), and
MR SANTIAGO has also served at the Office of the Secretary of State for Relations with the
MARTÍNEZ LAGE European Community, where he provided advice to the Spanish Delegation
in the negotiations for accession to the European Communities.
He has a profound knowledge of EC Law and was the founder and director,
for twenty-eight years, of the Gaceta Jurídica de la Unión Europea y de la
Competencia.
In 1985 he established the law firm Martínez Lage & Asociados (now,
Martínez Lage, Allendesalazar & Brokelmann), a leading law firm in Spain
specialised in European Union and Competition Law.
He served as a member of the Executive Committee of Iberdrola Renovables,
S.A., and as chair of its Appointments and Remuneration Committee.
Prior to joining Iberdrola’s Appointment’s and Remuneration Committee, he
was a member and the secretary of its Audit and Risk Supervision
Committee.
OTHER INFORMATION:
He is vice-chair of the Spanish Association for the Study of European Law
(Asociación Española para el Estudio del Derecho Europeo) and the
European Law Section of the Royal Academy of Jurisprudence and
Legislation (Real Academia de Jurisprudencia y Legislación). In addition, he
is a Trustee of Fundación España México and a member of the Arbitrator
Appointment Committee of the Spanish Court of Arbitration. He has been
General Secretary of Fédération Internationale pour le Droit Européen (FIDE)
and a member of the Junta Directiva del Círculo de Empresarios.

In 2013, he was distinguished with the APTISSIMI professional career award

by ESADE Alumni.

MR ÁNGEL JESÚS Degree in Law from Universidad de Salamanca and lawyer, with almost
277
ACEBES PANIAGUA twenty years of practice experience. He has also discharged high-level duties
in the institutional sphere, including his position as member of the Council of
Ministers of the Spanish Government. He experience is complemented by
being a member of the boards of directors of Caja Madrid Cibeles, S.A. and
of Banco Financiero y de Ahorros, S.A. (“BFA”).
He divides his time between his position at Iberdrola and his work as chair
and founding member of Grupo MA Abogados Estudio Jurídico
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HIS POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
A practicing lawyer between 1982 and 1994, specialising in commercial law.
He returned to law practice in 2008 and founded Grupo MA Abogados
Estudio Jurídico (of which he is chair), a law firm based in six Spanish
Autonomous Communities with more than forty lawyers working in different
areas, such as corporate law, corporate governance, competition, mergers
and acquisitions, and regulated industries
He has been a member of the board of BFA between 27 July 2011 and 24
April 2012, chairing its Audit and Compliance Committee.
Through these positions, he has had relationships with affiliates of BFA active
in the energy (Iberdrola itself and the Comsa Ente, S.A. group) and
industrial/technological (Indra, S.A., active in technological services, and
Mecalux, S.A., active in logistics solutions), which companies, in most cases,
have a strong international presence.
In addition, he has significant knowledge of the regulatory area and regarding
the operation of government agencies, as he was Minister for Public
Administrations (1999-2000), Minister of Justice (2000-2002), and Minister of
the Interior (2002-2004) of the Spanish Government. During his political
career, he has also been a national senator and deputy, acquiring in-depth
knowledge of the regulatory framework.
Other industries
He also possesses experience in the management of companies with an
international profile, as a result of having served on the board of Caja Madrid
Cibeles, S.A. (2008 - 2011), which manages the investments of Grupo Caja
Madrid in other companies with activities in the financial, insurance (like
Mapfre Internacional, S.A.) and retail banking industries outside of Spain.
OTHER INFORMATION
He is also a trustee of Fundación Universitaria de Ávila, UCAV, and gives
courses, workshops, and lectures on various matters relating to law, politics,
and social matters.

Holder of a degree in Economics from Instituto Tecnológico Autónomo de

México and holds Master’s and Doctor’s degrees in Economics from
Columbia University in New York (United States of America).
She has spent her career primarily in the energy and financial sectors in
Mexico. She has been chair of the Energy Regulatory Commission (Comisión
Reguladora de Energía), State Secretary for Energy, chair of the Board of
Directors of Pemex and of the Board of Directors of CFE, general manager of
Banobras and of the National Mint of Mexico, and a board member at Nafinsa
MS GEORGINA and Bancomext.
KESSEL MARTÍNEZ
She divides her time between her position at Iberdrola and her work as a
director of the subsidiary of Scotiabank in that country.
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HER POSITIONS
AT IBERDROLA:
Energy and industrial engineering industries
She possesses extensive experience in the energy industry. She was State
secretary at the Office of the Energy Secretary (Sener) of the Government of
Mexico (2006-2011) and first chair of the Energy Regulatory Commission

278
 (1996), which positions have equipped her with in-depth knowledge of
regulatory and institutional matters as a result of her direct involvement in the
energy transition process and in the design and implementation of the
regulation of the country’s electricity industry.
Between 2006 and 2011, she also served as chair of the boards of directors
of two large corporations, Petróleos Mexicanos (PEMEX) and the Federal
Electricity Commission (Comisión Federal de Electricidad) (CFE), from which
she led the design of policies and the supervision of financial progress and
infrastructure investment programmes.
Her participation in the Energy Council of the World Economic Forum (WEF)
and in the United Nations Organization Secretary General’s advisory group
(Sustainable Energy for All) has also allowed her to gain expertise and a
global view of the energy industry.
Other industries
She has knowledge and experience in other sectors, especially in the
financial infrastructure investment sector, in both the institutional and the
executive areas. She is an independent director of Grupo Financiero
Scotiabank Inverlat, S.A. de C.V. and has been general manager of Banco
Nacional de Obras y Servicios Públicos (Banobras), a development bank
engaged primarily in financing infrastructure projects (2011-2012); a member
of the governance bodies of Nacional Financiera (Nafinsa) and of Banco
Nacional de Comercio Exterior (Bancomext) (2006-2011); adviser to the chair
of the Federal Competition Commission (Comisión Federal de Competencia)
(CFC) (1995-1996); head of the Quasi-Autonomous Non-Governmental
Organisations Investment and Divestment Unit of the Office of the Secretary
of Finance and Public Credit of Mexico (1997-2001), and general manager of
the National Mint of Mexico (2002-2006).
PREVIOUS EXPERIENCE IN CONNECTION WITH THE COMMITTEE OF
WHICH SHE IS A MEMBER:
Her training in the field of economics and her professional experience in the
management of institutions in the financial sector make her an ideal member
of the Audit and Risk Supervision Committee.
Her teaching practice and performance of executive roles in
economic/financial matters cause her profile to be even more appropriate for
her work on this Committee.
OTHER INFORMATION:
In the academic field, she has been a professor in the Economics
Department of Instituto Tecnológico Autónomo de México (ITAM), acting as
deputy chair of the course towards a Degree in Economics, and first deputy
chair and chair of the Alumni Association. She was also holder of the
Quintana Chair for Research in International Trade and has authored many
papers and specialised articles.

Degrees in Spanish Philology, French Philology, and Political Sciences from

the University of Bristol and Doctor of Laws from the University of Bristol
(England, United Kingdom).
A career diplomat, she has spent a large part of her professional life at the
United Kingdom diplomatic service, which has provided her with extensive
international experience. In the business field, she possesses experience in
the finance, health, and energy sectors.
MS DENISE MARY
She divides her time between her position as a director of Iberdrola and her
HOLT
activities in international organisations, academic institutions, and her position
as a director of HSBC Bank plc.
NOTEWORTHY EXPERIENCE FOR THE HOLDING OF HER POSITION AT
IBERDROLA:
Energy and industrial engineering industries
She possesses experience and expertise in the energy industry, having been
a director at Scottish Power Renewable Energy Ltd from 2011 to 2012 and at

279
 Scottish Power Networks Holdings Ltd from 2012 to 2014.
Other industries
She also possesses experience as a member of the board of directors of
international companies and institutions in other sectors, like the financial and
health industries. In the financial sector, she has been an independent
director and member of the Risk Committee of HSBC Bank plc since 2011,
and is also chair and independent director of its subsidiary M&S Financial
Services Ltd. In the health sector, she is an independent director of Nuffield
Health and a member of the Quality and Safety Committee and
Remuneration Committee of the Board of Directors of such institution.
Also noteworthy is the vast experience as a manager she has gained during
her extensive diplomatic career. She has been first secretary of the Embassy
of the United Kingdom in Brazil (1990-1993, director of Human Resources
(1999-2002) and Migration (2005-2007) and for the Overseas Territories (2at
the UK Foreign and Commonwealth Office (2005-2007) and British
ambassador to Mexico (2002-2005) and to Spain and Andorra (2007-2009).
OTHER INFORMATION:
A former chair of the Anglo-Spanish Society (2010-2013), Ms Holt currently
has ties with international organisations like Wilton Park International
Conference Centre and academic institutions like the Cañada Blanch Centre
for Contemporary Spanish Studies of the London School of Economics and
Political Science, the Institute of Latin American Studies of the University of
London, and the University of Bristol. She chairs the Nominations Committee
of the British Alzheimer’s Society.
She has been distinguished as Dame Commander of the Order of Saint
Michael and Saint George (DCMG) in recognition of her contribution to the
British diplomatic service.

Total number of independent directors 11

Total % of the board 78.57

State whether any director classified as independent receives from the company
or its group any amount or benefit for items other than director remuneration, or
maintains or has maintained during the last financial year a business relationship
with the company or with any company of its group, whether in the director’s own
name or as a significant shareholder, director, or senior officer of an entity that
maintains or has maintained such relationship. If applicable, include a reasoned
statement of the director regarding the reasons for which it is believed that such
director can carry out the duties thereof as an independent director.

Individual or company name of

Description of the relationship Reasoned statement
the director

OTHER EXTERNAL DIRECTORS

Committee that has reported on or proposed

Individual or company name of director
the director’s appointment

MR JOSÉ LUIS SAN PEDRO APPOINTMENTS AND REMUNERATION

GUERENABARRENA COMMITTEE

Total number of other external directors 1

Total % of the board 7.14

280
 Describe the reasons why they cannot be considered proprietary or independent
directors as well as their ties, whether with the company, its management, or its
shareholders.

Company, officer, or
Individual or company name of
Reasons shareholder with which the
the director
director has ties

Mr San Pedro Guerenabarrena

held the position of chief
operating officer (consejero-
director general) until 24 June
2014, the date on which he
voluntarily ceased executive
duties, but continues to serve as
a member of the Board of
MR JOSÉ LUIS SAN PEDRO Directors and of the Executive
Committee. IBERDROLA
GUERENABARRENA
Pursuant to the current
Companies Act and Iberdrola’s
Corporate Governance System,
Mr San Pedro Guerenabarrena
cannot be classified as an
independent director until 5 years
have passed since he ceased to
serve as chief operating officer.

State the changes, if any, in the type of director during the period:

Individual or company name

Date of change Former status Current status
of the director

MR JOSÉ LUIS SAN PEDRO

24/06/2014 Executive director Other external director
GUERENABARRENA

C.1.4. Complete the following table with information regarding the number of female
directors for the last 4 financial years, as well as the status of such directors:

% of total directors
Number of female directors
each class
Year t Year t-1 Year t-2 Year t-3 Year t Year t-1 Year t-2 Year t-3

Executive - - - - - - - -

Proprietary - - - - - - - -

Independent 5 4 3 3 45.45 40 33.33 27.27

Other external - - - - - - - -

Total 5 4 3 3 35.71 28.57 21.42 21.42

C.1.5. Describe any measures adopted to include on the board of directors a number of
women that allows for a balanced presence of men and women.

Description of measures

281
The Company’s Corporate Governance System entrusts the Appointments and Remuneration Committee
with the duty to ensure that when new vacancies are filled or new directors are appointed, the selection
procedures are free from any implied bias entailing any kind of discrimination and, in particular, that such
procedures do not hinder the selection of female directors.
Since 2006, Iberdrola has consistently increased the number of female directors on its Board of Directors.
On 7 June 2006, the Board of Directors appointed the director Ms Inés Macho Stadler on an interim basis
to fill a vacancy; such appointment was ratified by the shareholders at the General Shareholders’ Meeting
held on 29 March 2007, where the shareholders also approved her re-election for a five-year period. It
should also be noted that on 22 September 2009, Ms Inés Macho Stadler was appointed as lead
independent director (consejera independiente especialmente facultada), a position governed by the
provisions of article 38 of the By-Laws and article 21 of the Regulations of the Board of Directors.
Thereafter, at its meeting of 31 July 2008, the Board of Directors resolved to appoint the director Ms
Samantha Barber on an interim basis to fill a vacancy; such appointment was ratified by the shareholders
at the General Shareholders’ Meeting held on 20 March 2009.
The shareholders at the General Shareholders’ Meeting held on 26 March 2010 approved the proposal
for appointment of Ms María Helena Antolín Raybaud, who is classified as an external independent
director.
On 23 April 2013, Iberdrola’s Board of Directors approved the interim appointment of Ms Georgina Kessel
Martinez as an external independent director, which was subsequently ratified by the shareholders at the
General Shareholders’ Meeting held on 28 March 2014.
Finally, on 24 June 2014, the Board of Directors approved the interim appointment of Ms Denise Mary
Holt as an external independent director. Such appointment will be submitted to the shareholders for
ratification at the General Shareholders’ Meeting to be held on 27 March 2015.

C.1.6. Describe any measures approved by the remuneration committee in order for
selection procedures to be free of implicit biases that hinder the selection of
female directors, and in order for the company to deliberately search for women
who meet the professional profile that is sought and include them among
potential candidates:

Description of measures

The General Corporate Governance Policy provides in section 12 that “when new candidates for
membership on the Board of Directors are selected, and in order to ensure at all times the pre-eminence
of the corporate interest within the Board of Directors, the Appointments and Remuneration Committee
ensures that nominees are upstanding and qualified persons widely recognised for their expertise,
competence, experience, qualifications, training, availability, and commitment to their duties, seeking to
ensure that the selection of candidates results in an appropriate equilibrium of the Board of Directors that
enriches decision-making and contributes multiple points of view to the debate on the matters within its
purview”.
In turn, the Board has entrusted to the Appointments and Remuneration Committee the responsibility of
ensuring that when new vacancies are filled or new directors are appointed, the selection procedures are
free from any implied bias entailing any kind of discrimination and, in particular, from any bias that may
hinder the selection of female directors. This is expressly provided by articles 26.6.d) of the Regulations
of the Board of Directors and 3.d) of the Regulations of the Appointments and Remuneration Committee.

If there are few or no female directors despite any measures adopted, describe
the reasons for such result:

Description of reasons

282
C.1.7. Explain the form of representation on the board of shareholders with significant
holdings.

Mr Xabier de Irala Estévez has been a director since 24 April 2005 at the proposal of the significant
shareholder Bilbao Bizkaia Kutxa, Aurrezki Kutxa eta Bahitetxea - BBK (now Kutxabank, S.A.) and was
last re-elected by the shareholders at the General Shareholders’ Meeting held on 22 June 2012.

C.1.8. Describe, if applicable, the reasons why proprietary directors have been
appointed at the proposal of shareholders whose shareholding interest is less
than 5% of share capital.

Individual or company name of the shareholder Reason

State whether there has been no answer to formal petitions for presence on the
board received from shareholders whose shareholding interest is equal to or
greater than that of others at whose proposal proprietary directors have been
appointed. If so, describe the reasons why such petitions have not been
answered:

Yes No x

Individual or company name of the shareholder Explanation

C.1.9. State whether any director has withdrawn from the position as such before the
expiration of the director’s term of office, whether the director has given reasons
to the board and by what means, and in the event that the director gave reasons
in writing to the full board, describe at least the reasons given thereby:

Name of the director Reason for withdrawal

On 10 April 2014, Mr Manuel Lagares Gómez-

Abascal submitted his resignation from the position
he held as proprietary director at the request of the
MR MANUEL LAGARES GÓMEZ-ABASCAL significant shareholder Banco Financiero y de
Ahorros, S.A. His resignation was due to the sale
by such institution of its shares in Iberdrola on that
same date.

C.1.10. State any powers delegated to the CEO(s):

Individual or company name of the director Brief description

The chairman & chief executive officer, as an

individual decision-making body, has all the powers
MR JOSÉ IGNACIO SÁNCHEZ GALÁN
that may be delegated under the law and the By-
Laws.

283
C.1.11. Identify any members of the board who are directors or officers of companies
within the listed company’s group:

Individual or company name of Name of entity

Position
the director within the group

MR JOSÉ IGNACIO SÁNCHEZ

SCOTTISH POWER, LTD. Chair
GALÁN

MR JOSÉ IGNACIO SÁNCHEZ

IBERDROLA USA, INC. Chair
GALÁN

MR JOSÉ LUIS SAN PEDRO

IBERDROLA ESPAÑA, S.A. Chair
GUERENABARRENA

C.1.12. Identify the directors of your company, if any, who are members of the board of
directors of other companies listed on official stock exchanges other than those
of your group, which have been reported to your company:

Individual or company name of Name of listed

Position
the director company

MR XABIER DE IRALA
TUBACEX, S.A. Director
ESTÉVEZ

MR BRAULIO MEDEL CÁMARA ACERINOX, S.A. Director

GRUPO FINANCIERO
MS GEORGINA KESSEL
SCOTIABANK INVERLAT, S.A. Director
MARTÍNEZ
DE C.V.

MS DENISE MARY HOLT HSBC Bank plc Director

C.1.13. State and, if applicable, explain whether the company has established rules
regarding the number of boards of which its directors may be members:

Yes x No

Description of rules

Pursuant to the provisions of articles 36.2 of the By-Laws and 13.b) of the Regulations of the Board of
Directors, “individuals or legal entities serving as directors in more than three companies with shares
trading on domestic or foreign stock exchanges” may not be appointed as directors or individuals
representing a corporate director.

C.1.14. Indicate the company’s general policies and strategies reserved for approval by
the full board:

Yes No

Investment and financing policy x

Definition of the structure of the group of companies x

Corporate governance policy x

284
Corporate social responsibility policy x
Strategic or business plan, as well as management objectives and
x
annual budgets
Policy regarding remuneration and evaluation of performance of
x
senior management
Risk control and management policy, as well as the periodic
x
monitoring of the internal information and control systems
Dividend policy, as well the treasury share policy and, especially,
x
the limits thereto

C.1.15. State the overall remuneration of the board of directors:

Remuneration of the board of directors (thousands of euros) 14,951

Amount of total remuneration corresponding to pension rights accumulated by the
-
directors (thousands of euros)
Overall remuneration of the board of directors (thousands of euros) 14,951

C.1.16. Identify the members of the company’s senior management who are not
executive directors and state the total remuneration accruing to them during the
financial year:

Individual or company name Position(s)

MR FRANCISCO MARTÍNEZ CÓRCOLES Group Chief Operating Officer

MR JOSÉ SÁINZ ARMADA Chief Financial Officer

General secretary and secretary of the Board of

DON JULIÁN MARTÍNEZ-SIMANCAS SÁNCHEZ
Directors

MR FERNANDO BECKER ZUAZUA Corporate director - Spain

MR LUIS JAVIER ARANAZ ZUZA Director of internal audit

DON PEDRO AZAGRA BLÁZQUEZ Director of corporate development

MR JUAN CARLOS REBOLLO LICEAGA Director of administration and control

Total senior management remuneration (in thousands of euros) 10,727

C.1.17. State the identity of the members of the board, if any, who are also members of
the board of directors of significant shareholders and/or in entities of their group:

Individual or company name of Company name of the

Position
the director significant shareholder

MR XABIER DE IRALA
CAJASUR BANCO, S.A. Director
ESTÉVEZ

285
 Describe any significant relationships, other than the ones contemplated in the
prior item, of the members of the board of directors linking them to significant
shareholders and/or companies within their group:

Individual or company name

Individual or company name
of related significant Description of relationship
of related director
shareholder

C.1.18. State whether the regulations of the board have been amended during the
financial year:

Yes x No

Description of amendments

On 29 April 2014, the Board of Directors of the Company approved an amendment of the Regulations of
the Board of Directors, the new provisions of which are the following:
- Replacement of mention of the Dividend Policy with a broader reference to the Shareholder
Remuneration Policy.
- Amendment of the maximum term in office of the chair of the Audit and Risk Supervision Committee
to four years.
On 24 June 2014, the Board of Directors of the Company approved the following changes:
- Adjustment of the text of its Regulations to the powers that, in the area of investee companies, are
given to the Appointments and Remuneration Committee by the internal procedure for authorising the
appointment of directors at companies in which the Iberdrola Group has an interest.
- Adjustment of the powers and rules governing the operation of the Corporate Social Responsibility
Committee pursuant to the new foundational structure of the Group.
Finally, the text of the Regulations was updated by the Board of Directors at its meeting of 16
December 2014 in order to adjust the text thereof following completion of the Group’s corporate
reorganisation through the creation of the country subholding company Iberdrola España, S.A.

C.1.19. State the procedures for the selection, appointment, re-election, evaluation, and
removal of directors. List the competent bodies, the procedures to be followed,
and the criteria applied in each of such procedures.

1. APPOINTMENT OF DIRECTORS
The appointment, re-election and removal of directors is the purview of the shareholders at the General
Shareholders’ Meeting.
Vacancies that occur may be filled by the Board of Directors on an interim basis until the next General
Shareholders’ Meeting.
The Appointments and Remuneration Committee must advise the Board of Directors regarding the most
appropriate configuration thereof and of its committees as regards size and equilibrium among the various
classes of directors existing at any time.
The following may not be appointed as directors or individuals representing a corporate director:
a) Domestic or foreign companies competing with the Company in the energy industry or other
industries, or the directors or senior officers thereof, or such persons, if any, as are proposed by them
in their capacity as shareholders.
b) Individuals or legal entities serving as directors in more than three companies with shares trading on
domestic or foreign stock exchanges.
c) Persons who, during the two years prior to their appointment, have occupied high-level positions in
286
 the government that are incompatible with the simultaneous performance of the duties of a director of
a listed company under national or autonomous community legislation, or positions of responsibility
with entities regulating the energy industry, the securities markets, or other industries in which the
Company or the Group operates.
d) Individuals or legal entities that are under any other circumstance of incompatibility or prohibition
governed by provisions of a general nature, including those that have interests in any way opposed
to those of the Company or the Group.
The Board of Directors, and the Appointments and Remuneration Committee within the scope of its
powers, shall endeavour to ensure that the candidates proposed to the shareholders at a General
Shareholders’ Meeting for appointment or re-election as directors, as well as the directors appointed
directly to fill vacancies in the exercise of the power of the Board of Directors to make interim
appointments, are respectable and qualified persons, widely recognised for their expertise, competence,
experience, qualifications, training, availability, and commitment to their duties.
It falls upon the Appointments and Remuneration Committee to propose the independent directors, as
well as to report upon the proposals relating to the other classes of directors.
When the Board of Directors deviates from the proposals and reports of the Appointments and
Remuneration Committee, it shall give reasons for so acting and shall record such reasons in the
minutes.
2. RE-ELECTION OF DIRECTORS
The proposals for re-election of directors that the Board of Directors resolves to submit to a decision of
the shareholders at the General Shareholders’ Meeting shall be subject to a process of preparation, which
shall include a proposal (in the case of independent directors) or a report (in the case of the other
directors) issued by the Appointments and Remuneration Committee.
For such purposes, the Committee must verify that the director to be re-elected continues to comply with
the general requirements applicable to all directors of the Company pursuant to law and the Company’s
Corporate Governance System, as well as evaluate the quality of work and dedication to office of the
director in question during the preceding term of office and, specifically, such director’s respectability,
capability, expertise, competence, experience, qualifications, availability, and commitment to the duties
entrusted thereto.
3. EVALUATION OF DIRECTORS
The Board of Directors shall annually evaluate: (i) its operation and the quality of its work; (ii) the
performance of their duties by the chairman of the Board of Directors and by the chief executive officer,
based on the report submitted thereto by the Appointments and Remuneration Committee; and (iii) the
operation of its committees, in view of the report submitted thereto by such committees. For such
purpose, the chairman of the Board of Directors shall organise and coordinate the aforementioned
evaluation process with the chair of each committee. The following section reports on the evaluation
process during financial year 2014.
4. REMOVAL OF DIRECTORS
Directors “shall serve in their position for a term of four (4) years, so long as the shareholders acting at
the General Shareholders’ Meeting do not resolve to remove them and they do not resign from their
position”.
The Appointments and Remuneration Committee shall inform the Board of Directors regarding proposed
removals due to breach of the duties inherent to the position of director or due to a director becoming
affected by supervening circumstances of mandatory resignation or withdrawal. In addition, the
Committee may propose the removal of directors in the event of incompatibility, structural conflict of
interest, or any other reason for resignation or withdrawal, pursuant to law or the Company’s Corporate
Governance System.
The Board of Directors may propose the removal of an independent director before the passage of the
period provided for in the By-Laws only upon sufficient grounds, evaluated by the Board of Directors after
a report from the Appointments and Remuneration Committee, or as a consequence of public takeover
bids, mergers, or other similar corporate transactions resulting in a significant change in the structure of
the Company’s share capital, as recommended by the Unified Good Governance Code.

C.1.20. State whether the board of directors has performed an evaluation of its activities
during the financial year:

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 Yes x No

If so, explain the extent to which the self-evaluation has given rise to significant
changes in its internal organisation and regarding the procedures applicable to
its activities:

Description of amendments

For the evaluation of financial year 2014, the Company has decided to rely, once more, on
“PricewaterhouseCoopers Asesores de Negocios, S.L.” (“PwC”), which prepared the evaluation reports of
which the Board of Directors has taken due note, endorsing the conclusions and the opportunities for
improvement in trends identified by such consultant.
The evaluation process covered more than 400 objectively quantifiable and measurable indicators, which
are updated from year to year with the latest trends. This relates to both the Board of Directors and its
committees as well as the performance of the directors individually. The evaluation of the chairman &
chief executive officer has been led by the coordinating director.
The conclusions of the evaluation reflected excellent results, with compliance with almost all of the critical
indicators related to legal rules and regulations and good governance recommendations, and more than
80% alignment with the latest international trends. There has also been progress in the improvement
areas identified in previous evaluations.
The evaluation highlights its good practices in each of the specific pillars:
1. Governance model
In 2014 Iberdrola strengthened its governance model based on the separation of the functions of
supervision and management with the creation of the subholding company Iberdrola España, S.A. It
has also progressed in the level of independence of its Board of Directors.
2. Suitable composition of the Board of Directors and effective operation
During this financial year, Iberdrola progressed towards excellence in the composition of its Board of
Directors with the inclusion of a foreign independent director with experience in the financial industry
and in-depth knowledge of the British market.
3. Shareholder engagement
Iberdrola has recently approved a Shareholder Engagement Policy, which is a practice that puts it at
the forefront of good governance.
4. Social return
Iberdrola has strengthened its commitment to and transparency towards society with the first-time
publication of the Integrated Report that has been prepared on the basis of the recommendations of
the International Integrated Reporting Council (IIRC). It has also deepened its involvement with the
stakeholders with whom it relates and has improved the measurement of its corporate reputation.
Pursuant to the Action Plan of which the Board of Directors has taken note, in 2015 Iberdrola will continue
to advance in the adoption of best good governance practices in the following key areas: (i) succession
plan, (ii) shareholder engagement, (ii) best remuneration practices, and (iv) efficiency in the operation of
the governance bodies.

C.1.21. State the circumstances under which the resignation of directors is mandatory.

Directors must submit their resignation from the position and formally resign from their position upon the
occurrence of any of the instances of incompatibility or prohibition against performing the duties of
director provided by law or by Iberdrola’s Corporate Governance System.
In this connection, article 16.2 of the Regulations of the Board of Directors provides that the directors
must submit their resignation to the Board of Directors and formally resign from their position in the
following cases:
a) When, due to supervening circumstances, they are involved in any circumstance of incompatibility or
prohibition governed by provisions of a general nature, the By-Laws, or these Regulations.
b) When, as a result of any acts or conduct attributable to the director, serious damage is caused to the
value or reputation of the Company or there is a risk to the Company of criminal liability.
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c) When they cease to deserve the respectability or to have the capability, expertise, competence,
availability, or commitment to their duties required to be a director of the Company.
d) When they are seriously reprimanded by the Board of Directors because they have breached any of
their duties as directors, by resolution adopted by a two-thirds majority of the directors.
e) When their continuance in office on the Board of Directors may, for any reason, jeopardise directly,
indirectly or through their related persons (pursuant to the definition of this term set forth in these
Regulations), the faithful and diligent performance of their duties in furtherance of the corporate
interest.
f) When the reasons why the director was appointed cease to exist and, in particular, in the case of
proprietary directors, when the shareholder or shareholders who proposed, requested, or decided the
appointment thereof totally or partially sell or transfer their equity interest, with the result that such
equity interest ceases to be significant or sufficient to justify the appointment.
g) When an independent director is affected, at any time following the director’s appointment as such,
by any of the prohibitions against holding office provided for in article 10.2 of these Regulations
(incompatibility for the position of independent director).
h) When the condition of the activities carried out by the director, or of the companies directly or
indirectly controlled by the director, or of the individuals or legal entities that are shareholders of or
related to any of them, or of the individual representing a corporate director, may compromise the
director’s capacity to hold office as such.
The resignation provisions set forth under f) and g) above shall not apply when, after a report from the
Appointments and Remuneration Committee, the Board of Directors believes that there are reasons that
justify the director’s continuance in office, without prejudice to the effect that the new supervening
circumstances may have on the classification of the director.

C.1.22. State whether the powers of the top executive of the company are vested in the
chair of the board. If so, describe the measures that have been taken to mitigate
the risks of accumulation of powers in a single person:

Yes x No

Measures to limit risks

It should first be noted that Iberdrola has a corporate structure and a governance model that make it
possible to completely separate the duties of supervision and the duties of management, which avoids the
risk of accumulation of powers.
The following aspects are particularly noteworthy:
a) Attribution to the Board of Directors of the Company of the duties relating to establishing the Group’s
policies and strategies and the basic guidelines for the management thereof, as well as general
supervision of the development of such policies, strategies, and guidelines, and of decisions on
matters of strategic importance at the Group level.
b) Attribution to the chairman of the Board of Directors & chief executive officer, with the technical
support of the Operating Committee and the Business CEO (director general de los negocios)
appointed by the Board of Directors (with overall responsibility for all of the businesses of the Group)
and the rest of the management team, of the duty of organisation and strategic coordination within
the Group through the dissemination, implementation, and monitoring of the general strategy and
basic management guidelines established by the Board of Directors.
c) The function of organisation and strategic coordination is also articulated through country subholding
companies, which group together equity stakes in the business subholding companies at the head of
the business conducted by the Group within the various countries in which it operates, taking into
account the characteristics and unique aspects of each of them.
The country subholding companies also centralise the provision of services common to such
companies and facilitate coordination among them. All of the foregoing is carried out in accordance
with the provisions of applicable law and especially the legal provisions regarding the separation of
regulated activities.
The country subholding companies have boards of directors that include independent directors and
their own audit committees, internal audit areas, and compliance units or divisions.
d) Assumption of decentralised executive responsibilities by the business subholding companies of the
Group, which assume the day-to-day control and administration and the effective management of
each business.
The business subholding companies are organised through their respective boards of directors,
which include independent directors, where appropriate, and their own management decision-making
bodies; they may also have their own audit committees, internal audit areas, and compliance units or
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 divisions.
In addition, other measures have been adopted in order to mitigate the risks of accumulation of powers:
- Eleven of the fourteen directors are independent, and all have served as directors for less than
twelve years.
- The position of lead independent director (consejero independiente especialmente facultado), with
broad powers of supervision regarding the performance of the executive chairman.
- The Board of Directors meets when so requested by one-fourth of the directors, by a vice-chair, or by
the lead independent director, if any. The meeting must be held within ten days of the request.
- A meeting of the Board of Directors may be called by one-third of the directors, who must establish
the agenda thereof, in order for the meeting to be held at the place where the registered office is
located, if a prior petition has been submitted to the chairman and he has failed, without well-founded
reasons, to call the meeting within one month.
- The powers recognised as belonging to the Board of Directors, both in the By-Laws and in its own
Regulations.
- The duties attributed to the Executive Committee.
- The same purpose is served by the duties attributed to the Audit and Risk Supervision Committee,
the Appointments and Remuneration Committee, and the Corporate Social Responsibility
Committee.
Specifically, the Appointments and Remuneration Committee is responsible for the annual evaluation
of the chairman’s performance, which is submitted for the approval of the Board of Directors. Such
evaluation is conducted by Ms Inés Macho Stadler, in the performance of her duties as lead
independent director.
- The General Risk Control and Management Policy described in section E of this report.
- The activities of cooperation and support entrusted to the Operating Committee within the framework
of the General Risk Control and Management Policy, as set forth in section E of this report.
Finally, the following powers granted to the directors under the Regulations of the Board of Directors are
noteworthy:
- Each and every director may contribute to the scheduling of meetings of the Board of Directors.
- Any director may ask the chairman of the Board of Directors to include items on the agenda.
- A director has the broadest powers to obtain information regarding any aspect of the Company, to
examine its books, records, documents, and other background information on corporate transactions,
to inspect its facilities, and to communicate with the senior officers of the Company.
- Any director may request the hiring of legal, accounting, technical, financial, commercial, or other
expert advisers, whose services shall be paid for by the Company.

State and, if applicable, explain whether rules have been established whereby one
of the independent directors is authorised to request that a meeting of the board
be called or that new items be included on the agenda, to coordinate and hear the
concerns of external directors, and to direct the evaluation by the board of
directors.

Yes x No

Description of rules

As provided by article 38.2 of the By-Laws and article 21 of the Regulations of the Board of Directors, if
the chairman of the Board of Directors performs executive duties, the Board of Directors shall, upon a
proposal of the Appointments and Remuneration Committee, authorise a lead independent director
(consejero independiente especialmente facultado) to:
a) Request the chairman of the Board of Directors to call a meeting thereof when such director deems it
appropriate.
b) Request the inclusion of matters in the agenda for meetings of the Board of Directors.

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c) Coordinate and reflect the concerns of the external directors.
d) Lead the evaluation of the chairman of the Board of Directors.

C.1.23. Are qualified majorities, different from the statutory majorities, required to adopt
any type of decision?

Yes x No

If so, describe the differences.

Description of differences

The Regulations of the Board of Directors (article 5.1 of the Regulations of the Board of Directors) require
a majority of two-thirds of the directors present at the meeting in person or by proxy to approve the
amendment thereof.
The serious reprimand of a director for having breached any of the duties entrusted thereto as director
(article 16.2.d) of the Regulations of the Board of Directors) requires a qualified majority of two-thirds of
the directors.

C.1.24. Explain whether there are specific requirements, other than the requirements
relating to directors, to be appointed chairman of the board of directors.

Yes No x

Description of requirements

C.1.25. State whether the chair has a tie-breaking vote:

Yes x No

Matters on which a tie-breaking vote may be cast

Pursuant to article 40.4 of the By-Laws and article 30.7 of the Regulations of the Board of Directors, the
chairman shall, in the event of a tie, have a tie-breaking vote on any matter unless he becomes subject to
a conflict of interest, in which case he must abstain from participating in the deliberation and voting stages
of the respective resolution as provided in article 37 of the aforementioned Regulations.

C.1.26. State whether the by-laws or the regulations of the board set forth any age limit
for directors:

Yes No x

Age limit for the chair -

Age limit for the CEO -
Age limit for directors -

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C.1.27. State whether the by-laws or the regulations of the Board establish any limit on
the term of office for independent directors that is different than the term
provided by regulatory provisions:

Yes No x

Maximum number of terms

C.1.28. State whether there are formal rules for proxy-voting at meetings of the board of
directors, the manner of doing so, and especially the maximum number of
proxies that a director may hold, as well as whether proxies must be given to a
director of the same class. If so, briefly describe such rules.

Pursuant to article 40.2 of the By-Laws, all of the directors may cast their vote and give their proxy in
favour of another director. Articles 30.2 and 34.2.b) of the Regulations of the Board of Directors require
that directors attend the meetings of the Board of Directors. When directors are unable to attend in person
for well-founded reasons, they shall endeavour to give a proxy to another director, to whom they shall
give any appropriate instructions, but may not grant a proxy in connection with matters in respect of which
they are involved in a conflict of interest.
The proxy granted shall be a special proxy for the Board meeting in question and may be communicated
by any means allowing for the receipt thereof.
There is no maximum number of proxies provided per director or an obligation to give the proxy to the
same class of director.

C.1.29. State the number of meetings that the board of directors has held during the
financial year. In addition, specify the number of times the board has met, if any,
at which the chair was not in attendance. Proxies granted with specific
instructions shall be counted as attendance.

Number of meetings of the board 7

Number of meetings of the board at which the chair was not in attendance 0

State the number of meetings held by the different committees of the board of
directors during the financial year:

Number of meetings of the Executive Committee 15

Number of meetings of the Audit and Risk Supervision Committee 10
Number of meetings of the Appointments and Remuneration Committee 14
Number of meetings of the Corporate Social Responsibility Committee 10

C.1.30. State the number of meetings that the board of directors has held during the
financial year with the attendance of all of its members. Proxies granted with
specific instructions shall be counted as attendance:

Attendance of the directors 7

% in attendance of total votes during the financial year 100%

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C.1.31. State whether the annual individual accounts and the annual consolidated
accounts that are submitted to the board for approval are previously certified:

Yes x No

Identify, if applicable, the person/persons that has/have certified the annual

individual and consolidated accounts of the company for preparation by the
board:

Name Position

MR JOSÉ IGNACIO SÁNCHEZ GALÁN Chairman & CEO

MR JUAN CARLOS REBOLLO LICEAGA Director of administration and control

C.1.32. Explain the mechanisms, if any, adopted by the board of directors to avoid any
qualifications in the audit report on the annual individual and consolidated
accounts prepared by the board of directors and submitted to the shareholders at
the general shareholders’ meeting.

Articles 3 and 6 of the Regulations of the Audit and Risk Supervision Committee provide that it has the
following functions, among others:
 Supervise the process of preparing and presenting regulated financial information.
 Establish appropriate relations with the auditor to receive information regarding matters that
might risk the independence thereof, for examination by the Audit and Risk Supervision
Committee, and any other information related to the development of the audit procedure as well
as such other communications as are provided for in the laws on auditing of accounts and in
other legal provisions on auditing. In any event, the Audit and Risk Supervision Committee must
receive written confirmation from the auditor on an annual basis of their independence vis-à-vis
the Company or entities directly or indirectly related thereto, as well as information on additional
services of any kind provided to such entities by such auditor or by persons or entities related
thereto, pursuant to the laws on auditing of accounts.
 On an annual basis, prior to the audit report, issue a report containing an opinion on the
independence of the auditor. This report must in any case pass upon the provision of the
additional services referred to in the preceding point.
 Report in advance to the Board of Directors regarding the financial information that the Company
must disclose on a regular basis because of its status as a listed company; the Audit and Risk
Supervision Committee shall make sure that the interim accounts are prepared in accordance
with the same accounting standards as the annual accounts and, for such purpose, it shall
consider the appropriateness of a limited review by the auditor.
 Review the contents of the audit reports on the accounts and of the reports on the limited review
of interim accounts, if any, as well as other mandatory reports to be prepared by the auditor,
prior to the issuance thereof, in order to avoid qualified reports.
 Act as a channel of communication between the Board of Directors and the auditors.
Article 48.5 of the Regulations of the Board of Directors provides that the Board of Directors shall use its
best efforts to definitively prepare the accounts such that there is no room for qualifications by the auditor.
However, when the Board of Directors believes that its opinion must prevail, it shall provide a public
explanation of the content and scope of the discrepancy.
Pursuant to the above-cited articles, the Audit and Risk Supervision Committee reports on the financial
information of the Company throughout the financial year and prior to the approval thereof by the Board of
Directors and its submission to the National Securities Market Commission (Comisión Nacional del
Mercado de Valores) (CNMV). The reports of the Audit and Risk Supervision Committee, which the chair
thereof presents to the full Board of Directors, are mainly intended to disclose such aspects, if any, as
may give rise to qualifications in the audit report of Iberdrola and its consolidated group, making the
appropriate recommendations to avoid any such qualifications.
Accordingly, the Audit and Risk Supervision Committee submitted to the Board of Directors the following
reports regarding the annual and semi-annual financial reports and the interim management statements

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of the Company for financial year 2014:
 Report dated 28 April 2014 on the interim management statement for the first quarter of 2014.
 Report dated 21 July 2014 on the economic/financial report for the first half of 2014.
 Report dated 20 October 2014 on the interim management statement for the third quarter of
2014.
 Report dated 16 February 2015 on the annual accounts of Iberdrola and its consolidated group
for financial year 2014.
As disclosed in the information about Iberdrola posted on the website of the CNMV (www.cnmv.es), the
audit reports on the individual and consolidated annual accounts prepared by the Board of Directors have
historically been issued without qualifications.

C.1.33. Is the secretary of the board a director?

Yes No x

C.1.34. Describe the procedures for appointment and removal of the secretary of the
board, stating whether the appointment and removal thereof have been reported
upon by the appointments committee and approved by the full board.

Procedure for appointment and removal

Pursuant to the provisions of article 22.1 of the Regulations of the Board of Directors, the Board of
Directors shall appoint its secretary at the proposal of the chairman and after a report from the
Appointments and Remuneration Committee. The same procedure shall be followed to decide the
removal of the secretary.

Yes No
Does the appointments committee report on the appointment? x
Does the appointments committee report on the removal? x
Does the full board approve the appointment? x
Does the full board approve the removal? x

Is the secretary of the board especially responsible for ensuring compliance with
good governance recommendations?

Yes x No

Comments

Under section 17.d) of the General Corporate Governance Policy, further developed by article 22.4.b) of
the Regulations of the Board of Directors, the secretary has the duty to ensure the formal and substantive
legality of all actions taken by the collective management decision-making bodies and conformity thereof
with the Company’s Corporate Governance System. To such end, the secretary of the Board of Directors
shall take into account, among other things, the provisions issued by regulatory authorities and their
recommendations, if any.
Among other duties, the secretary is also responsible for advising on the evaluation and update of the
Corporate Governance System and for reporting on new corporate governance initiatives at the domestic
and international levels.

C.1.35. State the mechanisms, if any, used by the company to preserve the independence
of auditors, financial analysts, investment banks, and rating agencies.

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1. MECHANISMS TO PRESERVE THE INDEPENDENCE OF THE AUDITOR
 The Audit and Risk Supervision Committee shall receive information from the auditor regarding
matters that might risk the independence thereof.
 This Committee shall receive from the auditors, on an annual basis, written confirmation of their
independence as well as information on additional services provided to the Company or entities
related thereto.
 The auditor shall provide to the Audit and Risk Supervision Committee annual information
regarding the profiles and the track record of the persons making up the audit teams, stating the
changes in the composition of such teams compared to the preceding financial year and persons
added to the Iberdrola Group.
 Such Committee shall issue, on an annual basis and prior to the issuance of the audit report, a
report containing an opinion on the independence of the auditor. This report shall in any case
pass upon the provision of the additional services referred to above.
 The Audit and Risk Supervision Committee shall monitor the quality assurance and
independence safeguarding internal procedures implemented by the auditor.
 This Committee shall not submit a proposal to the Board of Directors, and the Board of Directors
shall not submit a proposal to the shareholders at a General Shareholders’ Meeting, for
appointment of firms as auditor when it has evidence that they are affected by a circumstance of
incompatibility or do not satisfy the independence requirements established by the Company’s
Corporate Governance System.
As a result thereof, during 2014:
 Iberdrola’s auditor appeared on 8 occasions before the Audit and Risk Supervision Committee to
report on various matters relating to the audit process; no issues arose during such appearances
that might put its independence at risk.
 On 11 February 2014, the auditor sent written confirmation of its independence with regard to
the audit of financial information for financial year 2013. In addition, on 21 July 2014, the auditor
sent written confirmation of its independence with regard to the limited review of financial
information through 30 June 2014. The auditor represented in such letters that it had
implemented the internal procedures necessary to ensure its independence.
 Contracting of the auditor for services other than auditing is authorised in advance by the Audit
and Risk Supervision Committee. Such contracting is supported by the respective letters of the
partner responsible for the audit confirming the non-existence of restrictions on independence to
perform this work.
 In its written confirmation of 11 February 2014, the auditor reported on the rotation of personnel
of the audit team responsible for auditing the accounts of the Company, stating that none of
them have joined the Company or its Group.
 On 17 February, the Audit and Risk Supervision Committee issued its report to the Board of
Directors regarding the independence of the Company’s auditor. The Committee concluded that
the auditor performed its audit work with independence from the Company or entities related
thereto.
 Finally, pursuant to the points above, on 17 February 2014, the Audit and Risk Supervision
Committee proposed to the Company’s Board of Directors, for submission to the shareholders at
the General Shareholders’ Meeting, the re-election of Ernst & Young as the Company’s auditor
for financial year 2014.
2. MECHANISMS TO PRESERVE THE INDEPENDENCE OF FINANCIAL ANALYSTS, INVESTMENT
BANKS, AND RATING AGENCIES
The principles which form the basis of the relations of the Company with financial analysts, investment
banks, and rating agencies are transparency, non-discrimination, truthfulness, and trustworthiness of the
information supplied. The Finance and Resource Division, through the Investor Relations Division,
manages their requests for information and requests submitted by institutional or retail investors (in the
case of retail investors, through the Office of the Shareholder). The Finance and Resource Division gives
mandates to investment banks. The Development Division gives the appropriate advisory mandates to
investment banks within the scope of its activities, in coordination with the Finance and Resource
Division.
The independence of financial analysts is protected by the Investor Relations Division, which ensures the
objective, fair, and non-discriminatory treatment thereof.
To actualise the principles of transparency and non-discrimination, always in strict compliance with
regulations regarding the Securities Market, the Company has a number of communication channels:
- Personalised assistance for analysts, investors, and rating agencies.
- Publication of the information relating to quarterly results and other specific events, such as those
relating to the submission of the Business Prospects or to corporate transactions.

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 - E-mail through the corporate website ([email protected]) and a toll-free line for
shareholders (+34 900 100 019).
- In-person and broadcast presentations.
- Release of announcements and news.
- Visits to Company facilities.

C.1.36. State whether the Company has changed the external auditor during the financial
year. If so, identify the incoming and the outgoing auditor:

Yes No x

Outgoing auditor Incoming auditor

If there has been any disagreement with the outgoing auditor, provide a
description thereof:

Yes No x

Description of the disagreement

C.1.37. State whether the audit firm performs other non-audit work for the company
and/or its group. If so, state the amount of the fees paid for such work and the
percentage they represent of the aggregate fees charged to the company and/or
its group:

Yes x No

Company Group Total

Amount of other non-audit work
205 849 1,054
(thousands of euros)
Amount of non-audit work / Aggregate
5.8 7.1 6.8
amount billed by the audit firm (%)

C.1.38. State whether the audit report on the annual accounts for the prior financial year
has observations or qualifications. If so, state the reasons given by the chair of
the audit committee to explain the content and scope of such observations or
qualifications.

Yes No x

Description of reasons

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C.1.39. State the consecutive number of years for which the current audit firm has been
auditing the annual accounts of the company and/or its group. In addition, state
the percentage represented by such number of financial years audited by the
current audit firm with respect to the total number of financial years in which the
annual accounts have been audited:

Company Group
Number of continuous financial years 9 9

Company Group
Number of years audited by the current audit firm
/ Number of years in which the company has been 41 41
audited (%)

C.1.40. State whether there is any procedure for directors to hire external advisory
services, and if so, describe it:

Yes x No

Describe the procedure

Pursuant to the provisions of article 33 of the Regulations of the Board of Directors, in order to be
assisted in the performance of the duties entrusted thereto, any director may request the hiring of legal,
accounting, technical, financial, commercial, or other expert advisers, whose services shall be paid for by
the Company.
The assignment must deal with specific issues of certain significance and complexity arising during the
performance of the director’s duties.
The request for an expert to be hired shall be channelled through the secretary of the Board of Directors,
who may subject it to the prior approval of the Board of Directors; such approval may be denied in well-
founded instances, including the following circumstances:
a) That it is not necessary for the proper performance of the duties entrusted to the directors.
b) That the cost thereof is not reasonable in light of the significance of the issues and the assets and
income of the Company.
c) That the technical assistance sought may be adequately provided by the Company’s own experts
and technical personnel.
d) That it may entail a risk to the confidentiality of the information that must be made available to the
expert.
Furthermore, article 25.2 of the Regulations of the Audit and Risk Supervision Committee, article 19.2 of
the Regulations of the Appointments and Remuneration Committee, and article 16.3 of the Regulations of
the Corporate Social Responsibility Committee provide that such committees may seek advice from
outside professionals, who shall submit their reports directly to the chair of the relevant committee.

C.1.41. State whether there is any procedure for directors to obtain sufficiently in
advance the information required to prepare for meetings of management-level
decision-making bodies and, if so, describe it:

Yes x No

Describe the procedure

Section 13 of the General Corporate Governance Policy provides that “the Company has a programme to
provide directors with information and updates in response to the need for professionalisation,
diversification, and qualification of the Board of Directors.
Furthermore, in order to improve their knowledge of the Group, presentations are made to the directors in
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connection with the business of this Group. In addition, at each meeting of the Board of Directors, a
specific portion of the meeting may be devoted to a presentation on legal, economic, environmental, or
social matters of significance to the Group.
The directors have access to a specific application, the directors’ website, that facilitates performance of
their duties and the exercise of their right to receive information. Such information as is deemed
appropriate for the preparation of meetings of the Board of Directors and the committees thereof in
accordance with the agenda set forth in the respective calls, as well as materials relating to the director
training programmes and the presentations made to the Board of Directors, shall be posted on such
website.
In addition, the minutes of meetings of the Board of Directors and of the committees thereof, once duly
approved, or an abstract or summary thereof, shall be posted on the directors’ website, as well as such
information as the Board of Directors may decide to include therein”.
For its part, article 28.4 of the Regulations of the Board of Directors, in further development of article 39.2
of the By-Laws, provides that any information deemed necessary shall be sent or made available through
the directors’ website together with the call to meetings of the Board of Directors, which shall always
include the agenda for the meeting unless the requirement may be dispensed with upon duly justified
grounds.
In addition, article 34.2.a) of the Regulations of the Board of Directors provides that a director is
specifically required to "properly prepare the meetings of the Board of Directors and, if applicable, the
meetings of the Executive Committee or of the committees of which the director is a member, for which
purposes the director must diligently become apprised of the running of the Company and the matters to
be discussed at such meetings”.
In order to facilitate the directors’ discharge of their duties, the following initiatives have been
implemented:
- The approval by the Board of Directors of the Directors’ Code of Ethics of Iberdrola, which provides
the directors with an overall view of the rights and duties inherent in their position and is continuously
updated.
- The directors’ website, on which the call to and the documents for preparation of each meeting of the
Board of Directors are published.
- The development of the programme for information to the directors of Iberdrola pursuant to article
12.4 of the Regulations of the Board of Directors, which seeks to achieve the ongoing update of
directors and consists of presentations, informational notes, and posts that are included in the
directors’ website regarding matters of interest to the directors of the Company, issues of general
interest, and specific information on corporate governance and corporate social responsibility.
- The holding of informational meetings led by officers and employees of the Group, at which
information is provided regarding activities related to the various business and corporate areas of the
Company, as well as training presentations delivered by well-known professionals from outside the
Company, at which the directors receive information on matters of topical interest.

C.1.42. State whether the company has established any rules requiring directors to
inform the company —and, if applicable, resign from their position— in cases in
which the credit and reputation of the company may be damaged, and if so
provide a detailed description:

Yes x No

Describe the rules

Section 14 of the General Corporate Governance Policy sets out the obligations and duties of the
directors, including, as a statement of the duty of loyalty, the duty to resign in the event of supervening
incompatibility, lack of competence, prohibition against holding office as a director, and other instances
provided for in the Company’s Corporate Governance System. As provided by sub-sections c) and d) of
article 42.2 of the Regulations of the Board of Directors, a director must inform the Company of any
judicial, administrative, or other proceedings instituted against the director which, because of their
significance or characteristics, may seriously reflect upon the reputation of the Company. In particular, if a
director becomes subject to an order for further criminal prosecution upon indictment (resultar procesado)
or an order for the commencement of an oral trial is issued against the director for the commission of any
of the crimes contemplated in section 213 of the Companies Act (Ley de Sociedades de Capital), such
director shall give notice thereof to the Company, in the person of its president. In such instance, the
Board of Directors shall review the case as soon as practicable and shall adopt the decisions it deems fit
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taking into account the interests of the Company.
In addition, the director must inform the Company of any fact or event that may be relevant to the holding
of office as a director.
In addition, directors must submit their resignation to the Board of Directors and formally resign from their
position in the events set forth in article 16.2 of the Regulations of the Board of Directors, particularly:
a) When, due to supervening circumstances, they are involved in any circumstance of incompatibility or
prohibition governed by provisions of a general nature, the By-Laws, or these Regulations.
b) When, as a result of any acts or conduct attributable to the director, serious damage is caused to the
value or reputation of the Company or there is a risk to the Company of criminal liability.
c) When they cease to deserve the respectability or to have the capability, expertise, competence,
availability, or commitment to their duties required to be a director of the Company.
d) When they are seriously reprimanded by the Board of Directors because they have breached any of
their duties as directors, by resolution adopted by a two-thirds majority of the directors.
e) When their continuance in office on the Board of Directors may, for any reason, jeopardise directly,
indirectly or through their related persons (pursuant to the definition of this term set forth in these
Regulations), the faithful and diligent performance of their duties in furtherance of the corporate
interest.
f) When the reasons why the director was appointed cease to exist and, in particular, in the case of
proprietary directors, when the shareholder or shareholders who proposed, requested, or decided the
appointment thereof totally or partially sell or transfer their equity interest, with the result that such
equity interest ceases to be significant or sufficient to justify the appointment.
g) When an independent director is affected, at any time following the director’s appointment as such, by
any of the prohibitions against holding office provided for in article 10.2 of these Regulations.
h) When the condition of the activities carried out by the director, or of the companies directly or indirectly
controlled by the director, or of the individuals or legal entities that are shareholders of or related to
any of them, or of the individual representing a corporate director, may compromise the director’s
capacity to hold office as such.
In any of the instances set forth in section 2 of article 16 of the Regulations of the Board of Directors, the
Board of Directors shall request the director to resign from such position and, if applicable, shall propose
the director’s removal from office to the shareholders at the General Shareholders’ Meeting.
By way of exception, the resignation provisions set forth in letters f) and g) of article 16.2 of the
Regulations of the Board of Directors cited above shall not apply when, after a report from the
Appointments and Remuneration Committee, the Board of Directors believes that there are reasons that
justify the director’s continuance in office, without prejudice to the effect that the new supervening
circumstances may have on the classification of the director.

C.1.43. State whether any member of the board of directors has informed the company
that such member has become subject to an order for further criminal
prosecution upon indictment or that an order for the commencement of a bench
trial has been issued against such member for the commission of any of the
crimes contemplated in section 213 of the Companies Act:

Yes No x

Name of the director Criminal case Comments

State whether the board of directors has analysed the case. If so, provide a duly
substantiated explanation of the decision adopted regarding whether or not the
director should remain in office or, if applicable, describe the actions taken by the
board of directors through the date of this report or that it plans to take.

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 Yes No

Decision made / action taken Duly substantiated explanation

C.1.44. Describe the significant agreements entered into by the company that go into
effect, are amended, or terminate in the event of a change in control at the
company as a result of a takeover bid, and effects thereof.

Iberdrola and its dependent companies (reference to dependent company should be understood to mean
that the change in control clause refers thereto) have loans and other agreements with financial
institutions, the maturity of which may be affected in the event of a change in control, with the most
significant of such agreements being the following:
i. There are loans that may be accelerated or require additional collateral if there is a change
in control due to a public takeover bid, which as a whole represent approximately 1,711
million euros by agreements affected, unless the change in control is not considered to be
prejudicial.
ii. Similarly, approximately 1,039 million Brazilian reais in issuances and 729 million Brazilian
reais in loans corresponding to Elektro would be affected by a change in control of the
issuer, unless it occurs as a result of an intra-group reorganisation or is agreed to by the
lenders.
iii. Furthermore, approximately 9,054 million euros corresponding to the issue of securities in
the euromarket would be susceptible to acceleration in the event of a change in control if
Iberdrola’s credit rating falls below “investment grade” or, if already below that level, falls a
notch, provided that the rating agency states that the downgrade in credit rating is due to the
change in control.
iv. Finally, approximately 943 million euros, 568 million dollars corresponding to Iberdrola
Mexico, 286 million Brazilian reais (Elektro) for loans, and 1,150 million dollars for issues by
the Iberdrola Group in the USA would be susceptible to acceleration in the event of a
change in control of the borrower.

C.1.45. Identify on an aggregate basis and provide a detailed description of the

agreements between the company and its management level and decision-
making positions or employees that provide for indemnities, guarantee, or
“golden parachute” clauses upon resignation or termination without cause, or if
the contractual relationship is terminated as a result of a takeover bid or other
type of transaction.

Number of beneficiaries 62

Type of beneficiary Description of agreement

Pursuant to the provisions of his contract, the

chairman & chief executive officer has the right to
receive a severance payment in the event of
termination of his relationship with the Company,
provided that such termination is not the
consequence of a breach attributable thereto or
Executive directors
exclusively due to his own decision to withdraw.
The amount of the severance payment is three
times annual salary.
Furthermore, in consideration for his two-year non-
compete commitment, the chairman & chief
executive officer is entitled to severance equal to

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 the remuneration for that period.
Since 2011, the Director Remuneration Policy
provides that the limit on the amount of such
severance under new contracts with executive
directors shall be two times their annual salary.

Contracts with senior officers of Iberdrola include

specific severance clauses. The purpose of such
clauses is to obtain an effective and sufficient level
of loyalty from senior officers who are necessary
for the management of the Company and thus
avoid a loss of experience and knowledge that
might jeopardise the achievement of strategic
objectives. The amount of the severance is
Senior officers determined based on length of service and the
reasons for the senior officer’s withdrawal from
office, up to a maximum of five times annual salary.
Notwithstanding the foregoing, the Senior Officer
Remuneration Policy provides since 2011 that the
limit on the amount of the severance under new
contracts with senior officers shall be two times
their annual salary.

The contracts of employees linked to Iberdrola by

an ordinary employment relationship do not
generally include specific severance clauses and,
Employees
accordingly, the general provisions of labour law
shall apply in the event of termination of the
employment relationship.

State whether such agreements must be reported to and/or approved by the

decision-making bodies of the company or its group:

Board of directors General shareholders’ meeting

Decision-making body
X
approving the provisions

Yes No
Is information about these provisions provided to the
x
shareholders at the general shareholders’ meeting?

C.2. Committees of the board of directors

C.2.1. Describe all of the committees of the board of directors, the members thereof,
and the proportion of proprietary and independent directors of which they are
comprised:

EXECUTIVE COMMITTEE

Name Position Class

MR JOSÉ IGNACIO SÁNCHEZ

CHAIR Executive director
GALÁN

MR XABIER DE IRALA MEMBER Proprietary director

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ESTÉVEZ

MS INÉS MACHO STADLER MEMBER Independent director

MR JOSÉ LUIS SAN PEDRO

MEMBER Other external director
GUERENABARRENA

MR ÁNGEL JESÚS ACEBES

MEMBER Independent director
PANIAGUA

% executive directors 20.00

% proprietary directors 20.00

% independent directors 40.00

% other external 20.00

AUDIT AND RISK SUPERVISION COMMITTEE

Name Position Class

MR JULIO DE MIGUEL AYNAT CHAIR Independent director

MR SEBASTIÁN BATTANER
MEMBER Independent director
ARIAS

MS GEORGINA KESSEL
MEMBER Independent director
MARTÍNEZ

MS DENISE MARY HOLT MEMBER Independent director

% executive directors 0

% proprietary directors 0

% independent directors 100.00

% other external 0

APPOINTMENTS AND REMUNERATION COMMITTEE

Name Position Class

MS INÉS MACHO STADLER CHAIR Independent director

MR IÑIGO VÍCTOR DE ORIOL

MEMBER Independent director
IBARRA

MR SANTIAGO MARTÍNEZ
MEMBER Independent director
LAGE

% executive directors 0

% proprietary directors 0

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% independent directors 100.00

% other external 0

CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

Name Position Class

MS SAMANTHA BARBER CHAIR Independent director

MR BRAULIO MEDEL CÁMARA MEMBER Independent director

MS MARÍA HELENA ANTOLÍN

MEMBER Independent director
RAYBAUD

% executive directors 0

% proprietary directors 0

% independent directors 100.00

% other external 0

C.2.2. Complete the following table with information regarding the number of female
directors comprising the committees of the board of directors for the last four
financial years:

Number of female directors

Year t Year t-1 Year t-2 Year t-3
% % % %
Executive
20.00 20.00 16.66 16.66
Committee
Audit and Risk
Supervision 50.00 33.33 0.00 0.00
Committee
Appointments
and
33.33 33.33 33.33 33.33
Remuneration
Committee
Corporate Social
Responsibility 66.66 66.66 66.66 50.00
Committee

C.2.3. State whether the audit committee has the following duties:

Yes No
Supervise the process of preparation and the integrity of the financial
information relating to the company and, if applicable, to the group,
monitoring compliance with legal requirements, the proper delimitation x
of the scope of consolidation, and the correct application of
accounting principles.
Periodically review the internal control and risk management systems,
x
in order for the main risks to be properly identified, managed, and
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made known.
Ensure the independence and effectiveness of the internal audit area;
make proposals regarding the selection, appointment, re-election, and
withdrawal of the head of the internal audit area; propose the budget
x
for such area; receive periodic information regarding its activities; and
verify that senior management takes into account the conclusions and
recommendations contained in its reports.
Establish and supervise a mechanism whereby the employees may
give notice, on a confidential basis and, if deemed appropriate,
x
anonymously, of any potentially significant irregularities, especially of
a financial and accounting nature, that they notice at the company.
Submit to the board proposals for the selection, appointment, re-
election, and replacement of the external auditor, as well as the x
contractual terms under which it should be hired.
Regularly receive from the external auditor information regarding the
audit plan and the results of the implementation thereof, and verify that x
senior management takes its recommendations into account.
Ensure the independence of the external auditor. x

C.2.4. Describe the rules of organisation and operation of, and the duties assigned to,
each of the board committees.

1. EXECUTIVE COMMITTEE
The Executive Committee shall be composed of the number of members decided by the Board of
Directors, with a minimum of four and a maximum of eight. In all cases, members shall include the
chairman of the Board of Directors, and the chief executive officer, if any. The secretary of the Board of
Directors shall act as secretary for the meeting.
The Executive Committee shall meet as many times as deemed necessary by the chair thereof. It shall
also meet when so requested by a minimum of two of the directors sitting on the committee.
Resolutions of the Committee shall be adopted by absolute majority of its members who are present at
the meeting in person or by proxy.
The duties of this Committee consist of making proposals to the Board regarding strategic decisions,
investments, and divestitures that are significant for the Company or the Group, assessing their
conformity to the budget and the strategic plans and analysing and monitoring business risks.

2. AUDIT AND RISK SUPERVISION COMMITTEE

The Audit and Risk Supervision Committee is an internal informational and consultative body.
The Audit and Risk Supervision Committee shall be composed of a minimum of three and a maximum of
five directors appointed from among the external directors who are not members of the Executive
Committee. A majority of such directors shall be independent, and at least one of them shall be appointed
taking into account the knowledge and experience thereof in the areas of accounting, audit, and risk
management.
The Board of Directors shall appoint a chair of the Committee from among the independent directors
forming part thereof, as well as its secretary, who need not be a director.
The members of the Audit and Risk Supervision Committee shall be appointed for a maximum term of
four years and may be re-elected on one or more occasions for terms of the same maximum length. The
chair shall hold office for a maximum period of four years, after which period the director who has held
office as such may not be re-elected until the passage of at least one year from ceasing to act as such.
A valid quorum shall be established with the attendance at the meeting, in person or by proxy, of a
majority of its members, and resolutions shall be adopted by an absolute majority of votes of the
members present at the meeting in person or by proxy.
The duties of the Committee are provided in article 44 of the By-Laws and are further developed in article
25 of the Regulations of the Board of Directors, as well as in the Regulations of the Audit and Risk
Supervision Committee.

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3. APPOINTMENTS AND REMUNERATION COMMITTEE
The Appointments and Remuneration Committee is an internal informational and consultative body.
The Appointments and Remuneration Committee shall be composed of a minimum of three and a
maximum of five directors appointed from among the external directors, and the majority thereof must be
classified as independent. The Board of Directors also appoints the chair thereof from among the
independent directors forming part thereof, as well as its secretary, who need not be a director.
The members of the Appointments and Remuneration Committee shall be appointed for a maximum term
of four years and may be re-elected on one or more occasions for terms of the same maximum length.
A valid quorum shall be established with the attendance at the meeting, in person or by proxy, of a
majority of its members, and resolutions shall be adopted by an absolute majority of votes of the
members present at the meeting in person or by proxy.
The duties of the Committee are provided in article 45 of the By-Laws and are further developed in article
26 of the Regulations of the Board of Directors, as well as in the Regulations of the Appointments and
Remuneration Committee.

4. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

The Corporate Social Responsibility Committee is an internal informational and consultative body.
The Committee shall be composed of a minimum of three and a maximum of five directors appointed from
among the external directors, and the majority thereof must be classified as independent. The Board of
Directors shall appoint a chair of the Committee from among the members forming part thereof, as well as
its secretary, who need not be a director.
The members of the Corporate Social Responsibility Committee shall be appointed for a maximum term
of four years and may be re-elected on one or more occasions for terms of the same maximum length.
A valid quorum shall be established with the attendance at the meeting, in person or by proxy, of a
majority of its members, and resolutions shall be adopted by an absolute majority of votes of the
members present at the meeting in person or by proxy.
The duties of the Committee are provided in article 46 of the By-Laws and are further developed in article
27 of the Regulations of the Board of Directors, as well as in the Regulations of the Corporate Social
Responsibility Committee.
As a general rule, the chairs of the Appointments and Remuneration Committee, of the Corporate Social
Responsibility Committee, and of the Audit and Risk Supervision Committee shall report to the Board of
Directors on the business considered and the resolutions adopted at the meetings thereof at the first
meeting of the Board of Directors following those of the respective committee.

C.2.5. State, if applicable, the existence of regulations of the board committees, where
such regulations may be consulted, and the amendments made during the
financial year. Also state if any annual report of the activities performed by each
committee has been voluntarily prepared.

1. AUDIT AND RISK SUPERVISION COMMITTEE

The Audit and Risk Supervision Committee has its own Regulations, which may be viewed by interested
parties on the Company’s website (www.iberdrola.com).
Article 20.2 of the Regulations of the Audit and Risk Supervision Committee provides that within three
months following the end of each financial year of the Company, the Committee shall submit to the Board
of Directors for approval a report describing its work during the financial year covered by such report,
which shall be made available to the shareholders on occasion of the call to the annual General
Shareholders’ Meeting.
The Report for financial year 2014 was prepared by the Audit and Risk Supervision Committee at its
meeting of 16 January 2015.
2. APPOINTMENTS AND REMUNERATION COMMITTEE
The Appointments and Remuneration Committee has its own Regulations, which may be viewed by
interested parties on the Company’s corporate website (www.iberdrola.com).

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Article 21.2 of the Regulations of the Appointments and Remuneration Committee provides that within
three months following the end of the Company’s financial year, the Committee shall submit to the Board
of Directors for approval a report detailing its work for the financial year covered by the report.
The Report for financial year 2014 was prepared by the Appointments and Remuneration Committee at
its meeting of 19 January 2015.
3. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
The Corporate Social Responsibility Committee has its own Regulations, which may be viewed by
interested parties on the Company’s corporate website (www.iberdrola.com).
Article 18.2 of the Regulations of the Corporate Social Responsibility Committee provides that within three
months following the end of each financial year of the Company, the Committee shall submit to the Board
of Directors for approval a report on its activities during the financial year covered by the report.
The Report for financial year 2014 was prepared by the Corporate Social Responsibility Committee at its
meeting of 19 January 2015.
An Activities Report of the Consultative Committees is published for purposes of the call to the General
Shareholders’ Meeting.

C.2.6. State whether the composition of the executive committee reflects the
participation of the different directors within the board based on their category:

Yes No x

If no, explain the composition of your executive committee

The Executive Committee of Iberdrola is made up of five directors, one being an executive director, one
being a proprietary director, two being independent directors, and finally one classified as other external
director.
Iberdrola believes it is essential for both the executive directors and the proprietary director to be part of
the Executive Committee. The presence of two independent directors, including the lead independent
director (consejera independiente especialmente facultada), provides an appropriate balance in the
composition thereof, with representation of the various classes of directors of the Company, and also
ensures that the duties of the Executive Committee may not be performed along lines different from those
reflected by the composition of the Board of Directors.

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D. RELATED-PARTY TRANSACTIONS AND INTRAGROUP TRANSACTIONS

D.1. Identify the competent decision-making body and describe any procedures for
approving related-party and intragroup transactions.

Competent decision-making body for approving related-party transactions

The Board of Directors, or in urgent cases, the Executive Committee.

Procedure for the approval of related-party transactions

Article 41 of the Regulations of the Board of Directors provides that:

1. Any transaction by the Company or the companies forming part of its Group with directors, with
shareholders that own a shareholding interest that is equal to or greater than that legally regarded as
significant at any time or that have proposed the appointment of any of the directors of the Company,
or with the respective related persons, shall be subject to the approval of the Board of Directors, or in
urgent cases, of the Executive Committee, following a favourable report from the Appointments and
Remuneration Committee. In the event that authorisation has been granted by the Executive
Committee due to the urgency of the matter, the Executive Committee shall give notice thereof to the
Board of Directors at the next meeting thereof.
2. The Board of Directors, through the Appointments and Remuneration Committee, shall ensure that
transactions between the Company or the companies forming part of its Group and the directors, the
shareholders mentioned in the preceding section, or the respective related persons are carried out
under arm’s length conditions and with due observance of the principle of equal treatment of
shareholders in the same situation.
3. In the case of customary and recurring transactions in the ordinary course of business, it shall be
sufficient for the Board of Directors to give prior generic approval of the kind of transaction and of the
conditions for performance thereof, following a favourable report from the Appointments and
Remuneration Committee.
4. However, no authorisation of the Board of Directors shall be required in connection with transactions
that simultaneously satisfy the following three conditions: that they are conducted under contracts
whose terms and conditions are standardised and apply on an across-the-board basis to a large
number of customers; that they are conducted at prices or rates established generally by the party
acting as supplier of the goods or services in question, and that the amount thereof does not exceed
one per cent of the annual income of the Company, as reflected in the audited annual accounts for the
most recent financial year closed prior to the date of the transaction in question.
5. The Company shall report the transactions mentioned in this article in the Semi-annual Financial
Report and in the Annual Corporate Governance Report, in those cases and to the extent provided for
by law. Likewise, the Company shall include in the notes accompanying the annual accounts
information regarding the transactions by the Company or by the companies that form part of the
Group with the directors and those persons who act for the account of the latter when such
transactions are conducted other than in the ordinary course of the Company’s business or other than
under arm’s length conditions.
Similar terms are provided in article 42 of the Procedure for Conflicts of Interest and Related-Party
Transactions with Directors, Significant Shareholders, and Senior Officers. Articles 15 and 16 of this
Procedure govern transactions with related persons other than directors and significant shareholders. In
such cases, authorisation of the related-party transaction is within the purview of the Corporate
Resources Division.

Explain whether the approval of related-party transactions has been delegated,

and if so, state the body or persons to which the delegation has been made.

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D.2. Describe those transactions that are significant due to the amount or subject-
matter thereof between the company or entities of its group and the company’s
significant shareholders:

Individual or
Individual or
company
company Nature of Amount
name of the Type of
name of the the (thousands
company or transaction
significant relationship of euros)
entity within its
shareholder
group
KUTXABANK, S.A. IBERDROLA Contractual Interest charged 45

KUTXABANK, S.A. IBERDROLA Contractual Receipt of services 479

KUTXABANK, S.A. IBERDROLA Contractual Interest charged 11

Dividends and other

KUTXABANK, S.A. IBERDROLA Corporate 93,278
distributed benefits

KUTXABANK, S.A. IBERDROLA GROUP Contractual Interest charged 227

KUTXABANK, S.A. IBERDROLA GROUP Contractual Receipt of services 56

KUTXABANK, S.A. IBERDROLA GROUP Contractual Interest charged 11

Financing
KUTXABANK, S.A. IBERDROLA GROUP Contractual 6,601
agreements: loans

KUTXABANK, S.A. IBERDROLA GROUP Contractual Security and bonds 2,246

QATAR INVESTMENT Dividends and other

IBERDROLA Corporate 244,543
AUTHORITY distributed benefits

D.3. Describe those transactions that are significant due to the amount or subject-
matter thereof between the company or entities of its group and the company’s
directors or officers:

Individual or
company Individual or Amount
Nature of
name of company name Relation (thousands of
the relationship
directors of related party euros)
or officers

Mr Íñigo Íñigo Soil Tratamiento Direct (23.4%) and

Receipt of
Víctor de Oriol de Aguas indirect (39.4%) 1,695
services
Ibarra Industriales, S.L control

D.4. Report the significant transactions made by the company with other entities
belonging to the same group, provided they are not eliminated in the preparation
of the consolidated accounts and they are not part of the ordinary course of
business of the company as to their purpose and conditions.

Amount
Name of the entity within
(thousands of Brief description of the transaction
the group
euros)
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 Amount
Name of the entity within
(thousands of Brief description of the transaction
the group
euros)
Gamesa Group 65,398 Receipt of services
Gamesa Group 200,277 Purchase of tangible assets
Gamesa Group 5 Operating lease agreements
Gamesa Group 1,550 Sale of goods (finished or in progress)

In any case, report any intragroup transaction with entities established in

countries or territories considered to be tax havens:

Name of the Brief description of the Amount

entity within the group transaction (thousands of euros)

Scottish Power Insurance Ltd Financial interest income 297

Scottish Power Insurance Ltd Loan 431

Damhead Creek Finance Ltd Provision of loan 37,343

D.5. State the amount of transactions with other related parties.

D.6. Describe the mechanisms used to detect, determine, and resolve potential
conflicts of interest between the company and/or its group, and its directors,
officers, or significant shareholders.

1. CONFLICTS OF INTEREST GENERALLY

As part of its Corporate Governance System, Iberdrola has adopted a Procedure for Conflicts of Interest
and Related-Party Transactions with Directors, Significant Shareholders, and Senior Officers (in this
section, the “Procedure”).
The Procedure further develops the provisions of the Regulations of the Board of Directors and the
Internal Regulations for Conduct in the Securities Markets, in order to specify the rules to be observed in
conflict of interest situations. It applies to directors, significant shareholders, senior officers, other persons
designated by the Compliance Unit, and their related persons, upon the terms expressly defined in the
Procedure itself.
2. CONFLICTS OF INTEREST BETWEEN THE COMPANY AND THE DIRECTORS
Article 37 of the Regulations defines a conflict of interest as those cases in which there is a conflict,
whether direct or indirect, between the interests of the Company or of the companies of the Group and (i)
the personal interest of the director, (ii) the interest of a person related thereto, and (iii) in the case of a
proprietary director, the interest of the shareholder or shareholders that proposed or made the director’s
appointment or persons directly or indirectly related thereto.
Such regulation contains a list of persons deemed to be related for such purposes, distinguishing
between an individual and a corporate director.
Conflicts of interest shall be governed by the following rules:
a) Communication: the director must give notice to the Board of Directors, in the person of the chairman
or the secretary of the Board of Directors, of any conflict of interest in which the director is involved.
b) Abstention: the director shall leave the meeting during the deliberation and voting on those matters in
which the director is affected by a conflict of interest, and shall not be counted in the number of
members attending for purposes of the calculation of a quorum and majorities.
c) Transparency: the Company will report, when appropriate in accordance with legal provisions in

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 effect from time to time, any cases of conflict of interest in which the directors have been involved
during the financial year in question and of which the Company is aware by reason of notice given
thereto by the director affected by such conflict or by any other means.
However, if the conflict of interest situation is, or may reasonably be expected to be, of a structural and
permanent nature, it shall be deemed that there is a loss of the competence required to hold office. In this
regard, article 16 of the Regulations provides that a loss of competence is an event of resignation,
removal, and withdrawal of the director.
3. CONFLICTS OF INTEREST BETWEEN THE COMPANY AND THE SENIOR OFFICERS AND
OTHER PERSONS SUBJECT TO CONFLICT OF INTEREST RULES.
The Procedure also governs conflicts of interest with respect to senior officers, and subjects them to the
same rules of reporting, abstention, and transparency applicable to directors.
4. CONFLICTS OF INTEREST BETWEEN THE COMPANY AND SIGNIFICANT SHAREHOLDERS
Transactions between companies forming part of the Group with significant shareholders or shareholders
that have proposed the appointment of any of the directors and their respective related persons are dealt
with in article 41 of the Regulations of the Board of Directors mentioned in section D.1.
Finally, article 30 of the By-Laws (mentioned in section A.10) also refers to conflicts of interest in which
the shareholders might be involved, as it contemplates that those “participating in a merger or split-off
with the Company, or who are called to subscribe for an increase in capital with the exclusion of pre-
emptive rights or to acquire by overall assignment all of the Company’s assets” may not exercise their
voting rights to adopt such resolutions at the General Shareholders’ Meeting. This voting prohibition shall
cease to have effect when the Company has been the target of a takeover bid and the circumstances
mentioned in section A.10 of this Report are present.
5. CONFLICTS OF INTEREST WITH OTHER EMPLOYEES
The Code of Ethics, which dedicates a specific section to conflicts of interest, applies to all professionals
within the Group, regardless of rank.

D.7. Is more than one company of the group listed in Spain?

Yes No x

Identify the subsidiaries listed in Spain:

Listed subsidiaries

State whether they have publicly and accurately defined their respective areas of
activity and any possible business relationships among them, as well as those
between the listed dependent company and the other companies within the
group:

Yes No

Describe the possible business relationships between the parent company and the
listed subsidiary, and between the subsidiary and the other companies within the group

Describe the mechanisms established to resolve possible conflicts of interest

between the listed subsidiary and the other companies within the group:

Mechanisms for the resolution of possible conflicts of interest

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E. RISK CONTROL AND MANAGEMENT SYSTEMS

E.1. Explain the scope of the company’s Risk Management System.

The General Risk Control and Management Policy and the Risk Policies that further develop it apply to all
companies over which the Company has effective control, within the limits established by the laws
applicable to the regulated activities carried out by the Group in the various countries in which it operates.

The General Risk Control and Management Policy and the basic principles underpinning it are
implemented by means of a Comprehensive Risk Control and Management System, supported by a Risk
Committee of the Group and based upon a proper definition and allocation of duties and responsibilities at
the operating level and upon supporting procedures, methodologies, and tools, covering the following
stages:

a) The ongoing identification of significant risks and threats based on their possible impact on key
management objectives and the accounts (including contingent liabilities and other off-balance
sheet risks).
b) The analysis of such risks, both at each corporate business or function and taking into account
their combined effect on the Group as a whole.
c) The establishment of a structure of policies, guidelines, and limits, as well as of the
corresponding mechanisms for the approval and implementation thereof, which effectively
contribute to risk management being performed in accordance with the Company’s risk appetite.
d) The measurement and monitoring of risks, by following consistent procedures and standards
that are common to the Group as a whole
e) The analysis of risks associated with new investments, as an essential element of decision-
making based upon profitability/risk.
f) The maintenance of an internal system for monitoring compliance with policies, guidelines, and
limits, by means of appropriate procedures and systems, including the contingency plans
needed to mitigate the impact of the materialisation of risks.
g) The periodic monitoring and control of profit-and-loss account risks in order to control the
volatility of the annual income of the Group.
h) The ongoing evaluation of the suitability and efficiency of applying the system and the best
practices and recommendations in the area of risks for eventual inclusion thereof in the model.
i) The audit of the system by the Internal Audit Division.

Developed in accordance with the following basic action principles:

a) Integrate the risk/opportunity vision into the Company’s management, through a definition of the
strategy and the risk appetite and the incorporation of this variable into strategic and operating
decisions.
b) Segregate functions, at the operating level, between risk-taking areas and areas responsible for
the analysis, control, and monitoring of such risks, ensuring an appropriate level of
independence.
c) Guarantee the proper use of risk-hedging instruments and the maintenance of records thereof as
required by applicable law.
d) Inform regulatory agencies and the principal external players, in a transparent fashion, regarding
the risks facing the Group and the operation of the systems developed to monitor such risks,
maintaining suitable channels that favour communication.
e) Ensure appropriate compliance with the corporate governance rules established by the
Company through its Corporate Governance System and the update and continuous
improvement of such system within the framework of the best international practices as to
transparency and good governance, and implement the monitoring and measurement thereof.
f) Act at all times in compliance with the law and the Company’s Corporate Governance System
and, specifically, with due observance of the values and standards of conduct reflected in the
Code of Ethics and under the principle of zero tolerance towards the commission of unlawful
acts and situations of fraud set forth in the Crime Prevention and Anti-Fraud Policy.

At those companies that are uncontrolled investees to which the Group’s Comprehensive Risk System

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does not apply, the Company promotes consistent risk policies and limits and maintains appropriate
channels of information to ensure a proper understanding of risks.

E.2. Identify the decision-making bodies of the company responsible for preparing
and implementing the Risk Management System.

The Board of Directors of the Company undertakes to develop all of its capabilities in order for the
significant risks to all the activities and businesses of the Group to be adequately identified, measured,
managed, and controlled, and establishes through the General Risk Control and Management Policy the
mechanisms and basic principles for appropriate management of the risk/opportunity ratio, at a risk level
that makes it possible to:
a) attain the strategic objectives formulated by the Group with controlled volatility;
b) provide the maximum level of assurance to the shareholders;
c) protect the results and reputation of the Group;
d) defend the interests of customers, shareholders, other groups interested in the progress of the
Company, and society in general; and
e) ensure corporate stability and financial strength in a sustained fashion over time.
1. BOARD OF DIRECTORS
Within its area of authority, and with the support of the Audit and Risk Supervision Committee, it promotes
the implementation of the mechanisms required to ensure the adequate identification, measurement,
management, and control of all significant risks, defines the Company’s strategy and risk profile, and
approves the Group’s Risk Policies.
2. EXECUTIVE COMMITTEE
In order to align the risk impact with the established risk appetite, the Executive Committee of the Board
of Directors, acting at the proposal of the business or corporate divisions involved and upon a prior report
from the Group’s Risk Committee, annually reviews and approves specific guidelines regarding the risk
limits from the Corporate Policies of the Group and of Non-Energy Subsidiaries.
Pursuant to established guidelines, the competent management decision-making bodies of each
company of the Group, within such company’s area of responsibility, approves the specific risk limits
applicable to each of them and implements the control systems required to ensure compliance with the
General Risk Control and Management Policy and with the limits thereunder.
3. AUDIT AND RISK SUPERVISION COMMITTEE
As a consultative body of the Board of Directors, it is charged with the following duties:
a) Continuously review the internal control and risk management systems, such that the principal
risks are properly identified, managed, and reported.
b) Ensure that the Group’s risk control and management system identifies at least:
– The different types of risk (operational, technological, financial, legal, reputational, etc.) the
Company is exposed to, including contingent liabilities and other off-balance sheet risks among
financial or economic risks.
– The establishment and review of the risk map and levels that the Company deems acceptable.
– The measures planned in order to mitigate the impact of identified risks in the event that they
materialise.
– The information and internal control systems that will be used to monitor and manage the
aforementioned risks, including contingent liabilities and other off-balance sheet risks.
c) Maintain appropriate relationships with the Risk Division and with the audit and compliance
committees of the other companies of the Group.
d) Report in advance on the risks of the Group to be included in the Company’s Annual Corporate
Governance Report and give notice thereof to the Board of Directors, through the Corporate
Social Responsibility Committee, for an assessment of its conclusions.
4. BOARDS OF DIRECTORS OF COUNTRY SUBHOLDING COMPANIES OF THE PRINCIPAL

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COUNTRIES IN WHICH THE GROUP OPERATES
They are assigned the power to approve the Risk Policies for the various business of the Group in the
country in question as well as to establish the guidelines on limits and specific risk indicators applicable to
such businesses, based on the nature and unique aspects of each country.
5. RISK COMMITTEE OF THE GROUP
The Risk Committee of the Iberdrola Group is a technical body chaired by the chief financial officer, which
performs executive duties in connection with customary risk management and gives advice to the Group’s
governance bodies.
The Committee meets, at a minimum, one time per month, with the participation of the Group’s director of
Risk Management, those responsible for risks at the corporate businesses and areas that have a Risk
Management function, the Internal Audit Division, and the Administration and Control Division.
The Group’s Credit Risk and Market Risk Committees, which report to the Risk Committee, meet on a
fortnightly and monthly basis, respectively.

E.3. Point out the principal risks that could affect the achievement of business goals.

The Group is subject to various risks inherent in the different countries, industries, and markets in
which it does business and in the activities it carries out, which may prevent it from achieving its
objectives and successfully implementing its strategies.
The section entitled “Main risk factors associated with the activities of the Iberdrola Group” of the
Management Report within the Annual Report for financial year 2014 provides a detailed description
of the principal risks associated with the activities carried out by the main businesses of the Group,
as well as the risks of the corporation.
Owing to its universal and dynamic nature, the comprehensive risk system allows for the
consideration of new risks that may affect the Group following changes in its operating environment
or revisions of objectives and strategies, as well as adjustments resulting from ongoing monitoring,
verification, review, and supervision activities.
Pursuant to the definitions established by the General Risk Control and Management Policy, at the
Group level, risks are classified as follows:
a) Corporate Governance Risks: the Company assumes the need to safeguard the interests of the
Company and the strategy of sustained maximisation of the economic value of the Company and
its long-term success, in accordance with the Group’s corporate interest, culture, and corporate
vision, taking into account the legitimate public and private interests that converge in the conduct
of all business activities, particularly those of the various stakeholders and communities and
regions in which the Company and its employees act. A fundamental requirement for the
foregoing is compliance with the Company’s Corporate Governance System, made up of the By-
Laws, the Corporate Policies, the internal corporate governance rules, and the other internal
codes and procedures approved by the competent decision-making bodies of the Company and
inspired by the good governance recommendations generally recognised in international
markets.
b) Market Risks: defined as the exposure of the Group’s results and assets to changes in market
prices and variables, such as exchange rates, interest rates, commodity prices (electricity, gas,
CO2 emission allowances, other fuel, etc.), prices of financial assets, and others.
c) Credit Risks: defined as the possibility that a counterparty fails to perform its contractual
obligations, thus causing an economic or financial loss to the Group. Counterparties can be end
customers, counterparties in financial or energy markets, partners, suppliers, or contractors.
d) Business Risks: defined as the uncertainty regarding the performance of key variables inherent
in the business, such as the characteristics of demand, weather conditions, the strategies of
different players, and others.
e) Regulatory Risks: defined as those arising from regulatory changes made by the various
regulators, such as changes in compensation of regulated activities or in the required conditions
of supply, environmental regulations, tax laws, and others.
f) Operational Risks: defined as those related to direct or indirect economic losses resulting from
inadequate internal procedures, technical failures, human error, or as a consequence of certain
external events, including the economic, social, environmental, and reputational impact thereof,

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 as well as legal risks and the risk of fraud.
g) Reputational Risks: potential negative impact on the value of the Company resulting from
conduct on the part of the Company that is below the expectations created among various
stakeholders: shareholders, customers, media, analysts, Government, employees, and society in
general.

E.4. Identify whether the entity has a risk tolerance level.

The Company’s Board of Directors annually reviews and approves the acceptable risk tolerance level for
the Group.
The General Risk Control and Management Policy, together with the specific Risk Policies and limits that
develop it, qualitatively and quantitatively establish, in sufficiently detailed form, the risk appetite that is
annually accepted at the Group level and at the level of each of its main businesses.
By way of complement, once such limits and guidelines are considered in order to verify the risk assumed
globally in the annual profit and loss account, there is a comprehensive probability analysis of the
remaining global risk for the year at the time of approving the annual budget, which analysis is updated
for each of the three quarterly reviews thereof.
In addition, all new multi-year plans are accompanied by their associated risk analysis.
Corporate risk policies and limits reviewed and approved annually:
– Corporate Credit Risk Policy
– Corporate Market Risk Policy
– Operational Risk in Market Transactions Policy
– Insurance Policy
– Investment Policy
– Financing and Financial Risk Policy
– Treasury Share Policy
– Risk Policy for Equity Interests in Listed Companies
– Reputational Risk Framework Policy
– Procurement Policy
Risk policies of the various businesses of the Group reviewed and approved annually:
– Risk Policy for the Liberalised Businesses of the Iberdrola Group
– Risk Policy for the Renewables Energy Businesses of the Iberdrola Group
– Risk Policy for the Networks Businesses of the Iberdrola Group

– Risk Policy for the Non-Energy Businesses of Grupo Iberdrola

In general terms, the Corporate Policies, applicable to all of the Group’s businesses, establish the
framework and the proper practices for the control, management, and mitigation of the various types of
risks and establish overall risk limits to be distributed among the various businesses, measured in the
form of physical, notional, and/or probability figures (VaR, CVaR, etc.), through measures such as:
– Limits to maximum global credit risk exposure by type of counterparty
– Limits to market risk proportional to the volume of activity of each business
– Strict global limit on discretionary energy trading
– Limits on operational risk through preventive maintenance programmes and insurance
programmes
– Strict limits on activities not associated with the main energy business
– Other

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The Risk Policies of each of the main businesses of the Group establish the framework and the
authorised activities for each of them, together with the qualitative and quantitative risk guidelines, limits,
and indicators that should be applicable thereto, adjusted to the specific nature of each of them.
The General Risk Control and Management Policy, as well as a summary of the Corporate Risk Policies
and another summary of the Specific Risk Policies for the Various Businesses of the Group, are available
on the corporate website (www.iberdrola.com).

E.5. State what risks have materialised during the financial year.

During 2014, the activities of the Iberdrola Group were subject to various risk factors in the countries and
markets in which it does business and which, from a global standpoint, did not have a significant impact
on the income for the financial year, thanks to the diversification of activities, markets, and geographical
areas of the Group, which made it possible for the negative effects of some businesses to be offset by a
favourable performance in others.
Risks that have materialised include:
 Publication of a Ministerial Order in Spain establishing the standard values applicable to production
plants under the old special regime, which:
 Increases the exposure to market risk of our wind production in Spain (4.7 TWh/year) while assigning
a reasonable return to the rest (7.3 TWh/year).
 Puts at risk the viability of all of our slurry treatment and some cogeneration plants, with a total
provision of 20 million euros after taxes at the consolidated level.
 The provision for our interest in the Elcogas plant, in Spain, with a total impact of approximately 11
million euros after taxes at the consolidated level.
 The opening of disciplinary proceedings by the CNMC, whose possible resolution will be known the
next years.
 Weakness in demand for electricity in Spain and the United Kingdom.
 Continuing low prices for electricity and gas in the United States.
 Write-down of assets and development costs at renewable energy projects in the United States,
United Kingdom, and rest of world, in the total after-tax amount of 53 million euros.
 Decision by the FERC (U.S. federal regulator) reducing the future remuneration of our transmission
assets in the State of Maine, with an estimated annual impact on EBITDA for Central Maine Power of
approximately USD 14 million beginning next year.
 Continuing drought in Brazil, without a significant final impact during the financial year, after the
measures adopted by the Brazilian government.
 Write-down of the value of interests of the company in the companies Vinzeo and Amara, in the
respective after-tax amounts of 22 and 17 million euros.
Positive developments include:
 An improvement in the perception of Spain risk, which, together with a battery of monetary policy
measures adopted by the ECB and improvements in the sovereign rating of our country, has allowed
for a new relaxation of the risk premium to levels of around 100 bp and financial issuances on
favourable terms.
 The good hydrological year in Spain, with hydroelectric production of approximately 5 TWh above
average.
 A satisfactory rate review for our electricity distributor in the USA, Central Maine Power, for the
period September 2014 to September 2015.
 Satisfactory annual rate readjustments for our electricity distributors in Brazil, Elektro and our
investee companies Coelba, Cosern, and Celpe, which satisfactorily recognise the increases in costs
that they have experienced.
 A strengthening of the listing price for Gamesa above the current book value, which has allowed for a
reversion of provisions in the amount of 58 million euros after taxes for the first half of 2014.

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In the opinion of the Company, some risk factors, such as those relating to:
 The low international prices for petroleum and other commodities
 Possible new international financial turbulence
 Low prices for gas and electricity in the U.S.
 Low growth in the demand for electricity in Spain and the United Kingdom
 Strong media, regulatory, and political pressure in the United Kingdom against the electricity sector,
and
 Possible prolongation of the drought in Brazil,
may continue to be seen during 2015, once again affecting its activities.

E.6. Describe the plans for responding to and supervising the entity’s main risks.

The Comprehensive Risk System, together with the Company’s control and management policies and
systems that develop it, including the Group’s Risk Committee and Operating Committee, have allowed
for the identification of new risks and threats sufficiently in advance, and to establish appropriate
mitigation plans.
The Group’s Operating Committee meets on an approximately weekly basis.
The Group’s Risk Committee meets on a monthly basis, reviews the various risks, and on a quarterly
basis approves a Quarterly Risk Report of the Group, which includes the main risk positions, a report on
compliance with policies and limits, and an update of the key risk maps.
The Audit and Risk Supervision Committee of the Board of Directors periodically monitors the evolution of
the Company’s risks at least on a quarterly basis:
- It reviews the Quarterly Risk Reports of the Group, which include monitoring compliance with
risk limits and indicators and updated key risk maps, submitted by the Group’s director of
Corporate Risks.
- It coordinates and reviews Risk Reports sent periodically (at least semi-annually) by the audit
and compliance committees of the country subholding companies and business subholding
companies of the Group.
- It prepares a Risk Report for the Board of Directors at least semi-annually.

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F. INTERNAL RISK CONTROL AND MANAGEMENT SYSTEMS IN CONNECTION WITH
THE PROCESS OF ISSUING FINANCIAL INFORMATION (ICFRS)

Describe the mechanisms making up the risk control and management systems with
respect to the process of issuing the entity’s financial information (ICFRS)

F.1 Control environment at the entity

Indicate at least the following, specifying the main features thereof:

F.1.1. What bodies and/or functions are responsible for: (i) the existence and
maintenance of an adequate and effective internal control over financial
reporting system (ICFRS); (ii) the implementation thereof; and (iii)
oversight thereof.

Based on article 34.5.C.b of the Company’s By-Laws, the ultimate responsibility for the existence of an
adequate and effective internal control over financial reporting system (ICFRS) lies with the Board of
Directors of Iberdrola.
The persons in charge of the country subholding companies and the business subholding companies,
together with the respective control officers, as well as the directors of the global corporate areas, are
responsible for the design and implementation of the ICFRS. Such responsibility is expressly set forth in
the certifications signed by such persons on a semi-annual basis in connection with the financial
information for their respective areas of responsibility.
Pursuant to paragraphs b) and d) of article 44.4 of the By-Laws, as well as article 25.7.d of the
Regulations of the Board of Directors, the Audit and Risk Supervision Committee is responsible for
oversight of the ICFRS. The Committee draws on the support of the Internal Audit Division to discharge
such responsibility.

F.1.2. Whether any of the following are in place, particularly as regards the
financial information preparation process:

 Departments and/or mechanisms in charge of: (i) the design and revision
of the organisational structure; (ii) clearly defining the lines of
responsibility and authority, with an appropriate distribution of work and
duties; and (iii) ensuring that there are sufficient procedures for the
proper dissemination thereof at the entity.

The Board of Directors of Iberdrola defines the top-level organisational structure. The heads of such top-
level organisations, together with the Human Resources Division, are responsible for deployment within
their respective areas.
Each top-level division prepares a proposed organisation structure, including a description of the mission,
duties, and responsibilities of the various organisations deployed, which must then be validated by the
Human Resources Division and the Finance and Resources Division.
Primary responsibility for the preparation of financial information lies with the corporate Administration and
Control Division. Such division establishes the structure of those responsible for Control at the country
subholding companies and business subholding companies and is in charge of coordinating and
supervising their activities.

 Code of conduct, body that approves it, degree of dissemination and

instruction, principles and values included (indicating whether the
recording of transactions and the preparation of financial information are

317
 specifically mentioned), body in charge of reviewing breaches and of
proposing corrective actions and penalties.

The Iberdrola Group has a Code of Ethics, approved by the Board of Directors.
According to article 2.1 thereof, “the principles and guidelines for conduct contained in the Code of Ethics
apply to all of the Group’s professionals, regardless of seniority, geographic or functional location, or the
company of the Group for which they provide their services”. The Code of Ethics is communicated to and
disseminated among the professionals of the Iberdrola Group in accordance with the plan approved for
such purpose by the Compliance Unit.
Article 32.2 of the Code of Ethics expressly provides as follows:
“The Group shall provide true, proper, useful, and consistent information regarding its programmes and
actions. Transparency of information is a basic principle that must govern the actions of Group
professionals.
The economic/financial information of the Group (especially the annual accounts) shall faithfully reflect its
economic and financial position and its net worth, in accordance with generally accepted accounting
principles and applicable international financial reporting standards. For such purposes, no professional
shall conceal or distort the information set forth in the accounting records and reports of the Group, which
shall be complete, accurate, and truthful.
A lack of honesty in the communication of information, whether internally within the Group (to employees,
subsidiaries, departments, internal bodies, management decision-making bodies, etc.) or outside the
Group (to auditors, shareholders and investors, regulatory entities, the media, etc.), is a breach of this
Code of Ethics. This includes delivering incorrect information, organising it in an incorrect manner, or
seeking to confuse those who receive it”.
Control of the application of the Code of Ethics is a duty of the Compliance Unit, a body linked to the
Corporate Social Responsibility Committee of the Company’s Board of Directors, with duties in the area of
regulatory compliance and the Company’s Corporate Governance System. This Unit evaluates and
prepares an annual report on the level of compliance with the Code of Ethics. The report is transmitted to
the Finance and Resources Division, to the Company’s Internal Audit Division, and to the Corporate
Social Responsibility Committee. In turn, the latter transmits it to the competent governance bodies, to the
Company’s chairman & chief executive officer, and to the Audit and Risk Supervision Committee.
The Compliance Unit also has the duty to determine whether a Group professional has conducted
activities in violation of the law or of the Code of Ethics and, if applicable, to direct the Finance and
Resources Division, or the Division responsible for the human resources function at the relevant Group
company, to apply disciplinary measures in accordance with the rules on breach of duties and penalties
contained in the collective bargaining agreement to which the professional belongs or in applicable labour
law provisions.
Pursuant to article 41.1 of the Code of Ethics, the professionals of the Group expressly accept the vision,
values, and rules of conduct established therein.
In addition, pursuant to article 41.2, professionals who join or become part of the Group in the future shall
expressly accept the vision, values, and rules of conduct set forth in the Code of Ethics, which document
shall be attached to their respective employment contracts.

 Reporting channel that makes it possible to report any irregularities of a

financial or accounting nature to the audit committee, as well as any
possible breach of the code of conduct and irregular activities at the
organisation, specifying, if appropriate, whether it is confidential.

Iberdrola has a procedure in place that must be followed by all employees of the Group who wish to
report potentially significant irregularities of a financial and accounting nature and that allows them to
report such irregularities, by e-mail or regular mail, to the chair of the Audit and Risk Supervision
Committee.
As established in the procedure itself, the Company’s Board of Directors guarantees that the name of the
reporting person and the irregularity reported shall be treated in the strictest confidence, both in the
reporting process and in any process for the assessment and clarification of the facts conducted by the
Audit and Risk Supervision Committee and the organisations of the Company or third parties participating
at the request of such Committee.

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In accordance with the above-mentioned procedure, the chair of the Audit and Risk Supervision
Committee receives and admits the report for further processing. Such admission is made on the basis of
the requirements established in the procedure (name of the sender, sufficiently detailed information on
the situation reported, need for the report to fall within the scope of the channel, confidentiality guarantee,
personal data protection, etc.).
No reports were received during financial year 2014.

 Regular training and update programmes for personnel involved in the

preparation and review of financial information, as well as in the
evaluation of the internal control over financial reporting system, covering
at least accounting standards, auditing, internal control, and risk
management.

Personnel involved in the preparation and review of financial information, as well as in the evaluation of
the internal control over financial reporting system, receives regular training on accounting standards,
auditing, internal control, and risk management, according to its specific responsibilities.
In accordance with the organisational structure of the Iberdrola Group, the divisions that have a direct
relationship with these types of duties are the Internal Audit Division, the Administration and Control
Division, and the Finance and Resources Division.
During financial year 2014, the personnel involved in these duties in Spain received 9,711 hours of
training, of which 5,203 hours were dedicated to technical training directly related to the responsibilities
discharged by such personnel, which accounts for 53.25% of the training received.
A total of 108 technical courses were organised, most of them taught by external entities (business
schools, universities, or specialist consulting firms).
Especially noteworthy is the receipt of the following certificates by Iberdrola professionals in these
functional areas:
‫ـ‬ Certified Fraud Examiner (CFE), 3 professionals.
‫ـ‬ Certified Internal Auditor (CIA), 3 professionals
‫ـ‬ Certified in Risk Management Assurance (CRMA), 1 professional
A total of 298 professionals participated in these training activities for personnel involved in the
preparation and review of financial information and in the evaluation of the ICFRS.
Apart from the Certified Fraud Examiner (CFE), Certified Internal Auditor (CIA), and Certified in Risk
Management Assurance (CRMA) trainings mentioned above, the technical training activities in which
these professionals engaged include the following:
‫ـ‬ Tax Updates
‫ـ‬ Financial Analysis: Profitability, Risk, and Principles of Valuation
‫ـ‬ Consolidation of Balance Sheets
‫ـ‬ Consolidation of Financial Statements
‫ـ‬ Corporate Credit Rating
‫ـ‬ Corporate Governance for Fraud Prevention
‫ـ‬ II Bilbao Tax Forum 2013-2014
‫ـ‬ III Energy and Competitiveness Course
‫ـ‬ Internal Fraud and Auditory
‫ـ‬ Tax Reform Seminar 2015
‫ـ‬ XIX INTERNAL AUDIT CONFERENCE
‫ـ‬ XXI MEETING ON CONSOLIDATED TAXATION

F.2 Risk assessment of financial information

Indicate at least the following:

F.2.1. What are the main features of the risk identification process, including the
process of identifying the risks of error or fraud, with respect to:

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  Whether the process exists and is documented.

The process for the identification of risks of error in financial information is one of the most important
steps in the method for the development of internal control of the financial information of Iberdrola, and
the goals, implementation, and results thereof are documented.
The method starts with a review of financial information at the various business subholding companies
and corporate areas, in order to select the most significant accounts and notes to the accounts, in
accordance with both quantitative (materiality) and qualitative (business risk and visibility to third parties)
standards. The selected accounts and notes are grouped into management cycles or large processes in
which the selected information is generated. The cycles are analysed and a description of each is
prepared, as a way of identifying possible risks of error in the financial information, in connection with
attributes such as completeness, presentation, assessment, cut-off, recording, and validity. The identified
risks are submitted to a process of prioritisation, such that the most significant ones are selected by
applying professional judgement on a number of indicators (existence of documented processes and
controls, existence of systems that automate the processes, whether there have been any incidents in the
past, whether the process is known and mature, or whether judgements need to be made to make
estimates). The risks of fraud are not explicitly identified, although they are taken into account to the
extent that they might generate material errors in financial information.
Once the most significant risks have been selected, the controls needed to mitigate or manage them are
selected and designed; such controls are monitored, documented, and systematically reviewed by
internal audit.
The risks selected are reviewed at least on an annual basis, within the framework of the assessment of
the effectiveness of internal control carried out by the persons or divisions responsible therefor. The
purpose of such review is to adjust the risks to the changing circumstances in which the Company
operates, particularly in the event of changes in the organisation, information technology systems,
regulations, products, or the situation of the markets.

 Whether the process covers all the objectives of financial information

(existence and occurrence; completeness; assessment; presentation,
breakdown and comparability, and rights and obligations), whether it is
updated, and how often.

As mentioned above, the cycles or large processes in which financial information is generated are
reviewed at least on an annual basis in order to identify possible risks of error, in connection with
attributes such as validity (existence and authorisation), completeness, assessment, presentation, cut-off,
and recording.

 The existence of a process for the identification of the scope of

consolidation, taking into account, among other matters, the possible
existence of complex corporate structures, holding entities, or special
purpose entities.

The scope of consolidation is identified on a monthly basis, and the result thereof is the updated
corporate map, which expressly identifies the changes that occurred in each period.
This review covers all companies in which Iberdrola or any of its subsidiaries has an interest, no matter
how small.
Furthermore, recommendation 8 of the Unified Good Governance Code provides that the Board of
Directors must reserve, among other matters, the power to approve the creation or acquisition of equity
interests in special purpose entities or entities registered in countries or territories regarded as tax havens
(SPEs), as well as any other transactions or operations of a similar nature that, due to their complexity,
might diminish the transparency of the Group. Recommendation 47 of such Code provides that the Audit
Committee must report to the Board of Directors prior to such decisions being adopted.
These recommendations have been included in the Regulations of the Board of Directors and in the
Regulations of the Audit and Risk Supervision Committee of Iberdrola.
Accordingly, whenever the Company intends to create a special purpose entity or an entity registered in a
tax haven, or to acquire an interest in one, the transaction must first be submitted to the Audit and Risk
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Supervision Committee for it to issue a report and then to the Board of Directors for approval.
There is a specific procedure for such purpose, tailored to the current corporate governance model,
according to which such initiative is to be taken by the Division or business subholding company that
intends to create or acquire a special purpose company or a company registered in a tax haven. In the
case of business subholding companies that have a board of directors and an audit committee, their
corporate governance bodies must first review the proposed transaction.

 Whether the process takes into account the effects of other types of risks
(operational, technological, financial, legal, reputational, environmental,
etc.) to the extent that they affect the financial statements.

The process for the identification of risks of error in financial information takes into account the effects of
other types of risks (operational, technological, legal, reputational, environmental, etc.) to the extent that
they affect the accounts; such risks are assessed and managed by different corporate units such as the
Risk Division or Legal Services, among others. However, no express identification of such other types of
risks is carried out to identify financial information risks.

 What governance body of the entity supervises the process.

The governance body that supervises the process is the Audit and Risk Supervision Committee, which
draws on the support of the Internal Audit Division to discharge this responsibility.

F.3 Control activities

Indicate whether at least the following are in place and describe their main
features:

F.3.1. Procedures for review and authorisation of financial information, and

description of the internal control over financial reporting system to be
published in the securities market, indicating the persons or divisions
responsible therefor, as well as documentation describing the flows of
activities and controls (including those relating to risk of fraud) of the
various types of transactions that could materially affect the financial
statements, including the closing process and the specific review of
significant judgements, estimates, assessments, and projections.

The process or structure of certification of financial information, conducted formally on a semi-annual

basis, on the dates of the year-end and interim closing processes, reflects the manner in which financial
information is generated in the Group.
In such structure, the persons in charge of the country subholding companies and those responsible for
the business subholding companies, together with the respective directors of control, as well as the heads
of the global corporate areas, certify both the reliability of the financial information in the areas under their
responsibility (which is the information they provide for purposes of consolidation at the group level) and
the effectiveness of the internal control system established to reasonably ensure such reliability. Finally,
the chairman & chief executive officer, as the highest executive authority, and the director of
Administration and Control, as the person responsible for the preparation of financial information, certify
the reliability of the consolidated accounts to the Board of Directors.
The Audit and Risk Supervision Committee, with the support of the Internal Audit Division, supervises the
entire certification process, and submits the conclusions of such review to the Board of Directors at the
meetings at which the accounts are formally approved.
As regards the description of the internal control over financial reporting system to be published in the
securities markets, the review and authorisation procedure is the same as that used for all contents of an

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economic and financial nature of the Annual Corporate Governance Report.
The documentation of the internal control over financial reporting system includes high-level descriptions
of the cycles of generation of selected significant financial information, as well as detailed descriptions of
the prioritised risks of error and of the controls designed to mitigate or manage them. The description of
the controls includes the evidence to be obtained in the implementation thereof, which is necessary for its
review.
Each of the closing processes performed at the business units is regarded as a cycle, and the same is
true of all the closing activities performed at the corporate level, of the global consolidation process, and
of the process for preparation of the notes to the accounts. As a result, all such activities are subject to
the methodological process described in the section relating to risks.
The specific review of critical accounting judgements and significant estimates, assessments, and
projections is subject to specific controls within the model, since this type of matter entails the
identification of risks of error in the different cycles in which they are made. In many cases, the evidence
of such specific controls is the media supporting such reviews.
Independently of the certification process followed in the countries, businesses, and corporate areas, the
Audit and Risk Supervision Committee, again with the support of the Internal Audit Division, performs an
overall review of financial information on a quarterly basis, ensuring that the semi-annual financial reports
and the quarterly management statements are prepared using the same accounting standards as the
annual financial reports, verifying the proper delimitation of the scope of consolidation as well as the
proper application of generally accepted accounting principles and international financial reporting
standards.

F.3.2. Policies and procedures of internal control over reporting systems

(including, among others, security of access, control of changes,
operation thereof, operational continuity, and segregation of duties) that
provide support for the significant processes of the entity in connection
with the preparation and publication of financial information.

The controls used to mitigate or manage the risks of error in financial information include controls relating
to the most significant computer applications, such as controls of user access permissions or of the
integrity of the transfer of information between applications.
In addition, the Iberdrola Group has guidelines or regulations as well as procedures for internal control
over reporting systems in connection with software acquisition and development, the acquisition of
system infrastructure, software installation and testing, change management, service level management,
management of the services provided by third parties, system security and access thereto, management
of incidents, operation management, continuity of operations, and segregation of duties.
Such guidelines and procedures (which, in some cases, differ according to geographical area or type of
solution and are in the process of progressive standardisation) are applied across all information systems
supporting significant financial information generation processes, and on the infrastructure required for
the operation thereof.
The Systems director of Iberdrola certifies the effectiveness of the internal controls established on
information systems on an annual basis.

F.3.3. Internal control policies and procedures designed to supervise the

management of activities outsourced to third parties, as well as those
aspects of assessment, calculation, or valuation entrusted to independent
experts, which may materially affect the accounts.

Generally speaking, the Iberdrola Group has no significant duties outsourced to third parties that have a
direct impact on financial information. The assessments, calculations, or valuations entrusted to third
parties that may materially affect the accounts are regarded as significant financial information generating
activities that lead, if appropriate, to the identification of high-priority risks of error, which, in turn, entails
the design of associated internal controls. Such controls cover the review and internal approval of the
basic assumptions to be used, as well as the review of the assessments, calculations, or valuations made
by outside parties, by verifying them against calculations made internally.

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F.4 Information and communication

Indicate whether at least the following are in place and describe their main
features:

F.4.1. A specific function charged with defining and updating accounting

policies (accounting policy area or department) and with resolving
questions or conflicts arising from the interpretation thereof, maintaining
fluid communications with those responsible for operations at the
organisation, as well as an updated accounting policy manual that has
been communicated to the units through which the entity operates.

The Accounting Regulations Division, reporting directly to the director of Administration and Control, is
responsible for defining and updating accounting policies, as well as for resolving questions or conflicts
stemming from the interpretation thereof. It maintains fluid communications with those responsible for the
operation of the organisation and, especially, with those responsible for accounting functions. It publishes
a quarterly newsletter, widely disseminated within the Group, on new accounting developments in
connection with IFRS, which includes regulation updates (laws and regulations that come into force,
drafts issued, laws and regulations enacted, laws approved and pending approval by the European
Union, and expected future laws and regulations) as well as accounting questions asked internally,
together with the conclusions in respect thereof.
The Accounting Regulations Division is also responsible for continuously updating the Group’s accounting
practices manual and for the appropriate dissemination thereof.
The accounting manual is updated continuously. For this purpose, the Accounting Regulations Division
analyses whether new developments or changes in accounting matters have an effect on the Group’s
accounting policies, as well as the effective date of each of such laws or regulations. When a new law or
regulation, or interpretation thereof, is identified as having an effect on the Group’s accounting policies, it
is included in the manual and is also communicated to those responsible for preparing the Group’s
financial information by means of the quarterly newsletters mentioned above, and there is an update of
the application in which the manual is maintained.
The updated version of the manual is available in an application on the Group’s internal network. This
application is also accessible by VPN over the internet and can be linked to e-mail. Any change or the
inclusion of a document within the manual generates a notice by e-mail to all users.

F.4.2. Mechanisms to capture and prepare financial information with

standardised formats, to be applied and used by all units of the entity or
the group, supporting the principal accounts and the notes thereto, as
well as the information provided on the internal control over financial
reporting system.

The mechanism to capture and prepare the information supporting the principal accounts of the Iberdrola
Group is based primarily on the use of a unified management consolidation tool (known as BPC)
accessible from all geographical areas, currently deployed across the entire Group.
A large portion of the information supporting the breakdowns in and notes to the financial information is
included in the consolidation tool, and the rest is captured on standardised spreadsheets known as
reporting packages, which are prepared for the semi-annual and year-end closing processes.

F.5 Supervision of the operation of the system

Indicate and describe the main features of at least the following:

F.5.1. The activities of supervision of the internal control over financial reporting
system performed by the audit committee, as well as whether the entity
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 has an internal audit function whose duties include providing support to
the committee in its work of supervising the internal control system,
including the internal control over financial reporting system. Information
is also to be provided concerning the scope of the assessment of the
internal control over financial reporting system performed during the
financial year and on the procedure whereby the person or division
charged with performing the assessment reports the results thereof,
whether the entity has an action plan in place describing possible
corrective measures, and whether the impact thereof on financial
information has been considered.

The activities of supervision of the internal control over financial reporting system carried out by the Audit
and Risk Supervision Committee include basically: (i) monitoring compliance with the certification process
by the various persons or divisions responsible for financial information, (ii) reviewing the design and
operation of the internal control system, with the support of the Internal Audit Division, to assess the
effectiveness thereof, and (iii) periodic meetings with external auditors, internal auditors, and senior
management to review, analyse, and discuss financial information, the group companies covered, and the
accounting standards applied, as well as, where appropriate, the significant internal control weaknesses
detected.
It should be noted that on an annual basis, those responsible for the preparation of the financial
information of each country subholding company, each business subholding company, and each
corporate area carry out a review of the design and operation of the internal control system within their
area of responsibility in order to assess the effectiveness thereof, in a process coordinated by the Internal
Control Division.
To that end, an analysis is made of whether, as a result of the changing circumstances in which the
Group operates (changes in organisation, systems, processes, products, regulation, etc.), changes in
identified risks need to be included and prioritised. A review is also made of whether the design of the
controls to mitigate or manage the risks that may have changed is appropriate, as well as whether the
controls have functioned properly, in accordance with their design.
The conclusions of this annual review, both as regards the deficiencies detected (which are classified as
serious, medium, or slight, according precisely to their possible impact on financial information) and with
respect to the action plans to correct them, are submitted at an annual seminar session chaired by the
director of Administration and Control, at which the Internal Audit Division is also in attendance. At such
meeting, conclusions are reached concerning the effectiveness of the internal control system at each of
the different areas for which they are responsible and, overall, at the Group as a whole.
The most significant conclusions of the review performed are subsequently submitted to the Audit and
Risk Supervision Committee within the framework of the periodic meetings with the director of
Administration and Control.
Independently of the foregoing, the Internal Audit Division (which reports to the chairman & chief
executive officer and is functionally controlled by the Audit and Risk Supervision Committee, and which,
as provided in the Basic Internal Audit Regulations of Iberdrola and the Companies of its Group, has the
primary role of facilitating the review, assessment, and effective supervision of the internal control and
significant risk management systems of the Company and its Group), conducts an independent review of
the design and operation of the internal control system in support of the Audit and Risk Supervision
Committee, identifies deficiencies, and draws up recommendations for improvement.
As a result thereof, the Internal Audit Division continuously monitors the various action plans agreed with
the different organisations to correct the deficiencies detected and to implement the suggestions for
improvement agreed with the organisations.
The period that the Internal Audit Division plans for an in-depth review of the entire internal control system
is three years.
Specifically, during financial year 2014, various cycles of the companies Iberdrola Iberdrola Ingeniería y
Construcción S.A., Iberdrola Inmobiliaria S.A, Iberdrola Distribución Eléctrica, S.A, Scottish Power, Ltd.,
Iberdrola Renovables Energía, S.A., Iberdrola Renewables Holding, Inc., Iberdrola USA Networks, Inc.,
Iberdrola Energía, S.A. and Elektro Electricidade e Serviços, S.A., were reviewed, as were the corporate
areas of Administration and Control, Finance and Treasury, and Legal Services.
In addition, the Internal Audit Division performs a review of the operation of the internal controls regarded
as most critical on a semi-annual basis, on the dates of the semi-annual and year-end closing.

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The combination of the quarterly reviews and the semi-annual reviews of the most critical controls
enables the Internal Audit Division to perform an assessment of the internal control system, as regards
the design and operation thereof, and to issue an opinion on the effectiveness of the internal controls
established to ensure the reliability of financial information, which it submits to the Audit and Risk
Supervision Committee within the framework of their periodic meetings.

F.5.2. Whether it has a discussion procedure whereby the auditor (as provided
in the Technical Auditing Standards), the internal audit function, and other
experts can inform senior management and the audit committee or the
directors of the entity of the significant internal control weaknesses
detected during the review of the annual accounts or such other reviews
as may have been entrusted to them. Information shall also be provided
on whether it has an action plan to seek to correct or mitigate the
weaknesses found.

Generally speaking, the procedure for discussion of significant internal control weaknesses detected is
based on periodic meetings of the various agents.
Thus, the Audit and Risk Supervision Committee holds meetings, both at the semi-annual and at the year-
end closing, with the external auditors, the internal auditors, and the division responsible for preparing
financial information, in order to discuss any significant aspect of the preparation process and of the
resulting financial information.
Specifically, pursuant to the provisions of its Regulations (scope of authority), the Audit and Risk
Supervision Committee of Iberdrola has, among other duties, the duty of reviewing, together with the
auditors, the significant weaknesses of the internal control system detected in the course of the audit. To
such end, the auditor appears before such Committee on an annual basis to submit recommendations in
connection with the internal control weaknesses identified during the review of the accounts. Any
weaknesses described by the auditor are monitored on an ongoing basis by the Committee, with the
support of the Internal Audit Division. The auditors did not highlight any significant internal control
weaknesses during financial year 2014.
Furthermore, the division responsible for preparing the consolidated accounts also holds meetings with
the external auditors and with the internal auditors, both at the semi-annual and at the year-end closing,
to discuss significant issues relating to financial information.

F.6 Other significant information.

Iberdrola has an internal model or system for control over financial reporting, the purpose of which is to
reasonably ensure the reliability of the financial information. It is important to note that the development of
this model, which commenced in 2006, was not the product of a legal requirement, but rather derived
from the firm belief of both the Board of Directors and the senior management of the Company that in a
context of growth and internationalisation as the one that could already be envisaged for the Group, an
explicit and auditable internal control system would contribute to maintaining and improving its control
environment and the quality of financial information; it would also boost investors’ trust because of its
effects on the transparency, reputation, and good governance of Iberdrola and of the subsidiaries making
up the Iberdrola Group.
The Internal Control over Financial Reporting Model or System (ICFRS) of the Iberdrola Group rests on
two main pillars: certification and internal control proper.
Certification is a semi-annual process in which those responsible for financial information in the different
areas of the Company certify that: (i) the financial information they deliver to Iberdrola for purposes of
consolidation does not contain any material errors or omissions and provides a fair view of the results and
the financial condition within their area of responsibility, and (ii) they are responsible for establishing the
ICFRS within their area of responsibility and have found, upon evaluation, that the system is effective.
This content of the certifications is inspired by the certification model established in section 302 of the US
Sarbanes-Oxley Act.
The culmination of the semi-annual process is a joint certification that the chairman & chief executive
officer and the director of Administration and Control submit to the Board of Directors.

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The other pillar supporting this model, i.e. internal control proper, is patterned on the reference framework
described in the report entitled “Internal Control Integrated Framework” of the Committee of Sponsoring
Organisations of the Treadway Commission (COSO), and is primarily aimed at providing a reasonable
level of security in achieving the aim of reliability of the financial information.
The methodology used by Iberdrola for the development and continuous update of internal control
consists of the following stages or steps: (i) analysis and selection of significant financial information, (ii)
grouping such information into cycles or large processes in which it is generated, (iii) identification,
assessment, and prioritisation of risks of error in financial information within selected cycles, (iv) design
and operation of controls in order to mitigate or manage selected risks, and (v) monitoring and update of
the previous steps in order to continuously adapt the model to the circumstances of corporate activities.
One of the salient features of the design of this model is that it seeks to guarantee the quality of financial
information during all months of the year, such that it is not limited only to the periods of year-end or semi-
annual closings.
This feature is strengthened through the use of a specific software application developed in-house by the
Group that allows for monitoring of the status of controls at all times.
Another important feature of the model is that it extends the culture of internal control to all of the
organisations, both corporate and business, that significantly contribute to generating financial
information, by assigning personal responsibility for the implementation and documentation of controls.
All relevant documents in connection with Iberdrola’s ICFRS, both regarding the certification process and
internal control proper, are contained in the aforementioned computer application.
Those responsible for implementing the controls enter into the computer application evidence of such
controls having been performed, and then evaluate the results obtained, which they rate as satisfactory or
non-satisfactory. This allows for the internal control situation to be monitored in real time, and also makes
it possible to act promptly on any deficiencies detected.
In addition, those responsible for control at the country subholding and business subholding companies,
as well as those responsible for the corporate areas, carry out an annual review of the design and
operation of the ICFRS, as a systematic process for updating such model in order to adapt it to the
changing circumstances of corporate activities.
The annual review is coordinated by the Internal Control Division, which is also responsible for managing
the computer application and coordinating the development of the ICFRS in the various business units
and corporate areas of the Group.
Moreover, the Internal Audit Division, which is responsible for supervising internal control as part of its
duty of support of the Audit and Risk Supervision Committee, performs an independent review of the
design and operation of the ICFRS, identifying deficiencies and formulating recommendations for
improvement. Such review is carried out in accordance with an established policy of rotation among the
different cycles within the model over a period of three years.
The Internal Audit Division also performs a semi-annual independent review of the effectiveness of the
internal controls established to guarantee the reliability of financial information. It also reviews the process
for certification of financial information on a semi-annual basis. The conclusions of such reviews are
submitted to the Audit and Risk Supervision Committee, which, if appropriate, adopts such conclusions
and submits them in turn to the Board of Directors.
The current scope of the ICFRS is such that, based on materiality standards, it covers the entire Iberdrola
Group. At present, more than 900 persons within the Group use the software application, both to
document evidence of the performance of more than 2,100 controls (which mitigate or manage more than
900 risks of error in financial information that have been prioritised) and to monitor, analyse, adjust, and
assess the ICFRS.
Furthermore, approximately 60 officers who participate in the process of certification of the accuracy of
information under their responsibility do so by using an electronic signature directly on the computer
application.
As a consequence of all of the foregoing, the final result of the certification process, which is based on the
situation of internal control proper, can be reviewed by the Board of Directors of Iberdrola as one of the
significant guarantees of reliability in connection with the preparation of the Group’s annual and interim
financial information.

F.7 External audit report

Report on:
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 F.7.1. Whether the information on the internal control over financial reporting
system has been reviewed by the external auditor, in which case the entity
should include the respective report as an exhibit. Otherwise, it should
provide the reasons therefor.

The information on the internal control over financial reporting system sent to the markets has not been
reviewed by the external editor for reasons of consistency with the fact that the rest of the information set
forth in the Annual Corporate Governance Report is only reviewed by the auditor in connection with the
accounting information contained in such report. It is also believed that having the information on the
internal control over financial reporting system reviewed externally would in a certain manner overlap the
internal control review to be performed by the external auditor, according to technical auditing standards,
within the context of the audit of the accounts.

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G. DEGREE TO WHICH CORPORATE GOVERNANCE RECOMMENDATIONS ARE
FOLLOWED

State the company’s degree of conformance to the recommendations of the Unified Good
Governance Code.

If the company does not comply with any recommendation or follows it partially, there
must be a detailed explanation of the reasons providing shareholders, investors, and the
market in general with sufficient information to assess the company’s course of action.
Generalised explanations will not be acceptable.

1. The By-Laws of listed companies do not limit the maximum number of votes that can
be cast by a single shareholder, or impose other obstacles to the takeover of the
company by means of the acquisition of its shares on the market

See sections: A.10, B.1, B.2, C.1.23, and C.1.24.

Complies Explain x

Article 29.3 of the By-Laws provides that “no shareholder may cast a number of votes greater than those
corresponding to shares representing ten (10%) per cent of share capital, even if the number of shares
held exceeds such percentage of the share capital. This limitation does not affect votes corresponding to
shares with respect to which a shareholder is holding a proxy as a result of the provisions of article 23
above, provided, however, that with respect to the number of votes corresponding to the shares of each
shareholder represented by proxy, the limitation set forth above shall apply”.
Section 4 of such article adds: “The limitation set forth in the preceding section shall also apply to the
maximum number of votes that may be collectively or individually cast by two or more shareholders that
are entities or companies belonging to the same group. Such limitation shall also apply to the number of
votes that may be cast collectively or individually by an individual and the shareholder entity, entities, or
companies controlled by such individual. A group shall be deemed to exist under the circumstances
provided by law, and also when a person controls one or more entities or companies”.
Iberdrola believes that the limitation on the maximum number of votes that may be cast by a single
shareholder, or by several shareholders belonging to the same group or, if applicable, acting in concert, is
a measure to protect the many minority shareholders, whose investment is thus guarded from any
transaction that is contrary to the corporate interest of Iberdrola. In this regard, it should be noted that
approximately one-fourth of Iberdrola’s capital is held by retail investors, who thus have little room to
manoeuvre and respond to a possible influence-seeking shareholder that owns a non-controlling interest
but does not reach the threshold requiring a takeover bid, and whose interest is not totally in line with the
corporate interest.
It should also be noted that such voting limitation has been in effect since 16 June 1990, the date on
which the General Shareholders’ Meeting was held at which it was resolved, by unanimous vote of the
attendees, to bring the By-Laws of the Company (then doing business as Iberduero, S.A.) into line with
the restated text of the Companies Act approved by Royal Legislative Decree 1564/1989 of 22 December.
This shows the level of corporate consensus that has existed on such voting limitation from the very
beginning, which has been confirmed by the fact that such limitation has remained unchanged through
various by-law amendments passed by the shareholders at General Shareholders’ Meetings. In turn, it
reflects the will of the shareholders to increase their bargaining power in the event of hostile offers or
transactions.
In any event, article 56 of the current By-Laws establishes the instances of removal of such voting
limitation in the event that the Company is the target of a takeover bid that receives the required
shareholder approval, in which case the provisions of section 527 of the Companies Act prevail. Pursuant
thereto, the limitation on the maximum number of votes that may be cast by a shareholder does not
constitute an obstacle to a takeover bid.

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2. When both the parent company and a company controlled by it are listed companies,
they both provide detailed public disclosure on:

a) Their respective areas of activity, and any business dealings between them, as
well as between the controlled listed company and other companies belonging to
the group;
b) The mechanisms in place to resolve any conflicts of interest that may arise.

See sections: D.4 and D.7

Complies Complies in part Explain Not applicable x

3. Even if not expressly required under applicable commercial laws, transactions

involving a structural change of the company and, in particular, the following, are
submitted to the shareholders at the general shareholders’ meeting for approval:

a) The transformation of listed companies into holding companies through

“subsidiarisation”, i.e. reallocating to controlled entities core activities that were
previously carried out by the company itself, even if the latter retains full
ownership of the former;
b) The acquisition or disposal of key operating assets, when it involves an actual
change in the object of the company;
c) Transactions whose effect is tantamount to the liquidation of the company.

See section: B.6

Complies x Complies in part Explain

4. Detailed proposals of the resolutions to be adopted at the general shareholders’

meeting, including the information to which recommendation 27 refers, are made
public at the time of publication of the announcement of the call to the general
shareholders’ meeting.

Complies x Explain

5. Matters that are substantially independent are voted on separately at the general
shareholders’ meeting, in order to allow the shareholders to express their voting
preferences separately. This rule applies, in particular:

a) To the appointment or ratification of directors, which shall be voted on

individually;
b) In the event of amendments of the By-Laws, to each article or group of articles
that are substantially independent of one another.

Complies x Complies in part Explain

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6. Companies allow split votes so financial intermediaries who are recorded as having
shareholder status but act for the account of different clients can divide their votes in
accordance with the instructions given by such clients.

Complies x Explain

7. The board performs its duties with a unity of purpose and independent judgement,
affording equal treatment to all shareholders in furtherance of the corporate interest,
which shall be understood to mean the optimisation, in a sustained fashion, of the
financial value of the company.

It likewise ensures that in its dealings with stakeholders, the company abides by the
laws and regulations, fulfils its obligations and contracts in good faith, respects the
customs and good practices of the industries and territories in which it carries on its
business, and upholds any other social responsibility standards to which it has
voluntarily adhered.

Complies x Complies in part Explain

8. The board assumes responsibility, as its core mission, for approving the company’s
strategy and the organisation required to put it into practice, and to ensure that
Management meets the objectives set while pursuing the company’s interest and the
object of the company. As such, the full Board reserves for itself the right to approve:

a) The company’s policies and general lines of strategy, and in particular:

i. Strategic or business plan, as well as management objectives and annual

budgets;
ii. Investment and financing policy;
iii. Definition of the structure of the group of companies;
iv. Corporate governance policy;
v. Corporate social responsibility policy;
vi. Policy regarding remuneration and evaluation of performance of senior
management;
vii. Risk control and management policy, as well as the periodic monitoring of the
internal information and control systems.
viii. Dividend policy, as well the treasury share policy and, especially, the limits
thereto.

See sections: C.1.14, C.1.16, and E.2

b) The following decisions:

i. At the proposal of the company’s chief executive, the appointment and, if

applicable, the removal of senior officers, as well as their severance
provisions.
ii. The remuneration of directors and, in the case of executive directors, the
additional remuneration for their executive duties and other terms and
conditions that must be included in their contracts.
iii. The financial information that the company must periodically make public due
to its status as listed company.
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 iv. Investments or transactions of all kinds which are strategic in nature due to
the large amount or special characteristics thereof, unless approval thereof
falls upon the shareholders at the general shareholders’ meeting.
v. The creation or acquisition of interests in special-purpose entities or entities
registered in countries or territories regarded as tax havens, as well as any
other transactions or operations of a similar nature whose complexity might
impair the transparency of the group.

c) Transactions made by the company with directors, with significant shareholders

or shareholders with Board representation, or with other persons related thereto
(“related-party transactions”).

However, board authorisation need not be required in connection with related-

party transactions that simultaneously meet the following three conditions:

1. They are governed by standard-form agreements applied on an across-the-

board basis to a large number of clients;
2. They are conducted at prices or rates generally set by the party acting as
supplier of the goods or services in question;
3. The amount thereof is no more than 1% of the company’s annual revenues.

It is recommended that related-party transactions only be approved by the board

upon a prior favourable report from the audit committee or such other committee
handling the same function; and that the directors affected thereby should
neither exercise nor delegate their votes, and should withdraw from the meeting
room while the board deliberates and votes on the transaction.

It is recommended that the powers granted herein to the board are conferred
without the power of delegation, except for those mentioned under b) and c)
above, which may, for urgent reasons, be adopted by the executive committee
subject to subsequent ratification by the full board.

See sections: D.1 and D.6

Complies x Complies in part Explain

9. In order to operate effectively and in a participatory manner, the board ideally is

comprised of no fewer than five and no more than fifteen members.

See section: C.1.2

Complies x Explain

10. External directors, proprietary and independent, occupy an ample majority of the
board and the number of executive directors is the minimum necessary number,
bearing in mind the complexity of the corporate group and the percentage interest
held by the executive directors in the company’s share capital.

See sections: A.3 and C.1.3.

331
 Complies x Complies in part Explain

11. Among external directors, the relation between the number of proprietary directors
and independent directors reflects the proportion existing between the share capital
of the company represented by proprietary directors and the rest of its capital.

This strict proportionality standard can be relaxed so that the weight of proprietary
directors is greater than would correspond to the total percentage of the share
capital that they represent:

1. In large cap companies where few or no equity stakes attain the legal threshold
regarded as significant, but there are shareholders holding interests with a high
absolute value.
2. In companies with a plurality of unrelated shareholders represented on the board.

See sections: A.2, A.3, and C.1.3

Complies x Explain

12. The number of independent directors represents at least one-third of the total
number of directors.

See section: C.1.3

Complies x Explain

13. The status of each director is explained by the board at the general shareholders’
meeting at which the shareholders are to make or ratify their appointment and such
status is confirmed or reviewed, as the case may be, annually in the Annual
Corporate Governance Report, after verification by the appointments committee. Said
report also discloses the reasons for the appointment of proprietary directors at the
proposal of shareholders controlling less than 5% of the share capital, as well as the
reasons for not having accommodated formal petitions, if any, for presence on the
board from shareholders whose equity stake is equal to or greater than that of others
at whose proposal proprietary directors have been appointed.

See sections: C.1.3 and C.1.8

Complies x Complies in part Explain

14. When the number of female directors is scant or nil, the appointments committee
takes steps to ensure that when new vacancies are filled:

a) Selection procedures do not have an implied bias that hinders the selection of
female directors;
b) The company deliberately looks for women with the target professional profile
and includes them among the potential candidates.

See sections: C.1.2, C.1.4, C.1.5, C.1.6, C.2.2, and C.2.4.

332
 Complies x Complies in part Explain Not applicable

15. The chair, as the person responsible for the effective operation of the board, ensures
that directors receive adequate information in advance of board meetings; promotes
debate and the active involvement of directors during board meetings; safeguards
their rights to freely take a position and express their opinion; and, working with the
chairs of the appropriate committees, organises and coordinates regular evaluations
of the Board and, where appropriate, of the chief executive officer.

See sections: C.1.19 and C.1 41

Complies x Complies in part Explain

16. When the chair of the board is also the chief executive of the company, one of the
independent directors is authorised to request the call to a board meeting or the
inclusion of new business on the agenda; to coordinate and hear the concerns of
external directors; and to lead the board’s evaluation of the chair.

See section: C.1.22

Complies x Complies in part Explain Not applicable

17. The secretary of the board takes particular care to ensure that the board’s actions:

a) Adhere to the letter and the spirit of laws and their implementing regulations,
including those approved by the regulatory authorities;
b) Comply with the company’s By-Laws and the Regulations for the general
shareholders’ meeting, the Regulations of the board and other regulations of the
company;
c) Are informed by those good governance recommendations included in this
Unified Code as the company has subscribed to.

And, in order to safeguard the independence, impartiality, and professionalism of the

secretary, the appointment and removal thereof are reported upon by the
appointments committee and approved by the full board; and that such appointment
and removal procedures are set forth in the regulations of the board.

See section: C.1.34

Complies x Complies in part Explain

18. The board meets with the frequency required to perform its duties efficiently, in
accordance with the schedule and agendas set at the beginning of the financial year,
and each director is entitled to propose items of the agenda that were not originally
included therein.

See section: C.1.29

333
 Complies x Complies in part Explain

19. Directors’ absences are limited to unavoidable cases and quantified in the Annual
Corporate Governance Report. And when there is no choice but to grant a proxy, it is
granted with instructions.

See sections: C.1.28, C.1.29 and C.1.30

Complies x Complies in part Explain

20. When directors or the secretary express concerns about a proposal or, in the case of
the directors, regarding the running of the company, and such concerns have not
been resolved at a board meeting, such concerns are recorded in the minutes at the
request of the person expressing them.

Complies x Complies in part Explain Not applicable

21. The full board evaluates the following on a yearly basis:

a) The quality and efficiency of the board’s operation;

b) On the basis of a report submitted to it by the appointments committee, how well
the chair of the board and the chief executive of the company have carried out
their duties;
c) The performance of its committees, on the basis of the reports furnished by
them.

See sections: C.1.19 and C.1.20

Complies x Complies in part Explain

22. All directors are able to exercise the right to request any additional information they
require on matters within the board’s purview. Unless the by-laws or the regulations
of the board provide otherwise, such requests are addressed to the chair or the
secretary of the board.

See section: C.1.41

Complies x Explain

23. All directors are entitled to call on the company for the advice they need to carry out
their duties. The company provides suitable channels for the exercise of this right,
which, in special circumstances, may include external advice at the company’s
expense.

See section: C.1.40

Complies x Explain

334
24. Companies organise induction programmes for new directors to rapidly and
adequately acquaint them with the company and its corporate governance rules.
Directors are also offered refresher training programmes when circumstances so
advise.

Complies x Complies in part Explain

25. Companies require that directors devote sufficient time and effort to perform their
duties efficiently, and, as such:

a) Directors apprise the appointments committee of their other professional duties,

in case they might detract from the necessary dedication;
b) Companies lay down rules about the number of boards on which their directors
may sit.

See sections: C.1.12, C.1.13, and C.1.17

Complies x Complies in part Explain

26. The proposal for the appointment or re-election of directors that the board submits to
the shareholders at the general shareholders’ meeting, as well as the interim
appointment of directors to fill vacancies, are approved by the board:

a) At the proposal of the appointments committee, in the case of independent

directors.
b) Subject to a prior report from the appointments committee, in the case of other
directors.

See section: C.1.3

Complies x Complies in part Explain

27. Companies post the following director information on their websites, and keep such
information updated:

a) Professional profile and biographical data;

b) Other boards of directors of listed or unlisted companies on which they sit;
c) Statement of the director’s classification, specifying, for proprietary directors, the
shareholder they represent or to whom they are related.
d) Date of their first and subsequent appointments as a company director; and
e) Shares held in the company and options thereon held by them.

Complies x Complies in part Explain

335
28. Proprietary directors tender their resignation when the shareholder they represent
sells its entire shareholding interest. The appropriate number of them do likewise
when such shareholder reduces its interest to a level that requires a reduction in the
number of its proprietary directors.

See sections: A.2, A.3, and C.1.2

Complies x Complies in part Explain

29. The board of directors does not propose the removal of any independent director
prior to the expiration of the term set by the by-laws for which such director was
appointed, except where good cause is found by the board upon a prior report from
the appointments committee. In particular, good cause shall be deemed to exist
whenever the director has failed to perform the duties inherent in the position held
thereby or comes under any of the circumstances causing the director to no longer
be independent pursuant to the provisions of Order ECC/461/2013.

The removal of independent directors may also be proposed as a result of takeover

bids, mergers, or other similar corporate transactions that entail a change in the
equity structure of the company, when such changes in the structure of the board
follow from the proportionality standard mentioned in Recommendation 11.

See sections: C.1.2, C.1.9, C.1.19, and C.1.27

Complies x Explain

30. Companies establish rules obliging directors to report and, if appropriate, to resign
in those instances as a result of which the credit and reputation of the company
might be damaged and, in particular, they require that such directors report to the
board any criminal charges brought against them, and the progress of any
subsequent proceedings.

If a director is indicted or tried for any of the crimes described in section 213 of the
Companies Act, the board examines the matter as soon as practicable and, in view of
the particular circumstances thereof, decides whether or not it is appropriate for the
director to continue to hold office. And the board provides a substantiated account
thereof in the Annual Corporate Governance Report.

See sections: C.1.42, C.1.43

Complies x Complies in part Explain

31. All directors clearly express their opposition when they feel that any proposed
resolution submitted to the board might be contrary to the best interests of the
company. And in particular, independent directors and the other directors not
affected by the potential conflict of interest do likewise in the case of decisions that
could be detrimental to the shareholders lacking board representation.

When the board adopts material or reiterated resolutions about which a director has
expressed serious reservations, such director draws the pertinent conclusions and,
336
 if such director chooses to resign, sets out the reasons in the letter referred to in the
next recommendation.

This Recommendation also applies to the secretary of the board, even if the
secretary is not a director.

Complies x Complies in part Explain Not applicable

32. Directors who give up their place before their tenure expires, through resignation or
otherwise, explain the reasons in a letter sent to all members of the board. Without
prejudice to such withdrawal being communicated as a significant event, the reason
for the withdrawal is explained in the Annual Corporate Governance Report.

See section: C.1.9

Complies x Complies in part Explain Not applicable

33. Remuneration paid by means of delivery of shares in the company or companies that
are members of the group, share options or instruments indexed to the price of the
shares, and variable remuneration linked to the company’s performance or pension
schemes is confined to executive directors.

This recommendation shall not apply to the delivery of shares when such delivery is
subjected to the condition that the directors hold the shares until they cease to hold
office as directors.

Complies x Complies in part Explain Not applicable

34. The remuneration of external directors is such as is necessary to compensate them

for the dedication, qualifications, and responsibility required by their position, but is
not so high as to compromise their independence.

Complies x Explain Not applicable

35. The remuneration linked to company earnings takes into account any qualifications
included in the external audit report that reduce such earnings.

Complies x Explain Not applicable

36. In the case of variable remuneration, remuneration policies include technical limits
and safeguards required to ensure that such remuneration reflects the professional
performance of the beneficiaries thereof and not simply the general performance of
the markets or of the industry in which the company does business or other similar
circumstances.

Complies x Explain Not applicable

337
37. When there is an executive committee (hereinafter, “executive committee”), the
breakdown of its members by director category is similar to that of the board, and its
secretary is the secretary of the board.

See sections: C.2.1 and C.2.6

Complies Complies in part x Explain Not applicable

The Executive Committee of Iberdrola is made up of five directors, and the secretary of the Board of
Directors serves as secretary of such Executive Committee. As regards its composition, the Board of
Directors of the Company has an executive director, an external director, and a proprietary director. Their
membership in the Executive Committee causes their relative weight at such Committee to be necessarily
greater than that on the Board of Directors. However, Iberdrola believes that it is essential for them to be
a part of the Executive Committee. In any event, the Executive Committee has two independent directors,
one of them being the coordinating director (consejera coordinadora), which provides adequate
equilibrium in the composition thereof, with representation of the various classes of directors of the
Company, and ensures that their duties may not be performed along lines different from those reflected
by the composition of the Board of Directors.

38. The board is always kept informed of the matters dealt with and the resolutions
adopted by the executive committee, and all members of the Board receive a copy of
the minutes of the meetings of the executive committee.

Complies x Explain Not applicable

39. In addition to the audit committee mandatory under the Securities Market Act, the
board of directors forms a single appointments and remuneration committee as a
separate committee of the board, or an appointments committee and a remuneration
committee.

The rules governing the make-up and operation of the audit committee and the
appointments and remuneration committee or committees are set forth in the
regulations of the board, and include the following:
a) The board appoints the members of such committees, taking into account the
background knowledge, qualifications, and experience of the directors and the
responsibilities of each committee, discusses its proposals and reports, and
receives a report, at the first meeting of the full board following the meetings of
such committees, on their activities and the work done.
b) These committees are formed exclusively of external directors and have a
minimum of three members. The foregoing is without prejudice to the attendance
of executive directors or senior officers, when expressly resolved by the
members of the committee.
c) Committee chairs are independent directors.
d) They may receive external advice, whenever they feel this is necessary for the
discharge of their duties.
e) Minutes are prepared of their meetings, and a copy is sent to all board members.

See sections: C.2.1 and C.2.4

Complies x Complies in part Explain

338
40. Supervising compliance with internal codes of conduct and corporate governance
rules is entrusted to the audit committee, the appointments committee or, if they
exist separately, to the compliance or corporate governance committee.

See sections: C.2.3 and C.2.4

Complies x Explain

41. The members of the audit committee and, particularly, the chair thereof, are
appointed taking into account their background knowledge and experience in
accounting, auditing, and risk management matters.

Complies x Explain

42. Listed companies have an internal audit function which, under the supervision of the
audit committee, ensures the smooth operation of the information and internal
control systems.

See section: C.2.3

Complies x Explain

43. The head of internal audit presents an annual work plan to the audit committee;
reports to it directly on any issues arising in the execution of such plan; and submits
an activities report to it at the end of each financial year.

Complies x Complies in part Explain

44. The risk control and management policy specifies at least:

a) The different types of risk (operational, technological, financial, legal,

reputational, etc.) the company is exposed to, including contingent liabilities and
other off-balance sheet risks among financial or economic risks;
b) The determination of the risk level the company sees as acceptable;
c) The measures planned in order to mitigate the impact of identified risks in the
event that they materialise;
d) The internal reporting and control systems to be used to monitor and manage the
above risks, including contingent liabilities and off-balance sheet risks.

See section: E

Complies x Complies in part Explain

45. The audit committee’s role is to:

1. With respect to the internal control and reporting systems:

339
 a) Properly manage and disclose the main risks, if any, identified as a result of
supervising the effectiveness of the internal control of the company and internal
auditing.
b) Ensure the independence and effectiveness of the internal audit area; make
proposals regarding the selection, appointment, re-election, and withdrawal of
the head of the internal audit area; propose the budget for such area; receive
periodic information regarding its activities; and verify that senior management
takes into account the conclusions and recommendations contained in its
reports.
c) Establish and supervise a mechanism whereby the employees may give notice,
on a confidential basis and, if deemed appropriate, anonymously, of any
potentially significant irregularities, especially of a financial and accounting
nature, that they notice at the company.

2. With respect to the external auditor:

a) Regularly receive from the external auditor information regarding the audit plan
and the results of the implementation thereof, and verify that senior management
takes its recommendations into account.
b) Ensure the independence of the external auditor, to which end:
i. The company reports a change of auditor to the CNMV as a significant event,
accompanied by a statement of any disagreements with the outgoing auditor
and the reasons for the same.
ii. In the event of resignation of the external auditor, the committee investigates
the circumstances that may have given rise thereto.

See sections: C.1.36, C.2.3, C.2.4, and E.2

Complies x Complies in part Explain

46. The audit committee may cause any company employee or officer to appear before it,
and even order their appearance without the presence of any other officer.

Complies x Explain

47. The audit committee reports to the board, prior to the adoption thereby of the
corresponding decisions, on the following matters specified in Recommendation 8:

a) The financial information that the company must periodically make public due to
its status as listed company. The committee should ensure that interim accounts
are prepared under the same accounting standards as the annual accounts and,
to this end, consider whether a limited review by the external auditor is
appropriate.
b) The creation or acquisition of interests in special-purpose entities or entities
registered in countries or territories regarded as tax havens, as well as any other
transactions or operations of a similar nature whose complexity might impair the
transparency of the group.
c) Related-party transactions, unless such prior reporting duty has been assigned
to another supervision and control committee.

See sections: C.2.3 and C.2.4

340
 Complies x Complies in part Explain

48. The board of directors seeks to present the accounts to the shareholders at the
general shareholders’ meeting without reservations or qualifications in the audit
report and, in the exceptional instances where they do exist, both the chair of the
audit committee and the auditors give a clear account to the shareholders of the
content and scope of such reservations or qualifications.

See section: C.1.38

Complies x Complies in part Explain

49. The majority of the members of the appointments committee –or of the appointments
and remuneration committee, if one and the same– are independent directors.

See section: C.2.1

Complies x Complies in part Explain

50. The appointments committee has the following duties, in addition to those stated in
the preceding recommendations:

a) To assess the qualifications, background knowledge, and experience necessary

to sit on the Board, defining, accordingly, the duties and qualifications required
of the candidates to fill each vacancy, and decide the time and dedication
necessary for them to properly perform their duties.
b) To examine or organise, in the manner it deems appropriate, the succession of
the chair and the chief executive and, if appropriate, make proposals to the board
for such succession to take place in an orderly and well-planned manner.
c) To report on senior officer appointments and removals that the chief executive
proposes to the board.
d) To report to the board on the gender diversity issues discussed in
Recommendation 14 of this Code.

See section: C.2.4

Complies x Complies in part Explain Not applicable

51. The appointments committee consults with the company’s president and the chief
executive, especially on matters relating to executive directors.

And that any board member may request that the appointments committee consider
possible candidates to fill vacancies for the position of director, if it finds them
suitably qualified.

Complies x Complies in part Explain Not applicable

341
52. The remuneration committee is responsible for the following duties, in addition to
those set forth in the preceding recommendations:

a) To propose to the board of directors:

i. The remuneration policy for directors and senior officers;
ii. The individual remuneration of executive directors and other terms of their
contracts.
iii. The basic terms and conditions of the contracts with senior officers.
b) To ensure compliance with the remuneration policy set by the company.

See sections: C.2.4

Complies x Complies in part Explain Not applicable

53. The remuneration committee consults with the chair and the chief executive of the
company, especially on matters relating to executive directors and senior officers.

Complies x Explain Not applicable

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H. OTHER INFORMATION OF INTEREST

1. If there are any significant aspects regarding corporate governance at the company
or at entities of the group that is not included in the other sections of this report, but
should be included in order to provide more complete and well-reasoned information
regarding the corporate governance structure and practices at the entity or its group,
briefly describe them.

SECTION A.1
The shareholders acting at the General Shareholders’ Meeting of the Company held on 22 March
2013 approved two increases in share capital by means of scrip issues in order to implement, for the
fourth consecutive year, the shareholder compensation system called “Iberdrola Flexible Dividend”
(“Iberdrola Dividendo Flexible”), which allows the shareholders to decide whether they prefer to
receive all or part of their compensation in cash or in Iberdrola bonus shares.
The second increase in capital took place in January 2014, when the traditional interim dividend for
financial year 2013 would otherwise have been paid, and the number of new shares that were issued
and floated came to 133,492,000, par value 0.75 euro each, without a share premium, representing
approximately 2.14% of the share capital prior to the increase.
The shareholders acting at the General Shareholders’ Meeting held on 28 March 2014 approved a
reduction in share capital by means of the retirement of 91,305,304 treasury shares of Iberdrola
representing 1.43% of the share capital, and the acquisition of the Company’s own shares
representing a maximum of 0.66% of the share capital through a buy-back programme for the
retirement thereof.
As a result of such resolution, the share capital of Iberdrola was reduced by the amount of
100,100,250.00 euros on 5 May 2014 through the retirement of 133,467,000 treasury shares
(91,305,304 shares already in treasury and 42,161,696 shares acquired from the shareholders
through the buy-back programme), representing approximately 2.09% of the share capital prior to the
reduction. The share capital resulting from the reduction was set at 4,680,000,000.00 euros,
corresponding to 6,240,000,000 shares.
The purpose of the reduction in capital was to retire treasury shares, for which reason there was no
return of contributions as the Company itself was the holder of the retired shares.
In addition, the shareholders acting at the General Shareholders’ Meeting of the Company held on 28
March 2014 approved, under item six on the agenda, two increases in share capital by means of a
scrip issue in order to implement, for the fifth consecutive year, the shareholder compensation system
known as Iberdrola Flexible Dividend.
The first increase in capital took place in July 2014, when the traditional supplementary dividend for
financial year 2013 would otherwise have been paid, and the number of new shares that were issued
and floated came to 67,239,000, par value 0.75 euro each, without a share premium, representing
approximately 1.08% of the share capital prior to the increase.
The second increase in capital took place in December 2014, when the traditional dividend for
financial year 2014 would have been paid. The number of new shares issued and floated came to
81,244,000, par value 0.75 euro each, without a share premium, representing approximately 1.29% of
the share capital prior to the increase. The share capital of the Company came to 6,388,483,000
shares after this increase in capital.

SECTION A.2
Given that the shares are represented by book entries, no information is available on a daily basis
about the interest of shareholders in the share capital. However, since 7 May 2014, Iberdrola is a
member within Iberclear of the Communication Service for securities holdings and the balanced list of
buyers and sellers upon the terms set forth in Circular No 5/2013 of 27 November. The sources of the
information provided are the notices sent by the shareholders to the CNMV and to the Company itself,
and the information contained in their respective annual reports and press releases, as well as the
information that the Company obtains from Iberclear.
Pursuant to the provisions of section 23.1 of Royal Decree 1362/2007 of 19 October, further
developing Law 24/1988 of 28 July on the Securities Market, in connection with the transparency
requirements relating to the information on issuers whose securities have been admitted to trading on

343
an official secondary market or other regulated market in the European Union, it is deemed that
significant shareholders are the holders of at least 3% of voting rights.
According to available information, the approximate breakdown of the interests in the share capital by
type of shareholder is as follows:
- Foreign investors 60%
- Domestic entities 16%
- Domestic retail investors 24%

SECTION A.3
Data at the date of approval of this Report.

SECTION A.8
As of the end of financial year 2014, the number of own shares and derivatives on treasury shares is
121,966,897, representing 1.909% of share capital.
Of such amount, Iberdrola has 60,985,277 own shares and 43,685,403 shares accumulated through
derivatives pending settlement and that are recorded as treasury shares in the consolidated financial
statements at 31 December 2014, 1,996,422 shares in the Scottish Power Group, and 15,299,795
shares corresponding to share swaps.
Pursuant to the authorisations granted to the Board of Directors by the shareholders at the General
Shareholders’ Meeting, during financial year 2014 Iberdrola acquired 176,365,850 own shares for
896,183 thousand euros and 43,685,403 shares, in the amount of 238,719 thousand euros, through
derivatives, although the latter are pending settlement as mentioned above. In addition, 7,783,210
own shares were sold for 41,529 thousand euros. Under such authorisations, Iberdrola has also
repurchased 133,467,000 own shares.
In addition, the Scottish Power Group acquired 503,448 shares in the amount of 2,688 thousand
euros during 2014, selling 877,590 shares for 3,455 thousand euros during the same period.

SECTION C.1.2
Composition of the Board of Directors at 31 December 2014.

SECTION C.1.3
The complete professional profiles of all the directors are available on the Company’s corporate
website (www.iberdrola.com).
Mr José Luis San Pedro Guerenabarrena was appointed director on 24 April 2012 with the status of
executive director, as he performed executive duties within the Company. Pursuant to article 10.2 of
the Regulations of the Board of Directors, those who have been employees or executive directors of
companies of the Group cannot be classified as independent directors unless three or five years,
respectively, have passed since the end of such relationship. Mr San Pedro Guerenabarrena held the
position of chief operating officer (consejero-director general) until 24 June 2014, the date on which he
ceased executive duties at his own request, but continues to serve as a member of the Board of
Directors and of the Executive Committee thereof. For that reason, Mr José Luis San Pedro
Guerenabarrena was reclassified as other external director on that date.

SECTION C.1.14
The general policies and strategies mentioned in this section have been approved by the Board of
Directors and can be viewed on the Company’s corporate website (www.iberdrola.com) together with
the other Corporate Policies of Iberdrola.

SECTION C.1.30
Below is the data on attendance of each and every one of the directors at the meetings of the Board
of Directors and its committees during financial year 2014:

344
 Committees
Directors Board
EC ARSC ARC CSRC

MR JOSÉ IGNACIO SÁNCHEZ GALÁN 7/7 15/15 ---- ---- ----

MR JULIO DE MIGUEL AYNAT 7/7 ---- 10/10 ---- ----

MR SEBASTIÁN BATTANER ARIAS 7/7 ---- 10/10 ---- ----

MR XABIER DE IRALA ESTÉVEZ 7/7 15/15 ---- ---- ----

MR IÑIGO VÍCTOR DE ORIOL IBARRA 7/7 ---- ---- 14/14 ----

MS INÉS MACHO STADLER 7/7 15/15 ---- 14/14 ----

MR BRAULIO MEDEL CÁMARA 7/7 ---- ---- ---- 6/10

MS SAMANTHA BARBER 7/7 ---- ---- ---- 10/10

MS MARÍA HELENA ANTOLÍN RAYBAUD 7/7 ---- ---- ---- 10/10

MR SANTIAGO MARTÍNEZ LAGE 7/7 ---- ---- 14/14 ----

MR JOSÉ LUIS SAN PEDRO ----

7/7 15/15 ---- ----
GUERENABARRENA

MR ÁNGEL JESÚS ACEBES PANIAGUA 7/7 15/15 ---- ---- ----

MR MANUEL LAGARES GÓMEZ- ----

2/2 ---- ---- ----
ABASCAL

MS GEORGINA KESSEL MARTÍNEZ 7/7 ---- 10/10 ---- ----

MS DENISE MARY HOLT 4/4 3/3

Notes:

- The denominator indicates the number of meetings held during the period of the year in which the director served as
such or as a member of the respective Committee.

- EC: Executive Committee.

- ARSC: Audit and Risk Supervision Committee.

- ARC: Appointments and Remuneration Committee.

- CSRC: Corporate Social Responsibility Committee.

SECTION C.1.31
Iberdrola Group has been established a certification process in which the persons responsible for the
financial information from the different areas of the company certify: (i) that the financial information
the provide to Iberdrola for consolidation does not contain material errors or omissions and fairly
presents the results and the financial condition within their area of responsibility, and (ii) that they are
responsible for the establishment of the ICFRS within their area of responsibility and that they believe
the system is effective. The text of these certifications is inspired by the form of certification
established in section 302 of the U.S. Sarbanes-Oxley Act.
The culmination of the process is a joint certification that the chairman & chief executive officer and
the director of Administration and Control submit to the Board of Directors.
The process is carried out by means of electronic signature in a software application which manages
the areas of responsibility and time periods and which serves as a repository of all the documentation
generated, allowing for periodic review by the supervisory bodies of the Group.

345
SECTION C.1.33
The secretary of the Board of Directors is a part of the executive team as the person responsible for
the Office of the General Secretary and of the Office of the Secretary of the Board of Directors of the
Company.

SECTION D
All the information regarding related-party transactions included in this Annual Corporate Governance
Report 2014 is consistent with that contained in the Company’s annual financial report for financial
year 2014.

SECTION D.2
Contracts for financial instruments are made in competition with various entities, with the one most
beneficial for the Company at any time being selected. The Financing and Financial Risk Policy
establishes a number of limits on derivatives contracts with a single financial institution in order to
avoid excessive risk concentration, as well as to ensure a minimum creditworthiness level below
which no contracts could be made. Such limits are complied with in respect of all counterparties,
including the significant shareholders of the Company.
The amounts set forth as “profits and other dividends paid” correspond to the cash dividend
distributed by the Company in July 2014 and to the free-of-charge allocation rights stemming from the
two increases in share capital by means of a scrip issue approved by the shareholders at the General
Shareholders' Meetings held on 22 June 2013 and 22 March 2014, which were sold to the Company
at a guaranteed fixed price pursuant to the terms and conditions of such increases.
This information includes transactions with the shareholders ACS and Kutxabank, holders of
significant interests at the close of financial year 2014.
All of these transactions were made in the ordinary course of business, were carried out on an arm’s-
length basis, and the information about them is not needed to give a true and fair view of the assets,
the financial condition, and the results of operations of the Company.
The Iberdrola Group optimises its banking transactions management by selecting financial institutions
based on their solvency, presence in the Group’s markets, and capacity to provide the best service in
terms of costs and quality. The selection of suitable financial institutions for each bank product is
supplemented by a balanced allocation based on the financial institution’s risk exposure toward the
Iberdrola Group and the volume of business granted.
Kutxabank provides banking services to the Group in the management of the domestic and
international business.
Kutxabank corresponds in terms of how it ranks in profits and risk exposure towards the Iberdrola
Group, which shows Iberdrola’s commitment to achieving a balanced risk/business distribution.
Kutxabank ranks below 30th as to both risk exposure and profits; therefore, it does not have a
significant position as a provider of financial services to the Iberdrola Group.

SECTION D.3
The company SOIL TRATAMIENTO DE AGUAS INDUSTRIALES, S.L. was awarded a contract for
the supply, transport, assembly, and start-up of the COGENERACIÓN RAMOS water treatment plant
in Mexico.
The contract award occurred within the framework of an international tender in which 15 companies
were selected, with its offer being the most advantageous. Mr Íñigo Víctor de Oriol Ibarra indirectly
controls 23.4% of SOIL TRATAMIENTO DE AGUAS INDUSTRIALES, S.L. Family members close to
Mr Íñigo Víctor de Oriol Ibarra indirectly control 39.4%.
Mr Íñigo Víctor de Oriol Ibarra has not directly or indirectly participated in any of the stages of the
tender. The award was made in compliance with the provisions of the procedure for conflicts of
interests and related-party transactions with directors, significant shareholders, and senior officers.

SECTION D.4
Transactions with subsidiaries and companies in which the Company has an interest that have not
been eliminated in the process of consolidation were made in the ordinary course of business of the

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 Company, were carried out under arm’s-length conditions, and are of little significance to accurately
reflect the assets, financial condition, and results of operations of the Company.

2. In this section, you may also include any other information, clarification, or comment
relating to the prior sections of this report to the extent they are relevant and not
repetitive.

Specifically, state whether the company is subject to laws other than Spanish laws
regarding corporate governance and, if applicable, include such information as the
company is required to provide that is different from the information required in this
report.

3. The company may also state whether it has voluntarily adhered to other international,
industrial, or other codes of ethical principles or good practices. If so, identify the
code in question and the date of adherence thereto.
Pursuant to the provisions of section 2 of the annex of adherence to the Good Tax Practices Code
and of sub-section 1.d) of the Good Tax Practices Policy, the Company reports that it has complied
with the provisions of such Code as from the time of approval thereof. Specifically, it is reported that,
during financial year 2014, the Company’s head of tax matters appeared on 17 February and 21 July
before Iberdrola’s Audit and Risk Supervision Committee, all of which was reported to the Board of
Directors. In addition, on 21 October the head of tax matters appeared before the Board of Directors
at an informational meeting regarding compliance with the Good Tax Practices Policy and fiscal
standards applied during financial year 2014.

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This annual corporate governance report was approved by the Board of Directors of the
company at its meeting of 17 February 2015.

State whether any directors voted against or abstained in connection with the approval
of this Report.

Yes No x

Individual or company name of

the director that did not vote in Reasons (opposed,
Explain the reasons
favour of the approval of this abstained, absent)
report

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