Starting in 2019, the Shareholders’ Meeting of Enel SpA (“Enel” or the “Company”) has each year approved the adoption of long-term share-based incentive plans for the management of Enel and/or its subsidiaries pursuant to Article 2359 of the Italian Civil Code. Each of the incentive plans approved (the 2019 Long-Term Incentive Plan, the 2020 Long-Term Incentive Plan, the 2021 Long-Term Incentive Plan, the 2022 Long-Term Incentive Plan; referred to hereinafter, respectively, the “2019 LTI Plan”, “2020 LTI Plan”, the 2021 LTI Plan”, the “2022 LTI Plan” and, jointly, the “Plans”) provides for the grant of ordinary Company shares (“Shares”) to the respective beneficiaries subject to the achievement of specific performance targets.
Plan beneficiaries are the Chief Executive Officer/General Manager of Enel and Enel Group managers in the positions most directly responsible for company performance or considered to be of strategic interest. The Plans provide for the award to the beneficiaries of an incentive consisting of a monetary component and an equity component. This incentive – determined, at the time of the award, as a base value calculated in relation to the fixed remuneration of the individual beneficiary – may vary depending on the degree of achievement of each of the three-year performance targets by the Plans, ranging from zero up to a maximum of 280% or 180% of the base value in the case, respectively, of the Chief Executive Officer/General Manager or the other beneficiaries.
The Plans establish that, of the total incentive effectively vested, the bonus will be fully paid in Shares in the amount of (i) up to 100% of the base value for the Chief Executive Officer/General Manager (up to 130% for the 2022 LTI Plan), and (ii) up to 50% of the base value for the other beneficiaries (up to 65% for the 2022 LTI Plan).
The actual award of the bonus under the Plans is subject to the achievement of specific performance targets during the three year performance period. If these targets are achieved, 30% of both the stock and cash components of the incentive will be paid in the first year following the end of the performance period and the remaining 70% will be paid in the second year following the end of the performance period. The payment of a substantial portion of long-term variable remuneration (70% of the total) is therefore deferred to the second year following the end of the performance period of the individual Plans.
The following table provides information on the 2019 LTI Plan, the 2020 LTI Plan, the 2021 LTI Plan, and the 2022 LTI Plan.
For more information on the characteristics of the Plans, please see the information documents prepared pursuant to Article 84-bis of the CONSOB Regulation issued with Resolution no. 11971 of May 14, 1999 (the Issuers Regulation), which are available to the public in the section of Enel’s website (www.enel.com) dedicated to the Shareholders’ Meetings held respectively on May 16, 2019, May 14, 2020, May 20, 2021 and May 19, 2022.
In implementation of the authorizations granted by the Shareholders’ Meetings held on May 16, 2019, May 14, 2020, May 20, 2021 and May 19, 2022, in compliance with the associated terms and conditions, the Board of Directors approved – at is meetings of September 19, 2019, July 29, 2020, June 17, 2021 and June 16, 2022 – the launch of share buyback programs to serve the 2019 LTI Plan, the 2020 LTI Plan, the 2021 LTI Plan and the 2022 LTI Plan, respectively. The number of Shares whose purchase was authorized by the Board of Directors for each Plan, the actual number of Shares purchased, the associated weighted average price and total value are shown below.
As a result of the purchases made to support the 2019 LTI Plan, the 2020 LTI Plan, the 2021 LTI Plan and the 2022 LTI Plan, and taking into account the award on September 5, 2022 of 435,357 shares to the beneficiaries of the 2019 LTI Plan, at December 31, 2022 Enel holds a total of 7,153,795 treasury shares, equal to 0.07% of share capital. The following information concerns the equity instruments granted in 2019, 2020, 2021 and 2022.
The fair value of those equity instruments is measured on the basis of the market price of Enel Shares at the grant date.(61)
The cost of the equity component is determined on the basis of the fair value of the equity instruments granted and is recognized over the duration of the vesting period through an equity reserve.
The total costs recognized by the Group through profit or loss amounted to €11 million in 2022 (€9 million in 2021). There have been no terminations or amendments involving the 2019 LTI Plan, the 2020 LTI Plan, the 2021 LTI Plan, or the 2022 LTI Plan.
(61) For the 2019 LTI Plan, the grant date is November 12, 2019, i.e., the date of the meeting of the Board of Directors that approved the procedures and timing of the grant under the 2019 LTI Plan to the beneficiaries. For the 2020 LTI Plan, the grant date is September 17, 2020, i.e., the date of the meeting of the Board of Directors that approved the procedures and timing of the grant under the 2020 LTI Plan to the beneficiaries. For the 2021 LTI Plan, the grant date is September 16, 2021, i.e., the date of the meeting of the Board of Directors that approved the procedures and timing of the grant under the 2021 LTI Plan to the beneficiaries. For the 2022 LTI Plan, the grant date is September 21, 2022, i.e., the date of the meeting of the Board of Directors that approved the procedures and timing of the grant under the 2022 LTI Plan to the beneficiaries.
As an operator in the field of generation, distribution, transport and sale of electricity and the sale of natural gas, Enel carries out transactions with a number of companies directly or indirectly controlled by the Italian State, the Group’s controlling shareholder.
The table below summarizes the main types of transactions carried out with such counterparties.
In addition, the Group conducts essentially commercial transactions with associated companies or companies in which it holds non-controlling interests.
Finally, Enel also maintains relationships with the pension funds FOPEN and FONDENEL, as well as Fondazione Enel and Enel Cuore, an Enel non-profit company devoted to providing social and healthcare assistance.
All transactions with related parties were carried out on normal market terms and conditions, which in some cases are determined by the Regulatory Authority for Energy, Networks and the Environment.
In compliance with the disclosure obligations established under Article 13, paragraph 3, letter c) (ii), of CONSOB Regulation no. 17221 of March 12, 2010, as amended (the “CONSOB Regulation”), and Article 13.4, letter c) (ii), of the Enel Procedure for Transactions with Related Parties (the “Enel Procedure”), we hereby disclose that a transaction with related parties was carried out in 2022 which qualifies as a transaction of “greater importance” having an ordinary nature and completed at market-equivalent or standard terms. More specifically, on December 23, 2022, Enel SpA signed with a pool of financial institutions – composed of Banco BPM SpA, BPER Banca SpA, Cassa Depositi e Prestiti SpA, Intesa Sanpaolo SpA and UniCredit SpA – a loan agreement in the form of a revolving credit facility in the amount of €12 billion, of which up to 70% of the nominal amount is guaranteed by SACE SpA.
This credit facility, and the related guarantee, is aimed at funding the collateral requirements of the Enel Group companies operating in Italy (specifically Enel Global Trading SpA) for trading on energy markets and is part of the temporary measures to support the liquidity of companies, provided in the form of a guarantee, envisaged by Article 15 of Decree Law 50 of May 17, 2022, ratified with Law 91 of July 15, 2022 (the so-called “Aid Decree Law”), as amended.
The overall transaction qualifies as a transaction with related parties due to the fact that Enel SpA, Cassa Depositi e Prestiti SpA and SACE SpA are companies under the common control of Italy’s Ministry for the Economy and Finance. Taking into account the amounts indicated above (and, in particular, in consideration of the value of the guarantee), it qualifies as a related-party transaction of “greater importance”. The transaction in question was completed applying the exemption pursuant to Article 13, paragraph 3, letter c), of the CONSOB Regulation and Article 13.4, letter c), of the Enel Procedure, as an ordinary transaction completed at market-equivalent or standard terms.
In particular, the transaction is connected with the ordinary exercise of “finance activity connected to the operations” of the Group headed by Enel SpA, taking into account, inter alia, the object, recurrence and size of the same, as well as the nature of the counterparties. Furthermore, the main terms and conditions applicable to it are governed by Article 15 of the Aid Decree Law. For the portion of the loan for which it is responsible, Cassa Depositi e Prestiti SpA applied to Enel SpA the same terms and conditions that are applied by the other banks.
The following tables summarize transactions with related parties, associated companies and joint ventures outstanding at December 31, 2022 and December 31, 2021 and carried out during the period.
With regard to disclosures on the remuneration of directors, members of the Board of Statutory Auditors and key management personnel, provided for under IAS 24, please see the following tables.
In November 2010, the Board of Directors of Enel SpA approved a procedure governing the approval and execution of transactions with related parties carried out by Enel SpA directly or through subsidiaries (the “Enel Procedure”). The procedure (available at https://www.enel.com/investors/ bylaws-rules-and-policies/transactions-with-related-parties/) sets out rules designed to ensure the transparency and procedural and substantive propriety of transactions with related parties. It was adopted in implementation of the provisions of Article 2391-bis of the Italian Civil Code and the implementing regulations issued by CONSOB with Resolution no. 17221 of March 12, 2010, as amended (the “CONSOB Regulation”).
Pursuant to Article 1, paragraphs 125-129, of Law 124/2017 as amended, the following provides information on grants received from Italian public agencies and bodies, as well as donations by Enel SpA and the fully consolidated subsidiaries to companies, individuals and public and private entities. The disclosure comprises: (i) grants received from Italian public entities/State entities; and (ii) donations made by Enel SpA and Group subsidiaries to public or private parties resident or established in Italy.
The following disclosure includes payments in excess of €10,000 made by the same grantor/donor during 2022, even if made in multiple financial transactions. They are recognized on a cash basis.
Pursuant to the provisions of Article 3-quater of Decree Law 135 of December 14, 2018, ratified with Law 12 of February 11, 2019, for grants received, please refer to the information contained in the National Register of State Aid referred to in Article 52 of Law 234 of December 24, 2012.
The commitments entered into by the Enel Group and the guarantees given to third parties are shown below.
Compared with December 31, 2021, the decrease of €6,366 million in commitments for “electricity purchases” is essentially attributable to companies in Latin America, in particular in Brazil, and mainly reflects the sale of Celg Distribuição SA - Celg-D (Enel Goiás), partially offset by the increase in Chile, mainly attributable to new contracts and developments in commodity prices.
The increase of €38,954 million in commitments for “fuel purchases” mainly regards gas supplies, especially in Italy and Spain, and reflected the increase in demand for natural gas and in gas prices.
For more details on the expiry of commitments and guarantees, please see the section “Commitments to purchase commodities” in note 49.
The following reports the main contingent assets and liabilities at December 31, 2022, which are not recognized in the consolidated financial statements as they do not meet the requirements provided for in IAS 37.
With regard to the criminal investigation initiated by the Public Prosecutor’s Office of the Court of Lecce in 2017 concerning the use of fly ash in the cement industry, the Brindisi Sud power plant was involved in a criminal investigation involving accused individuals and Enel Produzione (EP) pursuant to Legislative Decree 231 of June 8, 2001, that resulted in the issue of a preventive seizure order that allowed operation of the plant as well as the seizure of EP assets and receivables up to an amount of about €500 million. The seizures were subsequently revoked following the positive outcome of testing by the independent experts appointed by the investigating magistrate, which confirmed the non-hazardous nature of the ash, finding it suitable for use in the cement-making process, as well as the appropriateness of the operation of the plant. Subsequently, a pre-trial hearing was conducted in 2021, following which the pre-trial hearing judge granted petitions to participate in the trial as civil plaintiff filed by the City of Brindisi, which quantified damages at about €27 million, requesting a provisional award of €8 million, and by the Region of Puglia, which has not yet quantified the damages requested. The pre-trial hearing judge remanded all of the defendants before the Court of Brindisi. At the hearing of May 26, 2022, the court, in upholding the objection raised by EP that the preliminary hearing of October 22, 2021, held without the necessary presence of the parties, should be declared void, declared the hearing and the instrument ordering committal for trial void and submitted the trial documentation to the Court of Lecce for a new preliminary hearing. At the following hearing of October 7, 2022, which was held as summary judgement at the request of the defendant, the court issued its ruling acquitting all of the defendants of the charges because “the alleged offense did not occur”. The ruling also acquitted EP as the administrative offense alleged under the provisions of Legislative Decree 231/2001 had not occurred as there were no predicate offenses, in conformity with the position of the Public Prosecutor and the defense.
On May 11, 2017, the Competition Authority announced the beginning of proceedings for alleged abuse of a dominant position against Enel SpA (Enel), Enel Energia SpA (EE) and Servizio Elettrico Nazionale SpA (SEN). The proceeding was initiated on the basis of complaints filed by the Italian Association of Energy Wholesalers and Traders (AIGET) and the company Green Network SpA (GN), as well as a number of complaints from individual consumers.
On December 20, 2018 the Competition Authority issued its final ruling, with which it levied a fine of about €93 million on all three Group companies, for violation of Article 102 of the Treaty on the Functioning of the European Union (TFEU).
The main disputed conduct consisted in abuse of a dominant position by the three companies (to the benefit in particular of EE) who allegedly used the privacy consent given by SEN consumers, to the detriment of competing traders. With regard to other allegations made with the measure to initiate the proceeding, concerning the organization and performance of sales activities at physical locations (Enel Points and Enel Point Partner Shops) and winback policies reported by GN, the Competition Authority reached the conclusion that the preliminary findings did not provide sufficient evidence of any abusive conduct on the part of Enel Group companies.
The companies involved challenged the measures of the Competition Authority before the Lazio Regional Administrative Court, which with a decision filed on October 17, 2019 partially upheld the appeals filed by SEN and EE, shortening the period of abuse and requiring the Competition Authority to recalculate the penalty in accordance with the criteria specified in the ruling. With a measure dated November 27, 2019, the Competition Authority set the recalculated penalty at €27,529,786.46.
The rulings of the Regional Administrative Court were challenged on appeal before the Council of State. With an order of July 20, 2020, the Council of State suspended the ruling and ordered that the issue be submitted for a preliminary ruling before the Court of Justice of the European Union (CJEU) pursuant to Article 267 of the TFEU, formulating a number of questions aimed at clarifying the interpretation of the concept of “abuse of a dominant position” to be applied to the present case.
With a ruling of May 12, 2022, the CJEU provided the requested interpretation and, subsequently, on December 1, 2022, the Council of State, in application of the guidelines set out by the CJEU, fully voided the fine levied by the Competition Authority and, upholding the arguments presented by the companies, denied that any abuse of position had occurred.
Italian regulations governing large-scale hydroelectric concessions were most recently modified by the “Simplifications Decree” (Decree Law 135 of 2018 ratified with Law 12 of February 11, 2019), which introduced a series of innovations regarding the granting of such concessions upon their expiry and the valorization of the assets and works connected to them to be transferred to the new concession holder. This legislation also introduced a number of changes in the matter of concession fees, establishing a fixed and variable component of fees, as well as an obligation to provide free power to public bodies (220 kWh of power for each kW of average nominal capacity of the facilities covered by the concession). In implementation of this national law and under specific enabling authority, various regions (Lombardy, Piedmont, Emilia-Romagna, Friuli-Venezia Giulia, the Province of Trento, Calabria and Basilicata) enacted regional laws.
In particular, the regions of Lombardy, Piedmont and Emilia-Romagna, in application of these new regulations, requested payment from Enel Green Power Italia and Enel Produzione of the dual-component fee and the monetization of the free power.
Enel Green Power Italia and Enel Produzione challenged the first implementing acts issued under the individual regional laws and the subsequent payment notices of fees and the monetization of free electricity supplies before the Regional Administrative Court and Regional Water Resources Court (of Lombardy, Piedmont and Emilia-Romagna), asking that they be declared void and raising the question of constitutional illegitimacy of both the national law and the regional laws. The Regional Administrative Court and then the Council of State, at the appeal stage, deferred their jurisdiction in favor of the Superior Public Water Resources Court, before which Enel Green Power Italia and Enel Produzione resumed the disputes, which are now at the preliminary stage.
The companies initiated the proceedings by complaining that the regional implementing acts – as well as the regional legislation which they implement – were constitutionally illegitimate, first for violation of national legislation and various primary principles protected both by the Italian Constitution and European law concerning legitimate expectations, property rights, reasonableness, private initiative, and concessions, where:
Furthermore, the introduction by the regions of these new obligations to pay the new dual-component fee (divided into a fixed component and a variable component) and to supply a certain annual quantity of electricity free of charge in the form of payment of the associated monetary value, which is also to be paid by the holders of valid concessions that have not yet expired, creates an unexpected and unreasonable financial imbalance in the concession relationships. This circumstance is in evident contrast with the principles of reasonableness, proportionality and legitimate expectation of concession fees, compliance with which is required by constitutional case law if, in the context of long-term relationships, pejorative modifications are introduced.
Both the national law and the regional implementing legislation violate Community principles and constitutional principles such as property rights, the principle of legal certainty, and the freedom of enterprise. In particular, the rules do not expressly provide for the transfer of the business unit from the outgoing to the successor concession holder, and also establish inadequate criteria for the valorization of the works to be transferred, which threatens to create what is essentially a mechanism for expropriation, in violation of constitutional principles.
Finally, the Council of Ministers had challenged a number of the regional implementing laws before the Constitutional Court, claiming the violation of various constitutional principles. Enel Green Power Italia participated in the aforementioned proceedings (together with a number of trade associations and other sector operators) concerning constitutional legitimacy undertaken by the government against the Province of Trento and the Regions of Lombardy, Piedmont and Basilicata. The Council of Ministers subsequently withdrew the appeals as the complaints of illegitimacy they brought were resolved by subsequent regional laws.
The Constitutional Court therefore extinguished the proceedings, with the consequent cancellation of the related interventions by Enel Green Power Italia, despite the fact that the latter concerned different constitutionality issues than those raised by the Council of Ministers.
On December 13, 2022, the Competition Authority notified Enel Energia SpA (“Company” or “EE”) and six other companies (Hera, A2A, Acea, Eni Plenitude, Engie, Edison) that it had initiated a proceeding for unfair commercial practices, contesting the violation of certain provisions of the Consumer Code and Article 3 of Decree Law 115 of August 9, 2022 (the so-called “second Aid Decree”) of August 10, 2022, ratified with Law 142 of September 21, 2022. Similar proceedings had previously been initiated against four other operators (Iren, Iberdrola, E.ON and Dolomiti).
In particular, the Competition Authority, acting on the basis of reports received and without any preliminary investigation, argued that EE had sent its customers, in the period from May to October 2022, notices of price changes that were allegedly generic and omissive to the extent that they did not specify the expiry date of the financial conditions subject to renewal and represented a unwarranted exercise of ius variandi in modification of the financial conditions of the supply relationship, in violation of the aforementioned Article 3 of the second Aid Decree.
With the measure initiating the procedure, the Competition Authority simultaneously prohibited on a precautionary basis the sending of new price change notices and ordered the correction of those already sent.
All the operators subject to the order, including EE, challenged the provision, which was based on the assumption that any price change had been prohibited to suppliers in the period indicated by the second Aid Decree (August 10 - April 30).
With an order of December 22, 2022, issued as part of the appeal filed by Iren, the Council of State distinguished contractual renewals (of expiring offers) from those covered by ius variandi and excluded the applicability of Article 3 of the decree law. This principle was also recognized by the Government, which, with the Milleproroghe Decree of December 29, 2022, established that Article 3 of the second Aid Decree shall not apply to the contractual clauses that allow an electricity and natural gas supply company to update the contractual financial conditions upon expiry of the same, in compliance with the contractual terms of notice and without prejudice to the right of withdrawal of the counterparty. The Milleproroghe Decree also extended the duration of the prohibition to June 30, 2023.
Following the pronouncement of the Council of State and the aforementioned clarifying legislative intervention, the Competition Authority, with a new precautionary measure of December 30, 2022, ordered the partial upholding of the original precautionary measure and confirmed the prohibition on changes or renewals of the financial conditions of expiring contracts for which the expiry date was not specifically identified or in any case predeterminable in the associated notice sent to the customer.
EE filed an appeal for additional reasons, whose hearing, together with all the various appeals lodged by other operators, took place on February 22, 2023 and the publication of the ruling is pending.
Following an arbitration proceeding initiated by BEG SpA (BEG) in Italy, Enelpower SpA (Enelpower) obtained a ruling in its favor in 2002, which was upheld by the Court of Cassation in 2010, which entirely rejected the petition for damages with regard to alleged breach by Enelpower of an agreement concerning the assessment of the possible construction of a hydroelectric power station in Albania. Subsequently, BEG, acting through its subsidiary Albania BEG Ambient Shpk (ABA), filed suit against Enelpower and Enel SpA (Enel) in Albania concerning the matter, obtaining a ruling from the District Court of Tirana on March 24, 2009, upheld by the Albanian Court of Cassation, ordering Enelpower and Enel to pay tortious damages of about €25 million for 2004 as well as an unspecified amount of tortious damages for subsequent years. Following the ruling, Albania BEG Ambient demanded payment of more than €430 million.
On November 5, 2016, Enel and Enelpower filed a petition with the Albanian Court of Cassation, asking for the ruling issued by the District Court of Tirana on March 24, 2009 to be voided. The proceeding is still pending.
With a ruling of the Court of Appeal of Rome of March 7, 2022, the further proceedings undertaken by Enel and Enelpower before the Court of Rome were concluded, having sought recognition of BEG’s liability for having circumvented the arbitration award rendered in Italy in favor of Enelpower through the aforementioned initiatives undertaken by the subsidiary ABA. With the ruling, the Court of Appeal of Rome upheld the ruling of first instance rendered by the Court of Rome on June 16, 2015, which had denied the petition in the proceeding.
On May 20, 2021, the European Court of Human Rights (ECHR) issued a ruling with which it decided the appeal brought by BEG against the Italian State for violation of Article 6.1 of the European Convention on Human Rights. With this decision, the Court denied BEG’s request to reopen the above arbitration proceedings, and also rejected BEG’s claim for pecuniary damages amounting to about €1.2 billion due to the absence of a causal link with the disputed conduct, granting it only €15,000.00 in non-pecuniary damages.
Nonetheless, on December 29, 2021, BEG, with an action that the company and its legal counsel deemed unfounded and specious, also decided to sue the Italian State before the Court of Milan, to demand, as a consequence of the ECHR ruling, damages for tortious liability in an amount of about €1.8 billion. In this case, BEG also involved Enel and Enelpower by way of a claim of joint and several liability. With an order of June 14, 2022, the Court of Milan, in accepting the objection of territorial incompetence raised by the State Attorney, declared its incompetence to hear the dispute in favor of the Court of Rome, the court exclusively competent to hear the causes in which the Italian State is involved, ordering BEG to pay the costs of the proceedings in favor of the defendants. BEG did not resume the judgment before the Court of Rome within the legal term of 14 October 2022 and therefore the proceeding was extinguished.
A short time later, on November 3, 2022, BEG resubmitted the same claims for damages of the terminated proceeding, serving a new writ of summons before the Court of Milan against the same defendants, with the exception of the Italian State, which BEG declared not to wishing to agree to this judgement. The first appearance hearing is set for May 9, 2023. The company is preparing its defenses to proceed with the appearance in court in order to contest the claim, which is considered entirely specious and unfounded, like the previous similar initiative.
France
In February 2012, ABA filed suit against Enel and Enelpower with the Tribunal de Grande Instance in Paris in order to render the ruling of the Albanian court enforceable in France. Enel SpA and Enelpower SpA challenged the suit. Following the beginning of the case before the Tribunal de Grande Instance, between 2012 and 2013 Enel France was served with a number of “Saisie Conservatoire de Créances” (orders for the precautionary attachment of receivables) in favor of ABA to conserve any receivables of Enel in respect of Enel France.
On January 29, 2018, the Tribunal de Grande Instance issued a ruling in favor of Enel and Enelpower, denying ABA the recognition and enforcement of the Tirana court’s ruling in France for lack of the requirements under French law for the purposes of granting exequatur. Among other issues, the Tribunal de Grande Instance ruled that: (i) the Albanian ruling conflicted with an existing decision (the arbitration ruling of 2002) and that (ii) the fact that BEG sought to obtain in Albania what it was not able to obtain in the Italian arbitration proceeding, resubmitting the same claim through ABA, represented fraud.
Subsequently, with a ruling of May 4, 2021, the Paris Court of Appeal denied the appeal by ABA in full, fully upholding the non-compatibility of the Albanian ruling with the arbitration award of 2002 determined by the TGI, ordering it to reimburse Enel and Enelpower €200,000.00 each for legal costs.
On June 21, 2021, ABA filed an appeal with the Cour de Cassation against the ruling of the Paris Court of Appeal. Enel and Enelpower have appeared in court and the hearing for the final discussion of the case is set for March 28, 2023.
Enel initiated a separate proceeding to obtain release of the precautionary attachments granted to ABA and which are no longer valid as a result of the appeal ruling. With an order of June 16, 2022, the Court of Paris ordered the release of the precautionary attachments while also ordering ABA to pay Enel a total of about €146,000 in damages and legal costs. ABA challenged the aforementioned release order, requesting its suspension as a precautionary measure. The request for precautionary suspension was rejected on November 23, 2022 and the appeal continues in the trial court. At the same time, Enel is taking the necessary actions for credit recovery.
The Netherlands
At the end of July 2014, ABA filed suit with the Court of Amsterdam to render the ruling of the Albanian court enforceable in the Netherlands.
Following an initial ruling of June 29, 2016, in favor of ABA, in a ruling of July 17, 2018, the Amsterdam Court of Appeal upheld the appeal advanced by Enel and Enelpower, ruling that the Albanian judgment cannot be recognized and enforced in the Netherlands, as it was arbitrary and manifestly unreasonable and therefore contrary to Dutch public order. Subsequently, the proceeding before the Court of Appeal continued with regard to the subordinate question raised by ABA with which it asked the Dutch court to rule on the merits of the dispute in Albania and in particular the alleged tortious liability of Enel and Enelpower in the failure to build the power plant in Albania. On December 3, 2019, the Amsterdam Court of Appeal issued a definitive ruling in which it fully quashed the trial court judgment of June 29, 2016, rejecting any claim made by ABA, thereby confirming the denial of recognition and enforcement of the Albanian ruling in the Netherlands. The Court came to this conclusion after affirming its jurisdiction over ABA’s subordinate claim and re-analyzing the merits of the case under Albanian law, finding no tortious liability on the part of Enel and Enelpower. As a result of the decision of the Court of Appeal, Enel and Enelpower are therefore not liable to pay any amount to ABA, which was in fact ordered by the Court of Appeal to reimburse the companies for the losses incurred in illegitimate conservative seizures, to be quantified as part of a specific procedure, and the costs of the trial and appeal proceedings.
On July 16, 2021 the Supreme Court completely rejected ABA’s appeal of the rulings of the Court of Appeal, ordering it to reimburse court costs. The decision of the Court of Appeal has thus become final.
Luxembourg
In Luxembourg, again at the initiative of ABA, J.P. Morgan Bank Luxembourg SA was also served with an order for a number of precautionary seizures of any receivables of both Enel Group companies in respect of the bank. In parallel ABA filed a claim to obtain enforcement of the ruling of the Court of Tirana in Luxembourg. Owing to a number of procedural delays, the proceeding is still in the initial stages and no ruling has been issued.
United States and Ireland
In 2014, ABA had initiated two proceedings requesting execution of the Albanian sentence before the courts of the State of New York and Ireland, which both ruled in favor of Enel and Enelpower, respectively, on February 23 and February 26, 2018. Accordingly, there are no lawsuits pending in Ireland or New York State.
With the Decision of November 27, 2017 on the issue of environmental incentives for thermal power plants (the “Decision”), the European Commission reached the preliminary conclusion that the environmental incentive for coal power plants provided for in Spain’s Order ITC/3860/2007 represents State aid pursuant to Article 107, paragraph 1, of the Treaty on the Functioning of the European Union (TFEU), expressing doubts about the compatibility of the incentive with the internal market while recognizing that the incentives are in line with the European Union’s environmental policy. On March 2, 2018, the Commission’s Directorate-General for Competition has initiated a formal enquiry pursuant to Article 108, paragraph 2, of the TFEU, in order to establish whether the incentive in question constituted state aid compatible with the internal market. The formal enquiry pursuant to Article 108 of the TFUE is still open. On April 13, 2018, Endesa Generación SA, acting as an interested third party, submitted comments contesting this interpretation. Subsequently, on September 8, 2021, the appeal of the decision lodged by Gas Natural (now Naturgy) with the General Court of the European Union was denied. The ruling was appealed by Naturgy and EDP España before the Court of Justice of the European Union (CJEU). Endesa Generación has filed a request to participate in the proceeding and, with an order of June 1, 2022, the CJUE allowed that participation. Endesa Generación then filed its briefs in the proceedings initiated by Naturgy and EDP España on July 8 and 13, 2022, respectively.
In relation to the various financing schemes for the Social Bonus adopted by the Spanish Government – in relation to which on December 21, 2021, the Tribunal Supremo had declared inapplicable the scheme envisaged in Article 45, paragraph 4 of Spain’s Electricity Industry Law no. 24 of December 26, 2013 (LSE) for incompatibility with Article 3.2 of Directive 2009/72/EC of the European Parliament, in line with the decision issued in this regard by the Court of Justice of the European Union (CJEU) on October 14, 2021 – with ruling no. 212/2022 of February 21, 2022 the Tribunal Supremo also ruled on the appeals filed by Endesa SA, Endesa Energía SAU and Energía XXI Comercializadora de Referencia SLU (Endesa) and other companies in the energy sector against the third scheme for financing the Social Bonus, and for co-financing with government authorities of the supply to vulnerable consumers, envisaged under Article 45, paragraph 4 of LSE, Royal Decree Law 7/2016 of December 23 and Royal Decree 897/2017 of October 6.
With the ruling, the Tribunal Supremo, partially allowing the appeals, found that (i) the aforesaid regime was inapplicable; (ii) Articles 12 to 17 of Royal Decree 897/2017 of 6 October are inapplicable and void, and (iii) the appellants were entitled to be compensated for the amounts paid to finance the Social Bonus and provide co-financing with government authorities, and to reimbursement of all costs incurred to fulfill the obligations set out in this mechanism, deducting any amounts transferred to customers, where applicable. In the absence of voluntary compliance by the authorities, on November 10, 2022 the companies filed a petition for enforcement of the ruling, requesting payment of the related amounts; the proceeding is currently pending.
With effect from January 1, 2019, Endesa notified the workers and their union representatives that the 4th Collective Bargaining Agreement must be considered terminated under the terms of the “framework guarantee contract” and the “agreement on the voluntary suspension or resolution of employment contracts in the period 2013-2018”, applying from that date the provisions of general labor law, as well as the applicable legal criteria established in the matter. Yet, the interpretative differences between Endesa and the trade union representatives regarding the effects of the resolution of the 4th Collective Bargaining Agreement with regard, in particular, to the social benefits granted to retired personnel, led to the initiation of a suit by the unions represented in the company. On March 26, 2019, the court of first instance issued a ruling in favor of Endesa, but the unions appealed against this decision before the Tribunal Supremo.
On July 7, 2021, the Tribunal Supremo issued a definitive ruling denying the appeals lodged by the aforementioned unions against the ruling of the court of first instance, affirming that social benefits (including those relating to electricity prices) originate exclusively in the collective bargaining agreements, both for employees currently in service and those who have retired, as well as for their family members, with the consequence that the termination of such agreements (as happened in the case of the 4th Collective Bargaining Agreement) produces the general contractual regulation of the conditions established therein for employees currently in service and. for those who have retired and their family members, the definitive extinction of all their rights, until new regulations (which came with the 5th Endesa Collective Bargaining Agreement).
In parallel, numerous individual suits have been filed by staff and former employees who had agreed to participate in termination incentive agreements in order to obtain judicial confirmation that the termination of the 4th Endesa Collective Bargaining Agreement did not affect them. The majority of these proceedings, initially suspended pending the definition of the collective action pending before the Tribunal Supremo, were rolled together to incorporate the outcome of the ruling of the latter, that, regarding a “collective dispute”, would have the value of res judicata in respect of individual proceedings concerning the same issue.
Meanwhile, on January 21, 2020, the arbitration award was issued on the arbitration submitted before the Servicio Interconfederal de Mediación y Arbitraje (SIMA) with a view to resolving the main issues concerning the 5th Endesa Collective Bargaining Agreement with the company. The award amended certain parts of the 5th Endesa Collective Bargaining Agreement, which was subsequently signed by the social partners and entered force on January 23, 2020. On the same date, Endesa also signed two further collective bargaining agreements (a “framework guarantee contract” and an “agreement on voluntary measures to suspend or terminate employment contracts”) with all the unions present in the company. On June 17, 2020, the 5th Endesa Collective Bargaining Agreement was published in the Spanish Official Journal (Boletín Oficial del Estado), taking full effect.
On December 30, 2020, the Audiencia Nacional notified Endesa a new petition for a “collective dispute” initiated by three trade unions with minority representation filed on December 1, 2020, concerning the cancellation of some “derogatory provisions” of the 5th Endesa Collective Bargaining Agreement. The plaintiffs claim that the contested “derogatory provisions” would imply the illegitimate abolition of social benefits and economic rights of workers. Endesa considers these provisions to be fully legitimate, in line with the arguments made during proceeding concerning the reduction of social benefits for retired personnel. With a ruling of November 15, 2021, the petitions of the plaintiff unions were rejected, with verification of the legitimacy of the 5th Endesa Collective Bargaining Agreement. The ruling was appealed by the trade unions before the Tribunal Supremo and the proceeding is currently under way.
In the course of an arbitration proceeding to review the price of a long-term supply contract for liquefied natural gas (LNG) initiated by Endesa Generación SA, the defendant, an LNG production company, filed a counterclaim demanding payment of some $1 billion. The amount of the claim could be revised by the plaintiff depending on market developments in months up to the completion of arbitration proceeding, which is scheduled for the 2nd Quarter of 2023. The company believes that this counterclaim is unfounded and late and external legal counsel believes it is highly unlikely to be upheld.
In 1998 the Brazilian company CIEN (now Enel CIEN) signed an agreement with Tractebel for the delivery of electricity from Argentina through its Argentina-Brazil interconnection line. As a result of Argentine regulatory changes introduced as a consequence of the economic crisis in 2002, Enel CIEN was unable to make the electricity available to Tractebel.
Tractebel. In October 2009, Tractebel sued Enel CIEN, which submitted its defense. Enel CIEN cited force majeure as a result of the Argentine crisis as the main argument in its defense. Out of court, Tractebel has indicated that it plans to acquire 30% of the interconnection line involved in the dispute. With a ruling of February 16, 2023, the court of first instance denied the grounds of the claim submitted by Tractebel against Enel CIEN. The time limit for appealing that ruling is currently pending. The amount involved in the dispute is estimated at about R$658 million (about €117 million), plus damages to be quantified.
For analogous reasons, in May 2010 Furnas had also filed suit against Enel CIEN for failure to deliver electricity, requesting payment of about R$571.6 million (about €91 million), in addition to unspecified damages, seeking to acquire ownership (in this case 70%) of the interconnection line. The proceeding was decided in Enel CIEN’s favor with a ruling of the Tribunal de Justiça with a definitive ruling of October 18, 2019, which denied all of the claims of Furnas.
Companhia Brasileira de Antibióticos (Cibran) has filed six suits against the Enel Group company Ampla Energia e Serviços SA (today Enel Distribuição Rio de Janeiro) to obtain damages for alleged losses incurred as a result of the interruption of electricity service by the Brazilian distribution company between 1987 and 2002, in addition to non-pecuniary damages. The Court ordered a unified technical appraisal for those cases, the findings of which were partly unfavorable to Enel Distribuição Rio de Janeiro. The latter challenged the findings, asking for a new study, which led to the denial of part of Cibran’s petitions. Cibran subsequently challenged the findings of the new study, but without success.
The first suit, filed in 1999 and regarding the years from 1995 to 1999, was adjudicated with a ruling of the court of first instance against Enel Distribuição Rio de Janeiro. Enel Distribuição Rio de Janeiro appealed the ruling and the appeal was upheld by the Tribunal de Justiça, which denied all of Cibran’s claims. The ruling became definitive on August 24, 2020.
With regard to the second case, filed in 2006 and regarding the years from 1987 to 1994, on June 1, 2015, the courts issued a ruling ordering Enel Distribuição Rio de Janeiro to pay R$96,465,103 (about €23 million) plus interest in pecuniary damages and R$80,000 (about €19,000) in non-pecuniary damages. On July 8, 2015, Enel Distribuição Rio de Janeiro appealed the decision with the Tribunal de Justiça of Rio de Janeiro, which on November 6, 2019 issued a ruling on merits granting Ampla’s petition and denying all of Cibran’s claims. On November 25, 2019, Cibran filed an appeal against the ruling of the Tribunal de Justiça of Rio de Janeiro, which was preliminarily denied for formal reasons on September 10, 2020. On January 29, 2021, Cibran appealed (agravo de instrumento) the decisions before the Superior Tribunal de Justiça (STJ), which was denied on June 8, 2021. On June 22, 2021, Cibran filed an appeal (agravo interno) with the STJ, which was denied on March 24, 2022. On April 19, 2022, Cibran filed another appeal (recurso extraordinario), which was denied with ruling of May 13, 2022, against which Cibran has appealed and the proceeding is pending.
A ruling from the court of first instance is still pending for the remaining four suits for the years 2001 and 2002. The value of all the disputes is estimated at about R$681 million (about €121 million).
As part of the project to expand the grid in rural areas of Brazil, in 1982 Companhia Energética do Ceará SA (Coelce, today Enel Distribuição Ceará), then owned by the Brazilian government and now an Enel Group company, had entered into contracts for the use of the grids of a number of cooperatives established specifically to pursue the expansion project. The contracts provided for the payment of a monthly fee by Enel Distribuição Ceará, which was also required to maintain the networks.
Those contracts, between cooperatives established in special circumstances and the then public-sector company, do not specifically identify the grids governed by the agreements, which prompted a number of the cooperatives to sue Enel Distribuição Ceará asking for, among other things, a revision of the fees agreed in the contracts. These proceedings include the suit filed by Cooperativa de Eletrificação Rural do Vale do Acarau Ltda (Coperva) with a value of about R$427 million (about €75 million). Enel Distribuição Ceará was granted rulings in its favor from the trial court and the court of appeal, but Coperva filed a further appeal (embargo de declaração) based on procedural issues, which was also denied by the appeal court in a ruling of January 11, 2016. On February 3, 2016, Coperva lodged an extraordinary appeal before the Tribunal Superior de Justiça (TSJ) against the appeal court ruling on the merits, which was granted on November 5, 2018 for the ruling issued in the previous appeal (embargo de declaração). On December 3, 2018, Enel Distribuição Ceará filed an appeal (agravo interno) against this ruling of the TSJ. The proceedings are currently pending.
In 2014, Eletropaulo (today Enel Distribuição São Paulo) initiated an action before the Brazilian federal courts seeking to void the administrative measure of the Agência Nacional de Energia Elétrica (ANEEL, the national electricity agency), which in 2012 retroactively introduced a negative coefficient to be applied in determining rates for the following regulatory period (2011-2015). With this provision, ANEEL ordered the restitution of the value of some components of the network previously included in rates because they were considered non-existent and denied Enel Distribuição São Paulo’s request to include additional components in rates. The administrative measure of ANEEL was challenged and on September 9, 2014 it was suspended on a precautionary basis. The first-instance proceeding is still in its preliminary stages and the value of the suit is about R$1.3 billion (about €241 million).
On October 17, 2021 Endicon (former Enel service provider in Brazil) filed a lawsuit against Enel Distribuição Rio de Janeiro and Enel Distribuição Ceará in which it seeks total damages of approximately R$435 million (about €77 million) for pecuniary and non-pecuniary damages incurred in connection with certain events allegedly attributable to Group companies, which occurred during the execution of the contracts between the parties, and from the abusive exercise of contractual rights by the latter, which is alleged to have produced a loss on the management of the contracts. On May 10, 2022, in upholding the appeals filed by the two Group companies, the precautionary measure that had been previously notified to the companies and immediately suspended was definitively revoked. It had required them to (i) publicly announce the material facts of the dispute and (ii) record a contingency in the financial statements of the companies in relation to the dispute. In the meantime, on December 2, 2021, Enel Distribuição Rio de Janeiro and Enel Distribuição Ceará presented their defenses in the proceedings on the merits, which continue in the first instance.
Enel Distribuição São Paulo has been sued by Serviços de Eletricidade and Telecomunicações Ltda (Socrel) for damages for losses caused by an alleged unlawful termination of contract by the Group company that involved a series of contracts between the parties, which would have caused Socrel’s liquidity crisis. Following an expert report issued during the proceedings, Socrel’s request was quantified at R$295 million (about €52 million). The proceeding is currently pending before the court of first instance.
On April 19, 2022, the Agência Nacional de Energia Elétrica (ANEEL) issued resolution no. 3.026/2022 with which it authorized an average 24.85% rate increase for 2022 for the electricity distribution services performed by Enel Distribuição Ceará. Both private individuals and public institutions have challenged this resolution before the Federal Regional Court of the district of Ceará, for a total of six proceedings requesting, on precautionary basis, the cancellation of the effects of the resolution and, on a permanent basis, the voidance of the resolution itself, arguing that the rate increase is illegitimate. In all proceedings, Enel Distribuição Ceará has contested the petitioners’ claims, arguing the legitimacy of the rate adjustment. On June 21, 2022, the Federal Regional Court rejected the precautionary request and joindered the six proceedings in a single proceeding in consideration of fact that the relief sought and the cause of action are the same. On September 23, 2022, Enel Distribuição Ceará also submitted that, as a result of certain legislative measures, the rate had been reduced following an extraordinary rate review and a reduction in taxes. The trial proceeding continues. The estimated value of the proceeding has not been determined.
In January 2020, the appeal proceeding was completed for the administrative fine levied in August 2016 by the Superintendencia de Electricidad y Combustibles (SEC) against GasAtacama Chile (now Enel Generación Chile) concerning the information provided to the CDEC- SING (Centro de Despacho Económico de Carga) in relation to the variables of the Technical Minimum and the Minimum Operation Time at the Atacama power station. Upon completion of the proceeding, the amount of the fine was reduced from approximately $6 million to about $432,000 and the amount was paid by the company.
In relation to the issue mentioned above, a number of operators of the Sistema Interconectado del Norte Grande (SING), including Aes Gener SA, Eléctrica Angamos SA and Engie Energía Chile SA, sued GasAtacama Chile seeking damages of about €58 million (the former two) and about €150 million (the other operators). The aforementioned disputes have been partially combined into a single proceeding and are currently pending (after the resumption of the proceeding following the lifting of the national emergency in response to the COVID-19 pandemic, the court served the provision that determines the substantial facts and issues of the trial, the preliminary investigation phase is completed and the proceeding continues its course).
A number of legal actions (“acciones de grupo” and “acciones populares”) brought by residents and fishermen in the affected area are pending with regard to the El Quimbo project for the construction by Emgesa (now Enel Colombia) of a 400 MW hydroelectric plant in the region of Huila (Colombia). More specifically, the first collective action, currently in the preliminary stage, was brought by around 1,140 residents of the municipality of Garzón, who claim that the construction of the plant would reduce their business revenue by 30%. A second action was brought, between August 2011 and December 2012, by residents and businesses/associations of five municipalities of Huila claiming damages related to the closing of a bridge (Paso El Colegio). With regard to acciones populares, or class action lawsuits, in 2008 a suit was filed by a number of residents of the area demanding, among other things, that the environmental permit be suspended. As part of this action, on September 11, 2020, the Huila Court issued a partially unfavorable ruling against Emgesa, sentencing it to fulfill the obligations already provided for in the environmental license. Both the Autoridad Nacional de Licencias Ambientales (ANLA) and Emgesa challenged this decision before the Council of State. On September 20, 2022, ANLA’s appeal was denied because it had been filed late. The proceeding continues in relation to Emgesa’s appeal.
Another acción popular was brought by a number of fish farming companies over the alleged impact that filling the Quimbo basin would have on fishing in the Betania basin downstream from Quimbo. After a number of precautionary rulings, on February 22, 2016, the Huila Court issued a ruling allowing generation to continue for six months. The court ordered Emgesa to prepare a technical design that would ensure compliance with oxygen level requirements and to provide collateral of about 20,000,000,000 Colombian pesos (about €5.5 million).
The Huila Court subsequently extended the six-month time limit, and therefore, in the absence of contrary court rulings the Quimbo plant is continuing to generate electricity as the oxygenation system installed by Emgesa has so far demonstrated that it can maintain the oxygen levels required by the court. On March 22, 2018, ANLA and CAM jointly presented the final report on the monitoring of water quality downstream of the dam of the El Quimbo hydroelectric plant. Both authorities confirmed the compliance of Emgesa with the oxygen level requirements. After the parties had filed briefs, on January 12, 2021, it was learned that the ruling of first instance of the Court of Huila had been issued (it was subsequently notified to the company on February 1, 2021). The ruling, while acknowledging that the oxygenation system implemented by Emgesa had mitigated the risks associated with the protection of fauna in the Bethany basin, imposed a series of obligations on the environmental authorities involved, as well as on Emgesa itself. In particular, the latter is required to implement a decontamination project to ensure that the water in the basin does not generate risks for the flora and fauna of the river, which will be subject to verification by ANLA, and to make permanent the operation of the oxygenation system, adapting it to comply with the parameters established by ANLA. On March 4, 2021, Emgesa challenged the appeal ruling before the Council of State.
On December 31, 2021, the Council of State ruled that Emgesa’s appeal was admissible. The proceeding is continuing at the appeal level.
This dispute involves an “acción de grupo” brought by Centro Médico de la Sabana hospital and other parties against Codensa (now Enel Colombia) seeking restitution of allegedly excess rates. The action is based upon the alleged failure of Codensa to apply a subsidized rate that they claim the users should have paid as Tensión Uno category users (voltage of less than 1 kV) and owners of infrastructure, as established in Resolution no. 82/2002, as amended by Resolution no. 97/2008. The preliminary stage has been completed and a ruling is pending. The estimated value of the proceeding is about 337 billion Colombian pesos (about €96 million).
PH Chucas SA (Chucas) is a special purpose entity established by Enel Green Power Costa Rica SA after it won a tender organized in 2007 by the Instituto Costarricense de Electricidad (ICE) for the construction of a 50 MW hydroelectric plant and the sale of the power generated by the plant to ICE under a build, operate and transfer contract (BOT).
On May 27, 2015, Chucas initiated an arbitration proceeding before the Cámara Costarricense-Norteamericana de Comercio (AMCHAM CICA) seeking reimbursement of the additional costs incurred to build the plant and as a result of the delays in completing the project as well as voidance of the fine levied by ICE for alleged delays in finalizing the works. In a decision issued in November 2017, the arbitration board ruled in Chucas’ favor, granting recognition of the additional costs incurred in the amount of about $113 million (about €91 million) and legal costs and found that Chucas was not liable to pay the finds to ICE. ICE appealed the arbitration ruling before the Supreme Court and on September 5, 2019 Chucas was notified of the ruling partially upholding ICE’s appeal to void the arbitration ruling for a number of formal procedural reasons. On September 11, 2019, Chucas filed a “recurso de aclaración y adición” with the same court and it was partially upheld on June 8, 2020. The Court’s decision expanded on the ruling of September 5, 2019 with information concerning the admission of evidence deposited by Chucas without, however, modifying the decision concerning the voidance of the arbitration award.
On July 14, 2020, Chucas filed a new request for arbitration with the AMCHAM CICA for a preliminary estimated amount of about $240 million. On August 14, 2020, ICE filed its response, requesting the dismissal of the proceeding for lack of jurisdiction on the part of the arbitration tribunal. The request for dismissal was denied by AMCHAM CICA. In parallel, ICE filed precautionary appeals to the Tribunal Contencioso Administrativo against Chucas and the AMCHAM CICA seeking to suspend the arbitration proceedings. While these appeals were preliminarily upheld, they were subsequently denied. In May 2021, Chucas filed its arbitration request complete with preliminary demands, quantifying the value of its claim at about $362 million (about €305 million). In June 2021, ICE filed its defense, continuing to assert a lack of jurisdiction. ICE has not made a counterclaim. On August 4, 2021, the arbitration tribunal rejected ICE’s claim of lack of jurisdiction. The matter has subsequently been submitted for consideration to the first section of the Supreme Court and the arbitration proceedings was suspended.
On May 12, 2022, with a measure that was notified to the company on July 28, 2022, the first section of the Supreme Court ruled that the arbitration tribunal was incompetent to hear the dispute. On August 8, 2022, Chucas filed an extraordinary appeal against this ruling, the overall resolution of which is expected for mid-2023. The arbitration proceeding is suspended.
On September 16, 2020, Kino Contractor SA de Cv (Kino Contractor), Kino Facilities Manager SA de Cv (Kino Facilities) and Enel SpA (Enel) were notified of a request for arbitration filed by Parque Solar Don José SA de Cv, Villanueva Solar SA de Cv and Parque Solar Villanueva Tres SA de Cv (together, “Project Companies”) in which the Project Companies alleged the violation (i) by Kino Contractor of certain provisions of the EPC Contract and (ii) by Kino Facilities of certain provisions of the Asset Management Agreement, both contracts concerning solar projects owned by the three companies filing for arbitration.
Enel, which is the guarantor of the obligations assumed by Kino Contractor and Kino Facilities under the above contracts, has also been called into the arbitration proceeding, but no specific claims have been filed against it. The Project Companies, in which Enel Green Power SpA is a non-controlling shareholder, are controlled by CDPQ Infraestructura Participación SA de Cv (which is controlled by Caisse de Dépôt et Placement du Québec) and CKD Infraestructura México SA de Cv. After the request for arbitration and the related response from the defendants, the parties exchanged further introductory briefs, in which the financial claim of the counterparties was updated to about $135 million, while Kino Facilities has not continued its counter-claim. The hearing was held in October 2022 and the final phase is currently pending. The issuance of the arbitration award is expected by mid-2023.
On May 18, 2022, High Lonesome Wind Project LLC was sued in New York Superior Court by Allianz Risk Transfer Ltd for about $203 million concerning an alleged liability accrued by the company, as of February 2020, in connection with a Proxy Revenue Swap. The claim is being contested in its entirety. The proceedings are currently pending before the Southern District Court in New York.
In 2011, Empresa de Gas de Talara SA (Gastalsa) filed a claim before the Civil Court of Talara requesting to revoke the measure that canceled the concession of natural gas granted to it in the Parinas district, the Province of Talara and the Department of Piura, and the consequent transfer of the gas pipeline owned by Enel Generación Piura SA (EGPIURA) to Gastalsa itself.
On January 6, 2022, the court partially upheld the Gastalsa claim. In February 2022, EGPIURA learned of a precautionary measure issued by the Civil Court of Talara of the Superior Court of Justice of Sullana (Juzgado Civil de Talara de la Corte Superior de Justicia de Sullana) in favor of Gastalsa which orders the Dirección General de Hidrocarburos del Ministerio de Energía y Minas, the Organismo Superior de la Inversión en Energía y Minería (Osinergmin) and the Ministry of Energy to (i) restore the natural gas concession of the Parinas district, the Province of Talara and the Department of Piura in favor of Gastalsa; and (ii) proceed with the upgrade and transfer of the pipeline to Gastalsa. The above means that the economic value of the gas pipeline, currently owned by EGPIURA (which supplies natural gas to the Malacas thermal power station) is to be estimated for transfer to Gastalsa.
On August 2, 2022, the Sala Civil de la Corte Superior de Justicia de Sullana ruled against Gastalsa in the second-level appeal, referring the case to the court of first instance for a new decision. As a result of that decision, on September 9, 2022, the precautionary measure issued earlier was revoked.
In the meantime, in July 2022, the Constitutional Court had granted the petition of the system operator, an interested third party, acknowledging that the original petition of Gastalsa had been filed after the time limit. On January 24, 2023 the Constitutional Court also denied the appeal of that measure.
Slovenské elektrárne (SE) is involved in a number of cases before the national courts concerning the 720 MW Gabčíkovo hydroelectric plant, which is administered by Vodohospodárska Výsatavba Štátny Podnik (VV) and whose operation and maintenance, as part of the privatization of SE in 2006, had been entrusted to SE for a period of 30 years under an operating agreement (the VEG Operating Agreement).
Immediately after the closing of the privatization, the Public Procurement Office (PPO) filed suit with the Court of Bratislava seeking to void the VEG Operating Agreement on the basis of alleged violations of the regulations governing public tenders, qualifying the contract as a service contract and as such governed by those regulations. In November 2011 the trial court ruled in favor of SE, whereupon the PPO appealed the decision.
In parallel with the PPO action, VV also filed a number of suits, asking in particular for the voidance of the VEG Operating Agreement. On December 12, 2014, VV withdrew unilaterally from the VEG Operating Agreement, notifying its termination on March 9, 2015, for breach of contract. On March 9, 2015, the decision of the appeals court overturned the ruling of the trial court and voided the contract as part of the action pursued by the PPO. SE lodged an extraordinary appeal against that decision before the Supreme Court. At a hearing of June 29, 2016, the Supreme Court denied the appeal and SE then appealed the ruling to the Constitutional Court, which denied the appeal on January 18, 2017.
In addition, SE lodged a request for arbitration with the Vienna International Arbitral Centre (VIAC) under the VEG Indemnity Agreement. Under that accord, which had been signed as part of the privatization between the National Property Fund (now MH Manazment - MHM) of the Slovak Republic and SE, the latter was entitled to an indemnity in the event of the early termination of the VEG Operating Agreement for reasons not attributable to SE. On June 30, 2017, the arbitration court issued its ruling denying the request of SE.
In parallel with this arbitration proceeding launched by SE, both VV and MHM filed two suits in the Slovakian courts to void the VEG Indemnity Agreement owing to the alleged connection of the latter with the VEG Operating Agreement. These proceedings were joindered and, on September 27, 2017, the Court of Bratislava denied the request of the plaintiffs for procedural reasons. Both VV and MHM appealed that decision, and both the appeals were denied upholding the trial court decision in favor of SE. VV filed an extraordinary appeal (dovolanie) against that decision on March 9, 2020, with the Supreme Court, to which SE replied with a brief submitted on June 8, 2020. SE also filed an appeal before the Slovak Constitutional Court, which was denied on July 29, 2021. On March 24, 2021, the Supreme Court overturned the decision of the Bratislava Court of Appeal, referring the judgment to the latter court, and the proceeding is currently pending.
At the local level, VV has also filed other suits against SE for alleged unjustified enrichment (estimated at about €360 million plus interest) for the period from 2006 to 2015. SE filed counter-claims for all of the proceedings under way. Developments in those proceedings can be summarized as follows:
Finally, in another proceeding VV asked for SE to return
the fee for the transfer from SE to VV of the technology
assets of the Gabčíkovo plant as part of the privatization,
with a value of about €43 million plus interest. After issuing
a preliminary decision on the case in which it noted the
lack of standing of VV, on December 18, 2020, the Court
of Bratislava issued a decision in favor of SE, rejecting VV’s
claims. On January 4, 2021, VV filed an appeal against that
decision, and the proceeding is pending.
Whithholding Tax - Ampla
In 1998, Ampla Energia e Serviços SA (Ampla) financed the acquisition of Coelce with the issue of bonds in the amount of $350 million (“Fixed Rate Notes” - FRN) subscribed by its Panamanian subsidiary, which had been established to raise funds abroad. Under the special rules then in force, subject to maintaining the bond until 2008, the interest paid by Ampla to its subsidiary was not subject to withholding tax in Brazil.However, the financial crisis of 1998 forced the Panamanian company to refinance itself with its Brazilian parent, which for that purpose obtained loans from local banks. The tax authorities considered this financing to be the equivalent of the early extinguishment of the bond, with the consequent loss of entitlement to the exemption from withholding tax.
In December 2005, Ampla Energia e Serviços carried out a spin-off that involved the transfer of the residual FRN debt and the associated rights and obligations to Ampla Investimentos e Serviços SA.
On November 6, 2012, the Câmara Superior de Recursos Fiscais (the highest level of administrative courts) issued a ruling against Ampla, for which the company promptly asked that body for clarifications. On October 15, 2013, Ampla was notified of the denial of the request for clarification (embargo de declaração), thereby upholding the previous adverse decision. The company provided security for the debt and on June 27, 2014 continued litigation before the ordinary courts (Tribunal de Justiça).
In December 2017, the court appointed an expert to examine the issue in greater detail in support of the future ruling. In September 2018, the expert submitted a report, requesting additional documentation.
In December 2018, the company provided the additional documentation and is awaiting the court’s assessment of the arguments and documents presented. The amount involved in the dispute at December 31, 2022 was about €246 million.
PIS/COFINS/ICMS - Enel Distribuição São Paulo
In March 2017, the Supremo Tribunal Federal of Brazil (STF) ruled on the calculation of the PIS and COFINS taxes, confirming the argument that the ICMS - Imposto sobre Circulação de Mercadorias e Serviços (tax on the circular of goods and services) was not included in the calculation basis of the PIS and COFINS.
In May 2021, the STF established that the ruling would have effect from the judgment of March 2017, except for taxpayers who had filed an appeal before that date.
The Group’s Brazilian companies affected by the STF ruling had already initiated legal action in their respective federal regional courts. Subsequently, the latter notified them of the final decision, recognizing the right to deduct the ICMS applied to their operations from the calculation basis of the PIS and COFINS. Since the excess payment of the PIS and COFINS taxes had been transferred to final customers, at the same time as the recognition of these recoverable taxes, a liability in respect of those customers was recognized in the same amount, net of any costs incurred or to be incurred in the legal proceedings. These liabilities represent an obligation to reimburse the recovered taxes to final customers.
In this regard, Enel Distribuição São Paulo initiated two proceedings that led to rulings in its favor. These regarded the periods from December 2003 to December 2014 and from January 2015 onwards. With regard to the second proceeding, the Federal Union filed an action of rescission against the company, disputing the fact that part of the period in question (prior to March 2017) would be adversely impacted by the STF ruling of May 2021.
In May 2022, the company challenged this action and will defend its actions through the various levels of the court system.
The estimated amount involved in the proceeding at December 31, 2022 was about €206 million.
IRPJ/CSLL - Eletropaulo
On October 5, 2021, Eletropaulo received an assessment notice from the Brazilian tax authorities contesting the deductibility for income tax purposes (Imposto sobre a Renda das Pessoas Jurídicas - IRPJ and Contribuiçao Social sobre o Lucro Líquido - CSLL) of the amortization of the increased values generated by extraordinary corporate transactions carried out before the acquisition of the company by the Enel Group. The contested period runs from 2017 to 2019.
Considering its position sound, the company presented its defense at the first level of administrative adjudication. The amount involved in the dispute at December 31, 2022 was about €137 million.
PIS - Eletropaulo
In July 2000, Eletropaulo filed suit seeking a tax credit for PIS (Programa Integração Social) paid in application of regulations (Decree Laws 2.445/1988 and 2.449/1988) that were subsequently declared unconstitutional by the Supremo Tribunal Federal (STF). In May 2012, the Superior Tribunal de Justiça (STJ) issued a final ruling in favor of the company that recognized the right to the credit.
In 2002, before the issue of that favorable final ruling, the company had offset its credit against other federal taxes. This behavior was contested by the federal tax authorities but the company, claiming it had acted correctly, challenged in court the assessments issued by the federal tax authorities. Following defeat at the initial level of adjudication, the company appealed.
The amount involved in the dispute at December 31, 2022 was about €123 million.
ICMS - Ampla, Coelce ed Eletropaulo
The States of Rio de Janeiro, Ceará and São Paulo issued a number of tax assessments against Ampla Energia e Serviços SA (for the years 1996-1999 and 2007-2017), Companhia Energética do Ceará (2003, 2004, 2006-2012, 2015 and 2016) and Eletropaulo (2008-2021), challenging the deduction of ICMS - Imposto sobre Circulação de Mercadorias e Serviços (tax on the circular of goods and services) in relation to the purchase of certain non-current assets. The companies challenged the assessments, arguing that they correctly deducted the tax and asserting that the assets, the purchase of which generated the ICMS, are intended for use in their electricity distribution activities. The companies are continuing to defend their actions at the various levels of adjudication.
The amount involved in the disputes totaled approximately €95 million at December 31, 2022.
Withholding Tax - Endesa Brasil
On November 4, 2014, the Brazilian tax authorities issued an assessment against Endesa Brasil SA (now Enel Brasil SA) alleging the failure to apply withholding tax to payments of allegedly higher dividends to non-resident recipients.
More specifically, in 2009, Endesa Brasil, as a result of the first-time application of the IFRS, had derecognized goodwill, recognizing the effects in equity, on the basis of the correct application of the accounting standards it had adopted. The Brazilian tax authorities, however, asserted – during an audit – that the accounting treatment was incorrect and that the effects of the derecognition should have been recognized through profit or loss. As a result, the corresponding amount (about €202 million) was reclassified as a payment of income to non-residents and, therefore, subject to withholding tax of 15%.
It should be noted that the accounting treatment adopted by the company was agreed with the external auditor and also confirmed by a specific legal opinion issued by a local firm. Following unfavorable rulings from the administrative courts, the company is continuing to defend its actions in court and the appropriateness of the accounting treatment.
The overall amount involved in the dispute at December 31, 2022 was about €69 million.
ICMS - Coelce
The State of Ceará has filed various tax assessments against Companhia Energética do Ceará SA (Coelce) over the years (for tax periods from 2005 to 2014), contesting the determination of the deductible portion of the ICMS - Imposto sobre Circulação de Mercadorias e Serviços (tax on the circular of goods and services) and in particular the method of calculation of the pro-rata deduction with reference to the revenue deriving from the application of a special rate envisaged by the Brazilian government for the sale of electricity to low-income households (Baixa Renda). The company has appealed the individual assessments, arguing that the tax deduction was calculated correctly. The company is defending its actions in the various levels of jurisdiction.
The overall amount involved in the dispute at December 31, 2022 was about €55 million.
PIS - Eletropaulo
In December 1995, the Brazilian government increased the rate of the federal PIS (Programa Integração Social) tax from 0.50% to 0.65% with the issue of a provisional measure (Executive Provisional Order).
Subsequently, the provisional measure was re-issued five times before its definitive ratification into law in 1998. Under Brazilian legislation, an increase in the tax rate (or the establishment of a new tax) can only be ordered by law and take effect 90 days after its publication.
Eletropaulo therefore filed suit arguing that an increase in the tax rate would only have been effective 90 days after the last Provisional Order, claiming that the effects of the first four provisional measures should be considered void (since they were never ratified into law). This dispute ended in April 2008 with recognition of the validity of the increase in the PIS rate starting from the first provisional measure. In May 2008, the Brazilian tax authorities filed a suit against Eletropaulo to request payment of taxes corresponding to the rate increase from March 1996 to December 1998. Eletropaulo has fought the request at the various levels of adjudication, arguing that the time limit for the issue of the notice of assessment had lapsed. In particular, since more than five years have passed since the taxable event (December 1995, the date of the first provisional measure) without issuing any formal instrument, the right of the tax authorities to request the payment of additional taxes and the authority to undertake legal action to obtain payment have been challenged.
In 2017, following the unfavorable decisions issued in previous rulings, Eletropaulo filed an appeal in defense of its rights and its actions with the Superior Tribunal de Justiça (STJ) and the Supremo Tribunal Federal (STF). The proceedings are still pending while the amounts subject to dispute have been covered by a bank guarantee.
With regard to the request of the Office of the Attorney General of the Brazilian National Treasury Department to replace the bank guarantee with a deposit in court, the court of second instance granted the petition. The company therefore replaced the bank guarantee with a cash deposit and filed a clarification motion against the related decision, which is currently awaiting a decision.
The overall amount involved in the dispute at December 31, 2022 was about €45 million.
FINSOCIAL - Eletropaulo
Following a final ruling issued by the Federal Regional Court on September 11, 2011, Eletropaulo was recognized the right to compensation for certain FINSOCIAL credits (social contributions) relating to sums paid from September 1989 to March 1992.
Despite the expiration of the relative statute of limitations, the Federal Tax Authority contested the determination of some credits and rejected the corresponding offsetting, issuing tax assessments that the company promptly challenged in the administrative courts, defending the legitimacy of its calculations and actions.
After an unfavorable ruling at first instance, the company filed an appeal before the administrative court of second instance.
The overall amount involved in the dispute at December 31, 2022 was about €43 million.
Income tax - Enel Iberia, Endesa and subsidiaries
In 2018, the Spanish tax authorities completed a general audit involving the companies of the Group participating in the Spanish tax consolidation mechanism. This audit, which began in 2016, involved corporate income tax, value added tax and withholding taxes (mainly for the years 2011 to 2014).
With reference to the main claims, the companies involved have challenged the related assessments at the first administrative level (Tribunal Económico-Administrativo Central - TEAC), defending the correctness of their actions. On April 4, 2022, the TEAC rejected the appeal and the companies are continuing to defend their actions in court (Audiencia Nacional).
With regard to the disputes concerning corporate income tax, the issues for which an unfavorable outcome is considered possible amounted to about €133 million at December 31, 2022:
In 2021, the Spanish tax authorities concluded a new general audit for the years from 2015 to 2018. The companies involved challenged the related assessments at the first level of administrative adjudication (TEAC), arguing that they had acted correctly.
In relation to the main dispute regarding corporate income tax, which concerned the deductibility of certain financial charges, the dispute for which an adverse outcome is considered possible has a value of about €222 million at December 31, 2022 (Enel Iberia €210 million and Endesa SA €12 million).
Income tax - Enel Green Power España SL
On June 7, 2017, the Spanish tax authorities issued a notice of assessment to Enel Green Power España SL, contesting the treatment of the merger of Enel Unión Fenosa Renovables SA (“EUFER”) into Enel Green Power España SL in 2011 as a tax neutral transaction, asserting that the transaction had no valid economic reason.
On July 6, 2017, the company appealed the assessment at the first administrative level (Tribunal Económico-Administrativo Central - TEAC), defending the appropriateness of the tax treatment applied to the merger. The company has provided the supporting documentation demonstrating the synergies achieved as a result of the merger in order to prove the existence of a valid economic reason for the transaction. On December 10, 2019, the TEAC denied the appeal and the company is continuing to defend its actions in court (Audiencia Nacional).
The overall amount involved in the dispute at December 31, 2022 was about €100 million.
Withholding Tax - Enel Servizio Elettrico Nazionale
As a result of a tax audit initiated in March 2018 and following a subsequent investigation conducted with questionnaires submitted to the banks involved as assignees in certain transfers of receivables from Servizio Elettrico Nazionale SpA (SEN) in respect of mass market customers under a framework agreement, on December 19, 2018, the Revenue Agency Regional Directorate of Lazio Large Taxpayers Office, notified the company of an assessment in respect of the alleged violation of withholding tax obligations relating to the amounts paid to the banks as part of the aforementioned transfers in 2013.
In particular, the dispute arises from an assessment by the Office that: (i) reclassified, for tax purposes only, the assignment of receivables as a financing transaction; (ii) asserted an alleged withholding obligation for the company commensurate with the cost of the transaction (as the difference between the nominal value of the assigned receivables and the transfer price), reconstructing the subsequent transactions involving the assigned receivables (further sales and/or securitizations with non-residents carried out by the banks), in which the company had no role.
In the first stages of the proceeding, which arose following SEN’s appeal of the assessment, the company’s objections concerning the illegitimacy of the Office’s reclassification of the transaction for tax purposes and, consequently, of the payment flows were not upheld, despite significant procedural violations in the assessment activity.
In 2022, the conditions for a settlement arose, which the company decided to accept for the sole purpose of avoiding the continuation of the pending dispute concerning a matter characterized by interpretative uncertainty. This solution provides for an overall revision of the tax claim and the withdrawal of claims for subsequent years.
The settlement involved the payment during the year by the company of about €45 million and the action was deprived of purpose.
The following provides a list of accounting standards, amendments and interpretations that will take effect for the Group after December 31, 2022.
The Group is assessing the potential impact of the future
application of the new provisions.
On January 9, 2023, Enel SpA launched the issuance of non-convertible, subordinated, perpetual, hybrid bonds for institutional investors on the European market, denominated in euros for an aggregate principal amount of €1.75 billion (the “New Securities”). At the same time, Enel also announced, through a separate notice, the launch of voluntary tender offers to repurchase for cash and subsequently cancel, for a total aggregate principal amount equal to the principal amount raised from the New Securities, any-and-all of the €750 million equity-accounted perpetual hybrid bond with first call date in August 2023, as well as part of the outstanding $1,250 million hybrid bond due September 2073 with call date in September 2023, subject to satisfaction of a number of conditions.
With the conclusion of the voluntary tender offer launched on January 9, 2023 and expired on January 16, 2023, on January 18, 2023 Enel announced that it will repurchase for cash its outstanding perpetual hybrid bond denominated in euros for an aggregate nominal amount of €699,970,000.00. Taking into account the principal amount raised through the issue of new securities and the principal amount of securities purchased in connection with the tender offer for the euro-denominated bond, the capped maximum acceptance amount (“Capped Maximum Amount”) for the concurrent tender offer for its $1,250 million hybrid bond due September 2073 with call date in September 2023 has been removed.
As a consequence of the removal of the capped maximum acceptance amount (“Capped Maximum Amount”) on the dollar-denominated bond – as announced on January 18, 2023 – Enel has accepted for purchase all of the offers validly tendered on the dollar-denominated bond by the Early Tender Deadline for a total nominal amount of $411,060,000.
On February 14, 2023, Enel Finance International NV launched a dual-tranche sustainability-linked bond for institutional investors for a total of €1.5 billion. The new issue envisages for the first time the use by Enel of multiple Key Performance Indicators (KPIs) per tranche. One tranche of the bond combines a KPI linked to the EU taxonomy with a KPI linked to the United Nations Sustainable Development Goals (SDGs). The other tranche of the bond is linked to two KPIs related to the Group’s full decarbonization path, across direct and indirect greenhouse gas emission reduction.
On February 17, 2023, the Enel Group, through its subsidiary Enel Argentina, signed and closed the deal for the sale to energy company Central Puerto SA of the Group’s 75.7% stake in the thermal generation company Enel Generación Costanera.
At the same time, Enel has signed the agreement on the sale to Central Puerto of the Group’s 41.2% stake in the thermal generation company Central Dock Sud. The total consideration for the sale of Enel’s equity in the two companies amounts to $102 million.
On March 9, 2023, Enel SpA signed an agreement with Greek company Public Power Corporation SA (PPC) for the sale of all the equity stakes held by the Enel Group in Romania. The agreement provides that PPC will pay a total of approximately €1,260 million, equivalent to an enterprise value of about €1,900 million (on a 100% basis). The overall transaction is expected to generate a total positive effect on the Group’s consolidated net debt of approximately €1.7 billion, of which about €0.1 billion in 2022 and the remaining amount in 2023, alongside a cumulative negative impact for 2022-2023 on reported Group profit amounting to approximately €1.4 billion, of which around €0.6 billion related to the release of the foreign exchange reserve to be booked in 2023.
Fees pertaining to 2022 paid by Enel SpA and its subsidiaries at December 31, 2022 to the Audit Firm and entities belonging to its network for services are summarized in the following table, pursuant to the provisions of Article 149-duodecies of the CONSOB Issuers Regulation.
