EDN 20-F DEF-14A Report Dec. 31, 2009 | Alphaminr
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EDN 20-F Report ended Dec. 31, 2009

Balance Sheet
Cash Flow
Income Statement
20-F 1 v187617_20f.htm Unassociated Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
Commission File number: 001-33422
Empresa Distribuidora y Comercializadora Norte S.A.
(Exact name of registrant as specified in its charter)
Distribution and Marketing Company of the North S.A.
Argentine Republic
(Translation of registrant’s name into English)
(Jurisdiction of incorporation or organization)
Azopardo 1025
Ciudad de Buenos Aires, C1107ADQ
Buenos Aires, Argentina
(Address of principal executive offices)
Ivana Del Rossi
54 11 4346 5127 / 54 11 4346 5325
Azopardo 1025 (C1107ADQ) Bs. As.
Investor Relations Officer
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class:
Name of each exchange on which registered
Class B Shares
New York Stock Exchange, Inc.*
American Depositary Shares, or ADSs, evidenced by American
Depositary Receipts, each representing 20 Class B Shares
New York Stock Exchange, Inc.
*
Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 462,292,111 Class A Ordinary Shares, 442,210,385 Class B Ordinary Shares and 1,952,604 Class C Ordinary Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No þ
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ¨ No þ
Note:  Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:  U.S. GAAP ¨ IFRS ¨ Other þ
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ¨ Item 18 þ
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).  Yes ¨ No þ

Item 1.
Identity of Directors, Senior Management and Advisors
2
Item 2.
Offer Statistics and Expected Timetable
2
Item 3.
Key Information
2
Item 4.
Information on the Company
21
Item 4A.
Unresolved Staff Comments
46
Item 5.
Operating and Financial Review and Prospects
46
Item 6.
Directors, Senior Management and Employees
86
Item 7.
Major Shareholders and Related Party Transactions
95
Item 8.
Financial Information
99
Item 9.
The Offer and Listing
103
Item 10.
Additional Information
106
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
123
Item 12.
Description of Securities Other than Equity Securities
124
Item 13.
Defaults, Dividend Arrearages and Delinquencies
126
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
126
Item 15.
Controls and Procedures
126
Item 16A.
Audit Committee Financial Expert
127
Item 16B.
Code of Ethics
128
Item 16C.
Principal Accountant Fees and Services
128
Item 16D.
Exemptions from the Listing Standards for Audit Committees
128
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
128
Item 16G.
Corporate Governance
129
Item 17.
Financial Statements
132
Item 18.
Financial Statements
132
Item 19.
Exhibits
132
Index to Financial Statements
F-1

PART I
Introduction
Empresa Distribuidora y Comercializadora Norte S.A., or Edenor, is a sociedad anónima (limited liability corporation) organized under the laws of the Argentine Republic, or Argentina.  Our principal executive offices are located at Azopardo 1025, Ciudad de Buenos Aires, C1107ADQ, Buenos Aires, Argentina.
Item 1.
Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2.
Offer Statistics and Expected Timetable
Not applicable.
Item 3.
Key Information
FORWARD-LOOKING STATEMENTS
This annual report includes forward-looking statements, principally under the captions “Item 3. Key Information—Risk factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business.  Forward-looking statements may also be identified by words such as “believes,” “expects,” “anticipates,” “projects,” “intends,” “should,” “seeks,” “estimates,” “future” or similar expressions.  Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ materially from those expressed or implied in our forward-looking statements, including, among other things:
·
the outcome and timing of the integral tariff revision process we are currently undertaking with the Ente Nacional Regulador de la Electricidad (Argentine National Electricity Regulator , or the ENRE) and, more generally, uncertainties relating to future government approvals to increase or adjust our tariffs;
·
general political, economic, social, demographic and business conditions in Argentina and particularly in the geographic market we serve;
·
the global financial crisis and its impact on liquidity and access to capital;
·
the impact of regulatory reform and changes in the regulatory environment in which we operate;
·
electricity shortages;
·
potential disruption or interruption of our service;
·
restrictions on the ability to exchange Pesos into foreign currencies or to transfer funds abroad;
·
the revocation or amendment of our concession by the granting authority;
·
our ability to implement our capital expenditure plan, including our ability to arrange financing when required and on reasonable terms;
·
fluctuations in inflation and exchange rates, including a devaluation of the Peso; and
·
additional matters identified in “Risk factors.”
2

Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we file this annual report because of new information, future events or other factors.  In light of these limitations, undue reliance should not be placed on forward-looking statements contained in this annual report.
SELECTED FINANCIAL DATA
The following table presents selected financial and operating data.  This information should be read in conjunction with our audited financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.
The financial data as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 are derived from our audited financial statements, which were audited by Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers, for the years ended December 31, 2009 and 2008 and Deloitte & Co. S.R.L., member firm of Deloitte & Touche Tohmatsu, for the year ended December 31, 2007. We engaged Price Waterhouse & Co. S.R.L as our new auditors in April 2008, in order to consolidate our audit with that of our controlling shareholder, Pampa Energia S.A., also audited by Price Waterhouse & Co. S.R.L.  Our audited financial statements have been prepared in accordance with generally accepted accounting principles in the City of Buenos Aires, which we refer to as Argentine GAAP and which differ in certain significant respects from U.S. Generally Accepted Accounting Principles (U.S.GAAP).  Note 27 to our audited financial statements included elsewhere in this annual report provides a description of the significant differences between Argentine GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net income for the years then ended December 31, 2009, 2008 and 2007 and shareholders’ equity as of December 31, 2009 and2008.
In this annual report, except as otherwise specified, references to “$”, “U.S. $” and “Dollars” are to U.S. Dollars, and references to “Ps. ” and “Pesos” are to Argentine Pesos.  Solely for the convenience of the reader, Peso amounts as of and for the year ended December 31, 2009 have been translated into U.S. Dollars at the buying rate for U.S. Dollars quoted by Banco de la Nación Argentina (Banco Nación) on December 31, 2009 of Ps. 3.80 to U.S. $1.00.  The U.S. Dollar equivalent information should not be construed to imply that the Peso amounts represent, or could have been or could be converted into, U.S. Dollars at such rates or any other rate.  See “Item 3. Key Information – Exchange rates.”
Under Argentine GAAP, we generally are not required to record the effects of inflation in our financial statements.  However, because Argentina experienced a high rate of inflation in 2002, with the wholesale price index increasing by approximately 118%, we were required by Decree No. 1269/2002 and Comisión Nacional de Valores (National Securities Commission or CNV) Resolution No. 415/2002 to restate our financial statements in constant Pesos in accordance with Argentine GAAP.  On March 25, 2003, Decree No. 664/2003 rescinded the requirement that financial statements be prepared in constant currency, effective for financial periods on or after March 1, 2003.  As a result, we are not required to restate and have not restated our financial statements for inflation after February 28, 2003.  See note 2 to our audited financial statements included in this annual report.

3

Certain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown as totals may not sum due to rounding.
For the year ended December 31,
2009
2008
2007
2006
2005
(in millions, except for per share and per ADS data)
Statement of operations data
Argentine GAAP
Net sales (1)
U.S. $ 546.8 Ps.
2,077.9
Ps.
2,000.2
Ps.
1,981.9
Ps.
1,378.3
Ps.
1,262.2
Electric power purchases
(264.0 ) (1,003.4 ) (934.7 ) (889.9 ) (799.1 ) (757.7 )
Gross margin
282.8 1,074.5 1,065.5 1,092.0 579.3 504.5
Transmission and distribution expenses
(144.4 ) (548.6 ) (497.9 ) (417.6 ) (362.1 ) (346.1 )
Selling expenses
(41.8 ) (158.9 ) (126.0 ) (120.6 ) (87.9 ) (86.0 )
Administrative expenses
(46.5 ) (176.6 ) (138.7 ) (124.7 ) (93.3 ) (72.9 )
Net operating income (loss)
50.1 190.4 302.9 429.2 35.9 (0.4 )
Other income (expenses), net
6.1 23.2 (29.9 ) 1.0 (22.9 ) (0.7 )
Financial income (expenses) and holding gains (losses):
Generated by assets:
Exchange difference
5.6 21.4 8.1 (0.9 ) 2.6 2.1
Interest
4.3 16.2 9.8 13.4 13.9 12.9
Holding results
9.9 37.6 (7.3 ) 0.1 0.1 (0.6 )
Generated by liabilities:
Financial expenses
(3.1 ) (11.7 ) (10.0 ) (21.0 ) (25.4 ) (14.1 )
Exchange difference
(26.1 ) (99.1 ) (92.7 ) (29.9 ) (13.3 ) (29.0 )
Interest
(23.1 ) (87.7 ) (95.3 ) (74.5 ) (101.3 ) (119.5 )
Holding results
— — — — — (0.2 )
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other receivables (2)
0.9 3.4 13.5 (29.6 ) — —
Gain on extinguishment of former debt (3)
— — — — 179.2 —
Adjustment to present value of notes (4)
(1.4 ) (5.2 ) (8.5 ) (21.5 ) 57.1 —
Gain (loss) from the purchase of notes (5)
21.4 81.4 93.6 (10.2 ) — —
Adjustment to present value of purchased notes (4)
— — — (8.6 ) — —
Income (loss) before taxes
44.6 169.9 184.3 247.4 125.9 (149.6 )
Income tax (6)
(20.9 ) (79.3 ) (61.2 ) (125.0 ) 167.2 —
Net income (loss)
U.S. $ 23.7 Ps.
90.6
Ps.
123.1
Ps.
122.5
Ps.
293.1
Ps.
(149.6)
Net  income (loss) per ordinary share – basic and diluted
0.027 0.101 0.137 0.135 0.352 (0.180 )
Dividends declared per ordinary share (7)
— — — — — —
Net income per ADS (8) — basic and diluted
0.54 2.02 2.716 2.702 — —
Number of shares outstanding
906,455,100 906,455,100 906,455,100 906,455,100 831,610,200 831,610,200
U.S. GAAP
Net sales/service revenues
U.S. $ 569.3 Ps.
2,163.3
Ps.
2,059.0
Ps.
1,937.0
Ps.
1,403.5
Ps.
1,334.9
Electric power purchases
(264.1 ) (1,003.4 ) (934.7 ) (889.9 ) (799.1 ) (757.7 )
Transmission and distribution expenses
(164.2 ) (624.0 ) (577.0 ) (477.5 ) (450.3 ) (425.3 )
Gross margin
141.0 535.9 547.3 569.6 154.1 151.0
Operating expenses, net
(86.1 ) (327.2 ) (296.6 ) (207.5 ) (194.1 ) 185.0
Net operating income (loss)
54.9 208.7 250.7 362.1 40.0 (33.1 )
Financial (expense), net and holding gains
(11.2 ) (42.6 ) 82.0 (46.5 ) (133.3 ) (139.1 )
Net income (loss) before income taxes
43.7 166.2 332.7 315.7 (173.3 ) (172.1 )
Income tax
(24.5 ) (93.1 ) (68.2 ) (99.9 ) 128.0 8.1
Net income (loss) for the year
19.2 73.1 264.5 215.8 (45.3 ) (164.0 )
Net income (loss) per ordinary share – basic and diluted (7)
0.021 0.081 0.295 0.238 (0.054 ) (0.197 )
Net income  per ADS (8) — basic and diluted
0.43 1.62 5.90 4.761 — —
(1)
Net sales for 2007 include the retroactive portion of the February 2007 tariff increase, which amounts in aggregate to Ps. 218.6 million, and is being invoiced in 55 equal and consecutive monthly installments, starting in February 2007. As of December 31, 2009 we had invoiced Ps. 149.4  million of this amount.
(2)
Reflects the adjustment to present value of the retroactive portion of the tariff increase that is being invoiced in 55 consecutive monthly installments, starting in February 2007, and the adjustment to present value of Ps. 38.4 million due under the payment plan agreement with the Province of Buenos Aires that is being invoiced in 18  installments, starting in January 2007.  As of December 31, 2009 and 2008, Ps. 2.3 million was due under the payment plan agreement with the Province of Buenos Aires, and Ps. 69.2 million and Ps. 118.9 million of the retroactive tariff increase had not been invoiced in 2009 and 2008, respectively.  In accordance with Argentine GAAP, we account for these long term receivables at their net present value, which we calculate at a discount rate of 10.5% for the retroactive tariff increase and 19.62% for the payment plan agreement, recording the resulting non-cash charge as an adjustment to present value of these two receivables.  See “Item 4. Information on the Company —Framework agreement (Shantytowns).”

4

(3)
Our debt restructuring generated a one-time gain of Ps. 179.2 million in the year ended December 31, 2006, reflecting the recognition of a Ps. 55.3 million waiver of principal amount on our financial debt, a Ps. 75 million waiver of accrued interest on our financial debt and a Ps. 65.7 million waiver of penalties related to the non-payment of our financial debt, which more than offset Ps. 16.8 million in related restructuring costs.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and capital resources—Debt” for a description of the restructuring notes.
(4)
We record our financial debt in our balance sheet at fair value reflecting our management’s best estimate of the amounts expected to be paid at each year end, calculated at a discount rate of 10.5% for the years ended December 31, 2009, 2008 and 2007 and 10% for the year ended December 31, 2006.  We did not record any adjustment to present value in any year before the year ended December 31, 2006 because our financial debt was in default.
(5)
In 2007, we repurchased U.S. $43.7 million principal amount of our outstanding Fixed Rate Par Notes due 2016 and redeemed and repurchased  U.S. $240 million principal amount of our outstanding Discount Notes due 2014. In addition, in the year ended December 31, 2008 and 2009, we repurchased U.S. $32.5 million and U.S. $32.2 million principal amount of our outstanding Fixed Rate Par Notes due 2016, respectively  and U.S. $17.5 million and  U.S. $53.8 million  principal amount of our outstanding Senior Notes due 2017, respectively.
(6)
In 2006, our income tax result reflects the reversal of net deferred tax assets, primarily due to the fact that, as a consequence of the ratification of the Adjustment Agreement in January 2007 and the renegotiation of our financial debt in April 2006, we generated taxable income that allowed us to offset a significant portion of the tax loss carryforwards we generated in 2002.
(7)
We have not declared or paid any dividends since August 14, 2001.
(8)
Each ADS represents 20 Class B ordinary shares.

5
As of December 31,
2009
2008
2007
2006
2005
(in millions)
Balance sheet data
Argentine GAAP
Current Assets:
Cash and banks
U.S.$ 2.3 Ps.
8,7
Ps. 6.1 Ps. 3.5 Ps. 0.5 Ps. 11.7
Investments
57.8 219,7 121.0 97.7 32.2 296.5
Trade receivables
102.4 389,2 400.4 346.0 270.9 231.9
Other receivables
16.1 61,1 42.8 26.0 30.2 21.7
Supplies
3.9 14,8 16.7 23.2 13.6 13.8
Total current assets
U.S.$ 182.5 Ps.
693,5
Ps. 587.0 Ps. 496.3 Ps. 347.5 Ps. 575.6
Non-Current Assets:
Trade receivables
22.9 87.0 111.4 100.3 — —
Other receivables
23.4 88.8 99.5 144.1 256.5 74.7
Investments in other companies
0.1 0.4 0.4 0.4 0.4 0.4
Investments
— — 67.2 — — —
Supplies
4.9 18.6 12.8 13.8 4.9 36.5
Property, plant and equipment
916.4 3,482.4 3,256.3 3,092.7 2,925.4 2,889.3
Total non-current assets
U.S.$ 967.7 Ps. 3,677.2 Ps. 3,547.6 Ps. 3,351.3 Ps. 3,187.2 Ps. 3,000.9
Total assets
U.S.$ 1,150.2 Ps. 4,370.7 Ps. 4,134.6 Ps. 3,847.6 Ps. 3,534.7 Ps. 3,576.5
Current liabilities:
Trade account payable
91.5 347.8 339.3 316.2 267.6 205.1
Loans
21.8 83.0 27.2 29.3 2.0 1,620.1
Salaries and social security taxes
31.2 118.4 94.8 59.9 51.4 34.1
Taxes
36.9 140.3 111.0 84.6 62.2 67.9
Other liabilities
2.1 8.0 10.5 9.7 26.4 175.8
Accrued litigation
16.5 62.8 52.8 39.9 25.9 18.3
Total current liabilities
U.S.$ 200.0 Ps. 760.3 Ps. 635.6 Ps. 539.6 Ps. 435.6 Ps. 2,121.3
Non-current liabilities:
Trade account payable
12.3 46.8 40.2 35.5 31.3 26.8
Loans
186.2 707.5 913.1 949.1 1,095.5 —
Salaries and social security taxes
11.5 43.7 40.1 24.7 20.3 12.4
Taxes
2.5 9.4 0 0 0 0
Other liabilities
160.7 610.8 369.0 281.4 241.1 —
Accrued Litigation
2.7 10.0 45.1 42.8 40.6 38.7
Total non-current liabilities
375.9 1,428.2 1,407.5 1,333.5 1,428.7 77.8
Total liabilities
U.S.$ 575.9 Ps. 2,188.5 Ps. 2,043.0 Ps. 1,873.0 Ps. 1,864.3 Ps. 2,199.2
Shareholders’ equity
574.3 2,182.2 2,091.6 1,974.6 1,670.4 1,377.3
Total liabilities and shareholders’ equity
U.S.$ 1,150.2 Ps. 4,370.7 Ps. 4,134.6 Ps. 3,847.6 Ps. 3,534.7 Ps. 3,576.5
U.S. GAAP
Current assets
U.S.$ 185.1 Ps. 703.3 Ps. 666.7 Ps. 536.7 Ps. 547.0 Ps. 728.8
Property, plant and equipment, net
934.8 3,552.4 3,331.2 3,175.7 3,016.4 3,009.7
Other non-current assets
68.5 260.4 258.4 346.6 201.5 145.5
Total assets
U.S.$ 1,188.4 Ps. 4,516.1 Ps. 4,256.3 Ps. 4,059.0 Ps. 3,764.9 Ps. 3,884.0
Current liabilities
U.S.$ 208.1 Ps. 790.9 Ps. 707.5 Ps. 573.7 Ps. 470.0 Ps 2,124.8
Non-current liabilities
506.3 1,923.8 1,821.6 2,018.2 2,225.1 640.3
Total liabilities
714.4 2,714.7 2,529.1 2,591.9 2,695.1 2,765.1
Shareholders’ equity
474.1 1,801.4 1,727.2 1,467.1 1,069.8 1,118.8
Total liabilities and shareholders’ equity
U.S.$ 1,188.4 Ps. 4,516.1 Ps. 4,256.3 Ps. 4,059.0 Ps. 3,764.9 Ps. 3,884.0
6

Year ended December 31,
2009
2008
2007
2006
2005
(in millions)
Cash flow data
Argentine GAAP
Operating activities:
Net income (loss)
U.S.$ 23.8
Ps.
90.6
Ps.
123.1
Ps.
122.5
Ps.
293.1
Ps.
(149.6
)
Adjustment to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation of property, plant and equipment
46.2 175.4 170.3 174.4 179.0 178.4
Retirement of property, plant and equipment
0.7 2.8 1.9 1.1 0.7 0.9
Gain on extinguishment of former debt
— — — — (179.2 ) —
Gain from investments in affiliated parties
— — — (0.1 ) (0.1 ) —
Loss (Gain) from investments
6.9 26.4 (4.3 ) (8.5 ) — —
Adjustment to present value of notes
1.4 5.2 8.5 21.5 (57.1 ) —
(Gain) Loss from the purchase and redemption of notes
(21.4 ) (81.4 ) (93.6 ) 10.2 — —
Adjustment to present value of the repurchased and redeemed notes
— — — 8.6 — —
Exchange differences, interest and penalties on loans
47.0 178.6 232.7 69.5 49.1 139.0
Supplies recovered from third parties
— — — — (5.8 ) —
Increase in trade receivables due to the unbilled portion of the retroactive tariff increase
— — — (171.3 ) — —
Recovery of the accrual for tax contingencies
(9.3 ) (35.5 ) — — — —
Income tax
20.9 79.3 61.2 125.0 (167.2 ) —
Allowance for doubtful accounts
3.5 13.5 17.1 — — —
Reversal of the allowance for doubtful accounts
(7.1 ) (26.9 ) (24.0 ) — — —
Allowance for other doubtful accounts
0.9 3.3 1.7 — — —
Adjustment to net present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and of the Payment Plan Agreement with the Province of Buenos Aires
(0.9 ) (3.4 ) (13.5 ) 29.6 — —
Changes in operating assets and liabilities:
Decrease (Increase) in trade receivables (net of the unbilled portion of the retroactive tariff increase)
12.7 48.1 (49.5 ) (36.9 ) (39.0 ) (37.1 )
Net decrease (increase) in other receivables
1.4 5.3 (33.4 ) (8.4 ) (23.1 ) (27.2 )
(Increase) Decrease in supplies
(1.0 ) (3.9 ) 7.4 (18.4 ) 1.4 (5.4 )
Increase in trade accounts payable
4.0 15.2 27.8 52.7 67.1 54.4
Increase in salaries and social security taxes
7.2 27.2 50.3 12.9 25.2 4.5
(Decrease) Increase in taxes
(15.0 ) (56.9 ) 26.4 22.5 (5.7 ) 23.6
Increase in other liabilities
62.9 239.1 78.1 17.7 91.7 36.8
Net increase in accrued litigation
2.8 10.6 15.1 16.2 9.5 7.7
Financial interest paid, net of interest capitalized
(20.2 ) (76.8 ) (62.7 ) (25.5 ) (26.7 ) (46.5 )
Financial and commercial interest collected
8.5 32.2 6.9 11.6 2.2 2.0
Net cash flow provided by operating activities
175.8 668.0 547.5 427.2 215.0 181.5
Investing activities:
Additions of property, plant and equipment
(106.4 ) (404.2 ) (325.4 ) (336.9 ) (179.7 ) (124.5 )
Net cash flow used in investing activities
(106.4 ) (404.2 ) (325.4 ) (336.9 ) (179.7 ) (124.5 )
Financing activities:
Decrease (Increase) in current and non-current investments
3.6 13.6 (67.9 ) — — —
Net Decrease in loans
(46.2 ) (175.4 ) (122.9 ) (203.6 ) (310.8 ) —
Capital increase
— — — 181.8 — —
Treasury Shares
— — (6.1 ) — — —
Net cash flows used in financing activities
(42.6 ) (161.8 ) (196.9 ) (21.8 ) (310.8 ) —
Cash variations:
Cash and cash equivalents at beginning of year
U.S.$ 33.3 Ps.
126.4
Ps.
101.2
Ps.
32.7
Ps.
308.1
Ps.
251.1
Cash and cash equivalents at end of the year
60.1 228.4 126.4 101.2 32.7 308.1
Net increase (decrease) in cash and cash equivalents
26.8 102.0 25.2 68.5 (275.5 ) 57.0
7
Year ended December 31,
2009
2008
2007
2006
2005
Operating data
Argentine GAAP
Energy sales (in GWh):
Residential
7,344 7,545 7,148 6,250 5,819
Small Commercial
1,470 1,530 1,485 1,433 1,387
Medium Commercial
1,565 1,597 1,552 1,446 1,354
Industrial
3,204 3,277 3,628 3,364 3,195
Wheeling system (1)
3,622 3,700 3,111 3,211 2,984
Others:
Public Lighting
644 644 643 650 642
Shantytowns
351 304 301 261 279
Others (2)
19 19 18 18 17
Customers (in thousands) (3)
2,605 2,537 2,490 2,445 2,404
Energy losses (%)
11.9 % 10.8 % 11.6 % 11.1 % 11.0 %
MWh sold by employee
6,936.1 7,392.8 7,230.6 6,736.6 6,395.9
Customers per employee
978 997 998 982 971
(1)
Wheeling charges represent our tariffs for large users, which consist of a fixed charge for recognized technical losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.
(2)
Represents energy consumed internally by our company and our facilities.
(3)
We define a customer as one meter.  We may supply more than one consumer through a single meter.  In particular, because we measure our energy sales to each shantytown collectively using a single meter, each shantytown is counted as a single customer.
EXCHANGE RATES
From April 1, 1991 until the end of 2001, the Convertibility Law established a fixed exchange rate under which the Central Bank was obliged to sell U.S. Dollars at a fixed rate of one Peso per U.S. Dollar.  On January 6, 2002, the Argentine Congress enacted the Public Emergency Law, formally putting an end to the regime of the Convertibility Law and abandoning over ten years of U.S. Dollar-Peso parity.  The Public Emergency Law grants the executive branch of the Argentine government the power to set the exchange rate between the Peso and foreign currencies and to issue regulations related to the foreign exchange market.  The Public Emergency law has been extended until December 31, 2011.  For a brief period following the end of the Convertibility Regime, the Public Emergency Law established a temporary dual exchange rate system.  Since February 2002, the Peso has been allowed to float freely against other currencies.
The following table sets forth the annual high, low, average and period-end exchange rates for U.S. Dollars for the periods indicated, expressed in Pesos per U.S. Dollar at the purchasing exchange rate and not adjusted for inflation.  When preparing our financial statements, we utilize the selling exchange rates for U.S. Dollars quoted by Banco Nación to translate our U.S. Dollar denominated assets and liabilities into Pesos.  The Federal Reserve Bank of New York does not report a noon buying rate for Pesos.
Low
High
Average
Period End
(Pesos per U.S. Dollar)
Year ended December 31,
2005
2.86 3.04 2.92
(1)
3.03
2006
3.03 3.11 3.07
(1)
3.06
2007
3.06 3.18 3.12
(1)
3.15
2008
3.01 3.47 3.16
(1)
3.45
2009
3.45 3.88 3.73
(1)
3.80
Month
December 2009
3.79 3.82 3.80
(2)
3.80
January 2010
3.79 3.83 3.80
(2)
3.83
February 2010
3.83 3.86 3.85
(2)
3.86
March 2010
3.86 3.88 3.86
(2)
3.88
April 2010
3.86 3.89 3.88
(2)
3.89
May 2010 (3)
3.89 3.91 3.90
(2)
3.90
Source : Banco Nación
(1)
Represents the average of the exchange rates on the last day of each month during the period.
(2)
Average of the lowest and highest daily rates in the month.
(3)
Represents the corresponding exchange rates from May 1 through May 26.
8

RISK FACTORS
Risks related to Argentina
Overview
We are a sociedad anónima (limited liability corporation) incorporated under the laws of the Republic of Argentina and all of our revenues are earned in Argentina and all of our operations, facilities, and customers are located in Argentina.  Accordingly, our financial condition and results of operations depend to a significant extent on macroeconomic and political conditions prevailing in Argentina.  For example, lower economic growth or economic recession could lead to lower demand for electricity in our concession area or a decline in purchasing power of our customers, which, in turn, could lead to lower collections from our clients or growth in energy losses due to illegal use of our service.  Argentine government actions concerning the economy, including decisions with respect to inflation, interest rates, price controls, foreign exchange controls and taxes, have had and could continue to have a material adverse effect on private sector entities, including us.  To address Argentina’s economic crisis in 2001 and 2002, for example, the Argentine government took measures, such as the freeze of electricity distribution margins and pesification of our tariffs, which had a severe effect on our financial condition and led us to suspend payments on our financial debt.  We cannot provide any assurance whether the Argentine government will adopt other policies that could adversely affect the economy or our business.  In addition, we cannot provide any assurance that future economic, social and political developments in Argentina, over which we have no control, will not impair our business, financial condition or results of operations.
The global financial crisis and unfavorable credit and market conditions that commenced in 2007 have affected and could continue to negatively affect the Argentine economy and may negatively affect our liquidity, customers, business, and results of operations
The ongoing effects of the global credit crisis and related turmoil in the global financial system may have a negative impact on our business, financial condition and results of operations, an impact that is likely to be more severe on an emerging market economy, such as Argentina.  The effect of this current economic crisis on our customers and on us cannot be predicted.  Weak economic conditions could lead to reduced demand for energy, which could have a negative effect on our revenues.  In addition, our ability to access the credit or capital markets may be restricted at a time when we would need financing, which could have an impact on our flexibility to react to changing economic and business conditions.  For these reasons, any of the foregoing factors or a combination of these factors could have an adverse effect on our results of operations and financial condition and cause the market value of our ADSs to decline.
Argentina’s economic recovery since the 2001 economic crisis may not be sustainable in light of current economic conditions, and any significant decline could adversely affect our financial condition
During 2001 and 2002, Argentina went through a period of severe political, economic and social crisis.  Although the economy has recovered significantly since the 2001 crisis, uncertainty remains as to the sustainability of economic growth and stability.  Although Argentina’s economy continued to grow in 2009, growth occurred at a less rapid pace than in the previous six years, due to the economic slowdown that started in the last quarter of 2008 and that continued into 2009. Sustainable economic growth is dependent on a variety of factors, including international demand for Argentine exports, the stability and competitiveness of the Peso against foreign currencies, confidence among consumers and foreign and domestic investors and a stable and relatively low rate of inflation.
The Argentine economy remains fragile, as reflected by the following economic conditions:
·
unemployment remains high;
·
the availability of long-term fixed rate credit is scarce;
·
investment as a percentage of GDP remains low;
·
the current fiscal surplus is at risk of becoming a fiscal deficit;
·
inflation has risen recently and threatens to accelerate;
9
·
the regulatory environment continues to be uncertain;
·
the country’s public debt remains high and international financing is limited; and
·
the recovery has depended to some extent on high commodity prices, which are volatile and beyond the control of the Argentine government.
As in the recent past, Argentina’s economy may suffer if political and social pressures inhibit the implementation by the Argentine government of policies designed to maintain price stability, generate growth and enhance consumers and investor confidence. This, in turn, could lead to lower demand for our services as well as lower collection rates from clients and growth in energy losses due to illegal use of our services, which could materially adversely affect our financial condition and results of operations.  Furthermore, as it has done in the past, the Argentine government could respond to a lack of economic growth or stability by adopting measures that affect private sector enterprises, including the tariff restrictions imposed on public utility companies such as several of our subsidiaries.
We cannot provide any assurance that a decline in economic growth or increased economic instability, developments over which we have no control, would not have an adverse effect on our business, financial condition or results of operations or would not have a negative impact on the market value of our ADSs and Class B common shares.
A return to a high inflation environment may have adverse effects on the Argentine economy, which could, in turn, have a material adverse effect on our results of operations
According to data published by the Instituto Nacional de Estadística y Censos (National Statistics and Census Institute, or INDEC), the rate of inflation  reached 7.7% in 2009, 7.2% in 2008 and 8.5% in 2007. Over the course of the past several years, the Argentine government has implemented several programs to control inflation and monitor prices for most relevant goods and services.  These government actions included price support arrangements agreed to by the Argentine government and private sector companies in several industries and markets.
Despite the relatively flat rate of change in inflation in the past two years, uncertainty surrounding future inflation and the current economic situation could slow economic recovery.  In the past, inflation has materially undermined the Argentine economy and the government’s ability to create conditions that permit growth.  A return to a high inflation environment would also undermine Argentina’s foreign competitiveness by diluting the effects of the Peso devaluation, with the same negative effects on the level of economic activity.  In turn, a portion of the Argentine debt is adjusted by the Coeficiente de Estabilización de Referencia (Stabilization Coefficient, or CER Index), a currency index, which is strongly related to inflation.  Therefore, any significant increase in inflation would cause an increase in the external debt and consequently in Argentina’s financial obligations, which could further exacerbate the stress on the Argentine economy.  A high inflation environment could also temporarily undermine our results of operations as a result of a lag in cost adjustments, and we may be unable to adjust our tariffs accordingly.  In addition, a return to high inflation would undermine the confidence in Argentina’s banking system in general, which would further limit the availability of domestic and international credit to businesses, which could adversely affect our ability to finance our working capital needs on favorable terms, and adversely affect our results of operations.
10
The credibility of several Argentine economic indices has been called into question, which may lead to a lack of confidence in the Argentine economy and may in turn limit our ability to access the credit and capital markets
In January 2007, INDEC modified its methodology used to calculate the consumer price index (CPI), which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households.  Several economists as well as the international and Argentine press have suggested that this change in methodology was related to the Argentine government’s policy aimed at curbing inflation.  Further, at the time that INDEC adopted this change in methodology, the Argentine government also replaced several key personnel at INDEC.  The alleged governmental interference prompted complaints from the technical staff at INDEC, which, in turn, has led to the initiation of several judicial investigations involving members of the Argentine government and aimed at determining whether there was a breach of classified statistical information relating to the collection of data used in the calculation of the CPI.  These events have affected the credibility of the CPI index published by INDEC, as well as other indexes published by INDEC that require the CPI for their own calculation, including the poverty index, the unemployment index as well as the calculation of the GDP, among others.  If these investigations result in a finding that the methodologies used to calculate the CPI or other INDEC indexes derived from the CPI were manipulated by the Argentine government, or if it is determined that it is necessary to correct the CPI and the other INDEC indexes derived from the CPI as a result of the methodology used by INDEC, there could be a significant decrease in confidence in the Argentine economy.  With credit to emerging market nations already tenuous as a result of the global economic crisis, our ability to access credit and capital markets to finance our operations and growth in the future could be further limited by the uncertainty relating to the accuracy of the economic indices in question which could adversely affect our results of operations and financial conditions and cause the market value of our ADSs and Class B common shares to decline.
Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth, and consequently, may affect our business, results of operations and prospects for growth
In 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001.  The Argentine government announced that as a result of the restructuring, it had approximately U.S. $126.6 billion in total outstanding debt remaining.  Of this amount, approximately U.S. $19.5 billion correspond to defaulted bonds owned by creditors who did not participate in the restructuring of the external financial debt.  Some bondholders in the United States, Italy and Germany have filed legal actions against Argentina, and holdout creditors may initiate new suits in the future.  Additionally, foreign shareholders of several Argentine companies, including public utilities and a group of bondholders that did not participate in the sovereign restructuring, have filed claims totaling approximately U.S. $17.0 billion before the International Centre for Settlement of Investment Disputes (ICSID) alleging that certain government measures are inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party.  To date, ICSID has rendered decisions against Argentina in eight of these cases, requiring the Argentine government to pay U.S. $913 million plus interest in claims and legal fees.  In 2009, three groups of bondholders that declined to participate in the restructuring of the external public debt presented claims before ICSID totaling over U.S. $4.4 billion.
Argentina’s past default and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets.  Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments against the Argentine government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations.  Judgment creditors have sought and may continue to seek attachment orders or injunctions relating to assets of Argentina that the government intended for other uses.  In addition, in May 2009, a number of members of the United States Congress supported by a civil society group called the American Task Force Argentina introduced legislation that would deny foreign states in default of U.S. court judgments exceeding U.S.$100 million for more than two years, such as Argentina, access to U.S. capital markets.  Although the United States Congress has not taken any significant steps towards adopting such legislation, we can make no assurance that this legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect.  As a result of Argentina’s default and the events that have followed it, the government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations.  Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth.
11
Significant fluctuations in the value of the Peso against the U.S. Dollar may adversely affect the Argentine economy, which could, in turn adversely affect our results of operations
Despite the positive effects the depreciation of the Peso in 2002 had on the export-oriented sectors of the Argentine economy, the depreciation has also had a far-reaching negative impact on a range of businesses and on individuals’ financial positions.  The devaluation of the Peso had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, led to very high inflation initially, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, including public utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations.  If the Peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences to our businesses, our results of operations and the market value of our ADSs and Class B common shares.  Moreover, it would likely result in a decline in the value of our shares and ADSs as measured in U.S. Dollars.
Similarly, a substantial increase in the value of the Peso against the U.S. Dollar also presents risks for the Argentine economy, including, for example, a reduction in exports.  This could have a negative effect on economic growth and employment and reduce the Argentine public sector’s revenues by reducing tax collection in real terms, all of which could have a material adverse effect on our business as a result of the weakening of the Argentine economy in general.
Government measures to address social unrest may adversely affect the Argentine economy and thereby affect our business and results of operations.
During the economic crisis in 2001 and 2002, Argentina experienced social and political turmoil, including civil unrest, riots, looting, nationwide protests, strikes and street demonstrations.  Despite the economic recovery and relative stabilization since 2002, the social and political tensions and high levels of poverty and unemployment continue.  Future government policies to preempt, or respond to, social unrest may include expropriation, nationalization, forced renegotiation or modification of existing contracts, suspension of the enforcement of creditors’ rights and shareholders’ rights, new taxation policies, including royalty and tax increases and retroactive tax claims, and changes in laws, regulations and policies affecting foreign trade and investment.  These policies could destabilize the country, both socially and politically, and adversely and materially affect the Argentine economy.
More recently, in March 2008, the Argentine Ministry of Economy and Production announced the adoption of new taxes on exports of a number of agricultural products.  The new taxes were to be calculated at incremental rates as the price for the exported products increase, and represented a significant increase in taxes on exports by the agricultural sector in Argentina.  The adoption of these taxes met significant opposition from various political and economic groups with ties to the Argentine agricultural sector, including strikes by agricultural producers around the country, roadblocks to prevent the circulation of agricultural goods within Argentina and massive demonstrations in the City of Buenos Aires and other major Argentine cities.  Although these measures did not pass the Argentine congress, we cannot make assurances that the Argentine government will not seek to reintroduce the export taxes or adopt other measures affecting this or other sectors of the economy (including the electricity sector) to compensate for the lost revenues associated with these taxes.  These uncertainties could lead to further social unrest that could adversely affect the Argentine economy.  In addition, economic distress may lead to lower demand for energy, lower collections from our clients, as well as growth of energy losses due to illegal use of our services.  We may also experience increased damages to our networks as a result of protesters or illicit activity, which may increase as a result of the decline in economic conditions, all of which, in turn may have a material adverse effect on our financial condition and results of operations and the market value of our ADSs and Class B common shares.
Exchange controls, transfer restrictions and other policies of the Argentine government have limited and can be expected to continue to limit the availability of international and local credit or otherwise adversely affect our business
In 2001 and the first half of 2002, Argentina experienced a massive withdrawal of deposits from the Argentine financial system in a short period of time, which precipitated a liquidity crisis within the Argentine financial system and prompted the Argentine government to impose exchange controls and restrictions on the ability of depositors to withdraw their deposits.  These restrictions have been substantially eased; however, in June 2005 the Argentine government adopted various other rules and regulations that established restrictive controls on capital inflows.  See “Item 10. Additional Information—Exchange Controls.”   In the event of a future shock, the Argentine government could impose further exchange controls or restrictions on the movement of capital and take other measures that could limit our ability to access international capital markets, impair our ability to make dividend payments abroad or adversely affect our business and results of operations, which may adversely affect the market value of our ADSs and Class B common shares.

12
In recent years a significant portion of the local demand for debt of Argentina companies has come from the private Argentine pension funds.  In response to the global economic crisis, in December 2008, the Argentine Congress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the Administración Nacional de la Seguridad Social (National Social Security Agency, or ANSES) and eliminating the retirement savings system previously administered by private pension funds.  In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES.  It is difficult to evaluate the real impact of this measure, but after these changes the demand for local debt in Argentina has been negatively affected.  A significant decrease in the demand for local debt could have an adverse impact on our ability to raise capital to refinance our indebtedness or finance capital expenditures, which may adversely affect the market value of our ADSs and Class B common shares.
The Argentine economy could be adversely affected by economic developments in other global markets
Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets.  Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into and securities from issuers in other countries, including Argentina.  The Argentine economy was adversely impacted by the political and economic events that occurred in several emerging economies in the 1990s, including Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998 and the Brazilian devaluation of its currency in January 1999.  In addition, Argentina continues to be affected by events in the economies of its major regional partners, including, for example, currency devaluations caused by the global economic crisis.
Furthermore, the Argentine economy may be affected by events in developed economies which are trading partners or that impact the global economy.  Economic conditions and credit availability in Argentina  were affected by an economic and banking crisis in the United States in 2008 and 2009.  When the crisis began, major financial institutions suffered considerable losses, investor confidence in the global financial system was shaken and various financial institutions required government bailouts or ceased operations altogether.  The deterioration in any area of the global economy, as well as the economic conditions in our principal regional partners, including the members of Mercosur, could have an adverse material effect on the Argentine economy and, indirectly, on our business, financial condition and results of operations.
Risks relating to the electricity distribution sector
The Argentine government has intervened in the electricity sector in the past, and is likely to continue intervening
To address the Argentine economic crisis in 2001 and 2002, the Argentine government adopted the Public Emergency Law and other resolutions, which made a number of material changes to the regulatory framework applicable to the electricity sector.  These changes, which severely affected electricity distribution companies, included the freezing of distribution margins, the revocation of adjustment and inflation indexation mechanisms and a limitation on charging our customers the increases of certain regulatory charges.  In addition, a new price-setting mechanism was introduced in the wholesale electricity market, which had a significant impact on electricity generators and has led to significant price mismatches between participants in our market.  The Argentine government continues to intervene in this sector, including granting temporary margin increases, proposing a new social tariff regime for residents of poverty-stricken areas, creating specific charges to raise funds that are transferred to government-managed trust funds that finance investments in distribution infrastructure and mandating investments for the construction of new generation plants and the expansion of existing transmission and distribution networks.  We cannot make assurances that these or other measures that may be adopted by the Argentine government will not have a material adverse effect on our business and results of operations or on the market value of our ADSs and Class B common shares or that the Argentine government will not adopt emergency legislation similar to the Public Emergency Law, or other similar resolutions, in the future that may further increase our regulatory obligations, including increased taxes, unfavorable alterations to our tariff structures and other regulatory obligations, compliance with which would increase our costs and have a direct negative impact on our results of operations.

13
Electricity distributors were severely affected by the emergency measures adopted during the economic crisis, many of which remain in effect
Distribution tariffs include a regulated margin that is intended to cover the costs of distribution and provide an adequate return over the distributor’s asset base.  Under the Convertibility regime, distribution tariffs were calculated in U.S. Dollars and distribution margins were adjusted periodically to reflect variations in U.S. inflation indexes.  Pursuant to the Public Emergency Law, in January 2002 the Argentine government froze all distribution margins, revoked all margin adjustment provisions in distribution concessions and converted distribution tariffs into Pesos at a rate of Ps. 1.00 per U.S. $1.00.  These measures, coupled with the effect of high inflation and the devaluation of the Peso, led to a decline in distribution revenues in real terms and an increase of distribution costs in real terms, which could no longer be recovered through adjustments to the distribution margin.  This situation, in turn, led many public utility companies, including us and other important distribution companies, to suspend payments on their financial debt (which continued to be denominated in U.S. Dollars despite the pesification of revenues), which effectively prevented these companies from obtaining further financing in the domestic or international credit markets and making additional investments.  Although the Argentine government has recently granted temporary relief to some distribution companies, including an increase in distribution margins and a temporary cost adjustment mechanism, distribution companies are currently involved in discussions with regulators on additional, permanent measures needed to adapt the current tariff scheme to the post-crisis situation of this sector.  We cannot make assurances that these measures will be adopted or implemented or that, if adopted, they will be sufficient to address the structural problems created for our company by the economic crisis and its aftermath.
Electricity demand has grown significantly in recent periods and may be affected by recent or future tariff increases, which could lead distribution companies, such as us, to record lower revenues
During the 2001 economic crisis, electricity demand in Argentina decreased due to the decline in the overall level of economic activity and the deterioration in the ability of many consumers to pay their electricity bills.  Despite the decline in the electricity demand registered in 2009,  in the years following the economic crisis of 2001 electricity demand has experienced significant growth, increasing an estimated average of approximately 5.8% per annum from 2003 through 2008.  This increase in demand reflects the relative low cost, in real terms, of electricity to consumers due to the freeze of distribution margins and the elimination of the inflation adjustment provisions in distribution concessions coupled with the devaluation of the Peso and inflation.  The executive branch of the Argentine government granted temporary increases in distribution margins, and we are currently negotiating further increases and adjustments to our tariff schemes with the Argentine government.  Although the increases in electricity distribution margins, which increased the cost of electricity to residential customers, have not had a significant negative effect on demand, we cannot make any assurances that these increases or any future increases in the relative cost of electricity (including increases on tariffs for residential users) will not have a material adverse effect on electricity demand or a decline in collections from customers which, in turn, may lead electricity distribution companies, such as us, to record lower revenues and results of operations than currently anticipated, and may have a material adverse effect on the market value of our ADSs and Class B common shares.
Energy shortages may act as a brake on growing demand for electricity and disrupt distribution companies’ ability to deliver electricity to their customers, which could result in customer claims and material penalties imposed on these companies
In recent years, the condition of the Argentine electricity market has provided little incentive to generators to further invest in increasing their generation capacity, which would require material long-term financial commitments.  As a result, Argentine electricity generators are currently operating at near full capacity and could be required to ration supply in order to meet a national energy demand that exceeds the current generation capacity.    In addition, the economic crisis and the resulting emergency measures had a material adverse effect on other energy sectors, including oil and gas companies, which has led to a significant reduction in natural gas supplies to generation companies that use this commodity in their generation activities.  In an attempt to address this situation, in September 2006 the Argentine government adopted measures requiring large industrial users to limit their energy consumption to their “base demand” (equal to their demand in 2005) and to secure any additional energy needs in excess of their base demand from sources other than the national grid.  Large users that do not comply with these measures can be subject to penalties imposed by the Argentine government.  These measures, however, have not led to a significant reduction in demand by these users, despite requests from, and penalties imposed by, the Argentine government.  As a result, electricity generators may not to be able to guarantee the supply of electricity to distribution companies, which, in turn, could prevent these companies, including our company, from experiencing continued growth in their businesses and could lead to failures to provide electricity to customers.  Under Argentine law, distribution companies are responsible to their customers for any disruption in the supply of electricity.  As a result, distribution companies may face customer claims and fines and penalties for disruptions caused by energy shortages unless the relevant Argentine authorities determine that energy shortages constitute force majeure.  To date, the Argentine authorities have not been called upon to decide under which conditions energy shortages may constitute force majeure.  In the past, however, the Argentine authorities have recognized the existence of force majeure only in limited circumstances, such as internal malfunctions at the customer’s facilities, extraordinary meteorological events (such as major storms) and third party work in public thoroughfares.  We cannot make assurances that we will not experience a lack of energy supply that could adversely affect our business, financial condition and results of operations.

14
Risks relating to our business
Our business and prospects depend on our ability to negotiate further improvements to our tariff structure, including increases in our distribution margin
We are currently engaged in a Revisión Tarifaria Integral (integral tariff revision process, or RTI) with the ENRE.  The goal of the RTI is to achieve a comprehensive revision of our tariff structure, including further increases in our distribution margins and periodic adjustments based on changes in our cost base, to provide us with an adequate return on our asset base.  Although we believe the RTI will result in a new tariff structure, we cannot make assurances that the RTI will conclude in a timely manner or at all, or that the new tariff structure will effectively cover all of our costs and provide us with an adequate return on our asset base.  Moreover, the RTI could result in the adoption of an entirely new regulatory framework for our business, with additional terms and restrictions on our operations and the imposition of mandatory investments.  We also cannot predict whether a new regulatory framework will be implemented and what terms or restrictions could be imposed on our operations.  If we are not successful in achieving a satisfactory renegotiation of our tariff structure, our business, financial condition and results of operations may be materially adversely affected and the value of our Class B common shares and ADSs may decline.
We may not be able to adjust our tariffs to reflect increases in our distribution costs in a timely manner, or at all, which may have a material adverse effect on our results of operations
The Adjustment Agreement currently contemplates a cost adjustment mechanism for the transition period during which the RTI is being conducted.  This mechanism, known as the Cost Monitoring Mechanism (CMM), requires the ENRE to review our actual distribution costs every six months (in May and November of each year) and adjust our distribution margins to reflect variations of 5% or more in our distribution cost base.  We may also request that the ENRE apply the CMM at any time that the variation in our distribution cost base is at least 10% or more.  Any adjustments, however, are subject to the ENRE’s assessment of variations in our costs, and we cannot guarantee that the ENRE will approve adjustments that are sufficient to cover our actual incremental costs.  In the past, even when the ENRE has approved adjustments to our tariffs, there has been a lag from when we actually experience increases in our distribution costs and when we receive increased revenues following the corresponding adjustments to our distribution margins pursuant to the CMM.  Despite the adjustment we were granted under the CMM in October 2007 and July 2008, we cannot make assurances that we will receive similar adjustments in the future. As of the date of this annual report we have requested four increases under the CMM that are still subject to ENRE´s review.  If we are not able to recover all of these incremental costs or there is a significant lag time between when we incur the incremental costs and when we receive increased revenues, we may experience a decline in our results of operations, which may have a material adverse effect on the value of our ADSs and Class B common shares.

15

Our tariff adjustments may be subject to challenge by Argentine consumer and other groups
In November 2006, two Argentine consumer associations, Asociación Civil por la Igualdad y la Justicia (Civil Association for Equality and Justice, or ACIJ) and Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria (Consumers’ Cooperative for Community Action), brought an action against us and the Argentine government before a federal administrative court seeking to block the ratification of the adjustment of our tariffs on the grounds that the approval mechanism was unconstitutional.  Because the court dismissed these claims and ruled in our favor, in April 2008, the ACIJ filed another complaint challenging the procedures utilized by the Argentine congress in approving these adjustments.  In addition, in January 2009, the defensor del pueblo (Public Ombudsman) filed a complaint opposing the October 2008 adjustment to our tariffs, and naming us as a third-party defendant.  On January 27, 2009, the ENRE notified us of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which we were ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim.  We and the Argentine government have appealed the injunction several times, the resolution of which is still pending as of the date of this annual report.  See “Item 8.  Financial Information—Legal Proceedings—Distribution—Proceedings challenging the renegotiation of our concession.”  We cannot make assurances regarding how these complaints will be resolved nor can we make assurances that other actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments we have obtained or to block any further adjustments to our distribution tariffs.  If these legal challenges are successful and prevent us from implementing tariff adjustments granted by the Argentine government, we could face a decline in collections from distribution customers, and a decline in our results of operations, which may have a material adverse effect on our financial condition and the market value of our ADSs and our Class B common shares.
We have been, and may continue to be, subject to fines and penalties that could have a material adverse effect on our results of operations
We operate in a highly regulated environment and have been and in the future may continue to be subject to significant fines and penalties by regulatory authorities, including for reasons outside our control, such as service disruptions attributable to problems at generation facilities or in the transmission network that result in a lack of electricity supply.  After 2001, the amount of fines and penalties imposed on our company has increased significantly, which we believe is mainly due to the economic and political environment in Argentina following the recent economic crisis.  Although the Argentine government has agreed to forgive a significant portion of our accrued fines and penalties pursuant to the Adjustment Agreement and to allow us to repay the remaining balance over time, this forgiveness and repayment plan is subject to a number of conditions, including compliance with quality of service standards, reporting obligations and required capital investments.  As of December 31, 2009, our accrued fines and penalties totaled Ps. 377.5 million (taking into account our adjustment to fines and penalties following the ratification of the Adjustment Agreement).  If we fail to comply with any of these requirements, the Argentine government may seek to obtain payment of these fines and penalties by our company.  In addition, we cannot make assurances that we will not incur material fines in the future, which could have a material adverse effect on our results of operations.
If we are unable to control our energy losses, our results of operations could be adversely affected
Our concession does not allow us to pass through to our customers the cost of additional energy purchased to cover any energy losses that exceed the loss factor contemplated by our concession, which is, on average, 10%.  As a result, if we experience energy losses in excess of those contemplated by our concession, we may record lower operating profits than we anticipate.  Prior to the economic crisis in 2001, we had been able to reduce the high level of energy losses experienced at the time of the privatization to the levels contemplated (and reimbursed) under our concession.  However, during the economic crisis and during the year ended December 31, 2009, our level of energy losses, particularly our non-technical losses, started to grow again, in part as a result of the increase in poverty levels and, with it, the number of delinquent accounts and fraud.    Our energy losses amounted to 11.9% in 2009.  We cannot make assurances that our energy losses will not grow in future periods, which may lead us to have lower margins and could adversely affect our results of operations and financial condition.

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The Argentine government could foreclose its pledge over our Class A shares under certain circumstances, which could have a material adverse effect on our business and financial condition
Pursuant to our concession and the provisions of the Adjustment Agreement, the Argentine government will have the right to foreclose its pledge over our Class A shares and sell these shares to a third party buyer if:
·
the fines and penalties we incur in any given year exceed 20% of our gross energy sales, net of taxes (which corresponds to our energy sales);
·
we repeatedly and materially breach our concession and do not remedy these breaches upon the request of the ENRE;
·
our controlling shareholder, EASA, creates any lien or encumbrance over our Class A shares (other than the existing pledge in favor of the Argentine government);
·
we or EASA obstruct the sale of Class A shares at the end of any management period under our concession;
·
EASA fails to obtain the ENRE’s approval in connection with the disposition of our Class A shares;
·
our shareholders amend our articles of incorporation or voting rights in a way that modifies the voting rights of the Class A shares without the ENRE’s approval; or
·
EASA does not desist from its ICSID claims against the Argentine government following completion of the RTI and the approval of a new tariff regime.
In 2009, the fines and penalties imposed on us by the ENRE amounted to Ps. 58.5 million, which represented 2.8% of our energy sales.  See “Item 4. Information on the Company—Our concession—Fines and penalties.”
Pending the sale of our Class A shares following a foreclosure of its pledge, the Argentine government also has the right to exercise the voting rights of the Class A shares.  In addition, the foreclosure by the Argentine government of the pledge on our Class A shares may be deemed to constitute a change of control under the terms of our restructured debt, which would require us to offer to repurchase all such debt at its nominal value.  We cannot make assurances that we will have sufficient funds or access to financing to effect such repurchases.  If the Argentine government forecloses its pledge over our Class A shares, the market value of our ADSs and Class B common shares could be significantly affected.
We employ a largely unionized labor force and could be subject to an organized labor action
As of December 31, 2009, approximately 81% of our employees were union members and we have had an agreement in place with the two unions representing our employees since 1995.  Although our relations with unions are currently stable, we cannot make assurances that we will not experience work disruptions or stoppages in the future, which could have a material adverse effect on our business and revenues, especially in light of the social tensions generated in Argentina by the economic crisis.  We cannot make assurances that we will be able to negotiate salary agreements on the same terms as those currently in effect, or that we will not be subject to strikes or work stoppages before or during the negotiation process.
We might incur material labor liabilities in connection with our outsourcing
We have outsourced a number of activities related to our business to third party contractors in order to maintain a flexible cost base that allows us both to maintain a lower cost base and respond more quickly to changes in our market.  We had approximately 3,611 third-party employees under contract with our company as of December 31, 2009.  Although we have very strict policies regarding compliance with labor and social security obligations by our contractors, we are not in a position to ensure that contractors’ employees will not initiate legal actions to seek indemnification from us based upon a number of judicial rulings issued by labor courts in Argentina recognizing joint and several liability between the contractor and the entity to which it is supplying services under certain circumstances.  If we are not able to prevail in any of these proceedings, we might be forced to incur material labor liabilities, which may have an adverse effect on our results of operations.

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We currently are not able to effectively hedge our currency risk in full and, as a result, a devaluation of the Peso may have a material adverse effect on our results of operations and financial condition
Our revenues are collected in Pesos pursuant to tariffs that are not indexed to the U.S. Dollar, while a significant portion of our existing financial indebtedness is denominated in U.S. Dollars, which exposes us to the risk of loss from devaluation of the Peso.  We currently seek to hedge this risk in part by converting a portion of our excess cash denominated in Pesos into U.S. Dollars and investing those funds outside Argentina, as permitted by applicable Argentine Central Bank regulations, entering in currency forward contracts, but we continue to have substantial exposure to the U.S. Dollar.  We cannot make assurances that the Argentine government will continue to allow us to access the market to acquire U.S. Dollars in the manner we have done so to date.  Although we may also seek to enter into further hedging transactions to cover all or a part of our remaining exposure, we have not been able to hedge all of our exposure to the U.S. Dollar on terms we consider viable for our company.  If we continue to be unable to effectively hedge all or a significant portion of our currency risk exposure, a devaluation of the Peso may significantly increase our debt service burden, which, in turn, may have a material adverse effect on our financial condition and results of operations.  See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.”
Our insurance may not be sufficient to cover certain losses
As of December 31, 2009, our physical assets are insured for up to U.S. $562.5 million.  However, we do not carry insurance coverage for losses caused by our network or business interruption, including loss of our concession.  Although we believe that our insurance coverage is commensurate with standards for the international electricity distribution industry, no assurance can be given of the existence or sufficiency of risk coverage for any particular risk or loss.  If an accident or other event occurs that is not covered by our current insurance policies, we may experience material losses or have to disburse significant amounts from our own funds, which may have a material adverse effect on our results of operations and financial condition.
A substantial number of our assets are not subject to attachment or foreclosure
A substantial number of our assets are essential to the public service we provide.  Under Argentine law, as interpreted by the Argentine courts, assets which are essential to the provision of a public service are not subject to attachment, whether as a guarantee for an ongoing legal action or to allow for the enforcement of a legal judgment.  Accordingly, the enforcement of judgments obtained against us by our shareholders may be substantially limited to the extent our shareholders seek to attach those assets to obtain payment on their judgment.
If our controlling shareholder fails to meet its debt service obligations, its creditors may take measures that could have a material adverse effect on our results of operations
In July 2006, EASA completed a comprehensive restructuring of all of its outstanding financial indebtedness, which had been in default since 2002.  In connection with this restructuring, EASA issued approximately U.S. $85.3 million in U.S. Dollar-denominated notes in exchange for the cancellation of approximately 99.94% of its outstanding financial debt.  EASA’s ability to meet its debt service obligations under these notes depends largely on our ability to pay dividends or make distributions or payments to EASA, and our failure to do so could result in EASA becoming subject to actions by its creditors, including attachments of EASA’s assets and petitions for involuntary bankruptcy proceedings.  If EASA’s creditors were to attach our Class A shares held by EASA, the Argentine government would have the right under our concession to foreclose its pledge over our Class A shares, which could trigger a repurchase obligation under the terms of our restructured debt and have a material adverse effect on the market value of our ADSs and Class B common shares.
Our exclusive right to distribute electricity may be adversely affected by technological or other changes in the energy distribution industry
Although our concession grants us the exclusive right to distribute electricity within our service area, this exclusivity may be terminated in whole or in part if technological changes make it possible for the energy distribution industry to evolve from its present condition as a natural monopoly into a competitive business.  Although, to our knowledge, there are currently no projects to introduce new technologies in the medium or long-term which could reasonably be expected to alter the current landscape of the electricity distribution business, we cannot make assurances that future developments will not introduce competition that would adversely affect the exclusivity right granted by our concession.  Any total or partial loss of our exclusive right to distribute electricity within our service area would likely have a material adverse effect on our financial condition, results of operations and prospects.

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Risks relating to ADSs and our Class B common shares
Restrictions on the movement of capital out of Argentina may impair the ability of holders of ADRs to receive dividends and distributions on, and the proceeds of any sale of, the Class B common shares underlying the ADSs
The Argentine government may impose restrictions on the conversion of Argentine currency into foreign currencies and on the remittance to foreign investors of proceeds from their investments in Argentina.  Argentine law currently permits the government to impose these kinds of restrictions temporarily in circumstances where a serious imbalance develops in Argentina’s balance of payments or where there are reasons to foresee such an imbalance.  Beginning in December 2001, the Argentine government implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad, including dividends, without prior approval by the Central Bank, some of which are still in effect.  Among the restrictions that are still in effect are those relating to the payment prior to maturity of the principal amount of loans, bonds or other securities owed to non-Argentine residents, the requirement for Central Bank approval prior to acquiring foreign currency for certain types of investments and the requirement that 30% of certain types of capital inflows into Argentina be deposited in a non-interest-bearing account in an Argentine bank for a period of one year.  Although the transfer of funds abroad in order to pay dividends no longer requires Central Bank approval, restrictions on the movement of capital to and from Argentina such as the ones which previously existed could, if reinstated, impair or prevent the conversion of dividends, distributions, or the proceeds from any sale of Class B common shares, as the case may be, from Pesos into U.S. Dollars and the remittance of the U.S. Dollars abroad.  We cannot make assurances that the Argentine government will not take similar measures in the future.  In such a case, the depositary for the ADSs may hold the Pesos it cannot convert for the account of the ADR holders who have not been paid.
Our ability to pay dividends is limited
In accordance with Argentine corporate law, we may pay dividends in Pesos out of retained earnings, if any, as set forth in our audited financial statements prepared in accordance with Argentine GAAP.  Our ability to pay dividends, however, is restricted pursuant to the indenture we entered into when we restructured our financial debt.  Pursuant to this indenture, our ability to pay dividends is limited at any time that our leverage ratio, as defined in the indenture, exceeds 2.5, unless we attain an international investment grade rating on our long term debt from an internationally recognized rating agency.  Our leverage ratio is defined in the indenture as our total indebtedness (without giving effect to the discount to net present value applied to our restructured debt) over EBITDA, as defined in the indenture.  EBITDA is defined in the indenture as our operating income plus amortization of intangible assets and non-current assets, depreciation of fixed assets and any other non-cash charges.  If our leverage ratio is greater than 2.5, we will only be able to pay dividends using a specified portion of our excess cash (as defined in the indenture), which ranges from 25% to 50% of our excess cash depending on our leverage ratio.  In addition, if our leverage ratio exceeds 3.5 we will not be able to pay any dividends to our shareholders.  We cannot make assurances that we will be able to generate excess cash under the indenture at any time or that our leverage ratio will allow us to pay dividends at any given time.  In addition, pursuant to the Adjustment Agreement, we have agreed not to pay dividends without the ENRE’s prior approval until we complete the integral tariff review process with the ENRE.  We cannot make assurances regarding when this process will be completed.
Our shareholders’ ability to receive cash dividends may be limited
Our shareholders’ ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in Pesos into U.S. Dollars.  Under the terms of our deposit agreement with the depositary for the ADSs, the depositary will convert any cash dividend or other cash distribution we pay on the common shares underlying the ADSs into U.S. Dollars, if it can do so on a reasonable basis and can transfer the U.S. Dollars to the United States.  If this conversion is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so.  If the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, shareholders may lose some or all of the value of the dividend distribution.

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Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions
Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina.  In addition, the rights of holders of the ADSs or the rights of holders of our common shares under Argentine corporate law to protect their interests relative to actions by our board of directors may be fewer and less well-defined than under the laws of those other jurisdictions.  Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions.  In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well-defined and enforced in Argentina that in the United States, putting holders of our common shares and ADRs at a potential disadvantage.
Holders of ADRs may be unable to exercise voting rights with respect to the Class B common shares underlying the ADSs at our shareholders’ meetings
ADRs represent ADSs being held by the depositary in the name of the holder of the ADR.  As such, we will not treat holders of ADRs as one of our shareholders and holders of ADRs will not have shareholder rights.  The depositary will be the holder of the common shares underlying the ADSs and holders may exercise voting rights with respect to the Class B common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs.  There are no provisions under Argentine law or under our by-laws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying Class B common shares.  However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders.  For example, holders of our common shares will receive notice of shareholders’ meetings through publication of a notice in an official gazette in Argentina, an Argentine newspaper of general circulation and the bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy.  ADS holders, by comparison, do not receive notice directly from us.  Instead, in accordance with the deposit agreement, we provide the notice to the depositary.  If we ask it to do so, the depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders.  To exercise their voting rights, ADS holders must then instruct the depositary as to voting the Class B common shares represented by their ADSs.  Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of Class B common shares and Class B common shares represented by ADSs may not be voted as the holders of ADRs desire.  Class B common shares represented by ADSs for which the depositary fails to receive timely voting instructions may, if requested by our company, be voted as we instruct at the corresponding meeting.
Our shareholders may be subject to liability for certain votes of their securities
Because we are a limited liability corporation, our shareholders are not liable for our obligations. Shareholders are generally liable only for the payment of the shares they subscribe. However, shareholders who have a conflict of interest with us and who do not abstain from voting at the respective shareholders’ meeting may be liable for damages to us, but only if the transaction would not have been approved without such shareholders’ votes. Furthermore, shareholders who willfully or negligently vote in favor of a resolution that is subsequently declared void by a court as contrary to the law or our bylaws may be held jointly and severally liable for damages to us or to other third parties, including other shareholders.

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Item 4.
Information on the Company
We believe we are the largest electricity distribution company in Argentina and one of the largest in Latin America in terms of number of customers and electricity sold (both in GWh and in Pesos) in 2009.  We hold a concession to distribute electricity on an exclusive basis to the northwestern zone of the greater Buenos Aires metropolitan area and the northern portion of the City of Buenos Aires, comprising an area of 4,637 square kilometers and a population of approximately seven million people.  As of December 31, 2009, we served 2,604,612 customers.  The following table shows the percentage of the electricity produced and sold by generating companies that was purchased by us in the periods indicated:
Demand (GWh)
Wholesale Electricity
Market (1)
Edenor
Demand (2)
Edenor Demand as a
% of Wholesale
Electricity Market
2009
104,592 20,676 19.8 %
2008
105,959 20,863 19.7 %
2007
102,950 20,233 19.7 %
Source: Compañía Administradora del Mercado Mayorista Eléctrico, S.A. (CAMMESA)
(1)
Includes demand in the Mercado Eléctrico Mayorista Sistema Patagónico (Patagonia wholesale electricity market, or MEMSP).
(2)
Calculated as electricity purchased by us and our wheeling system customers.
THE ARGENTINE ELECTRICITY INDUSTRY
Historical background
Electricity was first made available in Argentina in 1887 with the first public street lighting in Buenos Aires.  The Argentine government’s involvement in the electricity sector began in 1946 with the creation of the Dirección General de Centrales Eléctricas del Estado (General Directorate of Electric Power Plants of the State) to construct and operate electricity generation plants.  In 1947, the Argentine government created Agua y Energía Eléctrica S.A. (Water and Electricity, or AyEE) to develop a system of hydroelectric generation, transmission and distribution for Argentina.
In 1961, the Argentine government granted a concession to the Compañía Italo Argentina de Electricidad (Italian-Argentine Electricity Company, or CIADE) for the distribution of electricity in a part of the City of Buenos Aires.  In 1962, the Argentine government granted a concession formerly held by the Compañía Argentina de Electricidad (Argentine Electricity Company, or CADE) to Servicios Eléctricos del Gran Buenos Aires (Electricity Services of Greater Buenos Aires, or SEGBA), our predecessor, for the generation and distribution of electricity to parts of Buenos Aires.  In 1967, the Argentine government granted a concession to Hidroeléctrica Norpatagónica S.A. (Hidronor) to build and operate a series of hydroelectric generation facilities.  In 1978, CIADE transferred all of its assets to the Argentine government, following which CIADE’s business became government-owned and operated.
By 1990, virtually all of the electricity supply in Argentina was controlled by the public sector (97% of total generation).  The Argentine government had assumed responsibility for the regulation of the industry at the national level and controlled all of the national electricity companies, AyEE, SEGBA and Hidronor.  The Argentine government also represented Argentine interests in generation facilities developed or operated jointly with Uruguay, Paraguay and Brazil.  In addition, several of the Argentine provinces operated their own electricity companies.  Inefficient management and inadequate capital spending, which prevailed under national and provincial government control, were in large measure responsible for the deterioration of physical equipment, decline in quality of service and proliferation of financial losses that occurred during this period.
In 1991, as part of the economic plan adopted by former President Carlos Menem, the Argentine government undertook an extensive privatization program of all major state-owned industries, including within the electricity generation, transmission and distribution sectors.  In January 1992, the Argentine federal congress adopted the Regulatory Framework Law (Law No. 24,065), which established guidelines for the restructuring and privatization of the electricity sector.  The Regulatory Framework Law, which continues to provide the framework for regulation of the electricity sector since the privatization of this sector, divided generation, transmission and distribution of electricity into separate businesses and subjected each to appropriate regulation.

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The ultimate objective of the privatization process was to achieve a reduction in rates paid by users and improve quality of service through competition.  The privatization process commenced in February 1992 with the sale of several large thermal generation facilities formerly operated by SEGBA, and continued with the sale of transmission and distribution facilities (including those currently operated by our company) and additional thermoelectric and hydroelectric generation facilities.
At the end of 2001 and beginning of 2002, Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in government policies.  See “Item 5. Operating and Financial Review and Prospects—Factors affecting our results of operations—Argentine economic conditions.” The crisis and the government’s policies during this period severely affected the electricity sector.  Pursuant to the Public Emergency Law that the Argentine Congress enacted to address the crisis, the Argentine government, among other measures:
·
converted public utility tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per U.S. $1.00;
·
froze all regulated distribution margins relating to the provision of public utility services (including electricity distribution services);
·
revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including energy concessions); and
·
empowered the executive branch to conduct a renegotiation of public utility contracts (including energy concessions), including the tariffs for public utility services.
These measures, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on public utilities in Argentina, including our company.  Because public utilities were no longer able to increase tariffs to cover their cost increases, the impact of inflation on costs led to decreases in their revenues in real terms and a deterioration of their operating performance and financial condition.  Most public utilities had also incurred large amounts of foreign currency indebtedness under the fixed one-to-one Peso per Dollar exchange rate of the Convertibility regime and, following the elimination of the Convertibility regime and the resulting devaluation of the Peso, the debt service burden of these utilities increased sharply, which led many of these utilities to suspend payments on their foreign currency debt in 2002.  This situation caused many Argentine electricity generators, transmission companies and distributors to defer making further investments in their networks.  As a result, Argentine electricity market participants, particularly generators, are currently operating at near full capacity, which could lead to insufficient supply to meet a growing national energy demand.  In addition, the economic crisis and the resulting emergency measures had a material adverse effect on other energy sectors, including oil and gas companies, which has led to a significant reduction in natural gas supplies to generation companies that use this commodity in their generation activities.
The Argentine government has repeatedly intervened in and modified the rules of the wholesale electricity market since 2002 in an effort to address the electricity crisis generated by the economic crisis.  These modifications include the establishment of caps on the prices paid by distributors for electricity power purchases and the requirement that all prices charged by generators be calculated based on the price of natural gas (also regulated by the Argentine government) regardless of the fuel actually used in generation activities.  These modifications have created a huge structural deficit in the operation of the wholesale electricity market.  The Argentine government has made some attempts at correcting these problems, including proposing new rules to structure the wholesale electricity market in December 2004 and creating a special fund to finance infrastructure improvements in the energy sector in April 2006, but little progress has been made in advancing a system-wide solution to the problems confronting Argentina’s electricity sector.

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In 2009, the Argentine government completed construction and began operation of two new 800 MW combined cycle generators constructed as part of the government’s effort to increase energy supply.    The costs of construction were financed with net revenues of generators derived from energy sales in the spot market and through specific charges from CAMMESA applicable to large users.  These funds had been deposited in the Fondo de Inversiones Necesarias que Permitan Incrementar la Oferta de Energía Eléctrica en el Mercado Eléctrico Mayorista (Fund for Investments Required to Increase Electricity Supply in the Wholesale Electricity Market, or FONINVEMEM).
In September 2006 the Secretaría de Energía (Secretary of Energy) of the Ministerio de Planificación Federal, Inversión Pública y Servicios (Ministry of Federal Planning, Public Investment and Services) issued Resolution No. 1281/06 in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis.  This resolution seeks to create incentives for energy generation plants in order to meet increasing energy needs.  The resolution’s principal objective is to ensure that energy available in the market is used primarily to service residential users and those industrial and commercial users whose energy demand is at or below 300 kilowatts (kW) and who lack access to other viable energy alternatives.  To achieve this, the resolution provides that:
·
large users in the wholesale electricity market and large customers of distribution companies (in both cases above 300 kW), such as us, will be authorized to secure energy supply up to their “base demand” (equal to their demand in 2005) by entering into term contracts; and
·
large users in the wholesale electricity market and large customers of distribution companies (in both cases above 300 kilowatts) must satisfy any consumption in excess of their base demand with energy from the Energía Plus (Energy Plus) system at unregulated market prices.  The Energy Plus system consists of the supply of additional energy generation from new generation and/or generating agents, co-generators or auto-generators who are not agents of the electricity market or who as of the date of the resolution were not part of the wholesale electricity market.  Large users in the wholesale electricity market and large customers of distribution companies can also enter into contracts directly with these new generators or purchase energy at unregulated market prices through CAMMESA.
This resolution helped us to mitigate the risk of energy shortages due to a lack of electricity generation.  See “Business—Our concession—Our obligations.”
Regulatory authorities
The principal regulatory authorities responsible for the Argentine electricity industry are:
(1)
the Secretary of Energy of the Ministry of Federal Planning, Public Investment and Services, and
(2)
the Ente Nacional Regulador de la Electricidad (National Electricity Regulator, or the ENRE).
The Secretary of Energy advises the Argentine government on matters related to the electricity sector and is responsible for the application of the policies concerning the Argentine electricity industry.
The ENRE is an autonomous agency created by the Regulatory Framework Law.  The ENRE has a variety of regulatory and jurisdictional powers, including, among others:
·
enforcement of compliance with the Regulatory Framework Law and related regulations;
·
control of the delivery of electric services and enforcement of compliance with the terms of concessions;
·
adoption of rules applicable to generators, transmitters, distributors, electricity users and other related parties concerning safety, technical procedures, measurement and billing of electricity consumption, interruption and reconnection of supplies, third-party access to real estate used in the electricity industry and quality of services offered;
·
prevention of anticompetitive, monopolistic and discriminatory conduct between participants in the electricity industry;
·
imposition of penalties for violations of concessions or other related regulations; and
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·
arbitration of conflicts between electricity sector participants.
The ENRE is managed by a five-member board of directors appointed by the executive branch of the Argentine government.  Two of these five members are nominated by the Consejo Federal de la Energía Eléctrica (Federal Council on Electricity, or CFEE).  The CFEE is funded with a percentage of revenues collected by CAMMESA for each MWh sold in the market.  Sixty percent of the funds received by the CFEE are reserved for the Fondo Subsidiario para Compensaciones Regionales de Tarifas a Usuarios Finales (Regional Tariff Subsidy Fund for End Users), from which the CFEE makes distributions to provinces that have met certain specified tariff provisions.  The remaining forty percent is used for investments related to the development of electrical services in the interior regions of Argentina.
The wholesale electricity market
Overview
The Secretary of Energy established the wholesale electricity market in August 1991 to allow electricity generators, distributors and other agents to buy and sell electricity in spot transactions or under long-term supply contracts at prices determined by the forces of supply and demand.
The wholesale electricity market consists of:
·
a term market in which generators, distributors and large users enter into long-term agreements on quantities, prices and conditions;
·
a spot market, in which prices are established on an hourly basis as a function of economic production costs, represented by the short-term marginal cost of production measured at the Ezeiza 500 kV substation, the system’s load center, and demand; and
·
a stabilization fund, managed by CAMMESA, that absorbs the differences between purchases by distributors at seasonal prices and payments to generators for energy sales at the spot price.
Operation of the wholesale electricity market
The operation of the wholesale electricity market is administered by the Compañía Administradora del Mercado Mayorista Eléctrico S.A. (Wholesale Electricity Market Administration Company , or CAMMESA).  CAMMESA was created in July 1992 by the Argentine government, which currently owns 20% of CAMMESA’s capital stock.  The remaining 80% is owned by various associations that represent wholesale electricity market participants, including generators, transmitters, distributors, large users and electricity brokers.
CAMMESA is in charge of:
·
managing the national interconnection system pursuant to the Regulatory Framework Law and related regulations, which includes:
·
determining technical and economic dispatch of electricity (i.e., schedule of production for all generating units on a power system to match production with demand) in the national interconnection system;
·
maximizing the system’s security and the quality of electricity supplied;
·
minimizing wholesale prices in the spot market;
·
planning energy capacity needs and optimizing energy use pursuant to the rules set out from time to time by the Secretary of Energy, and
·
monitoring the operation of the term market and administering the technical dispatch of electricity pursuant to any agreements entered into in such market;
·
acting as agent of the various wholesale electricity market participants;
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·
purchasing or selling electricity from or to other countries by performing the relevant import/export operations; and
·
providing consulting and other services related to these activities.
The operating costs of CAMMESA are covered by mandatory contributions made by wholesale electricity market participants.  CAMMESA’s annual budget is subject to a mandatory cap equivalent to 0.85% of the aggregate amount of transactions in the wholesale electricity market projected for that year.
Wholesale electricity market participants
The main participants in the wholesale electricity market are generation, transmission and distribution companies.  Large users and traders participate also in the wholesale electricity market, but to a lesser extent.
Generators
According to a recent report issued by CAMMESA, there are 62 generation companies and 17 auto generation companies, in Argentina, most of which operate more than one generation plant.  As of December 31, 2009, Argentina’s installed power capacity was 31,625 MW.  Of this amount, 54% was derived from thermal generation, 42% from hydraulic generation and 4% from nuclear generation.  Private generators participate in CAMMESA through the Asociación de Generadores de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Generators, or AGEERA), which is entitled to appoint two acting and two alternate directors of CAMMESA.
Transmitters
Electricity is transmitted from power generation facilities to distributors through high voltage power transmission systems.  Transmitters do not engage in purchases or sales of power.  Transmission services are governed by the Regulatory Framework Law and related regulations promulgated by the Secretary of Energy.
In Argentina, transmission is carried at 500 kV, 300 kV, 220 kV and 132 kV through the national interconnection system.  The national interconnection system consists primarily of overhead lines and sub-stations (i.e., assemblies of equipment through which electricity delivered by transmission circuits is passed and converted into voltages suitable for use by end users) and covers approximately 90% of the country.  The majority of the national interconnection system, including almost all of the 500 kV transmission lines, has been privatized and is owned by Compañía de Transporte de Energía Eléctrica en Alta Tensión S.A. (Transener), which is indirectly co-controlled by Pampa Energía S.A., a public company managed by Grupo Dolphin’s principals and our controlling shareholder.  Regional transmission companies, most of which have been privatized, own the remaining portion of the national interconnection system.  Supply points link the national interconnection system to the distribution systems, and there are interconnections between the transmission systems of Argentina, Brazil, Uruguay and Paraguay allowing for the import or export of electricity from one system to another.
Transmission companies also participate in CAMMESA by appointing two acting and two alternate directors through the Asociación de Transportistas de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Transmitters, or ATEERA).
Distributors
Each distributor supplies electricity to consumers and operates the related distribution network in a specified geographic area pursuant to a concession.  Each concession establishes, among other things, the concession area, the quality of service required, the rates paid by consumers for service and an obligation to satisfy demand.  The ENRE monitors compliance by federal distributors, including us, Empresa Distribuidora Sur S.A. (Edesur) and Empresa Distribuidora La Plata S.A. (Edelap), with the provisions of our respective concessions and with the Regulatory Framework Law, and provides a mechanism for public hearings at which complaints against distributors can be heard and resolved.  In turn, provincial regulatory agencies monitor compliance by local distributors with their respective concessions and with local regulatory frameworks.

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We and Edesur are the largest distribution companies and, together with Edelap, originally comprised SEGBA, which was divided into three distribution companies at the time of its privatization in 1992.
Distributors participate in CAMMESA by appointing two acting and two alternate directors through the Argentine Association of Asociación de Distribuidores de Energía Eléctrica de la República Argentina (Electric Power Distributors , or ADEERA).
Large users
The wholesale electricity market classifies large users of energy into three categories: Grandes Usuarios Mayores (Major Large Users, or GUMAs), Grandes Usuarios Menores (Minor Large Users, or GUMEs) and Grandes Usuarios Particulares (Particular Large Users , or GUPAs).
Each of these categories of users has different requirements with respect to purchases of their energy demand.  For example, GUMAs are required to purchase 50% of their demand through supply contracts and the remainder in the spot market, while GUMEs and GUPAs are required to purchase all of their demand through supply contracts.
Large users participate in CAMMESA by appointing two acting and two alternate directors through the Asociación de Grandes Usuarios de Energía Eléctrica de la República Argentina (Argentine Association of Electric Power Large Users, or AGUEERA).
Traders
Since 1997, traders are authorized to participate in the wholesale electricity market by intermediating block sales of energy.  Currently, there are eight authorized traders in the wholesale electricity market, several of which conduct transactions with Comercializadora de Energía del Mercosur S.A. (CEMSA) in the export market.
Spot market
Spot prices
The emergency regulations enacted after the Argentine crisis in 2001 had a significant impact on energy prices.  Among the measures implemented pursuant to the emergency regulations were the pesification of prices in the wholesale electricity market, known as the spot market, and the requirement that all spot prices be calculated based on the price of natural gas, even in circumstances were alternative fuel such as diesel is purchased to meet demand due to the lack of supply of natural gas.
Prior to the crisis, energy prices in the spot market were set by CAMMESA, which determined the price charged by generators for energy sold in the spot market of the wholesale electricity market on an hourly basis.  The spot price reflected supply and demand in the wholesale electricity market at any given time, which CAMMESA determined using different supply and demand scenarios that dispatched the optimum amount of available supply, taking into account the restrictions of the transmission grid, in such a way as to meet demand requirements while seeking to minimize the production cost and the cost associated with reducing risk of system failure.
The spot price set by CAMMESA compensated generators according to the cost of the last unit to be dispatched for the next unit as measured at the Ezeiza 500 Kv substation, which is the system’s load center and is in close proximity of the City of Buenos Aires.  Dispatch order was determined by plant efficiency and the marginal cost of providing energy.  In determining the spot price, CAMMESA also would consider the different costs incurred by generators not in the vicinity of Buenos Aires.
In addition to energy payments for actual output at the prevailing spot market prices, generators would receive compensation for capacity placed at the disposal of the spot market, including stand-by capacity, additional stand-by capacity (for system capacity shortages) and ancillary services (such as frequency regulation and voltage control).  Capacity payments were originally established and set in U.S. Dollars to allow generators to cover their foreign-denominated costs that were not covered by the spot price.  However, in 2002, the Argentine government set capacity payments in reference to the Peso thereby limiting the purpose for which capacity payments were established.

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Seasonal Prices
The emergency regulations also made significant changes to the seasonal prices charged to distributors in the wholesale electricity market, including the implementation of a pricing ladder organized by level of customer consumption (which varies depending on the category of customer) charged by CAMMESA to distributors at a price significantly below the spot price charged by generators.  According to the current regulatory framework, the ENRE is required to adjust the seasonal price charged to distributors in the wholesale electricity market every six months.  However, between January 2005 and November 2008, the ENRE failed to make these adjustments.  In November 2008, the ENRE passed Resolution 628/08 establishing a new distribution tariff as from October 1, 2008 and modified seasonal prices charged to distributors, including the consumption levels that make up the pricing ladder.
On August 14, 2009, ENRE adopted Resolution No. 433/2009 approving two tariff charts to be applied by Edenor. The first one applied retroactively for the period from June 1, 2009 to July 31, 2009. The second rate chart was effective for the period from August 1, 2009 to September 30, 2009. These charts were based on the new subsidized seasonal prices set forth Resolution No. 652/09 issued by the Secretary of Energy. The new price charts aimed at reducing the impact of increased winter electrical energy consumption on the invoicing of residential customers with bi-monthly consumption exceeding 1,000 kWh. The modification to the ENRE rate charts did not have any effect on our VAD.  The ENRE also instrumented us to break down the floating charges of all invoices into the amounts subsidized and not subsidized by the Argentine government.

As of October 1, 2009, the tariff chart of October 2008 was reinstated pursuant to ENRE Resolution No. 628/2008. The floating charge of all invoices continues to be broken down into the amounts subsidized and not subsidized by the Argentine Government.

Prior to implementation of the emergency regulations, seasonal prices were determined by CAMMESA based on an estimate of the weighted average spot price that would be paid by the next generator that would come on-line to satisfy a theoretical increase in demand (marginal cost), as well as the costs associated with the failure of the system and several other factors.  CAMMESA would use a seasonal database and optimization models in determining the seasonal prices and would consider both anticipated energy supplies and demand, including, expected availability of generating capacity, committed imports and exports of electricity and the requirements of distributors and large users.
Stabilization Fund
The stabilization fund, managed by CAMMESA, absorbs the difference between purchases by distributors at seasonal prices and payments to generators for energy sales at the spot price.  When the spot price is lower than the seasonal price, the stabilization fund increases, and when the spot price is higher than the seasonal price, the stabilization fund decreases.  The outstanding balance of this fund at any given time reflects the accumulation of differences between the seasonal price and the hourly energy price in the spot market.  The stabilization fund is required to maintain a minimum amount to cover payments to generators if prices in the spot market during the quarter exceed the seasonal price.
Billing of all wholesale electricity market transactions is performed monthly through CAMMESA, which acts as the clearing agent for all purchases between participants in the market.  Payments are made approximately 40 days after the end of each month.
The stabilization fund was adversely affected as a result of the modifications to the spot price and the seasonal price made by the emergency regulations, pursuant to which seasonal prices were set below spot prices resulting in large deficits in the stabilization fund.  As of December 31, 2009, the stabilization fund deficit totaled approximately Ps. 24,000 million.  This deficit has been financed by the Argentine government through loans to CAMMESA and with FONINVEMEM funds, but these continue to be insufficient to cover the differences between the spot price and the seasonal price.

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Term market
Generators are able to enter into agreements in the term market to supply energy and capacity to distributors and large users.  Distributors are able to purchase energy through agreements in the term market instead of purchasing energy in the spot market.  Term agreements typically stipulate a price based on the spot price plus a margin.  Prices in the term market have at times been lower than the seasonal price that distributors are required to pay in the spot market.  However, as a result of the emergency regulations, spot prices in the term market are currently higher than seasonal prices, particularly with respect to residential tariffs, making it unattractive to distributors to purchase energy under term contracts while prices remain at their current levels.
HISTORY AND DEVELOPMENT OF THE COMPANY
We are a public service company incorporated as an Argentine sociedad anónima (limited liability corporation) on July 21, 1992 under the name Empresa Distribuidora Norte Sociedad Anónima.  We were incorporated as part of the privatization of the Argentine state-owned electricity utility, Servicios Eléctricos del Gran Buenos Aires S.A. (SEGBA).  In anticipation of its privatization, SEGBA was divided into three electricity distribution companies, including our company, and four electricity generation companies, and on May 14, 1992, the Argentine Ministry of Economy and Public Works and Utilities (currently the Ministry of Economy and Public Finance) approved the public sale of all of our company’s Class A shares, representing 51% of the capital stock of our company.
A group of international investors, which included EDF International S.A. (a wholly owned subsidiary of EDF), presented a bid for our Class A shares through Electricidad Argentina S.A. (EASA), an Argentine company.  EASA was awarded the bid and, in August 1992, EASA and the Argentine government entered into a stock purchase agreement relating to the purchase of our Class A shares.  In addition, on August 5, 1992, the Argentine government granted our company a concession to distribute electricity on an exclusive basis within our concession area for a period of 95 years.  On September 1, 1992, EASA acquired the Class A shares and became our controlling shareholder.
In June 1996, our shareholders approved the change of our company’s name to Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR S.A.) to more accurately reflect the description of our core business.  The amendment to our bylaws related to our name change was approved by the ENRE and registered with the Public Registry of Commerce in 1997.
In 2001, EDF International S.A. (EDFI) acquired, in a series of transactions, all of the shares of EASA held by EASA’s other shareholders, ENDESA Internacional, YPF S.A., which was the surviving company of Astra, and SAUR.  As a result, EASA became a wholly owned subsidiary of EDFI.  In addition, EDFI purchased all of the Class B shares of our company held by these shareholders, increasing its direct and indirect interest in our company to 90%.
On January 6, 2002, the Argentine congress enacted the Public Emergency Law, which authorized the Argentine government to implement certain measures to overcome the country’s economic crisis.  Under the Public Emergency Law, the Argentine government altered the terms of our concession and the concessions of other public utility services by renegotiating tariffs, freezing distribution margins and revoking price adjustment mechanisms, among other measures.
In September 2005, Dolphin Energía and IEASA acquired an indirect controlling stake in our company from EDFI.  Dolphin Energía and IEASA were at the time of such acquisition controlled by the principals of Grupo Dolphin, an Argentine advisory and consulting firm that carries out private equity activities.  On September 28, 2007, Pampa Energía acquired all the outstanding capital stock of Dolphin Energía and IEASA from the then current shareholders of these companies, in exchange for common stock of Pampa Energía.  Pampa Energía, which is managed by Grupo Dolphin’s principals, owns a 50% interest in the company that co-controls the principal electricity transmission company in Argentina, Compañía de Transporte de Energía Eléctrica en Alta Tensión S.A. (Transener).  In addition, Pampa Energía has controlling stakes in five generation plants located in the Salta, Mendoza, Neuquén and Buenos Aires provinces (Hidroeléctrica Nihuiles, Hidroeléctrica Diamante, Central Térmica Güemes, Central Térmica Loma de la Lata and Central Piedra Buena).  See “Item 7. Major Shareholders and Related Party Transactions.”

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In April 2007, we completed the initial public offering of our Class B common shares, in the form of shares and American depositary shares, or ADSs.  We and certain of our shareholders sold 18,050,097 ADSs, representing 361,001,940 Class B common shares, in an offering in the United States and elsewhere outside Argentina, and our Employee Stock Participation Program sold 81,208,416 Class B common shares in a concurrent offering in Argentina.  Our ADSs are listed in The New York Stock Exchange under the symbol “EDN,” and our Class B shares are listed on the Buenos Aires Stock Exchange under the same symbol.  We received approximately U.S. $61.4 million in proceeds from the initial public offering, before expenses, which we used to repurchase a part of our outstanding debt.  Following the initial public offering, EASA continues to hold 51% of our common shares, and approximately 49% are held by the public.  See “Item 7. Major Shareholders and Related Party Transactions.”
On November 20, 2008, the Argentine Congress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the Administración Nacional de la Seguridad Social (National Social Security Agency, or ANSES) and eliminating the retirement savings system previously administered by private pension funds under the supervision of a governmental agency. In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES.  As of March 5, 2010, ANSES hold 229,125,205 of our Class B shares, representing 25.3% of our capital stock.
BUSINESS OVERVIEW
Our strengths
We believe our main strengths are the following:
·
We believe we are the largest electricity distributor in Argentina in terms of number of customers and electricity sold (both in GWh and in pesos) in 2009.  We serve the largest number of electricity customers in Argentina, which at December 31, 2009 amounted to 2,604,612 customers.  Our electricity purchases, used to meet customer demand in our service area, accounted for approximately 19.8% of total electricity demand in the country in 2009.  As a result of being the largest electricity distributor in Argentina in terms of volume and customers, we have strong bargaining power with respect to many of our operating expenses, including salaries, and benefit from economies of scale.  We also actively participate in industry decision making bodies and are working closely with the Argentine government to address Argentina’s current energy challenges.
·
We distribute electricity to an attractive and diversified client base in a highly developed area of Argentina. We operate on an exclusive basis in the northwestern zone of the greater Buenos Aires metropolitan area and the northern portion of the City of Buenos Aires, which is one of Argentina’s largest industrial and commercial centers.  We have a highly concentrated, urban client base characterized by high purchasing power and low delinquency in payments of electricity bills (with an average of less than four days of past due bills outstanding).  Our geographically concentrated and urban client base also allows us to operate more efficiently with relatively lower distribution costs.  Finally, we have a balanced distribution of clients (residential, commercial, industrial).
·
We have substantial experience in the operation of electricity distribution systems with strong operating performance and efficiency for the characteristics of our concession area. We have substantial experience in the operation of electricity distribution systems and have received multiple ISO certifications on our commercial, technical and administrative processes, including on the quality of our services and safety and environmental standards.  We were declared by the ENRE a self-operating business in 1997, which means we are not required to have a strategic operator conduct our business and allows us to act as an operator in other electricity businesses.  We believe that our energy losses are low compared to other electricity distribution companies in Latin America.  In addition, we have maintained what we believe are optimal levels of operating efficiency, with 978 customers per employee and 6,936.1 MWh sold per employee in 2009.
·
We have a well-balanced capital structure .  As of December 31, 2009, our financial debt amounted to U.S. $208.0 million, including U.S. $196.6 million principal amount of notes.  We have continued to strengthen our capital structure during 2009 acquiring through market purchases U.S. $32.2 million principal amount of Fixed Rate Par Notes due 2016 and U.S. $53.8 million principal amount of Senior Notes due 2017.
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·
We have a stable, committed and seasoned management team. Our management team has not changed significantly since 1992, despite the changes to and from foreign ownership of our company since our privatization.  In accordance with our concession, we are operating our electricity distribution business without the assistance of an external technical operator.  Our new controlling shareholder has maintained our management team, and added financial expertise.  We encourage internal promotion and provide training and other opportunities for our employees to continue to grow with our business.
Our strategy
Our goal is to continue to serve the strong demand in our concession area, while maximizing profitability and shareholder value.  We are seeking to realize this goal through the following key business strategies:
·
Complete our tariff renegotiation process .  On November 12, 2009, we submitted our tariff proposal to ENRE's Board of Directors in response to the ENRE’s request as part of the integral tariff revision process.  Our integral tariff proposal includes, among other factors, a recalculation of the compensation we receive for our distribution services based on a revision of our asset base and rate of return. Furthermore Our proposal presented the ENRE with three options for the revised tariff scheme based on three different scenarios and each of which implementation of the tariff increase in three equal semiannual installments.
·
Continue to serve our concession area with a high quality of service. We aim to continue serving our clients in accordance with the terms of our concession, distributing electricity within our area meeting or exceeding the required quality standards.  We intend to continue to dedicate a significant portion of our capital expenditures to the maintenance, enhancement and expansion of our network to achieve this goal.
·
Undertake a reclassification of our smaller customers by economic activity rather than level of demand to optimize our tariff base .  We intend to reclassify our client base based on type of economic activity and purchasing power rather than only on levels of electricity demand.  We believe this will allow us to shift clients who currently fall within our lowest tariff categories, to other, more appropriate categories, including professionals and small businesses which, due to their low demand, are currently classified as residential customers, and to charge them accordingly.
·
Focus on increasing our operating efficiency and optimizing our level of energy losses .  We are committing significant resources to improving the quality of our technical services and the safety of our public infrastructure to allow us to reduce the amount of fines imposed by Argentine regulatory authorities in the ordinary course of our operations.  We intend to build new entry points for our network in Tigre (previously called Escobar), Province of Buenos Aires, and Malaver, City of Buenos Aires, which will significantly improve the quality and reliability of our network.  Currently, our objective is to maintain energy losses at an optimum level, taking into account the marginal cost of reducing such losses and the level at which, pursuant to the terms of our concession, we are reimbursed for the cost of such losses.
Our concession
By a concession dated August 5, 1992, the Argentine government granted us the exclusive right to distribute electricity within our concession area for a period of 95 years.  Our concession will expire on August 31, 2087 and can be extended for one additional 10-year period if we request the extension at least 15 months before expiration.  The Argentine government may choose, however, to grant us the extension on a non-exclusive basis.  The concession period was initially divided into an initial management period of 15 years expiring August 31, 2007, followed by eight 10-year periods.  However, the initial management period may be extended at our option, with the ENRE’s approval, for an additional 5-year period from the entry into force of the new tariff structure to be adopted under the integral tariff revision process.  We presented a request for such extension in May 2007 and on July 5, 2007, the ENRE, pursuant to ENRE resolution No. 467/2007, agreed to extend the initial management period for an additional five years from the date that the new tariff structure is adopted under the RTI.  The remaining 10-year periods will run from the expiration of the extension of the initial management period.

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On January 6, 2002, the Argentine congress enacted the Public Emergency Law, which empowered the Argentine government to implement, among other things, monetary, financial and foreign exchange measures to overcome the economic crisis.  These measures, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on public utilities in Argentina, including our company.  Under the Public Emergency Law, the Argentine government converted public utility tariffs from their original U.S. Dollar values to Pesos at an exchange rate of Ps. 1.00 per U.S. $1.00, froze all regulated distribution margins relating to the provision of public utility services (including electricity distribution services), revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including our concession) and empowered the Executive Branch to conduct a renegotiation of public utility contracts (including our concession) and the tariffs set therein (including our tariffs).
In September 2005 we and the Argentine government entered into an Adjustment Agreement, which was ratified by the Argentine executive branch in January 2007.  Because a new Argentine Minister of Economy took office thereafter, we formally re-executed the Adjustment Agreement with the Argentine government on February 13, 2007 under the same terms and conditions originally agreed.
Pursuant to the Adjustment Agreement, the Argentine government granted us an increase of 28% in our distribution margin, which is effective retroactively as of November 1, 2005.  The Adjustment Agreement is intended to apply transitionally until we complete the RTI with the ENRE in accordance with the terms of the Adjustment Agreement.  See “Item 5. Operating and Financial Review and Prospects —Factors affecting our results of operations—Tariffs.” In addition, because the Adjustment Agreement is effective retroactively as of November 1, 2005, the ENRE applied the CMM retroactively in each of May and November 2006, the dates in each year on which the ENRE is required to apply the CMM.  In the May 2006 CMM, the ENRE determined that our distribution cost base increased by 8.032% (compared to the distribution cost base recognized in the Adjustment Agreement), and, accordingly, approved an equivalent increase in our distribution margin effective May 1, 2006.  This increase, when compounded with the 28% VAD increase granted under the Adjustment Agreement, results in an overall 38.3% increase in our distribution margins charged to our non-residential customers.  Also on February 13, 2007, the ENRE authorized us to bill our clients (excluding residential clients) the retroactive portion of the 38.3% increase (corresponding to the period from November 2005 to January 2007), which amounted to Ps. 218.6 million and which we have continued to invoice in 55 monthly installments since February 2007.  As of December 31, 2009, we had invoiced Ps. 149.4 million of the total amount.
In October 2007, the Argentine Secretary of Energy published Resolution No 1037/2007, which granted us an increase of 9.63% to our distribution margins to reflect an increase in our distribution cost base for the period from May 1, 2006 to April 30, 2007, compared to the recognized distribution cost base as adjusted by the May 2006 CMM. However, this increase was not incorporated into our tariff structure, and, instead, we were allowed to retain the funds that we are required to collect and transfer to the PUREE to cover this CMM increase and future CMM increases.  In July 2008, we obtained an increase of approximately 17.9% to our distribution margin, which we incorporated into our tariff structure. This increase represented the 9.63% CMM increase corresponding to the period from May 2006 to April 2007 and the 7.56% CMM increase corresponding to the period from May 2007 to October 2007. These CMM adjustments were included in our tariff structure as of July 1, 2008 and resulted in an average increase of 10% for customers in the small commercial, medium commercial, industrial and wheeling system categories and an average increase of 21% for residential customers with bimonthly consumption levels over 650 kWh.  In addition, the ENRE authorized us to be reimbursed for the retroactive portion of the 7.56% CMM increase for the period between November 2007 and June 2008, from the PUREE funds.
Furthermore, we requested an additional increase to our distribution margins under the CMM to account for fluctuations in the distribution cost base for the period from November 2007 to April 2008, in comparison to the distribution cost base recognized by the CMM in November 2007.  In 2008, the ENRE adopted Note No 81.399, which authorized a 5.791% increase under the CMM.  As of the date of this annual report, the ENRE has not approved a new tariff scheme including this tariff increase.
As of December 31, 2009, we have submitted to the ENRE three additional requests from CMM adjustments as described in the table below:

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Assessment Period
Application Date
CMM Adjustment Requested
May 2008 – October 2008
November 2008
5.684%
November 2008 - April 2009
May 2009
5.068%
May 2009 – October 2009
November 2009
5.041%

As of the date of this annual report, the ENRE has not responded to these requests.

Although we believe that these increases comply with the terms of the CMM, we cannot assure that the ENRE will grant us these increases in full, or at all, or if granted, that we will be able to bill our customers or otherwise recover these increases from other sources of payment (such as PUREE).
Following are the key provisions of the Adjustment Agreement, which are described elsewhere in this annual report:
·
a cost adjustment mechanism (CMM), pursuant to which our distribution costs are reviewed semiannually (or, under certain circumstances, more often) and adjusted if deemed appropriate by the ENRE to cover increases in our distribution costs;
·
an obligation to make capital expenditures of approximately Ps. 204 million for specified projects in 2006, which we complied with although we were not required to given that the Adjustment Agreement was not ratified in 2006;
·
our obligation to meet specified service quality standards more stringent than the ones originally contemplated in our concession;
·
a restriction on our ability to pay dividends without prior ENRE approval during the period in which we are conducting the RTI;
·
forgiveness of approximately one-third of our accrued and unpaid fines, subject to certain conditions relating to compliance with our capital expenditures obligations and service quality standards, and a 7-year payment plan for the balance, commencing 180 days after the date on which the RTI comes into effect;
·
our obligation to apply a social tariff regime for low-income customers, which regime will be defined in the context of the RTI; and
·
our obligation to extend our network to provide service to certain rural areas.
Currently, the RTI has not yet been completed and although we are currently in discussions with the Argentine government regarding the RTI, we cannot predict when or how the RTI will be implemented.
Geographic Exclusivity
The concession gives us the exclusive right to distribute electricity within the concession area during the term of the concession.  Under our concession, neither the national nor the provincial or local governments may grant further concessions to operate electricity distribution services within our concession area.  In that respect, we are obligated to satisfy all of the demand for electricity originated in the concession area, maintaining at all times a service quality standard that has been established in the concession.  This geographic exclusivity may be terminated in whole or in part by the executive branch if technological changes make it possible for the energy distribution industry to evolve from its present condition as a natural monopoly into a competitive business.  However, the Argentine government may only exercise its right to alter or suppress our geographical exclusivity at the end of each management period under our concession, by prior written notice at least six months before the expiration of the then current management period.

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We divide our concession area into the following operating territories:
Operating territory
Districts
Morón
Morón, Ituzaingó, Hurlingham, Merlo, Marcos Paz, Las Heras and La Matanza
Norte
Ciudad de Buenos Aires, San Martín and Tres de Febrero
Olivos
Vicente López, San Isidro, San Fernando, Tigre and Escobar
Pilar
Moreno, Gral, Rodríguez, Pilar, Malvinas Argentinas, J.C.  Paz and San Miguel
The table below sets forth certain information relating to our operating territories as of and for the period ended December 31, 2009:
Operating territory
Area
(km 2 )
Customers
(in thousands)
% of Sales
Morón
1,761 840.6 32.3 % 26.6 %
Norte
164 811.5 31.2 % 32.0 %
Olivos
1,624 480.2 18.4 % 23.0 %
Pilar
1,088 472.3 18.1 % 18.4 %
Total
4,637 2,604.6 100 % 100 %
According to INDEC, the Pilar area experienced the highest population growth rate of the Buenos Aires metropolitan region between 1991 and 2001, growing by 56.6% from approximately 149,070 people in 1991 to approximately 233,508 people in 2001.  Today, some of the most affluent neighborhoods and upscale commercial centers and businesses are located in the Pilar area.
Our obligations
We are obligated to supply electricity upon request by the owner or occupant of any premises in our concession area.  We are entitled to charge for the electricity supplied at rates that are established by tariffs set with the prior approval of the ENRE under applicable regulations.  Pursuant to our concession, we must also meet specified service quality standards relating to:
·
the time required to connect new users;
·
voltage fluctuations;
·
interruptions or reductions in service; and
·
the supply of electricity for public lighting and to certain municipalities.
Our concession requires us to make the necessary investments to establish and maintain quality of service standards and to comply with stringent minimum public safety standards as specified in our concession.  We are also required to furnish the ENRE with all information requested by it and must obtain the ENRE’s prior consent for the disposition of assets that are assigned to the provision of our electricity distribution services.  The ENRE also requires us to compile and submit various types of reports regarding the quality of our service and other technical and commercial data, which we must periodically report to the ENRE.
Under our concession, we may also be required to continue rendering services after the termination of the concession term upon the request of the Argentine government, but for a period not to exceed 12 months.
We are obligated to allow certain third parties (other agents and large users) to access any available transportation capacity within our distribution system upon payment of a wheeling fee.  Consequently, Edenor must render the distribution service on an uninterrupted basis to satisfy any reasonable demand.  We are prohibited from engaging in practices that limit competition or result in monopolistic abuses.

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In addition, the Adjustment Agreement requires us and our shareholders and former shareholders to suspend all claims and legal proceedings (including arbitration actions) in administrative, state or federal courts located in Argentina or abroad, that are related to measures adopted since the Public Emergency Law was enacted.  After the completion of the RTI, we and our shareholders and former shareholders must completely waive and desist from all of the above mentioned claims and legal proceedings.  If our shareholders or former shareholders do not desist from these claims, the Argentine government will have the right to foreclose its pledge over our Class A shares and sell these shares to a third party buyer.  If the company or any shareholder or former shareholder re-establishes or initiates a new claim, we must hold harmless the Argentine government in respect of amounts it is required to pay pursuant to such claims.  EDFI and EASA have suspended all such claims against the Argentine government as part of the Adjustment Agreement and, in connection with its sale of its controlling stake in Edenor, EDFI has agreed to withdraw its claims against the Argentine government before the ICSID at the request of Dolphin Energía S.A.
In accordance with our concession, our controlling shareholder, EASA, has pledged its 51% stake in our company to the Argentine government to secure obligations under the concession.  The Adjustment Agreement requires the pledge to be extended to secure our obligations under this agreement.
Quality standards
Pursuant to the concession, we are required to meet specified quality standards with respect to the quality of the product (electricity) and the delivery of the product.  The quality standards relating to the product quality refer to the electricity’s voltage levels.  A disturbance occurs when there is a change in the voltage level.  The concession requires that the voltage level that we deliver must be 3x380/220 V; 13.2 kV; 33kV; 132 kV; 220 kV.  The concession provides that disturbances in the voltage level may not exceed the following (in accordance with international standards):
High voltage
-5.0% to   +5.0%
Overhead network (medium or low voltage)
-8.0% to   +8.0%
Buried network (medium or low voltage)
-5.0% to   +5.0%
Rural
-10.0% to +10.0%
A fine is imposed under the concession for disturbances that exceed the above-mentioned limits for 3.0% or more of the total amount of time that electricity is provided.  The amount of the fine depends on the magnitude of the disturbance.  As the disturbance’s percentage increases (or decreases) from the contracted tension level, the rate of the fine per kWh increases.  These fines are credited to the affected user’s next bill.
The standards for delivery of the product set forth in the concession refer to the frequency and duration of the interruptions.  The following table sets forth the standards set forth in the concession with respect to the frequency and duration of interruptions per customer during the current management period:
Category of user
Frequency of
interruptions
(maximum number of
interruptions per
semester)
Duration of interruption
(maximum amount of time
per interruption) (1)
High voltage
3
2 hours
Medium voltage
4
3 hours
Low voltage: (small and medium demand)
6
10 hours
Large demand
6
6 hours
(1)
Interruptions of less than three minutes are not recorded.

These standards may be subject to change during subsequent management periods and/or pursuant to the outcome of the RTI.
In addition, pursuant to the Adjustment Agreement, we have agreed to comply with a medium delivery standard that reflects our actual average delivery standards during the period from 2001 through 2003.  This medium delivery standard requires us to comply with a maximum number of interruptions per semester, on average, of 2.761 and a maximum duration of interruption, on average, of 5.386 hours.  If we do not meet the delivery standards required by our concession, as set forth in the table above, but are otherwise in compliance with the medium delivery standard under the Adjustment Agreement, we may withhold payment of any fines that may be imposed under our concession for this failure and use this amount of unpaid fines for our capital expenditures.  If we fail to comply with this measure, we will be required to pay the fines.

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Pursuant to our concession, the ENRE may fine us if one of our customers suffers more than the maximum number of interruptions specified for its category (excluding interruptions of less than 3 minutes) or suffers interruptions for a longer time than the time specified for its category.  We pay these fines by granting credits to the affected customers in their electricity bills.  Fines are calculated at a rate per kWh that varies depending on the particular tariff or price schedule that is applicable to the user.  Following the privatization of our company in 1992, we have been able to improve our quality of service from an average of 22 hours of interruptions per customer and 13 interruptions per customer in 1992 to an average of 7.33 hours of interruptions per customer and 4.98 interruptions per customer in 2000, the last full year prior to the Argentine crisis.
The following table sets forth the frequency and duration of interruptions of our service in the periods indicated:
Year ended December 31,
2009
2008
2007
2006
2005
Average frequency of interruptions
4.42 4.10 3.47 2.81 3.38
Average duration of interruption (in hours)
8.79 8.31 6.59 5.01 5.10
Additionally, in order to satisfy quality standards, we must meet certain operating requirements relating to commercial service, including maintenance of the distribution network so as to minimize failures and to maximize the useful life of fixed assets and billings on actual meter readings to generate customer bills.  We may bill customers using estimates in cases of force majeure , but we may not send a customer more than two successive estimated bills, if billed bimonthly, or, in other cases, more than three successive estimated bills.  Furthermore, estimated bills cannot exceed 8% of total billings in each category of customers.
Fines and penalties
Pursuant to our concession, the ENRE may impose various fines and penalties on us if we fail to comply with our obligations under the concession, including our failure to meet any of the quality and delivery standards described above.  Because we are required to pay for the fines imposed for violations of our quality or delivery standards by granting credits to our customers, we operate since 1996 a central information system that allows us to credit fines directly to our customers who are affected by these quality or delivery deficiencies.
The ENRE may also fine us for any of our network installations that it considers may pose a safety or security hazard in public spaces, including streets and sidewalks.  In addition, the ENRE may fine us for inconsistency in technical information required to be furnished to the ENRE.
Fines and penalties for violations of public safety and reporting violations are deposited in the Reserva de Fondos de Terceros del ENRE (Third Party Reserve Fund of the ENRE) in an account in the Banco Nación.  Payments accrue in that account until the account reaches Ps. 3 million and then, with the ENRE’s authorization, the amount is proportionally distributed among our customers.
When we entered into the Adjustment Agreement in September 2005, the ENRE granted us a payment plan in respect of approximately Ps. 116 million of our accrued fines and penalties and agreed, subject to the condition that we meet the quality standards and capital expenditure requirements specified in the Adjustment Agreement, to forgive approximately Ps. 58 million of our accrued fines and penalties.  Because the Adjustment Agreement was not ratified until January 2007, we have recalculated the amounts of accrued fines and penalties subject to the payment plan under the terms of the Adjustment Agreement as well as the amounts subject to forgiveness.  In addition, we were also required to make an adjustment as of December 31, 2006, totaling Ps. 47.0 million to the accrued fines and penalties under the payment plan in order to reflect the increase to our VAD pursuant to the Adjustment Agreement, and we will be required to make further adjustments to our payment plan to reflect the impact of future increases in our distribution margins, including the CMM adjustments.  For the years ended on December 31, 2008 and 2007, we recorded adjustments of Ps. 17.2 million and Ps. 18.1 million, respectively, to reflect CMM adjustments.  We estimate that the ENRE will forgive approximately Ps. 71.4 million of our accrued fines and penalties upon the completion of the RTI, and that we will be required to pay approximately Ps. 306.1 million in accordance with the payment plan provided for in the Adjustment Agreement.  This payment plan allows us to repay these fines and penalties in fourteen semiannual installments commencing after a 180-day grace period from the date the RTI comes into effect.

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In 2009, the fines and penalties imposed on us by the ENRE amounted to Ps. 58.5 million, which represented 2.8% of our energy sales.  As of December 31, 2009 our accrued fines and penalties imposed by the ENRE amounted to Ps. 377.5 million.
The following table shows the adjustments to our accruals for potential ENRE fines and penalties, including current fines and penalties and adjustments to past fines due to increases in our tariffs pursuant to the Adjustment Agreement, for the periods specified:
Year ended December 31,
(in millions of Pesos)
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Accruals at beginning of year
331.6 281.4 241.1 169.7 99.3 63.4 49.0 19.0 13.6 17.4
ENRE Fines and Penalties
58.5 34.8 23.9 25.2 72.7 36.0 14.6 31.7 16.4 13.6
Quality of Technical Service
15.0 15.2 7.0 10.4 4.9 4.7 3.2 5.6 5.2 4.0
Quality of Technical Product
3.1 3.0 0.9 0.6 1.1 6.9 6.5 5.5 2.9 2.9
Quality of Commercial Service
2.4 1.6 1.1 1.2 — 1.2 0.5 1.5 1.7 0.9
Public Safety
34.0 11.6 10.3 6.7 25.4 10.9 2.0 4.9 4.2 6.3
Transport Technical Function
0.3 0.3 0.2 0.4 — 0.2 0.2 0.2 — 0.3
Reporting Violations
3.7 3.1 4.4 5.6 33.7 12.2 1.7 4.9 1.9 (0.2 )
Others
— — — 0.2 7.5 — 0.4 9.0 0.5 (0.5 )
Less: Paid during period:
Quality of Technical Service
— — — — 1.6 — — 0.9 3.3 5.6
Quality of Technical Product
— — — — — — — — 2.3 4.2
Quality of Commercial Service
3.7 — 1.5 0.4 0.1 0.1 0.1 0.3 1.4 1.0
Public Safety
8.9 1.8 — — — — — — 2.1 6.1
Transport Technical Function
— — 0.1 0.3 — — 0.1 0.3 0.2 0.5
Others
— — — — 0.6 — — — 1.8 —
Total paid during period
12.6 1.8 1.7 0.7 2.4 0.1 0.2 1.6 11.1 17.4
Plus: Adjustment to fines and penalties pursuant to the ratification of the Adjustment Agreement
— 17.2 18.1 47.0 — — — — — —
Accruals at year-end
377.5 331.6 281.4 241.1 169.7 99.2 63.4 49.0 19.0 13.6
Note: The facts or events that generated the amounts charged in each period may have occurred in prior periods and not necessarily in the period in which the charge is made.

Foreclosure of pledge over our Class A shares or revocation of our concession
The Argentine government may foreclose its pledge over our Class A shares and sell them in an public bidding process if any of the following occur:
·
we incur penalties in excess of 20% of our gross energy sales, net of taxes (which corresponds to our energy sales) in any given year;
·
our controlling shareholder, EASA, fails to obtain the ENRE’s approval in connection with the disposition of our Class A shares;
·
material and repeated breaches of our concession that are not remedied upon request of the ENRE;
·
EASA creates any lien or encumbrances on our Class A shares (other than the pledge to the Argentine government);
·
EASA or Edenor obstruct the sale of the Class A shares at the end of any management period under our concession;
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·
our shareholders amend our articles of incorporation or voting rights in a way that modifies the voting rights of the Class A shares without the ENRE’s approval; or
·
our shareholders or former shareholders fail to desist from any ICSID claims against the Argentine government following completion of the RTI and the approval of a new tariff regime.
Upon the occurrence of any of these events, the Argentine government will have the right to foreclose its pledge over our Class A shares and exercise the voting rights of the Class A shares until the transfer of such shares to a new purchaser occurs, at which time EASA will receive the proceeds of such transfer, net of a specified penalty payable to the Argentine government.
In addition, under our concession, the Argentine government has the right to revoke our concession if we enter into bankruptcy and the government decides that we shall not continue rendering services, in which case all of our assets will be transferred to a new state- owned company that will be sold in an international public bidding process.  At the conclusion of this bidding process, the purchase price will be delivered to the bankruptcy court in favor of our creditors, net of any debt owed by us to the Argentine government.  Any residual proceeds will be distributed among our shareholders.
Periodic bidding for control of Edenor
Before the end of each management period under our concession, the ENRE will arrange for an international public bidding procedure to be conducted for the sale of 51% of our capital stock and voting rights in similar conditions to those under which EASA acquired its stake.  EASA will be entitled to participate in the bid.  The person or group offering the highest price will acquire the stock and will pay the offered price to EASA.  If EASA is the highest bidder or if EASA’s bid equals the highest bid, it will retain 51% of our stock, but no funds need to be paid to the Argentine government and EASA will have no further obligation with respect to its bid.  There is no restriction as to the amount EASA may bid.  In the event EASA fails to submit a bid or its bid is lower than the highest bid, the Class A shares will be transferred to the highest bidder and the price paid by the purchaser (except for any amounts owed to the Argentine government) will be delivered to EASA.
The first management period was set to expire August 31, 2007.  We presented a request for a five-year extension of the initial management period in May 2007 and on July 5, 2007, the ENRE, pursuant to the ENRE resolution No. 467/2007, agreed to extend the initial management period for an additional five years from the date that the new tariff structure is adopted under the RTI.  The remaining 10-year periods will run from the expiration of the extension of the initial management period.
Default of the Argentine government
If the Argentine government breaches its obligations in such a way that we cannot comply with our obligation under the concession or in such a way that the distribution service is materially affected, we can request the termination of the concession, after giving the Argentine government 90 days’ prior notice.  Upon termination of the concession, all our assets used to provide electricity service would be transferred to a new state-owned company to be created by the Argentine government, whose shares would be sold in an international public bidding procedure.  The amount obtained in such bidding would be paid to us, net of the payment of any debt owed by us to the Argentine government, plus compensation established as a percentage of the bidding price, ranging from 10% to 30% depending on the management period in which the sale occurs.
Our network
As of December 31, 2009, the system through which we supply electricity was composed of 70 Sub-Stations of high/high voltage, high/high/medium voltage, high/medium voltage, representing 13,404 MVA of transformer capacity and 1,365 kilometers of high-voltage power lines 220 kV and 132 kV.  The distribution system of medium/low voltage was comprised of 14,879 transformers of medium/low voltage, representing 5,643 MVA of transformer capacity, 9,191 kilometers of medium-voltage power lines 33 and 13.2 kV and 24,761 kilometers of low-voltage power lines 380 V.

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The following table provides certain information concerning our transmission and distribution system as of the dates presented:
At December 31,
2009
2008
2007
Kilometers of transmission lines
High voltage
1,365 1,364 1,338
Medium voltage
9,191 8,890 8,806
Low voltage
24,761 24,445 23,910
Total
35,317 34,699 34,054
Transformer capacity (MVA)
High voltage/high voltage
7,048 7,048 7,128
High voltage/medium voltage
6,356 6,106 5,866
Medium voltage/low voltage and medium voltage/medium voltage
5,643 5,369 5,136
Total
19,047 18,523 18,130
Access is provided from points of connection with the national interconnection grid, (500 kV-220 kV Rodríguez, 220 kV Ezeiza) and from the local Puerto and Costanera power plants.  Our transmission and subtransmisson system (“HV System”) is composed of the 220kV and 132kV head sub-stations: Casanova, Matanza, Ramos Mejía, Morón, Agronomía, Puerto Nuevo, Nuevo Puerto, Malaver, Colegiales, Edison, Matheu, Talar and Zappalorto.
This HV System, together with the Edesur and Edelap systems, forms the Greater Buenos Aires (GBA) system.  The GBA system is operated by the Sociedad Anónima Centro de Movimiento de Energía (SACME), of which Edenor and Edesur own 50% of the shares.  SACME is responsible for the management of regional high-voltage distribution in the greater Buenos Aires metropolitan area, coordinating, controlling and supervising the operation of the generation, transmission and sub-transmission network in the City of Buenos Aires and the greater Buenos Aires metropolitan areas, including coordination with Sistema Interconectado Nacional (the National Network System or NIS) in the Edenor and Edesur concession areas.  SACME also represents its shareholders in the control of distribution for those concession areas.
We distribute energy from the sub-stations of high/medium voltage through the primary 13.2kV and 33kV system to a secondary 380/220 V low-voltage system.  Our distribution network, consisting of several transformers, power lines and substations, distributes the electricity to final users with varied voltages depending on the requirements of end users.  Certain customers, however, are supplied with power at significantly higher voltages.
We are currently working with the Argentine government and Edesur to construct two new entry points for our network, the first named “Oscar Smith” (previously called “Norte”) and the other “Puerto Nuevo-Malaver-Costanera”.  These new entry points would significantly improve the quality and reliability of our network.  On April 4, 2008, we entered into an agreement with the Minsterio de Planificación Federal, Inversión Pública y Servicios (the Ministry of Federal Planning, Public Investment and Services) to build the new 500/220 kV “Oscar Smith” transformer station at the Partido de Tigre.  This new transformer station will serve to connect our network with the Sistema Argentino de Interconexión (Argentine Interconnection System, or SADI).  We believe that this new entry point will allow us to meet the increasing energy demands in the medium and long term throughout our concession area.  See “Item 5.  Operating and Financial Review and Prospects—Factors affecting our results of operations—Demand—Capacity demand.”
Systems
In 2009, we have been working on the following projects:
·
We continued with the implementation of the  CC&B (Customer Care & Billing) software for the complete renewal of our commercial systems. The project began in August 2008 and is scheduled to conclude in the first half of 2011;
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·
In August 2009, we began in collaboration with Microsoft, the migration of our technological platform, which will allow us to improve our net services, data storage and email.
·
In October 2009, we signed a printer renting contract with Lexmark, which will allow us to replace all our printers unifying our printing services and reducing and rationalizing our related costs.
Customers
The following graph shows the evolution of our customer base through December 31, 2009:
As of December 31, 2009, we served 2,604,612 customers.  We define a “customer” as one meter. We classify our customers pursuant to the following tariff categories:
·
Residential (T1-R1 to R9): residential customers whose peak capacity demand is less than 10kW.  In 2009, this category accounted for approximately 40% of electricity sales.
·
Small commercial (T1-G1 and T1-G2): commercial customers whose peak capacity demand is less than 10kW.  In 2009, this category accounted for approximately 8% of electricity sales.
·
Medium commercial (T2): customers whose peak capacity demand is equal to or greater than 10kW but less than 50kW.  In 2009, this category accounted for approximately 9% of electricity sales.
·
Industrial (T3): industrial customers whose peak capacity demand is equal to or greater than 50kW.  This category is applied to high-demand customers according to the voltage at which each customer is connected.  The voltage ranges included in this category are the following: (i) Low Voltage (LV): voltage less than or equal to 1 kV; (ii) Medium Voltage (MV): voltage greater than 1kV but less than 66 kV; and (iii) High Voltage (HV): voltage equal to or greater than 66kV.  In 2009, this category accounted for approximately 18% of our electricity sales.  This category does not include customers who purchase their electricity requirements directly through the wholesale electricity market under the wheeling system.
·
Wheeling System: large users who purchase their electricity requirements directly from generation or broker companies through the wholesale electricity market.  These tariffs follow the same structure as those applied under the Industrial category described above.  As of December 31, 2009, the total number of such large users was 636, and in 2009 this category represented approximately 20% of our electricity sales.
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·
Others: public lighting (T1-PL) and shantytown customers whose peak capacity demand is less than 10kW.  In 2009, this category accounted for approximately 5% of electricity sales.  See “—Framework agreement (Shantytowns).”
We try to maintain an accurate categorization of our customers in order to charge the appropriate tariff to each of our customers.  In particular, we focus on our residential tariff categorizations to both minimize the number of commercial and industrial customers who are classified as residential customers and identify residential customers whose peak capacity demand exceeds 10kW and therefore do not qualify as residential users.
We rely on the following measures to detect incorrectly categorized customers:
·
reporting by our employees tasked with reading meters to identify observed commercial activities which are being performed by residential customers,
·
conducting internet surveys to identify advertisements for commercial services (such as medical or other professional services) that are linked to a residential customer’s address, and
·
analyzing customer demand to determine whether we should further evaluate the peak capacity demand of a given customer whose use might exceed 10kW.
Reading, billing and collecting
We bill our customers based on their category of service.  Residential and small commercial customers are billed a fixed charge payable bimonthly and a variable charge based on each unit of energy consumed.  The price of these charges, in turn, is determined based on the bimonthly consumption registered by each customer, which is divided into subcategories for each of our residential and small commercial customers as follows:
Residential (Tariff 1-R) :
·
Tariff 1-R1: bimonthly energy demand less than or equal to 300 kWh
·
Tariff 1-R2: bimonthly energy demand greater than 301 kWh
·
Tariff 1-R3: bimonthly energy demand greater than 651 kWh and less than 800 kWh.
·
Tariff 1-R4: bimonthly energy demand greater than 801 kWh and less than 900 kWh.
·
Tariff 1-R5: bimonthly energy demand greater than 901 kWh and less than 1000 kWh.
·
Tariff 1-R6: bimonthly energy demand greater than 1001 kWh and less than 1200 kWh.
·
Tariff 1-R7: bimonthly energy demand greater than 1201 kWh and less than 1400 kWh.
·
Tariff 1-R8: bimonthly energy demand greater than 1401 kWh and less than 2800 kWh.
·
Tariff 1-R9: bimonthly energy demand greater than 2800 kWh.
Small commercial (Tariff 1-G) :
·
Tariff 1-G1: bimonthly energy demand less than or equal to 1600 kWh
·
Tariff 1-G2: bimonthly energy demand greater than 1600 kWh but less than or equal to 4000 kWh
·
Tariff 1-G3: bimonthly energy demand greater than 4000 kWh
Medium commercial customers (Tariff T2) are billed a fixed charge based on a fixed amount of capacity that is payable monthly and a variable charge based on each unit of energy consumed.
Industrial customers (Tariff T3) are billed two monthly fixed charges based on capacity during peak hours and non-peak hours and three variable charges for each unit of energy consumed, which charges vary based on whether the unit was consumed during peak hours (from 6 p.m.  to 11 p.m.), horas de valle (valley hours, from 11 p.m.  to 5 a.m.) or during the remaining hours of the day (from 5 a.m.  to 6 p.m.).

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Public lighting customers are billed a monthly variable energy charge based on each unit of energy consumed.
The table below shows the number of our customers per category at the dates indicated.
At December 31,
2009
2008
2007
Residential
2,271,960 2,206,847 2,162,586
Small commercial
297,070 295,827 292,617
Medium commercial
28,923 28,397 28,676
Industrial
5,628 5,437 5,217
Wheeling system
636 626 569
Other*
395 393 399
Total
2,604,612 2,537,527 2,490,064
*
Represents public lighting and shantytown customers.

Since 1995, we have maintained two billing systems: one for small- and medium-demand customers and other for large users.  Both permit the integration of the reading, billing, collection processes and the tracing of the delinquent balances of customers included in those demand categories.
All of the meters are read with portable meter-reading terminals, either with manual access or optical reading (in the case of electronic meters for medium commercial and industrial customers).  The systems validate the readings, and any inconsistent reading is checked in the field.  Estimates of customer usage are no longer used as a result of this new billing system.  Once the invoices are printed, they are distributed by independent contractors in each operating area, subject to strict controls.
More than 70% of the bills are paid through banking institutions, automatic credit via card debit or in stores, including supermarkets and pharmacies.  Customers pay the remainder at any of our 28 commercial offices.  In summary, automation of these processes has led to high quality billing, reducing the billing cycle from 87 days to less than 54 days over the last few years.  In addition, we use various incentive plans to increase payment of outstanding bills by our customers.
Slow-Paying Accounts and Past Due Receivables
When we assumed the operation of the distribution system from SEGBA in September 1992, many residential electricity meters had not been read for months, individual customer account information was unreliable or nonexistent, and billing and collection systems and procedures required substantial improvement.  The state of these customer records made it difficult to determine how much electricity individual customers had used and whether they were delinquent in paying for the service.  As a result, one of our primary objectives since 1992 has been to address and minimize slow-paying accounts and past due receivables.
Since 1992, many procedures have been established to reduce delinquency and make collection possible.  Our Commercial Department oversees the strict observance of such procedures.
Municipalities’ accounts form a significant number of our arrears accounts.  The methods of collection on such arrears vary for each municipality.  One method of collection is to withhold from the municipalities certain taxes collected by us from the public on behalf of the municipalities and using such taxes to offset any past due amounts owed to us by such municipalities.  Another method of collection is entering into refinancing agreements with the municipalities.  These procedures allowed reducing significantly the number of arrears accounts.
Our  past due receivables increased from Ps. 31.5 million in 2008 to Ps. 56.0 million in 2009.
This increase in past due receivables was the result of the preliminary injunction that the Ombudsman challenging the October 2008 adjustment to our tariffs received.  The preliminary injunction prohibits us from cutting the supply of energy to customers challenging the October 2008 tariff increase until a decision is reached with respect to the Ombudsman’s claim.  See “Item 8. Financial Information – Legal and Administrative Proceedings – Legal proceedings – Preliminary Injunction of the Ombudsman.”  Although we felt the brunt of the injunction in February and March 2009, it continues to adversely impact our collections.
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The following paragraph shows our monthly delinquent balances in 2009:
The following graph shows our delinquent balances as of December 31 of each year:
We also supply energy to low-income areas pursuant to the framework agreement with the Argentine government and the Province of Buenos Aires for which certain payments are still owed to us.  See “—Framework agreement (Shantytowns).”

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Energy losses
Energy losses are equivalent to the difference between energy purchased and energy sold and may be classified as technical and non-technical losses.  Technical losses represent the energy that is lost during transmission and distribution within the network as a consequence of natural heating of the transformers and conductors which transmit the electricity from the generating plants to the customers.  These losses typically increase in proportion to the amount of energy volume distributed (as has been the case for us in recent years).  Technical losses are normal for any energy distributor and cannot be completely eliminated but can be reduced by improvements in the network.  We believe that the level of technical losses is approximately 7% in countries with distribution networks similar to ours.  Non-technical losses represent the remainder of our energy losses and are primarily due to illegal use of our services and administrative and technical errors.
Energy losses require us to purchase additional energy to satisfy apparent demand, thereby increasing costs.  Furthermore, illegally tied-in customers typically consume more electricity than the average level of consumption for their category.  We are unable to recover from customers the cost of electricity purchased beyond the loss factor established as 10% (on average) pursuant to our concession.  The reduction of energy losses therefore reduces the amount of energy that we have to purchase to satisfy apparent demand but cannot invoice, and increases the amount of electricity actually sold.
At the time of privatization of the electricity sector in 1992, our total energy losses were approximately 30%.  At that time, our non-technical losses were estimated at 21%, with over half of that amount due to fraud and illegal use of our service.  In response to the high level of losses, we implemented a loss reduction plan in 1992 which emphasized accurate measurement of energy consumption through periodic inspections, reduction of administrative errors, regularization of shanty towns, reduction of illegal direct connections, provision of services to shantytowns and reduction of technical losses.
In the year 2000, our losses were close to the 10% target rate established in our concession and recognized in tariffs.  However, as a result of the economic, political and social crisis that erupted in 2001, the level of energy losses began to escalate again due to increased poverty levels and payment delinquency.  Fraud control by Edenor workers was often impeded due to the increased aggression from customers during monitoring visits.  Such incidents have decreased since 2004, however, due to improved socioeconomic conditions and the efforts of our management.  Due to the inefficiencies associated with reducing our energy losses below the level at which we are reimbursed pursuant to our concession, we currently do not intend to significantly lower our level of losses.
At present, our goal is to maintain our energy losses at an optimal level, taking into account the cost of reducing such losses and the level at which we are reimbursed for the cost of these losses under our concession.  Our procedures for maintaining an optimal level of losses are focused on improving collections to ensure that customers pay for all the energy that they consume and making investments in our network to control technical losses.  To reduce the theft of electricity we have implemented vigilance and special technologies, such as much higher networks that cannot be reached using normal ladders, shields close to the electricity posts, concentric cables, shielded meters and suspension of electricity service, among other remedies.  We are experimenting with other programs including teaching low-income customers how to ration their consumption, providing low-income customers with the option of paying in installments and the installation of 4,800 prepaid meters.  We also plan to encourage, through subsidies, the installation of special low-energy lamps.  A final decision with respect to the implementation of these energy sales measures on a large scale is currently under evaluation by the ENRE.  In addition, the national government has implemented a program through PRONUREE ( Programa Nacional de Uso Racional y Eficiente de la Energía ) to distribute low energy consumption lamps to our clients through agreements with local municipalities.  In 2008 and 2009, over 2,400,000 of such lamps were distributed to our clients through this program.
The following table illustrates our estimation of the approximate breakdown between technical and non-technical energy losses experienced in our concession area in the last ten years.
Year ended December 31,
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Technical losses
9.8 % 9.8 % 9.6 % 8.6 % 8.3 % 8.1 % 8.0 % 7.8 % 7.5 % 7.3 % 8.0 %
Non-technical losses
2.1 % 1.0 % 2.0 % 2.5 % 2.7 % 3.4 % 4.7 % 4.5 % 3.6 % 2.7 % 2.2 %
Total losses
11.9 % 10.8 % 11.6 % 11.1 % 11.0 % 11.5 % 12.7 % 12.3 % 11.1 % 10.0 % 10.1 %
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Framework agreement (Shantytowns)
In January 1994, we and Edesur entered into the framework agreement with the Argentine government and the Province of Buenos Aires to regulate our supply to low-income areas and shantytowns.  Pursuant to the framework agreement, we agreed to supply electricity and, if feasible, install individual meters within each shantytown.  However, given the lack of adequate space or streets between shantytown homes, in many instances we were only able to install a single meter at the boundary of each shantytown to measure its collective consumption.  Under the terms of the framework agreement, we were entitled to receive compensation from (a) the municipality in which the shantytowns were located, (b) a federal fund, first, for any non-payment in respect of the electricity supplied to the shantytowns and, second, for losses up to Ps. 20 million incurred prior to the signing of the framework agreement, and (c) a provincial fund for capital expenditures made to regularize the shantytown energy supply.
In October 2003, we, together with Edesur and Edelap, signed a new framework agreement with the Argentine government and the Province of Buenos Aires, which was applicable retroactively as of September 2002 and was to expire on the earlier of December 31, 2006 or the full regularization of electricity supply to the shantytowns.  Under this 2003 framework agreement, we are compensated for the service we provide to shantytowns by a commission formed in each shantytown that collects funds from residents of the shantytown.  In addition, we are compensated separately by the municipality in which each shantytown is located, and, if there is any payment shortfall, by a special fund which the Argentine government, and the Province of Buenos Aires support.  Specifically, the Argentine government contributes an amount equal to 21% and the Province of Buenos Aires contributes an amount equal to 15.5% of the compensation, net of taxes, paid by those customers with payment problems and meter irregularities who have been regularized under the framework agreement.  Under the framework agreement, we may also suspend service to regularized clients for lack of payment.
In October 2006, we and the Province of Buenos Aires entered into a payment plan agreement with respect to amounts owed to us by the Province of Buenos Aires under the framework agreement with respect to periods prior to 2007.  Pursuant to the payment plan agreement, we submitted a statement of claims owed to us for the service we provided in low-income and shantytown areas between September 2002 and June 2006.  The Province of Buenos Aires verified these claims in accordance with the terms of the framework agreement and began paying these claims in 18 equal consecutive monthly installments.  Furthermore, as part of the payment plan agreement, the Province of Buenos Aires agreed to pay the first six installments of our claims, irrespective of whether verification of such claims had taken place, and to pay any amounts corresponding with the services we provided to low-income areas and shantytowns during the second half of 2006.  We agreed to waive our right to interest accrued on outstanding amounts owed to us under the framework agreement, provided the Province of Buenos Aires complies with its obligations under the payment plan.  As of December 31, 2009, the Government of the Province of Buenos Aires owed us Ps. 2.3 million of the total amount due under this new agreement.
On June 23, 2008, we signed an amendment to the framework agreement with the Argentine government, the Province of Buenos Aires and the other national electric distributors agreeing to extend the framework agreement for four years from January 1, 2007.  The Argentine government ratified the amendment on September 22, 2008 and on June 18, 2009 the Province of Buenos Aires published the ratification of this Addendum in the Official Bulletin of the Province of Buenos Aires,.  Throughout this process, we have continued to supply energy to the shantytowns.  During November and December 2009, we received from the Argentine government payments for a total amount of Ps.20 million. In March and May 2010, we received from the Argentine government payments of Ps.5.0 million and Ps.3.1 million, respectively..
Our receivables for amounts accrued but not yet paid for the supply of energy to shantytowns under the framework agreement amounted to Ps. 54.8 million as of December 31, 2009 and Ps. 49.4 million as of December 31, 2008.
In March 2010, the Company signed with the Government of the Province of Buenos Aires a payment plan agreement with respect to amounts owed to us by the Province of Buenos Aires under the new framework agreement. The Government of the Province of Buenos Aires agreed to pay the amount due through Cancellation Bonds “Bonos de Cancelación de Deuda”. The agreement was signed at referendum of the ratification by the Provincial Executive Power and the Company's Board of Directors. The Company’s managing board ratified the agreement in the meeting held on April 27, 2010. During May 2010, the Company received payments from the Government of the Province of Buenos Aires for Ps.1.6 million in cash and Ps.30.1 million (face value) with Cancellation Bonds.

44
Insurance
As of December 31, 2009, we are insured for loss or damage to property, including damage due to floods, fires and earthquakes covering amounts up to U.S. $562.5 million, with the following deductibles:
·
transformers, with a deductible of U.S. $100,000 to U.S. $750,000 (depending on the capacity);
·
equipment of sub-stations (not including transformers), with a deductible of U.S. $50,000.
·
commercial offices, with a deductible of U.S. $1,500 for each office.
·
deposits and other properties, with a deductible of U.S. $25,000; and,
·
terrorist acts up to U.S. $10 million, with a deductible of U.S. $50,000.
We maintain customary directors’ and officers’ liability insurance, a civil liability insurance (covering damages to third parties), workmen’s compensation, automobile, life and theft/burglary insurance policies subject to customary deductibles and limitations.  Mandatory life insurance for each employee is maintained in accordance with Argentine law.  Although we do not have business interruption insurance, we consider our insurance coverage to be adequate and in accordance with the standards prevailing for the industry.  See “Item 3. Key Information. Risk Factors—Risks Relating to Our Business—Our insurance may not be sufficient to cover certain losses.”
Environmental management
In Argentina, the national government, the provinces and the government of the City of Buenos Aires are entitled to legislate on natural resources and environmental protection issues.  The 1994 Constitution reaffirms this principle, assigning to the Argentine federal government the establishment of broad environmental guidelines and to the provinces the duty to implement the necessary legislation to attain national environmental goals.  The environmental policy for the electricity market is formulated by the Secretary of Energy and implemented by the ENRE.  Areas regulated by the ENRE include the tolerance level for electromagnetic fields, radio interference, voltage of contact and pass, liquid spills, disposal and handling of solid wastes, noise and vibration admissible levels and use, and the transport on and storage of toxic substances, including polychlorinated biphenil (PCB), a viscous substance which was historically used to lubricate electrical transformers.  The Argentine Environmental Law requires that we eliminate the PCB in our transformers before the end of 2010.
In 2009, Edenor completed the removal of PCBs from all its transformers with cooling oils and emissions exceeding 50 ppm (parts per million).

As part of our investment plan, we made important improvements to our network and implemented environmental tests to evaluate the impact of these improvements on the environment and the surrounding areas.  We are currently engaged, together with environmental governmental entities, in the application of procedures to decontaminate mineral oils.  We are required to apply for licenses from the ENRE for all our business activities, including those related to the environment.  We believe that we are in compliance in all material respects with all applicable environmental standards, rules and regulations established by the ENRE, the Secretary of Energy and federal, provincial and municipal authorities.  We have implemented environmental variables testing programs to evaluate environmental variances and to take corrective actions when necessary.  In addition, we have in place an environmental emergency plan to reduce potential adverse consequences if an environment accident should occur.  Finally, as part of our environmental actions, we improved the program of rational uses of energy in our buildings and in our customer equipment.
On October 19, 1999, the Instituto Argentino de Normalización (the Argentine Institute of Normalization) certified that we have an Environmental Management System that is in accordance with the requirements of the standards set by the International Standardization Organization (ISO) as specified in its release, ISO 14001, which relates specifically to environmental management systems.  This certification is reaffirmed on an annual basis, most recently as of October 2009.
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Argentine law requires all persons whose activities risk environmental damage, such as us, to obtain environmental insurance up to a certain minimum coverage or set aside funds in an environmental restoration fund to pay for environmental liabilities that may arise.  As of the date of this annual report, the Superintendencia de Seguros de la Nación (the Superintendent of Insurance) has only approved one environmental insurance policy that meets with the legal requisites.  We have explored the possibility of setting up an environmental restoration fund, yet it is not clear what the appropriate size or scope of the fund would be.  We continue to consult with leading insurance companies to evaluate our alternatives.  We have conducted a review of the possible impact and effects our activities might have on the environment, and we have implemented certain preventative measures and operational controls as a result.  We also have an environmental emergency plan that details the steps that would be taken in the case our operations resulted in any environmental damage.
Seasonality
For a discussion of seasonality of demand see “Item 5. Operating and Financial Review and Prospects—Demand—Seasonality of Demand.”
PROPERTY, PLANT AND EQUIPMENT
Our main properties are transmission lines, substations and distribution networks, all of which are located in the northwestern area of the greater Buenos Aires metropolitan area and the northern area of the City of Buenos Aires.  Substantially all of our properties are held in concession to provide the electricity distribution service, which, by nature, is considered to be an essential public service.  In accordance with Argentine legislation and court precedents, assets which are affected to rendering an essential public service are not subject to attachment or attachment in aid of execution and therefore, enforcement of judgments against us may be substantially limited.  The net book value of the property, plant and equipment recorded on our balance sheet as of December 31, 2009 was Ps. 3,482.4 million.  The net book value of the property, plant and equipment recorded on our balance sheet as of December 31, 2008 and 2007 was Ps. 3,256.3 million and  Ps. 3,092.7 million, respectively.
Our gross asset base represents property, plant and equipment related to our distribution services.  Because our total property, plant and equipment represents substantially the same assets, but calculated at historical cost as adjusted by inflation through February 2003, we believe the inflation-adjusted value of our property, plant and equipment is an accurate measure of our asset base for purposes of calculating our return on our assets.  See “Item 5. Operating and Financial Review and Prospects—Factors affecting our results of operations—Tariffs—Distribution margin or value-added for distribution (VAD)— Revisión Tarifaria Integral (Integral Tariff Revision, or RTI).” The last adjustment for inflation to our property, plant and equipment was registered in February 2003 in accordance with Argentine GAAP.  Accordingly, we estimate the effects of inflation on our property, plant and equipment for periods after February 2003 for purposes of determining the value of our gross asset base in connection with our concession.  See Note 2 to our audited financial statements included elsewhere in this annual report.
Item 4A.
Unresolved Staff Comments
None.
Item 5.
Operating and Financial Review and Prospects
The following discussion should be read in conjunction with our audited financial statements as of December 31, 2009 and 2008 and for the years ended December 31, 2009, 2008 and 2007.  Our audited financial statements have been prepared in accordance with Argentine GAAP, which differ in certain significant respects from U.S. GAAP.  Note 27 to our audited financial statements included elsewhere in this annual report provides a description of the significant differences between Argentine GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net income for the years ended December 31,2009, 2008 and 2007 and shareholders’ equity as of December 31,2009 and 2008.  Our financial statements have not been adjusted for inflation after February 28, 2003, in accordance with Argentine GAAP.  See “Item 3. Key Information—Selected financial data.”
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OPERATING RESULTS
We distribute electricity on an exclusive basis to the northwestern zone of the greater Buenos Aires metropolitan area and the northern portion of the City of Buenos Aires, comprising an area of 4,637 square kilometers, with a population of approximately seven million people.  Pursuant to our concession, we have the exclusive right to distribute electricity to all users within our concession area, including to wholesale electricity market participants.  At December 31, 2009, we had 2,604,612 customers.
We serve two markets: the regulated market, which is comprised of users who are unable to purchase their electricity requirements directly through the wholesale electricity market, and the unregulated market, which is comprised of large users that purchase their electricity requirements directly from generators in the wholesale electricity market.  The terms and conditions of our services and the tariffs we charge users in both the regulated and unregulated markets are regulated by the ENRE.
Factors affecting our results of operations
Our net sales consist mainly of net energy sales to users in our service area.  Our net energy sales reflect the tariffs we charge our customers (which include our energy purchase costs) and reflect deductions for fines and penalties we incur during the year.  Any adjustments, however, to our accrual for fines and penalties resulting from increases in our distribution margins are recorded under financial income (expenses) and holding gains (losses).  See “Item 4. Information on the Company—Our concession —Fines and penalties.”
In addition, our net sales include late payment charges we bill our customers for delays in payment of their bills, connection and reconnection charges and leases of poles and other network equipment.
If we fail to comply with the obligations under our concession, we may become subject to fines and penalties imposed by the ENRE.  Some of these fines and penalties are payable by granting credits or bonuses to our customers to offset a portion of their electricity charges.  Fines and penalties that are not directly related to our customers, such as fines for public safety violations, are paid directly to the ENRE.  We deducted approximately Ps. 58.5 million in fines and penalties from our revenues in 2009, Ps. 34.8 million in 2008 and Ps. 23.9 million in 2007.  We incurred significantly higher levels of fines and penalties last year, due to an increase in underlying cost of energy factors upon which the fines and penalties are calculated . In September 2005, we entered into an agreement with the Argentine government, which was formally re-executed in February 2006 and ratified in January 2007, pursuant to which the Argentine government has agreed, subject to certain conditions, to forgive approximately one-third of our accrued and unpaid fines and penalties and grant us a payment plan for the remainder of these fines and penalties, which will be adjusted for future increases in our distribution margins, if any.  See “Item 4. Information on the Company—Our concession —Fines and penalties.”

47
The following table sets forth the composition of our net sales for the periods indicated:
Year ended December 31,
2009
2008
2007
(in millions of Ps.)
Energy sales (1)
Ps. 2,094.3 Ps. 2,000.8 Ps. 1,972.7
Fines and penalties
(58.5 ) (34.8 ) (23.9 )
Net energy sales
2,035.8 1,966.0 1,948.7
Late payment charges
20.7 17.8 17.1
Connection charges
5.7 3.7 4.0
Reconnection charges
2.0 2.2 1.4
Pole leases
13.7 10.5 10.7
Net sales
Ps. 2,077.9 Ps. 2,000.2 Ps. 1,981.9
(1)
Energy sales for 2007 include the retroactive portion of the February 2007 VAD increase, which amounts in aggregate to Ps. 218.6 million and is being invoiced in 55 consecutive monthly installments.  We began invoicing these installments in February 2007 and, as of December 31, 2009, we had invoiced Ps. 149.4 million of this amount.
The following tables show our energy sales by category of customer (in GWh and in Pesos) for the periods indicated:
Year ended December 31,
2009
2008
2007
2006
2005
(in GWh)
Residential
7,344 40 % 7,545 41 % 7,148 40 % 6,250 38 % 5,819 37 %
Small commercial
1,470 8 % 1,530 8 % 1,485 8 % 1,433 9 % 1,387 9 %
Medium commercial
1,565 8 % 1,597 9 % 1,552 9 % 1,446 9 % 1,354 9 %
Industrial
3,204 18 % 3,277 18 % 3,628 20 % 3,364 20 % 3,195 20 %
Wheeling system (1)
3,622 20 % 3,700 20 % 3,111 17 % 3,211 19 % 2,984 19 %
Others:
Public lighting
644 4 % 644 3 % 643 4 % 650 4 % 642 4 %
Shantytowns
351 2 % 304 2 % 301 2 % 261 2 % 279 2 %
Others (2)
20 — 19 — 19 — 18 — 17 —
Total
18,220 100 % 18,616 100 % 17,886 100 % 16,632 100 % 15,677 100 %
(1)
Wheeling charges represent our tariffs for large users, which consist of a fixed charge for recognized technical losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.
(2)
Represents energy consumed internally by our company and our facilities.
Year ended December 31,
2009
2008 (2)
2007 (1)
2006
2005
(in millions of Pesos)
Residential
Ps. 679.6 32 % Ps. 575.8 30 % Ps. 488.7 29 % Ps. 445.4 32 % Ps. 421.8 32 %
Small commercial
322.3 15 % 307.7 16 % 276.5 16 % 202.7 15 % 197.2 15 %
Medium commercial
335.4 16 % 317.4 17 % 288.1 17 % 216.5 16 % 204.1 16 %
Industrial
569.2 27 % 498.2 26 % 481.9 28 % 376.8 27 % 358.6 27 %
Wheeling system (3)
139.2 7 % 113.6 6 % 84.9 5 % 60.7 4 % 57.1 4 %
Others:
Public lighting
55.3 3 % 55.9 3 % 55.2 3 % 46.9 4 % 46.3 4 %
Shantytowns and
others (4)
(6.7 ) 0 % 47.6 2 % 29.1 2 % 23.6 2 % 26.0 2 %
Total
Ps. 2,094.3 100 % Ps. 1,916.2 100 % Ps. 1,704.4 100 % Ps. 1,372.5 100 % Ps. 1,311.0 100 %
(1)
Does not include the retroactive portion (Ps. 218.6 million ) of our February 2007 VAD increase, of which we have invoiced Ps. 149.4 million as of December 31, 2009, and the CMM adjustment for the period May 2006 – April 2007, applicable as of May 1, 2007 and collected through PUREE funds, for a total amount of Ps. 49.6 million.
(2)
Does not include CMM adjustment collected through PUREE funds, which amount to Ps. 84.6 million.
(3)
Wheeling charges represent our tariffs for large users, which consist of a fixed charge for recognized energy losses and a charge for our distribution margins but exclude charges for electric power purchases, which are undertaken directly between generators and large users.
(4)
In 2009, shantytown sales totaled Ps. 28.4 million; this amount was adjusted by various accounting changes and changes to rate charts imposed by the ENRE in June and July 2009.
Our revenues and results of operations are principally affected by economic conditions in Argentina, changes in our regulated tariffs and fluctuations in demand for electricity within our service area.  To a lesser extent, our revenues and results of operations are also affected by service interruptions or reductions in excess of those contemplated by our concession, which may lead us to incur fines and penalties imposed by the ENRE.

48
Argentine Economic Conditions and Inflation
Because a substantial portion of our operations, facilities and customers are located in Argentina, we are affected by general economic conditions in the country.  In particular, the general performance of the Argentine economy affects demand for electricity, and inflation and fluctuations in currency exchange rates affect our costs and our margins.  Inflation primarily affects our business by increasing operating costs, while at the same time reducing our revenues in real terms.
In December 2001 Argentina experienced an unprecedented crisis that virtually paralyzed the country’s economy through most of 2002 and led to radical changes in government policies.  The crisis and the government’s policies during this period severely affected the electricity sector, as described below.  Although over the following years the Argentine economy has recovered significantly from the crisis and the business and political environment has been largely stabilized, the Argentine government has only recently begun to address the difficulties experienced by the Argentine electricity sector as a result of the crisis and its aftermath.  However, we believe that the current recovery and the recent measures adopted by the Argentine government in favor of the electricity sector, such as incentives for the construction of additional generation facilities and the creation of fiduciary funds to further enhance generation, transmission and distribution of electricity throughout the country, have set the stage for growth opportunities in our industry.
The following table sets forth key economic indicators in Argentina during the years indicated:
Year ended December 31,
2009
2008
2007
2006
2005
Real GDP (% change)
1.0 7.0 8.7 8.5 9.2
Nominal GDP (in millions of Pesos)
1,146,258 1,038,188 812,456 654,413 531,939
Real Consumption (% change)
1.1 6.7 8.8 7.4 8.5
Real Investment (% change)
(7.6 ) 9.0 13.6 18.2 22.7
Industrial Production (% change)
0.4 5.0 7.6 8.9 7.5
Consumer Price Index
7.7 7.2 8.5 9.8 12.3
Nominal Exchange Rate (in Ps. /U.S.$ at year end)
3.80 3.45 3.15 3.06 3.04
Exports (in millions of U.S.$)
55,750 70,589 55,933 46,569 40,013
Imports (in millions of U.S.$)
38,771 55,413 44,780 34,159 28,692
Trade Balance (in millions of U.S.$)
16,979 13,176 11,153 12,410 11,321
Current Account (% of GDP)
2.8 2.5 2.7 3.6 2.9
Reserves (in millions of U.S.$)
46,355 46,383 46,176 32,037 28,077
Tax Collection (in millions of Pesos)
304,930 269,375 199,781 150,008 119,252
Primary Surplus (in millions of Pesos)
17,286 32,529 25,719 23,156 19,661
Public Debt (% of GDP at December 31) *
46.4 48.5 55.9 64.6 71.7
Public Debt Service (% of GDP)
5.4 4.9 5.8 5.1 5.4
External Debt (% of GDP at December 31)
40.6 39.2 47.9 51.5 62.9
Sources: INDEC; Central Bank; Ministry of Economy and Production.
* Does not include hold outs
Following years of hyperinflation and economic recession, in 1991 the Argentine government adopted an economic program that sought to liberalize the economy and impose monetary discipline.  The economic program, which came to be known as the Convertibility regime, was centered on the Convertibility Law of 1991 and a number of measures intended to liberalize the economy, including the privatization of a significant number of public sector companies (including certain of our subsidiaries and co-controlled companies).  The Convertibility Law established a fixed exchange rate based on what is generally known as a currency board.  The goal of this system was to stabilize the inflation rate by requiring that Argentina’s monetary base be fully backed by the Central Bank’s gross international reserves.  This restrained the Central Bank’s ability to effect changes in the monetary supply by issuing additional Pesos and fixed the exchange rate of the Peso and the U.S. Dollar at Ps. 1.00 to U.S. $1.00.

49

The Convertibility regime temporarily achieved price stability, increased the efficiency and productivity of the Argentine economy and attracted significant foreign investment to Argentina.  At the same time, Argentina’s monetary policy was tied to the flow of foreign capital into the Argentine economy, which increased the vulnerability of the economy to external shocks and led to increased reliance on the services sector of the economy, with the manufacturing, agricultural and industrial sectors lagging behind due to the relative high cost of Peso-denominated products in international markets as a result of the Peso’s peg to the U.S. Dollar.  In addition, related measures restricted the Central Bank’s ability to provide credit, particularly to the public sector.
Following the enactment of the Convertibility Law, inflation declined steadily and the economy experienced growth through most of the period from 1991 through 1997.  This growth slowed from 1998 on, however, as a result of the Asian financial crisis in 1997, the Russian financial crisis in 1998 and the devaluation of Brazil’s currency in 1999, which led to the widespread withdrawal of investors’ funds from emerging markets, increased interest rates and a decline in exports to Brazil, Argentina’s principal export market at the time.  According to INDEC, in the fourth quarter of 1998, the Argentine economy entered into a recession that caused the gross domestic product to decrease by 3.4% in 1999, 0.8% in 2000 and 4.4% in 2001.  In the second half of 2001, Argentina’s recession worsened significantly, precipitating a political and economic crisis at the end of 2001.
2001 economic crisis
Beginning in December 2001, the Argentine government implemented an unexpected number of monetary and foreign exchange control measures that included restrictions on the free disposition of funds deposited with banks and on the transfer of funds abroad without prior approval by the Central Bank, some of which are still in effect.  On December 21, 2001, the Central Bank decided to close the foreign exchange market, which amounted to a de facto devaluation of the Peso.  On December 24, 2001, the Argentine government suspended payment on most of Argentina’s foreign debt.
The economic crisis led to an unprecedented social and political crisis, including the resignation of President Fernando De la Rúa and his entire administration in December 2001.  After a series of interim governments, in January 2002 the Argentine congress appointed Senator Eduardo Duhalde, a former vice-president and former governor of the Province of Buenos Aires, to complete De la Rúa’s term through December 2003.
On January 6, 2002, the Argentine congress enacted the Public Emergency Law, which introduced dramatic changes to Argentina’s economic model, empowered the Argentine government to implement, among other things, additional monetary, financial and foreign exchange measures to overcome the economic crisis in the short term and brought to an end the Convertibility regime, including the fixed parity of the U.S. Dollar and the Peso.  Following the adoption of the Public Emergency Law, the Peso devalued dramatically, reaching its lowest level on June 25, 2002, at which time it had devalued from Ps. 1.00 to Ps. 3.90 per U.S. Dollar according to Banco Nación.  The devaluation of the Peso had a substantial negative effect on the Argentine economy and on the financial condition of individuals and businesses.  The devaluation caused many Argentine businesses (including our company) to default on their foreign currency debt obligations, significantly reduced real wages and crippled businesses that depended on domestic demand, such as public utilities and the financial services industry.  The devaluation of the Peso created pressure on the domestic pricing system and triggered very high rates of inflation.  According to INDEC, during 2002 the Argentine wholesale price index increased by approximately 118% and the Argentine consumer price index rose approximately 41%.
Following the adoption of the Public Emergency Law, the Argentine government implemented measures, whether by executive decree, Central Bank regulation or federal legislation, attempting to address the effects of the collapse of the Convertibility regime, recover access to financial markets, reduce government spending, restore liquidity to the financial system, reduce unemployment and generally stimulate the economy.
Pursuant to the Public Emergency Law, the Argentine government, among other measures:
·
converted public utility tariffs from their original U.S. Dollar values to Pesos at a rate of Ps. 1.00 per U.S. $1.00;
·
froze all regulated distribution margins relating to the provision of public utility services (including electricity distribution services);

50
·
revoked all price adjustment provisions and inflation indexation mechanisms in public utility concessions (including our concession); and
·
empowered the Executive Branch to conduct a renegotiation of public utility contracts (including our concession) and the tariffs set therein (including our tariffs).
These measures, combined with the devaluation of the Peso and high rates of inflation, had a severe effect on public utilities in Argentina (including our company).  Because public utilities were no longer able to increase tariffs at a rate consistent with the increased costs they were incurring, increases in the rate of inflation led to decreases in their revenues in real terms and a deterioration of their operating performance and financial condition.  Most public utilities had also incurred large amounts of foreign currency indebtedness to finance the capital improvement and expenditure programs.  At the time of these privatizations, the capital structures of each privatized company were determined taking into account the Convertibility regime and included material levels of U.S. Dollar-denominated debt.  Following the elimination of the Convertibility regime and the resulting devaluation of the Peso, the debt service burden of these utilities significantly increased, which when combined with the margin freeze and conversion of tariffs from U.S. Dollars to Pesos, led many of these utilities (including our company) to suspend payments on their foreign currency debt in 2002.
Economic recovery and outlook
Beginning in the second half of 2002, Argentina experienced economic growth driven primarily by exports and import-substitution, both facilitated by the lasting effect of the devaluation of the Peso in January 2002.  While this devaluation had significant adverse consequences, it also fostered a reactivation of domestic production in Argentina as the sharp decline in the Peso’s value against foreign currencies made Argentine products relatively inexpensive in the export markets.  At the same time, the cost of imported goods increased significantly due to the lower value of the Peso, forcing Argentine consumers to substitute their purchase of foreign goods with domestic products, substantially boosting domestic demand for domestic products.
In April 2003, Dr. Néstor Kirchner, the former governor of the province of Santa Cruz, was elected as president for a four-year term, and he took office in May 2003.  During 2003, Argentina moved towards normalizing its relationship with the IMF, withdrew all the national and provincial governments’ quasi-money securities from circulation and eliminated all deposit restrictions.  The trade balance experienced a sustained surplus, aided by the rise in commodity prices and export volumes.  At the same time, social indicators improved, with the unemployment rate decreasing to 17.3%, and real wages began to recover according to INDEC.  In June 2005, the Argentine government completed a restructuring of Argentina’s public external debt, which had been in default since December 2001.  Argentina reduced its outstanding principal amount of public debt from U.S. $191.3 billion to U.S. $126.6 billion and extended payment terms.  Approximately U.S. $19.5 billion of defaulted bonds held by creditors who did not participate in the exchange offer remain outstanding according to the Argentine Ministry of Economy and Production.  On January 3, 2006, Argentina completed an early repayment of all of its outstanding indebtedness with the IMF, for an amount totaling approximately U.S. $10.0 billion owing under credit lines.
From 2003 to 2007, the economy continued recovering from the 2001 economic crisis.  The economy grew by 8.8% in 2003, 9.0% in 2004, 9.2% in 2005, 8.5% in 2006 and 8.7% in 2007, led by domestic demand and exports.  From a demand perspective, private sector spending was accompanied by a combination of liberal monetary and conservative fiscal policies.  Growth in spending, however, consistently exceeded the rate of increase in revenue and nominal GDP growth.  From a supply perspective, the trade sector benefited from a depressed real exchange rate, which was supported by the intervention of the Central Bank in the foreign exchange market.  Real exports improved, in part due to growth in Brazil, and the current account improved significantly, registering surpluses in 2004, 2005, 2006 and 2007.
On December 10, 2007, Cristina Fernández de Kirchner, wife of the ex-President Dr. Néstor Kirchner, was inaugurated as President of Argentina for a four-year term.
Argentina grew by 7% in 2008, 19.5% less than in 2007.  According to the INDEC, growth was negative in both the first and the fourth quarter of 2008 (-0.3% for both periods) as compared to the same periods in 2007, without adjusting for seasonality.  This negative growth is primarily attributable to the conflict between the Argentine government and farmers in early 2008 and the global financial crisis, which deepened in the second half of 2008.

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The agricultural sector was particularly hard hit in 2008 as a result of the decrease in commodities prices as well as a significant drought.  A decline in the agricultural sector has adverse ramifications for the entire economy due to the significant role that sector plays in the Argentine economy.
At the end of 2008, the Argentine government enacted a series of measures aimed at counteracting the decline in the level of economic activity, including special tax rates and less stringent foreign exchange restrictions in connection with the repatriation and national investment of capital previously deposited abroad by Argentine nationals, extensions in the payment terms for overdue taxes and social security taxes, reductions in payroll tax rates for companies that increase their headcounts, creation of the Ministerio de Producción (Ministry of Production), announcements regarding the construction of new public works, consumer loans for the acquisition of durable goods and loans to finance exports and working capital for industrial companies, as well as various agricultural and livestock programs, all aimed at minimizing lay-offs during the current global financial crisis.  The effectiveness of these measures will depend on the government’s ability to fund them without reducing the amount of funding for other budgeted activities as well as the degree of confidence they create in the overall stability of the Argentine economy.
In 2009, after six years of robust and continuous growth, the Argentina economy, according to official indicators, grew by only 1%, and according to private indicators, contract by 3.5%.  The Central Bank, reacting to local uncertainty and a bleak global economic environment, adopted policies aimed at avoiding a financial collapse.  Specifically, the Central Bank sought to stabilize the exchange market.  Although the interest rates increased at specific moments during the course of the year, the exchange market did remain relatively stable throughout.
By the second quarter of 2009, due to improvements in the global economy and the relative stability of the domestic financial markets, the Argentine economy began to recover.

Tariffs
Our revenues and margins are substantially dependent on the composition of our tariffs and on the tariff setting and adjustment process contemplated by our concession.  Our management is currently focused on the renegotiation of our tariff structure, which, if successful, would have a significant impact on our results of operations.

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The following chart shows the variation in our average tariff, including taxes, (in Ps. /MWh) in the periods indicated:
Our tariffs for all of our customers (other than customers in the wheeling system) are composed of:
·
the cost of electric power purchases, which we pass on to our customers, and a fixed charge (which varies depending on the category and level of consumption of each customer and their energy purchase prices) to cover a portion of our energy losses in our distribution activities (determined by reference to a fixed percentage of energy and power capacity for each respective voltage level set forth in our concession);
·
our regulated distribution margin, which is known as the value-added for distribution, or VAD; and
·
any taxes imposed by the Province of Buenos Aires or the City of Buenos Aires, which may differ in each jurisdiction.
Certain of our large users (which we refer to as wheeling system customers) are eligible to purchase their energy needs directly from generators in the wholesale electricity market and to acquire from us only the service of delivering that electricity to them.  Our tariffs for these large users (known as wheeling charges) do not include, therefore, charges for energy purchases.  Accordingly, wheeling charges consist of the fixed charge for recognized losses (determined by reference to a fixed percentage of energy and power capacity for each respective voltage level set forth in our concession) and our distribution margin.  As a result, although the amounts billed to wheeling system customers are relatively lower than those billed to other large users, namely industrial users, the distribution margin on sales to wheeling system customers is the same as for sales to other large users because we do not incur the corresponding cost of electric power purchases related to those sales.
Recognition of cost of electric power purchases
As part of our tariffs, we bill our customers for the costs of our electric power purchases, which include energy and capacity charges.  In general, we purchase electric power at a seasonal price, which is approved by the ENRE every six months and reviewed quarterly.   Our electric power purchase price reflects transportation costs and certain other regulatory charges (such as the charges imposed by the Fondo Nacional de Energía Eléctrica (National Electricity Energy Fund)).

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According to the current regulatory framework, the ENRE is required to adjust the seasonal price charged to distributors in the wholesale electricity market every six months.  However, between January 2005 and November 2008, the ENRE failed to make these adjustments.  In November 2008, the ENRE issued Resolution No. 628/08, which established the new tariffs applied by Edenor as of October 1, 2008 (see “— Tariffs — Distribution margin or value added for distribution (VAD) — Adjustment Agreement”) and modified seasonal prices charged to distributors, including the consumption levels that make up the pricing ladder.  The new pricing ladder sets prices according to the following levels of consumption:  bimonthly consumption up to 1,000 kWh; bimonthly consumption greater than 1,000 kWh and less than or equal to 1,400 kWh; bimonthly consumption greater than 1,400 kWh and less than or equal to 2,800 kWh; and bimonthly consumption greater than 2,800 kWh.  In addition, the ENRE authorized us to pass through some regulatory charges associated with the electric power purchases to our customers, excluding residential customers with consumption levels below 1,000 kWh.
On August 14, 2009, ENRE adopted Resolution No. 433/2009 approving two tariff charts to be applied by Edenor. The first one applied retroactively for the period from June 1, 2009 to July 31, 2009. The second rate chart was effective for the period from August 1, 2009 to September 30, 2009. These charts were based on the new subsidized seasonal prices set forth Resolution No. 652/09 issued by the Secretary of Energy. The new price charts aimed at reducing the impact of increased winter electrical energy consumption on the invoicing of residential customers with bi-monthly consumption exceeding 1,000 kWh. The modification to the ENRE rate charts did not have any effect on our VAD.  The ENRE also instrumented usto break down the floating charges of all invoices into the amounts subsidized and not subsidized by the Argentine government.

As of October 1, 2009, the tariff chart of October 2008 was reinstated pursuant to ENRE Resolution No. 628/2008. The floating charge of all invoices continues to be broken down into the amounts subsidized and not subsidized by the Argentine Government.

Upon the ratification of the Adjustment Agreement, we again were allowed to charge our non-residential customers for increases in regulatory charges.  As part of the RTI, we also expect we will be able to bill residential customers for accrued amounts under these increases, which we were not permitted to do under the Adjustment Agreement.
We purchased a total of 17,040 GWh in 2009, 17,169 GWh in 2008 and 17,122 GWh in 2007 (excluding wheeling system demand).  Until 2004, we purchased a portion of our energy needs under long-term supply contracts.  Following the adoption of certain amendments to the pricing rules applicable to the wholesale electricity market pursuant to the Public Emergency Law, however, we currently purchase all of our energy supply in the wholesale electricity market at the spot price.  We have not purchased any energy under long-term supply contracts since 2004 and we do not anticipate making any material purchases of energy in the term market in the near future.
Recognition of cost of energy losses
Energy losses are equivalent to the difference between energy purchased (including wheeling system demand) and energy sold.  These losses may be classified as technical and non-technical losses.  Technical losses represent the energy that is lost during transmission and distribution within the network as a consequence of natural heating of the conductors and transformers that transmit electricity from the generating plants to the customers.  Non-technical losses represent the remainder of our energy losses and are primarily due to illegal use of our services.  Energy losses require us to purchase additional electricity to satisfy demand and our concession allows us to recover from our customers the cost of these purchases up to a loss factor specified in our concession for each tariff category.  Our loss factor under our concession is, on average, 10%.  Our management is focused on taking the necessary measures to ensure that our energy losses do not increase above current levels because of their direct impact on our gross margins.  However, due to the inefficiencies associated with reducing our energy losses below the level at which we are reimbursed pursuant to our concession (i.e., 10%), we currently do not intend to significantly lower our level of losses.
At the time of our privatization, our total energy losses represented approximately 30% of our energy purchases, of which more than two thirds were non-technical losses attributable to fraud and illegal use of our service.  Beginning in 1992, we implemented a loss reduction plan ( plan de disciplina del mercado , or market discipline plan) that allowed us to gradually reduce our total energy losses to 10.0% by 2000, with non-technical losses of 2.7%.  However, beginning in mid-2001 and up until 2004, we experienced an increase in our non-technical losses, as the economic crisis eroded the ability of our customers to pay their bills, and in our technical losses in proportion with the increased volume of energy we supplied during those periods.  Our total losses amounted to 11.6% in 2007, 10.8% in 2008 and 11.9% in 2009.

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The following table sets forth the approximate breakdown between technical and non-technical energy losses experienced in our concession area over the periods indicated:
Year ended December 31,
2009
2008
2007
Technical losses
9.8 % 9.8 % 9.6 %
Non-technical losses
2.1 % 1.0 % 2.0 %
Total losses
11.9 % 10.8 % 11.6 %

Our capital expenditure program includes investments to improve and update our network, which we believe will allow us to maintain our technical losses at current levels despite further increases in demand.  See “Item 4. Information on the Company—Energy losses.”
Distribution margin or value-added for distribution (VAD)
Our concession authorizes us to charge a distribution margin for our services to seek to cover our operating expenses, taxes and amortization expenses and to provide us with an adequate return on our asset base.
Historical Overview of VAD. Our concession originally contemplated a fixed distribution margin for each tariff parameter with semiannual adjustments based on variations in the U.S. wholesale price index (67% of the distribution margin) and the U.S. consumer price index (the remaining 33% of the distribution margin).  However, pursuant to the Public Emergency Law, all adjustment clauses in U.S. Dollars or other foreign currencies and indexation clauses based on foreign indexes or other indexation mechanisms included in contracts to be performed by the Argentine government were revoked.  As a result, the adjustment provisions contained in our concession are no longer in force and, from January 2002 through January 2007, we were required to charge the same fixed distribution margin in Pesos established in 2002, without any type of currency or inflation adjustment.  These measures, coupled with the effect of accumulated inflation since 2002 and the devaluation of the Peso, have had a material adverse effect on our financial condition, results of operation and cash flows, leading us to record net losses.
Adjustment Agreement. On September 21, 2005, we entered into the Acta Acuerdo sobre la Adecuación del Contrato de Concesión del Servicio Público de Distribución y Comercialización de Energía Eléctrica (Adjustment Agreement), an agreement with the Argentine government relating to the adjustment and renegotiation of the terms of our concession.  Because a new Minister of Economy took office thereafter, we formally re-executed the Adjustment Agreement with the Argentine government on February 13, 2006 under the same terms and conditions originally agreed.  The ratification of the Adjustment Agreement by the Argentine government was completed in January 2007.  Pursuant to the Adjustment Agreement, the Argentine government granted us an increase of 28% in our distribution margin, which includes a 5% increase to fund specified capital expenditures we are required to make under the Adjustment Agreement.  See “—Liquidity and Capital Resources—Capital expenditures.” This increase was subject to a cap in the increase of our average tariff of 15%.  Although this increase was applied to the distribution margin as a whole, the amount of the increase was allocated to our non-residential customers (including large users that purchase electricity in the wheeling system) only, which, as a result, experienced an increase in VAD greater than 28%, while our residential customers did not experience any increase in VAD.  The increase is effective retroactively from November 1, 2005 and will remain in effect until the approval of a new tariff scheme under the RTI.

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The Adjustment Agreement also contemplates a cost adjustment mechanism for the transition period during which the integral tariff review process is being conducted.  This mechanism, known as the Cost Monitoring Mechanism, or CMM, requires the ENRE to review our actual distribution costs every six months (in May and November of each year).  If the variation between our actual distribution costs and our recognized distribution costs (as initially contemplated in the Adjustment Agreement or, if adjusted by any subsequent CMM, the most recent distribution cost base established by a CMM) is 5% or more, the ENRE is required to adjust our distribution margin to reflect our actual distribution cost base.  The ENRE’s review is based on our distribution costs during the six-month period ending two months prior to the date on which the ENRE is required to apply the cost adjustment mechanism (on May 1 and November 1) and any adjustment will become effective from such date.  The CMM takes into consideration, among other factors, the wholesale and consumer price indexes, current exchange rates, the price of diesel and construction costs and salaries, all of which are weighted based on their relative importance to operating costs and capital expenditures.  We may also request that the CMM be applied at any time that the variation between our actual distribution costs and our then recognized distribution costs is at least 10% or more, and any adjustment to our distribution cost base that results from this CMM will become effective retroactively from the date we present the CMM request to the ENRE.  We cannot make any assurances, however, that we will receive any future increases under the CMM.
On January 30, 2007, the ENRE formally approved our new tariff schedule reflecting the 28% increase in the distribution margins charged to our non-residential customers contemplated by the Adjustment Agreement.  In addition, because the Adjustment Agreement is effective retroactively as of November 1, 2005, the ENRE applied the CMM retroactively in each of May and November 2006, the dates in each year on which the ENRE is required to apply the CMM.  In the May 2006 CMM, the ENRE determined that our distribution cost base increased by 8.032% (compared to the distribution cost base originally recognized in the Adjustment Agreement), and, accordingly, approved an equivalent increase in our distribution margins effective May 1, 2006.  This increase, when compounded with the 28% increase granted under the Adjustment Agreement, results in an overall 38.3% increase in our distribution margins charged to our non-residential customers.  In the November 2006 CMM, the ENRE determined that our distribution cost base increased by 4.6% (compared to our distribution cost base as adjusted by the May 2006 CMM), and accordingly, did not approve any further increase in our distribution margins at such time.
The ENRE also authorized us to charge our non-residential customers the retroactive portion of these tariff increases for the period from November 2005 through January 2007, which amounts in the aggregate to Ps. 218.6 million, which is being invoiced in 55 consecutive monthly installments beginning in February 2007, representing approximately Ps. 48 million each year. As of December 31, 2009, we had invoiced Ps. 149.4 million of this amount.
In October 2007, the Argentine Secretary of Energy published Resolution No 1037/2007, which granted us an increase of 9.63% to our distribution margins to reflect an increase in our distribution cost base for the period from May 1, 2006 to April 30, 2007, compared to the recognized distribution cost base as adjusted by the May 2006 CMM. However, this increase was not incorporated into our tariff structure, and, instead, we were allowed to retain the funds that we are required to collect and transfer to the PUREE to cover this CMM increase and future CMM increases.  In November 2007, we began accounting for the retroactive portion of the May 2007 CMM increase for the period from May 1, 2007 to October 31, 2007, which amounted to Ps. 49.6 million.
In July 2008, we obtained an increase of approximately 17.9% to our distribution margin, which we incorporated into our tariff structure. This increase represented the 9.63% CMM increase corresponding to the period from May 2006 to April 2007 and the 7.56% CMM increase corresponding to the period from May 2007 to October 2007. These CMM adjustments were included in our tariff structure as of July 1, 2008 and resulted in an average increase of 10% for customers in the small commercial, medium commercial, industrial and wheeling system categories and an average increase of 21% for residential customers with bimonthly consumption levels over 650 kWh.  In addition, the ENRE authorized us to be reimbursed for the retroactive portion of the 7.56% CMM increase for the period between November 2007 and June 2008, from the PUREE funds.
Furthermore, we requested an additional increase to our distribution margins under the CMM to account for fluctuations in the distribution cost base for the period from November 2007 to April 2008, in comparison to the distribution cost base recognized by the CMM in November 2007.  The ENRE adopted Note No 81.399, which authorized a 5.791% increase under the CMM.  As of the date of this annual report, the ENRE has not approved a new tariff scheme including this tariff increase.
As of December 31, 2009, we have submitted to the ENRE three additional requests from CMM adjustments as described in the table below:

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Assessment Period
Application Date
CMM Adjustment
Requested
May 2008 – October 2008
November 2008
5.684 %
November 2008 - April 2009
May 2009
5.068 %
May 2009 – October 2009
November 2009
5.041 %

As of the date of this annual report, the ENRE has not responded to these requests.
Although we believe that these increases comply with the terms of the CMM, we cannot assure you that the ENRE will grant us these increases in full, or at all, or if granted, that we will be able to bill our customers or otherwise recover these increases from other sources of payment (such as PUREE).
These increases, and any further increases granted under the CMM, will remain in force until the approval of a new tariff structure under the RTI.

The following table sets forth the relative weight of our distribution margin in our average tariffs per category of customer (other than wheeling system, public lighting and shantytown customers) in our concession area at the dates indicated.  Although the VAD and electric power purchases per category of customer are the same, we are subject to different taxes in the Province of Buenos Aires and the City of Buenos Aires.
VAD
Average Taxes
Electric Power Purchases
Tariff (1)
November
2001
January
2005
February
2007
October
2008
November
2001
January
2005
February
2007
October
2008
November
2001
January
2005
February
2007
October
2008
Residential
TIRI (0-300)
49.40 % 44.50 % 44.50 % 44.69 % 28.70 % 28.70 % 28.70 % 28.70 % 21.90 % 26.80 % 26.80 % 26.61 %
TIRI2 (301-650)
36.20 % 33.00 % 33.00 % 30.81 % 29.20 % 29.20 % 29.20 % 29.23 % 34.60 % 37.80 % 37.80 % 39.95 %
TIR# (651-800)
32.08 % 29.23 % 38.68 %
TIR4 (801-900)
31.63 % 29.23 % 39.13 %
TIR5 (90-1000)
32.75 % 29.23 % 38.02 %
TIR6 (1001-1200)
26.29 % 29.23 % 44.48 %
TIR 7 (1201-1400)
27.18 % 29.23 % 43.59 %
TIR8 (1401-2800)
25.94 % 29.23 % 44.83 %
TIR9 (> 2800)
22.50 % 29.23 % 48.26 %
Commercial - small demands
TIG1
55.10 % 40.00 % 47.80 % 48.76 % 25.70 % 25.70 % 25.70 % 25.68 % 19.20 % 34.30 % 26.50 % 25.55 %
TIG2
53.60 % 31.10 % 43.60 % 42.39 % 25.60 % 25.60 % 25.60 % 25.64 % 20.70 % 43.20 % 30.70 % 31.97 %
Commercial - medium demand
T2
43.30 % 27.90 % 35.50 % 38.03 % 25.60 % 25.60 % 25.60 % 25.63 % 31.00 % 46.40 % 38.90 % 36.34 %
Industrial
T3 low voltage below 300kw
44.20 % 26.50 % 34.30 % 37.86 % 25.70 % 25.70 % 25.70 % 25.66 % 30.10 % 47.80 % 40.10 % 36.48 %
T3 low voltage over 300kw
42.60 % 24.50 % 32.10 % 27.09 % 25.60 % 25.60 % 25.60 % 25.62 % 31.80 % 49.90 % 42.30 % 47.29 %
T3 medium voltage below 300kw
29.30 % 14.10 % 19.70 % 25.25 % 25.70 % 25.70 % 25.70 % 25.68 % 45.00 % 60.30 % 54.60 % 49.06 %
T3 medium volgate over 300kw
27.30 % 12.30 % 17.50 % 17.71 % 25.70 % 25.70 % 25.70 % 25.69 % 47.00 % 62.00 % 56.80 % 56.60 %
Average Tariff
41.20 % 28.50 % 33.90 % 33.16 % 27.20 % 27.20 % 27.20 % 27.24 % 31.50 % 44.20 % 38.90 % 39.60 %

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(1)
T1R1 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is less than or equal to 300 kWh.  T1R2 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 300 kWh  but less than 650 kWh. TIR3 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 650 kWh  but less than 800 kWh.  TIR4 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 800kWh  but less than 900 kWh. TIR5 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 900kWh  but less than 1,000 kWh . TIR6 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1,000 kWh  but less than 1,200 kWh. TIR7 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1,200 kWh  but less than 1,400 kWh. TIR8 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1,400 kWh  but less than 2,800 kWh.  TIR9 refers to residential customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 2,800kWh.  T1G1 refers to commercial customers whose peak capacity demand is less than 10kW and whose bimonthly energy demand is less than or equal to 1600 kWh.  T1G2 refers to commercial customers whose peak capacity demand is less than 10 kW and whose bimonthly energy demand is greater than 1600 kWh.  T2 refers to commercial customers whose peak capacity demand is greater than 10 kW but less than 50 KW.  T3 refers to customers whose peak capacity demand is equal to or greater than 50 kW.  The T3 category is applied to high-demand customers according to the voltage (tension) at which each customer is connected.  Low tension is defined as voltage less than or equal to 1 kV and medium tension is defined as voltage greater than 1kV but less than 66 kV .
Revisión Tarifaria Integral (Integral Tariff Revision, or RTI).  Pursuant to the Adjustment Agreement, we are also currently engaged in an integral tariff revision process with the ENRE.
Our integral tariff proposal will include, among other factors, a recalculation of the compensation we receive for our distribution services, including taxes that are not currently passed through to our customers (such as taxes on financial transactions), a revised analysis of our distribution costs, modifications to our quality of service standards and penalty scheme and, finally, a revision of our asset base and rate of return.  For this purpose, we will present a post-tax return on our asset base, which we calculate as operating income plus depreciation of property, plant and equipment, less the tax charge resulting from the application to this amount of the legal tax rate (currently, 35%), divided by the value of our gross asset base.  The last adjustment for inflation to our property, plant and equipment was registered in February 2003 in accordance with Argentine GAAP.  Accordingly, we estimate the effects of inflation on our property, plant and equipment for periods after February 2003 for purposes of determining the value of our gross asset base in connection with our concession.  See “Item 4. Information on the Company—Property, plant and equipment.” Based on our method of calculation, we estimate that the post-tax return on our gross asset base was 2.2% in 2009 (on the basis of a gross asset base valued at Ps. 10.9 billion at December 31, 2009), which we believe is still extremely low considering our annual post-tax return before the economic crisis.  Our average annual post-tax return on our gross asset base from 1997 through 2001 was 9.6%.  We believe that this method of calculating our return on assets is consistent with the requirements of the Adjustment Agreement, although we cannot guarantee that the ENRE will not decide to use other factors or methods to calculate our return on assets.
On April 30, 2007, the Argentine Secretary of Energy published Resolution No. 434/2007, which established that the new tariff structure resulting from the RTI would take effect on February 1, 2008 and would be implemented in two installments, in February and August 2008.
In July 2008, the Secretary of Energy issued Resolution 865/2008, which reviews the RTI schedule contemplated by the Adjustment Agreement.  The Secretary revised the original RTI schedule and stated that the new tariff structure of the RTI would take effect in February 2009 and that if in February 2009 the tariff resulting from the RTI were greater than the tariff in place at that moment, the tariff increase would be applied in three stages: the first adjustment would take place in February 2009, the second in August 2009 and the last one in February 2010.
As of the date of this annual report, no resolution has been issued concerning the application of the electricity rate schedule resulting from the RTI, which was expected to be in effect since February 1, 2009.
On November 12, 2009, we submitted our tariff proposal to the ENRE's Board of Directors in response to the ENRE’s request in ENRE Resolution No. 467/2008 and as part of the RTI. Our proposal presented the ENRE with three different options for the revised tariff scheme based on three different scenarios;  two scenarios contemplated in Resolution No. 467/08 of the ENRE and a third one which contemplated a quality regime and cost of undelivered energy similar to the one currently in effect. Each proposal described the assumptions on which the proposal was prepared, and the detailed studies supporting each scenario: projected demand, measurement campaign, environmental management plan, capital base study, study of the group of facilities required to meet the demand of a certain homogeneous market in terms of consumption with the lowest costs (known as “Sistemas Eléctricos Representativos”), contemplated investment plan, operating costs analysis, profitability rate analysis, resulting revenue requirement and electricity rate adjustment criterion.

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We stated to the ENRE that the sustainability of the proposals depends on the actual occurrence of the assumptions and that any change in the criteria and/or parameters contemplated in our proposal could directly affect the economic and financial equation that supports each of the proposed options.

Furthermore, the calculations made in each of the three options took into account the implementation of the tariff in three equal semiannual installments.
We anticipate that, once the ENRE has reviewed our integral tariff proposal, it will hold a public hearing on the proposal, following which we expect that the ENRE will adopt a revised tariff scheme.
Based on the parameters of the RTI set forth in the Adjustment Agreement, we expect that this revised tariff scheme will maintain our then current distribution margins following the increases granted under the Adjustment Agreement (including any increases granted pursuant to the CMM) and include a cost adjustment mechanism similar to the CMM.  Because the RTI is provided for in the Adjustment Agreement, which was approved by the Argentine Congress and ratified by the Argentine executive branch, we believe that the ENRE’s decision will not be subject to ratification procedures.  See “Item 3. Key Information—Risk factors—Risks relating to our business—The Adjustment Agreement may be subject to challenge by Argentine consumer and other groups, which, if successful, could materially adversely affect our ability to implement any tariff adjustments granted by the Argentine government.”
The outcome of the renegotiation of our tariff structure, however, is highly uncertain as to its final result.  We cannot make assurances that the renegotiation process will conclude in a timely manner or that the revised tariff structure will cover our costs and compensate us for inflation and currency devaluations in the future and provide us with an adequate return on our asset base.  See “Item 3. Key Information—Risk factors—Risks relating to our business—Our business and prospects depend on our ability to negotiate further improvements to our tariff structure, including increases in our distribution margin.”
Social Tariff Regime. According to the Adjustment Agreement, we will be required to apply a social tariff regime as part of our revised tariff structure resulting from the RTI.  This regime is a system of subsidized tariffs for the poverty-stricken sectors of the community to be approved by the ENRE in the context of the RTI.  The social tariff regime will provide poverty-stricken sectors of the community with the same service and quality of service as other users.  The beneficiaries under this regime must register with the Argentine government and meet certain criteria, including not owning more than one home and having a level of electricity consumption that is not higher than a maximum to be established by the government.  According to the Adjustment Agreement, the Argentine government will subsidize the increased costs associated with the social tariff regime in part with contributions by users not subject to this regime.  We will be required to cover a portion of these costs by not charging the beneficiaries of this regime for reconnection expenses and installation of new equipment, updating our billing system and granting payment plans to beneficiaries for existing past-due electricity bills.  We currently anticipate that the incremental cost to us of providing services under the social tariff regime will not be significant.  However, we cannot guarantee that the social tariff regime will be implemented in the manner, or under the terms, we currently anticipate.
Demand
Energy demand depends to a significant extent on economic and political conditions prevailing from time to time in Argentina, as well as seasonal factors.  In general, the demand for electricity varies depending on the performance of the Argentine economy, as businesses and individuals generally consume more energy and are better able to pay their bills during periods of economic stability or growth.  As a result, energy demand is affected by Argentine governmental actions concerning the economy, including with respect to inflation, interest rates, price controls, foreign exchange controls, taxes and energy tariffs.
Electricity demand
The following table sets forth the amount of electricity generated in Argentina and electricity purchases by our company in each of the periods indicated.

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Year
Electricity Demand (1)
Edenor Demand (2)
Edenor’s Demand
as a% of Total Demand
(in GWh)
1994
55,827 11,386 20.4 %
1995
57,839 11,629 20.1 %
1996
61,513 12,390 20.1 %
1997
66,029 13,046 19.8 %
1998
69,103 13,768 19.9 %
1999
71,689 14,447 20.2 %
2000
75,591 15,148 20.0 %
2001
78,098 15,414 19.7 %
2002
76,483 14,865 19.4 %
2003
82,261 15,811 19.2 %
2004
87,477 16,673 19.1 %
2005
92,340 17,623 19.1 %
2006
97,590 18,700 19.2 %
2007
102,950 20,233 19.7 %
2008
105,959 20,863 19.7 %
2009
104,592 20,676 19.8 %
Source: Compañía Administradora del Mercado Mayorista Eléctrico, S.A. (CAMMESA)
(1)
Includes demand in the Mercado Eléctrico Mayorista Sistema Patagónico (Patagonia wholesale electricity market, or MEMSP).
(2)
Calculated as electricity purchased by us and our wheeling system customers.

Electricity demand in our concession area has grown an average of 4.1% per annum since 1994.  The evolution of demand shows two growth periods interrupted by a slight decline in demand in 2002 attributable to the economic crisis, and a slight decrease registered in 2009, as a consequence of the international financial crises..
The following graph represents the annual growth of energy purchased to satisfy the demand of each operating area from 2000 through 2009:


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Beginning in mid-2001 through 2002, the decline in the overall level of economic activity and the deterioration in the ability of many of our customers to pay their bills as a result of the crisis led to an overall decrease in demand for electricity and an increase in non-technical energy losses.  After the economic crisis, however, demand started growing again, increasing an average of 5.8% per annum from 2003 through 2008.  This increase in demand was due to renewed growth in the Argentine economy since the second half of 2003 and the relative low cost of energy to consumers, in real terms, resulting from the freeze of our distribution margin and the elimination of the inflation adjustment provisions of our concession in 2002.  Demand by residential customers increased by 5.5% in 2008, primarily due to the addition of new appliances and the relative low cost of energy, in real terms.  In 2009, residential demand decreased  by 2.7%, the first annual decline since the 2002 crisis, resulting from the slowdown in Argentina's economy this year. Demand by our high-demand customers and wheeling system customers has also experienced a decrease in 2009 due to a decrease in  economic activity, particularly in the industrial sector (which includes wheeling customers), with demand decreasing by 2.2% in 2009.
The small commercial category of customers registered a decrease in demand in 2002, but recovered slightly after the initial effects of the economic crisis due to the sensitivity of customers in this category to the economic status of their small businesses.  The medium commercial category of customers has generally demonstrated the same volatility in demand as low-demand customers in recent years.
Public lighting demand has declined significantly over the past few years due to the introduction of low-consumption lighting.  We believe that the public lighting category will continue to register low demand despite continued economic expansion and urban development.  After having increased significantly in 2005, demand in shantytowns stabilized in 2006, remaining in line with historic growth levels, and was below the increase in demand for our low demand residential category of customers.  However, overall demand in this category is relatively small in comparison to other larger categories of our customers.  See “Item 4. Information on the Company—Framework agreement (Shantytowns)”
The Argentine government has also implemented the PUREE in an attempt to curb increases in energy demand by offering rewards to residential and small commercial customers who reduce their energy usage in comparison to their use in 2003.  In 2005, the Argentine Government implemented a second version of the PUREE (PUREE II), which rewards residential and small commercial customers based on their usage in 2003 and industrial customers based on their usage in 2004.  The PUREE II also penalizes industrial customers whose usage exceeds 90% of 2004 levels and penalizes residential customers with bi-monthly consumption levels at or above 300 KWh and small commercial customers whose usage exceeds 90% of their usage levels for 2003.  Residential customers with consumption levels below 300 KWh are exempt from penalty.  In spite of the PUREE, energy demand has continued to increase during the three years it has been in effect.
On October 31, 2008, the Secretary of Energy adopted Resolution 1170/08, which excludes all the T1G, T2, T3 and T1R customers with bimonthly consumption levels over and above 1,000 KWh from receiving PUREE reward payments.
On March 2, 2010, the Secretary of Energy adopted Resolution 45/2010, which revised the calculation of the coefficient used to reward T1R customers with consumption levels below 1,000 KWh. This resolution decreases the rewards amount that these users will receive.
We cannot make assurances that the tariffs that result from the RTI or future economic, social and political developments in Argentina, over which we have no control, will not have an adverse effect on energy demand in Argentina.  See “Item 3. Key Information—Risk factors—Risks related to the electricity distribution sector—Electricity demand may be affected by recent or future tariff increases.”
Capacity demand
Demand for installed capacity to deliver electricity generally increases with growth in demand for electricity.  However, since the 2001 crisis, with the exception of the two thermal generation plants described below, no new generation plants have been built.  However, the Argentine government has implemented some economic incentives, such as those contained in the Energía Plus Program, which have served to increase generating capacity in existing generation plants such as Central Térmica Güemes and Central Loma de la Lata. A lack of generation capacity would place limits on our ability to grow and could lead to increased service disruptions, which could cause an increase in our fines.  See “Item 3. Key Information—Risk factors—Risks relating to the electricity distribution sector—Energy shortages may act as a brake on growing demand for electricity and disrupt distribution companies’ ability to deliver electricity to their customers, which could result in customer claims and material penalties imposed on these companies.”

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In response to the lack of private investment in new generation plants, the Argentine government undertook a project to construct two 800 MW thermal generation plants, Central Termoeléctrica Manuel Belgrano and Central Termoeléctrica General San Martín.  Construction of these two plants was completed and operations commenced in 2009.  The two plants were constructed with funds derived from three sources: net revenues of generators derived from energy sales in the spot market, a special charge to our non-residential customers per MWh of energy billed and a specific charge from CAMMESA applicable to large users.  In addition to the construction of these two new thermal generation plants, in September 2006 the Secretary of Energy of the Ministry of Federal Planning, Public Investment and Services issued Resolution No. 1281/06 in an effort to respond to the sustained increase in energy demand following Argentina’s economic recovery after the crisis.  This Resolution seeks to create incentives for energy generation plants to meet increasing energy needs.  The government has also required us to finance 24%, and Empresa Distribuidora Sur S.A.(Edesur) 26%, of the construction costs of two high-tension 220 KV lines between the Central Puerto and Central Costanera generators and the Malaver network, which will provide access to an additional 600MW of energy from the Central Puerto and Central Costanera generators that currently cannot be distributed due to saturation of their grids.  We estimate that we will be required to contribute an aggregate of approximately Ps. 39.3 million to construction of the Malaver network under the scheduled capital expenditures of the Adjustment Agreement The actual costs of this project will be determined at the time we receive and accept bids from third party contractors in connection with the project.
We cannot make assurances that these initiatives will be implemented in a timely manner or that they will be able to serve our energy demands in the manner we anticipate.
Seasonality of Demand
Seasonality has a significant impact on the demand for electricity in our concession area, with electricity consumption peaks in summer and winter.  The impact of seasonal changes in demand is registered primarily in our residential and small commercial customer categories.  The seasonal changes in demand are attributable to the impact of various climatological factors, including weather and the amount of daylight time, on the usage of lights, heating systems and air conditioners.
The impact of seasonality on industrial demand for electricity is less pronounced than on the residential and commercial sectors for several reasons.  First, different types of industrial activity by their nature have different seasonal peaks, such that the effect on them of climate factors is more varied.  Second, industrial activity levels tend to be more significantly affected by the economy, and with different intensity levels depending on the industrial sector.
The chart below shows seasonality of demand in our residential customer category for the periods indicated.

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The chart below shows seasonality of demand in our small commercial customer category for the periods indicated.
The chart below shows seasonality of demand in our medium commercial customer category for the periods indicated.
The chart below shows seasonality of demand in our industrial customer category for the periods indicated.

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Taxes on electricity tariffs
Sales of electricity within our service area are subject to certain taxes, levies and charges at the federal, provincial and municipal levels.  These taxes vary according to location and type of user.  In general, residential and governmental users are subject to a lower tax rate than commercial and industrial users.  Similarly, taxes are typically higher in the Province of Buenos Aires than in the City of Buenos Aires.  All of these taxes are billed to consumers along with electricity charges.
Framework agreement (Shantytowns)
We also supply electricity to low-income areas and shantytowns within our concession area under a special regime established pursuant to a framework agreement that we, Edesur and Empresa Distribuidora La Plata S.A. (Edelap) entered into in October 2003 with the Argentine government and the Province of Buenos Aires.  The framework agreement contains terms similar to a prior framework agreement entered into in 1994.  Pursuant to the new framework agreement, we are compensated for the service we provide to shantytowns by a commission in each shantytown that collects funds from residents of the shantytown.  In addition, we are compensated by the municipality in which each shantytown is located, and, if there is any payment shortfall, by a special fund to which the Argentine government and the Province of Buenos Aires each contributes and to which each is severally liable.  The new framework agreement took effect retroactively from September 1, 2002 and was to remain in effect through the earlier of December 31, 2006 or the full normalization of the shantytowns.
On June 23, 2008, we signed an amendment to the framework agreement with the Argentine government, the Province of Buenos Aires and the other national electric distributors agreeing to extend the framework agreement four years from January 1, 2007.  The Argentine government ratified the amendment on September 22, 2008 and the Province of Buenos Aires published the ratification of this Addendum on June 18, 2009 in the Official Bulletin of the Province of Buenos Aires,. Throughout this process, we have continued to supply energy to the shantytowns.
During November and December 2009, we received from the Argentine government payments for a total amount of Ps.20 million. In March and May 2010, we received from the Argentine government payments of Ps. 5.0 million and Ps.3.1 million, respectively.
Our receivables for amounts accrued but not yet paid for the supply of energy to shantytowns under the framework agreement amounted to Ps. 54.8 million as of December 31, 2009 and Ps. 49.4million as of December 31, 2008.
In October 2006, we and the Province of Buenos Aires entered into a payment plan agreement with respect to amounts owed to us by the Province of Buenos Aires under the new framework agreement with respect to periods prior to 2007.  As of December 31, 2009, the Government of the Province of Buenos Aires owed us Ps. 2.3 million of the total amount due under the payment plan agreement.  See “Item 4. Information on the Company—Framework agreement (Shantytowns).”

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In March 2010, the Company signed with the Government of the Province of Buenos Aires a payment plan agreement with respect to amounts owed to us by the Province of Buenos Aires under the new framework agreement. The Government of the Province of Buenos Aires agreed to pay the amount due through Cancellation Bonds “Bonos de Cancelación de Deuda”. The agreement was signed at referendum of the ratification by the Provincial Executive Power and the Company's Board of Directors. The Company’s managing board ratified the agreement in the meeting held on April 27, 2010. During May 2010, the Company received payments from the Government of the Province of Buenos Aires for Ps.1.6 million in cash and Ps.30.1 million (face value) with Cancellation Bonds.
Operating Expenses
Our most significant operating expenses are transmission and distribution expenses, which include depreciation charges, salaries and social security taxes, outsourcing and purchases of materials and supplies, among others.
After depreciation, our highest expenses are typically salaries and social security taxes.  We believe that future increases in our salary and social security expenses will result primarily from salary raises rather than from a significant growth in our work force, which we anticipate will remain relatively stable in the near future.  We typically try to reach an agreement at the beginning of each fiscal year, although we have, in the past, implemented mid-year salary increases as necessary.
We seek to maintain a flexible cost base by achieving an optimal level of outsourcing, which allows us both to maintain a lower cost base and gives us the ability to respond more quickly to changes in our market.  We had approximately 3,611 third-party employees under contract with our company as of December 31, 2009, 3,029 as of December 31, 2008 and 3,612 as of December 31, 2007.  The number of third-party employees under contract does not directly relate to the number of third-party employees actually performing services for our company at any given time, as we only pay for the services of these employees on an as-needed basis.  See “Item 6. Directors, Senior Management and Employees—Employees.”
Our principal material and supply expenses consist of purchases of wire and transformers ( i.e. , electromagnetic devices used to change the voltage level of alternating-current electricity), which we use to maintain our network.

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Summary Historical Results of Operations
The following table provides a summary of our operations for the years ended December 31, 2009, 2008 and 2007.
Year ended December 31,
2009
2008
2007
(in millions of pesos)
Net sales
Ps. 2,077.9 Ps. 2,000.2 Ps. 1,981.9
Electric power purchases
(1,003.4 ) (934.7 ) (889.9 )
Gross margin
1,074.5 1,065.5 1,092.0
Transmission and distribution expenses
(548.6 ) (497.9 ) (417.6 )
Selling expenses
(158.9 ) (126.0 ) (120.6 )
Administrative expenses
(176.6 ) (138.7 ) (124.7 )
Net operating income
190.4 302.9 429.2
Financial income (expenses) and holding gains (losses)
Generated by assets
75.2 10.6 12.7
Generated by liabilities
(198.5 ) (197.9 ) (125.5 )
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and from the Payment Plan Agreement with the Province of Buenos Aires
3.4 13.5 (29.6 )
Adjustment to present value of notes
(5.2 ) (8.5 ) (21.5 )
Gain (loss) from the purchase and redemption of notes
81.4 93.6 (10.2 )
Adjustment to present value of purchase and redeemed notes
0 0 (8.6 )
Other income (expenses), net
23.2 (29.9 ) 1.0
Net income before income tax
169.9 184.3 247.4
Income tax
(79.3 ) (61.2 ) (125.0 )
Net income
Ps. 90.6 Ps. 123.1 Ps. 122.5
Year ended December 31, 2009 compared with year ended December 31, 2008.
Net sales
Net sales increased Ps. 77.7 million (3.9%) to Ps. 2,077.9 million in the year ended December 31, 2009 from Ps. 2,000.2 million in the year ended December 31, 2008.  Net energy sales represented approximately 98.0% of our net sales in 2009 and 98.3% in 2008; late payment charges, pole leases, and connection and reconnection charges represented the remaining balance.  Energy sales increased by 4.7% (Ps. 93.5 million) to Ps. 2,094.3 million in the year ended December 31, 2009 from Ps. 2,000.8 million in the year ended December 31, 2008.
This increase in net sales was mainly due to:
·
An increase in the energy purchase price that, since October 2008 we have passed on to certain of our customers, due to the tariff schedule set by ENRE’s Resolution 628/08 (from June 2009 to August 2009, this increase was partially subsidized by the Argentine Government);
·
a 1.6% increase in capacity demand by certain of our customers;
·
a 2.7% increase in the number of T1R and T1G customers, which are billed for a fixed charge payable bimonthly; and

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·
a Ps.7.9 million increase in late payment charges, pole leases, and connection and reconnection charges.
These increases were partially offset by:
·
a decrease in the volume of energy sold in 2009, compared to the volume of energy sold in 2008 (from 18,616 GWh in the year ended December 31, 2008 to 18,220 GWh in the year ended December 31, 2009), due to an increase in demand; and
·
an increase in ENRE penalties of Ps. 23.7 million.
Electric power purchases
The amount of electric power purchases increased 7.3% to Ps. 1,003.4 million for the year ended December 31, 2009 from Ps. 934.7 million in the year ended December 31, 2008, mainly due to an energy purchase price increase that we have passed through to certain of our customers (T1R with bimonthly consumption levels over 1,000 Kwh, T1G and T3 with capacity demand over 300 KW) since October 2008, in accordance with ENRE’s Resolution 628/08 .
The volume of energy purchased in the year ended December 31, 2009 was 17,040 GWh, which was 0.8% lower when compared to the year ended December 31, 2008, when we purchased 17,169 GWh (in both cases excluding wheeling system demand).
Energy losses increased to 11.9% in the year ended December 31, 2009 from 10.8% in the year ended December 31, 2008.
Gross margin
Our gross margin of Ps. 1,074.5 million in the year ended December 31, 2009 is in line with the one recorded in the year ended December 31, 2008 of Ps. 1,065.5 million.
Transmission and distribution expenses
Transmission and distribution expenses increased 10.2% to Ps. 548.6 million in the year ended December 31, 2009 from Ps. 497.9 million in the year ended December 31, 2008, mainly due to a Ps. 44.1 million increase in salaries and social security taxes, attributable to an increase in compensations granted in 2009, and a Ps. 16.1 million increase in outsourcing, mainly attributable to increases in contractors prices. These increases were partially offset by a decrease of Ps.15.4 million in technical assistance fees in 2009, due to the termination of the Technical Assistance Agreement certain technical assistance agreement that were in place.
The following table sets forth the principal components of our transmission and distribution expenses for the years indicated:
Year ended December 31,
2009
% on 2009
net sales
2008
% on 2008
net sales
(in millions of Pesos)
Salaries and social security taxes
Ps. 219.8 40.1 % 10.6 % Ps. 175.7 35.3 % 8.8 %
Supplies Consumption
34.3 6.3 % 1.7 % 31.9 6.4 % 1.6 %
Outsourcing
110.2 20.0 % 5.3 % 94.1 18.9 % 4.7 %
Depreciation of property, plant and equipment
166.8 30.4 % 8.0 % 166.0 33.3 % 8.3 %
Others
17.5 3.2 % 0.8 % 30.2 6.1 % 1.5 %
Total
Ps. 548.6 100.0 % 26.4 % Ps. 497.9 100.0 % 24.9 %
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Selling expenses
Our selling expenses are related to customer services provided at our commercial offices, billing, invoice mailing, collection and collection procedures, as well as allowances for doubtful accounts. Selling expenses increased 26.1% to Ps. 158.9 million in the year ended December 31, 2009 from Ps. 126.0 million in the year ended December 31, 2008, primarily as a result of a Ps. 16.1 million increase in salaries and social security taxes, an increase of Ps. 5.4 million in outsourcing attributable to price increases in our outsourcing services contracts, an increase of Ps. 3.2 million in taxes and charges due to the increase in municipal taxes and the ENRE contributions and a Ps. 3.3 million increase in our allowance for doubtful accounts.
The following table sets forth the principal components of our selling expenses for the years indicated:
Year ended December 31,
2009
% on 2009
net sales
2008
% on 2008
net sales
(in millions of Pesos)
Salaries and social security taxes
Ps. 51.6 32.5 % 2.5 % Ps. 35.5 28.2 % 1.8 %
Allowance for doubtful accounts
18.6 11.7 % 0.9 % 15.3 12.1 % 0.8 %
Outsourcing
40.1 25.2 % 1.9 % 34.7 27.5 % 1.7 %
Taxes and charges
17.9 11.3 % 0.9 % 14.7 11.7 % 0.7 %
Others
30.8 19.3 % 1.4 % 25.8 20.5 % 1.3 %
Total
Ps. 158.9 100.0 % 7.6 % Ps. 126.0 100.0 % 6.3 %

Administrative expenses
Our administrative expenses include, among others, expenses associated with accounting, payroll administration, personnel training, systems operation, maintenance and advertising expenses. Administrative expenses increased 27.3% to Ps. 176.6 million in the year ended December 31, 2009 from Ps. 138.7 million in the year ended December 31, 2008, primarily as a result of a Ps. 12.4 million increase in salaries and social security taxes (attributable to an increase in compensations granted in 2009), a Ps. 5.9 million increase in computer services due to a renewal of certain of our hardware and software licenses and a Ps.5.5 million increase in tax on financial transactions due to the repurchase of our financial debt and the issuance of Class 8 Notes due 2013.
The following are the principal components of our administrative expenses for the years indicated:
Year ended December 31,
2009
% on 2009
net sales
2008
% on 2008
net sales
(in millions of Pesos)
Salaries and social security taxes
Ps. 58.9 33.4 % 2.8 % Ps. 46.5 33.5 % 2.3 %
Computer services
22.8 12.9 % 1.1 % 16.9 12.2 % 0.8 %
Outsourcing
15.1 8.5 % 0.7 % 11.4 8.2 % 0.6 %
Tax on financial transactions
32.5 18.4 % 1.6 % 27.0 19.5 % 1.3 %
Advertising expenses
16.8 9.5 % 0.8 % 12.8 9.2 % 0.6 %
Others
30.5 17.3 % 1.5 % 24.1 17.4 % 1.3 %
Total
Ps. 176.6 100.0 % 8.5 % Ps. 138.7 100.0 % 6.9 %

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Net operating income
Our net operating income decreased significantly from Ps. 302.9 million in the year ended December 31, 2008 to Ps. 190.4 million in the year ended December 31, 2009.  This decrease is largely due to a 15.9% increase in the operating expenses, which is attributable to a Ps. 50.7 million increase in transmission and distribution expenses, a Ps. 37.9 million increase in administrative expenses and a Ps. 32.9 million increase in selling expenses.
Financial income (expenses) and holding gains (losses)
Financial income and holding gains generated by assets represented Ps. 75.2 million in the year ended December 31, 2009, compared to Ps. 10.6 million in the year ended December 31, 2008.  This increase of Ps. 64.6 million is primarily due to:
·
a Ps. 44.9 million increase in holding gains resulting from the repurchases and valuation of our 2017 and 2016 notes; and
·
a Ps. 13.3 million increase in the exchange gains on dollar denominated assets due to an increase of the peso-dollar exchange rate.
Financial expenses generated by liabilities which include financial interest, exchange results and other expenses, were in line with the previous year, from Ps. 197.9 million in the year ended December 31, 2008 to Ps. 198.5 million in the year ended December 31, 2009.
Adjustment to present value of notes
We record our financial debt on our balance sheet at the fair value reflecting our management’s best estimate of the amounts expected to be paid at each year end.  The fair value is determined as the present value of the future cash flows to be paid (including payment of interest) under the terms of the debt discounted at a rate commensurate with the risk of the debt instrument and time value of money at the initial measurement.  The adjustment to present value of the future cash flows of our oustanding debt issued appliying a market annual interest rate of 10.5%, generated an accounting loss of Ps. 8.5 million in the year ended December 31, 2008 and accounting non-cash loss of Ps. 5.2 million in the year ended December 31, 2009.
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and of the Payment Plan Agreement with the Province of Buenos Aires
The retroactive portion of the February 2007 tariff increase, which amounts in aggregate to Ps. 218.6 million, is being invoiced in 55 consecutive monthly installments to our non-residential customers, starting in February 2007.  As of December 31, 2009, Ps. 149.4 million of the retroactive tariff adjustment has been invoiced to our non-residential customers.
In addition, in October 2006, we entered into a payment plan agreement with the Province of Buenos Aires with respect to amounts owed to us by the Province of Buenos Aires under the 2006 framework agreement.  The amounts due under the payment plan agreement are being invoiced in 18 installments, starting in January 2007.  As of December 31, 2009, the Province of Buenos Aires owed us Ps. 2.3 million.
In accordance with Argentine GAAP, we account for these long term financing plans at their net present value, which we calculate at a discount rate of 10.5% for the retroactive tariff increase and 19.62% for the payment plan agreement, recording the resulting non-cash charge as an adjustment to present value of these two receivables. We recorded a total non-cash loss of Ps. 3.4 million in the year ended December 31, 2009 as adjustment to present value of these receivables, compared to a loss of Ps. 13.5 million in the year ended December 31, 2008.

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Gain from repurchase of notes
During 2009 we repurchased and cancelled at market prices U.S. $32.2 million principal amount of our outstanding Fixed Rate Par Notes due 2016 and repurchased U.S. $53.8 million principal amount of our outstanding Fixed Rate Par Notes due 2017.  This transaction generated a net gain of Ps. 81.4 million.
Other income (expenses), net
Other income (expenses), net, includes mainly voluntary retirements, severance payments and accrual for lawsuits. We recorded a gain of Ps. 23.2 million in the year ended December 31, 2009, compared to a loss of Ps. 29.9 million in the year ended December 31, 2008, mainly comprised by due to the recovery of the allowance for doubtful accounts (Ps. 21.2 million) resulting from the approval of the New Framework Agreement Addendum that we entered into with the Argentine government and the Province of Buenos Aires, and the recovery of the allowance for tax contingencies (Ps. 23.4 million) due to our registration in the tax regularization plan established in Law n°26.476, both partially offset by an increase in provisions for accrued litigation (Ps. 15.5 million), voluntary retirements bonuses (Ps. 5.4 million) and severance paid (Ps.4.4 million).
Income tax
We recorded an income tax charge of Ps. 79.3 million in the year ended December 31, 2009, compared to a charge of Ps. 61.2 million in the year ended December 31, 2008.
Net income
We recorded net income of Ps. 90.6 million in the year ended December 31, 2009, compared to net income of Ps. 123.1 million in the year ended December 31, 2008.  This decrease of 26.4% is primarily due to the decrease in the net operating income, partially compensated by better financial results.
Year ended December 31, 2008 compared with year ended December 31, 2007.
Net sales
Net sales increased Ps. 18.3 million (0.9%) to Ps. 2,000.2 million in the year ended December 31, 2008 from Ps. 1,981.9 million in the year ended December 31, 2007.  Net energy sales represented approximately 98.3% of our net sales in 2008 and 2007; late payment charges, pole leases, and connection and reconnection charges represented the remaining balance.  Energy sales increased by 1.4% (Ps. 28.1 million) to Ps. 2,000.8 million in the year ended December 31, 2008 from Ps. 1,972.7 million in the year ended December 31, 2007.  This variation was significantly affected by the recognition of the retroactive portion of the February 2007 VAD increase (Ps. 218.6 million) during the first quarter of 2007.  The increase is being invoiced in 55 equal and consecutive monthly installments, starting in February 2007.  Excluding this adjustment, our energy sales in 2007 would have been Ps. 1,754.1 million, representing an increase in energy sales from 2007 to 2008 of 14.1% (Ps. 246.7 million) compared to the energy sales recorded in 2008.  This increase in energy sales was mainly due to:
·
the application of a 17.9% increase in our VAD since July 1, 2008 authorized by the ENRE pursuant to the CMM for the period from May 2007 to October 2007, which resulted in tariff increases of 0% to 30% for our customers, depending on their level of consumption;
·
the retroactive application of the 17.9% VAD increase pursuant to the CMM, which represented a Ps. 84.6 million increase in our net sales in 2008;
·
the energy purchase price increase passed on to some of our customers since October 2008; and
·
a 4.2% increase in the volume of energy sold in 2008, compared to the volume of energy sold in 2007 (from 17,886 GWh in the year ended December 31, 2007 to 18,616 GWh in the year ended December 31, 2008).  The increase in volume is attributable to a 2.3% increase in the average GWh consumption per customer and a 1.9% increase in the number of our customers in 2008.

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Electric power purchases
The amount of electric power purchases increased 5.0% to Ps. 934.7 million for the year ended December 31, 2008 from Ps. 889.9 million in the year ended December 31, 2007, mainly due to an energy purchase price increase applied to some of our customers (T1R with bimonthly consumption levels over 1,000 Kwh, T1G and T3 with capacity demand over 300 KW) since October 2008.  This effect was slightly offset by the transition of a number of our industrial customers (for whom we purchase energy) to the wheeling system (where participants purchase energy directly).
The volume of energy purchased in the year ended December 31, 2008 was 17,169 GWh, which was in line with the year ended December 31, 2007, when we purchased 17,122 GWh (in both cases excluding wheeling system demand).
Energy losses decreased to 10.8% in the year ended December 31, 2008 from 11.6% in the year ended December 31, 2007.
Gross margin
Our gross margin decreased 2.4% to Ps. 1,065.5 million in the year ended December 31, 2008 from Ps. 1,092.0 million in the year ended December 31, 2007.  This decrease is mainly due to the recording of the retroactive portion of the February 2007 VAD, resulting in a positive impact of Ps. 218.6 million during 2007.  Excluding this effect, our gross margin during that year would have been Ps. 873.4 million, and comparing this amount with the gross margin recorded in 2008, the increase in the gross margin would represent 22.0%.  This increase is attributable to an increase in the volume of energy sold and to the application of the VAD increase and the CMM adjustment described above.
Transmission and distribution expenses
Transmission and distribution expenses increased 19.2% to Ps. 497.9 million in the year ended December 31, 2008 from Ps. 417.6 million in the year ended December 31, 2007, mainly due to a Ps. 49.9 million increase in salaries and social security taxes, attributable to an increase in compensation in the second half of the year, a Ps. 19.9 million increase in outsourcing, mainly attributable to greater activity by our contractors, and to a Ps. 9.0 million increase in the consumption of materials associated with preventive maintenance due to an increase in material prices and an increase in maintenance activity.
The following table sets forth the principal components of our transmission and distribution expenses for the years indicated:
Year ended December 31,
2008
% on 2008
net sales
2007
% on 2007
net sales
(excluding
unbilled
retroactive
adjustment) (1)
(in millions of Pesos)
Salaries and social security taxes
Ps. 175.7 35.3 % 8.8 % Ps. 125.8 30.1 % 7.1 %
Supplies
31.9 6.4 % 1.6 % 22.9 5.5 % 1.3 %
Outsourcing
94.1 18.9 % 4.7 % 74.2 17.8 % 4.2 %
Depreciation of property, plant and equipment
166.0 33.3 % 8.3 % 169.5 40.6 % 9.6 %
Others
30.2 6.1 % 1.5 % 25.2 6.0 % 1.5 %
Total
Ps. 497.9 100.0 % 24.9 % Ps. 417.6 100.0 % 23.7 %

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1)
Calculated based on net sales as of December 31, 2007 excluding the retroactive portion of the February 2007 VAD increase (Ps. 218.6 million), which results in net sales of Ps. 1,763.3 million.  The retroactive tariff increase is being invoiced in 55 equal and consecutive monthly installments, starting on February 2007.  As of December 31, 2008, we have billed Ps. 99.7 million.
Selling expenses
Our selling expenses are related to customer services provided at our commercial offices, billing, invoice mailing, collection and collection procedures, as well as allowances for doubtful accounts. Selling expenses increased 4.5% to Ps. 126.0 million in the year ended December 31, 2008 from Ps. 120.6 million in the year ended December 31, 2007, primarily as a result of a Ps. 10.1 million increase in salaries and social security taxes, an increase of Ps. 5.3 million in outsourcing attributable to price increases in our outsourcing services contracts and an increase of Ps. 3.6 million in taxes and charges due to the increase in municipal and the ENRE contributions.  These increases were partially offset by a decrease of Ps. 15.4 million in our allowance for doubtful accounts attributable to the recovery of the allowance resulting from the supply of electricity to shantytowns that are covered by the new framework agreement, signed in June 2008.
The following table sets forth the principal components of our selling expenses for the years indicated:
Year ended December 31,
2008
% on 2008
net sales
2007
% on 2007
net sales
(excluding
unbilled
retroactive
adjustment) (1)
(in millions of Pesos)
Salaries and social security taxes
Ps. 35.5 28.2 % 1.8 % Ps. 25.4 21.0 % 1.4 %
Allowance for doubtful accounts
15.3 12.1 % 0.8 % 30.7 25.5 % 1.7 %
Outsourcing
34.7 27.5 % 1.7 % 29.4 24.4 % 1.7 %
Taxes and charges
14.7 11.7 % 0.7 % 11.1 9.2 % 0.6 %
Others
25.8 20.5 % 1.3 % 24.0 19.9 % 1.4 %
Total
Ps. 126.0 100.0 % 6.3 % Ps. 120.6 100.0 % 6.8 %
1)
Calculated based on net sales as of December 31, 2007 excluding the retroactive portion of the February 2007 VAD increase (Ps. 218.6 million) , which results in net sales of Ps. 1,763.3 million.  The retroactive tariff increase is being invoiced in 55 equal and consecutive monthly installments, starting on February 2007.  As of December 31, 2008, we have billed Ps. 99.7 million.
Administrative expenses
Our administrative expenses include, among others, expenses associated with accounting, payroll administration, personnel training, systems operation, maintenance and advertising expenses. Administrative expenses increased 11.2% to Ps. 138.7 million in the year ended December 31, 2008 from Ps. 124.7 million in the year ended December 31, 2007, primarily as a result of a Ps. 9.9 million increase in salaries and social security taxes (attributable to an increase in compensation in the second half of the year) and a Ps. 5.5 million increase in computer services due to a renovation of the hardware and software.  These increases were partially offset by a decrease of Ps. 4.5 million in taxes on financial transactions and a Ps. 2.5 million decrease in advertising expenses (including institutional relations, radio advertising and community service programs).

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The following are the principal components of our administrative expenses for the years indicated:
Year ended December 31,
2008
% on 2008
net sales
2007
% on 2007
net sales
(excluding
unbilled
retroactive
adjustment) (1)
(in millions of Pesos)
Salaries and social security taxes
Ps. 46.5 33.5 % 2.3 % Ps. 36.5 29.3 % 2.1 %
Computer services
16.9 12.2 % 0.8 % 11.4 9.2 % 0.6 %
Outsourcing
11.4 8.2 % 0.6 % 10.9 8.7 % 0.6 %
Tax on financial transactions
27.0 19.5 % 1.3 % 31.5 25.3 % 1.8 %
Advertising expenses
12.8 9.2 % 0.6 % 15.4 12.3 % 0.9 %
Others
24.1 17.4 % 1.3 % 19.0 15.2 % 1.1 %
Total
Ps. 138.7 100.0 % 6.9 % Ps. 124.7 100.0 % 7.1 %
1)
Calculated based on net sales as of December 31, 2007 excluding the retroactive portion of the February 2007 VAD increase (Ps. 218.6 million) , which results in net sales of Ps. 1,763.3 million.  The retroactive tariff increase is being invoiced in 55 equal and consecutive monthly installments, starting on February 2007.  As of December 31, 2008, we have billed Ps. 99.7 million.
Net operating income (loss)
Our net operating income decreased significantly from Ps. 429.1 million in the year ended December 31, 2007 to Ps. 302.9 million in the year ended December 31, 2008.  This decrease is largely due to the recognition of the retroactive portion of the February 2007 VAD increase (Ps. 218.6 million) during the first quarter of 2007.  Excluding this adjustment, our net operating income in 2007 would have been Ps. 210.6 million, reflecting an increase in net operating income from 2007 to 2008 of 43.8%.  This increase was mainly due to the CMM adjustments described above and, to a lesser extent, to the increase in the volume of energy and power capacity sold, which more than offset a Ps. 80.3 million increase in transmission and distribution expenses, a Ps. 14.1 million increase in administrative expenses and a Ps. 5.4 million increase in selling expenses.
Financial income (expenses) and holding gains (losses)
Financial income and holding gains generated by assets represented Ps. 10.6 million in the year ended December 31, 2008, compared to Ps. 12.7 million in the year ended December 31, 2007.  This decrease of Ps. 2.1 million is primarily due to a decrease of Ps. 3.6 million in interest gained.
Financial expenses generated by liabilities which include financial interest, exchange results and other expenses, were Ps. 197.9 million in the year ended December 31, 2008 compared to Ps. 125.5 million in the year ended December 31, 2007.  This Ps. 72.4 million increase is primarily the result of:
·
a Ps. 20.8 million increase in interest expenses, mainly resulting from an increase in the interest rates on our debt in 2008 (an average of 9.1%) as compared to 2007 (an average of 4.9%); and
·
a Ps. 62.8 million increase in exchange losses (Ps. 92.7 million in the year ended December 31, 2008, compared to the Ps. 29.9 million in the year ended December 31, 2007), due to a 9.6% variation in the exchange rate of Argentine Pesos for U.S. Dollars.
These increases were partially offset by a decrease in financial expenses of Ps. 11.0 million in 2008, as compared to 2007.

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Adjustment to present value of notes
We record our financial debt on our balance sheet at the fair value reflecting our management’s best estimate of the amounts expected to be paid at each year end.  The fair value is determined as the present value of the future cash flows to be paid (including payment of interest) under the terms of the debt discounted at a rate commensurate with the risk of the debt instrument and time value of money.  In 2006, we restructured all of our outstanding debt after receiving approval from holders of 100% of our defaulted debt.  We did not record any adjustment to present value before 2006 because our financial debt was in default.  The adjustment to present value of the future cash flows of the debt issued in the restructuring, using a market annual interest rate of 10.5%, generated an accounting loss of Ps. 21.5 million in the year ended December 31, 2007 and an accounting loss of Ps. 8.5 million in the year ended December 31, 2008 related to the non-cash adjustment to present value of payments due on our debt instruments issued in April 2006.
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and of the Payment Plan Agreement with the Province of Buenos Aires
The retroactive portion of the February 2007 tariff increase, which amounts in aggregate to Ps. 218.6 million, is being invoiced in 55 consecutive monthly installments to our non-residential customers, starting in February 2007.  As of December 31, 2008, Ps. 99.7 million of the retroactive tariff adjustment has been invoiced to our non-residential customers.
In addition, in October 2006, we entered into a payment plan agreement with the Province of Buenos Aires with respect to amounts owed to us by the Province of Buenos Aires under the 2006 framework agreement.  The amounts due under the payment plan agreement are being invoiced in 18 installments, starting in January 2007.  As of December 31, 2008, the Province of Buenos Aires owed us Ps. 2.3 million.
In accordance with Argentine GAAP, we account for these long term financing plans at their net present value, which we calculate at a discount rate of 10.5%, recording the resulting non-cash charge as an adjustment to present value of these two receivables. We recorded a total non-cash charge of Ps. 13.5 million in the year ended December 31, 2008 as adjustment to present value of these receivables, compared to a loss of Ps. 29.6 million in the year ended December 31, 2007.
Gain from repurchase of notes
In several transactions in 2007, we repurchased U.S. $43.7 million principal amount of our outstanding Fixed Rate Par Notes due 2016.  In addition, we repurchased and redeemed U.S. $240.0 million principal amount of our outstanding Discount Notes due 2014. These transactions generated a net loss of Ps. 18.8 million.
During 2008 the Company repurchased and cancelled at market prices U.S. $32.5 million principal amount of our outstanding Fixed Rate Par Notes due 2016 and repurchased U.S. $17.5 million principal amount of our outstanding Fixed Rate Par Notes due 2017.  When compared to the fixtures of 2007, this transaction generated a net gain of Ps. 93.6 million.
Other income (expenses), net
Other income (expenses), net, includes mainly voluntary retirements, severance payments and accrual for lawsuits. We recorded a loss of  Ps. 29.8 million in the year ended December 31, 2008, compared to a gain of Ps. 1.0 million in the year ended December 31, 2007, mainly comprised of voluntary retirements (Ps. 31.3 million) due to an employee reduction in July 2008 and accrued litigations (Ps. 19.9 million), which were partially offset (Ps. 14.1 million) by the recovery of the allowance for doubtful accounts due to the fact that a new framework agreement had been signed in June 2008.

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Income tax
We recorded an income tax charge of Ps. 61.2 million in the year ended December 31, 2008, compared to a charge of Ps. 125.0 million in the year ended December 31, 2007.
Net income
We recorded net income of Ps. 123.1 million in the year ended December 31, 2008, compared to net income of Ps. 122.5 million in the year ended December 31, 2007.  The 2008 income is in line with the net income of 2007.  However, in 2007 we registered a gain from the recording of the retroactive tariff increase described above, which resulted in a positive impact of Ps. 218.6 million for 2007. This increase in net income from 2007 to 2008 was a result of a positive net operating income, which was partially offset by an increase in financial results and exchange rates effects.  Losses due to exchange rate effects were in turn partially compensated for by the gain resulting from the debt repurchases.
LIQUIDITY AND CAPITAL RESOURCES
Sources and uses of funds
Historically, our sources of liquidity have been cash flow from operations and long-term borrowings.  However, our ability to access the capital and bank loan markets was effectively eliminated as a result of the economic crisis in Argentina and our resulting default on our then-outstanding financial debt, as well as the Argentine government’s imposition of transfer restrictions on payments of foreign financial obligations.  We have recovered the ability to incur new financial debt with the closing of our financial debt restructuring in April 2006.  See “—Debt.”
We expect to make capital expenditures amounting to approximately U.S. $100 million on average per year over the next five years.  Our principal uses of cash are expected to be capital expenditures and our financial debt service obligations.  We expect that our principal source of liquidity will be cash flow from operations and, to a lesser extent, short-term and long-term borrowings, which we expect will be sufficient to meet our capital requirements in the near future.  In particular, we may need to incur indebtedness in the long-term to refinance a portion of our outstanding debt as it becomes due.  However, we are subject to limitations on our ability to incur new debt and to use our excess cash under the terms of our restructured debt instruments.  See “—Debt.”
The table below reflects our cash and cash equivalents position at the dates indicated and the net cash provided by (used in) operating, investing and financing activities during the years indicated:
Year ended December 31,
2009
2008
2007
(in millions of Pesos)
Cash and cash equivalents at the beginning of the year
Ps. 126.4 Ps. 101.2 Ps. 32.7
Net cash provided by operating activities
668.0 547.5 427.2
Of which:
Financial interest paid, net of interest capitalized
(76.8 ) (62.7 ) (25.5 )
Net cash used in investing activities
(404.2 ) (325.4 ) (336.9 )
Net cash used in financing activities
(161.8 ) (197.0 ) (21.8 )
Cash and cash equivalents at the end of the year
Ps. 228.4 Ps. 126.4 Ps. 101.2

Net cash provided by operating activities
Net cash provided by operating activities increased by 22.0% to Ps. 668.0 million in the year ended December 31, 2009, compared to Ps. 547.5 million in the year ended December 31, 2008.  This increase is attributable to:

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·
positive adjustments to net income for non-cash charges in the year ended December 31, 2009, including Ps. 178.6 million in exchange difference, interest and penalties on loans, Ps. 175.4 million for depreciation of property, plant and equipment and Ps. 79.3 million for income taxes, which were partially offset by negative adjustments of Ps. 81.4 million in gains from the repurchase of notes, Ps. 35.5 million in the recovery of the contingencies allowance and Ps. 26.9 million in the recovery of the allowance for doubtful accounts, and
·
a positive change in assets and liabilities of Ps. 239.1 million increase in other liabilities, a Ps. 48.1 million decrease in trade accounts receivable, and Ps.27.2 million increase  in salaries and social securities taxes. These increases were partially offset by a decrease of Ps. 56.9 million in fiscal charges.
Net cash provided by operating activities increased by 28.2% to Ps. 547.5 million in the year ended December 31, 2008, compared to Ps. 427.2 million in the year ended December 31, 2007.  This increase is attributable to positive adjustments to net income for non-cash charges in the year ended December 31, 2008, including Ps. 232.7 million in exchange difference, interest and penalties on loans, Ps. 170.3 million for depreciation of property, plant and equipment, Ps. 61.2 million for income taxes, and Ps. 8.5 million for adjustment to present value of notes, among others, which were added to a positive change in assets and liabilities of Ps. 259.9 million in the year ended December 31, 2008.  This positive change in operating assets and liabilities is primarily due to a Ps. 88.2 million decrease in accounts receivable related to the recognition of the retroactive portion of the VAD increase in the year ended December 31, 2008, an increase of Ps. 93.2 million in other liabilities and accrual litigation and, an increase of Ps. 50.3 million in salaries and social securities taxes, and to a lesser extent, an increase of Ps. 7.4 million in supplies, a Ps. 26.4 million increase in fiscal charges and a Ps. 27.8 million increase in trade accounts payable.  These increases were partially offset by an increase of Ps. 33.4 million in other receivables.
Net cash used in investing activities
Net cash used in investing activities increased 24.2% to Ps. 404.3 million for the year ended December 31, 2009 from Ps. 325.4 million for the year ended December 31, 2008.  Over 85% of the total investments were made in supplies (Ps. 280.8 million) and network maintenance and improvements (Ps. 67.2 million).
Net cash used in investing activities decreased by 3.4% to Ps. 325.4 million for the year ended December 31, 2008 from Ps. 336.9 million for the year ended December 31, 2007.  No significant changes were registered in investing activities.  In 2008, the principal investments were made in supplies, as in 2007, and in 2008 less investment was directed toward network maintenance and improvements than in 2007.
The changes in net cash used in investing activities in each of these periods were primarily due to variations in our capital expenditures in accordance with the investment plan initially contemplated by the Adjustment Agreement.  See “—Capital expenditures.”
Net cash used in financing activities
In the year ended December 2009, we used Ps. 175.4 million primarily to repurchase Senior Notes due 2017 and Fixed Rate Par Notes due 2016.
In the year ended December 2008, we used Ps. 122.9 million to repurchased Senior Notes due 2017 and Fixed Rate Par Notes due 2016.  In addition, part of our cash position was used to create the Edenor Financial Trust for a total amount of Ps. 67.9 million.  See “—Debt—Financial Trust Agreement.”  We also used Ps. 6.1 million to repurchase shares at market prices at an average price of Ps. 0.65 per share.
On April 30, 2007, we completed a capital increase (in the form of an initial public offering in local and international markets) pursuant to which we received Ps. 181.8 million in cash contributions.  In May 2007, we used a portion of the proceeds of the capital increase (Ps. 110.9 million) to repurchase part of our outstanding financial debt.

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On October 9, 2007 we issued our U.S. $220,000,000 10.5% Senior Notes due 2017.  We used the proceeds from that offering to repurchase U.S. $204.0 million aggregate principal amount of our Discount Notes due 2014, which were redeemed in full through several transactions during the period from October through December 2007. We used the balance of the proceeds from the October debt offering or capital expenditures and working capital purposes.
Capital expenditures
Our concession does not require us to make mandatory capital expenditures.  Our concession does, however, set forth specific quality standards that become progressively more stringent over time, which require us to make additional capital expenditures.  Financial penalties are imposed on us for non-compliance with the terms of our concession, including quality standards.
Prior to our privatization, a low level of capital expenditures and poor maintenance programs adversely affected the condition of our assets.  After our privatization in 1992, we developed an aggressive capital expenditure plan to update the technology of our productive assets, renew our facilities and expand energy distribution services, automate the control of the distribution network and improve customer service.  Following the crisis, however, the freeze of our distribution margins and the pesification of our tariffs and our inability to obtain financing, coupled with increasing energy losses, forced us to curtail our capital expenditure program and make only those investments that were necessary to permit us to comply with quality of service and safety and environmental requirements, despite increases in demand in recent years.
We are currently subject to limitations on the amount of non-mandatory capital expenditures we may make in a given year pursuant to the terms of our restructured debt instruments.  Under these debt instruments, we may make the following amounts (or its equivalent in other currencies) of non-mandatory capital expenditures:
·
U.S. $90 million in each of 2010 and 2011,
·
U.S. $86 million in 2012,
·
U.S. $90 million in 2013,
·
U.S. $86 million in 2014,
·
U.S. $87 million in 2015, and
·
U.S. $90 million in 2016.
In addition, we may carry over unused amounts of permitted capital expenditures and use these amounts to make additional capital expenditures in future years, so long as these additional capital expenditures do not exceed the amount of permitted capital expenditures for the prior year.  We are not subject to any limitations on the amount of capital expenditures we are required to make pursuant to our concession and applicable laws or regulations.
We believe that the limits on capital expenditures in the restructuring indenture currently exceed our anticipated expenditures during each specified period.
Our capital expenditures consist of net cash used in investing activities during a specified period plus supplies purchased in prior periods and used in such specified period.  The following table sets forth our actual capital expenditures for the years indicated:

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Year ended December 31,
2009
2008
2007
(in millions of Pesos)
Supplies
Ps. 280.8 Ps. 235.6 Ps. 235.3
Network maintenance and improvements
67.2 57.6 70.0
Legal requirements (1)
15.8 12.2 12.3
Communications and telecontrol
13.7 8.7 7.0
Others
26.8 21.8 18.1
Total
Ps. 404.3 Ps. 335.7 Ps. 342.7
(1)
Capital expenditures required to be made to comply with the ENRE quality standard and other regulations.

In 2009, in accordance with our capital expenditure program, we invested Ps. 404.3 million.  In order to keep pace with the growth in our customer’s base (our customer base increased 2.7% in 2009, despite a 2.1% decrease in energy sales by volume during that period) an important portion of our investments were designed to meet this increase and to improve our grid.  In addition, we made investments in order to meet our quality standards levels and to maintain the level of past due receivables.
Our capital expenditure program for 2010 contemplates total expenditures of Ps. 400 million.  We can give no assurance that actual expenditure will not be lower or exceed our current estimate.
Debt
The economic crisis in Argentina had a material adverse effect on our operations.  The devaluation of the Argentine Peso caused the Peso value of our U.S. Dollar-denominated indebtedness to increase significantly, resulting in significant foreign exchange losses and a significant increase, in Peso terms, in our debt service requirements.  At the same time, our cash flow remained Peso-denominated and our distribution margins were frozen and pesified by the Argentine government pursuant to the Public Emergency Law.  Moreover, the economic crisis in Argentina had a significant adverse effect on the overall level of economic activity in Argentina and led to deterioration in the ability of our customers to pay their bills.  These developments caused us to announce on September 15, 2002 the suspension of principal payments on our debt.  On September 26, 2005, our board of directors decided to suspend interest payments on our debt until the restructuring of this debt was completed.
The purpose of the restructuring was to restructure all, or substantially all, of our outstanding debt, in order to obtain terms that will enable us to service our debt.  We believe that the restructuring was the most effective and equitable means of addressing our financial difficulties for the benefit of the company and our creditors.  We developed a proposal that we believed was necessary to address our financial and liquidity difficulties, while we continued to pursue tariff negotiations with the Argentine government to improve our financial condition and operating performance.
On January 20, 2006, we launched a voluntary exchange offer and consent solicitation to the holders of our outstanding financial debt.  All of these holders elected to participate in the restructuring and, as a result, on April 24, 2006, we exchanged all of our then-outstanding financial debt for three series of newly-issued notes, which we refer to as the restructuring notes:
·
U.S. $123,773,586 Fixed Rate Par Notes due December 14, 2016 (of which U.S. $15.3 million remains outstanding as of the date of this annual report), with approximately 50% of the principal due and payable at maturity and the remainder due in semiannual installments commencing June 14, 2011, and bearing interest starting at 3% and stepping up to 10% over time;
·
U.S. $12,656,086 Floating Rate Par Notes due December 14, 2019 (of which U.S. $12.6 million remains outstanding as of the date of this annual report), with the same payment terms as the Fixed Rate Par Notes and bearing interest at LIBOR plus a spread, which starts at 1% in 2008 and steps up to 2% over time; and
·
U.S. $239,999,985 Discount Notes due December 14, 2014 (as of the date of this annual report, none of our Discount Notes due 2014 were outstanding), with 60% of the principal due and payable at maturity and the remainder due in semiannual installments commencing on June 14, 2008, and bearing interest at a fixed rate that starts at 3% and steps up to 12% over time.

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We are subject to a number of restrictive covenants under the terms of the restructuring notes, including the following:
·
limitations on our ability to sell or pledge assets or make investments in third parties;
·
limitations on our ability to incur new indebtedness;
·
limitations on our ability to make capital expenditures;
·
limitations on our ability to pay dividends;
·
limitations on our ability to repurchase our common shares; and
·
limitations on our ability to enter into transactions with shareholders and affiliates other than on an arm’s length basis.
Upon a change of control (as defined in the indenture for the restructuring notes), each holder of the restructuring notes will have the right to require us to repurchase all or a portion of that holder’s notes at par plus accrued and unpaid interest and additional amounts (as defined in the indenture), if any, pursuant to an offer made by us on terms set forth in the indenture.
In addition, the terms of the restructuring notes require us to apply our excess cash (as defined in the indenture for the restructuring notes) to specific uses, including prepayments or repurchases of the notes.  The indenture for the restructuring notes defines excess cash for these purposes as our earnings before interest expenses, taxes, depreciation and amortization charges (EBITDA, as defined in the indenture for the restructuring notes) during a given six-month period, after adjustments to reflect negative or positive changes in our working capital and deductions for borrowings, scheduled debt payments, prepayments, redemptions or repurchases of our debt, capital expenditures, certain permitted investments, taxes and other cash expenses, in each case during the same six-month period.  If we generate excess cash (as defined in the indenture) during any six-month period in which our leverage ratio (defined in the indenture as our total indebtedness over our 12-month EBITDA) is greater than 2.5, we will be required to use a portion of our excess cash to prepay or repurchase the restructuring notes.  If our leverage ratio is:
·
greater than 2.5, but not greater than 3.0, we must apply 50% of our excess cash to prepay or repurchase restructuring notes;
·
greater than 3.0, but not greater than 3.5, we must apply 75% to prepay or repurchase restructuring notes, unless we commit to use 50% of the excess cash for capital expenditures, in which case we must apply the remaining 50% to prepay or repurchase restructuring notes, and
·
greater than 3.5, we must apply all of our excess cash to prepay or repurchase restructuring notes.
We are entitled to use any excess cash not allocated to debt prepayments or repurchases as set forth above for any purpose at our discretion, including dividend payments.  In addition, most of the restrictive covenants set forth in the restructuring indenture will be suspended or adjusted if we attain an international investment grade rating on our long-term debt or if our leverage ratio (as defined in the indenture) is equal or lower to 2.5.
We are currently in compliance with all of our financial debt covenants.
During the year ended December 31, 2007, through various market transactions, we repurchased U.S. $43.7 million of our outstanding Fixed Rate Par Notes due 2016 and repurchased and redeemed U.S. $240 million Discount Notes due 2014.
In October 2007, we completed an offering of U.S. $220 million aggregate principal amount of our 10.5% Senior Notes due 2017, which we refer to as the senior notes.  The terms of the senior notes are substantially similar to those of our restructuring notes, except that the senior notes are not subject to the covenants relating to mandatory prepayments with excess cash and limitation on capital expenditures.  We used a substantial portion of the proceeds from that offering to redeem in full our Discount Notes due 2014 in several transactions throughout the period from October through December 2007.

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During 2008, we repurchased and cancelled U.S. $32.5 million principal amount of our Fixed Rate Par Notes due December 2016 and repurchased U.S. $17.5 million Senior Notes due 2017, in several transactions.
In May 2009, we issued Ps. 75.7 million principal amount of Par Notes due 2013 under our Medium Term Note Program.  The Par Notes due 2013 are denominated and payable in Argentine Pesos and accrue interest on a quarterly basis at a rate equal to the private BADLAR, as published by the Argentine Central Bank, for each such quarter plus 6.75%.  Principal on the notes is payable in 13 quarterly installments, starting on May 7, 2010.
During 2009, we repurchased and cancelled U.S. $32.2 million Fixed Rate Par Notes due 2016 and repurchased U.S. $53.8 million Senior Notes due 2017, U.S. $24.5 million of which was transferred to us as a consequence of the dissolution of the Discretionary Trust described below.
As of the date of this annual report, we have in our portfolio U.S. $65.3 million Senior Notes due 2017.
Line of Credit – Banco Nación Loans
In order to optimize our management of working capital, in December 2008, as part of our line of credit with Banco Nación, we received a two-year loan for Ps. 50 million, with no principal payments due for the first six months followed by 18 consecutive monthly payments of amortized principal.  We make monthly interest payments on accrued interest at a floating rate equal to BAIBOR, as published by the Argentine Central Bank, plus 5%.
The outstanding principal amount as of December 31, 2009 was Ps.33.3 million.
Discretionary Trust Agreement
In September 2008, we entered into a twenty-year irrevocable and discretionary trust agreement with Macro Bank Limited.  Under the terms of the trust, in October 2008 we assigned to the trust, and the trust manages in accordance with the terms of the trust agreement, certain liquid assets, including cash, in an initial amount of up to U.S. $23.9 million.  On November 3 and 11, 2008, we carried out an additional assignment of liquid assets for U.S. $2 million and U.S. $1 million, respectively.
The funds of the trust were used to repurchase Par Notes due in 2016 with a nominal value of U.S. $21.7 million.
On September 3, 2009, we liquidated the Discretionary Trust and the U.S. $ 24.5 million principal amount of Notes held by the Trust were transferred to us.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A summary of our significant accounting policies is included in notes 2 and 3 of our audited financial statements, which are included in this annual report.  The preparation of financial statements requires our management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying footnotes.  Our estimates and assumptions are based on historical experiences and changes in the business environment.  However, actual results may differ from estimates under different conditions, sometimes materially.  Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and results and require management’s most subjective judgments.  Our most critical accounting policies and estimates are described below.

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Allowance for doubtful accounts
Our trade receivables include services billed but not collected, and services accrued but not billed as of the end of each year, net of an allowance for doubtful accounts.  The allowance for doubtful accounts is assessed based on the historical levels of collections for services billed through the end of each year and subsequent collections.  Future adjustments to the allowance may be necessary if future economic conditions differ substantially from the assumptions used in the assessment for each year.  The related charges to the allowance for doubtful accounts are included in selling expenses.
Year ended December 31,
2009
2008
2007
(in millions of Ps. )
Allowance for doubtful accounts:
Beginning balance
Ps. 33.1 Ps. 40.0 Ps. 25.6
Additions
20.3 23.6 30.1
Retirements
(6.8 ) (6.5 ) (15.7 )
Recovery
(26.9 ) (24.0 ) —
Ending balance
Ps. 19.7 Ps. 33.1 Ps. 40.0
As of December 31, 2009, 2008 and 2007, the allowance for doubtful accounts was Ps. 19.7 million, Ps. 33.1 million and Ps. 40.0 million, respectively.  During 2009, 2008 and 2007, the additions to the allowance for doubtful accounts amounted to Ps. 20.3 million, Ps. 23.6 million and Ps. 30.1 million, respectively, and the retirements amounted to Ps. 6.8 million, Ps. 6.5 million and Ps. 15.7 million, respectively.  The recovery of Ps.26.9 million in 2009 and Ps.24.0 million in 2008, was due to the new framework agreement that we signed with and was ratified by the Argentine government and the Province of Buenos Aires.  See “Item 4. Information on the Company—Framework agreement (Shantytowns).”
Revenue recognition
We recognize our revenues from operations, which relate primarily to electricity distribution, on an accrual basis.  These revenues include energy supplied (whether billed or unbilled) at year-end, valued on the basis of applicable tariffs.  We also recognize revenues from other components of our distribution services, such as new connections, pole rentals and the transportation of energy to other distribution companies.  We recognize revenues when our revenue earning process has been substantially completed, the amount of revenues may be reasonably measured and we believe we are entitled to enjoy the economic benefit derived from such revenues.  During 2007, we recognized the retroactive increase in revenues resulting from the tariff increase pursuant to the ratification of the Adjustment Agreement when the ENRE issued its resolution authorizing our new tariff schedule with respect to non-residential customers for the period from November 2005 through January 31, 2007, and subsequently published such resolution in the Argentine Official Gazette on February 5, 2007.
On October 4, 2007 the Official Gazette published Resolution N° 1037/2007 of the Secretary of Energy. This resolution established that the portion of our tariff relating to energy purchases, which we ordinarily pass through to our customers, as well as the amounts corresponding to the CMM for the period from May 2006 through April 2007, would have to be deducted from the funds collected under the PUREE, until the regulatory authorities adjusted our tariff in order to compensate us for these amounts.  The resolution also establishes that the CMM adjustment for the period from May 2006 through April 2007, in effect as of May 1, 2007, amounts to 9.63%. Additionally, on October 25, 2007 the ENRE issued Resolution Nº 710/2007, which approves the use of the PUREE as a CMM compensation mechanism.  In accordance with this resolution, we recognize the revenues resulting from the 9.63% CMM adjustment and collected through the PUREE funds.

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In July 2008, we obtained an increase of approximately 17.9% to our distribution margin, which we incorporated into our tariff structure. This increase represented the 9.63% CMM increase corresponding to the period from May 2006 to April 2007 and the 7.56% CMM increase corresponding to the period from May 2007 to October 2007. These CMM adjustments were included in our tariff structure as of July 1, 2008 and resulted in an average increase of 10% for customers in the small commercial, medium commercial, industrial and wheeling system categories and an average increase of 21% for residential customers with bimonthly consumption levels over 650 kWh.  As of December 31, 2008, we recorded a total amount of Ps. 84.6 million in net sales for these two CMM adjustments.
Impairment of long-lived assets
We periodically evaluate the carrying value of our long-lived assets for impairment.  Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recovered.  The value in use was determined as of December 31, 2009 primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.  We have made projections in order to determine the recoverable value of our non current assets based on the estimated outcome of the RTI.  No impairment was recognized during the years presented.  We do not foresee likely circumstances in the near future that would result in the recognition of an impairment of long-lived assets.
Accrued litigation
We recognize contingent liabilities with respect to existing or potential claims, lawsuits and other legal proceedings and record an accrual for litigation when it is probable that future costs will be incurred and these costs can be reasonably estimated.  These accruals are based on the most recent developments, our assessment of the likely outcome of the litigation and our counsel’s advice in dealing with, litigating and settling this and other similar legal matters.  Changes to the accrual may be necessary if future events differ substantially from the assumptions used in the assessment for each period.  In 2009, we recorded a net decrease to our accrual for litigation of Ps. 24.9 million basically due to recovery of a fiscal contingency as a consequence of entering into a tax payment plan agreement offered pursuant to law N° 26476. This amount is net from the increase generated by new litigation and changes in our evaluation of existing litigation.  Our accrual for litigation amounted to Ps. 72.9 million at December 31, 2009, Ps. 97.8 million at December 31, 2008 and Ps. 82.7 million at December 31, 2007.
Income tax and tax on presumptive minimum income
Until December 31, 2002, we determined our income tax charge by applying the legal tax rate of 35% to our taxable income for the year.  During that period, the effect of temporary differences between book value and the taxable basis of our assets and liabilities was not considered.  Since 2003, current generally accepted accounting principles in Argentina require us to determine the income tax charge under the deferred tax method.  This method involves the recognition of certain assets and liabilities in cases where there is a temporary difference between the accounting valuation and the tax valuation of those assets and liabilities, excluding differences in price levels on assets and liabilities as adjusted for inflation and their historical tax basis, which are treated as permanent differences.
As of December 31, 2005, a valuation allowance had been recorded in our financial statements to reduce the deferred tax assets.  Based on available information as of the end of each of those years, it was more likely than not that these deferred tax assets would not be realized.  The amount of the valuation allowance was based on various factors, such as historical taxable income, projected future taxable income, the experience with previous tax audits and different interpretations of tax regulations by the tax authority.  As of December 31, 2006, the valuation allowance of the deferred tax assets was partially reversed mainly due to the fact that, as a consequence of the ratification of the Adjustment Agreement in January 2007 and the renegotiation of our financial debt in April 2006, we have expected to generate taxable income allowing us to offset a significant portion of the tax loss carryforwards we generated in 2002 before such offset becomes barred by the applicable statute of limitations.  The reversal of the deferred tax asset related to the tax loss carryforward was due to a significant increase in our taxable income, which was partially offset by the tax deduction of the ENRE penalties in 2007.  In the year ended December 31, 2008, we reversed the entire valuation allowance of the deferred tax assets.
Our tax obligation for any given year is equal to the higher of our income tax and our the tax on our minimum presumed income.  However, to the extent that our tax on minimum presumed income exceeds our income tax, we earn tax credit against the payment of any income tax in excess of our tax on minimum presumed income in the subsequent ten fiscal years. In 2009, our income tax exceeded our minimum presumed income tax and so we earned no additional credits.

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Labor cost liabilities
Labor cost liabilities and early retirement payables correspond to the following charges:
·
paid leave for accumulated vacation;
·
bonuses to employees with a specified number of years of employment and who are included in our collective bargaining agreements;
·
benefits to employees (pension plan) which are included in our collective bargaining agreements, to be given at the time of retirement; and
·
early retirement payables.
Our accruals for early retirement payables amounted to Ps. 16.0 million at December 31, 2009, Ps. 20.9 million at December 31, 2008 and Ps. 8.0 million at December 31, 2007.
Liabilities related to bonuses and benefits to employees (pension plans) are calculated considering all rights accrued by the beneficiaries of both plans as of year end based on an actuarial report issued by an independent professional as of that date.  These liabilities are recorded as bonuses accrued and provisions for benefits to personnel, respectively.  Our liabilities related to bonuses and benefits to employees (pension plans) amounted to Ps. 33.9 million at December 31, 2009, Ps. 26.0 million at December 31, 2008 and Ps. 19.0 million at December 31, 2007.  Actuarial calculations are typically based on the following key assumptions: employee turnover, actual salary increases, mortality ages, disability studies, retirement age probability studies, discount rates and inflation.  These assumptions change as market and economic conditions change.  See notes 3 and 8 to our audited financial statements included elsewhere in this annual report for further information on our labor cost liabilities.
Financial debt
We record our financial debt in our balance sheet at the fair value reflecting our management’s best estimate of the amounts expected to be paid at each period end.  The fair value has been determined as the present value of the future cash flows to be paid (including payment of interest) under the terms of the debt discounted at a rate which, in accordance with the criterion we apply, reasonably reflected market assessment of the time value of money and risk specific of the debt instruments at the time of their initial measurement.  During the year ended December 31, 2006, we recorded the restructuring of debt after receiving consents to our restructuring from holders of 100% of our defaulted debt.  The debt extinguishment generated a gain of Ps. 179.2 million.  We did not record any adjustment to present value before the year ended December 31, 2006 because our financial debt was in default.  The adjustment to present value of the future cash flows of the debt issued in the restructuring, using a market interest rate of 10.5% for the year ended December 31, 2009 and 2008, generated a charge of Ps. 5.2 million and Ps. 8.5 million, respectively.
During 2007 we used a portion of the proceeds of our initial public offering to repurchase U.S. $36 million aggregate principal amount of our Discount Notes due 2014.  In addition, we repurchased U.S. $43.7 million aggregate principal amount of our Fixed Rate Par Notes due 2016.
On October 9, 2007 we issued our U.S. $220 million 10.5% Senior Notes due 2017.  We used the proceeds from that offering to repurchase and redeem in full our Discount Notes due 2014.  We used the balance of the proceeds from the October debt offering for capital expenditures and working capital purposes.
During the years ended December 31, 2009 and December 31, 2008, we repurchased a total amount of U.S. $32.2 million and U.S. $32.5 million of principal amount of our Fixed Rate Par Notes due 2016 and U.S. $53.8 million and U.S. $17.5 million of our Senior Notes due 2017, respectively.  As of December 31, 2009 we recorded a gain of Ps. 73.5 million related to these repurchases and redemptions.  In addition, the adjustment to present value of the cash flows of these repurchased and redeemed notes, using a market interest rate of 10.5% for the year ended December 31, 2009, generated an accounting gain of Ps. 7.9 million.

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In May 2009, we issued Ps. 75.7 million principal amount of Par Notes due 2013 under our Medium Term Note Program.  The Par Notes due 2013 are denominated and payable in Argentine Pesos and accrue interest on a quarterly basis at a rate equal to the private BADLAR, as published by the Argentine Central Bank, plus 6.75%.  We used proceeds from the this debt offering for capital expenditures and working capital purposes.
Derivatives Contracts
Corporate Notes

During the year ended December 31, 2008, the Company carried out transactions with derivative financial instruments with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions.

These instruments provided an economic and financial hedge of the amounts in foreign currency that the Company had to pay on the interest payment dates of its financial debt –Senior Notes due 2017 and Fixed rate Par Notes due 2016-, maturing on October 8, 2008, December 11, 2008, April 8, 2009, June 12, 2009, October 8, 2009 and December 11, 2009, in the event of fluctuations in foreign currency exchange rates. The Company has not formally designated these transactions as hedging instruments.

Therefore, they have been recorded in the accounting at their net realizable value or settlement value, depending on whether they have been classified as assets or liabilities, with a contra-account in the financial gains or losses for the year.

As of December 31, 2009, these transactions have been fully settled, there being no outstanding balances.
As of December 31, 2009 and 2008, income resulting from these transactions amounted to Ps. 1.6 million and Ps. 5.7 million, respectively, and was recorded in the Financial income (expense) and holding gains (losses) generated by liabilities account of the Statement of Income under Exchange difference.

Forward and Futures Contracts

During the year ended December 31, 2009, the Company has entered into forward and futures contracts with the aim of using them as economic instruments in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.

As of December 31, 2009, the economic impact of these transactions -including contracts that have already been settled as well as those currently in effect-, resulted in a loss of Ps. 12.3 million that has been recorded in the Financial income (expense) and holding gains (losses) generated by assets account of the Statement of Income under Holding results.
Adoption of IFRS
On December 29, 2009, the CNV issued Resolution No. 562 "Adoption of International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB)" (“Resolution No. 562”) which requires that companies under the supervision of the CNV, such as us, prepare their financial statements in accordance with IFRS as published by the IASB for fiscal periods beginning on or after January 1, 2012 including comparative information for earlier periods.
IFRS 1, First Time Adoption of International Financial Reporting Standards, is the guidance that is applied during preparation of a company’s first IFRS-based financial statements. IFRS 1 was created to help companies transition to IFRS and provides practical accommodations intended to make first-time adoption cost-effective. It also provides application guidance for addressing difficult conversion topics.

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The key principle of IFRS 1 is full retrospective application of all IFRS standards that are effective as of the closing balance sheet or reporting date of the first IFRS financial statements. IFRS 1 requires companies to (i) identify the first IFRS financial statements; (ii) prepare an opening balance sheet at the date of transition to IFRS; (iii) select accounting policies that comply with IFRS and to apply those policies retrospectively to all of the periods presented in the first IFRS financial statements; (iv) consider whether to apply any of the optional exemptions from retrospective application; (v) apply the mandatory exceptions from retrospective application; and (vi) make extensive disclosures to explain the transition to IFRS. Exemptions provide limited relief for first-time adopters, mainly in areas where the information needed to apply IFRS retrospectively may be most challenging to obtain.
The Company is currently assessing the impact that this change would have on their respective financial statements, and will continue to monitor the development of the implementation of IFRS.
PRINCIPAL DIFFERENCES BETWEEN ARGENTINE GAAP AND U.S. GAAP
Our financial statements are prepared in accordance with generally accepted accounting principles in the City of Buenos Aires, Argentina, which we refer to as Argentine GAAP and which differ in certain significant respects from U.S. GAAP.  Note 27 to our audited financial statements included elsewhere in this annual report, provides a description of the significant differences between Argentine GAAP and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net income for the years ended December 31, 2009, 2008 and 2007 and shareholders’ equity as of December 31, 2009 and 2008.
The principal differences between Argentine GAAP and U.S. GAAP as they relate to us in these years are the accounting for the results of our trouble debt restructuring and repurchases of debt, the treatment of deferred income taxes, the capitalization of interest, the treatment of asset retirement obligations, our expenses related to our initial public offering, the treatment of certain pension plan liabilities, the treatment of the trust consolidation and accounting for the investments in marketable securities. Each of these differences affects either net income or shareholders’ equity. See note 27 to our audited financial statements included elsewhere in this annual report for a discussion of these differences and the effect on our results of operations and financial position.
OFF-BALANCE SHEET ARRANGEMENTS
We did not have any off-balance sheet arrangements as of December 31, 2009, 2008 and 2007.
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual liabilities and commitments as of December 31, 2009.  Peso amounts have been translated from U.S. Dollar amounts at the buying rate for U.S. Dollars quoted by Banco Nación on December 31, 2009 of Ps. 3.80 to U.S. $1.00.
Payments due by period
Total
Less than
1 year
1-3
years
4-5
years
After
5 years
(in millions of Pesos)
Long term debt obligations (1)
Ps. 1,314.5 124.5 291.9 144.3 753.8
Accrued fines and penalties (2)
377.5 — — — —
Financial assistance fees (3)
9.5 9.5 — — —
Operating leases (4)
11.9 8.4 3.2 0.3 —
Capital expenditures (5)
— — — — —
Taxes (6)
10.6 1.1 3.4 2.3 3.8
Total
Ps. 1,724.0 Ps. 143.5 Ps. 298.5 Ps. 146.9 Ps. 757.6

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(1)
Includes amortization of principal and interest payments, including our management’s current estimates of future market rates in respect of our floating rate debt (which amounted to U.S. $12.7 million as of December 31, 2009).  Calculated at the prevailing exchange rate as of December 31, 2009, Ps./U.S. $3.80.  See “—Debt” for a description of these restructuring notes, including amortization and interest payment terms and mandatory prepayment with excess cash provisions.  All of our indebtedness is unsecured.  None of our indebtedness is guaranteed.
(2)
Includes adjustments made to reflect the ratification of the Adjustment Agreement.  We were required to make an adjustment to a portion of our accrued fines and penalties totaling Ps. 47.0 million to reflect the increase to our VAD pursuant to the Adjustment Agreement and the May 2006 CMM and Ps. 17.2 million and Ps. 18.1 million to reflect the CMM adjustment for the years ended December 31, 2008 and 2007, respectively.  In addition, pursuant to the terms of the Adjustment Agreement, the Argentine government agreed, subject to the fulfillment of certain conditions, to forgive, upon the completion of the RTI, approximately Ps. 71.4  million of our accrued fines and penalties and allow us to pay the remaining Ps. 306.1 million of these fines and penalties in semi-annual installments over a 7-year period commencing 180 days after the RTI comes into effect.  Because the Adjustment Agreement was not ratified until January 2007, we have recalculated the amounts of accrued fines and penalties subject to the payment plan under the terms of the Adjustment Agreement as well as the amounts subject to forgiveness.  See “Item 4. Information on the Company—Our concession —Fines and penalties.”
(3)
Fees payable under our financial services agreement with EASA, our controlling shareholder.  This agreement expires in 2010. We are currently renegotiating this Agreement. See “Item 7.  Major Shareholders and Related Party Transactions—Related Party Transactions— Financial Services Agreement with EASA.”
(4)
Reports our minimum required lease payments.
(5)
Our concession does not require us to make any specified amount of capital expenditures, but requires us to meet certain quality and other service standards.  See “—Capital expenditures.”
(6)
Represents a liability for the tax claim that we have with the Argentine Tax Authority related to the income tax deduction of the allowance for bad debts for the three fiscal years ended December 31, 1996, December 31, 1997 and December 31, 1998.  On April 27, 2009, we agreed to the tax regularization plan established in Law No. 26,476.  The balance is payable in 120 monthly installments at a 0.75% monthly interest rate. In accordance with the assessment of the tax regularization plan, our outstanding balance amounts to Ps. 12.1 million plus interest in the amount of  Ps. 5.2 million. During the year ended December 31, 2009, we paid Ps.1.5 million of the outstanding balance, thus our remaining balance totals Ps.10.6 million, excluding the interest amount. Includes only the amortization of principal.

Item 6.
Directors, Senior Management and Employees
Directors and Senior Management
Board of directors
Our business and affairs are managed by our board of directors in accordance with our bylaws and the Argentine Companies Law.  Our bylaws provide that our board of directors will consist of twelve directors and up to the same number of alternate directors.  Pursuant to the Argentine Companies Law, a majority of our directors must be residents of Argentina.
Our bylaws provide that holders of our Class A shares are entitled to elect seven directors and up to seven alternate directors, one of which must be independent in accordance with CNV regulations, holders of our Class B and Class C shares are entitled to elect five directors and up to five alternate directors, one of which must be independent in accordance with CNV regulations.  Holders of Class C shares vote jointly as a single class with the holders of Class B shares in the election of directors.  In the absence of a director elected by holders of a class of shares, any alternate director elected by holders of the same class may legally attend and vote at meetings of our board of directors.  The board of directors elects among its members a chairman and a vice president.
Directors and alternate directors serve for one-year periods, indefinitely renewable.
Our directors and alternate directors are as follows:
Name
Position
Age
Year of appointment
(class electing director)
Alejandro Macfarlane
Chairman and CEO
44
2010 (Class A)
Marcos Marcelo Mindlin**
Vice Chairman
46
2010(Class A)
Damián Miguel Mindlin**
Director
44
2010 (Class A)
Gustavo Mariani
Director
39
2010 (Class A)
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Name
Position
Age
Year of appointment
(class electing director)
Luis Pablo Rogelio Pagano
Director
56
2010 (Class A)
Eduardo Llanos*
Director
66
2010 (Class A)
Maximiliano Alejandro Fernández*
Director
50
2010 (Class A)
Ricardo Alejandro Torres
Director
52
2010 (Class B/C)
Diego Martín Salaverri
Director
45
2010 (Class B/C)
Edgardo Alberto Volosín
Director
56
2010 (Class B/C)
Alfredo MacLaughlin *
Director
67
2010 (Class B/C)
Eduardo Orlando Quiles*
Director
67
2010 (Class B/C)
Javier Douer
Alternate Director
36
2010 (Class A)
Pablo Díaz
Alternate Director
52
2010 (Class A)
Brian Henderson
Alternate Director
64
2010 (Class A)
Jorge Miguel Grecco
Alternate Director
49
2010 (Class A)
Ariel Schapira
Alternate Director
48
2010 (Class A)
Ricardo Sericano
Alternate Director
61
2010 (Class A)
Jaime Barba
Alternate Director
46
2010 (Class A)
Maia Chmielewski
Alternate Director
30
2010 (Class B/C)
Gabriel Cohen
Alternate Director
45
2010 (Class B/C)
Alejandro Mindlin**
Alternate Director
34
2010 (Class B/C)
Rafael Mancuso*
Alternate Director
67
2010 (Class B/C)
Eduardo Maggi
Alternate Director
54
2010 (Class B/C)
*
Independent under Argentine law and under Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
**
The following family relationships exist within the board of directors: Marcos Marcelo Mindlin, Damián Miguel Mindlin and Alejandro Mindlin are brothers.
The following is a brief description of our current directors’ and alternate directors’ background, experience and principal business activities:
Alejandro Macfarlane. Mr. Macfarlane has been the chairman of the board of directors and CEO of Edenor since 2005.  He serves as president of ADEERA, the pre-eminent electricity distributors association of Argentina, since September 2005.  Mr. Macfarlane is also a member of the board of directors of Macro Bansud Bank and San Antonio International SRL.  He was a board member of YPF S.A. and has been a member of YPF Foundation since 1999.  He is the president of Grupo AM S.A., a corporate and institutional relationships consulting firm.  He is member and director of the Instituto para el Desarrollo Empresarial Argentino (Argentinean Business Development Institute, or IDEA) and a member of the Consejo Argentino para las Relaciones Internacionales (Argentinean Council for International Relationships, or CARI).
Marcos Marcelo Mindlin. Mr. Mindlin has been a member of the board of directors of Edenor since 2005.  Mr. Mindlin has been the vice chairman of Edenor since 2005.  Mr. Mindlin currently serves as the chairman of Pampa Energía S.A. and as chairman of the Cámara Argentina de Energía (CADE), an Argentine energy services institution.  From 1991 to 2003, Mr. Mindlin was the founding partner, vice chairman and CFO of IRSA Inversiones y Representaciones S.A., a leading Argentine real estate firm, and director of Banco Hipotecario S.A., the leading mortgage bank in the country.  In November 2003, Mr. Mindlin resigned from the IRSA Group to focus his efforts on Grupo Dolphin S.A., an Argentine investment advisory and private equity firm created in 1990 based in Argentina of which Mr. Mindlin is a founding shareholder.  Mr. Mindlin received an MBA from the Universidad del Centro de Estudios Macroeconómicos and a degree in business administration from the Universidad de Buenos Aires.  In 2002, Mr. Mindlin founded and managed a non-governmental organization called Foundation for the Popular Initiative, whose objective is to create political space for citizens to present popular initiatives in Congress.  In 2008, he founded Fundación todo por los chicos , whose principal objective is to assist vulnerable children.  In addition, Mr. Mindlin formerly served as president of the executive committee of Tzekada, a foundation of the judeo-argentine community and he is a member of the Council of the Americas.

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Damián Miguel Mindlin. Mr. Mindlin has been a member of the board of directors of Edenor since 2005.  Mr. Mindlin is a shareholder and director of Grupo Dolphin S.A., an Argentine investment advisory and private equity firm founded in 1990, and is vice chairman of Pampa Energía S.A.  Mr. Mindlin is also a member of the board of directors of Pampa Participaciones S.A., Pampa Real Estate S.A., Compañía Buenos Aires S.A., Powerco S.A.  Central Térmica Güemes S.A. and Pampa Participaciones II S.A. and as vice chairman of Comunicaciones y Servicios S.A., Dilurey S.A., Inversora Güemes S.A., Transelec Argentina S.A., Grupo Dolphin S.A., Dolphin Energía S.A., IEASA S.A., Electricidad Argentina S.A. and Transba S.A.  He also serves as a member of the board of directors of Edenor S.A., Citelec S.A., Dolphin Finance S.A., Hidroeléctrica Los Nihuiles S.A., Hidroeléctrica Diamante S.A., Préstamos y Servicios S.A., Inversora Dimante S.A., Inversora Nihuiles S.A., Inversora Ingentis S.A., Central Piedra Buena S.A., Corporación Independiente de Energía S.A. and as an alternate member of the board of directors of Compañia de Transporte de Energia Eléctrica en Alta Tension S.A. (Transener) and Ingentis S.A.
Gustavo Mariani. Mr. Mariani has been a member of the board of directors of Edenor since 2005.  Mr. Mariani is a member of the board of directors and a managing director of Grupo Dolphin S.A., an Argentine investment advisory and private equity firm.  He joined Grupo Dolphin S.A. in 1993, as an analyst and then served as a portfolio manager.  He served as financial and corporate director of IRSA Inversiones y Representaciones S.A.  Currently, he also serves as member of the board of directors of each of EASA, IEASA, Dolphin Energia, Transba, Pampa Energía S.A., Pampa Advisors S.A., Citelec, Transener, Transba and Dolphin Finance S.A., and alternate director for Transener S.A. and Citelec S.A.  Mr. Mariani has an MBA from Universidad del Centro de Estudios Macroeconómicos and a degree in economics from the Universidad de Belgrano in Buenos Aires.  He is a certified financial analyst since 1998.
Luis Pablo Rogelio Pagano. Mr. Pagano has been a member of the board of directors of Edenor since 2005.  Mr. Pagano is the chief financial officer of Edenor and was also a managing director of Grupo Dolphin S.A.  Prior to joining Grupo Dolphin S.A. in 2002, Mr. Pagano held various positions, including general partner and managing director for Newbridge Latin America, investment banking director for Deutsche Morgan Grenfell in Argentina, vice president and investment banking director for Citibank N.A. and chief financial officer for Argentina, Brazil, Paraguay, Uruguay and Chile of Bank of America, NTSA.  Mr. Pagano received an MBA from the Instituto de Estudios Superiores de la Empresa (IESE), in Spain and both a CPA and BA in Business Administration from the Universidad Católica Argentina.
Eduardo Llanos . Mr. Llanos has been a Director of Edenor since 2008.  Mr. Llanos served as a member of the Supervisory Committee of Televisión Federal S.A. (Telefé), Telefónica de Argentina S.A. y Telefónica Holding Argentina S.A.  From 1969 to 2000, Mr. Llanos worked at Arthur Andersen / Pistrelli, Diaz y Asociados, in the Auditing Division and the Tax Division.  When he left Arthur Andersen, Mr. Llanos was an International Partner, the Director of Tax Practice for Argentina, Chile, Uruguay, Paraguay and Boliva and the Director of Operations in Bolivia.  From 2000 to 2003, Mr. Llanos was a partner at Estudio E. Llanos y Asociados.  Throughout his career, Mr. Llanos has taught tax and public finance classes at Universidad de Buenos Aires, Universidad Nacional de Lomas de Zamora and Universidad de Morón.  Mr. Llanos graduated with a degree in public accounting from Universidad de Buenos Aires in 1971.
Maximiliano Alejandro Fernández .  Mr. Fernández has been a director of Edenor since 2007 and has served as a director of EASA since 2005.  He has been an associate at Impsat Fiber Network since 1998, and currently serves as president of Red Alternative S.A.  Mr. Fernández served as the chairperson of Alternative Gratis S.A, which he founded along with IRSA, until its merger in 2005.  Since 1991, he has worked as an independent contractor in the telecommunications industry, and, together with Martín Varsavsky, founded, and until 1995 directed, VIATEL S.R.L. Each of the companies mentioned is a telecommunications company.  Mr. Fernández is an industrial engineer and graduate of La Universidad de Buenos Aires.
Ricardo Alejandro Torres. Mr. Torres has been a director of Edenor since 2007, and served as an alternate director from 2006 through 2007.  Mr. Torres has been chief executive officer of Pampa Energía S.A. since November 2005, before which he was a partner of Darwin Inversiones S.A.  From 1993 through 2001, Mr. Torres was chief financial officer of IRSA Inversiones y Representaciones S.A. and a director of Alto Palermo S.A., Brazil Realty Empreendimentos e Participações S.A., Abril S.A. and Inversora Bolívar S.A.  Mr. Torres was also a professor of finance and taxes at the Faculty of Economic Sciences of the University of Buenos Aires.  He currently serves as a member of the board of directors of Pampa Advisors S.A. and Educaria, a private equity fund specializing in the education sector.  Mr. Torres is a public accountant with a degree from the University of Buenos Aires and holds an MBA from the Universidad Austral.

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Diego Martín Salaverri .  Mr. Salaverri has been a member of the board of directors of Edenor since 2007.  He is a founding partner of the Argentine law firm of Errecondo, Salaverri, Dellatorre, González & Burgio.  He earned a degree in law in 1988 from the Universidad Católica Argentina, Buenos Aires.  He is member of the board of directors of Pampa Energía, Laboratorios Northia SACIFIA, Dico S.A. and Formosa Refrescos S.A.  He also is a member of the supervisory committee of Dolphin Creditos S.A., Dolphin Creditos Holding S.A., Pampa Generación S.A., Pampa Participaciones S.A., Pampa Participaciones II S.A., Pampa Real Estate S.A., Energía Distribuida S.A., Inversora Güemes S.A., Grupo STSA and Credit Group S.A.  Until 2007, he was a member of the board of directors of EASA.  Mr. Salaverri resigned from his position as director of EASA at the November 14, 2007 meeting of the board of directors of EASA.  Mr. Salaverri is also an Alternate Member of the statutory audit committee of Inversora Diamante S.A., Compañía Buenos Aires S.A., Inversora Nihuiles S.A., GSF S.A. and Maltería del Puerto S.A.
Edgardo Alberto Volosín. Mr. Volosín has been a member of the board of directors of Edenor since 2005.  In addition, Mr. Volosín served as Director of Human Resources and Legal Affairs of Edenor since our privatization in 1992 through July 2002 and currently serves as Director of Corporate Affairs, a position which he has held since August 2002.  Mr. Volosín holds a degree in Law from the Universidad de Belgrano in Buenos Aires.
Alfredo MacLaughlin. Mr. MacLaughlin became a member of the board of directors of Edenor in 2010. He is a licensed attorney and practiced as Counsel at the Argentine law firm of Cárdenas, Cassagne.  In addition, Mr. MacLaughlin served as Secretary of Finance of the Republic of Argentina from December 2005 until December 2006, and has held various other business and finance positions, including that of Executive Member of Banco Hipotecario Nacional, President of Deutsche Morgan Grenfell, Argentina, Secretary General of the Bolsa de Comercio de Buenos Aires, and Director of Telefónica de Argentina S.A.  Mr. MacLaughlin was also a Director of Edesur from 2001 through 2005.
Eduardo Orlando Quiles .  Mr. Quiles has been a member of the board of directors since 2009.  Between 1965 and 1971 he served as the Sindicato de Luz y Fuerza de Capital Federal (Light and Power Union of the Capital) in the Treasury and Accounting Department.  Subsequently, he worked as general accountant at Cooperativa de Crédito Luz y Fuerza Ltda (Credit Union of Light and Power) until 1980.  Between 1980 and 1985 he served as tax chief in Petersen Thiele y Cruz S.A.  He holds a CPA from la Universidad Nacional de Buenos Aires and he has a master degree in professional independent bureau in taxes and audit.
Javier Douer. Mr. Douer has been an alternate director of Edenor since 2005.  He has held various positions with Grupo Dolphin S.A. since 2000 and currently is chief administrative officer for a group of portfolio companies.  Mr. Douer holds a bachelor’s degree in business administration from the Universidad de Palermo, in Buenos Aires, as well as a master’s degree in capital markets from the Universidad de Buenos Aires.
Pablo Díaz. Mr. Díaz has been an alternate director of Edenor since 2005.  Mr. Díaz currently serves as an advisor to the president of Grupo Dolphin S.A.  He also serves as an alternate director at Transba S.A. and a Director of Inversora Ingentis S.A., Inversora Nihuiles S.A., Inversora Diamante S.A., Pampa Participaciones II S.A., Central Térmica Güemes S.A., Corporación Independiente de Energfía S.A., Hidroeléctrica Diamante S.A., Hidroeléctrica Nihuiles S.A., Citelec S.A. and Transener S.A.  Previously, he was an Advisor at the Subsecretaría de Energía Eléctrica (the Argentine Undersecretary for Electrical Energy) and has held various positions in the electricity industry.
Brian Henderson. Mr. Henderson has been an alternate director of Edenor since 2005.  He has been a technical advisor to Grupo Dolphin S.A. since 2003.  He also serves as president of Central Piedra Buena S.A. and Corporación Independiente de Energía S.A.  Mr. Henderson is also a director of Citelec, Transener S.A., Inversora Nihuiles S.A., and Central Térmica Güemes S.A. and an alternate director of Dolphin Energía S.A., Edenor S.A., Transba S.A., Powerco S.A., IEASA S.A., Inversora Ingentis S.A., Termoeléctrica San Martín S.A., Termoeléctrica Manuel Belgrano S.A., Pampa Participaciones II S.A., Pampa Generación S.A. and Inversora Güemes S.A.  Previously, Mr. Henderson served as Director of Latin America for National Grid (UK), president of the board of directors of Transener, Citelec and Transba.  He was director of Silica Networks and Manquehue Net Telecomunicaciones (Chile) and vice president of commercial operations of Charter Oak Energy in Americ, Africa and Europe.  Mr. Henderson was Vice Chairman and General Manager of Deutsche Babcock Riley, Canada Inc.  Mr. Henderson has a degree in electrical engineering from Hebburn College.

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Jorge Miguel Grecco. Mr. Grecco has been an alternate director of Edenor since 2006.  Mr. Grecco served as director of external relations of Edenor since 2005.  Mr. Grecco has also held positions in various media companies, including Grupo América, Grupo Cimeco, Infobae, Perfíl, Clarín, El Heraldo de Buenos Aires, Trespuntos and Somos.  Mr. Grecco is also a professor of journalism at the University of Belgrano and is a published author.
Ariel Schapira .  Mr. Schapira has been an alternate director of Edenor since 2007.  In addition, since 2007, Mr. Shapira has served as the director of new business for Grupo Dolphin S.A.  Previously, from 2004 to 2007, he served as the regional director for Latinamérica at Telefónica Móviles S.A., vice president of marketing and customer operations of Bellsouth International in Atlanta from 2001 to 2004, manager of marketing and new business for Compañía de Radiocomunicaciones Móviles S.A. (Movicom Bellsouth) from 1995 to 2001, CEO and general manager of Radiomensaje S.A. (a joint-venture with Motorola) from 1995 to 1997, and general manager of Pouyet Tecsel S.A. from 1991 to 1995.  Mr. Schapira is an industrial engineer. He graduated from la Universidad de Buenos Aires.
Ricardo Sericano .  Mr. Sericano has been an alternate director at Edenor since 2007.  In addition, he has served as the technical director of Edenor since December 2006.  Previously, he served as manager of engineering and investment and manager of supplies and logistics.  Before the privatization of the company, Mr. Sericano served in various offices at ITALO and SEGBA.  He is a mechanical-electrical engineer.  He received his degree in 1972 from la Facultad de Ingeniería de la Universidad de Buenos Aires, where he also taught for 23 years.
Jaime J. Barba .  Mr. Barba has been an alternate director at Edenor since 2009.  He also served as legal manager and secretary of the board of directors at Edenor.  In addition, he is a director and member of the executive committee at Compañía Administradora del Mercado Mayorista Eléctrico S.A. (CAMMESA), and a member of the supervisory committees at Petropack S.A. and Centro de Movimiento de Energía S.A. (SACME).  Between 1996 and 2004 he worked in various positions at EDEERSA (Empresa Distribuidora de Energía Entre Rios SA).  Mr. Barba holds a degree in law from the Universidad Nacional del Litoral and a master’s from the Direct Development Program at IAE.
Maia Chmielewski . Ms. Chmielewski has been an Alternate Director at Edenor since 2007.  She also serves as an Alternate Director of CIESA S.A. and CPB S.A.  Ms. Chmielewski serves in the investment group of Pampa Energía S.A.  Ms. Chmielewski holds both a Bachelor’s degree in Business Economics and in Economics from the Universidad Torcuato Di Tella in Buenos Aires.
Gabriel Cohen . Mr. Cohen has been an Alternate Director of Edenor since 2005.  He also has served since 2004 on the board of directors of Citelec, and as Alternate Director of Transba.  In addition, he worked at Citibank, N.A. for fifteen years, serving at the bank’s offices in Buenos Aires and Paris, where he has acquired sound experience in debt restructuring processes.  Mr. Cohen holds a degree in Business Administration from the Universidad de Buenos Aires.
Alejandro Mindlin. Mr. Mindlin has been an alternate director of Edenor since 2005.  Mr. Mindlin is an alternate director of Pampa Energía where he serves in the institutional relations and communications department.  He is also an alternate director of EASA.  Prior to joining Pampa Energía, Mr. Mindlin served in the marketing group of Grupo Dolphin S.A.  Mr. Mindlin has a bachelor’s degree in middle eastern history and languages from the Tel Aviv University, as well as a film director’s degree.
Eduardo Maggi . Mr. Maggi has been an alternate director at Edenor since 2007.  He was appointed director of operations of Edenor in 2001.  Mr. Maggi currently serves as a director of SACME, which is responsible for the management of regional high-voltage distribution in the greater Buenos Aires metropolitan area and for coordinating, controlling and supervising the operation of the generation, transmission and sub-transmission network in the City of Buenos Aires.  Previously, Mr. Maggi served as director of operations of two of Edenor’s operation areas, San Martín and Morón.  Mr. Maggi began his career at Edenor as a technical manager.  Mr. Maggi received a degree in engineering from the Universidad Tecnológica Nacional and an MBA from the Universidad del Salvador y Deusto.

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Rafael Mancuso .  Mr. Mancuso has been an alternate director at Edenor since 2009.  During 2008 and 2007 he has served as member of the board of directors at Edenor.  He has served as the general manager of OSTEE since 1993.  He was the general undersecretary of the Sindicato de Luz y Fuerza de la Capital Federal (Electric Light and Power Labor Union of the City of Buenos Aires) from 1991 through 1999, for which he also has served as secretary of social responsibility since 1993.  Mr. Mancuso served as a member of the board of directors of Central Puerto from 1993 through 1997.
BOARD PRACTICES
The duties and responsibilities of the members of our board of directors are set forth in Argentine law and our bylaws.  Under Argentine law, directors must perform their duties with loyalty and the diligence of a prudent business person.  Directors are prohibited from engaging in activities that compete with our company without express authorization of a shareholders’ meeting.  Certain transactions between directors and our company are subject to ratification procedures established by Argentine law.
On May 22, 2001, the Argentine government enacted the Transparency Decree with the aim of creating an adequate legal framework to strengthen the level of protection of investors in the market.  Other objectives of the Transparency Decree were to promote the development, liquidity, stability, solvency and transparency of the market, generating procedures to guarantee the efficient distribution of savings and good practices in the administration of corporations.
The Transparency Decree imposes the following duties on members of the board of directors of Argentine public companies:
·
a duty to disclose all material events related to the company, including any fact or situation which is capable of affecting the value or trading of the securities of the company;
·
a duty of loyalty and diligence;
·
a duty of confidentiality; and
·
a duty to consider the general interests of all shareholders over the interests of controlling shareholders.
There are no agreements between our company and the members of our board of directors that provide for any benefits upon termination of their designation as directors.
None of our directors maintains service contracts with us except as described in “Item 7. Major Shareholders and Related Party Transactions – Related Party Transactions.”
The significant differences between our corporate governance practices and the NYSE standards are listed on our website in compliance with the NYSE requirements. For a summary of these differences see item 16; Corporate Governance.”
Executive committee
On October 4, 2007, our board of directors created an executive committee, as contemplated by our by-laws and Law 19.550, and delegated to the executive committee the authority to take certain actions on behalf of the board.  The executive committee complements the work of the board by executing certain day-to-day tasks required for overseeing our company.  By creating an executive committee, the board sought to increase the efficiency with which our company is directed.  The Executive Committee consists of Alejandro Macfarlane, Marcos Marcelo Mindlin, Damián Mindlin, Gustavo Mariani, Ricardo Torres and Rogelio Pagano.

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Audit committee
Pursuant to the Transparency Decree and CNV rules, Argentine public companies must appoint a c omité de auditoría (audit committee) composed of at least three members of the board of directors, a majority of which must be independent in accordance with Argentine law.
Pursuant to our bylaws, one director is appointed by holders of our Class A shares and one by holders of our Class B shares.  Our audit committee’s duties include:
·
monitoring our internal control, administrative and accounting systems;
·
supervising the application of our risk management policies;
·
providing the market adequate information regarding conflicts of interests that may arise between our company and our directors or controlling shareholders;
·
rendering opinions on transactions with related parties; and
·
supervising and reporting to regulatory authorities the existence of any kind of conflict of interest.
The members of our audit committee are:
Name
Position
Class electing member
Alfredo MacLaughlin (1)
Member
Class B
Maximiliano Alejandro Fernández (1)
Member
Class A
Eduardo Llanos (1)
Member
Class A
(1)    Independent under Argentine law and under Rule 10A-3 under the Securities Exchange Act of 1934.
Senior management
The following table sets forth information regarding our senior management:
Name
Current Position
Age
Alejandro Macfarlane
Chief Executive Officer
44
Luis Pablo Rogelio Pagano
Chief Financial Officer
56
Ricardo Sericano
Technical Director
61
Eduardo Maggi
Director of Operations
54
Victor Augusto Ruiz
Principal Accounting Officer
50
Jorge Miguel Grecco
Director of External Relations
49
Edgardo Alberto Volosín
Director of Corporate Affairs
56
Víctor Augusto Ruiz .  Mr. Ruiz began working at Edenor in 1992.  He was one of the original partners from the consortium that participated in the privatization of our company.  He was part of the Grupo ASTRA CAPSA (Astra Compañía Argentina de Petroleo S.A.).  Between 1992 and 2006, he worked as financial statements sub-manager and accounting sub-manager at Edenor.  Between 2006 and 2008, he worked as tax manager and since August 2008 he has worked as principal accounting officer.  He is a consultant member of the Tax Commission and the Accounting Rules and Public Offering Commission at la Cámara de Sociedades Anónimas (Chamber of Businesses).  Mr. Ruiz holds a CPA from la Universidad de Buenos Aires and an MBA from la Universidad del Salvador in Argentina and Deusto in Spain.
Supervisory committee
Argentine law requires certain corporations, such as our company, to have a Comisión Fiscalizadora (supervisory committee).  The supervisory committee is responsible for overseeing compliance with our bylaws, shareholders’ resolutions and Argentine law and, without prejudice to the role of external auditors, is required to present to the shareholders at the annual ordinary general meeting a written report on the reasonableness of the financial information of the Company’s annual report and the financial statements presented to the shareholders by our board of directors.  The members of the supervisory committee are also authorized to attend board of directors, audit committee and shareholders’ meetings, call extraordinary shareholders’ meetings, and investigate written complaints of shareholders holding at least 2% of our outstanding shares.  Pursuant to Argentine law, the members of the supervisory committee must be licensed attorneys or certified public accountants.

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Our bylaws provide that our supervisory committee must consist of three members and three alternate members, elected by our shareholders at an ordinary meeting.  Members of our supervisory committee are elected to serve one-year terms and may be re-elected.  Pursuant to our bylaws, holders of our Class A shares are entitled to appoint two members and two alternate members of the supervisory committee and holders of our Class B and Class C shares are entitled to collectively appoint one member and one alternate member.
The members and alternate members of our supervisory committee are:
Name
Position
Year of appointment
(class electing member)
Javier Errecondo
Member
2010 (Class A)
José Daniel Abelovich (1)
Member
2010 (Class A)
Jorge Roberto Pardo
Member
2010 (Class B/C)
Santiago Dellatorre
Alternate member
2010 (Class A)
Marcelo Fuxman (1)
Alternate member
2010 (Class A)
Alejandro Gabriel Turri (1)
Alternate member
2010 (Class B/C)
(1)       Independent under Argentine law.
Javier Errecondo .  Mr. Errecondo is a founding partner of the Argentine law firm Errecondo, Salaverri, Dellatorre, González & Burgio.  He earned a degree in law in 1985 from the Universidad de Buenos Aires.  He is a director of Dolphin Créditos S.A. and Nortel Inversora S.A. and an alternate director of AEI Servicios Argentina S.A., Formosa Refrescos S.A. and Dico S.A.  In addition, he is a member of the statutory audit committees of IEASA, Dolphin Energía and Pampa Energía S.A., Desarrollos Caballito S.A., Pegasus Realty S.A., O.P.M. Inmobiliaria S.A., Entertainment Depot S.A., EDEN S.A., FinanGroup S.A., GSF S.A., Grupo Union S.A., Credit Group S.A., Farmacity S.A., Freddo S.A. and AESEBA S.A. and an alternate member of the statutory audit committees of EASA, Construred S.A. BA Mall S.R.L., Cablevisión S.A. and Multicanal S.A.
José Daniel Abelovich .  Mr. Abelovich obtained a degree in accounting from the Universidad de Buenos Aires. He is a senior partner of the audit firm Abelovich, Polano & Asociados SRL/ Nexia International, an accounting firm in Argentina. Formerly, he had been a manager of Harteneck, Lopez y Cia,/Coopers & Lybrand and has served as a senior advisor for the World Bank. He is a member of the supervisory committees of Pampa Energía S.A., Transener SA, Cresud SA, IRSA Inversiones y Representaciones SA, Banco Hipotecario SA, Alto Palermo SA, among other companies.
Jorge Roberto Pardo .  Between 1993 and 2008, Mr. Pardo worked at la Sindicatura General de la Nación (General Union of the Republic of Argentina, or SIGEN) in several positions, including as Joint General Statutory Auditor of the Nation.  Between 1983 and 1992 he worked in la Sindicatura General de Empresas Públicas (General Union of State-Owned Companies, or SIGEP).  Mr. Pardo holds a CPA from la Universidad de Buenos Aires.
Santiago Dellatorre .  Mr. Dellatorre is a founding partner of the Argentine law firm Errecondo, Salaverri, Dellatorre, González & Burgio.  He has been a member of the board of directors at Cablevisión since 2005.  Between 1994 and 1995, Mr. Dellatorre worked as an international associate at the United States law firm Shearman & Sterling LLP.  Mr. Dellatorre received his law degree with honors from the Universidad Católica Argentina in 1990.  He is a director of Cablevisión S.A. and EDEN S.A., a member of the statutory audit committee of Empresa de Energía Río Negro S.A. (EdERSA).  In addition, he is an alternate member of the statutory audit committee of Dolphin Energía S.A., EASA and GSF S.A.
Marcelo Fuxman .  Mr. Fuxman  obtained a degree in accounting from the Universidad de Buenos Aires. He is a  partner of the audit firm Abelovich, Polano & Asociados SRL/ NEXIA INTERNATIONAL, an accounting firm in Argentina. He is a member of the supervisory committees of Pampa Energía S.A., Transener SA, Cresud SA, IRSA Inversiones y Representaciones SA, Banco Hipotecario SA, Alto Palermo SA, among other companies.

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Alejandro Gabriel Turri .  Mr. Turri has worked at SIGEN in various positions since 1993.  Between 1989 and 1992 he worked at SIGEP and between 1984 and 1988 at the Tribunal de Cuentas de la Nación.  Mr. Turri holds a CPA and a business administration degree, both from la Universidad de Buenos Aires.
COMPENSATION
Our board of directors does not have a compensation or remuneration committee.  The aggregate remuneration paid to the members and alternate members of our board of directors, the members and alternate members of our supervisory committee and our senior management during 2009 was approximately Ps. 16.7 million.
EMPLOYEES
As of December 31, 2009, we had 2,691 full-time employees and 30 part-time employees, for a total of 2,721 employees and  as of December 31, 2008, we had 2,487 full-time employees and 38 part-time employees, for a total of 2,525 employees, and at December 31, 2007 we had 2,465 full-time employees and 43 part-time employees, for a total of 2,508 employees.  As of December 31, 2009, approximately 81% of our full-time employees are subject to two collective bargaining agreements.  After the privatization, an employee reduction plan was implemented to reduce the number of employees from 6,368 employees at the time of the privatization.  The employee reductions were primarily effected through an early retirement program.  In addition, we implemented an early retirement plan for those employees who had made the payments required by law and had less than five years before retirement, offering them monthly payments of 80% of their pre-retirement net salary.  Access to this plan is conditioned upon our own approval and the prior separation from our company under an agreement signed before the Argentine Ministry of Labor.  In July 1995, we signed two collective bargaining agreements with Sindicato de Luz y Fuerza and Asociación del Personal Superior , the two unions that represent our employees.  In accordance with the union agreements, which have been revised since 1995 but remain in effect, we created a mediation commission to interpret the agreements and analyze claims and unresolved issues that arise in our daily activities.  The most common issues that arise deal with changes to employment categories, relocation of employees, detailed situations with personnel and the analysis of the suitability of different technological advancements.  Currently, our relations with the unions are stable.  However, we cannot guarantee that we will not experience any conflicts with our employees in the future, including with our unionized employees in the context of future negotiations of our collective bargaining agreements, which could result in events such as strikes or other disruptions that could have a negative impact on our operations.
We have outsourced a number of activities related to our business to third party contractors as we seek to maintain a flexible cost base that allows us both to maintain a lower cost base and gives us the ability to respond more quickly to changes in our market.  We had approximately 3,611 third-party employees under contract with our company as of December 31, 2009, 3,029 as of December 31, 2008 and 3,612 as of December 31, 2007.  We calculate our number of third-party employees based on the number of employees we have under contract, which does not directly relate to the number of third-party employees performing services for our company at any given time, as we only pay for services of these employees on an as-needed basis although they remain under contract for specified periods.  Although we have very strict policies regarding compliance with labor and social security obligations by our contractors, we are not in a position to ensure that, if conflicted, contractors’ employees will not initiate legal actions to seek indemnification from us based upon a number of judicial rulings issued by labor courts in Argentina recognizing joint and several liability between the contractor and the entity to which it is supplying services under certain circumstances.  As of December 31, 2009, contractors’ employees were seeking indemnification from us for an aggregate amount of Ps. 64.2 million, including legal fees and interest and as of such date, based on legal advice, have recorded accruals for an aggregate amount of Ps. 36.9 million to cover the liabilities we may have in connection with such claims.

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SHARE OWNERSHIP
None of the members of our board of directors or our senior management beneficially own any shares of our capital stock except for Mr.. Diego Martín Salaverri, whom beneficially owns Class B shares representing less than one percent of our capital stock.  See “Item 7. Major Shareholders and Related Party Transactions.”

Item 7.
Major Shareholders and Related Party Transactions
The following table sets forth information relating to the ownership of our common shares as of the date of this annual report.
Class (1)
Shares
(%)
Electricidad Argentina S.A. (2)
A
462,292,111 51.0 %
Employee Stock Participation Program
C
1,952,604 0.2 %
Public
B
203,672,680 22.5 %
ANSES (3)
B
229,125,205 25.3 %
Treasury Shares
B
9,412,500 1.0 %
Total
906,455,100 100.0 %
(1)            Each class of shares entitles holders to one vote per share.
(2)            All of our Class A shares have been pledged to the Argentine government to secure our obligations under our concession and cannot be transferred without the prior approval of the ENRE.  See “Item 4. Information on the Company—Our concession —Our obligations.” Electricidad Argentina S.A. (EASA) is an Argentine corporation wholly owned by Dolphin Energía and IEASA.  Dolphin Energía holds 90% of the voting stock and 92.3% of the total outstanding stock of EASA, and IEASA holds the remainder.  Pampa Energía S.A. currently owns 100% of the capital stock of Dolphin Energía and IEASA.
(3)            On November 20, 2008, the Argentine Congress passed a law unifying the Argentine pension and retirement system into a system publicly administered by the Administración Nacional de la Seguridad Social (National Social Security Agency, or ANSES) and eliminating the retirement savings system previously administered by private pension funds under the supervision of a governmental agency. In accordance with the new law, private pension funds transferred all of the assets administered by them under the retirement savings system to the ANSES.  These transferred assets included 229,125,205 of our Class B shares, representing 25.3% of our capital stock.  The ANSES is subject to the same investment rules, prohibitions and restrictions that were applicable to the Argentine private pension funds under the retirement savings system, including restrictions on the exercise of more than 5% of the voting power in any local or foreign company, such as the Company, in any meeting of shareholders, irrespective of the actual interest held in the relevant company's capital stock.
As of December 31, 2009, we had approximately 4,177,186 ADSs outstanding, representing 83,543,720 Class B shares.
Acquisition by Dolphin Energía and IEASA.
In September 2005, Dolphin Energía and IEASA purchased a controlling stake in the company from EDFI.  Until September 28, 2007, Dolphin Energía and IEASA were controlled by the principal members of Grupo Dolphin, Marcos Marcelo Mindlin, Damián Miguel Mindlin and Gustavo Mariani.  Such principal members had significant experience investing in Argentine energy sector dating back to 2004.
Initial Public Offering
In April 2007, we completed the initial public offering of our Class B ordinary shares in the form of American Depository Shares (ADSs).  We and a group of our shareholders sold 18,050,097 ADSs, representing 361,001,940 ordinary Class B shares, in a offering in the United States and other jurisdictions outside of Argentina, and the Employee Stock Participation Program sold 81,208,416 ordinary class B shares in a simultaneous offering in Argentina.  The ADSs are listed on the New York Stock Exchange under the symbol “EDN” and the Class B shares are listed on the BASE under the same symbol.  We received approximately U.S. $61.4 million from the initial public offering, before costs.  Of this amount, we used approximately U.S. $36 million to repurchase some of our Discount Notes due 2014.  The remainder of the proceeds from the initial public offering was used to repurchase some of our Fixed Rate Par Notes due 2016 and for capital expenditures.  After the initial public offering, our controlling shareholder continues to own 51% of our ordinary shares.

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Acquisition by Pampa Energía S.A.  (Formerly called Pampa Holding SA)
On June 22, 2007,  the principal members of Grupo Dolphin, Marcos Marcelo Mindlin, Damián Miguel Mindlin and Gustavo Mariani, signed a stock subscription agreement with Pampa Energía S.A., pursuant to which they agreed to transfer all of the stock of Dolphin Energía and IEASA to Pampa Energía S.A. in exchange for common stock of Pampa Energía S.A.  On August 30, 2007, the shareholders of Pampa Energía S.A. approved this transfer of shares, and the CNV and the BASE approved the public offering and listing of the shares in September 2007.  The transaction was consummated on September 28, 2007, and as a result, Pampa Energía S.A. owns 100% of the capital stock of each of Dolphin Energía and IEASA, which in turn collectively own all of the capital stock of EASA, our controlling shareholder.  The ratio of exchange of common shares of Pampa Energía S.A. and shares of Dolphin Energía and IEASA was determined using the respective averages of the closing prices of Pampa Energía S.A.’s and our shares on the Buenos Aires Stock Exchange during a 10-trading day period ending on August 15, 2007, taking into account, in the case of shares of Dolphin Energía and IEASA, EASA’s stake in our company, the net present value of EASA’s outstanding indebtedness and the net present value of fees to be paid by us to EASA under the Financial Services Agreement dated April 4, 2006 between our company and EASA.  See “Related party transactions—Financial services agreement with EASA.”
The former shareholders of Dolphin Energía and IEASA, Messrs. Marcos Marcelo Mindlin, Damián Mindlin and Gustavo Mariani, are the controlling shareholders of Grupo Dolphin and are managers of Pampa Energía S.A., an Argentine public company with a market capitalization (net of repurchases) of Ps. 1,371.8 million as of December 31, 2008.  Pampa Energía S.A. was acquired in November 2005 by certain principals of Grupo Dolphin to serve as a corporate vehicle for private equity investments in Argentina.  Through companies under their control, Messrs. Marcos Marcelo Mindlin, Damián Mindlin and Gustavo Mariani currently control approximately 21.04% of the common stock of Pampa Energía S.A.  In addition, Messrs. Marcos Marcelo Mindlin, Damián Mindlin and Gustavo Mariani, together with Pampa Energía S.A.’s chief executive officer, hold warrants to purchase, in the aggregate, approximately 21.4% of the common stock of Pampa Energía S.A. (on a fully diluted basis).  The board of directors of Pampa Energía S.A. consists of nine directors, of which five are affiliated with Grupo Dolphin, including Mr. Marcelo Mindlin, who serves as chairman of the board of directors, Damian Mindlin, who serves as vice-chairman of the board of directors, and Gustavo Mariani,.  The principal executive officers of Pampa Energía S.A., including its chief executive officer, are also affiliated with Grupo Dolphin.
In addition to its indirect stake in us, Pampa Energía S.A. currently owns several investments in the Argentine electricity sector, including a 50% interest in the controlling shareholder of the principal electricity transmission company in Argentina, Compañía de Transporte de Energía Eléctrica en Alta Tensión S.A. (Transener), controlling stakes in five generation plants located in the Buenos Aires, Salta, Mendoza and Neuquén provinces (Central Piedra Buena S.A., Hidroeléctrica Los Nihuiles S.A., Hidroeléctrica Diamante S.A., Central Térmica Güemes S.A. and Loma de la Lata S.A.).
Share buy-back program
On October 23, 2008, we launched a tender offer in Argentina for our shares at a purchase price of Ps. 0.65 per share.  400,000 ordinary Class B shares were tendered and purchased pursuant to the offer.
On November 14, 2008, we commenced an open-market share purchase program.  Under the terms of the program, we were authorized to purchase up to Ps. 45 million of our shares, subject to certain volume and price restrictions.  The open market share purchase program expired on March 17, 2009.  Pursuant to the program we purchased  9,012,500 Class B shares, at an average price of Ps. 0.65 per share, representing approximately 1% of our capital stock.  We currently hold 9,412,500 Class B shares as treasury stock.
Employee Stock Participation Program
At the time of the privatization of SEGBA (our predecessor), the Argentine government allocated all of our Class C shares, representing 10% of our outstanding capital stock, to establish a Programa de Propiedad Participada (employee stock participation program , or PPP), pursuant to Law No. 23,696 and regulations thereunder, through which certain eligible employees (including former employees of SEGBA who became employees of our company) were each entitled to receive a specified number of our Class C shares, calculated in accordance with a formula that considered a number of factors, including the employee’s salary level, position and seniority.  In order to implement the PPP, a general transfer agreement, a share syndication agreement and a trust agreement were executed.

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Pursuant to the transfer agreement, participant employees were allowed to defer payment for the Class C shares over time.  As a guarantee for the payment of the deferred purchase price, the Class C shares were pledged in favor of the Argentine government.  Furthermore, under the original trust agreement, the Class C shares were placed in trust by the Argentine government with Banco Nación, acting as trustee for the Class C shares, for the benefit of the participant employees and the Argentine government.  In addition, pursuant to the share syndication agreement, all political rights of the participant employees (including the right to vote at our ordinary and extraordinary shareholders’ meetings) were to be exercised collectively until the payment in full of the deferred purchase price and the release of the pledge in favor of the Argentine government.  On April 27, 2007, the participant employees paid the deferred purchase price of all of the Class C shares in full to the Argentine government and, accordingly, the pledge was released and the share syndication agreement was terminated.
According to the regulations applicable to the Employee Stock Participation Program, participant employees who terminated their employment with our company before the payment in full of the deferred purchase price to the Argentine government were required to transfer their shares to the Guarantee and Repurchase Fund, at a price calculated pursuant to a formula set forth in the transfer agreement.  As of the date of payment of the deferred purchase price, the Guarantee and Repurchase Fund had not paid in full the amounts due to the former participant employees for the transfer of their Class C Shares.
A number of former employees of SEGBA and our company have brought claims against the Guaranty and Repurchase Fund, the Argentine government and, in certain limited cases, our company, in each case relating to the administration of our Employee Stock Participation Program.  The plaintiffs who are former employees of SEGBA were not deemed eligible by the relevant authorities to participate in the Employee Stock Participation Program at the time of its creation, which determination these plaintiffs dispute and are seeking compensation for.  The plaintiffs who are former employees of our company are either seeking payment of amounts due to them by the Guaranty and Repurchase Fund for share transfers that occurred upon their retirement from our employment or disputing the calculation of the amounts paid to them by the Guaranty and Repurchase Fund.  In several of these claims, the plaintiffs have obtained attachment orders or injunctive relief against the Guaranty and Repurchase Fund over approximately 1,567,231 Class C shares and Ps. 709,149 of the funds on deposit in the fund, in each case up to the amount of their respective claims.  Because the outcome of these proceedings has not yet been determined, the Argentine government instructed Banco Nación to create a Contingency Fund to hold a portion of the proceeds of the offering of Class B shares by the Employee Stock Participation Program pending the outcome of these legal proceedings.
According to the agreements, laws and decrees that govern the Employee Stock Participation Program, our Class C shares may only be held by our employees.  Upon the closing of our initial public offering, substantially all of our Class C shares were converted into Class B shares and sold.  In accordance with these agreements, laws and decrees, the rights previously attributable to the Class C shares have been combined with those attributable to the Class B shares, and holders of the remaining Class C shares will vote jointly as a single class with the holders of Class B shares in the election of directors.  Only 1,952,604 Class C shares remain outstanding, representing 0.2% of our capital stock.
RELATED PARTY TRANSACTIONS
Financial Services Agreement with EASA
On April 4, 2006, we entered into a Financial Services Agreement with EASA pursuant to which EASA shall provide us with advisory services, as well as services related to the potential development of new lines of business compatible with our corporate objectives.  The services to be performed by EASA include assistance and advice in respect of our financial performance, our finance management team and our financial decision-making process, our engagement of financial advisory services firms and the development of new financial products, the restructuring of our commercial and financial debt, feasibility, profitability and implementation of new businesses, hedging and derivatives strategies, relationship with foreign and local financial institutions, financial aspects of tariffs renegotiation and concession contract process and our annual budget.

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The term of the agreement is 5 years from September 2005, with each party having the right to terminate it at any time without cause with 60 days prior notice.  The consideration to be received by EASA is U.S. $2 million per year, plus Argentine value added tax, and will be payable in advance in October of each year, or as otherwise agreed by the parties, with the first payment (for services rendered in the 12-month period from September 2005) being paid upon approval of the agreement by the audit committees and boards of directors of both our company and EASA, approvals which have both been obtained.  The payment related to the first year of services was made on April 19, 2006.
In April 2008, our board of directors approved an amendment to the EASA agreement increasing the amount to be paid by us in consideration for the services provided by EASA to U.S. $2.5 million, plus Argentine value added tax, payable retroactively from January 1, 2008.  No other terms of the contract have been modified.
We are currently renegotiating this agreement.
Agreement with Comunicaciones y Consumos S.A.
On March 16, 2007 we entered into an agreement with Comunicaciones y Consumos S.A. (CYCSA), an Argentine company wholly owned by Messrs. Marcelo Mindlin, Damian Mindlin and Gustavo Mariani, pursuant to which we granted CYCSA the exclusive right to provide telecommunication services to our customers through the use of our network in accordance with Federal Decree 764/2000, which contemplates the integration of voice, data and imaging services through the existing infrastructure of electricity distribution companies such as ours.  Under the terms of this agreement, CYCSA will be responsible for all expenses relating to the maintenance and adaptation of our network for use in providing its telecommunications services.  The agreement will be valid for ten years commencing from the date on which the ENRE approves the terms of the agreement and the date on which CYCSA’s telecommunications license is granted approval, which it received on July 11, 2008.  The agreement also provides for automatic renewal at the expiration of each term for subsequent five-year periods, unless either party gives notice not less than 120 days prior to the expiration of such term.  Under the agreement, CYCSA will be required to make periodic requests for access to our network, which we will evaluate and grant based on available capacity in our network.  In return for the use of our network, CYCSA will compensate us with 2% of its annual charges to customers, before taxes, as well as 10% of any profits derived from its services.  In addition, CYCSA will indemnify us for any liability arising from the rendering of its services through our network.  In October 2008, we entered into an amendment to the agreement with CYCSA granting CYCSA the right to use poles and towers of our overhead lines to lay a network of fiber optic cables.  The amendment also grants us the right to use part of the capacity of the fiber optic cables
In November 2008, CYCSA and we extended the term of our initial agreement from ten to twenty years.
Agreement with Préstamos y Servicios S.A.
On March 16, 2007, we entered into an agreement with Préstamos y Servicios S.A. (PYSSA), a financial services company indirectly owned by Pampa Holdings LLC, a company indirectly controlled by Messrs. Marcelo Mindlin, Damian Mindlin and Gustavo Mariani, pursuant to which we granted PYSSA the exclusive right to conduct its direct and marketing services through the use of our facilities and mailing services. Under the terms of the agreement, we agree to provide PYSSA with office space and allow them to communicate financial and loan offers directly to our customers. In addition, we include PYSSA marketing material in the invoices and other mail we send to our customers.  The term of the agreement is five years, which automatically renews for subsequent five year periods unless terminated by one of the parties with 120 days notice. In accordance with the terms of the agreement, PYSSA pays us 2% of the monthly charges collected from our customers, before taxes, and 10% of profits.  PYSSA has indemnified us for any obligation arising from the rendering of its services.  This agreement required authorization from the ENRE, which it received through Resolution No. 381/2007 on June 15, 2007.

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On February 28, 2008, PYSSA informed us that the office space Edenor provides to PYSSA would be used by personnel of Credilogros Compañía Financiera S.A., a firm that provides financial services, personal loans and credit cards.  However, the work of Credilogros Compañía Financiera in our office space has been temporarily suspended due to the international financial crisis and its impact on the financial services industry in Argentina.
The activities related to this contract are temporarily suspended, as a consequence of the international financial crisis .

Item 8.
Financial Information
See “Item 18. Financial Statements” beginning on page F-1.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
Legal proceedings
In the normal course of business, we are a party to lawsuits of various types.  Our management evaluates the merit of each claim and assesses the likely outcome, recording an accrual in our financial statements for the related contingent liability when an unfavorable decision is probable and the amount may be reasonably estimated.  At December 31, 2009, we had established accruals in the aggregate amount of Ps. 72.9 million to cover potential losses from such claims and legal proceedings.  Except as disclosed below, we are not a party to any legal proceedings or claims that may have a material adverse effect on our financial position or results of operations.
Tax claims
On December 1, 2003, the Provincial Board of Electric Power of the Province of Buenos Aires initiated a claim against us in the amount of Ps. 51.2 million, which does not include surcharges, interest or penalties accrued in respect of this amount after the date of the claim.  At December 31, 2003, the amount of surcharges and interest accrued on the claim, including applied penalties, was Ps. 310 million.  In addition, on April 23, 2007, the Board notified us of an additional claim for Ps. 4.0 million, without including surcharges, interest or penalties accrued.  The claims are based on an alleged failure to collect, as collection agent, in respect of certain taxes established by Decree Laws No. 7290/67 and No. 9038/78 between July 1997 and June 2001 and between July 2001 and June 2002, respectively.  On December 23, 2003, we filed an appeal of the Board’s decision with the provincial Tax Court of Appeals of La Plata, and enforcement of the judgment was suspended pending the outcome of the appeal.  On June 14, 2007, the Court granted our appeal and rejected the Board’s tax claim against us.  On June 27, 2007 the provincial Tax Court of Appeals of Buenos Aires rendered a favorable decision in relation to our appeal.  This decision reaffirms a recent decision by the Supreme Court of the Republic of Argentina in an unrelated case that held that the regulations were unconstitutional due to the commitment assumed by the Province of Buenos Aires not to tax the transfer of electric power.  We have not established any accruals in our financial statements for this claim.
The Argentine federal tax authorities have challenged certain income tax deductions for allowance for doubtful accounts on our income tax returns for fiscal years 1996, 1997 and 1998, and have assessed additional taxes of approximately Ps. 9.3 million.  Tax related contingencies are subject to interest charges and, in some cases, fines.  We have appealed the tax authorities’ ruling before the Argentine federal tax court.  During the appeal process payment for such claim is suspended.  We have accounted for an accrual in our financial statements for the contingent tax liability related to this claim, including interest and penalties.
On April 27, 2009, we agreed to the tax regularization plan established in Law No. 26,476.  The main features of the moratorium offered to participating companies are as follows:
·
Waiver of fines and penalties on which no final judgment has been issued at the time of the company’s adherence to the regularization plan;
·
Waiver of late payment/default and penalty interest in the amount exceeding 30% of the principal owed;
·
An initial payment equal to 6% of the liability existing at the time of the company’s adherence to the regularization plan;
·
The remaining balance payable in 120 monthly installments with a 0.75% monthly interest rate.

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·
30% to 50% reduction in tax agents and AFIP (the Argentine tax authorities) attorneys’ fees.

In accordance with the assessment of the tax regularization plan, our debt amounts to Ps. 12.1 million plus interest amounting to Ps. 5.2 million.  We expect that all federal tax claims against us will be dropped upon our payment of these amounts.

In 2009, we paid Ps.1,5 million of this amount, thus the remaining balance of our debt totals Ps.10.6 million, excluding the interest amount.
Environmental claims
On May 24, 2005, three of our employees were indicted on charges of PCB-related environmental contamination dangerous to human health, which is a crime under Argentine law.  In connection with this alleged infraction, the judge sought a pre-judgment attachment of our assets in the amount of Ps. 150 million to cover the potential cost of environmental damages and estimated clean-up costs.  On May 30, 2005, we appealed the charges against our employees as well as the attachment order.  On December 15, 2005, the court of appeals dismissed the charges against all three defendants for lack of evidence and, accordingly, vacated the attachment order.  The decision by the court of appeals also stated that the trial judge should order the acquittal of two public officers of the ENRE, who had been indicted on related charges.  This decision was appealed to the Tribunal de Casación (National Criminal Appellate Court), the highest appellate body for this matter, which on April 5, 2006 ruled that the appeal of the decision relating to our employees and our company was not admissible because decisions rendered on grounds of lack of evidence are not reviewable.  On July 16, 2007, we were notified that on July 11, 2007, the trial judge issued acquittals for all of our officials and employees who had been indicted.  On appeal on March 25, 2008, the Sala I de la Cámara Federal de San Martín (First Court of the Federal Circuit of San Martín) upheld the acquittals and confirmed the finding that there had been insufficient evidence to prove any PCB contamination.  On April 18, 2008 the Minsterio Público (Attorney General) appealed this decision before the First Court of the Federal Circuit of San Martín and lost the appeal.  On December 29, 2008, the Attorney General was notified that the National Criminal Appellate Court had rejected the appeal as well. In response, the Attorney General filed an “extraordinary appeal”, to which the defense responded. On May 27, 2009, the Tribunal dismissed the extraordinary appeal filed by the Attorney General on the grounds that it failed to specifically and reasonably refute the arguments that supported the resolution being appealed, and proved neither the alleged arbitrariness nor the violation of constitutional guaranties. The Attorney General filed an appeal (“Recurso de Queja”) to the Argentine Supreme Court requesting that the appeal dismissed by the National Criminal Appellate Court be sustained. As of the date of this annual report, the appeal is being analyzed by the Supreme Court.

Proceedings challenging the renegotiation of our concession
In November 2006, two Argentine consumer associations, Asociación Civil por la Igualdad y la Justicia (Civil Association for Equality and Justice, or ACIJ) and Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria (Consumer’s Cooperative for Community Action), brought an action against us and the Argentine government before a federal administrative court seeking to block the ratification of the Adjustment Agreement on the grounds that the approval mechanism was unconstitutional.  On March 26, 2007, the federal administrative court dismissed these claims and ruled in our favor on the grounds that the adoption of Executive Decree No. 1957/06, which ratified the Adjustment Agreement, rendered the action moot.  ACIJ appealed this decision on April 12, 2007, and the appeal was decided in our favor.  However, on April 14, 2008, ACIJ filed another complaint challenging the procedures utilized by the Argentine Congress in approving the Adjustment Agreement.  Specifically, the claim alleges that Article 4 of Law No. 24,790, which authorized the Congress to tacitly approve agreements negotiated between the Argentine government and public service companies, such as us, violated the congressional procedures established in the Argentine Constitution.  ACIJ has requested that the Adjustment Agreement be renegotiated and submitted to Congress for its express approval.  We have responded to this complaint, which is in the sentencing period.  However, we cannot make assurances regarding how this latest complaint will be resolved nor can we make assurances that other actions or requests for injunctive relief will not be brought by these or other groups seeking to reverse the adjustments we have obtained or to block any further adjustments to our tariffs.

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Preliminary Injunction of the Public Ombudsman
On October 31, 2008, the Secretary of Energy approved  new seasonal reference prices of power and energy in the WEM.  Consequently, the ENRE applied the new rate schedule as of October 1, 2008.  The new rate schedule passed the purchase price of electricity as well as the other costs related to the WEM, including transmission, to the final customer.
In response to the new tariff schedule, the defensor del pueblo de la nación (National Public Ombudsman) filed a claim opposing the resolutions establishing the October 1, 2008 tariff schedule and naming us as a third-party defendant.  On January 27, 2009, the ENRE notified us of a preliminary injunction, as a result of the Ombudsman’s claim, pursuant to which we were ordered to refrain from cutting the energy supply to customers challenging the October 2008 tariff increase until a decision is reached with respect to the claim.  We, along with the Argentine government, have appealed this injunction through various legal actions, and the resolution of our most recent appeal is still pending as of the date of this annual report.
On August 14, 2009, the Secretary of Energy issued Resolution No. 652/09, which ordered the suspension of the certain reference market prices of energy, and established new reference prices for the periods from June to July 2009 and from August to September 2009, reinstating partial government subsidies to the electricity generation sector. Furthermore, the resolution also established the unsubsidized reference market prices of energy for the months of June and July 2009 and August to October 2009.

On October 26, 2009, we received notice of a complaint filed by two consumer associations, Consumer’s Cooperative for Community Action and the Unión de Usuarios y Consumidores against the Argentine government, the ENRE, EDESUR, EDELAP and us. In accordance with the terms of the complaint, two additional associations for the defense of consumer rights, Asociación de Defensa de los Derechos de los Usuarios y Consumidores (Association for the Legal Defense of Consumers) and Unión de Usuarios y Consumidores en Defensa de sus Derechos (Consumers Union Legal Defense) , have joined the complaint.

The remedies sought in the complaint are as follow:
·
that all the most recent resolutions concerning electricity rates issued by the ENRE and the Secretary of Energy be declared null and unconstitutional, and, as a consequence that the amounts billed by virtue of these resolutions be refunded.
·
that all the defendants be carry out the RTI.
·
that the resolutions issued by the Secretary of Energy that extend the transition period of the Adjustment Agreement be declared null and unconstitutional.
·
that the defendants be ordered to carry out the sale process, through an international public bidding, of their respective class "A" shares, due to the fact that the management period of the respective concessions has ended.
·
that the resolutions as well as any act performed by a governmental authority that modify contractual renegotiations be declared null and unconstitutional.
·
that the resolutions that extend the management periods contemplated in the defendant’s respective concessions be declared null and unconstitutional.
·
Alternatively, should the main claim be rejected, that the defendants be ordered to bill all customers on a bimonthly basis.

Additionally, is the plaintiffs requested that the court issue a preliminary injunction suspending the rate hikes established in the resolutions questioned by the plaintiff. Alternatively, the plaintiffs requested that the application of the resolutions be partially suspended. Finally, the plaintiffs also requested that the application authority be ordered not to issue new increases other than within the framework of the RTI process. As of the date of this annual report, the court has neither granted nor rejected these requests.

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In March, 2010 Consumidores Financieros, Asociación Civil Para Su Defensa, a consumers’ association, instituted an action against us and Edesur in the National Court of First Instance in Federal Administrative Claims Tribunal No. 2, Secretariat 3 ( Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal N o 2, Secretería 3 ) seeking repayment to users for alleged excess charges over the course of the past 10 years. The action is based on three claims.  First, the plaintiffs claim a refund for the percentage payment of VAT over a taxable base they allege was inappropriately increased to include an amount that exceeded our and Edesur’s own payments to the wholesale electricity market. Second, the plaintiffs claim a refund for charges relating to interest on payments by customers that the plaintiffs claim we and Edesur failed to adjust to reflect the actual number of days the payment was outstanding. Finally, the plaintiffs claim a refund for late payment charges from 2008 onwards calculated at the rate of the tasa pasiva (the interest rate that Banco de la Nación Argentina pays on deposits) in alleged contravention of the Law of Consumer Defense ( Ley de Defensa del Consumidor ) in April 2008. We have given express directions to our legal advisors to contest the suit and all related claims.

We can give no assurance that these actions or other potential future actions or requests for injunctive relief will not reverse the adjustments we have obtained or block any further adjustments to our tariffs.
DIVIDENDS
Under Argentine corporate law, declaration and payment of annual dividends, to the extent the distribution of available earnings complies with the requirements of applicable Argentine corporate law, is determined by our shareholders at the annual ordinary shareholders’ meeting. Generally, but not necessarily, the board of directors makes a recommendation with respect to the payment of dividends. We have not declared or paid any dividends since August 14, 2001.
Under the terms of our financial debt, we are not entitled to distribute any dividends until April 24, 2008, unless our leverage ratio (as defined in our debt instruments) is 2.5 or lower or we attain an international investment grade rating on our long term debt from an internationally recognized rating agency.  Thereafter, we are only permitted to distribute dividends under certain circumstances depending on our leverage ratio based on our financial statements prepared in accordance with Argentine GAAP.  If our leverage ratio (defined in our debt instruments as our total indebtedness over our 12-month EBITDA) is 2.5 or lower, or we attain an international investment grade rating on our long term debt from an internationally recognized rating agency, we will not be subject to any restrictions under our debt instruments on our ability to distribute dividends.  However, if our leverage ratio is greater than 2.5, we will only be entitled to pay dividends if we generate excess cash (as defined in our debt instruments).  In this case, we may pay dividends out of excess cash as follows:
·
if our leverage ratio is greater than 2.5, but not greater than 3.0, we may apply 50% of our excess cash to pay dividends;
·
if our leverage ratio is greater than 3.0, but not greater than 3.5, we may apply 25% of our excess cash to pay dividends; and
·
if our leverage ratio is greater than 3.5, we may not pay dividends.
Also, pursuant to the Adjustment Agreement, we cannot make any dividend payments without the ENRE’s prior approval during the period in which we are conducting the RTI.
Amount available for distribution
Dividends may be lawfully declared and paid only out of our retained earnings stated in our yearly financial statements prepared in accordance with Argentine GAAP and CNV regulations and approved by the annual ordinary  shareholders’ meeting.
According to Argentine Corporations Law and our by-laws we are required to maintain a legal reserve of 20% of our then-outstanding capital stock. The legal reserve is not available for distribution to shareholders. Under Argentine corporate law and our by-laws, our yearly net income (as adjusted to reflect changes in prior results) is allocated in the following order:

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(i)      to comply with the legal reserve requirement;
(ii)     to pay the accrued fees of the members of the board of directors and supervisory committee;
(iii)    to pay any amounts owed to our employees under the “Bonos de Participación para el Personal”;
(iv)    for voluntary or contingent reserves, as may be resolved from time to time by our shareholders at the annual ordinary shareholders’ meeting; and
(v)     the remainder of the net income for the year may be distributed as dividends on common shares or as otherwise decided by our shareholders at the annual ordinary shareholders’ meeting.
Bonos de Participación para el Personal are bonds issued to our employees, according to the provisions of our by-laws, that entitle each holder of the bonds to a pro rata portion of 0.5% of our earnings, after payments of taxes.
The board of directors submits our financial statements for the preceding fiscal year, together with reports thereon by the supervisory committee, at the annual ordinary shareholders’ meeting for approval. Within four months of the end of each fiscal year, an ordinary shareholders’ meeting must be held to approve the financial statements and determine the allocation of our net income for such year.
Under applicable CNV regulations, cash dividends must be paid to shareholders within 30 days of the shareholders’ meeting approving such dividends. In the case of stock dividends, shares are required to be delivered within three months of our receipt of notice of the authorization of the CNV for the public offering of the shares arising from such dividends. The statute of limitations to the right of any shareholder to receive dividends declared by the shareholders’ meeting is 3 years from the date in which they have been made available to the shareholder.
SIGNIFICANT CHANGES
Except as identified in this annual report on Form 20-F, no significant change in our financial condition has occurred since the date of the most recent audited financial statements contained in this annual report.
Item 9.
The Offer and Listing
Since April 26, 2007, our Class B shares and the ADSs have been listed on the Buenos Aires Stock Exchange and the NYSE, respectively. The ADSs have been issued by the Bank of New York as depositary. Each ADS represents 20 Class B shares.
OFFER AND LISTING DETAILS
The following table sets forth, for the period commencing with our initial public offering on April 30, 2007, the annual high and low market prices for the ADSs on the New York Stock Exchange and the shares on the Buenos Aires Stock Exchange.
Buenos Aires Stock
Exchange
New York Stock
Exchange
Pesos per Share
U.S. dollars per ADS
High
Low
High
Low
2007
3.97 2.75 24.95 17.65
2008
3.50 0.56 22.16 3.06
2009
1.70 0.61 9.02 3.20
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The following table sets forth, for the periods indicated, the reported high and low sales prices for our shares on the Buenos Aires Stock Exchange and the reported high and low sales prices for the ADSs on the New York Stock Exchange.

Buenos Aires Stock
Exchange
New York Stock
Exchange
Pesos per Share
U.S. dollars per ADS
High
Low
High
Low
2008
First Quarter
3.51 2.95 22.16 18.22
Second Quarter
3.29 1.86 20.87 11.35
Third Quarter
2.07 1.14 13.53 6.50
Fourth Quarter
1.21 0.56 7.30 3.06

Buenos Aires Stock
Exchange
New York Stock
Exchange
Pesos per Share
U.S. dollars per ADS
High
Low
High
Low
2009
First Quarter
0.87 0.61 4.90 3.20
Second Quarter
1.08 0.70 5.65 3.65
Third Quarter
1.47 1.06 7.80 5.22
Fourth Quarter
1.70 1.29 9.02 6.95
The following table sets forth, for the months indicated, the reported high and low sales price for our shares on the Buenos Aires Stock Exchange and the reported high and low sales prices for the ADSs on the New York Stock Exchange.
Buenos Aires Stock
Exchange
New York Stock
Exchange
Pesos per Share
U.S. dollars per ADS
High
Low
High
Low
2009
December
1.54 1.30 8.10 6.96
2010
January
1.59 1.42 8.48 7.48
February
1.45 1.33 7.65 6.75
March
1.47 1.32 7.62 6.78
April
1.54 1.42 7.90 7.05
May (1)
1.55 1.45 7.98 7.37

( 1) Represents the corresponding sale prices from April 1 through May 6.

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Markets
Trading on the Buenos Aires Stock Exchange
Trading in the Argentine securities market
The securities market in Argentina is comprised of 11 stock exchanges consisting of the BCBA, Bahía Blanca, Corrientes, Córdoba, La Plata, La Rioja, Mendoza, Rosario, Santa Fe, Mar del Plata and Tucumán. Six of these exchanges (Buenos Aires, Rosario, Córdoba, Mendoza, Santa Fe, and La Rioja) have affiliated stock markets and, accordingly, are authorized to quote publicly offered securities. Securities listed on these exchanges include corporate equity and bonds and government securities.
The BCBA is the principal and longest-established exchange in Argentina and is currently the fourth largest exchange in Latin America in terms of market capitalization. The BCBA began operating in 1854 and accounts for approximately 95% of all equity trading in Argentina.  Bonds listed on the BCBA may simultaneously be listed on the Mercado Abierto Electrónico, the Argentine over-the-counter market, or MAE, pursuant to an agreement between BCBA and MAE which stipulates that equity securities are to be traded exclusively on the BCBA while debt securities (both public and private) may be traded on both the MAE and the BCBA.  In addition, through separate agreements with the BCBA, all of the securities listed on the BCBA may be listed and subsequently traded on the Córdoba, Rosario, Mendoza, La Plata and Santa Fe exchanges, by virtue of which many transactions originating on these exchanges relate to BCBA-listed companies and are subsequently settled in Buenos Aires. Although companies may list all of their capital stock on the BCBA, controlling shareholders in Argentina typically retain the majority of a company’s capital stock, resulting in a relatively small percentage of active trading of the companies’ stock by the public on the BCBA.
Argentina’s equity markets have historically been comprised of individual investors, though in recent years, there has been an increase in the level of investment by banks and insurance companies in these markets.  The fondos comunes de inversión (Argentine mutual funds), however, still do not actively invest in local equity markets.  As of December 31, 2009, 74 companies had equity securities listed on the BCBA, of which the ten most traded companies accounted for approximately 70.4% of the total market capitalization during 2009.
The Buenos Aires Stock Market, or Mercado de Valores de Buenos Aires (MERVAL) is the largest stock market in Argentina and is affiliated with the BCBA.  MERVAL is a corporation consisting of 133 shareholder members who are the sole individuals or entities authorized to trade, either as principals or agents, in the securities listed on the BCBA.  Trading on the BCBA is conducted either through the traditional auction system from 11:00 a.m. to 5:00 p.m. on trading days, or through the Sistema Integrado de Negociación Asistida por Computación (Computer-Assisted Integrated Negotiation System, or SINAC). SINAC is a computer trading system that permits trading in both debt and equity securities and is accessed by brokers directly from workstations located in their offices. Currently, all transactions relating to listed negotiable obligations and listed government securities can be effectuated through SINAC.  In order to control price volatility, MERVAL imposes a 15-minute suspension on trading when the price of a security registers a variation in price between 10% and 15% and between 15% and 20%.  Any additional 5% variation in the price of a security will result in additional 10-minute successive suspension periods.
Regulation of the Argentine securities market
The Argentine securities market is regulated and overseen by the National Securities Commission or CNV, pursuant to Law No. 17,811, as amended, which in addition to having created the CNV governs the regulation of security exchanges, as well as stockbroker transactions, market operations, the public offering of securities, corporate governance matters relating to public companies and the trading of futures and options.  Argentine pension funds and insurance companies are regulated by separate government agencies, whereas financial institutions are regulated primarily by the Central Bank.

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In Argentina, debt and equity securities traded on an exchange or the over-the-counter market must, unless otherwise instructed by their shareholders, be deposited with Caja de Valores S.A. (Stock Exchange Incorporated), a corporation owned by the BCBA, MERVAL and certain provincial exchanges. Caja de Valores S.A. is the central securities depositary of Argentina and provides central depositary facilities, as well as acting as a clearinghouse for securities trading and as a transfer and paying agent for securities transactions. Additionally, Caja de Valores S.A. handles the settlement of securities transactions carried out by the BCBA and operates the computerized exchange information system mentioned above.
Despite a change in the legal framework of Argentine securities trading in the early 1990s, which permitted the issuance and trading of new financial products in the Argentine capital markets, including commercial paper, new types of corporate bonds and futures and options, there is still a relatively low level of regulation of the market for Argentine securities and investors’ activities in such markets and enforcement of them has been extremely limited. Because of the limited exposure and regulation in these markets, there may be less publicly available information about Argentine companies than is regularly published by or about companies in the United States and certain other countries. However, the CNV has taken significant steps to strengthen disclosure and regulatory standards for the Argentine securities market, including the issuance of regulations prohibiting insider trading and requiring insiders to report on their ownership of securities, with associated penalties for noncompliance.
In order to improve Argentine securities market regulation, the Argentine government issued Decree No. 677/01 on June 1, 2001, which provided certain guidelines and provisions relating to capital markets transparency and best practices. Decree No. 677/01 applies to individuals and entities that participate in the public offering of securities, as well as to stock exchanges. Among its key provisions, the decree broadens the definition of a “security,” governs the treatment of negotiable securities, obligates publicly listed companies to form audit committees comprised of three or more members of the board of directors (the majority of whom must be independent under CNV regulations), authorizes market stabilization transactions under certain circumstances, governs insider trading, market manipulation and securities fraud and regulates going-private transactions and acquisitions of voting shares, including controlling stakes in public companies.
Before offering securities to the public in Argentina, an issuer must meet certain requirements established by the CNV with regard to the issuer’s assets, operating history and management, among others, and only securities for which an application for a public offering has been approved by the CNV may be listed on a stock exchange.  Despite these requirements imposed by the CNV, CNV approval does not imply any kind of certification as to the quality of the securities or the solvency of the issuer, although issuers of listed securities are required to file unaudited quarterly financial statements and audited annual financial statements and various other periodic reports with the CNV and the stock exchange on which their securities are listed, as well as to report to the CNV and the relevant stock exchange any event related to the issuer and its shareholders that may affect materially the value of the securities traded.
Item 10.
Additional Information
MEMORANDUM AND ARTICLES OF INCORPORATION
Set forth below is a brief summary of certain significant provisions of our bylaws and Argentine law. This description does not purport to be complete and is qualified by reference to our bylaws, which have been filed as an exhibit to this annual report. For a description of the provisions of our bylaws relating to our board of directors and statutory auditors, see “Item 6. Directors, Senior Management and Employees.”
Description of capital stock
We are a public service company incorporated on July 21, 1992 as a sociedad anónima, a stock corporation, duly incorporated under the laws of Argentina for a 95−year period and registered on August 3, 1992 with the Public Registry of Commerce of the City of Buenos Aires under Nr. 7041 of Book 111, Volume A of Sociedades Anónimas.
As of the date of this annual report, our capital stock consists of Ps. 906,455,100, represented by 462,292,111 book-entry Class A common shares, with a par value of one peso each and the right to one vote per share, 442,210,385 book-entry Class B common shares, with a par value of one peso each and the right to one vote per share, and 1,952,604 book-entry Class C common shares, with a par value of one peso each and the right to one vote per share. Under our bylaws, we are required to ensure, unless the ENRE approves otherwise, that Class A common shares represent 51% of our outstanding capital stock and that new Class A, Class B and Class C shares are issued pro rata to the percentage of the outstanding capital stock represented by them prior to a capital increase, unless a general or special shareholder’s meeting approves otherwise. All outstanding shares are fully paid.

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Our shareholders authorized a capital increase of 83,161,020 common shares on June 7, 2006 composed of 42,412,120 Class A common shares, 32,432,797 Class B common shares and 8,316,102 Class C common shares.  Our Class B shares have been listed on the Buenos Aires Stock Exchange since 1995 although they have never been traded effectively on that exchange or any other market. Holders of Class A common shares may convert any Class B common shares they may hold into Class A shares, on a one−for−one basis, if such conversion would be required to maintain at all times 51% of the outstanding capital stock of Edenor. Our Class A shares have been pledged in favor of the Argentine Government to secure our obligations under our concession and may not be transferred, even to shareholders of the same class, without the prior approval of the ENRE.  Under the Adjustment Agreement, these shares may not be transferred until the approval of the RTI.
Upon the closing of our IPO, substantially all Class C shares were converted into Class B shares.  The rights previously attributable to the Class C shares were combined with those attributable to the Class B shares, and holders of the remaining Class C shares vote jointly as a single class with the holders of Class B shares in the election of directors.
Corporate purpose
Article 4 of our by-laws establishes that our corporate purpose is to engage in the distribution and sale of electricity within our concession area. We can also acquire the capital stock of other electric distribution companies, subject to regulatory approval, lease our network to provide power line communication or other voice, data and image transmission services, and render operating, advisory, training, maintenance, consultancy, management services and know-how related to the distribution of electricity both in Argentina and abroad. These activities may be conducted directly by us or through subsidiaries or affiliates. In addition, we may act as trustees of trusts created under Argentine law to the extent they are related to credit facilities granted to vendors and service providers acting in the distribution and sale of electricity who have guaranties granted by reciprocal guaranty companies owned by us.
Shareholders’ liability
Shareholder liability for a company’s losses is limited to the value of the shareholder’s shareholding in the company. However, under Argentine corporate law, shareholders who have a conflict of interest with the company with respect to certain matters and who do not abstain from voting on such matters may be held liable for damages to the company, provided that their votes were necessary for the adoption of the relevant decision. In addition, shareholders who voted in favor of a resolution that is subsequently declared void by a court as contrary to Argentine law or the company’s bylaws (or regulations, if any) may be held jointly and severally liable for damages to the company, other shareholders or third parties resulting from the resolution. See also “Item 3. Key Information—Risk factors—Risks related to our ADSs and common shares—Our shareholders may be subject to liability for certain votes of their securities.”
Appraisal rights
Whenever our shareholders approve:
·
a merger or spin-off in which we are not the surviving corporation, unless the acquiror shares are authorized for public offering or listed on any stock exchange;
·
a transformation of our corporate legal status;
·
a fundamental change in our by-laws;
·
a change in our domicile outside Argentina;

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·
a voluntary termination of the public offering or listing authorization;
·
a decision in favor of our continuation upon delisting or cancellation of our public offering authorization; or
·
a total or partial recapitalization following a mandatory reduction of our capital or liquidation
any shareholder that voted against such action or did not attend the relevant meeting may exercise appraisal rights, that is, the rights to withdraw from the company and have its shares cancelled in exchange for the book value of its shares, determined on the basis of our latest balance sheet prepared, or that should have been prepared, in accordance with Argentine laws and regulations, provided that such shareholder exercises its appraisal rights within the time frame set forth below.
Appraisal rights must be exercised within five days following the meeting at which the resolution was adopted, in the event of a dissenting shareholder that voted against such resolution, or within 15 days following such meeting in the case of a dissenting shareholder that did not attend the meeting and who can prove that it was a shareholder at the date of the meeting.  In the case of mergers or spin-offs involving an entity authorized to make public offering of its shares, appraisal rights may not be exercised if the shares to be received as a result of the transaction are listed in any stock exchange.  Appraisal rights are terminated if the resolution giving rise to such rights is overturned at another shareholders’ meeting held within 60 days as from the meeting at which the resolution was adopted.
Payment of appraisal rights must be made within one year of the date of the shareholders’ meeting at which the resolution was adopted, except where the resolution was to delist the capital stock of the company, in which case the payment period is reduced to 60 days from the date of the relevant resolution.
Because of the absence of legal precedent directly on point, there is doubt as to whether holders of ADSs will be able to exercise appraisal rights either directly or through the depositary with respect to Class B shares represented by ADSs.
Redemption or repurchase
According to the Transparency Decree, a sociedad anónima may acquire its own shares, provided that the public offering and listing thereof has been authorized, subject to the following terms and conditions and other regulations that may be issued by the CNV.  The conditions are:  (a) the shares to be acquired should be fully paid; (b) there shall be a resolution of the board of directors to such effect, (c) the acquisition shall be made out of net profits or voluntary reserves; (d) the total amount of shares acquired by the company, including previously acquired shares, shall not exceed 10% of the capital stock or such lower percentage determined by the CNV.  The shares acquired in excess of such limit shall be disposed of within 90 days after the date of the acquisition originating the excess.
The shares acquired by the company shall be disposed of by the company within a maximum term of three years counted as from the date of the acquisition thereof.  Upon disposition of the shares, the company shall make a preemptive rights offering of such shares.  The offer is not mandatory if the shares are issued in connection with a compensation plan or program for the company’s employees or if the shares are distributed among all shareholders in proportion to their shareholding.  If shareholders do not exercise in whole or in part, their preemptive rights, the sale shall be made in a stock exchange.
In 2008, we purchased our class B common shares in Argentina through a public tender offer and through open market repurchases.  Through both operations, we repurchased 9,412,500 shares.  On October 31, 2008, we launched a public tender offer in Argentina for our shares.  According to the terms of the tender offer, we were permitted to purchase up to 65 million shares, or 7.17% of our outstanding capital stock, at a price of Ps. 0.65 per share for a total maximum expenditure of Ps. 45 million.  The CNV approved the tender offer on October 30, 2008.  The offer expired on November 14, 2008.

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Preemptive and accretion rights
Under Argentine law, shareholders of any given class of common shares have preemptive rights, on a pro rata basis, to subscribe shares of the same class owned by them, and accretion rights, on a pro rata basis, to subscribe additional shares of its class or other classes of shares not subscribed by other shareholders of the same class. Preemptive rights and accretion rights may be waived only by each shareholder on a case-by-case basis. Alternatively, pursuant to the Argentine companies law, in exceptional cases and on a case by case basis when required for the best interest of the company, the shareholders at an extraordinary meeting with a special majority may decide to limit or suspend shareholders, preemptive rights, provided that the resolution is included in the meeting’s agenda and the shares to be issued are paid in kind or are issued to cancel preexisting obligations.
In the event of a capital increase, our by-laws provide that holders of Class A, Class B and Class C shares have preemptive rights, on a pro rata basis, to subscribe new Class A, Class B or Class C shares, as the case may be, in order to maintain their pro rata interest in the company, unless otherwise decided in a general or extraordinary shareholders’ meeting. The holders of our Class A shares, in any capital increase, must exercise their preemptive rights to maintain at least 51% of our capital stock outstanding after giving effect to the capital increase, unless otherwise authorized by the ENRE or to the extent any other legal mechanism is used to secure the 51% ownership of our capital stock.  In order for the participant employees of the PPP to participate in this offering, all of our Class C shares (including shares of PPP participants who will not participate in this offering) will be converted into Class B shares.
Pursuant to Argentine law, if approved by an extraordinary shareholders’ meeting, companies authorized to make a public offering of their securities may shorten the period during which preemptive rights may be exercised from 30 to 10 days following the publication of the offering in the Argentine Official Gazette and a newspaper of wide circulation in Argentina. Preemptive rights are exercisable following such publication (which must be made for three days) for a period of 30 days, provided the period is not reduced in the manner described above.
Shareholders who have exercised their preemptive rights have the right to exercise accretion rights, on a pro rata basis, with respect to any unsubscribed shares. Shares not subscribed by shareholders by virtue of preemptive or accretion rights may be offered to third parties.  EASA and certain of our selling shareholders have assigned their preemptive and accretion rights to the international underwriters.
Holders of ADSs may be restricted in their ability to exercise preemptive rights if a prospectus under the Securities Act relating thereto has not been filed or is not effective or an exemption is not available.
Voting rights
Under our bylaws, each class of common shares entitles the holder thereof to one vote per share at any meeting of our shareholders.  Under Argentine corporate law, a shareholder is required to abstain from voting on any resolution in which its direct or indirect interests conflict with that of, or are different from, the company.  In the event that such shareholder votes on such resolution, and such resolution would not have been approved without such shareholder’s vote, the resolution may be declared void by a court and such shareholder may be held liable for damages to the company, other shareholders and third parties.
Registration requirements of foreign companies holding Class B shares
Under Argentine regulations, foreign companies that hold shares directly (and not as ADSs) in an Argentine company must register with the Inspección General de Justicia (the public registry of commerce) to exercise certain shareholder rights, including voting rights. The registration requires the filing of corporate and accounting documents in order to demonstrate that the foreign shareholder is not a special purpose vehicle organized solely to conduct business solely in Argentina, is entitled to conduct business in its place of incorporation and meets certain foreign assets requirements.

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Liquidation rights
In the case of our liquidation or dissolution our assets will be applied to satisfy our outstanding liabilities and then proportionally distributed among holders of our common stock without distinction of classes.
Ordinary and extraordinary shareholders meetings
Shareholders’ meetings may be ordinary meetings or extraordinary meetings. We are required to convene and hold an ordinary meeting of shareholders within four months of the close of each fiscal year to consider the matters specified in the first two paragraphs of Section 234 of the Argentine corporate law, such as the approval of our financial statements, allocation of net income for such fiscal year, approval of the reports of the board of directors and the statutory audit committee and election, performance and remuneration of directors and members of the statutory audit committee. In addition, pursuant to Public Offering Transparency Decree 677/2001, at an ordinary shareholders’ meetings, our shareholders must consider (i) the disposition of, or creation of any lien over, our assets as long as such decision has not been performed under the ordinary course of business and (ii) the execution of administration or management agreements and whether to approve any agreement by virtue of which the assets or services provided to us are paid partially or totally with a percentage of our income, results or earnings, if the payment is material when measured against the volume of the ordinary course of business and our shareholders’ equity. Other matters which may be considered at an ordinary meeting convened and held at any time include the responsibility of directors and members of the statutory audit committee, capital increases and the issuance of certain corporate bonds. Extraordinary shareholders’ meetings may be called at any time to consider matters beyond the authority of an ordinary meeting including, without limitations, the amendment of our by-laws, issuance of debentures, early dissolution, merger, spin off, reduction of capital stock and redemption of shares, transformation from one type of entity to another, appointment, removal and retribution of the liquidators and limitation or suspension of shareholders’ preemptive rights.
Special shareholders meetings of classes of shares
In the event a shareholder’s meeting is held to adopt any resolution affecting the rights of a class of shares, the consent or ratification of shareholders of that class is required and a special shareholder’s meeting shall be held. The special shareholder’s meetings shall be governed by the rules provided for the ordinary shareholder’s meetings.
Notices of meetings
Notices of shareholders’ meetings are governed by the provisions of Argentine Corporations Law. Furthermore, notice of shareholders’ meetings must be published for five days in the Official Gazette, in an Argentine newspaper of wide circulation and in the bulletin of the Buenos Aires Stock Exchange, at least 20 but not more than 45 days prior to the date on which the meeting is to be held. Such notice must include information regarding the type of meeting to be held, the date, time and place of such meeting and the agenda. If  quorum is not available at such meeting, a notice for a second meeting, which must be held within 30 days of the date on which the first meeting was called, must be published for three days, at least eight days before the date of the second meeting. The above−described notices of shareholders’ meetings may be effected simultaneously for the second meeting to be held on the same day as the first meeting, only in the case of ordinary meetings and special shareholder’s meetings of a relevant class of shares. Shareholders’ meetings may be validly held without notice if all shares of our outstanding capital stock are present and resolutions are adopted by unanimous vote of shares entitled to vote.
Quorum and voting requirements
The quorum for ordinary meetings of shareholders on first call is a majority of the shares entitled to vote, and action may be taken by the affirmative vote of an absolute majority of the shares present that are entitled to vote on such action. If a quorum is not available at the first meeting a second meeting may be held at which action may be taken by the holders of an absolute majority of the shares present, regardless of the number of such shares. The quorum for an extraordinary shareholders’ meeting on first call is 70% of the shares entitled to vote, and if such quorum is not available, a second meeting may be held, for which the quorum is 35% of the shares entitled to vote.

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Action may be taken at extraordinary shareholders’ meetings by the affirmative vote of an absolute majority of shares present that are entitled to vote on such action, except that:  the approval of a majority of shares with voting rights (for these purposes non−voting preferred shares shall have voting rights), without application of multiple votes, is required at both the first and second meeting for:  (i) the transfer of our domicile outside Argentina, (ii) a fundamental change of the corporate purpose set forth in our bylaws, (iii) our anticipated dissolution, (iv) the total or partial redemption of shares, or (v) the transformation of our corporate legal status, in which cases resolutions shall be adopted by the affirmative vote of the majority of shares with the right to vote. Preferred shares will be entitled to one vote in these circumstances. Moreover, pursuant to our by-laws, the extension of the company’s duration, the withdrawal from public offering or delisting, the total or partial recapitalization, the merger or spin-off (including if we are the surviving entity) or the termination of the concession agreement for the distribution and sale of electricity, on first and second calls, shall be taken by the affirmative vote of shares representing at least 80% of the outstanding shares entitled to vote, whether present or not at the shareholder’s meeting, without application of multiple votes, if applicable. An amendment to our by-laws requires the prior approval of the ENRE. Shareholder’s meetings shall approve amendments “ad-referendum” of the ENRE.
Shareholders’ meetings may be called by the board of directors or the members of the statutory audit committee whenever required by law or whenever they deem it necessary. Also, the board or the members of the statutory audit committee are required to call shareholders’ meetings upon the request of shareholders representing an aggregate of at least five percent of our outstanding capital stock in which case the meeting must take place within 40 days of such shareholders’ request. If the board or the statutory audit committee fails to call a meeting following such a request, a meeting may be ordered by the CNV or by the courts. In order to attend a meeting, a shareholder must also deposit with us a certificate of book-entry shares registered in its name and issued by Caja de Valores S.A. at least three business days prior to the date on which the meeting is to be held. If so entitled to attend a meeting, a shareholder may be represented by proxy. Proxies may not be granted to our board, members of the statutory audit committee, officers or employees.
Election of directors
Our board of directors must have 12 acting directors and the number of alternate directors that the shareholders may resolve in a general annual ordinary meeting or at a class annual ordinary meeting, such number not to exceed the number of acting directors. All directors are elected to serve for one fiscal year. Holders of Class A common shares are entitled to elect, in a general annual ordinary meeting or at an annual ordinary meeting of Class A holders 7 directors one of which must be independent in accordance with CNV regulations and our by-laws. Holders of Class B common shares are entitled to elect, in a general annual ordinary meeting or at an annual ordinary meeting of Class B holders 4 directors one of which must also be independent in accordance with CNV regulations and our by-laws. Holders of Class C common shares are entitled to elect, in a general annual ordinary meeting or at an annual ordinary meeting of Class C holders 1 director until the percentage of our capital stock represented by Class C common shares decreases below 6% at which moment holders of Class C common shares will be required to vote together with holders of Class B common shares to elect, as a common class, 5 directors.  Upon the closing of the Argentine offering (to the extent consummated), substantially all Class C shares will have been converted into Class B shares and  a nominal amount of Class C shares will remain outstanding.  Accordingly, any rights previously attributable to the Class C shares will have been combined with those attributable to the Class B shares, and holders of the remaining Class C shares will vote jointly as a single class with the holders of Class B shares in the election of directors.
Form and transfer
Our current capital stock is represented by book-entry shares. Our shareholders are required to hold their shares through book-entries directly made by Caja de Valores in the stock registry of the company carried by Caja de Valores or through book-entries with brokers, banks and other entities approved by the CNV that have accounts with Caja de Valores , or with the participants of the Caja de Valores . Caja de Valores is in charge of maintaining a stock registry on our behalf based on information received from shareholders that chose to hold their shares directly by registration on the stock registry of the company and from participants of the Caja de Valores , and in accordance with Argentine law only those holders listed in the stock registry either directly or through participants of the Caja de Valores will be recognized as shareholders. Shares held by participants of the Caja de Valores have the same rights as shares recorded in our shareholders’ register.

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MATERIAL CONTRACTS
We are party to various contracts in the ordinary course of business.  In the past two years, we have not entered into any material contracts.
EXCHANGE CONTROLS
Prior to December 1989, the Argentine foreign exchange market was subject to exchange controls.  From December 1989 until April 1991, Argentina had a freely floating exchange rate for all foreign currency transactions, and the transfer of dividend payments in foreign currency abroad and the repatriation of capital were permitted without prior approval of the Central Bank.  From April 1, 1991, when the Convertibility Law became effective, until December 21, 2001, when the Central Bank decided to close the foreign exchange market, the Argentine currency was freely convertible into U.S. Dollars.
On December 3, 2001, the Argentine government imposed a number of monetary and currency exchange control measures through Decree 1570/01, which included restrictions on the free disposition of funds deposited with banks and tight restrictions on transferring funds abroad without the Central Bank’s prior authorization subject to specific exceptions for transfers related to foreign trade.  Beginning in January 2003, the Central Bank has gradually eased these restrictions and expanded the list of transfers of funds abroad that do not require its prior authorization.  However, in June 2003 the Argentine government instituted restrictions on capital flows into Argentina, which mainly consisted of a prohibition against the transfer abroad of any funds until 180 days after their entry into the country.
In June 2005, the Argentine government issued Decree 616/05, which established additional restrictions on capital flows.  Pursuant to the decree, all indebtedness of Argentine residents within the private sector is required to be agreed upon and repaid not prior to 365 days from the date of entry of the funds into Argentina, regardless of the form of repayment.  The decree outlines several types of transaction that are exempt from its requirements, including foreign trade financings, foreign trade balances of those entities authorized to carry out foreign exchange, and primary offerings of debt securities issued pursuant to a public offering and listed on a self-regulated market.
In addition, the decree, as supplemented by subsequent regulations, stipulates that all capital inflows of residents exceeding approximately U.S. $2 million per month, , as well as all capital inflows of non-residents settled in the local exchange market destined for local money holdings, acquisition of active or passive private sector financings  and investments in securities issued by the public sector that are acquired in secondary markets (excluding foreign direct investment, which includes capital contributions to local companies of direct investments (namely, a company in which the foreign direct investor holds at least 10% of ordinary shares or voting rights, or its equivalent), and primary offerings of debt securities issued pursuant to a public offering and listed on a self-regulated market), must meet certain requirements, including those outlined below:
·
such funds may be transferred only outside the local exchange market after a 365-day period from the date of entry of the funds into Argentina;
·
any pesos resulting from the exchange of such funds are to be credited to an account within the Argentine banking system; and
·
except for certain types of capital inflows, a non-transferable, non-interest-bearing U.S. dollar-denominated mandatory deposit must be maintained  for a term of 365 calendar days, in an amount equal to 30% of any inflow of funds to the local foreign exchange market arising from certain enumerated transactions (which mandatory deposit may not be used as collateral or guaranty for any transaction)
In addition, on November 16, 2005, the Ministry of Economy and Production issued Resolution 637/05, pursuant to which Decree 616/05 was regulated, providing that any inflow of funds to the local exchange market in connection with an initial public offering of securities, bonds or certificates issued by a trustee under a trust, whether or not such trust is publicly offered and listed in a self-regulated market, shall comply with all requirements provided for section 4 of Decree 616/05 whenever such requirements are applicable to the inflow of funds to the local exchange market in connection with the acquisition of any of the assets under the trust.

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The transfer abroad of dividend payments is currently authorized by applicable regulations to the extent such dividend payments are made in connection with audited financial statements and are approved by a shareholders ’ meeting. Any breach of the provisions of Decree No. 616/05 or any other foreign exchange regulation is subject to criminal penalties of the laws governing the Argentine exchange market.
Money laundering
On April 13, 2000, the Argentine Congress passed Law No. 25,246 (the Law of Money Laundering), which establishes an administrative criminal system and supersedes various sections of the Argentine Penal Code relating to money laundering.  This law defines money laundering as a crime, stating that a crime is committed whenever a person converts, transfers, manages, sells, encumbers, or otherwise uses money, or any other assets, connected with a crime in which that person has not participated, with the possible result that the original or substituted assets may appear to be of a legitimate origin, provided the value of the assets exceeds Ps. 50,000, whether such amount results from one or more transactions.
In addition, the Law of Money Laundering created the Financial Information Unit, which is charged with the handling and the transmission of information in order to prevent the laundering of assets originating from:
·
Crimes related to illegal trafficking and commercialization of narcotics (Law No. 23,737);
·
Crimes related to arms trafficking (Law No. 22,415);
·
Crimes related to the activities of an illegal association as defined in Article 210 bis of the Penal Code;
·
Illegal acts committed by illegal associations (Article 210 of the Penal Code) organized to commit crimes for with political or racial objectives;
·
Crimes of fraud against the Public Administration (Article 174, Section 5 of the Penal Code);
·
Crime against the Public Administration under Chapters VI, VII, IX and IX bis of Title XI of Book Two of the Penal Code;
·
Crimes of underage prostitution and child pornography under Articles 125, 125 bis, 127 bis and 128 of the Penal Code.
The principal objective of the Law of Money Laundering is to prevent money laundering.  Like other international money laundering laws, Argentine law does not designate sole responsibility to the Argentine government for the monitoring of these criminal activities, but rather also delegates certain obligations to various private sector entities such as banks, stockbrokers, stock market entities, and insurance companies.  These obligations essentially consist of information gathering functions, such as:
·
obtaining from clients documents that indisputably prove the identity, legal status, domicile and other information, to accomplish any type of activity intended;
·
reporting any suspicious activity or operation;
·
keeping any monitoring activities in connection with a proceeding pursuant to the Money Laundering Law confidential from both clients and third parties.
In addition, Central Bank regulations require that Argentine banks undertake certain minimum procedures to prevent money laundering. CNV regulations also require that the issuers and traders of publicly traded securities in Argentina and those persons participating in financial trusts and common investment funds subject to the CNV's control comply with certain obligations and requirements relating to money laundering prevention and to the suppression of the financing of terrorism.
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TAXATION

The following summary contains a description of the material Argentine and U.S. federal income tax consequences of the acquisition, ownership and disposition of common shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase common shares or ADSs.  The summary is based upon the tax laws of Argentina and regulations thereunder and on the tax laws of the United States and regulations thereunder as in effect on the date hereof, which are subject to change.  Investors should consult their own tax advisors as to the tax consequences of the acquisition, ownership and disposition of common shares or ADSs.
Although there is at present no income tax treaty between Argentina and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty.  No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of common shares or ADSs.
Argentine Tax Considerations
The following discussion is a summary of the material Argentine tax considerations relating to the purchase, ownership and disposition of our Class B common shares or ADSs.
Dividends tax
Dividends paid on our Class B common shares or ADSs, whether in cash, property or other equity securities, are not subject to income tax withholding, except for dividends paid in excess of our taxable accumulated income up to the previous fiscal period, which are subject to withholding at the rate of 35% in respect of such excess. This is a final tax and it is not applicable if dividends are paid in acciones liberadas (shares) rather than in cash.
Capital gains tax
Due to certain amendments made to the Argentine Income Tax Law, it is not entirely clear whether certain amendments concerning payment of income tax on capital gains arising from the sale, exchange or other disposition of shares are in effect or not. Although Opinion No. 351 of the National Treasury General Attorney Office clarified the legal status of certain matters affecting the tax treatment of capital gains certain issues still remain unclear.
Resident individuals. Under what we believe to be a reasonable interpretation of existing applicable tax laws and regulations:  (i) income derived from the sale, exchange or other disposition of our Class B common shares or ADSs by resident individuals who do not sell or dispose of Argentine shares on a regular basis would not be subject to Argentine income tax, and (ii) although there still exists uncertainty regarding this issue, income derived from the sale, exchange or other disposition of our Class B common shares or ADSs by resident individuals who sell or dispose of Argentine shares on a regular basis should be exempt from Argentine income tax.
Foreign beneficiaries. Capital gains obtained by non resident individuals or foreign entities from the sale, exchange or other disposition of our Class B common shares or ADSs are exempt from income tax. Pursuant to a reasonable construction of the AITL, and although the matter is not completely free from doubt, such treatment should also apply to those foreign beneficiaries that qualify as “offshore entities” for purposes of Argentine tax laws.  For this purpose, an offshore entity is any foreign legal entity which pursuant to its by-laws or to the applicable regulatory framework (i) its principal activity is to invest outside the jurisdiction of its incorporation and/or (ii) cannot perform in such jurisdiction certain transactions.
Local entities. Capital gains obtained by Argentine entities in general, entities organized or incorporated under Argentine law, certain traders and intermediaries, local branches of non Argentine entities, sole proprietorships and individuals carrying on certain commercial activities in Argentina derived from the sale, exchange or other disposition of our Class B common shares or ADSs are subject to income tax at the rate of 35%. Losses arising from the sale of our Class B common shares or ADSs can be applied only to offset such capital gains arising from sales of shares or ADSs.
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Personal Assets tax

Argentine entities, such as us, have to pay the personal assets tax on behalf of all Argentine and foreign individuals and undistributed estates of deceased individuals and foreign entities for the holding of our shares at December 31 of each year. The applicable tax rate is 0.5% and is levied on the valor patrimonial proporcional (equity value), or the book value, of the shares arising from the latest financial statements. Pursuant to the Personal Assets Tax Law, we are entitled to seek reimbursement of such paid tax from the applicable Argentine individuals and/or foreign shareholders, even by withholding and/or foreclosing the shares, or by withholding dividends.
Value added tax
The sale, exchange or other disposition of our Class B common shares or ADSs and the distribution of dividends are exempted from the value added tax.
Transfer taxes
The sale, exchange or other disposition of our Class B common shares or ADSs is not subject to transfer taxes.
Stamp taxes
Stamp taxes may apply in the City of Buenos Aires and in certain Argentine provinces in case transfer of our Class B common shares or ADSs is performed or executed in such jurisdictions by means of written agreements. Transfer of our Class B common shares is exempted from stamp tax in the City of Buenos Aires.
Other taxes
There are no Argentine inheritance or succession taxes applicable to the ownership, transfer or disposition of our Class B common shares or ADSs. In addition, neither the minimum presumed income tax nor any local gross turnover tax is applicable to the ownership, transfer or disposition of our Class B common shares or ADSs.
Tax treaties
Argentina has signed tax treaties for the avoidance of double taxation with Australia, Austria, Belgium, Bolivia, Brazil, Canada, Chile, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Russia, Spain, Sweden, Switzerland and the United Kingdom. There is currently no tax treaty or convention in effect between Argentina and the United States. It is not clear when, if ever, a treaty will be ratified or entered into effect. As a result, the Argentine tax consequences described in this section will apply, without modification, to a holder of our Class B common shares or ADSs that is a U.S. resident. Foreign shareholders located in certain jurisdictions with a tax treaty in force with Argentina may be exempted from the payment of the personal assets tax.
United States Federal Income Tax Considerations
This summary describes the material U.S. federal income tax consequences for a U.S. holder (as defined below) of acquiring, owning, and disposing of ADSs. This summary applies to a holder only if such holder holds the ADSs as capital assets for tax purposes. This summary does not apply to investors that are members of a class of holders subject to special rules, such as:
·
a dealer in securities or currencies;
·
a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
·
a bank;
·
a life insurance company;
·
a tax-exempt organization;
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a person that holds ADSs that are a hedge or that are hedged against interest rate or currency risks;
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a person that holds ADSs as part of a straddle or conversion transaction for tax purposes;
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a person who is liable for the alternative minimum tax;

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a person whose functional currency for U.S. tax purposes is not the U.S. Dollar; or
·
a person that owns or is deemed to own 10% or more of any class of our stock.
This summary is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. Investors should consult their own tax advisors concerning the consequences of purchasing, owning, and disposing of ADSs in their particular circumstances, including the possible application of state, local, non-U.S. or other tax laws. For purposes of this summary, an investor is a “U.S. holder” if such investor is a beneficial owner of an ADS and is:
·
a citizen or resident of the United States;
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a U.S. domestic corporation; or
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otherwise subject to U.S. federal income tax on a net income basis with respect to income from the ADS.
If a partnership holds our ADSs, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership.  An investor who is a partner of a partnership holding our ADSs should consult its own tax advisor.
In general, an investor is the beneficial owner of ADSs, such investor will be treated as the beneficial owner of the common stock represented by those ADSs for U.S. federal income tax purposes, and no gain or loss will be recognized if such investor exchanges an ADS for the common stock represented by that ADS.
Dividends
The gross amount of cash dividends that investors receive (prior to deduction of Argentine taxes) generally will be subject to U.S. federal income taxation as foreign source dividend income.  Dividends paid in Argentine Pesos will be included in an investor’s income in a U.S. Dollar amount calculated by reference to the exchange rate in effect on the date of the depositary’s receipt of the dividend, regardless of whether the payment is in fact converted into U.S. Dollars. If such a dividend is converted into U.S. Dollars on the date of receipt, investors generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. Subject to certain exceptions for short-term (60 days or less) and hedged positions, the U.S. Dollar amount of dividends received by an individual U.S. holder in respect of ADSs before January 1, 2011 generally will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on the ADSs will be treated as qualified dividends if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company (PFIC). The ADSs are listed on the New York Stock Exchange and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2006 or 2007 taxable years. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2008 taxable year.
Based on existing guidance, it is not entirely clear whether dividends received with respect to the common shares will be treated as qualified dividends, because the common shares are not themselves listed on a U.S. exchange.  In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. U.S. holders of ADSs should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

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Distributions of additional shares in respect of ADSs that are made as part of a pro-rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.
Sale or Other Disposition
Upon a sale or other disposition of ADSs, an investor will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the U.S. Dollar value of the amount realized and such investor’s tax basis, determined in U.S. Dollars, in the ADSs.  Generally, such gain or loss realized on the sale or other disposition of ADSs will be treated as U.S. source capital gain or loss, and will be long-term capital gain or loss if the ADSs were held for more than one year. The ability to offset capital losses against ordinary income is limited. Long-term capital gain recognized by an individual U.S. holder before January 1, 2011 generally is subject to taxation at a maximum rate of 15%.
Foreign Tax Credit Considerations
Investors should consult their own tax advisors to determine whether they are subject to any special rules that limit their ability to make effective use of foreign tax credits. If no such rules apply, investors may claim a credit against their U.S. federal income tax liability for Argentine taxes withheld from cash dividends on the ADSs, so long as they have owned the ADSs (and not entered into specified kinds of hedging transactions) for at least a 16-day period that includes the ex-dividend date. Instead of claiming a credit, investors may, at their election, deduct such Argentine taxes in computing their taxable income, subject to generally applicable limitations under U.S. tax law. The calculation of foreign tax credits and, in the case of a U.S. holder that elects to deduct foreign taxes, the availability of deductions, involve the application of complex rules that depend on a U.S. holder’s particular circumstances. Investors should consult their own tax advisors regarding the creditability or deductibility of such taxes.
U.S. Information Reporting and Backup Withholding Rules
Payments of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless the holder (1) is a corporation or other exempt recipient or (2) provides a taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred.  Investors may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim or refund with the Internal Revenue Service and filing any required information.
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
American depositary receipts
The Bank of New York is the depositary for the American Depositary Shares, also referred to as ADSs.  Each ADS represents 20 Class B common shares (or a right to receive 20 Class B common shares) deposited with the principal Buenos Aires office of Banco Río de la Plata S.A., as custodian for the depositary in Argentina.  Each ADS will also represent any other securities, cash or other property which may be held by the depositary.  The depositary’s office at which the ADRs are administered is located at 101 Barclay Street, 22W, New York, NY 10280.
The depositary is required to keep books at its corporate trust office for the registration of ADSs and transfers of ADSs which at all reasonable times shall be open for inspection by the holders of ADSs, provided that such inspection shall not be for the purpose of communicating with holders in the interest of a business or object other than the business of Edenor or a matter related to the deposit agreement or the receipts.
Investors hold ADSs directly either by having an American Depositary Receipt, also referred to as an ADR, which is a certificate evidencing a specific number of ADSs, registered in the investor’s name, or by having ADSs registered in the investor’s name in the Direct Registration System.  Investors also hold ADSs indirectly by holding a security entitlement in ADSs through the investor’s broker or other financial institution.  If investors hold ADSs directly, they are ADS registered holders.  This description assumes that such investors are ADS registered holders.  If investors hold the ADSs indirectly, the investors must rely on the procedures of their broker or other financial institution to assert their rights as ADS registered holders described in this section.  Investors should consult with their broker or financial institution to learn what those procedures are.

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The Direct Registration System, or DRS, is a system administered by The Depository Trust Company, also referred to as DTC, pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.
We do not treat ADS holders as one of our shareholders and ADS holders do not have shareholder rights. Argentine law governs shareholder rights.  The depositary is the holder of the common shares underlying the ADSs.  Holders of ADSs have ADS holder rights.  A deposit agreement among us, the depositary, the ADS holder, and the beneficial owners of ADSs sets out ADS holder rights as well as the rights and obligations of the depositary.  New York law governs the deposit agreement and the ADSs.
The following is a summary of the material provisions of the deposit agreement.  For more complete information, investors should read the entire deposit agreement and the form of ADR.
Dividends and other distributions
How will investors receive dividends and other distributions on the shares?
The depositary has agreed to pay to ADS holders the cash dividends or other distributions it or the custodian receives on common shares or other deposited securities, after deducting its fees and expenses described below.  ADS holders will receive these distributions in proportion to the number of common shares your ADSs represent.
Cash
The depositary will convert any cash dividend or other cash distribution we pay on the common shares into U.S. Dollars, if it can do so on a reasonable basis and can transfer the U.S. Dollars to the United States.  If that is not possible or if any government approval is needed and cannot be obtained, the deposit agreement allows the depositary to distribute the foreign currency only to those ADR holders to whom it is possible to do so.  It may hold the foreign currency it cannot convert for the account of the ADR holders who have not been paid.  It will not invest the foreign currency and it will not be liable for any interest.
Before making a distribution, the depositary will deduct any withholding taxes that must be paid.  See  “—Taxation.”  It will distribute only whole U.S. Dollars and cents and will round fractional cents to the nearest whole cent.  If the exchange rates fluctuate during a time when the depositary cannot convert the foreign currency, holders of ADSs may lose some or all of the value of the distribution.
Shares
The depositary may distribute additional ADSs representing any common shares we distribute as a dividend or free distribution.  The depositary will only distribute whole ADSs.  It will try to sell common shares, in lieu of delivering a fractional ADS and distribute the net proceeds in the same way as it does with cash.  The depositary may also sell a portion of the distributed common shares to pay its fees and expenses in connection with the distribution.  If the depositary does not distribute additional ADSs, the outstanding ADSs will also represent the new common shares.
Rights to purchase additional common shares
If we offer holders of our securities any rights to subscribe for additional common shares or any other rights, the depositary may make these rights available to holders of ADSs.  If the depositary decides it is not legal and practical to make the rights available but that it is practical to sell the rights, the depositary will use reasonable efforts to sell the rights and distribute the proceeds in the same way as it does with cash.  The depositary will allow rights that are not distributed or sold to lapse.  In that case, holders of ADSs will receive no value for them.

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If the depositary makes rights to purchase common shares available to holders of ADSs, it will exercise the rights and purchase the common shares on their behalf.  The depositary will then deposit the shares and deliver ADSs to the investor.  It will only exercise rights if the investor pays it the exercise price and any other charges the rights require the investor to pay.
U.S. securities laws may restrict transfers and cancellation of the ADSs representing common shares purchased upon exercise of rights.  For example, you may not be able to trade these ADSs freely in the United States.  In this case, the depositary may deliver restricted depositary shares that have the same terms as the ADSs described in this section except for changes needed to put the necessary restrictions in place.
Other Distributions
The depositary will send to holders of ADSs anything else we distribute on deposited securities by any means it thinks is legal, fair and practical.  If it cannot make the distribution in that way, the depositary has a choice.  It may decide to sell what we distributed and distribute the net proceeds, in the same way as it does with cash.  Or, it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property.  However, the depositary is not required to distribute any securities (other than ADSs) to holders of ADSs unless it receives satisfactory evidence from us that it is legal to make that distribution.  The depositary may sell a portion of the distributed property to pay its fees and expenses in connection with the distribution.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders.  We have no obligation to register ADSs, common shares, rights or other securities under the Securities Act.  We also have no obligation to take any other action to permit the distribution of ADSs, common shares, rights or anything else to ADS holders.  This means that holders of ADSs may not receive the distributions we make on our common shares or any value for them if it is illegal or impractical for us to make them available to holders of ADSs.
Deposit, withdrawal and cancellation
How are ADSs issued?
The depositary will deliver ADSs if the investor or the investor’s broker deposits common shares or evidence of rights to receive common shares with the custodian.  Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will register the appropriate number of ADSs in the names the investor requests.
How do ADS holders cancel ADSs and obtain shares?
If an investor surrenders ADSs to the depositary, upon payment of the investor’s fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, the depositary will deliver the common shares and any other deposited securities underlying the surrendered ADSs to the investor or a person the investor designates at the office of the custodian.  Or, at the investor’s request, risk and expense, the depositary will deliver the deposited securities at its office, if feasible.
How do ADS holders interchange between certified ADSs and uncertified ADSs?
Investors may surrender their ADRs to the depositary for the purpose of exchanging their ADR for uncertificated ADSs.  The depositary will cancel that ADR and will send to the ADS registered holder a statement confirming that the ADS registered holder is the registered holder of uncertificated ADSs.  Alternatively, upon receipt by the depositary of a proper instruction from a registered holder of uncertificated ADSs requesting the exchange of uncertificated ADSs for certificated ADSs, the depositary will execute and deliver to the ADS registered holder an ADR evidencing those ADSs.

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Voting rights
How do holders ADSs vote?
Holders of ADSs may instruct the depositary to vote the number of common shares their ADSs represent.  If we ask for the instructions of the holders of the ADSs, the depositary will notify the holders of the ADSs of shareholders’ meetings and the upcoming vote and arrange to deliver our voting materials to the holder of the ADSs.  Those materials will describe the matters to be voted on and explain how holders of ADSs may instruct the depositary to vote the shares or other deposited securities underlying their ADSs as the holder of the ADSs directs by a specified date.  For instructions to be valid, the depositary must receive them on or before the date specified.
The depositary will try, as far as practical, subject to Argentine law and the provisions of our by-laws or similar documents, to vote or to have its agents vote the number of common shares or other deposited securities represented by the ADSs as the holder of the ADSs instructs.  Otherwise, the holder of the ADSs will not be able to exercise their right to vote unless they withdraw the shares underlying their ADSs.  In the absence of the instruction of the holder of the ADSs, our company may request the depositary to vote as we instruct at the corresponding meeting. The holder of the ADSs may otherwise not know about the meeting far enough in advance to withdraw the shares.  We will use our best efforts to request that the depositary notify holders of ADSs of upcoming votes and ask for the instructions of holders of ADSs.
If we timely ask the depositary to solicit the instructions of holders of ADSs and the depositary does not receive voting instructions from the holder of the ADSs by the specified date, the depositary will consider the holder of the ADSs to have authorized and directed it to vote the number of deposited securities represented by their ADSs in favor of all resolutions proposed by our board of directors or, if not so proposed, to vote in the same manner as the majority of all other shares voted in respect of this resolution.  The depositary will vote as described in the preceding sentence unless we notify the depositary that:
·
we do not wish the depositary to vote those deposited securities;
·
we think there is substantial shareholder opposition to the particular question; or
·
we think the particular question would have an adverse impact on our shareholders.
Fees and expenses
Reclassifications, recapitalizations and mergers
If we:
Then:
Change the nominal or par value of our common shares
Reclassify, split up or consolidate any of the deposited securities
Distribute securities on the common shares that are not distributed to the holders of ADSs
Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action
The cash, shares or other securities received by the depositary will become deposited securities.  Each ADS will automatically represent its equal share of the new deposited securities.
The depositary may distribute some or all of the cash, shares or other securities it received.  It may also deliver new ADRs or ask the holder of ADSs to surrender their outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

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Limitations on obligations and liability
Limits on our obligations and the obligations of the depositary; limits on liability to holders of ADRs
The deposit agreement expressly limits our obligations and the obligations of the depositary.  It also limits our liability and the liability of the depositary.  We and the depositary:
·
are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
·
are not liable if either of us is prevented or delayed by law or circumstances beyond our control from performing our obligations under the deposit agreement;
·
are not liable if either of us exercises discretion permitted under the deposit agreement;
·
have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on behalf of holders of ADSs or on behalf of any other party;  and
·
may rely upon any documents we believe in good faith to be genuine and to have been signed or presented by the proper party.
In the deposit agreement, we agree to indemnify the depositary for acting as depositary, except for losses caused by the depositary’s own negligence or bad faith, and the depositary agrees to indemnify us for losses resulting from its negligence or bad faith.
Requirements for depositary actions
Before the depositary will deliver or register a transfer of an ADR, make a distribution on an ADR, or permit withdrawal of common shares, the depositary may require:
·
payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any common shares or other deposited securities;
·
satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
·
compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.
The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.
The right of holders of ADSs to receive the common shares underlying their ADRs
Holders of ADSs have the right to surrender their ADSs and withdraw the underlying common shares at any time except:
When temporary delays arise because:  (i) the depositary has closed its transfer books or we have closed our transfer books; (ii) the transfer of common shares is blocked to permit voting at a shareholders’ meeting; or (iii) we are paying a dividend on our common shares.
When holder of ADSs seeking to withdraw common shares owe money to pay fees, taxes and similar charges.
When it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADRs or to the withdrawal of common shares or other deposited securities.
This right of withdrawal may not be limited by any other provision of the deposit agreement.

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Pre-release of ADSs
The deposit agreement permits the depositary to deliver ADSs before deposit of the underlying common shares.  This is called a Pre-Release of the ADSs.  The depositary may also deliver common shares upon the receipt and cancellation of pre-released ADSs (even if the ADSs are surrendered before the Pre-Release transaction has been terminated).  A Pre-Release is terminated as soon as the underlying common shares are delivered to the Depositary.  The depositary may receive ADSs instead of common shares to satisfy a Pre-Release.  The depositary may pre-release ADSs only under the following conditions:  (a) before or at the time of the pre-release, the person to whom the pre-release is being made represents to the depositary in writing that it or its customer (i) owns the common shares or ADSs to be deposited; (ii) transfers all beneficial right, title and interest in such common shares or ADSs, as the case may be, to the Depositary in its capacity as such and for the benefit of the Beneficial Owners, and (iii) will not take any action with respect to such common shares or ADSs, as the case may be, that is inconsistent with the transfer of ownership (including, without the consent of the Depositary, disposing of common shares or ADSs, as the case may be, other than in satisfaction of such Pre-Release); (b) the pre-release is fully collateralized with cash or other collateral that the depositary considers appropriate; (c) the depositary must be able to terminate the pre-release on not more than five business days’ notice and (d) Pre-Release is subject to such further indemnities and credit regulations as the Depositary deems appropriate.  In addition, the depositary will limit the number of ADSs that may be outstanding at any time as a result of Pre-Release, although the depositary may disregard the limit from time to time, if it thinks it is appropriate to do so.
Direct Registration System
In the deposit agreement, all parties to the deposit agreement acknowledge that the DRS and Profile Modification System, or Profile, will apply to uncertificated ADSs upon acceptance thereof to DRS by DTC.  DRS is the system administered by DTC pursuant to which the depositary may register the ownership of uncertificated ADSs, which ownership shall be evidenced by periodic statements sent by the depositary to the registered holders of uncertificated ADSs.  Profile is a required feature of DRS which allows a DTC participant, claiming to act on behalf of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS registered holder to register that transfer.
In connection with and in accordance with the arrangements and procedures relating to DRS/Profile, the parties to the deposit agreement understand that the depositary will not verify, determine or otherwise ascertain that the DTC participant, which is claiming to be acting on behalf of an ADS registered holder in requesting registration of transfer and delivery described in the paragraph above, has the actual authority to act on behalf of the ADS registered holder (notwithstanding any requirements under the Uniform Commercial Code).  In the deposit agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/Profile System and in accordance with the deposit agreement, shall not constitute negligence or bad faith on the part of the depositary.
Shareholder communications and inspection of register of holders of ADSs
The holders of ADSs are holders of deposited securities.  As such, the depositary will make available for inspection by the holders of ADSs at its office all communications that it receives from us that we make generally available to holders of deposited securities.  The depositary will send holders of ADSs copies of those communications if we ask it to.  Holders of ADSs have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.
Amendment and termination
We may agree with the depositary to amend the deposit agreement and the ADRs without the consent of holders of ADSs for any reason.  If an amendment adds or increases fees or charges, except for taxes and other governmental charges or expenses of the depositary for registration fees, facsimile costs, delivery charges or similar items, or prejudices a substantial right of ADR holders, it will not become effective for outstanding ADRs until 30 days after the depositary notifies ADR holders of the amendment.  At the time an amendment becomes effective, the holders of ADSs are considered, by continuing to hold their ADR, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended.

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The depositary will terminate the deposit agreement if we ask it to do so.  The depositary may also terminate the deposit agreement if the depositary has told us that it would like to resign and we have not appointed a new depositary bank within 60 days.  In either case, the depositary must notify the holder of ADSs at least 30 days before termination.
After termination, the depositary and its agents will do the following under the deposit agreement but nothing else:  (a) advise the holders of ADSs that the deposit agreement is terminated, (b) collect distributions on the deposited securities, (c) sell rights and other property, and (d) deliver common shares and other deposited securities upon surrenders of ADRs.  One year after termination, the depositary may sell any remaining deposited securities by public or private sale.  After that, the depositary will hold the money it received on the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADR holders that have not surrendered their ADRs.  It will not invest the money and has no liability for interest.  The depositary’s only obligations will be to account for the money and other cash.  After termination our only obligations will be to indemnify the depositary and to pay fees and expenses of the depositary that we agreed to pay.
Fees, expenses and payment of taxes
See Item 12. Description of Securities other than Equity Securities.
DOCUMENTS ON DISPLAY
The materials included in this annual report on Form 20-F, and exhibits thereto, may be inspected and copied at the Securities and Exchange Commission’s public reference room in Washington, D.C. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. The Securities and Exchange Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports and information statements and other information regarding us. The reports and information statements and other information about us can be downloaded from the Securities and Exchange Commission’s website.
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
Market risk generally represents the risk that losses may occur in the value of financial instruments as a result of movements in interest rates, foreign currency exchange rates or commodity prices.  We are exposed to changes in financial market conditions in the normal course of our business due to our use of certain financial instruments as well as transactions incurred in various foreign currencies.
As of December 31, 2009, we have no material exposure to interest rate risk because only approximately 15.1% of our outstanding financial debt bears interest at variable rates.  In addition, we have no material exposure to commodity price risk because our commodities represent less than 1.7% of our operating expenses.
Foreign currency risk

We seek to hedge our exposure to exchange rate risk by maintaining cash and deposits in U.S. Dollars, and our cash and deposits in U.S. Dollars amounted to approximately U.S. $44.0million at December 31, 2009 (as compared to U.S.$27.8 million at December 31, 2008).  In addition, at December 31, 2009, approximately 6% of our operating expenses was denominated in U.S. Dollars (as compared to 3% of our operating expenses at December 31, 2008).  These costs are principally related to supplies, computer services, insurance and communications.

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As of December 31, 2009, the potential loss to us that would result from a hypothetical 10% change in foreign currency exchange rates, after giving effect to the impact of the change on our asset and liabilities denominated in foreign currency as of December 31, 2009, would be approximately Ps. 54.9 million (as compared to approximately U.S.$84.6 million as of December 31, 2008), this decrease in the potential loss is primarily due the repurchases of our outstanding financial debt  during 2009..  The effect of such change on our financial expenses is difficult to quantify given the adjustment mechanisms of the CMM and the integral tariff revision relating to our costs, both of which would be triggered indirectly by an increase in foreign currency exchange rates.  The terms of our notes issued in the context of our debt restructuring allow us to suspend all principal and interest payments on these notes for 12 months in the event of a 20% or greater devaluation of the Peso in any consecutive 12-month period.
In 2008, in order to hedge against the risk of fluctuations in the Dollar-Peso exchange rate, we entered into several derivative financial instruments (EMTA basis), in order to cover interest payments on the Senior Notes due 2017 and Fixed Par Rate Notes due 2016 for the years 2008 and 2009.  These derivative financial instruments were terminated in December, 2009, and we have not entered into any new derivative instruments.
During the year ended December 31, 2009, the Company has entered into forward and futures contracts with the aim of using them as economic instruments in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.

As of December 31, 2009, the Company has entered into contracts with Standard Bank Argentina S.A. and Banco Finansur S.A., the main features of which are as follow:

Entity
Contracted amount
in thousands of US$
Average rate
of exchange
Transaction
date
Settlement
date
Book value as of
December 31, 2009
Assets (in thousands
of Ps.)
Banco Finansur
9,000 4.1645
07/27/2009
04/30/2010
(1,81 )
Banco Finansur
1,000 4.2420
07/27/2009
06/30/2010
(202 )
Standard Bank
12,000 4.4475
09/30/2009
12/31/2010
(1,338 )
Banco Finansur
33,000 4.2400
09/30/2009
10/31/2010
(1,532 )
Standard Bank
10,000 4.4475
10/01/2009
12/31/2010
(1,115 )
65,000 (6,001 )

We may use derivative instruments as an economic hedge to adjust our exposures or to reduce our costs of financing. Our hedging practices will be guided by the level of risk, expectations as to interest or exchange rate movements and the costs of using derivative instruments. We may enter into new derivative instruments or modify our practices at any time.
Item 12.
Description of Securities Other than Equity Securities
Persons depositing common shares or holders of ADRs will be required to pay certain fees and expenses, as described in the table below, which the depositary is entitled to deduct prior to making any cash dividend or other cash distribution on the deposited shares.
Persons depositing common shares or ADS holders must pay :
For :
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
· Issuance of ADSs, including issuances resulting from a distribution of common shares or rights or other property
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Persons depositing common shares or ADS holders must pay :
For :
· Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates
$0.02 (or less) per ADS
· Any cash distribution to the holder of the ADSs
$0.02 (or less) per ADS per year
· Depositary services
A fee equivalent to the fee that would be payable if securities distributed to the holder of ADSs had been common shares and the shares had been deposited for issuance of ADSs
· Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders
Registration or transfer fees
· Transfer and registration of common shares on our common share register to or from the name of the depositary or its agent when the holder of ADSs deposits or withdraw common shares.
Expenses of the depositary in converting foreign currency to U.S. Dollars
Expenses of the depositary
· Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement)
Taxes and other governmental charges the depositary or the custodian have to pay on any ADSs or common share underlying ADSs, for example, stock transfer taxes, stamp duty or withholding taxes
Any charges incurred by the depositary or its agents for servicing the deposited securities
· No charges of this type are currently made in the Argentine market
Reimbursement of fees
The Bank of New York Mellon, as depositary, reimbursed us for certain expenses relating to our initial public offering and establishment of our ADR program in 2007.  Aside from that initial payment, we do not receive any reimbursement from the depositary for expenses we incur that related to the maintenance of the ADS program.
The depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them.  The depositary collects fees related to making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees.  The depositary may collect its annual fee for depositary services by deduction from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them.  The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.

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Payment of taxes
The depositary may deduct the amount of any taxes owed from any payments to the holder of ADSs.  It may also sell deposited securities, by public or private sale, to pay any taxes owed.  The holder of ADSs will remain liable if the proceeds of the sale are not enough to pay the taxes.  If the depositary sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to the holder of ADSs any proceeds, or send to the holder of ADSs any property, remaining after it has paid the taxes.
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
The economic crisis in Argentina had a material adverse effect on our operations.  The devaluation of the Argentine Peso caused the Peso value of our U.S. Dollar-denominated indebtedness to increase significantly, resulting in significant foreign exchange losses and a significant increase, in Peso terms, in our debt service requirements.  At the same time, our cash flow remained Peso-denominated and our distribution margins were frozen and pesified by the Argentine government pursuant to the Public Emergency Law.  Moreover, the economic crisis in Argentina had a significant adverse effect on the overall level of economic activity in Argentina and led to deterioration in the ability of our customers to pay their bills.  These developments caused us to announce on September 15, 2002 the suspension of principal payments on our debt.  On September 26, 2005, our board of directors decided to suspend interest payments on our debt until the restructuring of this debt was completed.
On January 20, 2006, we launched a voluntary exchange offer and consent solicitation to the holders of our outstanding financial debt.  All of these holders elected to participate in the restructuring and, as a result, on April 24, 2006, we exchanged all of our then-outstanding financial debt for three series of newly-issued notes, which we refer to as the restructuring notes.  For a description of our outstanding debt following the restructuring see “Item 5.—Liquidity and Capital Resources—Debt.”
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
Use of Proceeds
On April 30, 2007, we completed an initial public offering.  We received U.S. $57.7 million in net proceeds from the offering.  We did not receive any proceeds from the sale of our shares and ADSs by our selling shareholders in the offering.  We used all of the net proceeds we received from the offering to repurchase a part of our outstanding Fixed Rate Par Notes due 2016 and Discount Notes due 2014 in various market repurchase transactions during 2007 and to make capital expenditures.
Item 15.
Controls and Procedures
(a)  Disclosure Controls and Procedures
We have evaluated, with the participation of our chief executive officer and chief financial officer, the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2009.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that as of December 31, 2009, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
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(b)  Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The company’s internal control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on our assessment and those criteria, management believes that the company maintained effective internal control over financial reporting as of December 31, 2009. The effectiveness of the Company´s internal control over financial reporting as of December 31, 2009 has been audited by Price Waterhouse & Co.S.R.L., an independent public accounting firm, as stated in their Report which appears here in.
(c)  Attestation Report of the Registered Public Accounting Firm
Reference is made to the report of the Price Waterhouse & Co. S.R.L.on page F-2 of this annual report.
(d)  Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16A.
Audit Committee Financial Expert
Our board of directors has determined that Eduardo Llanos, an independent member of our board of directors, under Argentine law and Rule 10A-3, is an “audit committee financial expert” as defined in Item 16A of Form 20F under the Securities and Exchange Act of 1934.  See “Item 6. Directors, Senior Management and Employees – Directors and Senior Management – Audit Committee.”

127
Item 16B.
Code of Ethics
Our company adopted a code of ethics in 2003, which applies to all of our employees, including our principal executive, financial and accounting officers.  In 2009 we reviewed and updated our code of ethics, and we expect to post a copy of our revised code of ethics, in both English and Spanish, on our website at http://www.edenor.com.ar , as soon as practicable.
Item 16C.
Principal Accountant Fees and Services
Price Waterhouse & Co. S.R.L. (member firm of PricewaterhouseCoopers ) acted as our independent registered public accounting for the fiscal years ended December 31, 2009 and 2008.  The chart below sets forth the fees for services performed by Price Waterhouse & Co. S.R.L. related to fiscal year 2009 and 2008 (including related expenses), and breaks down these amounts by category of service in pesos:
Year ended December 31,
2009 (1)
2008 (2)
Audit fees
Ps.
1,439,164
Ps.
732,328
Audit-related fees
122,500 24,000
Total
Ps.
1,561,664
Ps.
756,328
(1) Includes the amount in fees billed in U.S. dollars, which, for the convenience of the reader, have been converted into Pesos at the buying rate for U.S. Dollars quoted by Banco Nación on December 31, 2009 of Ps. 3.80 to U.S. $1.00.
(2) Includes the amount in fees billed in U.S. dollars, which, for the convenience of the reader, have been converted into Pesos at the buying rate for U.S. Dollars quoted by Banco Nación on December 31, 2008 of Ps. 3.453 to U.S. $1.00.
All of our audit fees, and audit-related fees, contained in the above table were billed by Price Waterhouse & Co. S.R.L., independent registered public accounting firms.
Audit-related fees in the above table are the aggregate fees for services provided in connection with various corporate transactions and, such as review of corporate filings and certifications Audit Committee Pre-Approval Policies and Procedures.
We have adopted pre-approval policies and procedures under which all audit and non-audit services provided by our external auditors must be pre-approved by the audit committee as set forth in our internal policies. Any service proposals submitted by external auditors need to be discussed and approved by the audit committee during its meetings, which take place at least four times a year. Once the proposed service is approved, we formalize the engagement of services. The approval of any audit and non-audit services to be provided by our external auditors is specified in the minutes of our audit committee. In addition, the members of our board of directors are briefed on matters discussed by the different committees of our board.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
In 2009 the Company did not purchased any owns equities securities.
Item 16F.
Change in Registrant’s Certifying Accountant
Not applicable.
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Item 16G.
Corporate Governance
Pursuant to Rule 303A.11 of the Listed Company Manual of the New York Stock Exchange (NYSE), we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards.  Our corporate governance practices are governed by our bylaws, Argentine corporate and securities law (including the Business Companies Law, Decree N°677/01) and the regulations issued by the Argentine National Securities Commission ( Comisión Nacional de Valores ).
NYSE Listed Company Manual Section 303.A
Edenor’s Corporate Practices
S ec t i on 303 A . 0 1 Listed companies must have a majority of independent directors.
Edenor follows Argentine law, which does not require that a majority of the board of directors be comprised of independent directors.  Argentine law instead requires that public companies in Argentina have a sufficient number of independent directors to be able to form an audit committee of at least three members, the majority of which must be independent pursuant to the criteria established by the CNV.  As of today, four of Edenor’s twelve directors were independent under Argentine law and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
S ec t i on 303 A . 0 2 To qualify as “independent,” directors must meet the independence tests specified by the NYSE.
In defining the “independence” of directors, CNV standards (General Resolution No. 400) are substantially similar to NYSE standards.  In order to meet the CNV definition of independence, independence is required with respect to the Company itself and to its shareholders with direct or indirect material holdings (35% or more). To qualify as an independent director, a director must not perform executive functions within the company.  Close relatives of any persons who would not qualify as “independent directors” shall also not be considered “independent.”
The board evaluates the independence of each director appointed to the audit committee.
S ec t i on 303 A . 0 3 Non-management directors must meet at regularly scheduled executive meetings not attended by management.
Neither Argentine law nor Edenor’s bylaws require that any such meetings be held.
Edenor’s board of directors as a whole is responsible for monitoring the company’s affairs. Under Argentine law, the board of directors may approve the delegation of specific responsibilities to designated directors or non-director managers of the Company.  Also, it is mandatory for public companies to form a supervisory committee ( C o m i s i ón F isc a l i z ad o r a ), which is responsible for monitoring legal compliance by the Company under Argentine law and compliance with its by- laws and shareholders’ resolutions. The supervisory committee, without prejudice to the role of external auditors, is also required to present to the shareholders at the annual ordinary general meeting a written report on the reasonableness of the financial information of the Company’s annual report and the financial statements presented to the shareholders by Edenor’s board of directors. The supervisory committee also presents a report to the board of directors on Edenor’s quarterly financial statements. The members of the supervisory committee are not directors of the company.
129
S ec t i on 303 A . 0 4 Listed companies shall have a nominating/ corporate governance committee composed entirely of independent directors.
Neither Argentine law nor Edenor’s bylaws require the formation of a nominating committee nor a corporate governance committee.
The board of directors is permitted to and often does nominate board member candidates for consideration by the shareholders, who elect the board of directors.
The entire board of directors is charged with overseeing Edenor’s corporate governance practices.
S ec t i on 303 A . 0 5 Listed companies shall have a “compensation committee” comprised entirely of independent directors.
Neither Argentine law nor Edenor’s bylaws require the formation of a “compensation committee” and Edenor has no such committee.
Shareholders at the annual ordinary general meeting determine the fee paid to members of the board of directors.
The CEO of Edenor sets the salary of the other members of the senior management. The board of directors determines the salary of the CEO.
S ec t i on 303 A . 0 6 Listed companies must have an “audit committee” that satisfies the requirements of Rule 10A-3 under the Exchange Act.  Foreign private issuers must satisfy the requirements of Rule 10A-3 under the Exchange Act as of July 31, 2005.
Edenor is subject to and in compliance with §303A.06 and Rule 10A-3.  Edenor’s audit committee consists entirely of independent members of Edenor’s board of directors.
S ec t i on 303 A . 0 7 The audit committee must comply with a number of criteria including requirements related to the qualifications of its members, the duties and responsibilities of its members, and internal and external audits.
F.    As a foreign private issuer, Edenor is not subject to §303A.07.  As such, Edenor’s audit committee charter may not provide for every one of the specific duties required by §303A.07.
The duties of the audit committee include monitoring Edenor’s internal control, administrative and accounting systems; supervising the application of Edenor’s risk management policies; providing the market adequate information regarding conflicts of interests that may arise between Edenor’s company and Edenor’s directors or controlling shareholders; rendering opinions on transactions with related parties; and supervising and reporting to regulatory authorities the existence of any kind of conflict of interest.
130
Under Argentine law, there is no requirement related to the financial expertise of the members of the audit committee.  However, the members of Edenor’s audit committee have extensive corporate and financial experience. At least one member of the audit committee has sufficient expertise as an external auditor to be recognized by the board of directors of Edenor as an “audit committee financial expert” as defined in Item 16A of Form 20F. In accordance with Edenor’s internal policies, Edenor’s audit committee must pre-approve all audit and non-audit services provided by external auditors.
S ec t i on 303 A . 0 8 Shareholders must be given the opportunity to vote on all equity-compensation plans.
Edenor does not have any equity compensation plans and therefore does not have in place procedures for shareholder approval of such plans.
S ec t i on 303 A . 0 9 Listed companies must adopt and disclose corporate governance guidelines, including several issues for which such reporting is mandatory, and include such information on the company’s website, which should also include the charters of the audit committee, the nominating committee and the compensation committee.
Furthermore, the board of directors must make a self-assessment of its performance at least once a year to determine if it and its committees function effectively and report thereon.
Decree No. 677/01 (the “Transparency Decree”) requires Edenor to provide governance-related information in the annual reports to the CNV, including information relating to the decision- making organization (corporate governance), the company’s internal control system, norms for director and management compensation, stock- options, and any other compensation system applying to board members and managers.  All relevant information sent by the Company to the CNV is forwarded to the CNV through the CNV’s electronic financial reporting database and may be viewed by the public on the website of CNV.
Edenor’s Annual Report, financial statements and press releases may also be viewed on the Company’s Web site (www.edenor.com.ar).  Under Argentine law, the board’s performance is evaluated at the annual Shareholders’ Meeting.
S ec t i on 303 A . 1 0 Companies must adopt a Code of Business Conduct and Ethics.
Under Argentine law there is no requirement that companies adopt a code of conduct.  Nonetheless, our company adopted a code of ethics in 2003, which applies to all of our employees, including our principal executive, financial and accounting officers. Following the recent initial public offering of our company’s shares and ADSs, in 2009 we reviewed and updated  our code of ethics.
S ec t i on 303 A . 1 2 ( a ) The CEO shall on a yearly basis certify to NYSE that he/she knows of no violation by the company of NYSE rules relating to corporate governance.
No similar obligation exists under Argentine legislation.  However, in accordance with Argentine law the directors of a company must annually submit for its shareholders’ approval such company’s annual report and financial statements at such company’s annual shareholders’ meeting. Also, Edenor discloses material events in regulatory filings both with the CNV in Argentina and with the SEC on form 6K in the United States (as “materiality” is understood in each of thoserespective jurisdictions). Under applicable rules of the NYSE, Edenor is required to disclose to the NYSE certain changes in its audit committee, including any change that affects the committee’s independence.
131
S ec t i on 303 A . 1 2 ( b ) The CEO shall promptly notify the NYSE in writing after any executive officer of the company becomes aware of any material non-compliance with any applicable provisions of Section 303A of the Listed Company Manual.
Edenor is subject to and complies with §303A.12(b), to the extent that it relates to the sections of the NYSE Listed Company Manual that apply to foreign private issuers.
PART III
Item 17.
Financial Statements
The Registrant has responded to Item 18 in lieu of this Item.
Item 18.
Financial Statements
Reference is made to pages F-1 to F-86 of this annual report.
Item 19.
Exhibits
Documents filed as exhibits to this annual report:
1.1
E statutos sociales (corporate bylaws) of Edenor, S.A. (English translation) (previously filed as Exhibit 3.1 to Edenor’s Registration Statement on Form F-1 (File No. 333-141894) on April 4, 2007 and incorporated by reference herein.)
2.1
Form of Deposit Agreement among Edenor, S.A., The Bank of New York, as depositary, and the Holders from time to time of American Depositary Shares issued thereunder, including the form of American Depositary Receipts (previously filed as Exhibit 4.1 to Edenor’s Amendment No. 2 to Registration Statement on Form F-1 (File No. 333-141894) on April 20, 2007 and incorporated by reference herein.)
2.2
Indenture dated April 24, 2006, between Empresa Distribuidora y Comercializadora Norte S.A., as Issuer, and The Bank of New York, as Trustee, Co-Registrar and Paying Agent, and Banco Santander Río S.A., as Registrar, Transfer and Paying Agent in Argentina and Representative of the Trustee in Argentina (previously filed as Exhibit 2.2 to Edenor’s Annual Report on Form 20-F (File No. 001-33422) on June 26, 2008 and incorporated by reference herein).
2.3
Indenture dated October 9, 2007, between Empresa Distribuidora y Comercializadora Norte S.A., as Issuer, and The Bank of New York, as Trustee, Co-Registrar and Paying Agent, and Banco Santander Río S.A., as Registrar, Transfer and Paying Agent in Argentina and Representative of the Trustee in Argentina (previously filed as Exhibit 2.3 to Edenor’s Annual Report on Form 20-F (File No. 001-33422) on June 26, 2008 and incorporated by reference herein).
2.4
Registration Rights Agreement, dated October 9, 2007, between Edenor, S.A. and Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. as Representatives of the Initial Purchasers (previously filed as Exhibit 2.4 to Edenor’s Annual Report on Form 20-F (File No. 001-33422) on June 26, 2008 and incorporated by reference herein).
12.1
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
132
12.2
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

133
Index to financial statements
Audited Financial Statements
Page
Report of Independent Registered Public Accounting Firm Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers, for the year ended December 31, 2008 and 2009
F-2
Report of Independent Registered Public Accounting Firm Deloitte & Co. S.R.L., member firm of Deloitte & Touche Tohmatsu, for the years ended December 31, 2007
F-3
Balance Sheets as of December 31, 2009 and 2008
F-4
Statements of Income for the years ended December 31, 2009, 2008 and 2007
F-5
Statements of Changes in Shareholders’ Equity for the years ended December 31, 2009, 2008 and 2007
F-6
Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007
F-7
Notes to the Financial Statements
F-8

F-1

INDEPENDENT AUDITORS’ REPORT
Price Waterhouse & Co. S.R.L.
Firma miembro de PricewaterhouseCoopers
Bouchard 557, piso 7°
C1106ABG - Ciudad de Buenos Aires
Tel.: (54-11) 4850-0000
Fax: (54-11) 4850-1800
www.pwc.com/ar
Report of Independent Registered Public Accounting Firm

To the Shareholders, President and Directors of
Empresa Distribuidora y Comercializadora Norte
Sociedad Anónima (Edenor S.A.)
In our opinion, the accompanying balance sheet and the related statements of income, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Edenor S.A. at December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in Argentina. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 15 to the Form 20-F. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Accounting principles generally accepted in Argentina vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 27 to the financial statements.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Autonomous City of Buenos Aires, June 7, 2010.

PRICE WATERHOUSE & CO. S.R.L.
/s/ Daniel A López Lado
Daniel A López Lado (Partner)
F-2
DELOITTE LOGO

Deloitte & Co. S.R.L.
Florida 234, Piso 5°
C1005AAF
Ciudad Autónoma
de Buenos Aires
Argentina
Tel: (54-11) 4320-2700
Fax: (54-11) 4325-8081
www.deloitte.com

Report of Independent Registered Public Accounting Firm
TO THE BOARD OF DIRECTORS OF EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A.:
We have audited the statements of income and cash flows for the year ended December 31, 2007 of EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (an Argentine Corporation) (the “Company”). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2007 of EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. in accordance with accounting principles generally accepted in Buenos Aires City, Argentina.
As described in Note 17 b), on January 8, 2007, Decree No. 1957/06, which was signed by the President of Argentina on December 28, 2006, was published in the Official Gazette. Pursuant to such Decree, the Federal Government ratified the Adjustment Agreement for the renegotiation of the concession agreement signed by the Company. Additionally, on February 5, 2007 the Official Gazette published ENRE Resolution No. 51/2007 which approves the Company’s new electricity rate schedule that was effective for electricity consumption beginning as from February 1, 2007. Revenues from the retroactive tariff increase deriving from the implementation of the new electricity rate schedule applicable to non-residential consumption for the period of November 1, 2005 through January 31, 2007 amounting to thousands of Argentine pesos 218.591, have been fully recognized in the financial statements for the year ended December 31, 2007. Additionally, as described in Notes 11 and 17 a), as per Resolution N° 1037/2007 of the National Energy Secretariat, the Company recorded as revenue thousands of Argentine pesos 49.646 corresponding to the Cost Monitoring Mechanism (MMC) for the period May 2006 through April 2007.

Accounting principles generally accepted in Buenos Aires City, Argentina vary in certain significant respects from accounting principles generally accepted in the United States of America (US GAAP). A description of the significant differences between such principles and those accounting principles generally accepted in the United States of America and the effect of those differences on the determination of the results of operations for the year ended December 31, 2007, and the additional disclosures required under US GAAP, are set forth in Note 27 to the accompanying financial statements.

Buenos Aires City, Argentina
June 25, 2008
Deloitte & Co. S.R.L.


/s/ Daniel Horacio Recanatini
Daniel Horacio Recanatini (Partner)



Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its Member Firms.
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EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008

(stated in thousands of pesos)

2009
2008
CURRENT ASSETS
Cash and banks
8,685 6,061
Investments (Note 26 Exhibit D)
219,687 121,019
Trade receivables (Note 4)
389,236 400,491
Other receivables (Note 5)
61,098 42,801
Supplies
14,854 16,705
Total Current Assets
693,560 587,077
NON-CURRENT ASSETS
Trade receivables (Note 4)
87,047 111,370
Other receivables (Note 5)
88,756 99,472
Investments in other companies (Note 26 Exhibit C)
408 397
Investments (Note 26 Exhibit D)
0 67,212
Supplies
18,584 12,844
Property, plant and equipment (Note 26 Exhibit A)
3,482,386 3,256,258
Total Non-Current Assets
3,677,181 3,547,553
Total Assets
4,370,741 4,134,630
CURRENT LIABILITIES
Trade accounts payable (Note 6)
347,782 339,261
Loans (Note 7)
82,988 27,245
Salaries and social security taxes (Note 8)
118,377 94,787
Taxes (Note 9)
140,301 111,021
Other liabilities (Note 10)
8,012 10,514
Accrued litigation (Note 26 Exhibit E)
62,813 52,756
Total Current Liabilities
760,273 635,584
NON-CURRENT LIABILITIES
Trade accounts payable (Note 6)
46,854 40,154
Loans (Note 7)
707,499 913,148
Salaries and social security taxes (Note 8)
43,673 40,090
Taxes (Note 9)
9,374 0
Other liabilities (Note 10)
610,775 369,010
Accrued litigation (Note 26 Exhibit E)
10,084 45,078
Total Non-Current Liabilities
1,428,259 1,407,480
Total Liabilities
2,188,532 2,043,064
SHAREHOLDERS' EQUITY (as per related statements)
2,182,209 2,091,566
Total Liabilities and Shareholders' Equity
4,370,741 4,134,630

The accompanying notes 1 through 27 are an integral part of these financial statements.

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EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(stated in thousands of pesos)
2009
2008
2007
Net sales (Note 11)
2,077,860 2,000,198 1,981,928
Electric power purchases
(1,003,362 ) (934,660 ) (889,885 )
Gross margin
1,074,498 1,065,538 1,092,043
Transmission and distribution expenses (Nota 26 Exhibit H)
(548,583 ) (497,870 ) (417,553 )
Selling expenses (Nota 26 Exhibit H)
(158,956 ) (126,016 ) (120,633 )
Administrative expenses (Nota 26 Exhibit H)
(176,567 ) (138,737 ) (124,656 )
Subtotal
190,392 302,915 429,201
Other Income (Expense), net (Note 12)
23,290 (29,825 ) 996
Financial income (expense) and holding gains (losses)
Generated by assets
Exchange difference
21,402 8,139 (855 )
Interest
16,204 9,772 13,426
Holding results (Note 22)
37,589 (7,300 ) 135
Generated by liabilities
Financial expenses (*)
(11,713 ) (9,964 ) (21,042 )
Exchange difference
(99,096 ) (92,707 ) (29,938 )
Interest
(87,739 ) (95,273 ) (74,508 )
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other receivables (Notes 13)
3,413 13,454 (29,618 )
Adjustment to present value of notes (Note 3.j)
(5,243 ) (8,457 ) (21,495 )
Gain (loss) from the purchase and redemption of notes (Note 14)
73,523 84,555 (10,228 )
Adjustment to present value of purchased and redeemed notes (Nota 3.j y 14)
7,932 8,980 (8,632 )
Ordinary income before taxes
169,954 184,289 247,442
Income tax (Note 3.m)
(79,311 ) (61,174 ) (124,984 )
Net ordinary income for the year
90,643 123,115 122,458
Earnings per common share
0.101 0.137 0.135

(*) The breakdown of financial expenses is as follows:

2009
2008
2007
Fees related to the Corporate Notes Issuance Program (Note 14)
0 0 (7,403 )
Financial assistance Electricidad Argentina S.A. (Note 15)
(9,306 ) (7,943 ) (6,219 )
Withholding income tax and other financial expense
(2,407 ) (2,021 ) (7,420 )
Total
(11,713 ) (9,964 ) (21,042 )

The accompanying notes 1 through 27 are an integral part of these financial statements.

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EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

(stated in thousands of pesos)
Shareholders’ contributions
Retained earnings
Nominal
Value
Adjustment to
Additional
Nominal
Value
Treasury Stock
Adjustment
to Capital
Treasury Stock
Appropriated
Retained
Earnings
Unappropriated
(Accumulated
Deficit) Retained
(Note 16.a)
Capital
Paid-in Capital
Note 1
Note 1
Total
Legal Reserve
Earnings
Total
Balance as of December 31, 2006
831,610 996,489 - - - 1,828,099 53,320 (211,069 ) 1,670,350
Capital increase resolved by the Board of Directors ’ meeting held on June 14, 2007, as per the powers granted by the Shareholders ’ Meeting of June 7, 2006
74,845 - 106,928 - - 181,773 - - 181,773
Net income for the year
- - - - - - - 122,458 122,458
Balance as of December 31, 2007
906,455 996,489 106,928 - - 2,009,872 53,320 (88,611 ) 1,974,581
Absorption of accumulated deficit resolved by the Shareholders ’ Meeting held on April 15, 2008
- - (88,611 ) - - (88,611 ) - 88,611 -
Acquisition of treasury shares
(9,412 ) (10,347 ) - 9,412 10,347 - - (6,130 ) (6,130 )
Net income for the year
- - - - - - - 123,115 123,115
Balance as of December 31, 2008
897,043 986,142 18,317 9,412 10,347 1,921,261 53,320 116,985 2,091,566
Absorption resolved by the General Annual Meeting held on March 31, 2009 (Note 16.d)
6,156 (6,156 ) -
Net income for the year
- - - - - - - 90,643 90,643
Balance as of December 31, 2009
897,043 986,142 18,317 9,412 10,347 1,921,261 59,476 201,472 2,182,209

The accompanying notes 1 through 27 are an integral part of these financial statements.

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EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(stated in thousands of pesos)
2009
2008
2007
Cash flows from operating activities
Net income for the year
90.643 123.115 122.458
Adjustments to reconcile net income (loss) to net cash flows provided
by operating activities
Depreciation of property, plant and equipment (Note 26 Exhibit A)
175.419 170.263 174.357
Retirement of property, plant and equipment (Note 26 Exhibit A)
2.763 1.910 1.105
Gain from investments in related company SACME S.A. (Note 26 Exhibit C)
(11 ) (7 ) (12 )
Loss (gain) from investments
26.379 (4.310 ) (8.467 )
Gain (loss) from the purchase and redemption of notes (Note 14)
(73.523 ) (84.555 ) 10.228
Adjustment to present value of purchased and redeemed notes (Nota 3.j y 14)
(7.932 ) (8.980 ) 8.632
Adjustment to present value of notes (Note 3.j)
5.243 8.457 21.495
Exchange difference and interest on loans
178.586 232.743 69.541
Recovery of the accrual for tax contingencies (Note 26 Exhibit E)
(35.553 ) 0 0
Income tax (Note 3.m)
79.311 61.174 124.984
Allowance for doubtful accounts (Note 26 Exhibit E)
13.547 17.107 14.383
Recovery of allowance for doubtful accounts (Note 26 Exhibit E)
(26.956 ) (24.016 ) 0
Allowance for other doubtful accounts (Note 26 Exhibit E)
3.335 1.673 600
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other receivables (Note 13)
(3.413 ) (13.454 ) 29.618
Changes in assets and liabilities:
Net decrease (increase) in trade receivables
48.070 (49.454 ) (223.117 )
Net decrease (increase) in other receivables
5.342 (33.350 ) (8.385 )
(Increase) decrease in supplies
(3.889 ) 7.384 (18.377 )
Increase in trade accounts payable
15.221 27.797 52.728
Increase in salaries and social security taxes
27.173 50.279 12.865
(Decrease) increase in taxes
(56.915 ) 26.380 22.449
Increase in other liabilities
239.118 78.077 17.748
Net increase in accrued litigation
10.616 15.123 16.191
Financial interest paid (net of interest capitalized) (Notes 3.g and 18.b)
(76.827 ) (62.685 ) (25.484 )
Financial and commercial interest collected (Note 18.b)
32.230 6.872 11.642
Net cash flows provided by operating activities
667.977 547.543 427.182
Cash flows from investing activities
Additions of property, plant and equipment (1)
(404.165 ) (325.380 ) (336.851 )
Net cash flows used in investing activities
(404.165 ) (325.380 ) (336.851 )
Cash flows from financing activities
Decrease (increase) in current and non current investments
13.614 (67.893 ) 0
Adquisition of treasury shares (Note 1)
0 (6.130 ) 0
Net decrease in loans
(175.453 ) (122.939 ) (203.579 )
Capital increase
0 0 181.773
Net cash flows used in financing activities
(161.839 ) (196.962 ) (21.806 )
Net increase in Cash and Cash Equivalents
101.973 25.201 68.525
Cash and Cash Equivalents at the beginning of year
126.399 101.198 32.673
Cash and Cash Equivalents at the end of year
228.372 126.399 101.198
(1)
Net of 145 and 8,276 Software lease agreement (Note 3.g) as of December 31, 2009 and 2008, respectively and 2,066 Capital investments fund - CAMMESA (Note 17.b) as of December 31, 2008.
The accompanying notes 1 through 27 are an integral part of these financial statements.
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EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A.
(EDENOR S.A.)

NOTES TO THE FINANCIAL STATEMENTS

(amounts stated in thousands of Argentine pesos except as otherwise indicated )

1.
ORGANIZATION AND START UP OF THE COMPANY

In compliance with Law No. 24,065 and in agreement with the reform process of the Argentine Federal Government and the privatization program of Argentine state-owned companies, the entire business of generation, transportation, distribution and sale of electric power carried out by Servicios Eléctricos del Gran Buenos Aires S.A. (SEGBA) was declared to be subject to privatization; the operation was divided into seven business units: three for the distribution and four for the generation of electric power.

On May 14, 1992, the Ministry of Economy and Public Works and Utilities, by Resolution No. 591/92, approved the Bidding Terms and Conditions (Bid Package) of the International Public Bidding for the sale of the Class "A" shares, representing 51% of the capital stock of Empresa Distribuidora Norte S.A. (hereinafter, “EDENOR” or “the Company”) and Empresa Distribuidora Sur S.A. (EDESUR S.A.), two of the three electric power distribution companies into which SEGBA had been divided.

EDF International (EDF S.A.), Empresa Nacional Hidroeléctrica del Ribagorzana, S.A. (ENHER), Astra Compañía Argentina de Petróleo S.A. (ASTRA), Socièté D'Amenagement Urbain et Rural (SAUR), Empresa Nacional de Electricidad S.A. (ENDESA) and J.P. Morgan International Capital Corporation formed Electricidad Argentina S.A. (EASA) to bid for the Class "A" shares of EDENOR, a company organized on July 21, 1992 by Decree No. 714/92 of the Federal Government.

EASA was awarded the Class “A” shares of EDENOR based on a bid of US$ 427,973,000 (equivalent to the same amount in Argentine pesos as of such date). The corresponding contract for the transfer of 51% of EDENOR’s capital stock was executed on August 6, 1992.  The award as well as the transfer contract were approved on August 24, 1992 by Decree No. 1,507/92 of the Federal Government. Finally, on September 1, 1992, EASA took over the operations of EDENOR.

In accordance with the provisions of Decree No. 282/93 of the Federal Government, dated February 22, 1993, the recorded values of assets, liabilities and net capital arising from the transfer of SEGBA, were determined on the basis of the price actually paid for 51% of EDENOR’s capital stock (represented by the totality of Class “A” shares). This price was also used as the basis to determine the value of the remaining 49% of the capital stock. In order to determine the value of the assets transferred from SEGBA, the amount of liabilities assumed was added to the value of the total capital stock of 831,610, determined as indicated above. Management estimates that the amounts of the assets transferred from SEGBA represented their fair values as of the date of the privatization.

The corporate purpose of EDENOR is to engage in the distribution and sale of electricity within the concession area. Furthermore, the Company may subscribe or acquire shares of other electricity distribution companies, subject to the approval of the regulatory agency, lease the network to provide electricity transmission or other voice, data and image transmission services, and render advisory, training, maintenance, consulting, and management services and know-how related to the distribution of electricity both in Argentina and abroad. These activities may be conducted directly by EDENOR or through subsidiaries or related companies. In addition, the Company may act as trustee of trusts created under Argentine laws, including extending secured credit facilities to service vendors and suppliers acting in the distribution and sale of electricity, who have been granted guarantees by reciprocal guarantee companies owned by the Company.

On June 12, 1996, the Extraordinary Shareholders’ Meeting approved the change of the Company’s name to Empresa Distribuidora y Comercializadora Norte S.A. (EDENOR S.A.) so that the new name would reflect the description of the Company’s core business. The amendment to the Company’s by-laws as a consequence of the change of name was approved by the National Regulatory Authority for the Distribution of Electricity (ENRE - Ente Nacional Regulador de la Electricidad) , through Resolution No. 417/97 and  registered with the Public Registry of Commerce on August 7, 1997.

On May 4 and June 29, 2001, EDF International S.A. (a wholly-owned subsidiary of EDF) acquired all the shares of EASA and EDENOR held by ENDESA Internacional, YPF S.A. (surviving company of ASTRA) and SAUR. Therefore, the direct and indirect interest of EDF International S.A. (EDFI) in EDENOR increased to 90%.

F-8
On June 29, 2005, the Board of Directors of EDF approved a draft agreement with Dolphin Energía S.A. (Dolphin) pursuant to which it would assign 65% of EDENOR’s capital stock (held by EDFI) through the transfer of all Class “A” common shares held by EASA and 14% of the Class “B” common shares. In this manner, EDFI would retain a 25% interest in EDENOR. The remaining 10% would be kept by the employees according to the Employee Stock Ownership Program (ESOP). The closing of the agreement took place upon its approval by the corresponding French and Argentine governmental authorities.

On September 15, 2005, by virtue of the stock purchase-sale agreement entered into by EDFI and Dolphin and Dolphin’s subsequent partial assignments of its interest in EASA and EDENOR to IEASA S.A. (IEASA) and New Equity Ventures LLC (NEV), the formal take over by Dolphin took place, together with the change in the Company’s indirect control through the acquisition of 100% of the capital stock of EASA, which is the controlling company of EDENOR, by Dolphin (90%) and IEASA (10%). Furthermore, as a result of the aforementioned agreement, the ownership of the Company’s Class “B” common shares (representing 39% of its capital stock) changed with 14% of the Company’s capital stock now being held by NEV and the remaining 25% being kept by EDFI.

On April 28, 2006, the Company’s Board of Directors decided to initiate the public offering of part of the Company’s capital stock in local and international markets, including, but not limited to the trading of its shares in the Buenos Aires Stock Exchange (BCBA) and the New York Stock Exchange (NYSE), United States of America.

On June 7, 2006, the Ordinary and Extraordinary Shareholders’ Meeting resolved to increase capital stock up to ten percent (10%), request authorization for the public offering from both the National Securities Commission (CNV) and the Securities and Exchange Commission (SEC) of the United States of America, as well as authorization to trade from both the Buenos Aires Stock Exchange and the New York Stock Exchange, entrusting the Board of Directors with the task of taking the necessary steps to implement such resolutions.

Additionally, it was decided that an American Depositary Receipts (ADRs) program, represented by American Depositary Shares (ADSs) would be created and that it would be the responsibility of the Board of Directors to determine the terms and conditions and the scope of the program.

On June 14, 2007, the Board of Directors approved the final report on Edenor’s capital increase and public offering process. As a result of the above-mentioned process, the Company’s Class B shares and American Depositary Shares (“ADSs”), representing Class B shares, are traded on the Buenos Aires Stock Exchange and the New York Stock Exchange, respectively. The final capital increase, as resolved by the above-mentioned Board of Directors, amounted to nine percent (9%) which is represented by 74,844,900 (seventy-four million eight hundred forty-four thousand nine hundred) new shares subscribed at the international primary offering, fully placed as 3,742,245 ADS. It was also reported that a secondary international offering was made on this date of 207,902,540 Class B shares.

The aforementioned issuance was carried out at a price of 2.62 per share. Taking into account that the nominal value of each share is 1.00, an additional paid-in capital, amounting to 121,249, was recorded.

For the year ended December 31, 2007, expenses incurred by the Company in relation to this process amounted to 14,321, which have been offset against the aforementioned additional paid-in capital, in accordance with the provisions of section No. 202 of the Argentine Business Organizations Law No. 19,550. The resulting balance of the additional paid-in capital, net of expenses, which amounted to 106,928, was partially used to absorb the accumulated deficit on April 15, 2008.

The Class “B” shareholders NEV and EDFI informed the Company that at the secondary international offering they sold 49,401,480 and 179,049,520 Class “B” shares, respectively. Additionally, on May 1, 2007, the shareholders NEV and EDFI informed that they had sold 57,706,040 Class “B” shares at the secondary international offering when the international underwriters fully exercised the over-allotment option (green shoe) contemplated in the prospectus for the public offering and section 2 of the underwriting agreement.

With regard to the Company’s Class “C” shares held by the Employee Stock Ownership Program (ESOP), on April 29, 2007 the ESOP was partially cancelled in advance in conformity with a procedure set forth by the Federal Government, and on April 30, 2007, an amount of 81,208,416 shares, which had been converted into Class “B” shares on April 27, 2007, was sold at the domestic secondary offering. As of the date of issuance of these financial statements, an amount of 1,952,604 Class “C” shares, representing 0.22% of the Company’s capital stock, remains outstanding.

F-9

Furthermore, Dolphin and IEASA contributed 38,170,909 Class “B” shares of the Company that had been transferred to them by NEV to EASA, which is the controlling company. On April 27, 2007, the contributed shares were converted into Class “A” shares to ensure that EASA continues to hold 51% of all the Class “A” shares outstanding. On April 30, 2007, the Company requested that Caja de Valores S.A. register the new Class “A” shares and extend thereto the regulatory pledge in favor of the Argentine Government, in compliance with the Bidding Terms and Conditions of the International Public Bidding, the provisions of the Concession Agreement of Edenor S.A., and the terms of the related pledge agreements signed on August 31, 1992 and July 14, 1994 which, in accordance with their second clause, EASA was required to extend the first-priority preferred security interest  to any Class “A” Shares of the Company that EASA would acquire on a date subsequent to those of said Agreements.

Moreover, section 19 of the Adjustment Agreement entered into by the Company and the Argentine Government, which was ratified by Decree No. 1957/2006, stipulates that the pledge on the Company’s shares in favor of the Argentine Government granted as security for the performance of the Concession Agreement will be extended to include the performance of the obligations assumed by the Company in this Adjustment Agreement.

The Company was notified that on June 22, 2007, the shareholders of Dolphin Energía S.A. and IEASA S.A. (that own 100% of the stock of Electricidad Argentina S.A., the controlling company of Edenor S.A.) and Pampa Energía S.A. entered into a memorandum of understanding whereby it was agreed that the totality of the capital stock of Dolphin Energía S.A. and IEASA S.A. would be exchanged for common shares of Pampa Energía S.A.

Furthermore, the Company received a notice from EASA whereby it was informed that the exchange for shares described in the preceding paragraph had formally been agreed upon on September 28, 2007 under a Stock Subscription Agreement entered into by Pampa Energía S.A., Marcos Marcelo Mindlin, Damián Miguel Mindlin, Gustavo Mariani, Latin American Energy LLC, New Equity Ventures LLC and Deutsche Bank AG, London Branch. Moreover, on such date, Pampa Energía S.A. acquired 100% of the capital stock of Dolphin Energía S.A. and IEASA S.A, which together own 100% of the capital stock of EASA.

On October 23, 2008, the Company’s Board of Directors decided to launch a public offering for the acquisition of the Company’s own shares pursuant to both the terms of Section 29, Chapter XXVII, Book 9 of the National Securities Commission’s regulations and the provisions of Section 68 of Law No. 17,811 (as amended by Decree No. 677/2001).
The shares acquired by virtue of the aforementioned provisions shall be sold by the Company within a maximum period of three years as from acquisition date, unless such period is extended by the Ordinary Shareholders’ Meeting.

On October 27, 2008, the Company requested authorization for the above-mentioned public offering from the National Securities Commission (CNV).

Furthermore, on October 29, 2008, the Company’s Board of Directors modified the basic terms and conditions of the aforementioned offering.

On October 30, 2008, the National Securities Commission (CNV) approved the above-mentioned public offering for the acquisition of the Company’s own shares. Furthermore, the Company’s Board of Directors fixed the purchase price of the shares to be acquired within the framework of the offering in the amount of pesos 0.65.

The main terms and conditions for the acquisition of the Company’s own shares in the framework of the offering have been the following:

-
Maximum amount to invest: up to pesos 45,000,000
-
Maximum number of shares included in the offering: up to 65,000,000 common, Class B and/or C shares, representing approximately 7.17% of the Company’s capital stock, with a nominal value of 1 peso each and the right to one vote per share
-
Source of the funds: the acquisition of shares will be made with realized and liquid profits resulting from the financial statements for the six-month period ended June 30, 2008 and approved by the Company’s Board of Directors on August 7, 2008. Additionally, it is stated that the Company is liquid and has the necessary economic resources to guarantee full satisfaction of the offering.
-
Scope of the offering: it was exclusively carried out in Argentina.

On November 14, 2008, the Company’s Board of Directors decided to continue with the acquisition process of the Company’s own shares through market transactions in accordance with the terms of section 68 of Law No. 17,811 (as amended by Decree No. 677/2001) and the CNV’s Regulations. This decision was taken firstly because the reasons that motivated the acquisition process through the public offering mechanism previously described continue to exist, and secondly because such mechanism would provide the Company with more flexibility to determine the purchase price of its own shares in a context of high volatility in the market value of shares in general.
Based on the foregoing, the Company’s Board of Directors approved the following basic terms and conditions:

F-10
-
Maximum amount to invest: up to pesos 45,000,000
-
Maximum number of Class B shares to be acquired: the number of common Class B shares, with a nominal value of 1 peso each and the right to one vote per share, equivalent to the maximum amount to invest, which may not exceed at any time, the maximum limit of treasury stock which the Company may own, in accordance with applicable regulations.
-
Daily limit for market transactions: up to 25% of the average daily transaction volume in the markets where the shares are listed, for the preceding 90-day period, in accordance with applicable regulations.
-
Price to be paid for the shares: between a minimum of 0.50 and a maximum of 0.80 peso per share.
-
Acquisition period: 120 calendar days to commence from the working day following the date of publication of the information in the Daily Bulletin of the Buenos Aires Stock Exchange, which took place on November 17, 2008. Such period may be reduced, renewed or extended. Investors will be informed of any such reduction, renewal or extension through the above-mentioned bulletin.
-
Source of the funds: the acquisition of shares will be made with realized and liquid profits resulting from the financial statements for the nine-month period ended September 30, 2008 and approved by the Company’s Board of Directors on November 5, 2008. Additionally, it is stated that the Company is liquid so as to make the aforementioned acquisitions without affecting its creditworthiness.

As of December 31, 2008 the Company acquired, through both acquisition processes, a total of 9,412,500 class B shares with a nominal value of 1 peso each at an acquisition cost of 6,130

On March 17, 2009, the 120-calendar-day period stipulated in the terms and conditions for the repurchase of treasury shares, that had commenced on November 18, 2008, came to an end.

As of December 31, 2009 and 2008, the Company’s capital stock, represented by 906,455,100 shares is comprised of the following (Note 16.a):

Holder
Number of shares
Class
% held
EASA (1)
462,292,111
“A”
51.00
Market in general (2)
442,210,356
“B”
48.78
Banco Nación (3)
1,952,604
“C”
0.22
New Equity Ventures LLC
19
“B”
0
EDF Internacional S.A.
10
“B”
0

(1) The shares are pledged in favor of the Argentine Government as evidenced by the certificate issued by Caja de Valores.
(2) Includes 9,412,500 treasury shares as of December 31, 2009 and 2008.
(3) Trustee of the Employee Stock Ownership Program.

On July 19, 2006, EASA carried out a restructuring of the totality of its financial debt. If EASA did not comply with its payment obligations under the new debt, its creditors could obtain an attachment order against the Company’s Class A shares held by them, and, consequently, the Argentine Government would be entitled, as stipulated in the concession agreement, to foreclose on the pledged shares, with an adverse effect on the results of its operations.

2.
BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

Financial statements presentation

These financial statements have been prepared in accordance with accounting principles generally accepted in the City of Buenos Aires, Argentina (hereinafter “Argentine GAAP”) and the criteria established by the National Securities Commission (CNV), taking into account that which is mentioned in the following paragraphs.

The amounts of these financial statements are stated in thousands of Argentine pesos.

As from January 1, 2003 and as required by General Resolution No. 434/03 of the CNV, the Company reports the results of its operations, determines the values of its assets and liabilities and determines its profit and loss in conformity with the provisions of Technical Resolutions (TR) Nos. 8, 9 and 16 through 18 (amended text June 2003). As from January 1, 2004, the Company has applied the provisions of TR No. 21 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE) as approved by the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires (CPCECABA), with specific few exceptions and clarifications introduced by General Resolution No. 459/04 of the CNV.

F-11
The CNV through its General Resolutions Nos. 485/05 and 487/06 decided to implement certain changes in the Argentine GAAP effective for fiscal years or interim periods beginning as from January 1, 2006, by requiring the application of TR Nos. 6, 8, 9, 11, 14, 16, 17, 18, 21, 22 and 23 and Interpretations 1, 2, 3, and 4, of the FACPCE with the amendments introduced by such Federation through April 1, 2005 (Resolution No. 312/05) and adopted by the CPCECABA (Resolution CD No. 93/05) with certain amendments and clarifications.

Among the aforementioned changes the following can be noted: i) the comparison between the values of certain assets and their recoverable values, using discounted cash-flows; ii) the consideration of the difference between the accounting and tax values resulting from the adjustment for inflation included in non-monetary assets, as a temporary difference, allowing the Company to either recognize a deferred tax liability or to disclose the effect of such accounting change in a note to the financial statements and (iii) the capitalization of interest cost on certain assets (only those assets that require an extended period of time to be produced or acquired would qualify) during the term of their construction and until they are in condition to be used.

With regard to the impact of the application of the change mentioned in the preceding paragraph under (i) on the Company’s property, plant and equipment, said change does not have a significant impact on the Company’s financial position or net income for the year ended December 31, 2009, given that the fair value (defined as the discounted value of net cash flows arising from both the use of the assets and their final disposal) exceeds their recorded value (Note 3.g).

With regard to item (ii), the Company has decided to disclose said effect in a note to the financial statements. Had the Company chosen to recognize the effect of the adjustment for inflation of its property, plant and equipment as a temporary difference, as of December 31, 2009 a deferred tax liability of approximately 383,241 and a credit to net income for the year, under the income tax account, amounting to 26,980, would have been recorded (Note 3.m).

Additionally, had the Company elected to recognize a deferred tax liability, in subsequent years, the Company would have recorded an income tax expense that would have been lower than the income tax expense that will be recorded as a result of maintaining the criterion applied up to the moment, whose distribution in subsequent years has been estimated as follows:

Year
Effect on deferred tax result
Nominal value
2010
25,011
2011
24,084
2012 – 2016
106,866
2017 – 2021
88,058
Remainder
139,222
Total
383,241

Furthermore, on March 20 and June 12, 2009, the FACPCE approved TR Nos. 26 and 27 "Adoption of the International Financial Reporting Standards (IFRSs) of the International Accounting Standards Board (IASB)” and “Changes to TR Nos. 6, 8, 9, 11, 14, 16, 17, 18, 21, 22, 23 and 24” respectively, which will be in effect for fiscal years beginning as from January 1, 2011. Additionally, the aforementioned TR have been approved by the Board of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires through Resolution No. 52/2009.

Furthermore, on December 29, 2009, the CNV issued Resolution No. 562, according to which those entities that make a public offering of their capital stock or corporate notes pursuant to Law No. 17,811, or have requested authorization for their being included in such public offering regime would be required to comply with the provisions of TR No. 26. The application of such regulations will be mandatory for the Company as from the fiscal year beginning January 1, 2012.

On April 27, 2010, the Company’s Board of Directors approved the specific implementation plan required by General Resolution No. 562 of the National Securities Commission. Such approval was informed as a relevant fact on April 28, 2010.

Consideration of the effects of inflation

The financial statements fully reflect the effects of the changes in the purchasing power of the currency through August 31, 1995. As from such date, and in accordance with Argentine GAAP and the requirements of control authorities, the restatement of the financial statements to reflect the effects of inflation was discontinued until December 31, 2001. As from January 1, 2002, and in accordance with Argentine GAAP, it was established that inflation adjustment be reinstated and that the accounting basis restated as a result of the change in the purchasing power of the currency through August 31, 1995, as well as transactions with original date as from such date through December 31, 2001, be considered as restated as of the latter date. The financial statements have been restated to reflect the effects of inflation based on the variations of the Domestic Wholesale Price Index.

F-12
On March 25, 2003, the Federal Government issued Decree No. 664 establishing that financial statements for fiscal years ending as from such date had to be prepared in nominal currency. Consequently, and in accordance with Resolution No. 441 of the CNV, the Company discontinued the restatement of its financial statements as from March 1, 2003. This criterion does not agree with Argentine GAAP which establish that financial statements were to be restated through September 30, 2003. The Company has estimated that the effect of not having restated the financial statements through September 30, 2003 is not significant on the financial statements.

3.
VALUATION CRITERIA

The main valuation criteria used in the preparation of these financial statements are as follow:

a)
Cash and banks:

-
In local currency: at nominal value.
-
In foreign currency: at the exchange rate in effect as of the end of each year. The corresponding detail is disclosed in Note 26 Exhibit G.

b)
Current investments:

-
Time deposits, which include the portion of interest income accrued through the end of each year.
-
Money market funds, which have been valued at the prevailing market price as of the end of each year.
-
Corporate notes, which have been valued at the prevailing market price as of the end of each year.

c)
Trade receivables:

-
Services rendered and billed but not collected, and services rendered but unbilled as of the end of each year, at nominal value, except for those indicated in the following paragraphs;
-
Services rendered but unbilled as of the end of each year, arising from the retroactive increase deriving from the application of the electricity rate schedule resulting from the RTT (Note 17.b) have been valued on the basis of the best estimate of the amount to be collected, discounted at a 10.5% annual nominal rate, which, in accordance with the Company’s criterion, reasonably reflected market assessments of the time value of money and risks specific to the receivable at the time of their initial measurement.
-
The amounts owed by the Government of the Province of Buenos Aires under the Framework Agreement (Note 13) have been valued as of December 31, 2009 on the basis of the best estimate of the amount to be collected, discounted at a 19.62% annual nominal rate, which, in accordance with the Company’s criterion, reasonably reflected market assessments of the time value of money and risks specific to the receivable at the time of their initial measurement.

The amounts thus determined:

1.
are net of an allowance for doubtful accounts, as described in more detail in paragraph h) of this Note.
2.
consider the effects of that which is stated in Note 13.

d)
Other receivables and liabilities (excluding loans):

-
In local currency: at nominal value.
-
In foreign currency: at the exchange rate in effect as of the end of each year (Note 26 Exhibit G).

Other receivables and liabilities have been valued as indicated above including, if any, interest income or expense accrued as of the end of each year. The values thus obtained do not differ significantly from those that would have been obtained if the Argentine GAAP had been applied, inasmuch as they establish that other receivables and liabilities must be valued on the basis of the best estimate amount to be collected and paid, respectively, discounted at a rate that reflects the time value of money and the risks specific to the transaction estimated at the time of their being recorded in assets and liabilities, respectively.

Liabilities, excluding loans, have been valued at nominal value including, if any, interest expense accrued as of the end of each year. The values thus obtained do not differ significantly from those that would have been obtained if the Argentine GAAP had been applied, inasmuch as they establish that they must be valued at their estimated cash price at the time of the transaction, plus interest and implicit financing components accrued on the basis of the internal rate of return determined at such opportunity.

F-13
e)
Supplies:

Supplies were valued at acquisition cost restated to reflect the effects of inflation as indicated in Note 2. The consumption of supplies has been valued based on the average cost method.

The Company has classified supplies into current and non-current depending on whether they will be used for maintenance or capital expenditures.

The carrying value of supplies, taken as a whole, does not exceed their recoverable value as of the end of each year .

f)
Non-current investments:

-
50% interest held in the related company SACME S.A. (a company organized by means of equal contributions by distribution companies EDENOR S.A. and EDESUR S.A. in accordance with the Bid Package). SACME S.A. is in charge of monitoring the electric power supplied to the aforementioned distributors.  As of December 31, 2009 and 2008, the investment in SACME has been recorded at its equity value (Note 26 Exhibit C).

In order to determine the equity value, the audited financial statements of SACME S.A. as of December 31, 2009 and 2008 have been used. The accounting principles used by SACME are similar to those applied by EDENOR for the preparation of its financial statements.

-
Corporate Notes of Central Térmica Güemes: As of December 31, 2008, the aforementioned corporate notes have been valued at their acquisition value plus interest income accrued translated into pesos at the rate of exchange in effect as of year-end.
As of December 31, 2008, interest income accrued was disclosed in current investments and amounted to 393 (Note 26 Exhibit D).

During the period ended March 31, 2009, the Company sold the aforementioned corporate notes, which resulted in a loss of 4,679 that has been included in the Financial income (expense) and Holding gains (losses) generated by assets account of the Statement of Income under Holding results.

-
Municipal Financial Restructuring Bonds ( Municipal Bonds ) issued pursuant to Law No. 11,752 of the Province of Buenos Aires: As of December 31, 2008, they were valued at their acquisition value, including the inflation-linked CER (“benchmark stabilization coefficient”) adjustment and interest accrued at an annual rate of 4%.
On December 29, 2009, the Company sold the aforementioned Municipal Bonds. This transaction resulted in a loss of 1,756 that has been included in the Financial income (expense) and Holding gains (losses) generated by assets account of the Statement of Income under Holding results.

-
Discretionary trust: As of December 31, 2008, its value has been based upon the market price of the securities kept by the trustee translated into pesos at the rate of exchange in effect as of year-end.
On September 3, 2009, the discretionary trust was dissolved and the trust property was liquidated and transferred to the Company (Note 22).

g)
Property, plant and equipment:

Property, plant and equipment transferred by SEGBA on September 1, 1992 were valued as of the privatization date as described below, and restated to reflect the effects of inflation as indicated in Note 2. The total value of the assets transferred from SEGBA was allocated to individual assets accounts on the basis of engineering studies conducted by the Company.

The total value of property, plant and equipment has been determined based on the US$ 427 million price actually paid by EASA for the acquisition of 51% of the Company’s capital stock at acquisition date.  Such price was used to value the entire capital stock of EDENOR at 832 million pesos, which, when added to the fair value of the debts assumed by the Company under the SEGBA Privatization Bid Package for 139.2 million pesos less the fair value of certain assets received from SEGBA for 103.2 million, valued property plant and equipment at 868 million pesos.
F-14
SEGBA neither prepared separate financial statements nor maintained financial information or records with respect to its distribution operations or the operations in which the assets transferred to EDENOR were used. Accordingly, it was not possible to determine the historical cost of transferred assets.
Additions subsequent to such date have been valued at acquisition cost restated to reflect the effects of inflation as indicated in Note 2, net of the related accumulated depreciation. Depreciation has been calculated by applying the straight-line method over the estimated useful life of the assets which was determined on the basis of the above-mentioned engineering studies. Furthermore, in order to improve the disclosure of the account, the Company has made certain changes in the classification of property, plant and equipment based on each technical process.

In accordance with the provisions of TR No. 17, financial costs in relation to any given asset may be capitalized when such asset is in the process of production, construction, assembly or completion, and such processes, due to their nature, take long periods of time; those processes are not interrupted; the period of production, construction, assembly or completion does not exceed the technically required period;  the necessary activities to put the asset in a condition to be used or sold are not substantially complete; and the asset is not in condition so as to be used in the production or start up of other assets, depending on the purpose pursued with its production, construction, assembly or completion. The Company capitalized financial costs on property, plant and equipment from 1997 to 2001, from 2006 through 2008 and during the year ended December 31, 2009. Financial costs capitalized for the years ended December 31, 2009 and 2008 amounted to 24,966 and 31,477, respectively.

During the years ended December 31, 2009 and 2008, direct and indirect costs capitalized amounted to 49,566 and 41,464 respectively.

Furthermore, on May 19, 2008 the Company entered into a software lease agreement, which, in accordance with the provisions of section 4.1 of Technical Resolution No. 18 of the Professional Council in Economic Sciences of the Autonomous City of Buenos Aires, has been considered as a Finance Lease. Additionally, on November 27, 2008 the aforementioned agreement was amended so as to extend its scope.
Common characteristics of these lease contracts are that they transfer substantially all the risks and rewards incident to the ownership of the leased asset, whose ownership title may be transferred or not. In consideration thereof, the Company (lessee) agrees to make one or more payments that cover the current value of the asset and the corresponding financial charges.
For this concept, the Company has recorded 11,849 and 10,103 in the Property, plant and equipment account (Note 26 Exhibit A), and 3,744 and 8,276 in Other Liabilities under Other (Note 10) as of December 31, 2009 and 2008, respectively, and 1,088 and 589 in the Statement of Income under Financial interest as of December 31, 2009 and 2008, respectively.

The recorded value of property, plant and equipment, taken as a whole, does not exceed their recoverable value as of the end of each year.

h)
Allowances (Note 26 Exhibit E):

Allowance for doubtful accounts: it has been recorded to adjust the valuation of trade receivables and other receivables up to their estimated recoverable value. The amount of the allowance has been determined based on the historical series of collections for services billed through the end of each year and collections subsequent thereto.

Additionally, for purposes of calculating the amount of the allowance, the Company has considered a detailed analysis of accounts receivable in litigation.

The evolution and balances of allowances have been disclosed in Note 26 Exhibit E.

i)
Accrued litigation:

Amounts have been accrued for several contingencies.

1)
The Company is a party to certain lawsuits and administrative proceedings in several courts and government agencies, including certain tax contingencies arising from the ordinary course of business.  The Argentine tax authority (“AFIP”) had challenged certain income tax deductions related to allowances for doubtful accounts made by the Company on its income tax returns for fiscal years 1996, 1997 and 1998, and had assessed additional taxes for approximately 9,300. Tax related contingencies were subject to interest charges and, in some cases, to fines. For these concepts, the Company had recorded an accrual for 29,521. This matter was on appeal to the Federal Tax Court and the Federal Appellate Court in Administrative Matters. During the appeal process, payment of such claim had been suspended.
F-15
On April 27, 2009, the Company adhered to the tax regularization plan established in Law No. 26,476. The main features of the aforementioned moratorium are as follow:
- Waiver of fines and penalties on which no final judgment has been issued at the time of adherence to the regularization plan;
- Waiver of late payment/default and penalty interest in the amount exceeding 30 % of the principal owed;
- An initial payment equal to 6% of the debt existing at the time of adherence to the regularization plan;
- The remaining balance payable in 120 monthly installments with a 0.75% monthly interest rate.
- 30% to 50% reduction in tax agents and AFIP attorneys’ fees.
In accordance with the assessment of the tax regularization plan, the Company’s debt amounted to 12,122. During the year ended December 31, 2009, the Company paid for this concept an amount of 1,487, thus the remaining balance of the Company’s debt totals 10,635 (Note 9).

2)
The Company is also a party to civil and labor lawsuits in the ordinary course of business.
At the end of each year, management evaluates these contingencies and records an accrual for related potential losses when: (i) payment thereof is probable, and (ii) the amount can be reasonably estimated.  The Company estimates that any loss in excess of amounts accrued in relation to the above matters will not have a material adverse effect on the Company’s result of operations or its financial position.

The evolution and balances of the accrued litigation account have been disclosed in Note 26 Exhibit E.

j)
Loans:

As of December 31, 2009 and 2008, the notes issued in United States dollars (Note 14) have been valued on the basis of the best estimate of the amount to be paid, discounted at a 10.5% annual nominal rate, which, in accordance with the Company’s criterion, reasonably reflects market assessments of the time value of money and specific debt risks.

The adjustment to present value of future cash flows of the notes, at the market rate in effect at the time of the initial measurement, generated losses of 5,243 and 8,457 as of December 31, 2009 and 2008, respectively.

During the years ended December 31, 2009, 2008 and 2007, the Company purchased at market prices and in successive operations all “discount notes” and part of the “fixed rate par notes” due in 2016 and 2017, for nominal values of US$ 86,038 thousand, US$ 50,033 thousand and US$ 283,726 thousand, respectively (Note 14).

As of December 31, 2009, the principal outstanding balance of the notes amounts to 746,906 (Notes 7 and 14).

The rest of the financial debts have been valued at nominal value plus interest expense accrued as of the end of each year. The values thus obtained do not differ significantly from those that would have been obtained if the Argentine GAAP had been applied, inasmuch as they establish that financial debts must be valued in accordance with the amount of money delivered and received, respectively, net of the transaction costs, plus financial results accrued on the basis of the internal rate of return estimated at the time of their initial recognition.

“Derivative financial instruments” (Note 23) have been valued in accordance with the provisions of section 2 of Technical Resolution No. 18 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE), which require that all derivative financial instruments be recognized as either assets or liabilities at their fair value, regardless of whether they are designated as hedging instruments or not.
Furthermore, the changes in the accounting basis of financial instruments have been recognized by the Company in the Financial income (expense) and holding gains (losses) generated by liabilities account of the Statement of Income under Exchange difference with a contra-account in Current Liabilities – Loans under Derivative financial instruments and under Interest as of December 31, 2009 and 2008, respectively (Note 7).

k)
Shareholders' equity accounts:

These accounts have been restated to reflect the effects of inflation as indicated in Note 2, except for the "Shareholders’ Contributions - Nominal value" and “Additional Paid-in Capital” accounts which have been maintained at their nominal value. The excess of the adjusted value of Capital Stock over its nominal value has been included in the “Shareholders’ Contributions – Adjustment to Capital” account.

F-16

The Treasury Stock account represents the nominal value of the Company’s own shares acquired by the Company (Note 1)

l)
Statement of income accounts:

-
The accounts that accumulate monetary transactions have been disclosed at their nominal values.
-
Financial income (expense) and holding gains (losses) have been disclosed separately under income (expense) generated by assets and by liabilities.
-
The adjustment to present value of the notes is stated at nominal value.
-
The adjustment to present value of trade receivables related to the application of the retroactive tariff increase agreed upon in the Adjustment Agreement and the Framework Agreement is stated at nominal value.

m)
Income tax and tax on minimum presumed income:

The Argentine GAAP require the application of the deferred tax method to account for income tax. This method consists of recognizing deferred tax assets and liabilities when temporary differences arise from the valuation of assets and liabilities for accounting and tax purposes. Regarding the restatement of property, plant and equipment to reflect the effects of inflation, the Company has applied Resolution MD (the Board) No. 11/03 of the CPCECABA and General Resolution No. 487/06 of the CNV (Note 2 – Basis of presentation of the financial statements).

The reconciliation between the income tax as charged to the statement of income for the years ended December 31, 2009, 2008 and 2007, and the amount that would result from applying the tax rate in effect (35%) to the income before taxes for each year, is as follows:

2009
2008
2007
Income for the year before taxes
169,954 184,289 247,442
Applicable tax rate
35 % 35 % 35 %
Income for the year at the applicable tax rate
59,484 64,501 86,605
Permanent differences
Adjustment for inflation of property, plant and equipment
26,980 30,404 31,300
Accruals and other
(7,153 ) (33,731 ) 4,858
Total income tax charge for the year before allowance for impairment of value of deferred tax assets
79,311 61,174 122,763
Increase in allowance for impairment of value of deferred tax assets
0 0 2,221
Total income tax charge for the year
79,311 61,174 124,984
Adjustment of Income Tax Return
1,636 0 0
Variation between deferred assets (liabilities) charged to income
14,623 38,571 (124,984 )
Income tax for the year
95,570 99,745 0

Allowance for impairment of value of deferred tax assets
Balance at beginning of year
0 34,482 32,261
Use of the allowance
0 (34,482 ) 0
Increase in  the allowance for impairment of value of deferred tax assets
0 0 2,221
Balance at end of year
0 0 34,482
F-17

Additionally, the breakdown of deferred tax assets and liabilities as of December 31, 2009, 2008 and 2007 is as follows:

2009
2008
2007
Non-current deferred tax assets
Tax-loss carry forward
4,293 8,316 42,798
Accruals
127,033 74,823 45,926
Other
14,058 15,577 23,322
145,384 98,716 112,046

2009
2008
2007
Non-current deferred tax liabilities
Property, plant and equipment and other
(58,309 ) (17,948 ) (35,367 )
Net deferred tax assets before allowance for impairment of value of deffered tax assets
87,075 80,768 76,679
Allowance for impairment of value of deffered tax assets
0 0 (34,482 )
Net deffered tax assets
87,075 80,768 42,197
2009
2008
2007
Net deferred tax assets - Initial balance
80,768 42,197 167,181
Use of tax loss carryforward
(8,316 ) 0 0
Variation between deferred assets (liabilities) charged to income
14,623 38,571 (124,984 )
Net deferred tax assets - Ending balance
87,075 80,768 42,197

Additionally, as of December 31, 2008, the Company had tax credits on minimum presumed income for payments made in prior years. This tax is complementary to the income tax. The Company’s tax obligation for a given year will be equal to the higher of these taxes. However, should the tax on minimum presumed income exceed income tax in any given fiscal year, such excess will be eligible for credit against a partial payment of any excess of the income tax over the tax on minimum presumed income that may arise in any of the ten subsequent fiscal years.

As of December 31, 2009, no minimum presumed income tax charge has been recorded due to the fact that it is lower than the charge of the income tax accrual.

n)
Operating leases

As lessee, EDENOR has lease contracts (buildings) which classify as operating leases.

Common characteristics of these lease contracts are that lease payments (installments) are established as fixed amounts; there are neither purchase option clauses nor renewal term clauses (except for the Handling and Energy Transformation Center contract that has an automatic renewal clause for the term thereof); and there are prohibitions such as: transferring or sub-leasing the building, changing its use and/or making any kind of modifications thereto. All operating lease contracts have cancelable terms and lease periods of two to thirteen years.

Buildings are for commercial offices, two warehouses, the headquarters building (comprised of administration, commercial and technical offices), the Handling and Energy Transformation Center (two buildings and a plot of land located within the perimeter of Central Nuevo Puerto and Puerto Nuevo) and Las Heras substation.

As of December 31, 2009, 2008 and 2007, future minimum lease payments with respect to operating leases are as follow:

2009
2008
2007
2008
0 0 2,052
2009
0 6,031 179
2010
8,400 5,934 147
2011
2,645 2,275 147
2012
336 259 147
2013
209 203 147
2014
147 147 0
2015
147 0 0
Total future minimum lease payments
11,884 14,849 2,819
F-18

Total rental expenses for all operating leases for the years ended December 31, 2009, 2008 and 2007 are as follow:

2009
2008
2007
Total lease expenses
8,478 5,013 2,405

As lessor, Edenor has entered into several operating lease contracts with certain cable television companies granting them the right to use the poles of the Company’s network. Most of such lease contracts include automatic renewal clauses.

As of December 31, 2009, 2008 and 2007, future minimum lease collections with respect to operating leases are as follow:

2009
2008
2007
2008
0 0 9,680
2009
0 10,303 7,577
2010
12,831 1,490 14
2011
12,294 0 9
2012
2,167 0 9
2013
75 0 0
2014
18 0 0
2015
0 0 0
Total future minimum lease collections
27,385 11,793 17,289

Total rental income for all operating leases for the years ended December 31, 2009, 2008 and 2007, is as follows:

2009
2008
2007
Total lease income (Note 11)
13,582 10,463 10,745

o)
Labor cost liabilities and early retirements payable:

They include the following charges:
-
for supplementary benefits of leaves of absence derived from accumulated vacation,
-
for seniority-based bonus to be granted to employees with a specified number of years of employment, as stipulated in collective bargaining agreements in effect. As of December 31, 2009 and 2008, the accrual for such bonuses amounted to 9,064 and 8,001, respectively (Note 8), and
-
for other personnel benefits (pension plan) to be granted to employees upon retirement, as stipulated in collective bargaining agreements in effect. As of December 31, 2009 and 2008, the accrual for these benefits amounted to 24,820 and 18,048, respectively (Note 8).

Liabilities related to the above-mentioned seniority-based bonus and other personnel benefits (pension plans) to be granted to employees, have been determined taking into account all rights accrued by the beneficiaries of both plans as of December 31, 2009 and 2008, respectively, on the basis of actuarial studies conducted by an independent actuary as of December 31, 2009 and 2008. Such liabilities have been disclosed under the “Salaries and social security taxes” account as seniority-based bonus and other personnel benefits, respectively (Note 8).

Early retirements payable corresponds to individual optional agreements. After employees reach a specific age, the Company may offer them this option. The related accrued liability represents future payment obligations which as of December 31, 2009 and 2008 amount to 6,185 and 6,815 (current) and 9,789 and 14,041 (non-current), respectively (Note 8).

The periodical components of the personnel benefits plan for the years ended December 31, 2009, 2008 and 2007, which are disclosed in Other income (expense), net under Voluntary retirements – bonuses (Note 12), are as follow:

2009
2008
2007
Cost
1,608 1,488 1,125
Interest
4,843 4,441 2,874
Amortization of  recognized net actuarial loss
1,314 779 760
7,765 6,708 4,759
F-19

The detail of the variations in the Company’s payment commitments under the personnel benefits plan as of December 31, 2009, 2008 and 2007 is as follows:

2009
2008
2007
Payment commitments under the personnel benefits plan at the beginning of the year
26,623 19,083 15,352
Cost
1,608 1,488 1,125
Interest
4,843 4,441 2,874
Actuarial loss
(886 ) 3,638 761
Benefits paid to participating employees
(993 ) (2,027 ) (1,029 )
Payment commitments under the personnel benefits plan at the end of the year
31,195 26,623 19,083
Payment commitments under the personnel benefits plan at the end of the year
31,195 26,623 19,083
Unrecognized net actuarial loss
(6,375 ) (8,575 ) (5,716 )
Total personnel benefits plan   (Note 8)
24,820 18,048 13,367

Actuarial assumptions used were the following:

2009
2008
2007
Discount rate
25 % 18 % 21 %
Salary increase
15 % 15 % 20 %
Inflation
11.5 % 11.5 % 14 %

The actuarial method used by the Company is the “Projected Unit Credit Method”.

As of December 31, 2009 and 2008, the Company does not have any assets related to the personnel benefit plan (pension plan).

p)
Customer deposits and contributions:

Customer deposits:

Under the Concession Agreement, the Company is allowed to receive customer deposits in the following cases:
1.
When the power supply is requested and the user is unable to provide evidence of his legal ownership of the premises;
2.
When service has been suspended more than once in one-year period;
3.
When the power supply is reconnected and the Company is able to verify the illegal use of the service (fraud).
4.
When the customer is undergoing liquidated bankruptcy or reorganization proceedings.

The Company has decided not to request customer deposits from residential tariff customers.

Customer deposits may be either paid in cash or through the customer’s bill and accrue monthly interest at a specific rate of Banco de la Nación Argentina called “reference” rate.

When a customer requests that the supply service be disconnected, the customer’s deposit is credited (principal amount plus any interest accrued up to the date of reimbursement). Any balance outstanding at the time of requesting the disconnection of the supply service is deducted from the amount so credited. Similar procedures are followed when the supply service is disconnected due to a lack of customer payment. Consequently, the Company recovers, either fully or partially, any amount owed for electric power consumption.

When the conditions for which the Company is allowed to receive customer deposits no longer exist, the principal amount plus any interest accrued thereon are credited to the customer’s account.

Customer contributions:

The Company receives advances from certain customers for services to be provided based on individual agreements. Such advances are stated at nominal value as of the end of each year.

q)
Revenue recognition:

Revenues from operations are recognized on an accrual basis and derive mainly from electricity distribution. Such revenues include electricity supplied, whether billed or unbilled, at the end of each year and have been valued on the basis of applicable tariffs.

F-20
The Company also recognizes revenues from other concepts included in distribution services, such as new connections, rights of use on poles, transportation of electricity to other distribution companies, etc.

All revenues are recognized when the Company’s revenue earning process has been substantially completed, the amount of revenues may be reasonably measured and the economic benefits associated with the transaction flow to the Company.

During the year ended December 31, 2007, the Company recognized revenues from the retroactive tariff increase deriving from the application of the electricity rate schedule resulting from the RTT to non-residential consumption for the period of November 2005 through January 31, 2007 (Note 17.b) as it was during this fiscal year that the new electricity rate schedule was approved by Resolution No. 51/2007 of the ENRE and applied as from February 1, 2007.

On October 4, 2007 the Official Gazette published Resolution No. 1037/2007 of the National Energy Secretariat. Said resolution establishes that the amounts paid by the Company for the Quarterly Adjustment Coefficient (CAT) implemented by Section 1 of Law No. 25,957, as well as the amounts corresponding to the Cost Monitoring Mechanism (MMC) for the period May 2006 through April 2007 (Note 17 b and c) be deducted from the funds resulting from the difference between surcharges billed and discounts made to customers, deriving from the implementation of the Program for the Rational Use of Electric Power (PUREE), until their transfer to the tariff is granted by the regulatory authority. The resolution also establishes that the MMC adjustment for the period May 2006 through April 2007, applicable as from May 1, 2007, amounts to 9.63 %.

Additionally, on October 25, 2007 the ENRE issued Resolution No. 710/2007 which approves the MMC compensation mechanism established in the aforementioned Resolution No. 1037/2007 of the National Energy Secretariat.

The amounts corresponding to the Cost Monitoring Mechanism (MMC) for the period May 2006 through April 2007 as well as those corresponding to the period May 2007 through October 2007 were transferred to the tariff as from July 1, 2008, in accordance with the provisions of Resolution No. 324/2008 (Note 17.b).

By Note No. 1383 dated November 26, 2008 of the National Energy Secretariat, the ENRE was instructed to consider the earmarking of the funds deriving from the application of the Cost Monitoring Mechanism (MMC) corresponding to the period May 2007 through October 2007 whose recognition was pending, and to allow that such funds be deducted from the excess funds deriving from the application of the Program for the Rational Use of Electric Power (PUREE), in accordance with the provisions of Resolution No. 1037/2007 of the National Energy Secretariat.

r)
Estimates:

The preparation of the financial statements in accordance with Argentine GAAP requires the Company’s Board of Directors and Management to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Actual results and amounts may differ from the estimates used in the preparation of the financial statements.

s)
Earnings per common share:

It has been computed on the basis of the number of shares outstanding as of December 31, 2009 and 2008 which amounts to 897,042,600 (net of the treasury shares as of December 31, 2009 and 2008 for 9,412,500). There is no earning (loss) per share dilution, as the Company has issued neither preferred shares nor corporate notes convertible into common shares.

t)
Segment information:
In accordance with the provisions of TR No. 18, the Company is required to disclose segment information provided certain requirements are met. This Resolution establishes the criterion to be followed for reporting information on operating segments in annual financial statements, and requires the reporting of selective information on operating segments in interim financial reports. Operating segments are those components of the Company’s activity about which different financial information may be obtained, whether for the allocation of resources or the determination of an asset’s performance. TR No. 18 also establishes the criterion to be applied by the Company to disclose its services, geographical areas and major customers.

F-21
The Company is a natural monopoly that operates in a single business segment, electricity distribution and sale in a specific geographical area, pursuant to the terms of the concession agreement that governs the provision of this public service. The Company’s activities have similar economic characteristics and are similar as to the nature of their products and services and the electricity distribution process, the type or category of customers, the geographical area and the methods of distribution. Management evaluates the Company’s performance based on net income. Accordingly, the disclosure of information as described above is not necessary.
Additionally, see Note 27.II.h)
u)
Risk management:

The Company operates mainly in Argentina. Its business may be affected by inflation, currency devaluation, regulations, interest rates, price controls, changes in governmental economic policies, taxes and other political and economic-related issues affecting the country. The majority of the Company’s assets are either non-monetary or denominated in Argentine pesos, whereas the majority of its liabilities are denominated in U.S. dollars. As of December 31, 2009, a minimum portion of the Company’s debts accrues interest at floating rates; consequently the Company’s exposure to interest rate risk is limited (Note 14).

As of December 31, 2009, the Company has entered into forward and futures contracts with the aim of mitigating the risk generated by the fluctuations in the US dollar rate of exchange (Notes 7 and 23.b).

v)
Concentration risks:

Related to customers

The Company’s accounts receivable derive primarily from the sale of electric power.

No single customer accounted for more than 10% of sales for the years ended December 31, 2009 and 2008. The collectibility of trade receivables balances related to the Framework Agreement, which amount to 54,823 and 49,390 as of December 31, 2009 and 2008, respectively, as disclosed in Notes 4 and 13, is subject to compliance with the terms of such agreement.

Related to employees who are union members

As of December 31, 2009, approximately 83% of the Company’s employees were union members. Although the relationship with unions is currently stable, the Company may not ensure that there will be no work disruptions or strikes in the future, which could have a material adverse effect on the Company’s business and the results of operations. Furthermore, collective bargaining agreements signed with unions expired at the end of the 2007 fiscal year. There is no guarantee that the Company will be able to negotiate new collective bargaining agreements under the same terms as those currently in place or that there will be no strikes before or during the negotiation process.

The Bid Package sets forth the responsibilities of both SEGBA and the Company in relation to the personnel transferred by SEGBA through Resolution No. 26/92 of the Energy Secretariat.  According to the Bid Package, SEGBA will be fully liable for any labor and social security obligations accrued or originated in events occurred before the take-over date, as well as for any other obligations deriving from lawsuits in process at such date.

During 2005, two new collective bargaining agreements were signed with the Sindicato de Luz y Fuerza de la Capital Federal and the Asociación de Personal Superior de Empresas de Energía , which expired on December 31, 2007 and October 31, 2007, respectively.  These agreements were approved by the Ministry of Labor and Social Security on November 17, 2006 and October 5, 2006, respectively.

As of the date of issuance of these financial statements, meetings aimed at negotiating the renewal terms of both collective bargaining agreements are being held with the above-mentioned unions.

w)
Foreign currency translation/ transactions:

The Company accounts for foreign currency denominated assets and liabilities and related transactions as follows:

The accounting measurements of purchases, sales, payments, collections, other transactions and outstanding balances denominated in foreign currency are translated into pesos using the exchange rates described below. Thus, the resulting amount in pesos represents the amount collected or to be collected, paid or to be paid.

F-22
For conversion purposes, the following exchange rates are used:

a)    the exchange rate in effect at the date of the transaction, for payments, collections and other transactions denominated in foreign currency; and
b)   the exchange rate in effect at the date of the financial statements, for assets and liabilities denominated in foreign currency.

For transactions and balances denominated in foreign currency, the bid price is used for assets, and the offer price is used for liabilities.

The effect of such transactions has been included in the Statement of Income as “Exchange difference” under “Financial income (expense) and Holding gains (losses)”.

x)
Financial statements comparison:

Certain amounts disclosed in the financial statements as of December 31, 2008 have been reclassified for comparative purposes, following the disclosure criteria used for the financial statements as of December 31, 2009.

Such reclassifications do not imply any changes in shareholders’ equity as of December 31, 2008 or in the results of operations for the fiscal year ended as of that date.

4.
TRADE RECEIVABLES

The detail of trade receivables as of December 31, 2009 and 2008 is as follows:

2009
2008
Current:
Receivables from sales of electricity:
Billed
181,595 166,958
Unbilled
Sales of electricity
139,181 164,348
Retroactive tariff increase arising from the application of the new electricity rate schedule (Note 17.b item d)
37,391 39,361
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule (Note 3.c)
(2,516 ) (2,516 )
Framework Agreement (Notes 3.c, 3.v and 13)
36,273 49,390
Adjustment to present value of the Framework Agreement (Notes 3.c, and 13)
(1,406 ) 0
Framework Agreement - Payment plan agreement with the Province of Bs. As.  (Note 13)
2,292 2,292
National Fund of Electricity (Note 17.a)
2,840 2,812
Specific fee payable for the expansion of the network, transportation and others (Note 17.b)
2,459 929
In litigation
10,815 10,014
Subtotal
408,924 433,588
Less:
Allowance for doubtful accounts (Note 26 Exhibit E)
(19,688 ) (33,097 )
389,236 400,491
F-23
Non-Current:
Receivables from sales of electricity:
Unbilled
Sales of electricity
45,531 45,531
Retroactive tariff increase arising from the application of the new electricity rate schedule (Note 17.b item d)
31,795 79,487
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule (Note 3.c)
(4,119 ) (13,648 )
Framework Agreement (Notes 3.c, 3.v and 13)
18,550 0
Adjustment to present value of the Framework Agreement (Notes 3.c, and 13)
(4,710 ) 0
87,047 111,370

5.
OTHER RECEIVABLES

The detail of other receivables as of December 31, 2009 and 2008 is as follows:

2009
2008
Current:
Prepaid expenses (1)
2,800 976
Advances to suppliers
142 3,088
Advances to personnel
6,396 7,451
Related parties (Note 15)
1,604 449
Writs of attachment under ENRE proceedings
0 59
Receivables from activities other than the main activity (2)
20,402 15,271
Allowance for other doubtful accounts (Note 26 Exhibit E)
(7,908 ) (4,573 )
Warranty deposits and other (3)
32,544 0
Tax credit on minimum presumed income (Note 3.m)
0 10,255
Tax on financial transfers
682 3,866
Other (4)
4,436 5,959
61,098 42,801
Non-current:
Prepaid expenses
1,439 1,680
Tax credit on minimum presumed income (Note 3.m)
0 16,956
Net deferred tax assets (Note 3.m)
87,075 80,768
Other
242 68
88,756 99,472

(1)
Includes 447 in foreign currency (Note 26 Exhibit G) as of December 31, 2009.
(2)
Includes 1,367 and 852 in foreign currency (Note 26 Exhibit G) as of December 31, 2009 and 2008, respectively.
(3)
Includes 26,196 related to warranty deposits on derivative financial instruments (Notes 3.u and 23.b), 22,899 of which are denominated in foreign currency (Note 26 Exhibit G) as of December 31, 2009.
(4)
Includes 129 and 11 in foreign currency (Note 26 Exhibit G) as of December 31, 2009 and 2008, respectively.

F-24
6.
TRADE ACCOUNTS PAYABLE

The detail of trade accounts payable as of December 31, 2009 and 2008 is as follows:

2009
2008
Current:
Payables for purchase of electricity and other purchases (1)
214,693 217,086
Unbilled electric power purchases
92,945 97,619
Customer contributions (Note 3.p)
28,874 23,078
Other (2)
11,270 1,478
347,782 339,261
Non-Current:
Customer deposits (Note 3.p)
44,179 40,154
Other (3)
2,675 0
46,854 40,154

(1)
Includes 29,034 and 23,093 in foreign currency (Note 26 Exhibit G) as of December 31, 2009 and 2008, respectively. Also, includes balances with SACME S.A. for 1,000 and 910 as of December 31, 2009 and 2008, respectively, and with Préstamos y Servicios S.A for 7 and with Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio for 6 as of December 31, 2008 (Note 15).
(2)
Includes 683 related to the debt recognition and refinancing agreement entered into with the ONABE (Note 17.c).
(3)
Debt recognition and refinancing agreement entered into with the ONABE (Note 17.c).

7.
LOANS

The detail of loans as of December 31, 2009 and 2008 is as follows:

2009
2008
Current:
Financial loans:
Principal (1)
43,333 17,771
Interest (2)
305 462
Subtotal financial loans
43,638 18,233
Corporate Notes (Note 14):
Floating Rate Par Notes – Class 8
17,464 0
Interest (3)
15,885 9,012
Derivative financial instruments (Notes 3.u and 23.b)
6,001 0
82,988 27,245
2009
2008
Non-current:
Financial loans:
Principal
0 33,334
Corporate Notes (Note 14):
Floating Rate Par Notes – Class 8
58,236 0
Fixed Rate Notes – Class 7 (4)
565,022 699,232
Fixed and Incremental Rate Par Notes – Class A (4)
58,091 148,960
Fixed and Incremental Rate Par Notes – Class B (4)
0 15,107
Floating Rate Par Notes – Class A (4)
48,093 43,701
Subtotal corporate notes
729,442 907,000
Adjustment to present value of notes  (Note 3.j)
(21,943 ) (27,186 )
Corporate Notes at present value
707,499 879,814
707,499 913,148

(1)
Includes 1,105 in foreign currency (Note 26 Exhibit G) as of December 31, 2008.
(2)
Includes 35 in foreign currency (Note 26 Exhibit G) as of December 31, 2008.
(3)
Includes 13,996 and 9,012 in foreign currency (Note 26 Exhibit G) as of December 31, 2009 and 2008, respectively, net of 7,905 related to derivative financial instruments as of December 31, 2008 (Note 23.a).

F-25
(4)
In foreign currency (Note 26 Exhibit G) as of December 31, 2009 and 2008.
8.
SALARIES AND SOCIAL SECURITY TAXES

The detail of salaries and social security taxes as of December 31, 2009 and 2008 is as follows:

2009
2008
Current:
Salaries payable and accruals
101,435 79,315
Social Security (ANSES)
10,757 8,657
Early retirements payable (Note 3.o)
6,185 6,815
118,377 94,787
Non-Current (Note 3.o) :
Personnel Benefits Plan
24,820 18,048
Seniority-based bonus
9,064 8,001
Early retirements payable
9,789 14,041
43,673 40,090
9.
TAXES

The detail of taxes as of December 31, 2009 and 2008 is as follows:

2009
2008
Current:
Provincial, municipal and federal contributions and taxes
28,957 22,796
Value Added Tax (VAT)
28,554 32,912
Income Tax and Tax on minimum presumed income (net of advances, withholdings and payments on account) (Note 3.m)
37,867 22,151
Withholdings
9,464 5,436
Municipal taxes
24,693 21,844
Tax regularization plan Law No. 26,476 (Note 3.i.1)
1,261 0
Other
9,505 5,882
140,301 111,021
Non-Current:
Tax regularization plan Law No. 26,476 (Note 3.i.1)
9,374 0
10.
OTHER LIABILITIES

The detail of other liabilities as of December 31, 2009 and 2008 is as follows:

2009
2008
Current:
Capital expenditures fund – CAMMESA (Note 17.b)
0 2,066
Other (1)
8,012 8,448
8,012 10,514
Non-current:
ENRE penalties (Note 17 a and b)
377,456 331,613
Program for the rational use of electric power (PUREE)
233,319 33,494
Other (2)
0 3,903
610,775 369,010

(1)
Includes 1,370 and 1,292 in foreign currency (Note 26 Exhibit G) as of December 31, 2009 and 2008, respectively.
Additionally, includes 3,744 and 4,373 related to the software lease agreement (Note 3.g) as of December 31, 2009 and 2008, respectively.
(2)
Software lease agreement (Note 3.g).

F-26
11.
NET SALES

The breakdown of net sales for the years ended December 31, 2009, 2008 and 2007 is as follows:

2009
2008
2007
Sales of electricity (1)
2,035,845 1,966,017 1,948,737
Late payment charges
20,686 17,764 17,099
Right of use on poles (Note 3.n)
13,582 10,463 10,745
Connection charges
5,700 3,729 3,986
Reconnection charges
2,047 2,225 1,361
2,077,860 2,000,198 1,981,928

(1) Net of ENRE discounts and penalties for 58,500, 34,775 and 23,940 for the years ended December 31, 2009, 2008 and 2007, respectively (Note 17 a and b). As of December 31, 2008 and 2007, includes 84,585 related to the application of the Cost Monitoring Mechanism (MMC) (Note 17.a) and, 218,591 related to the retroactive tariff increase arising from the application of the electricity rate schedule resulting from the RTT (Note 17.b. item d) and 49,646 related to the Cost Monitoring Mechanism (MMC) (Note 17.a), respectively

12.
OTHER INCOME (EXPENSE) - NET

The breakdown of other income (expense) - net for the years ended December 31, 2009, 2008 and 2007 is as follows:

2009
2008
2007
Non-operating income
4,529 8,392 1,467
Commissions on municipal taxes collection
3,844 2,291 1,761
Net expense from technical services
(785 ) (1,566 ) (1,770 )
Voluntary Retirements - Bonuses
(5,381 ) (31,334 ) (7,192 )
Severance paid
(4,419 ) (4,228 ) (4,283 )
Accrued litigation (Note 26 Exhibit E)
(15,500 ) (19,900 ) (16,750 )
Disposal of property, plant and equipment
(2,748 ) (1,910 ) (1,105 )
Recovery of allowance for doubtful accounts (1)
21,236 14,087 0
Net recovery of accrued litigation (2)
23,431 0 0
Rebate of technical assistance services and financial expenses EDF Internacional
0 0 14,485
Income from reimbursements of network replacement
0 0 7,203
Other
(917 ) 4,343 7,180
23,290 (29,825 ) 996

(1) Related to the Framework Agreement (Note 13, Note 26 Exhibits E and H).
(2) Related to the Company’s adherence to the tax regularization plan (Note 26 Exhibit E and Note 3.i).

13.
FRAMEWORK AGREEMENT

On January 10, 1994, the Company, together with EDESUR S.A., the Argentine Federal Government and the Government of the Province of Buenos Aires signed a Framework Agreement aimed at resolving the issue of supplying electricity to low-income areas and shantytowns. Pursuant to such Framework Agreement, the Company is entitled to receive compensation from a Special Fund for any non-payment s of electricity supplied to low-income areas and shantytowns.

As permitted by section 13 of the Agreement, which stipulated that the terms and conditions of the Agreement could be subject to review and/or adjustments under certain circumstances, and taking into account that not all of the objectives of the Agreement could be completely fulfilled within the originally stipulated period, although most of them had been accomplished, and considering also that new shantytowns had appeared which had to be recognized, the parties agreed to extend the term of the Agreement for an additional fifty-month period ending August 31, 2002. During such additional period the original provisions of the Framework Agreement and the Regulations continued to be in effect. Furthermore, a new population census was conducted so as to identify those shantytowns which up to then had not been recognized.

F-27
On October 6, 2003, the Company signed a new Framework Agreement with the Argentine Federal Government and the Government of the Province of Buenos Aires, whose purpose was similar to that of the previous agreement, and which retroactively covered all the services provided as from September 1, 2002. The term of the new framework agreement was four years to commence as from January 1, 2003 and could be renewed for another four-year term should the parties so agree.  The aforementioned Framework Agreement expired on December 31, 2006

On October 26, 2006, the Company entered into a Payment Plan Agreement with the Government of the Province of Buenos Aires which establishes the conditions according to which the Province of Buenos Aires will honor its obligation to the Company amounting to 27,114, for the period September 2002 through June 2006, which the Province agrees to verify in accordance with the provisions of chapter VI -section 13 and related sections- of the Fund Regulations of the New Framework Agreement. Furthermore, the Province agrees to pay the debt resulting from the aforementioned verification, in 18 equal, consecutive and monthly installments.
As of December 31, 2009 and 2008, the balance corresponding to the aforementioned payment plan agreement amounts to 2,292 (Note 4).

On September 22, 2008, the Official Gazette published Resolution No. 900/2008 of the Ministry of Federal Planning, Public Investment and Services which ratifies the Addendum to the New Framework Agreement entered into by the Federal Government and the Company, according to which the term of the agreement is renewed for a period of four years to commence as from January 1, 2007.

Furthermore, on March 11, 2009, by Resolution No. 158/2009, the ENRE approves the extension of the regulations established in the Addendum to the new Framework Agreement in the terms of Resolution No. 22/2004.

On June 18, 2009, the Official Gazette of the Province of Buenos Aires published Decree No. 732, which ratifies the Addendum to the New Framework Agreement entered into by the Government of the Province of Buenos Aires and the Company, according to which the term of the agreement is renewed for a period of four years to commence as from January 1, 2007 (Note 12, and Note 26 Exhibits E and H).

During November-December 2009, March and May 2010, the Company received payments from the Argentine Federal Government for 20,000, 5,004 and 3,082, respectively.

By virtue of Law No. 14,062 and Decree No. 2,789/09 of the province of Buenos Aires related to the issuance of bonds for the cancellation of debts of such province (Bonos de Cancelación de Deudas de la Provincia de Buenos Aires) and their regulations, in March 2010, the Company entered into a Payment Plan Agreement with the Government of the Province of Buenos Aires pursuant to which the Government of the Province of Buenos Aires agrees to verify and pay with Bonds for the Cancellation of Debts, the debt stated therein in the amount of 32,797. The aforementioned agreement was signed subject to the approval of the Provincial Executive Power and the Company’s Board of Directors. The Company’s managing board ratified the agreement in the meeting held on April 27, 2010. During May 2010, the Company received payments from the Government of the Province of Buenos Aires for 1,600 in cash and 30,400 (face value) with Bonds for the Cancellation of Debts

As of December 31, 2009 and 2008, the balances with the Argentine Federal Government and the Government of the Province of Buenos Aires for this concept amount to 54,823 and 49,390, respectively (Notes 3.c and 4). Due to the fact that the Framework Agreement has been totally ratified, the Company has provided the ENRE with the documentation to validate the amounts to be collected for this concept and has initiated the corresponding collection proceedings.

14.
CORPORATE NOTES PROGRAM

RESTRUCTURING OF FINANCIAL DEBT

On January 19, 2006, the Board of Directors approved the launching of a solicitation of consent for the restructuring of the Company’s financial debt through the exchange of such debt for a combination of cash and notes (the Restructuring) pursuant to a voluntary exchange offer (the Voluntary Exchange Offer) and/or an out-of-court reorganization agreement (A cuerdo Preventivo Extrajudicial) (the APE).

The restructuring of the Company’s debt was carried out throughout the fiscal year ended December 31, 2006. As a result of the restructuring process, the defaulted debt prior to the restructuring, which amounted to US$ 540.9 million as of February 22, 2006, was reduced to US$ 376.4 million, with an average term of more than 8 years, at an average cost of 8% and final maturity in 2019.

F-28

On February 23, 2006, the Annual General Meeting approved the extension of the Global Medium-Term Corporate Notes Issuance Program for a Maximum Amount (outstanding at any time) of up to US$ 600 million (or its equivalent in any other currency). Said extension was also approved by the CNV through Resolution No. 15,359 issued by the CNV’s Board of Directors on March 23, 2006.

In the meeting held on June 14, 2007, the Company’s Board of Directors approved the updating of the Trust Agreement for the issuance of corporate notes that had been duly approved by the CNV, as required by section 76 of Chapter VI of the CNV’s Regulations.

On June 28, 2007, the Company’s Board of Directors’ meeting approved the issuance and public offering, within the framework of the Program and under the terms of Law No. 23,576 as amended, of fixed rate Corporate Notes for a nominal value of up to US$ 250 million with maximum maturity in 2017. On October 9, 2007, the Company issued and carried out the public offering of Class 7 Corporate Notes for US$ 220 million. The 10-year term Corporate Notes were issued at an issue price of 100% of the principal amount, and accrue interest as from the date of issuance at a fixed rate of 10.5% per annum, payable on April 9 and October 9 of each year, with the first interest payment maturing on April 9, 2008. The principal will be amortized by a lump sum payment at maturity date on October 9, 2017. The Company has requested authorization for the trading of the Corporate Notes on the Buenos Aires Stock Exchange, the Mercado Abierto Electrónico S.A. (the OTC market of Argentina), the Luxembourg Stock Exchange, and the Euro MTF Market, which is the alternative market of the Luxembourg Stock Exchange. Furthermore, the Company may request authorization for the listing of the Corporate Notes on the PORTAL Market as well as authorization for their trading and/or negotiation on any other stock exchange and/or self-regulated market of Argentina  and/or abroad.

Most of the net proceeds from the sale of the Corporate Notes were used for the purchase, payment or redemption of the Company’s outstanding Discount Corporate Notes due in 2014.

Furthermore, on April 13, 2009, the Company’s Board of Directors approved the issuance and public offering, within the framework of the Program and under the terms of Law No. 23,576, as amended, of floating rate Corporate Notes for a nominal value of up to 150,000 with maximum maturity in 2013.

On May 7, 2009, the Company issued and carried out the public offering of Class 8 Corporate Notes for 75,700. The four-year term corporate notes were issued at an issue price of 100% of the principal amount and accrue interest as from the date of issuance at a floating private BADLAR rate plus a spread of 6.75%, payable quarterly on May 7, August 7, November 7 and February 7 of each year, with the first interest payment maturing on August 7, 2009.
The principal will be amortized in 13 consecutive and quarterly installments, with the first installment maturing on May 7, 2010.
The Company has requested authorization for the listing of the Corporate Notes on the Buenos Aires Stock Exchange (BCBA) and admission for trading on the Mercado Abierto Electrónico S.A. (the OTC market of Argentina).
The Company used the net proceeds from the sale of the Corporate Notes to finance the capital expenditures plan.

During the years ended December 31, 2009, 2008 and 2007, the Company purchased at market prices and in successive operations all “discount notes” and part of the “fixed rate par notes” due in 2016 and 2017, for nominal values of US$ 86,038 thousand, US$ 50,033 thousand and U$S 283,726 thousand, respectively.

Therefore, the Company’s debt structure as of December 31, 2009 and 2008 was comprised of the following Notes:

Debt issued in United States dollars:

Type
Class
Debt structure
as of December
31, 2008 in
thousands of
US $
Debt purchase
as of December
31, 2009 in
thousands of
US $
Debt structure
as of December
31, 2009 in
thousands of
US $
Balance as of
Dec 31, 2009
(Note 7) in
thousands of
Pesos
Fixed Rate Par
A
43,140 (27,853 ) 15,287 58,091
Note
B
4,375 (4,375 ) 0 0
Floating rate Par Note
A
12,656 0 12,656 48,093
Fixed Rate Par Note
7
202,500 (53,810 ) 148,690 565,022
Total
262,671 (86,038 ) 176,633 671,206
F-29
The economic impact of these transactions resulted in gains of 81,455 and 93,535 as of December 31, 2009 and 2008, that have been recorded in the Financial income (expense) and holding gains (losses) generated by assets account of the Statement of Income under Holding results.

As of December 31, 2009 and 2008, the Company has in its portfolio Class 7 fixed rate par notes for nominal values of US$ 65,310 thousand –includes corporate notes for US$ 24,515 thousand transferred as a consequence of the dissolution of the Discretionary Trust (Note 22)- and US$ 11,500 thousand, respectively.

Debt issued in Argentine pesos:

Type
Class
Debt issuance as of
Balance as of
May 7, 2009
Dec 31, 2009 (Note 7)
in thousands of pesos
in thousands of pesos
Floating Rate Par Note
8
75,700 75,700
Total
75,700 75,700

Debt issued in United States dollars:

Type
Class
Initial debt
Debt purchase
Debt purchase
Post-purchase
Balance as of
structure
2007 fiscal year
2008 fiscal year
debt structure
Dec. 31, 2008 (Note 7)
in thousands of US$
in thousands of US$
in thousands of US$
in thousands of US$
in thousands of pesos
A
73,485 (998 ) (29,347 ) 43,140 148,960
Fixed Rate Par Note
B
50,289 (42,728 ) (3,186 ) 4,375 15,107
Floating Rate Par Note
A
12,656 0 0 12,656 43,701
A
152,322 (152,322 ) 0 0 0
Discount Note
B
87,678 (87,678 ) 0 0 0
Fixed Rate Par Note
7
220,000 0 (17,500 ) 202,500 699,232
Total
596,430 (283,726 ) (50,033 ) 262,671 907,000

The principal amortization schedule broken down by year of total debt, without considering possible adjustments, prepayments, redemptions or cancellations is detailed in the table below:

Year
Amount
2010
17,465
2011
31,501
2012
31,501
2013
19,881
2014
8,216
2015
8,216
2016
31,449
2017
569,830
2018
4,811
2019
24,036
746,906
The main covenants are the following:

1) Negative Covenants

The terms and conditions of the Corporate Notes include a series of negative covenants that limit the Company’s actions with regard to, among others, the following:

-
encumbrance or authorization to encumber its property or assets;
-
incurrence of indebtedness, in certain specified cases;

F-30
-
sale of the Company’s assets related to its main business;
-
carrying out of transactions with shareholders or related parties;
-
making certain payments (including, among others, dividends, purchases of Edenor’s common shares or payments on subordinated debt).
2) Suspension of Covenants
Certain negative covenants stipulated in the trust agreement will be suspended or adjusted if:

(a)
The Company’s long-term debt rating is raised to Investment Grade, or
(b)
The Company’s Level of Indebtedness is equal to or lower than 2.5.

If the Company subsequently losses its Investment Grade rating or its Level of Indebtedness is higher than 2.5, as applicable, the suspended negative covenants will be once again in effect.

However, the reinstatement of the covenants will not affect those acts which the Company may have performed during the suspension of such covenants.

3) Registration Rights

In accordance with the Registration Rights Agreement, the Company filed with the SEC an application requesting authorization in connection with an authorized exchange offer of the Corporate Notes for new notes of the same class registered with the SEC in accordance with the Securities Act, representing the same outstanding debt and subject to similar terms and conditions.

The exchanged corporate notes would have no restrictions concerning their transfer and would be freely transferable after the authorized exchange offer by those Corporate Notes holders who are not related parties of the Company.

On April 13, 2009, the Company informed the National Securities Commission that under rule 144 of the US Securities Act of 1933, as amended, the Class 7 Corporate Notes due in 2017 had become freely transferable to and from any person who is not a related company of Edenor.

Consequently, the Company has entered into a complementary agreement in order to exchange the Regulation S Global Corporate Note (issued for a nominal value of US$ 160,250 thousand) and the Restricted Global Corporate Note (issued for a nominal value of US$ 59,750 thousand), both of them issued within the framework of the trust agreement, for one fully registered “Global Corporate Note” with no interest coupons attached for a nominal value of US$ 220,000 thousand, which will not bear the restrictive legend, as defined under the trust agreement entered into on October 9, 2007.

15.
BALANCES AND TRANSACTIONS WITH THE CONTROLLING COMPANY AND RELATED PARTIES

In the normal course of business, the Company carries out transactions with the controlling company and related parties.

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As of December 31, 2009 and 2008, the outstanding balances with the controlling company and related parties are as follow:

2009
2008
Current investments (Note 26 Exhibit D)
Central Térmica Güemes
0 393
Total
0 393
Other receivables (Note 5)
Electricidad Argentina S.A.
1 1
SACME S.A.
1,603 448
Total
1,604 449
Trade accounts payable (Note 6)
Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio
0 (6 )
SACME S.A.
(1,000 ) (910 )
Préstamos y Servicios S.A.
0 (7 )
Total
(1,000 ) (923 )
Non-Current Investments (Note 26 Exhibit D)
Central Térmica Güemes
0 10,784
Total
0 10,784

Transactions carried out with the controlling company and related parties for the years ended December 31, 2009, 2008 and 2007 are as follow:
2009
2008
2007
Other income
Electricidad Argentina S.A.
10 9 8
Préstamos y Servicios S.A.
9 2 0
Total
19 11 8
Expenses from services
SACME S.A.
(5,068 ) (4,256 ) (3.337 )
Electricidad Argentina S.A.
0 (224 ) (275 )
EDF S.A. (*)
0 0 (3,727 )
Préstamos y Servicios S.A.
(415 ) (42 ) 0
Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio
(70 ) (220 ) 0
Total
(5,553 ) (4,742 ) (7,339 )
2009
2008
2007
Financial expenses and interest
Electricidad Argentina S.A.
(9,306 ) (7,898 ) (6,219 )
Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio
(145 ) (160 ) (4,352 )
Total
(9,451 ) (8,058 ) (10,571 )

(*) As from the international secondary offering described in Note 1, EDF S.A. and EDF International are no longer a related party.

Operating and Technical Assistance Agreements

In compliance with the provisions of both the Bid Package and the Transfer Contract, the Company has entered into an Operating Agreement with EDF International and ENHER, pursuant to which EDF International and ENHER would provide technical advisory services concerning the distribution and sale of electricity and would commit their experience and know-how to the achievement of an efficient and competitive management.

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On July 16, 1999, ENHER assigned its rights and obligations arising from the above mentioned Operating Agreement to its controlling company ENDESA S.A.

On May 4, 2001, in compliance with that mentioned in Note 1, ENDESA S.A. assigned its rights and obligations under the Operating Agreement to EDF International, thus leaving EDF International as the sole operator.

This Operating Agreement had an initial 10-year term as from September 1, 1992, which was extended until August 31, 2007.

The Company has registered said extension in the National Institute of Copyright (INPI) - Technology Transfer Division under number 9894.

On September 15, 2005, EDF International transferred the shares held in EASA (the controlling company of Edenor) and 14% of EDENOR’s shares to Dolphin. In connection with such transfer, the parties agreed to terminate the aforementioned Agreement and reduce the amount owed to EDF International for unpaid fees which amounted to 25,852.

However, since the Company still wished to have access to EDF S.A.’s know-how, experience and technical knowledge in the field of electricity distribution and sale, the Company and EDF S.A. entered into a new Technical Assistance Agreement for a period of 5 years or for such period during which Dolphin continued to be the controlling company of Electricidad Argentina S.A. In accordance with the terms of the Technical Assistance Agreement, EDENOR would pay EDF S.A. an amount of US$ 10,000,000 as technical assistance fees in five equal annual installments of US$ 2,000,000. The first annual payment was made on January 9, 2006 and the second payment was made on December 14, 2006.

On December 7, 2005, the Company registered the new agreement in the National Institute of Copyright (INPI) - Technology Transfer Division under number 11,197.

On December 27, 2007, the Company and EDF S.A. signed an amendment to the aforementioned Agreement, pursuant to which the parties agreed that, due to circumstances beyond their control, during 2006 and 2007 the amount of services required by the Company and provided by EDF S.A. within the scope of the Technical Assistance Agreement had been significantly lower than that originally expected by the parties. On the contrary, during 2008, EDF S.A. will be required to provide a greater amount of services relating to the Revision of the Company Tariff Structure process, the changes made to the Company’s commercial and invoicing system and the broadening of the Company’s investment plan. Consequently, the Company requested and EDF S.A. granted the following: (i) that EDF S.A. recognize a rebate of US$ 2,100 thousand, equivalent to 6,613, in relation to the US$ 4,000 thousand already paid in accordance with the Technical Assistance Agreement, and (ii) that during 2008 EDF S.A. continue to provide services under the terms and conditions of the aforementioned Agreement, whose expiration date was fixed for December 31, 2008.

Based on the amount of work that is expected, the Company agreed to pay EDF S.A. an amount of US$ 6,000 thousand.  From such amount, the Company deducted a total of US$ 4,600 thousand, equivalent to 14,485, which is comprised of: (i) the aforementioned rebate for US$ 2,100 thousand, and (ii) a receivable for US$ 2,500 thousand, recognized by EDF International in favor of the Company as a reimbursement of the expenses incurred during the year ended December 31, 2006 in relation to the initial public offering of the Company’s capital stock. In accordance with the agreement signed by the parties, IPO expenses may be offset against services rendered by any affiliate of EDF International. Accordingly, after having made such deductions, on December 28, 2007, the Company paid EDF S.A. the amount of US$ 1,400 thousand.

Agreement with Electricidad Argentina S.A. (controlling company)

On April 4, 2006, the Company and EASA entered into an agreement pursuant to which EASA will provide technical advisory services on financial matters as from September 19, 2005 and for a term of five years. In consideration of these services, EDENOR will pay EASA an annual amount of US$ 2,000,000 plus VAT.  Any of the parties may terminate the agreement at any time by giving 60 days’ notice, without having to comply with any further obligations or paying any indemnification to the other party.

At the meeting held on April 22, 2008, the Board of Directors approved the addendum to the agreement for the provision of technical advisory services dated March 14, 2008.

The aforementioned addendum stipulates that the amount to be paid by the Company in consideration of the services provided by Electricidad Argentina S.A. has been increased to US$ 2,500,000 plus VAT, payable retroactively as from January 1, 2008. The rest of the contractual terms have not been modified.

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Agreement with Comunicaciones y Consumos S.A.

On March 16, 2007, the Company and Comunicaciones y Consumos S.A. (CYCSA) entered into an agreement pursuant to which the Company granted CYCSA the exclusive right to provide telecommunications services to the Company customers through the use of the Company’s network in accordance with the provisions of Decree No. 764/2000 of the Federal Government, which contemplates the integration of voice, data and image transmission services through the existing infrastructure of electricity distribution companies such as the Company’s network. In accordance with the terms of the agreement, CYCSA will be responsible for all maintenance expenses and expenses related to the adapting of the Company’s network for the rendering of such telecommunications services. The term of the agreement, which was originally ten years to commence from the date on which CYCSA were granted the license to render telecommunications services, was subsequently extended to twenty years by virtue of an addendum to the agreement. The agreement will be automatically renewed upon expiration date for subsequent periods of five years, unless notice to the contrary is given by any of the parties no less than 120 days prior to the expiration of the corresponding period. In accordance with the agreement, CYCSA shall periodically request access to the Company’s network. Such request will be evaluated by the Company and access will be granted based on the available capacity of the network. In consideration of the use of the network, CYCSA will grant the Company 2% of the annual charges collected from customers, before taxes, as well as 10% of the profits obtained from provision of services. Furthermore, CYCSA will indemnify the Company for any obligation arising from the rendering of the services through the Company’s network. The agreement was signed on condition that CYCSA was to obtain the telecommunications license, which was granted by the National Telecommunications Secretariat through Resolution No. 179/2008.

Furthermore, the first addendum to the Agreement for the Granting of Permission for the Use of Electricity Distribution Network was signed on October 27, 2008. Pursuant to this addendum, the Company granted CYCSA the right to use the poles and towers of High, Medium and Low-voltage overhead lines and the ducts and/or triple ducts accompanying High, Medium and Low-voltage ducts for the laying of optical fiber owned by CYCSA, on condition that the referred to optical fiber does not affect the normal supply of the public service. Moreover, said addendum grants Edenor the right to use part of the capacity of the optical fiber to be installed. It must be pointed out that the aforementioned addendum was approved by the Company’s Board of Directors at the meeting held on November 5, 2008.

During November 2008, the Company and CYCSA entered into the second addendum to the agreement, which modifies section XI of the main agreement (Term of the Agreement), thus extending the term of the agreement from ten to twenty years to commence from the date on which it went into effect. The aforementioned addendum was approved by the Company’s Board of Directors on December 18, 2008.

Agreement with Préstamos y Servicios S.A.

On March 16, 2007, the Company entered into an agreement with Préstamos y Servicios S.A. (PYSSA), a company engaged in the rendering of financial services, pursuant to which the Company granted PYSSA the exclusive right to conduct its direct and marketing services through the use of the Company’s facilities and mailing services. As part of the agreement, the Company agreed to provide physical space in some of its offices so that PYSSA be able to offer financial and loan services to Company customers. Furthermore, the Company agreed to include PYSSA marketing material in the mail sent to customers, including the invoices. The term of the agreement is five years, which will be automatically renewed for subsequent periods of five years, unless any of the parties gives notice to the other of his intention to terminate the agreement no less than 120 days prior to the expiration of the corresponding period. In accordance with the terms of the agreement, PYSSA will pay the Company 2% of the monthly charges collected from customers, before taxes, as well as 10% of the profits obtained from its services. Furthermore, PYSSA agreed to indemnify the Company for any obligation arising from the rendering of its services. The agreement established that its term was subject to the authorization of the ENRE, which approved this through Resolution No. 381/2007.

The activities related to the aforementioned agreement have been temporarily suspended in the Company’s offices as a consequence of the international financial crisis and its impact on that specific segment of the economy.

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16.
CAPITAL STOCK

a)
General

As of December 31, 2009 and 2008, the Company’s capital stock amounts to 906,455,100 shares, represented by 462,292,111 common, book-entry Class A shares with a par value of one peso each and the right to one vote per share; 442,210,385 common, book-entry Class B shares with a par value of one peso each and the right to one vote per share; and 1,952,604 common, book-entry Class C shares with a par value of one peso each and the right to one vote per share. Each and every share maintains the same voting rights, i.e. one vote per share. There are no preferred shares of any kind, dividends and/or preferences in the event of liquidation, privileged participation rights, prices and dates, or unusual voting rights. Moreover, there are no significant terms of contracts allowing for either the issuance of additional shares or any commitment of a similar nature.

As of December 31, 2009 and 2008, the Company owns 9,412,500 Class B treasury shares.

b)
Restriction on the transfer of the Company’s common shares

The Company’s by-laws provide that Class “A” shareholders may transfer their shares only with the prior approval of the ENRE. The ENRE must communicate its decision within 90 days upon submission of the request for such approval, otherwise the transfer will be deemed approved.

Furthermore, Caja de Valores S.A. (the Public Register Office), which keeps the Share Register of the shares, is entitled (as stated in the Company’s by-laws) to reject such entries which, at its criterion, do not comply with the rules for the transfer of common shares included in (i) the Argentine Business Organizations Law, (ii) the Concession Agreement and (iii) the Company’s by-laws.

In addition, the Class “A” shares are pledged during the entire term of the concession as security for the performance of the obligations assumed under the Concession Agreement.

Additionally, in connection with the issuance of Class 2 Corporate Notes, EASA is required to be the beneficial owner and owner of record of not less than 51% of EDENOR’s issued, voting and outstanding shares.

Section ten of the Adjustment Agreement signed with the Grantor of the Concession and ratified through Decree No. 1957/06 stipulates that from the signing of the agreement through the end of the Contractual Transition Period, the majority shareholders may not modify their ownership interest nor sell their shares.

c)
Employee Stock Ownership Program (ESOP)

At the time of the privatization of SEGBA (the Company’s predecessor), the Argentine Government assigned the Company’s Class C shares, representing 10% of the Company’s outstanding capital stock, for the creation of an Employee Stock Ownership Program (ESOP) in compliance with the provisions of Law No. 23,696 and its regulatory decrees. Through this program, certain eligible employees (including former SEGBA employees who had been transferred to the Company) were entitled to receive a specified number of Class C shares, to be calculated on the basis of a formula that took into consideration a number of factors including employee salary, position and seniority. In order to implement the ESOP, a general transfer agreement, a voting trust agreement and a trust agreement were signed.

Pursuant to the general transfer agreement, participating employees were allowed to defer payment of the Class C shares over time. As security for the payment of the deferred purchase price, the Class C shares were pledged in favor of the Argentine government. This pledge was released on April 27, 2007 upon full payment to the Argentine Government of the deferred purchase price of all Class C shares. Additionally, in accordance with the terms of the original trust agreement, the Class C shares were held in trust by Banco de la Nación Argentina, acting as trustee, for the benefit of the ESOP participating employees and the Argentine Government. Furthermore, in accordance with the voting trust agreement, all political rights of participating employees (including the right to vote at ordinary and extraordinary shareholders’ meetings) were to be jointly exercised until full payment of the deferred purchase price and release of the pledge in favor of the Argentine Government. On April 27, 2007, ESOP participating employees fully paid the deferred purchase price to the Argentine Government, accordingly, the pledge was released and the voting trust agreement was terminated.

In accordance with the regulations applicable to the ESOP, participating employees who retired before full payment of the deferred purchase price to the Argentine Government was made, were required to transfer their shares to the Guarantee and Repurchase Fund ( Fondo de Garantía y Recompra ) at a price to be calculated in accordance with a formula established in the general transfer agreement. As of the date of payment of the deferred purchase price, the Guarantee and Repurchase Fund had not fully paid the amounts due to former ESOP participating employees for the transfer of their Class C shares.

F-35

A number of former employees of both SEGBA and the Company have brought legal actions against the Guarantee and Repurchase Fund, the Argentine Government and, in few cases, against the Company, in cases in relation to the administration of the Employee Stock Ownership Program. The plaintiffs who are former employees of SEGBA were not deemed eligible by the corresponding authorities to participate in the Employee Stock Ownership Program at the time of its creation. This decision is being disputed by the plaintiffs who are therefore seeking compensation. The plaintiffs who are former employees of the Company are claiming payment for the unpaid amounts owed to them by the Guarantee and Repurchase Fund either due to non-payment of the transfer of their shares upon retirement in favor of the Guarantee and Repurchase Fund or incorrect calculation of amounts paid to them by the Guarantee and Repurchase Fund. In several of these claims, the plaintiffs have obtained attachment orders or preliminary injunctions against the Guarantee and Repurchase Fund on Class C shares and the amounts deposited in such Fund. Due to the fact that the resolution of these legal proceedings is still pending, the Federal Government has instructed Banco de la Nación Argentina to create a Contingency Fund so that a portion of the proceeds of the offering of the Employee Stock Ownership Program Class C shares be kept during the course of the legal actions.

No accrual has been recorded in the financial statements in connection with the legal actions brought against the Company as the Company’s management believes that EDENOR is not responsible for the above-mentioned claims.

In accordance with the agreements, laws and decrees that govern the Employee Stock Ownership Program, the Class C shares may only be held by personnel of the Company, therefore before the public offering of the Class C shares that had been separated from the Program, such shares were converted into Class B shares and sold. In conformity with the by-laws, the political rights previously attributable to Class C shares are at present jointly exercised with those attributable to Class B shares and the holders of the remaining Class C shares will vote jointly as a single class with the holders of Class B shares when electing directors and supervisory committee members. As of December 31, 2009 and 2008, 1,952,604 Class C shares, representing 0.22% of the Company’s capital stock are outstanding (Notes 1 and 16.a).

d)
Absorption of unappropriated retained earnings:

On March 31, 2009 the General Annual Meeting resolved that the income for the 2008 fiscal year be absorbed by the Unappropriated retained earnings account:

- Income for the 2008 fiscal year
123,115
- Acquisition of treasury stock (Note 1)
(6,130)
- Legal Reserve (5% of the income for the year) (Note 24)
(6,156)
- Unappropriated retained earnings for the 2008 fiscal year
110,829
17.
REGULATORY FRAMEWORK

a)
General

The Company's business is regulated by Law No. 24,065, which created the National Regulatory Authority for the Distribution of Electricity (ENRE). In this connection, the Company is subject to the regulatory framework provided under the aforementioned Law and the regulations issued by the ENRE.

The ENRE is empowered to: a) approve and control tariffs, and b) control the quality of both the service and the technical product, as established in the Concession Agreement. Failure to comply with the provisions of such Agreement and the rules and regulations governing the Company's business will make the Company liable to penalties that may include the forfeiture of the concession.

As from September 1, 1996, there has been a change in the methods applied to control the quality of both the product and the service provided by the Company. Within this new framework, compensation between areas and circuits of different quality is not allowed, instead, the specific quality provided to individual customers, rather than an average customer value must be measured.  As a result, fines will be credited to users affected by service deficiencies in future bills. Penalties are imposed in connection with the following major issues:

1.
Deviation from quality levels of technical product, as measured by voltage levels and network variations;
2.
Deviation from quality levels of technical service, as measured by the average interruption    frequency per Kilovatios (KVA) and total interruption time per KVA;
3.
Deviation from quality levels of commercial service, as measured by the number of claims and complaints made by customers, service connection times, the number of estimated bills and billing mistakes;
4.
Failure to comply with information gathering and processing requirements so as to evaluate the quality of both the technical product and the technical service;
5.
Failure to comply with public safety regulations.
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As of December 31, 2009 and 2008, the Company has accrued penalties for resolutions not yet issued by the ENRE corresponding to the six-month control periods elapsed over those dates. As of  December 31, 2008, the Company has applied the adjustment contemplated in the temporary tariff regime (caption b item vii) and the adjustments established by the electricity rate schedules applied during the 2008 fiscal year, Resolutions Nos. 324/2008 and 628/2008 (Note 17.b).

As of December 31, 2009 and 2008, liabilities for penalties amounting to 377,456 and 331,613, respectively, have been included in other non-current liabilities (Note 10).

In addition, as of December 31, 2009, the Company’s management has considered that the ENRE has mostly complied with the obligation to suspend lawsuits aimed at collecting penalties, without prejudice to maintaining an open discussion with the entity concerning the effective date of the Adjustment Agreement and, consequently, concerning the penalties included in the renegotiation and those subject to the criteria of the Transition Period.

Moreover, on July 12, 2006 the National Energy Secretariat issued Resolution No. 942/2006 which modifies the allocation of any excess funds resulting from the difference between surcharges billed and discounts made to customers, deriving from the implementation of the Program for the Rational Use of Electric Power (PUREE), which provides for the application of both tariff incentives and penalties aimed at encouraging customers to reduce consumption. As from July 1, 2006, such excess funds may be applied against t he amounts receivable that the Company maintains in the Trade receivables account as Unbilled –National Fund of Electricity, for “Quarterly Adjustment Coefficient of the National Fund of Electricity” (section 1 of Law No. 25,957) for 2,840 and 2,812 as of December 31, 2009 and 2008, respectively (Note 4). On August 10, 2006 the ENRE issued Resolution No. 597/2006 which regulates the aforementioned Resolution No. 942/2006 of the National Energy Secretariat and establishes the compensation mechanism to be used.

On October 4, 2007 the Official Gazette published Resolution No. 1037/2007 of the National Energy Secretariat. Said resolution establishes that the amounts paid by the Company for the Quarterly Adjustment Coefficient (CAT) implemented by Section 1 of Law No. 25,957, as well as the amounts corresponding to the Cost Monitoring Mechanism (MMC) for the period May 2006 through April 2007 (Note 17.b items b and c) be deducted from the funds resulting from the difference between surcharges billed and discounts made to customers, resulting from the implementation of the Program for the Rational Use of Electric Power (PUREE), until their transfer to the tariff is granted by the regulatory authority. The resolution also establishes that the MMC adjustment for the period May 2006 through April 2007, applicable as from May 1, 2007, amounts to 9.63 %.

Additionally, on October 25, 2007 the ENRE issued Resolution No. 710/2007 which approves the MMC compensation mechanism established in the aforementioned Resolution No. 1037/2007 of the National Energy Secretariat.

The amounts corresponding to the Cost Monitoring Mechanism (MMC) for the period May 2006 through April 2007 as well as those corresponding to the period May 2007 through October 2007 were transferred to the tariff as from July 1, 2008, in accordance with the provisions of Resolution No. 324/2008 (Note 17.b).

By Note No. 1383 dated November 26, 2008 of the National Energy Secretariat, the ENRE was instructed to consider the earmarking of the funds deriving from the application of the Cost Monitoring Mechanism  (MMC) corresponding to the period May 2007 through October 2007 whose recognition was pending, and to allow that such funds be deducted from the excess funds deriving from the application of the Program for the Rational Use of Electric Power (PUREE), in accordance with the provisions of Resolution No. 1037/2007 of the National Energy Secretariat. The MMC adjustment for the period May 2007 through October 2007, applicable as from November 1, 2007, amounts to 7.56 %.

Additionally, as of December 31, 2009, the Company has submitted to the National Regulatory Authority for the Distribution of Electricity the MMC adjustment requests, in accordance with the following detail:

Assessment Period
Application Date
MMC Adjustment
November 2007 - April 2008
May 2008
5.791%
May 2008 – October 2008
November 2008
5.684%
November 2008 - April 2009
May 2009
5.068%
May 2009 – October 2009
November 2009
5.041%

As of the date of issuance of these financial statements, the approval of the aforementioned adjustments by the National Regulatory Authority for the Distribution of Electricity is still pending. Consequently, the Company could not deduct these CMM from PUREE funds collected during 2009 amounting to 199,825 (Note 10).

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b) Concession

The term of the concession is 95 years and may be extended for an additional maximum period of 10 years. The term of the concession is divided into management periods: a first period of 15 years and subsequent periods of 10 years. At the end of each management period, the Class “A” shares representing 51% of EDENOR’s capital stock, currently held by EASA, must be offered for sale through a public bidding.  If EASA makes the highest bid, it will continue to own the Class “A” shares, and no further disbursements will be necessary. On the contrary, if EASA is not the highest bidder, then the bidder who makes the highest bid must pay EASA the amount of the bid in accordance with the conditions of the public bidding.  The proceeds from the sale of Class “A” shares will be delivered to EASA after deducting any amounts receivable to which the Grantor of the concession may be entitled.

In accordance with the provisions of the Concession Agreement, the Company shall take the necessary measures to guarantee the supply and availability of electricity so as to meet demand in due time and in accordance with stipulated quality levels, for which purpose the Company shall be required to guarantee sources of supply.

For such purpose, the Company has the exclusive right to render electric power distribution and sales services within the concession area to all users who are not authorized to obtain their power supply from the Electric Power Wholesale Market (MEM), thus being obliged to supply all the electric power that may be required. In addition, the Company shall allow free access to its facilities to any MEM agents whenever required, under the terms of the Concession. No specific fee must be paid by the Company under the Concession Agreement during the term of the Concession.

On January 6, 2002, the Federal Executive Power passed Law No. 25,561 whereby adjustment clauses denominated in US dollars or any other foreign currencies, indexation clauses based on price indexes from other countries, as well as any other indexation mechanisms stipulated in the contracts entered into by the Federal Government, including those related to public utilities, were declared null and void as from such date. The resulting prices and rates were converted into Argentine pesos at a rate of 1 peso per US dollar. Furthermore, Law No. 25,561 authorized the Federal Executive Power to renegotiate public utility contracts taking certain requirements into account.

In accordance with the provisions of Laws Nos. 25,972, 26,077, 26,204, 26,339, 26,456 and 26,563 both the declaration of economic emergency and the period to renegotiate public utility contracts were extended through December 31, 2005, 2006 2007, 2008, 2009 and 2011, respectively.

As a part of the renegotiation process, the Unit of Renegotiation and Analysis of Public Utility Contracts (UNIREN) proposed the signing of an Adjustment Agreement that would be the basis of a comprehensive renegotiation agreement of the Concession Agreement. The Company satisfied the regulatory agency’s requirements; provided an answer to the proposal and attended the public hearing convened for such purpose, rejecting in principle the proposal on the grounds that it did not properly address the need to redefine the terms of the agreement as contemplated by the law. Nevertheless, the Company ratified its willingness to reach an understanding that would restore the financial and economic equation of the concession agreement. On September 21, 2005, the Company signed the Adjustment Agreement within the framework of the process of renegotiation of the Concession Agreement set forth in Law No. 25,561 and supplementary regulations. Due to the appointment of a new Economy and Production Minister, on February 13, 2006 a new copy of the Adjustment Agreement was signed under the same terms as those stipulated in the agreement signed on September 21, 2005.

The Adjustment Agreement establishes the following:

i)
the implementation of a Temporary Tariff Regime (RTT) effective as from November 1, 2005, including a 23% average increase in the distribution margin, which may not result in an increase in the average tariff of more than 15%, and an additional 5% average increase in the value added distribution (VAD), allocated to certain specified capital expenditures;
ii)
the requirement that during the term of said temporary tariff regime, dividend payment be subject to the approval of the regulatory authority;
iii)
the establishment of a “social tariff” for the needy and the levels of quality of the service to be rendered;
iv)
the suspension of the claims and legal actions filed by the Company and its shareholders in national or foreign courts due to the effects caused by the Economic Emergency Law;
v)
the carrying out of a Revision of the Company Tariff Structure (RTI) which will result in a new tariff regime that will go into effect on a gradual basis and remain in effect for the following 5 years. In accordance with the provisions of Law No. 24,065, the National Regulatory Authority for the Distribution of Electricity will be in charge of such review;
vi)
the implementation of a minimum investment plan in the electric network for an amount of 178.8 million to be fulfilled by EDENOR during 2006, plus an additional investment of 25.5 million should it be required (item f below);

F-38

vii)
the adjustment of the penalties imposed by the ENRE that are payable to customers as discounts, which were notified by such regulatory agency prior to January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect;
viii)
the waiver of the penalties imposed by the ENRE that are payable to the Argentine State, which have been notified, or their cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect;
ix)
the payment term of the penalties imposed by the ENRE, which are described in item vii above, is 180 days after the approval of the Revision of the Company Tariff Structure (RTI) in fourteen semiannual installments, which represent approximately two-thirds of the penalties imposed by the ENRE before January 6, 2002 as well as of those that have been notified, or whose cause or origin has arisen in the period between January 6, 2002 and the date on which the Adjustment Agreement goes into effect, subject to compliance with certain requirements.

Said agreement was ratified by the Federal Executive Power through Decree No. 1957/06, signed by the President of Argentina on December 28, 2006 and published in the Official Gazette on January 8, 2007. This agreement stipulates the terms and conditions that, upon compliance with the other procedures required by the regulations, will be the fundamental basis of the Comprehensive Renegotiation of the Concession Agreement of electric power distribution and sale within the federal jurisdiction, between the Federal Executive Power and the Company.

Additionally, on February 5, 2007 the Official Gazette published Resolution No. 51/2007 of the ENRE which approves the electricity rate schedule resulting from the RTI applicable to consumption recorded as from February 1, 2007. This document provides for the following:

a)
A 23% average increase in distribution costs, service connection costs and service reconnection costs in effect which the Company collects as the holder of the concession of the public service of electric power distribution, except for the residential tariffs;
b)
Implementation of an additional 5% average increase in distribution costs, to be applied to the execution of the works and infrastructure plan detailed in Appendix II of the Adjustment Agreement. In this regard, the Company has set up the required fund, which as of December 31, 2009 amounts to 71,897. This amount is net of the amounts transferred to CAMMESA for 45,824;
c)
Implementation of the Cost Monitoring Mechanism (MMC) contemplated in Appendix I of the Adjustment Agreement, which for the six-month period beginning November 1, 2005 and ending April 30, 2006, shows a percentage of 8.032%. This percentage will be applied to non-residential consumption recorded from May 1, 2006 through January 31, 2007;
d)
Invoicing in 55 equal and consecutive monthly installments of the differences arising from the application of the new electricity rate schedule for non-residential consumption recorded from November 1, 2005 through January 31, 2007 (items i) and ii) above) and from May 1, 2006 through January 31, 2007 (item iii) above);
e)
Invoicing of the differences corresponding to deviations between foreseen physical transactions and those effectively carried out and of other concepts related to the Wholesale Electric Power Market (MEM), such as the Specific fee payable for the Expansion of the Network, Transportation and Others, included in Trade Receivables under Receivables from sales of electricity as Unbilled (Note 4);
f)
Presentation, within a period of 45 calendar days from the issuance of this resolution, of an adjusted annual investment plan, in physical and monetary values, in compliance with the requirements of the Adjustment Agreement.

The Company has recorded the adjustment of the penalties described in the Adjustment Agreement for an amount of 17,162 as of December 31, 2008, which is equivalent to the tariff increases mentioned in the items above.

Revenues from the retroactive tariff increase deriving from the implementation of the new electricity rate schedule applicable to non-residential consumption for the period of November 2005 through January 31, 2007 have been fully recognized in the financial statements for the year ended December 31, 2007. Such amount, which totaled 218,591, is being invoiced in 55 equal and consecutive monthly installments, as described in item b) of paragraph d) of this note. As of December 31, 2009, the installments corresponding to the months of February 2007 through December 2009 for a total of 149,405 have already been billed.

On April 30, 2007, the Official Gazette published Resolution No. 434/2007 of the National Energy Secretariat which adjusts the time periods set forth in the Adjustment Agreement signed by the Company and the Grantor of the Concession and ratified by Decree No. 1957 of the Federal Government dated December 28, 2006.

In this regard, the aforementioned Resolution provides that the contractual transition period established in the Adjustment Agreement will be in effect from January 6, 2002 to the date on which the Revision of the Company Tariff Structure (RTI) established in the aforementioned Adjustment Agreement goes into effect.

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Furthermore, the Resolution establishes that the new electricity rate schedule resulting from the RTI will go into effect on February 1, 2008. It also stipulates that, in the event that the tariff resulting from the RTI is higher than the tariff established in section 4 of the Adjustment Agreement, the transfer of the increase to the tariff will be made in accordance with the provisions of section 13.2 of the Adjustment Agreement, which establish that the first adjustment will take effect as from February 1, 2008 and the second will take effect six months later, maintaining the percentages agreed upon in the Adjustment Agreement.

The aforementioned Resolution No. 434/2007 establishes that the Company must present an investment plan before May 1, 2007 (which has already been complied with), and that the obligations and commitments set forth in section 22 of the Adjustment Agreement be extended until the date on which the electricity rate schedule resulting from the RTI goes into effect, allowing the Company and its shareholders to resume the claims suspended as a consequence of the Adjustment Agreement if the new electricity rate schedule does not go into effect in the aforementioned time period.

Furthermore, on July 7, 2007 the Official Gazette published Resolution No. 467/07 of the ENRE pursuant to which the first management period is extended for 5 years to commence as from the date on which the Revision of the Company Tariff Structure (RTI) goes into effect. Its original maturity would have taken place on August 31, 2007.

On July 30, 2008, the National Energy Secretariat issued Resolution No. 865/2008 which modifies Resolution No. 434/2007 and establishes that the electricity rate schedule resulting from the Revision of the Company Tariff Structure (RTI) will go into effect in February 2009.
As of the date of issuance of these financial statements, no resolution has been issued concerning the application of the electricity rate schedule resulting from the RTI which was expected to be in effect since February 1, 2009.

On September 19, 2007, the Energy Secretariat by Note No. 1006/07 requested that the Company comply with the provisions of Resolutions Nos. 1875 and 223/07 of the aforementioned Secretariat, dated December 5, 2005 and January 26, 2007, respectively.

In accordance with the aforementioned resolutions, the Company must transfer to CAMMESA, 61.96% of the total amount of the special fund set up in compliance with Clause 4.7 of the Adjustment Agreement, plus any interest accrued on the financial investments made by the Company with such funds.  Such funds will be used for the execution of the works aimed at connecting Central Costanera and Central Puerto electricity generation plants with Malaver substation. The Company recorded 807 and 45,017 in Property, plant and equipment (Note 26 Exhibit A) in the Construction in process account as of December 31, 2009 and 2008, respectively, and 2,066 in Other liabilities in the Capital Expenditures fund – CAMMESA account (Note 10) as of December 31, 2008.

On July 31, 2008, the National Regulatory Authority for the Distribution of Electricity issued Resolution No. 324/2008 which approves the values of the Company’s electricity rate schedule that contemplates the partial application of the adjustments corresponding to the Cost Monitoring Mechanism (MMC) and their transfer to the tariff. The aforementioned electricity rate schedule increases the Company’s value added distribution by 17.9% and has been applied to consumption recorded as from July 1, 2008.

Therefore, the increase in tariffs for final users has ranged from 0% to 30%, on average, depending on consumption.

Furthermore, on October 31, 2008, the National Energy Secretariat issued Resolution No. 1169/2008 which approved the new seasonal reference prices of power and energy in the Electric Power Wholesale Market (MEM).

Consequently, the ENRE issued Resolution No. 628/2008 which approves the values of the electricity rate schedule to be applied as from October 1, 2008.

The aforementioned electricity rate schedule includes the transfer of the increase in the seasonal energy price to tariffs, with the aim of reducing Federal Government grants to the electricity sector, without increasing the value-added of distribution of the Company

The National Ombudsman made a presentation against both the resolutions by which the new electricity rate schedule had gone into effect as from October 1, 2008 and the application of the Program for the Rational Use of Electric Power (PUREE).

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Within the framework of the case, on January 27, 2009, the ENRE notified the Company of a preliminary injunction issued by the Court hearing the case as a consequence of the Ombudsman’s presentation, according to which the Company is prohibited from cutting power due to the nonpayment of bills issued with the rate hike resulting from the application of the resolutions questioned by the Ombudsman, until a final ruling is issued on the case. The injunction has been appealed by the Company and the Argentine Federal Government. On September 1, 2009, Court Room V of the National Appellate Court in Federal Administrative Matters confirmed the first instance decision, thus maintaining in effect the preliminary injunction issued by the court of original jurisdiction. The Company filed an “Extraordinary appeal” against this decision, which was also rejected by the appellate court hearing the case. As a final recourse, on December 7, 2009, the Company filed an appeal (“ Queja por Recurso denegado ”) to the Federal Supreme Court requesting that the extraordinary appeal rejected by the Appellate Court be sustained. The appeal (“ Queja por Recurso denegado ”) is currently being analyzed by the Supreme Court. On July 1, 2009, notice of the proceedings in the matter of “National Ombudsman vs. Federal Government – Resolution No. 1169 and Others, proceeding to decide a legal issue” was served upon the Company, which the Company answered in due time and manner. On November 27, 2009, and within the framework of this case, the Court hearing the case decided to reject that a summons be served upon the firm CAMMESA as a third-party defendant that had been requested by the Company and EDELAP S.A. The Company, considering that said decision causes an irreparable harm filed in due time an appeal, which, as of the date of issuance of these financial statements, has not yet been granted.

On August 10, 2009, the National Regulatory Authority for the Distribution of Electricity issued Disposition No. 55/2009, which established a period for the review and analysis of both the application of Resolution No. 628/2008 of the ENRE –exceptions to the application of the electricity rate schedule- and the effects deriving from the implementation thereof. This review and analysis process consisted of the verification in situ in the three Electricity Distribution Companies of the correct application of the rate schedule in effect to, and the effective implementation of exceptions granted for, consumption recorded from May 2009 to the date of issuance of the aforementioned disposition, in the case of small-demand residential customers whose consumption exceeded 1,000 kWh bimonthly and/or 500 kWh per month.
Furthermore, it was determined that during the period comprehended by the aforementioned process, Electricity Distribution Companies should not send bills corresponding to such period in those cases in which consumption exceeded 1,000 kWh bimonthly and/or 500 kWh per month.

On August 14, 2009, the Energy Secretariat issued Resolution No. 652/09 which ordered the suspension of the reference market prices of energy set forth in sections 6, 7 and 8 of Resolution No. 1169/08 of that Secretariat, and established new values for the periods June-July 2009 and August–September 2009, reinstating partial government grants to the electricity generation sector. Furthermore, the resolution also established the unsubsidized reference market prices of energy for the months of June and July 2009 and the quarter August-October 2009.

Consequently, on August 18, 2009, the Company was notified of Resolution No. 433/2009 of the ENRE, which approved the values of the Electricity Rate Schedules applicable to consumption recorded from midnight June 1, 2009, and midnight August 1, 2009. Additionally, the resolution also approved the values of the Electricity Rate Schedule with unsubsidized -full- tariffs applicable to consumption recorded from midnight June 1, 2009, in accordance with the provisions of section 7 of Resolution No. 652/2009 of the Energy Secretariat.
The aforementioned resolution instructed Electricity Distribution Companies to issue new bills to those customers whose situation fell within the scope of the resolution, following the provisions of Resolution No. 628/2008 of the ENRE, this time applying the Electricity Rate Schedules approved in Resolution No. 433/09. In the case of bills that had already been paid, Electricity Distribution Companies were required to credit the corresponding adjustment against the amount payable in the next billing period.

Additionally, Electricity Distribution Companies were instructed to break down the variable charge in all the bills issued to customers into two concepts: “Unsubsidized Variable Charge” –full tariff- and “Federal Government Grant” –its value is the difference between the value arising from the full rate schedule and the subsidized rate schedule-. Moreover, the surcharges billed due to the application of the Program for the Rational Use of Electric Power (PUREE) had to be recalculated.

On September 3, 2009, the Company was notified of Resolution No. 666/2009 of the Energy Secretariat, which approved the winter quarterly rescheduling for the MEM for the period August 1, 2009 - October 31, 2009.

On September 29, 2009, the Company was notified of Resolution No. 469/09 of the ENRE, whereby the National Regulatory Authority for the Distribution of Electricity approved the values of the electricity rate schedule, with unsubsidized full tariffs to be applied as indicated in section 7 of Resolution No. 652/09 of the Energy Secretariat.  Furthermore, Electricity Distribution Companies were instructed to include in the bills to be issued to small demand residential and general-use customers the fixed charges of the Electricity Rate Schedule approved by Resolution No. 469/09 of the ENRE under the legend “Unsubsidized Fixed Charge”.

On October 26, 2009, notice of the complaint “CONSUMIDORES LIBRES COOP. LTADA. DE PROVISIÓN DE SERVICIOS DE ACCIÓN COMUNITARIA VS Federal Government – National Energy Secretariat – ENRE, proceedings to decide a legal issue” was served upon the Company.  The complaint was filed by two consumer associations: CONSUMIDORES LIBRES COOP. LTADA. DE PROVISIÓN DE SERVICIOS DE ACCIÓN COMUNITARIA and the UNIÓN DE USUARIOS Y CONSUMIDORES against the Federal Government, the ENRE, EDESUR, EDELAP and EDENOR, and is pending in the National Court of Original Jurisdiction in Federal Administrative Matters Number 8, in charge of Justice Ms. Liliana Heiland, attorney-at-law (deputy). In accordance with the terms of the complaint, the associations for the defense of consumer rights, ADDUC and UNIÓN DE USUARIOS Y CONSUMIDORES EN DEFENSA DE SUS DERECHOS, have joined the complaint.

F-41

The remedies sought in the complaint are as follow:

a) That all the last resolutions concerning electricity rates issued by the National Regulatory Authority for the Distribution of Electricity and the National Energy Secretariat be declared null and unconstitutional, and, in consequence whereof, that the amounts billed by virtue of these resolutions be refunded.

b) That all the defendants be under the obligation to carry out the Revision of the Tariff Structure (RTI).

c) That the resolutions issued by the Energy Secretariat that extend the transition period of the Adjustment Agreement be declared null and unconstitutional.

d) That the defendants be ordered to carry out the sale process, through an international public bidding, of the class "A" shares, due to the fact that the Management Period of the Concession Agreement is considered over.

e) That the resolutions as well as any act performed by a governmental authority that modify contractual renegotiations be declared null and unconstitutional.

f) That the resolutions that extend the management periods contemplated in the Concession Agreement be declared null and unconstitutional.

g) Subsidiarily, should the main claim be rejected, that the defendants be ordered to bill all customers on a bimonthly basis.

Additionally, it is requested that a preliminary injunction be issued with the aim of suspending the rate hikes established in the resolutions being questioned by the plaintiff. Subsidiarily, it is requested that the application of the referred to resolutions be partially suspended. Finally, it is also subsidiarily requested by the plaintiff that the application authority be ordered not to issue new increases other than within the framework of the Revision of the Tariff Structure process. As of to date, the Court has neither granted nor rejected that which has been requested.  With regard to the subject matter of the action, it has been answered by the Company within the contemplated legal time period and in due manner.

With reference to that which has been previously mentioned, the objected to rate increases, with the exception of the one granted by Resolution No. 324/08 of the ENRE, do not have a direct impact on the added value distribution, inasmuch as they are the result of the transfer to the tariff of the higher generation costs ordered by the Grantor of the Concession. These generation increases are effective for the Company within the pass-through mechanism in the tariff.

On February 11, 2010 the Court hearing the case decided to turn into a regular process the proceeding that had been brought as an extraordinary summary proceeding, thus extending the time periods involved in the process. With regard to the preliminary injunction, on that date, the court ordered the carrying out of actions to add and clarify existing evidence, prior to taking any decision thereon.

Within the contemplated legal time period, the Company answered the complaint rejecting all its terms and requesting that a summons be served upon CAMMESA as a third-party defendant. The remaining co-defendants have already answered the notice of the complaint served upon them.

Furthermore, on March 31, 2010, notice of the complaint “CONSUMIDORES FINANCIEROS ASOCIACIÓN CIVIL PARA SU DEFENSA vs. EDENOR S.A – EDESUR S.A for BREACH OF CONTRACT” – National Court of Original Jurisdiction in Federal Administrative Matters No. 2 – Clerk’s Office No. 15, was served upon the Company.

The remedies sought in the complaint are as follow:

-           Reimbursement of the VAT percentage paid on the illegally “widened” taxable basis due to the incorporation of a concept (National Fund of Electricity - FNEE) on which no VAT had been paid by the defendants when CAMMESA (the company in charge of the regulation and operation of the wholesale electricity market) invoiced them the electricity purchased for distribution purposes.

-           Reimbursement of part of the administrative surcharge on “second due date”, in those cases in which payment was made within the time period authorized for such second deadline (14 days) but without distinguishing the effective day of payment.

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-           Application of the “borrowing rate” in case of customer delay in complying with payment obligation, in accordance with the provisions of Law No. 26,361.

On April 22, 2010, the Company answered the complaint and filed a motion to dismiss for lack of standing (“excepción de falta de legitimación”), requesting, at such opportunity, that a summons be served upon the Federal Government, the Argentine tax authorities (“AFIP”) and the ENRE as third-party defendants.

With regard to the commencement of the Revision of the Tariff Structure, the ENRE has begun this process, and, on November 12, 2009, the Company submitted its revenue requirements proposal for the new period, which included the grounds and criteria based on which the request is made.

By Note No. 91,241, notified to the Company on December 18, 2009, the ENRE requested that the Company submit the technical rate schedules resulting from the preparation of its proposal, which as of the date of issuance of these financial statements have not yet been submitted due.

In connection with the process for the sale of the shares, the commencement thereof -in accordance with the provisions of Resolution No. 467/2007 of the ENRE- must take place when the five-year tariff period beginning after the ending of the RTI comes to an end. Additionally, the controlling shareholder -Electricidad Argentina S.A. - is authorized to present as bidder in the referred to process and if its offer is selected as the winning bid, the controlling company will not have to make any disbursement whatsoever to keep the control of Edenor.

c)  Concession of the use of real property

Pursuant to the Bid Package, SEGBA granted the Company the free use of real property for periods of 3, 5 and 95 years, with or without a purchase option, based on the characteristics of each asset, and the Company would be responsible for the payment of any taxes, charges and contributions levied on such properties and for the taking out of insurance against fire, property damage and third-party liability, to SEGBA’s satisfaction.

The Company may make all kind of improvements to the properties, including new constructions, upon SEGBA’s prior authorization, which will become the grantor’s property when the concession period is over, and the Company will not be entitled to any compensation whatsoever. SEGBA may terminate the gratuitous bailment contract after demanding the performance by the Company of any pending obligation, in certain specified cases contemplated in the Bid Package. At present, as SEGBA’s residual entity has been liquidated, these presentations and controls are made to the National Agency of Public Properties (ONABE), with which the Company entered into a debt recognition and refinancing agreement for 4,681 on September 25, 2009.

The form of payment stipulated in the aforementioned agreement establishes an advance payment of 1,170, which the Company made on September 25, 2009, and 48 installments of 104 for the remaining balance of 3,511. The installments include compensatory interest of 18.5% per annum under the French system, and are payable as from October 2009
As of December 31, 2009, principal owed for this concept amounts to 3,358, which has been recorded in Trade accounts payable under Other (Note 6).

As of the date of issuance of these financial statements, the Company has acquired for an amount of 12,765, nine of these properties whose gratuitous bailment contracts had expired. The title deeds of eight of these properties have been executed at a price of 12,375. As for the remaining property, a down payment of 117 has been made while the outstanding amount of 273 will be payable upon the execution of the title deed on a date to be set by the Ministry of Economy.

18.
CASH FLOW INFORMATION

a)
Cash and cash equivalents:

For the preparation of the Statement of Cash Flows, the Company considers as cash equivalents all highly liquid investments.

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As of
December
31, 2009
As of
December
31, 2008
As of
December
31, 2007
Cash and Banks
8,685 6,061 3,459
Time deposits
27,191 0 12,087
Money market funds
80,055 88,548 0
Corporate notes and Shares
112,441 393 0
Notes receivable
0 0 85,652
Government bonds
0 30,717 0
Municipal bonds
0 680 0
Total cash and cash equivalents in the Statement of Cash Flows
228,372 126,399 101,198

b)
Interest paid and collected:

For the years ended
December 31,
2009
2008
2007
Interest paid during the year
(101,793 ) (94,162 ) (38,149 )
Interest collected during the year
32,230 6,872 3,175

19.
INSURANCE COVERAGE

As of December 31, 2009, the Company carries the following insurance policies for purposes of safeguarding its assets and commercial operations:

Risk covered
Amount insured
Comprehensive (1)
US$
526,323,332
Mandatory life insurance
$ 24,687,000
Additional life insurance
$ 64,625,540
Funeral and burial insurance
$ 54,860,000
Theft of securities
US$
100,000
Vehicles (theft, third-party liability and   damages)
$ 10,322,807
Land freight
US$
2,000,000
Imports freight
$ 2,250,000

(1)
Includes: fire, partial theft, tornado, hurricane, earthquake, earth tremors, flooding and debris removal from facilities on facilities providing actual service, except for high, medium and low voltage networks.

20.
CLAIM OF THE PROVINCE OF BUENOS AIRES BOARD OF ELECTRIC POWER

On December 1, 2003, the Board of Electric Power of the Province of Buenos Aires (Board) filed a claim against EDENOR in the amount of 284,364 that includes surcharges and interest as of the date of the claim, and imposed penalties for an amount of 25,963, due to the Company’s alleged failure to act as collecting agent of certain taxes established by Decrees-law Nos. 7290/67 and 9038/78 from July 1997 through June 2001.

On December 23, 2003, the Company appealed the Board's decision with the Tax Court of the Province of Buenos Aires, which had the effect of temporarily suspending the Company’s obligation to pay. Such appeals were filed on the grounds that the Federal Supreme Court had declared that the regulations established by the aforementioned Decrees-law were unconstitutional, as they were incompatible with the Province of Buenos Aires’ commitment not to levy any taxes on the transfer of electricity.

On March 20, 2007, the Board of Electric Power of the Province of Buenos Aires amended the original complaint to include an additional claim in the amount of 7,720 that includes surcharges and interest as of the date of the claim for the period of July 2001 through June 2002, extending the claim to certain Company Directors.

On June 27, 2007, the Tax Court of the Province of Buenos Aires pronounced in favor of the appeal duly lodged by the Company, thus becoming final.

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At the same time, on June 23, 2005, a petition for a declaratory judgment proceeding was filed with the Secretariat of Original Lawsuits of the Federal Supreme Court, so that the maximum authority clarify the condition of uncertainty generated by the provincial tax authorities’ insistence on not honoring the commitment assumed by the Province in the Federal Pact, and their avoidance of the Federal Supreme Court’s decisions. The aforementioned proceeding is still pending on the Federal Supreme Court.

Therefore, no accrual has been recorded for these claims as the Company’s management, based on both the aforementioned pronouncement and the opinion of its legal advisors, believes that there exist solid arguments to support its position.

21.
LEGAL ACTION FOR ALLEGED ENVIRONMENTAL POLLUTION

On May 24, 2005, three of EDENOR’s employees were indicted on charges of polychlorinated biphenyl (PCB)-related environmental contamination. In connection with this alleged violation, the judge ordered a preliminary attachment on the Company's assets in the amount of 150 million pesos to cover the potential cost of damage repair, environmental restoration and court costs. On May 30, 2005, the Company filed appeals against both the charges brought against its employees and the attachment order. On December 15, 2005, the Federal Court of Appeals of San Martín dismissed the charges against all three defendants and, accordingly, revoked the attachment order against the Company’s assets. The decision of the Court of Appeals was based on the fact that the existence of environmental pollution could not be proved, and, in consequence whereof, established that the Trial Judge should order the acquittal of two ENRE public officers who had been indicted on related charges. An appeal against this decision was filed in the Tribunal de Casación (the highest appellate body for this matter), which on April 5, 2006 ruled that the appeal was not admissible.

On July 16, 2007, the Company was notified that on July 11, 2007 the Trial Judge ruled the definitive acquittal of all Company officials and employees that had been indicted in the case, thus ordering the closing of the case. This decision could be appealed .

After the filing of an appeal, on March 25, 2008, the Federal Court of Appeals of San Martín confirmed the decision rendered by the court of original jurisdiction that had ordered the acquittal of Messrs. Daniel José Lello, Luciano Pironio, Julio Adalberto Márquez, Francisco Ponasso, Henri Lafontaine, Henri Marcel Roger Ducre and Christian Rolland Nadal, as well as the acquittal of ENRE officers, Mr. Juan Antonio Legisa and Ms. María Cristina Massei.

In its decision, the appellate court, quoting the “Chazarreta” judgment as judicial precedent, stated that the right to defense at trial pursuant to due process, guaranteed by the Constitution, included the right to obtain a judgment that would put an end to the situation of uncertainty that implied criminal prosecution. Furthermore, the appellate court’s decision also stated that if the Prosecutor, after a thorough investigation, was unable to transfer the presumption of guilt to the degree of certainty required for a declaration of criminal liability, the status of innocence should prevail.

Based on the foregoing, and considering that the preliminary investigation phase had ended, the Federal Court of Appeals ordered the confirmation of the aforementioned resolution.

It is worth mentioning that the dismissal ordered by the judge of original jurisdiction was appealed by the Prosecutor, who cited the possible dismissal of criminal action for being beyond the statute of limitations, as a grievance, among other possibilities, caused by the decision of the court.

However, after the filing of the corresponding legal briefs by the Company, the appellate court confirmed the decision of the court of original jurisdiction based on the aforementioned resolution of the Appellate Court, according to which the existence of PCB-related environmental pollution had not been proven.

The decision, whose reversal was requested by the Prosecut or’ s Office through an extraordinary appeal within the period of 10 days as from notice thereof had been served, was confirmed by the Federal Court of Appeals of San Martín, which rejected the Prosecuting attorney’s appeal.

The Prosecutor’s Office filed an appeal (“ Recurso de Queja ”) to the Tribunal de Casación requesting that the appeal dismissed by the Federal Court of Appeals of San Martín be sustained. The Tribunal de Casación rejected the appeal as well. The resolution in question was notified to the Prosecutor’s Office on December 29, 2008. Within the contemplated legal time period, the Prosecutor’s Office filed with such Tribunal an “Extraordinary appeal”. The defense has duly answered the notice served. On May 27, 2009, the Tribunal “dismissed the extraordinary appeal filed by the Prosecutor’s Office” on the grounds that it failed to specifically and reasonably refute the arguments that supported the resolution being appealed, and proved neither the alleged arbitrariness nor the violation of constitutional guaranties. The Prosecutor’s Office filed an appeal (“ Recurso de Queja ”) to the Federal Supreme Court requesting that the appeal dismissed by the Tribunal de Casación be sustained. As of the date of issuance of these financial statements, the appeal is being analyzed by the Supreme Court.

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In the opinion of the Company’s management and its legal advisors, it is probable that the appeal will be rejected and the judgment ordering the acquittal of all defendants will be confirmed.

22.
DISCRETIONARY TRUST AGREEMENT

On September 30, 2008, the Company and Macro Bank Limited entered into an irrevocable and discretionary trust agreement.

Through the establishment of the trust, which was approved by the Board of Directors on September 29, 2008 and duly informed to control authorities, the Company assigns the management of certain liquid assets for an initial amount of up to US$ 24,000,000, which are to be used in the future in accordance with the terms of the trust.

The assignment of liquid assets for an amount of US$ 23,922,000 was carried out on October 2, 2008.

Furthermore, on November 3 and 11, 2008, the Company carried out an additional assignment of liquid assets for US$ 2,000,000 and US$ 1,000,000, respectively.

On September 3, 2009, the discretionary trust was dissolved and the trust property was liquidated and transferred to the Company.

As of December 31, 2009 and 2008, the results generated by this transaction have been disclosed in the Financial income (expense) and holding gains (losses) generated by assets account of the Statement of Income under Holding results.

23.
DERIVATIVE FINANCIAL INSTRUMENTS

a)
Corporate Notes

During the year ended December 31, 2008, the Company carried out transactions with derivative financial instruments with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions.

These instruments provided an economic and financial hedge of the amounts in foreign currency that the Company had to pay on the interest payment dates of its financial debt –Class A and B Fixed Rate Par Notes and Class 7 Notes (Note 14)-, maturing on October 8, 2008, December 11, 2008, April 8, 2009, June 12, 2009, October 8, 2009 and December 11, 2009, in the event of fluctuations in foreign currency exchange rates. The Company has not formally designated these transactions as hedging instruments. Therefore, they have been recorded in the accounting in accordance with the provisions of Technical Resolution No. 18 of the Argentine Federation of Professional Councils in Economic Sciences (FACPCE), which require that derivative instruments not designated as effective hedging instruments be recorded at their net realizable value or settlement value, depending on whether they have been classified as assets or liabilities, with a contra-account in the financial gains or losses for the year.

As of December 31, 2009, these transactions have been fully settled, there being no outstanding balances. Additionally, as of December 31, 2008 there existed a balance of 7,905 for this concept (Note 7).

As of December 31, 2009 and 2008, income resulting from these transactions amounted to 1,622 and 5,669, respectively, and was recorded in the Financial income (expense) and holding gains (losses) generated by liabilities account of the Statement of Income under Exchange difference.

b)
Forward and Futures Contracts

During the year ended December 31, 2009, the Company has entered into forward and futures contracts with the aim of using them as economic instruments in order to mitigate the risk generated by the fluctuations in the US dollar rate of exchange.

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As of December 31, 2009, the Company has entered into contracts with Standard Bank Argentina S.A. and Banco Finansur S.A., the main features of which are as follow:

Entity
Contracted amount
in thousands of US$
Average rate
of exchange
Transaction
date
Settlement
date
Book value as of
December 31, 2009
Assets (Liabilities)
Note 7
Banco Finansur
9,000 4.1645
07/27/2009
04/30/2010
(1,814 )
Banco Finansur
1,000 4.2420
07/27/2009
06/30/2010
(202 )
Standard Bank
12,000 4.4475
09/30/2009
12/31/2010
(1,338 )
Banco Finansur
33,000 4.2400
09/30/2009
10/31/2010
(1,532 )
Standard Bank
10,000 4.4475
10/01/2009
12/31/2010
(1,115 )
65,000 (6,001 )

As of December 31, 2009, the economic impact of these transactions -including contracts that have already been settled as well as those currently in effect-, resulted in a loss of 12,266 that has been recorded in the Financial income (expense) and holding gains (losses) generated by assets account of the Statement of Income under Holding results.

Additionally, in the case of the futures contract entered into with Banco Finansur S.A., the Company has provided initial margins for a total of 26,196 which have been disclosed in the “Other receivables” account (Note 5).

24.
RESTRICTIONS ON THE DISTRIBUTION OF EARNINGS

In accordance with the provisions of Law No. 19,550, 5% of the net income for the year must be appropriated to the legal reserve, until such reserve equals 20% of capital stock. The Ordinary Shareholders’ Meeting held on March 31, 2009 appropriated 6,156 of Unappropriated Retained Earnings as of December 31, 2008 to the aforementioned legal reserve (Note 16.d).

Moreover, in accordance with the provisions of Law No. 25,063,  passed in December 1998, dividends to be distributed, whether in cash or in kind, in excess of accumulated taxable profits as of the fiscal year-end immediately preceding the date of payment or distribution, shall be subject to a final 35% income tax withholding, except for those dividends distributed to shareholders who are residents of countries benefiting from conventions for the avoidance of double taxation who will be subject to a lower tax rate. For income tax purposes, accumulated taxable income shall be the unappropriated retained earnings as of the end of the year immediately preceding the date on which the above-mentioned law went into effect, less dividends paid plus the taxable income determined as from such year and dividends or income from related companies in Argentina.

Since the restructuring of the Company’s financial debt referred to in Note 14, the Company was not allowed to distribute dividends until April 24, 2008 or until such time when the Company’s leverage ratio were lower than 2.5, whichever occurred first. As from this time, distribution of dividends may only be allowed under certain circumstances depending on the Company’s indebtedness ratio.

Certain restrictions on the distribution of dividends by the Company and the need for approval by the ENRE for any distribution have been disclosed in Note 17.b).

25.
BREAKDOWN OF TEMPORARY INVESTMENTS, RECEIVABLES AND LIABILITIES BY COLLECTION AND PAYMENT TERMS

As required by the CNV’s regulations, the balances of the accounts below as of December 31, 2009, are as follow:

F-47
Term
Investments
Receivables
(1)
Financial
Debt
(Loans)
Other payables
(2)
With no explicit due date
0 45,531 0 610,775
With due date
Past due:
Up to three months
0 74,676 0 0
From three to six months
0 28,920 0 0
From six to nine months
0 9,199 0 0
From nine to twelve months
0 28,880 0 0
Over one year
0 15,329 0 0
Total past due
0 157,004 0 0
To become due:
Up to three months
219,687 276,693 20,527 533,400
From three to six months
0 15,192 30,167 52,254
From six to nine months
0 14,739 14,155 14,402
From nine to twelve months
0 14,302 18,139 14,416
Over one year
0 130,272 707,499 99,901
Total to become due
219,687 451,198 790,487 714,373
Total with due date
219,687 608,202 790,487 714,373
Total
219,687 653,733 790,487 1,325,148

(1) Excludes allowances
(2) Comprises total liabilities except accrued litigation and financial debt.

The financial debt mentioned in Note 14 accrues interest at floating and fixed rates, which amount to approximately 10.67% on average; only 16.57% of the debt accrues interest at a floating rate whereas the remaining accrues interest at a fixed rate.

26.
OTHER INFORMATION

The followings exhibits present additional financial statement disclosure required under Argentine

F-48

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
EXHIBIT A
PROPERTY, PLANT AND EQUIPMENT
Page 1 of 2
(stated in thousands of pesos)
Original value
Depreciation
Net
MAIN ACCOUNT
At beginning
of year
Additions
Retirements
Transfers
At end
of year
At beginning
of year
Retirements
For the
year
Annual
rate
At end
of year
book value
2,009
FACILITIES IN SERVICE
Substations
887,222 0 (3,066 ) 143,069 1,027,225 336,203 (2,473 ) 28,442
3 - 4%
362,172 665,053
High voltage networks
398,304 0 0 63,968 462,272 144,675 0 11,882
3 - 4%
156,557 305,715
Medium voltage networks
829,470 0 (597 ) 52,970 881,843 323,671 (223 ) 25,120
3 - 4%
348,568 533,275
Low voltage networks
1,715,331 0 (4,153 ) 60,133 1,771,311 986,478 (2,375 ) 48,477
4 - 5%
1,032,580 738,731
Transformation chambers and platforms
545,342 0 (46 ) 69,742 615,038 207,332 (43 ) 17,563
3 - 4%
224,852 390,186
Meters
631,670 0 0 48,142 679,812 260,044 0 25,582
4 - 5%
285,626 394,l86
Buildings
92,514 0 0 3,860 96,374 22,056 0 1,096
2 - 3%
23,152 73,222
Communications network and facilities
84,223 0 0 12,092 96,315 56,824 0 4,653
4 - 5%
61,477 34,838
Total facilities in service
5,184,076 0 (7,862 ) 453,976 5,630,190 2,337,283 (5,114 ) 162,815 2,494,984 3,135,206
FURNITURE, TOOLS AND EQUIPMENT
Furniture, equipment and software projects
186,778 4,628 (68 ) 0 191,338 167,303 (68 ) 10,520
12 - 13%
177,755 13,583
Tools and other
46,499 379 0 0 46,878 43,170 0 726
10 - 11%
43,896 2,982
Transportation equipment
18,777 5,656 (596 ) 0 23,837 14,097 (581 ) 1, 358
20%
14,874 8,963
Total furniture, tools and equipment
252,054 10, 663 (664 ) 0 262,053 224,570 (649 ) 12,604 236,525 25,528
Total assets subject to depreciation
5,436,130 10,663 (8,526 ) 453,976 5,892,243 2,561,853 (5,763 ) 175,419 2,731,509 3,160,734
CONSTRUCTION IN PROCESS
Transmission
242,401 121,965 0 (207,037 ) 157,329 0 0 0
-
0 157,329
Distribution and other
139,580 271,682 0 (246,939 ) 164,323 0 0 0
-
0 164,323
Total construction in process
381,981 393,647 0 (453,976 ) 321,652 0 0 0 0 321,652
Total 2009
5,818,111 404,310 (8,526 ) 0 6,213,895 2,561,853 (5,763 ) 17 5 ,419 2,731,509 3,482,386

The Additions column in the Distribution and other line includes 1,746 related to the extension of the software lease agreement (Note 3.g).

F-49

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

FINANCIAL STATEMENTS AS OF DECEMBER 31, 2008 AND 2007
EXHIBIT A
PROPERTY, PLANT AND EQUIPMENT
Page 2 of 2
(stated in thousands of pesos)
Original value
Depreciation
Net
Net
MAIN ACCOUNT
At beginning
of year
Additions
Retirements
Transfers
At end
of year
At beginning
of year
Retirements
For the
year
Annual
rate
Useful
lives
At end
of year
book value
2,008
book value
2,007
FACILITIES IN SERVICE
Substations
872,565 0 (415 ) 15,072 887,222 310,167 (133 ) 26,169
3 - 4%
25-35
336,203 551,019 562,398
High voltage networks
381,906 0 0 16,398 398,304 133,599 0 11,076
3 - 4%
25-35
144,675 253,629 248,307
Medium voltage networks
773,928 0 (771 ) 56,313 829,470 299,515 (491 ) 24,647
3 - 4%
25-35
323,671 505,799 474,413
Low voltage networks
1,658,143 0 (2,534 ) 59,722 1,715,331 936,726 (1,484 ) 51,236
4 - 5%
20-25
986,478 728,853 721,417
Transformation chambers and platforms
491,159 0 (297 ) 54,480 545,342 191,191 (162 ) 16,303
3 - 4%
25-33
207,332 338,010 299,968
Meters
583,370 0 0 48,300 631,670 235,166 0 24,878
4 - 5%
20-25
260,044 371,626 348,204
Buildings
77,579 0 (163 ) 15,098 92,514 21,053 0 1,003
2 - 3%
33-45
22,056 70,458 56,526
Communications network and facilities
84,223 0 0 0 84,223 52,600 0 4,224
4 - 5%
20-25
56,824 27,399 31,623
Total facilities in service
4,922,873 0 (4,180 ) 265,383 5,184,076 2,180,017 (2,270 ) 159,536 2,337,283 2,846 ,793 2,742,856
FURNITURE, TOOLS AND EQUIPMENT
Furniture, equipment and software projects
168,208 18,570 0 0 186,778 158,029 0 9,274
12 - 13%
7-8
167,303 19,475 10,179
Tools and other
45,179 1,320 0 0 46,499 42,448 0 722
10 - 11%
9-10
43,170 3,329 2,731
Transportation equipment
15,366 3,827 (416 ) 0 18,777 13,782 (416 ) 731
20%
5
14,097 4,680 1,584
Total furniture, tools and equipment
228,753 23,717 (416 ) 0 252,054 214,259 (416 ) 10,727 224,570 27,484 14,494
Total assets subject to depreciation
5,151,626 23,717 (4,596 ) 265,383 5,436,130 2,394,276 (2,686 ) 170,263 2,561,853 2,874,277 2,757,350
CONSTRUCTION IN PROCESS
Transmission
152,578 121,293 0 (31,470 ) 242,401 0 0 0
-
0 242,401 152,578
Distribution and other
182,781 190,712 0 (233,913 ) 139,580 0 0 0
-
0 139,580 182,781
Total construction in process
335,359
312,005
0 (265,383 ) 381,981 0 0 0 0 381,981 335,359
Total 2008
5,486,985 335,722 (4,596 ) 0 5,818,111 2,394,276 (2,686 ) 170,263 2,561,853 3,256,258
Total 2007
5,146,176 342,749 (1,940 ) 0 5,486,985 2,220,754 (835 ) 174,357 2,394,276 3,092,709

F-50
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
EXHIBIT C
INVESTMENTS IN OTHER COMPANIES

(stated in thousands of pesos)

Information on the Issuer
Last financial statement issued
Name and features
of securities
Class
Face
value
Number
Adjusted
cost
Value on
equity
method
Net
book value
2009
Main
activity
Date
Nominal
Capital
Stock
Income
for the year
Equity
% interest
in capital
stock
Net
book value
2008
NON-CURRENT
INVESTMENTS
Section 33 Law No. 19,550
as amended -Companies-
Related Company:
SACME S.A.
common
non -endorable
$ 1 6,000 15 408 408
Electric power services
12/31/2009
12
22 816 50 397
Total
408 397
F-51

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
EXHIBIT D
OTHER INVESTMENTS
(stated in thousands of pesos)
Net book value
MAIN ACCOUNT
2009
2008
CURRENT INVESTMENTS
Time deposits
- in foreign currency (Exhibit G)
27,191 0
Money market funds
- in local currency
80,055 88,548
Municipal bonds
- in local currency
0 1,361
Government bonds
- in foreign currency (Exhibit G)
0 30,717
Corporate Notes
- in foreign currency (Exhibit G)
112,441 393
Total Current Investments
219,687 121,019
NON-CURRENT INVESTMENTS
Municipal bonds
- in local currency
0 7,483
Discretionary trust
- in foreign currency (Exhibit G)
0 48,945
Corporate Notes
- in foreign currency (Exhibit G)
0 10,784
Total Non-Current Investments
0 67,212
Total Investments
219,687 188,231
F-52

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2009
EXHIBIT E
ALLOWANCES AND ACCRUALS
Page 1 of 3
(stated in thousands of pesos)
2009
MAIN
ACCOUNT
At
beginning
of year
Additions
Retirements
Recoveries
(1)
At
end of
year
Deducted from current assets
For doubtful accounts
33,097 20,327 (6,780 ) (26,956 ) 19,688
For other doubtful accounts
4,573
3,975
(640 ) 0 7,908
Included in current liabilities
Accrued litigation
52,756
15,500 (5,443 ) 0 62,813
Included in non-current liabilities
Accrued litigation
45,078 559 0 (35,553 ) 10,084
(1)
The 26,956 relate to the Framework Agreement with the Province of Buenos Aires (Notes 12 and 13, and Note 26 Exhibit H).
The 35,553 relate to the recovery of the accrual for tax contingencies (Notes 3.i and 12).
F-53

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

EXHIBIT E
ALLOWANCES AND ACCRUALS
Page 2 of 3

(stated in thousands of pesos)
2008
MAIN
ACCOUNT
At
beginning
of year
Additions
Retirements
Recoveries
At
end
of year
Deducted from current assets
For doubtful accounts
40,006 23,559 (6,452 ) (24,016 ) 33,097
For other doubtful accounts
2,900 1,673 0 0 4,573
Deducted from non-current assets
For impairment of value of deferred tax assets
34,482 0 (34,482 ) 0 0
Included in current liabilities
Accrued litigation
39,868
19,900
(7,012 ) 0 52,756
Included in non-current liabilities
Accrued litigation
42,843 2,235 0 0 45,078
F-54
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
EXHIBIT E
ALLOWANCE S AND ACCRUAL S
Page 3 of 3
(stated in thousands of pesos)
2007
MAIN
ACCOUNT
At
beginning
of year
Additions
Retirements
At
end
of y ear
Deducted from current assets
For doubtful accounts
25,623 30,100 (15,717 ) 40,006
For other doubtful accounts
2,300 600 0 2,900
Deducted from non-current assets
For impairment of value of Municipal bonds
5,918 0 (5,918 ) 0
For impairment of value of net deferred tax assets
32,261 2,221 0 34,482
Included in current liabilities
Accrued litigation
25,914 16,750 (2,796 ) 39,868
Included in non-current liabilities
Accrued litigation
40,606 2,237 0 42,843
F-55

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
EXHIBIT G
FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES
2009
2008
Booked
Booked
Currency
Exchange
amount in
Currency
amount in
and
rate
thousands
and
thousands
Account
amount (2)
(1)
of pesos
amount (2)
of pesos
Current Assets
Cash and banks
US$ 292,212 3.760 1,099 US$ 1,161,320 3,964
ECU 42,394 5.3952 229 ECU 37,451 177
Investments
Time deposits
US$ 7,226,043 3.760 27,170 US$ 0 0
ECU 3,983 5.3952 21 ECU 0 0
Government bonds
US$ 0 3.760 0 US$ 8,999,929 30,717
Corporate Notes
US$ 29,904,415 3.760 112,441 US$ 115,035 393
Other receivables
Expenses advanced
US$ 118,878 3.760 447 US$ 0 0
Receivables from activities other than the main activity
US$ 363,665 3.760 1 ,367 US$ 249,534 852
Warranty deposits
US$ 6,090 ,200 3.760 22,899 US$ 0 0
Other
US$ 5,600 3.760 21 US$ 0 0
ECU 19,949 5.3952 108 ECU 2,285 11
Total Current Assets
165,802 36,114
Non-Current Assets
Investments
Corporate Notes
US$ 0 3.760 0 US$ 3,159,764 10,784
Discretionary trust
US$ 0 3.760 0 US$ 14,340,663 48, 945
Total Non-Current Assets
0 59,729
Total Assets
165,802 95,843
Current Liabilities
Trade accounts payable
US$ 6,794,947 3.800 25,821 US$ 5,443,784 18,797
ECU 15, 438 5.4530 84 ECU 517,726 2,480
NOK 0 0.6602 0 NOK 667,200 331
CHF 108,826 3.6756 400 CHF 453,851 1,485
Loans
Corporate Notes
US$ 3,682,978 3.800 13,996 US$ 2,609,904 9,012
Financial loans
ECU 0 5.4530 0 ECU 237,978 1 ,140
Other liabilities
Other
US$ 1,065,796 3.800 4,050 US$ 374 ,218 1 ,292
ECU 8,913 $ 5.453 49 ECU 0 0
Total Current Liabilities
44,400 34,537
Non-Current Liabilities
Loans
Corporate Notes
US$ 176,633,106 3.800 671,206 US$ 262,670 ,141 907,000
Total Non-Current Liabilities
671,206 907,000
Total Liabilities
715,606 941,537

(1) Selling and buying exchange rate of Banco de la Naci ó n Argentina in effect at the end of the year
(2) US$ = US Dollar; ECU = Euro; NOK = Norwegian Krone; CHF Swiss Franc .

F-56

EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)

INFORMATION REQUIRED BY SECTION 64 CLAUSE b) OF LAW No. 19,550

EXHIBIT H

FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007

(stated in thousands of pesos)
2009
2008
2007
Description
Transmission and
Distribution
Expenses
Selling
Expenses
Administrative
Expenses
Total
Total
Total
Salaries and social security taxes
219,836 51,595 58,927 330,358 257,629 187,712
Postage and telephone
4,361 8,606 2,071 15,038 12,919 10,790
Bank commissions
0 9,373 0 9,373 7,529 7,816
Allowance for doubtful accounts (1)
0 18,582 0 18,582 15,304 30,700
Supplies consumption
34,337 1,429 1,961 37,727 34,298 25,468
Work by third parties
110,184 40,095 15,062 165,341 140,129 114,422
Rent and insurance
4,869 629 6,199 11,697 6,967 6,086
Security services
4,568 339 1,947 6,854 5,314 4,926
Fees
1,530 80 4,623 6,233 6,259 4,932
Computer services
13 5,760 22,829 28,602 21,148 13,548
Advertising
0 0 16,769 16,769 12,849 15,362
Reimbursements to personnel
1,687 363 521 2,571 6,077 8,123
Temporary personnel
183 1,141 594 1,918 2,111 1,982
Depreciation of property, plant and equipment
166,810 2,986 5,623 175,419 170,263 174,357
Technical assistance
0 0 0 0 15,377 8,583
Directors and Supervisory Committee members’ fees
0 0 2,860 2,860 2,912 1,194
Tax on financial transactions
0 0 32,533 32,533 27,001 31,544
Taxes and charges
0 17,927 2,013 19,940 16,437 13,441
Other
205 51 2,035 2,291 2,100 1,856
Total 2009
548,583 158,956 176,567 884,106 - -
Total 2008
497,870 126,016 138,737 - 762,623 -
Total 2007
417,553 120,633 124,656 - - 662,842

(1) As of December 31, 2009, net of the recovery of the allowance Framework Agreement with the Province of Buenos Aires for 5,720 (Notes 12 and 13 and Note 26 Exhibit E).

F-57
27.
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ARGENTINE GAAP AND US GAAP

The Company’s financial statements have been prepared in accordance with Argentine GAAP and the regulations of the CNV, which differs in certain respects from US GAAP. Such differences involve certain methods for measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP and the regulations of the SEC.

As discussed in Note 2, under Argentine GAAP, the financial statements are presented in constant pesos based on the application of therein mentioned resolutions. This reconciliation, as permitted by SEC regulations, does not include the effects of inflation on US GAAP net income and shareholders’ equity.

I.
Differences in Valuation Methods

The main differences between Argentine GAAP and US GAAP are described below together with an explanation, where appropriate, of the method used in the determination of the adjustments that affect net income and total shareholders’ equity. References below to “ASC” are to FASB Accounting Standard Codification.

a)
Deferred income taxes

As discussed in Note 3.m, under Argentine GAAP the Company accounts for income taxes using the liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recognized for tax loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized for that component of deferred tax assets which is not recoverable. This Argentine GAAP is similar to US GAAP set forth in Income Taxes topic of the FASB Accounting Standards Codification (“ASC 740”). However, under Argentine GAAP as discussed in Note 2, the CNV through its General Resolutions N° 485/05 and 487/06 decided to implement certain changes in the Argentine GAAP effective for fiscal years or interim periods beginning as from January 1, 2006, by requiring the application of TR N° 6, 8, 9, 11, 14, 16, 17, 18, 21, and 22 and Interpretations 1, 2, 3, and 4, of the FACPCE with the amendments introduced by such Federation through April 1, 2005 (Resolution N° 312/05) and adopted by the CPCECABA (Resolution CD N° 93/05) with certain amendments and clarifications.

Among the aforementioned changes it is included the consideration of the difference between the accounting and tax values resulting from the adjustment for inflation included in non-monetary assets, as a temporary difference, allowing the Company to either recognize a deferred tax liability or to disclose the effect of such accounting change in Note 2 to the financial statements.

The Company has completed its analysis of the impact of the application of the change mentioned in the preceding paragraph and it has decided to disclose said effect in a note to the financial statements and keep treating it as a permanent difference for deferred income tax purposes. Under US GAAP, the Company applies Foreign Currency Matters topic – Income tax subtopic section 25 paragraph 5 of the FASB Accounting Standards Codification which requires such differences to be treated as temporary differences in calculating deferred income taxes. In addition, the US GAAP adjustment includes the effect on deferred income taxes of the described below reconciling items, as appropriate.

Under Argentine GAAP, the realization of deferred income tax assets depends on the generation of future taxable income when temporary differences would be deductible. Accordingly, the Company has considered the reversal of the deferred income tax liabilities and taxable income projections based on its estimates, which includes the effects of the tariff increase as described in Note 3. m).

As of December 31, 2007, the allowance for impairment of value of deferred tax assets represented the portion of the tax loss generated in 2002 whose offset against future taxable income would not be possible after the filing of the 2007 income tax return, due to the fact that it became statute-barred. As of December 31, 2008, the allowance on the deferred income tax assets was totally reversed out considering on one hand, that a portion of the tax loss carry forward became statute –barred and on the other hand, the Company estimates that there will be future taxable income so that assets temporary differences will be recovered.

As of December 31, 2009, there is no allowance for the deferred income tax assets due to the fact that the Company assesses that it will be recovered with future taxable income

F-58
Deferred tax assets are also recognized for tax loss carry forwards. Under ASC 740, deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets or liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

ASC 740 provides for more specific rules in determining the valuation allowance for deferred tax assets. Under this pronouncement, an enterprise must use judgment in considering the relative impact of negative and positive evidence to determine if a valuation allowance is needed or not.

In addition, under Argentine GAAP, deferred tax assets and liabilities are classified as non current items, while under US GAAP these amounts are classified as current or non-current based on the classification of the related asset or liability for financial reporting.  A deferred tax liability or asset that is not related to an asset or liability for financial reporting, including deferred tax assets related to tax loss carry-forwards, shall be classified according to the expected reversal date of the temporary difference.

The Company applies ASC section 715-30-25 and the disclosures requirements of ASC section 715-20-50, as described in Note 27.II.e). As a result, as of December 31, 2009 and 2008, the Company recongnized a deferred tax asset amounting to 2,232 and 3,002, respectively, related to the tax effect on the unrecognized net actuarial loss.

The effect of the foregoing US GAAP adjustments on net income and shareholders’ equity are included in the Note 27.I.g) below.

b)
Interest capitalized – net

Through December 31, 2005, the capitalization of financial costs was discretionary under Argentine GAAP. Thus, the Company capitalized financial costs in property, plant and equipments from 1997 to 2001 and subsequently discontinued such capitalization in 2001 as more fully described in Note 3.g). As from January 1, 2006, and as required by CNV General Resolution N° 485, the capitalization of financial costs is mandatory, thus, the Company capitalized financial costs during the years ended December 31, 2009 and 2008.

Under US GAAP, the Company applied Topic ASC 835 “Interest” whereby interest capitalization on assets is mandatory for those assets which require a period of time to get them ready for their intended use.

The effect of this US GAAP adjustment on net income and shareholders’ equity are presented in the Note 27.I.g).

c)
Asset retirement obligations - net

Under Argentine GAAP, in accordance with FAPCE TR 17, EDENOR capitalized in property, plant and equipments the costs associated with the removal of polychlorinated biphepyl (PCB) included in the transformers when the removal is requested.

Capitalization of these costs is based on the fact that, if a transformer containing PCB is to be purchased, the de-chlorination cost would be a necessary cost to have the equipment ready for operation. If de-chlorination cost had not been incurred, the equipment (i.e. transformers) should have been written off.

Under US GAAP, the Company applied Topic ASC 410 “Asset Retirement and Environmental Obligations” which provides guidance on financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs, effective January 1, 2003. This topic of the FASB Accounting Standards Codification requires the Company to record the fair value of the legal obligation associated with certain environmental restorations required upon closure of its facilities. The fair value of the liability is estimated by discounting the future estimated expenditures related to the restoration activities. The Company then measures changes in the liability due to passage of time by applying an interest method of allocation to the amount of the liability at the beginning of the period. The interest rate used to measure that change is the credit –adjusted risk- free rate that existed when the liability, or portion thereof, was initially measured. That amount is recognized as an increase in the carrying amount of the liability and the expense is classified as an operating item in the statement of income, referred to as accretion expense. At the same time this topic of the FASB Accounting Standards Codification requires the Company to capitalize the new costs arising as the result of additional liabilities incurred, such as the capitalization of new equipment, and subsequently allocate that asset retirement cost to expense over the life of the assets based on the useful life of the assets.

The Company uses transformers with PCB. Argentine Law requires that the Company eliminates or reduces to an acceptable level the PCB contained in any of its transformers by the end of 2010. Accordingly, EDENOR removed PCB from its transformers during the fiscal year 2008. The Company has determined that PCB removal represents an asset retirement obligation as defined by the Asset Retirement and Environmental Obligation Topic of the FASB Accounting Standards Codification.

F-59

Thus, under US GAAP an additional asset and liability was recognized as of December 31, 2008 and 2007.

Effects on US GAAP net income and shareholders’ equity includes:

1. the amortization of the asset retirement costs which is included in depreciation expense; and;
2. the effects of re-measuring the liability due to the passage of time are included as interest expense.

The effect of this US GAAP adjustment on net income and shareholders’ equity are presented in the Note 27.I.g) below.

d)
Troubled debt restructuring

As explained in Note 14, on February 22, 2006, the Company obtained the consent from 100% of its bond holders for the restructuring of financial debt amounting to US$ 540.9 million as of that date.

Under Argentine GAAP, the restructuring of the financial debt was treated as an exchange of debt instruments with substantially different terms. As a result, the Company de-recognized the former debt from the balance sheet and recognized the new debt at their present value discounted at a 10% market interest rate. The gain on extinguishment of former debt (net of restructuring costs) recorded as of December 31, 2006 amounted to 179.2 million.

For US GAAP purposes, the restructuring of the debt was accounted for in accordance with Debt topic Trouble Debt Restructurings subtopic of the FASB Accounting Standards Codification (“ASC 470-60”) as the creditors made certain concessions due to the financial difficulties of the Company. ASC 470-60 requires that a comparison be made between the future cash outflows associated with the new debt instruments (including interest), and the recorded amount of the payables (including interest, penalties and withholding income tax) at the time of restructuring. A gain on a troubled debt restructuring is only recognized when the carrying amount of the payable at the time of restructuring exceeds the total future cash payments specified by the new debt terms. Since the total future cash outflows associated with the new debt instruments exceeded the carrying value of the old debts, no gain on restructuring was recorded under US GAAP. As a result, the carrying amount of the new debt instruments under US GAAP was greater than the amount recorded under Argentine GAAP and a new effective interest rate was determined, which equated the present value of the future cash payments specified by the new debt instruments with the carrying amount of the old debt.

Additionally, for US GAAP purposes, the debt restructuring was completed on April 24, 2006, which was the date when the cash tender and early payment took effect and the new notes were issued. In addition to the reversal of the gain recognized under Argentina GAAP, interest expense from February 22, 2006 to December 31, 2009, was increased by approximately Ps. 104,3 million for US GAAP purposes. The tax basis of the new notes (before the adjustment to present value, see below) is the same as its carrying amount under Argentine GAAP; which differs from the carrying amount under US GAAP as explained above. Thus, the deferred tax asset attributable to such difference amounting to Ps. 15,645 and Ps. 35,511 as of December 31, 2009 and 2008 respectively was included in deferred income tax in Note 27.I.g) below.

Gain on troubled debt restructuring, after the repurchases of financial debt, due to carrying amount exceeding future cash flows amounting to Ps. 66,803 as of December 31, 2007 also represents a reconciling item.

During 2009 and 2008, the Company repurchased notes due 2016 which constituted an “Early extinguishment of debt”. The cash flows showed that the carrying amount of the payable exceeded the future cash payments. So, these facts implied that gains must be recognized as of the date of the measurements of the debt amounting to Ps. 150,269 and Ps. 147,537, respectively (excluding the gain on debt restructuring already recognized in 2007).

The following items were reversed under US GAAP for the year ended December 31, 2009 and 2008:

- the adjustment to present value of the notes (loss of Ps. 5,2 million);
- the loss from the purchase and redemption of notes due in 2016 during 2007 (Ps. 10,2 million);
- the gain from the purchase and redemption of notes due in 2016 during 2008 (Ps. 55,2 million);
- the gain from the purchase and redemption of notes due in 2016 during 2009 (Ps. 46,2 million);
- the adjustment to present value of purchased and redeemed notes due in 2016 during 2007 (loss of Ps. 8,6 million);
- the adjustment to present value of purchased and redeemed notes due in 2016 during 2008 (gain of Ps. 9,0 million); and,

F-60

- the adjustment to present value of purchased and redeemed notes due in 2016 during 2009 (gain of Ps. 8,0 million).

Aditionally, as of December 31, 2009 and 2008, deferred tax assets amounting to 1,835 and 2,960, respectively were recognized under Argentine GAAP as a temporary difference generated by the adjustment to present value of the notes repurchased and by the redeemed notes, respectively, which amounts were also reversed under US GAAP.

The deferred income tax effect on the trouble debt restructuring (including the adjustment to present value) amounting to 17,480 was recorded for US GAAP purposes.

The effect of these US GAAP adjustments on net income and shareholders’ equity is presented in the Note 27.I.g) below.

e)
Investments in marketable securities

Under Argentine GAAP, the Company’s investments in debt and equity securities are carried at market value with unrealized gains and losses, if any, included in the statement of income.

Under US GAAP, the Company has classified these investments as available-for-sale and is carrying these investments at fair value with unrealized gains and losses, if any, included in other comprehensive income in the shareholders’ equity in accordance with topic ASC 320 “Investments – Debt and equity securities”. Specific identification was used to determine cost in computing realized gain or loss.  The Company’s investments are considered available-for-sale as these securities could potentially be sold in response to needs for liquidity, changes in the availability of and the yield on alternative instruments or changes in funding sources or terms.

Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.  The topic ASC 320 also states that for individual securities classified as available-for-sale an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary.

December 31, 2009
Gross Unrealized
Cost
Fair Value
Gain
Loss
Government Bonds
63,919 63,917 - (2 )
Money Market Funds
80,055 80,055 - -
Corporate Debt Securities
48,854 48,524 - (330 )
Total
192,828 192,496 - (332 )

Under US GAAP, as of December 31, 2009, the Company has assessed if an other-than-temporary impairment existed.  No other-than-temporary impairment exists since none of the conditions prescribed by Topic ASC 320-10-35-33A through 33I were complied with.

December 31, 2008
Gross Unrealized
Cost
Fair Value
Gain
Loss
Government Bonds
39,561 39,561 - -
Money Market Funds
88,548 88,548 - -
Corporate Debt Securities
14,520 18,498 5,444 -
Total
142,629 146,607 5,444 -

F-61


The maturities as of December 31, 2009, of the available-for-sale Government Bonds and Corporate Debt Securities included in the balance sheet were as follows:

Carrying
Value
Maturing
within 1
year
Maturing
after 1
year but
within 5
years
Maturing
after 5
years but
within 10
years
Government Bonds
63,917 63,917 - -
Corporate Debt Securities
48,524 - 15,384 33,140

f)
Trust Consolidation

Under Argentina GAAP the Trust was not consolidated with the Company’s financial statements but included as a non current investment and valued at the fair value of the outstanding financial instruments as of December 31, 2008.

Under US GAAP, the Company followed the Consolidation Topic of the FASB Accounting Standards Codification. The Trust was determined to be a Variable Interest Entity (VIE) since, as stated in the Edenor’s Financial Trust Agreement, Edenor has the ability to make decisions about the Trust's activities, is obligated to absorb the expected losses of the Trust if they occur, and has the right to receive the expected residual returns of the Trust if they occur. Based on these facts, as Edenor is the primary beneficiary of the Trust, it had been consolidated in the Company’s financial statements as of December 31, 2008.

In 2008, the total amount of Ps. 49,015 was composed of (i) Ps. 32,049, gain corresponding to the difference between the cost incurred in the acquisition of the bonds and its respective book value at the acquisition date, (ii) Ps. 16,966, gain, corresponding to the reversal of the loss for the mark to market adjustment and interest income recorded by the financial trust under Argentine GAAP.

As mentioned in Note 22, on September 3, 2009, the discretionary trust was dissolved and the trust property was liquidated and transferred to the Company.  As such, during 2009 under US GAAP this adjustment was reversed.

The effect of these US GAAP adjustments on net income and shareholders’ equity is presented in the Note 27.I.g) below.

g)
Effects of conforming to US GAAP

The reconciliation of reported net income required to conform to US GAAP is as follows:

F-62
For the year ended December 31,
2009
2008
2007
Net income in accordance with Argentine GAAP
90,643 123,115 122,458
Deferred income tax (Note 27.II.a)
(13,903 ) (6,989 ) 25,129
Interest capitalized – net (Note 27.II.b)
(5,095 ) (5,095 ) (5,095 )
Asset retirement obligations (Note 27.II.c)
175 (107 ) (500 )
Trouble debt reestructuring and repurchases of debt (Note 27.II.d)
49,944 110,032 73,805
Investments in marketable securities (Note 27.I.e)
332 (5,444 ) -
Trust consolidation (Note 27.I.f)
(49,015 ) 49,015 -
Net income in accordance US GAAP
73,081 264,527 215,797

The reconciliation to conform shareholders’ equity amounts to US GAAP is as follows:

As of December 31,
2009
2008
Shareholders' equity in accordance with Argentine GAAP
2,182,209 2,091,566
Deferred income tax (Note 27.II.a)
(384,673 ) (370,116 )
Interest capitalized – net (Note 27.II.b)
74,494 79,589
Asset retirement obligations (Note 27.II.c)
(4,468 ) (4,643 )
Trouble debt restructuring and repurchases of debt (Note 27.II.d)
(59,738 ) (109,682 )
Pension Plan (Note 27.II.e)
(6,375 ) (8,575 )
Trust consolidation (Note 27.I.f)
- 49,015
Shareholders' equity in accordance with US GAAP
1,801,449 1,727,154

The changes in shareholders’ equity under US GAAP as of December 31, 2009 and 2008, are as follows:

For the year ended December 31,
2009
2008
Shareholders' equity in accordance with US GAAP - Beginning balance
1,727,154 1,467,076
Net income for the year in accordance with US GAAP
73,081 264,527
Capital (decrease) increase
- (6,130 )
Accumulated Other Comprehensive income - Pension Plan, net of tax and Investments in marketable securities, net of tax (Note 27.II.r)
1,214 1,681
Shareholders' equity in accordance with US GAAP - Ending balance
1,801,449 1,727,154

II.
Additional disclosure requirements

a)
Deferred income taxes

The benefit for income taxes included in the condensed statement of income and accounted for in accordance with US GAAP is as follows:

F-63

As of December 31,
2009
2008
2007
Income tax under Argentine GAAP:
Current income tax
(95,570 ) (99,745 ) -
Adjustment to provision 2008
1,636 - -
Deferred income tax - benefit (expense)
14,623 38,571 (124,984 )
Total income tax expense under Argentine GAAP
(79,311 ) (61,174 ) (124,984 )
US GAAP adjustments:
Adjustment for inflation on property, plant and equipment
26,980 30,404 31,300
Interest capitalized
1,783 1,783 1,783
Deferred income tax effect on the adjustment to present value of the notes
(1,835 ) (2,960 ) (7,523 )
Deferred income tax effect on troubled debt restructuring and repurchases of debt
(15,645 ) (35,551 ) (18,308 )
Asset Retirement Obligation
(61 ) 38 314
Accruals - ENRE Penalties
(24,991 ) - -
Investments in marketable securities
(116 ) 1,905 -
Others
(18 ) (2,608 ) 754
US GAAP adjustments
(13,903 ) (6,989 ) 8,320
Increase of the allowance for impairment of value of deferred tax assets
- - 16,809
US GAAP adjustments including increase of the allowance for impairment of value of deferred tax assets
(13,903 ) (6,989 ) 25,129
Income tax expense under US GAAP
(93,214 ) (68,163 ) (99,855 )

As of December 31,
2009
2008
2007
Decrease (Increase) of the valuation allowance of value of deferred tax assets
Under Argentine GAAP
- 34,482 (2,221 )
US GAAP adjustments
- - 16,809
Variation of the valuation allowance under US GAAP
0 34,482 14,588

F-64

Deferred tax assets (liabilities) as of December 31, 2009 are summarized as follows:

As of December 31, 2009
Argentine GAAP
balance
US GAAP
adjustment
US GAAP
balance
Deferred tax assets
Tax losses carry forward
4,293 - 4,293
Accruals
127,033 3,795 130,828
Troubled debt restructuring and repurchases of debt
- 13,229 13,229
Others
14,058 - 14,058
Total deferred tax assets, net
145,384 17,024 162,408
Deferred tax liabilities
PP&E and others
(58,309 ) (401,697 ) (460,006 )
Total deferred tax liabilities
(58,309 ) (401,697 ) (460,006 )
Total net deferred tax assets (liabilities)
87,075 (384,673 ) (297,598 )

Deferred tax assets (liabilities) as of December 31, 2008 are summarized as follows:

As of December 31, 2008
Argentine GAAP
US GAAP
US GAAP
balance
adjustment
balance
Deferred tax assets
Tax losses carry forward
8,316 - 8,316
Accruals
74,823 29,618 104,441
Troubled debt restructuring and repurchases of debt
- 28,874 28,874
Others
15,577 - 15,577
Total deferred tax assets, net
98,716 58,492 157,208
Deferred tax liabilities
PP&E and others
(17,948 ) (428,608 ) (446,556 )
Total deferred tax liabilities
(17,948 ) (428,608 ) (446,556 )
Total net deferred tax assets (liabilities)
80,768 (370,116 ) (289,348 )

F-65

A reconciliation of the Argentine Statutory Income Tax rate to the Company’s effective tax rate on net income is as follows:

As of December 31,
2009
2008
2007
Income tax calculated at tax rate on net income before taxes under US GAAP
(58,203 ) (116,442 ) (110,478 )
Permanent differences:
Effect of Trust consolidation
(17,155 ) 17,155 -
Other non-deductible expenses
(17,856 ) (3,358 ) (3,965 )
Subtotal
(93,214 ) (102,645 ) (114,443 )
Variation of the valuation allowance under US GAAP
- 34,482 14,588
Income tax expense under US GAAP
(93,214 ) (68,163 ) (99,855 )

US GAAP deferred tax assets (liabilities) as of December 31, 2009 and 2008 breakdowns are summarized below:

As of December 31, 2009
Total
Current
Non Current
Deferred tax assets
Tax losses carry forward
4,293 4,293 -
Accruals
130,828 967 129,861
Troubled debt restructuring and repurchases of debt
13,229 - 13,229
Others
14,058 4,463 9,595
Total deferred tax assets
162,408 9,723 152,685
Deferred tax liabilities
PP&E and others
(460,006 ) (30,170 ) (429,836 )
Total deferred tax liabilities
(460,006 ) (30,170 ) (429,836 )
Total net deferred tax liabilities
(297,598 ) (20,447 ) (277,151 )

As of December 31, 2008
Total
Current
Non Current
Deferred tax assets
Tax losses carry forward
8,316 - 8,316
Accruals
104,441 9,176 95,265
Troubled debt restructuring and repurchases of debt
28,874 - 28,874
Others
15,577 5,655 9,922
Total deferred tax assets
157,208 14,831 142,377
Deferred tax liabilities
PP&E and others
(446,556 ) (29,949 ) (416,607 )
Total deferred tax liabilities
(446,556 ) (29,949 ) (416,607 )
Total net deferred tax liabilities
(289,348 ) (15,117 ) (274,232 )

F-66

b)
Interest capitalized – net

In accordance with ASC topic 835, interests on loans related to works in progress has been capitalized on the qualifying asset (assets that require an extended period of time to acquire or produce), during the term of construction until they were in condition to be used, as follows:

As of December 31,
2009
2008
2007
Interest expense incurred under US GAAP
87,739 78,111 56,424
Interest capitalized under US GAAP
24,966 31,477 12,665

Effect on US GAAP adjustment in net income  is as follows:

For the year ended December 31,
2009
2008
2007
Depreciation on interest capitalized
(5,095 ) (5,095 ) (5,095 )
Interest capitalized – net (Note 27.I.g)
(5,095 ) (5,095 ) (5,095 )

Effect on US GAAP adjustment on shareholders’ equity is a follows:

As of December 31
2009
2008
Interest capitalized
125,294 125,294
Depreciation on interest capitalized
(50,800 ) (45,705 )
Interest capitalized – net (Note 27.I.g)
74,494 79,589

c)
Asset retirement obligations

Under US GAAP, a decrease in asset must be recognized as of December 31, 2009, as follows:

As of December 31,
2009
2008
Asset retirement costs
- (3,509 )
Less: accumulated depreciation
(959 ) (1,134 )
Net book value
(959 ) (4,643 )
Asset retirement obligation
- -
Net Shareholders’ equity impact
(959 ) (4,643 )

The effects on US GAAP net loss and shareholders’ equity are shown in paragraph below as follows:

1.
amortization of asset retirement costs included in depreciation expense;
2.
effects of re-measuring the liability due to the passage of time are reflected as interest  expense.

Effects on US GAAP adjustment in net income is as follows:

As of December 31,
2009
2008
2007
Depreciation of asset retirement costs
175 175 21
Accrued interest
- (282 ) (521 )
Total impact (Note 27.I.g)
175 (107 ) (500 )

F-67

Effects on US GAAP shareholders’ equity under Argentine GAAP is as follows:

As of December 31,
2009
2008
Accumulated depreciation of asset retirement costs
(959 ) (1,134 )
Accrued interest
(3,509 ) (3,509 )
Total impact (Note 27.I.g)
(4,468 ) (4,643 )

The following table shows changes in asset retirement obligation for the years ended December 31, 2009 and 2008:

Balance as of January 1, 2008
2,818
Accrued interest
282
Payments
(3,100 )
Balance as of December  31, 2008
0
Accrued interest
-
Payments
-
Balance as of December  31, 2009
0

d)
Troubled Debt Restructuring and Repurchases of Debt

The reconciliation between financial debt under US GAAP and Argentine GAAP as of December 31, 2009 and 2008 is as follows:

As of December 31,
2009
2008
Financial debt (current and non current) under Argentine GAAP
790,487 940,393
Waiver of principal
55,314 55,314
Waiver of unpaid accrued interest
77,658 77,658
Waiver of unpaid accrued penalties
65,726 65,726
Adjustment to present value of the notes
21,943 27,186
Interest expense
104,286 52,833
Loss from the purchase and redemption of notes 2016 during 2007
(10,228 ) (10,228 )
Gain from the purchase and redemption of notes 2016 during 2008
55,185 55,185
Gain from the purchase and redemption of notes 2016 during 2009
46,182 -
Adjustment to present value of purchased and redeemed notes 2016 during 2007
(8,632 ) (8,632 )
Adjustment to present value of purchased and redeemed notes 2016 during 2008
8,980 8,980
Adjustment to present value of purchased and redeemed notes 2016 during 2009
7,932 -
Gain on debt restructuring
(66,803 ) (66,803 )
Gain on early extinguishment of debt
(297,805 ) (147,537 )
Financial debt (current and non current) under US GAAP
850,225 1,050,075
Total impact in shareholders’ equity under US GAAP (Note 27.I.g)
59,738 109,682

F-68

Effects of US GAAP adjustments in net income under Argentine GAAP are as follows:

For the year ended December 31,
2009
2008
2007
Gain on early extinguishment of debt
150,269 147,537 -
Interest expense and exchange differences
(51,454 ) 18,203 (33,353 )
Adjustment to present value of notes
5,243 8,457 21,495
Adjustment to present value of purchased and redeemed notes due in 2016
(7,932 ) (8,980 ) 8,632
(Gain) / Loss from the purchase and redemption of notes due in 2016
(46,182 ) (55,185 ) 10,228
Gain on debt restructuring
- - 66,803
Total impact in net income (Note 27.I.g)
49,944 110,032 73,805

e)
Pension Plan

As indicated in Note 3.o, the Company has a pension plan for benefits to personnel (employee pension plan). Employee pension costs are recognized in accordance with Compensation-Retirement Benefits topic of the FASB Accounting Standards Codification, ASC topic 715. This topic requires the use of an actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specific corridor) that result from changes in assumptions or actual experience differing from assumed. ASC topic 715 also provides for the prospective amortization of costs related to changes in the benefit plan, as well as the obligation resulting from transition and requires disclosure of the components of periodic pension costs and the funded status of pension plans. In addition, ASC topic 715 requires the immediate recognition of deferred pension costs when some or all of the following conditions are met:

(a) pension obligations are settled;
(b) defined benefits are no longer earned under the plan and the plan is not replaced by other defined benefit plan;
(c) there are no remaining plan assets; and
(d) employees are terminated or the plan ceases to exist.

The Company has a pension plan covering substantially all of its employees under collective bargain agreement mentioned in Note 3.o. ASC topic 715 has been applied from and after January 1, 2003. However, amortization of the net transition obligation existing at January 1, 1993 has been computed retroactively as if it had been established on January 1, 1989, which is the date that ASC topic 715 first became effective for non−US pension funds.

In accordance with US GAAP, actual results that differ from Company’s assumptions are accumulated and amortized over future periods and generally affect Company’s recognized expenses and recorded obligations in such future periods. While we believe that our assumptions are appropriate, significant differences in actual results or significant changes in Company’s assumptions may materially affect our pension and other postretirement obligations.

During 2005, two new collective bargain agreements were signed with the Sindicato de Luz y Fuerza de la Capital Federal (Electric Light and Power Labor Union – City of Buenos Aires) and the Asociación de Personal Superior de Empresas de Energía (Association of Supervisory Personnel of Energy Companies) expiring December 31, 2007 and October 31, 2007, respectively. On November 17, 2006 and October 5, 2006 the agreements signed with the Electric Light and Power Labor Union – City of Buenos Aires and the Association of Supervisory Personnel of Energy Companies have been ratified by the Ministry of Labor and Social Security, respectively.

As of the date of issuance of this annual report, meetings aimed at negotiating the renewal terms of both collective bargaining agreements, are being held with the above-mentioned unions.

The Company applies ASC section 715-30-25 and the disclosures requirements of ASC section 715-20-50. Under provisions of this topic, the Company fully recognized the underfunded status of defined-benefit pension and postretirement plans as a liability in the financial statements reducing the Company’s shareholders’ equity through Accumulated OCI account. Unrecognized actuarial losses and gains are recognized in the statements of income during the expected average remaining working lives of the employees participating in the plans and the live expectancy of retired employees.

F-69

The components of net periodic benefit cost under Argentina GAAP and US GAAP for 2009, 2008 and 2007 are as follows:

As of December 31,
2009
2008
2007
Components of net year benefit cost
Service cost
1,608 1,488 1,125
Interest cost
4,843 4,441 2,874
Recognized net actuarial loss
1,314 779 760
Net year benefit cost
7,765 6,708 4,759

The changes in benefit obligations for the years ended December 31, 2009 and 2008 are as follows:

As of December 31,
2009
2008
Benefit obligation - beginning of year
26,623 19,083
Service cost
1,608 1,488
Interest cost
4,843 4,441
Actuarial (gain)/ loss
(886 ) 3,638
Benefits paid to participants
(993 ) (2,027 )
Benefit obligation – end of year
31,195 26,623

The adoption of ASC section 715-30-25-1 on December 31, 2006 resulted in the recognition of the “unrecognized actuarial loss” amounting to 5,714 as adjustment to accumulated other comprehensive loss, and a deferred tax asset of approximately 2,000, also in accumulated other comprehensive loss net of charge of 3,714 as adjustment to accumulated other comprehensive loss. As of December 31, 2009, 2008 and 2007, the Company recognized a gain of 1,430, a net charge of 1,858 and 1, respectively, as adjustment to accumulated other comprehensive gain/loss corresponding to the net actuarial gain/loss for the year.

The following table shows changes in accumulated other comprehensive gain/loss for the years ended December 31, 2009, 2008 and 2007:

Net
of tax
Tax
effect
Gross
amount
Balance as of January, 2007
3,714 (2,000 ) 5,714
Net actuarial loss for the year 2007
1 (1 ) 2
Balance as of December 31, 2007
3,715 (2,001 ) 5,716
Net actuarial loss for the year 2008
1,858 (1,001 ) 2,859
Balance as of December 31, 2008
5,573 (3,002 ) 8,575
Net actuarial loss (gain) for the year 2009
(1,430 ) 770 (2,200 )
Balance as of December 31, 2009
4,143 (2,232 ) 6,375

The following yearly pension benefits payments are expected to be made:

2010
3,871
2011
4,143
2012
5,249
2013
4,201
2014
4,802
2015-2019
21,850
The components of the projected net periodic pension benefit costs for 2010 are as follows:

F-70
Service cost
1,608
Interest cost
4,843
Amortization of net actuarial loss
1,314
Net year benefit cost
7,765

The following table shows the effect of a 1% change in discount rate on our projected benefit obligation for the periods indicated:
As of December 31,
2009
2008
2007
Projected benefit obligation
31,195 26,623 19,083
Effect of a one-percentage-point increase
29,676 25,218 18,050
Effect of a one-percentage-point decrease
32,935 28,227 20,261
Assumptions
2009
2008
2007
Weighted—discount rate
25.0 % 18.0 % 21.0 %
Weighted—salary increase
15.0 % 15.0 % 20.0 %
Weighted—long term inflation
11.5 % 11.5 % 14.0 %

Actuarial Method: Projected Unit Credit Method

The Company does not make plan contributions or maintain separate assets to fund the benefits at retirement. The net periodic pension costs are recognized as employees render the services necessary to earn pension benefits.

f)
Trust Consolidation

As discussed in Note 22, on September 30, 2008, the Company and Macro Bank Limited entered into an irrevocable and discretionary Trust agreement (thereafter “the Trust”).

Under Argentina GAAP, the Trust was not consolidated with the Company´s financial statements but included as a non current investment and valued at the fair value of the outstanding financial instruments as of December 31, 2008.

Under US GAAP, the Trust represented a Variable Interest Entity (VIE) and as such had to be consolidated in the Company´s financial statements.

As of December 31, 2008, the outstanding financial assets held by the Trust and related accrued interests were as follows:

Amounts in
thousands of US$
Accrued interests in
thousands of US$
Cash
1,179 -
Clarín Group Notes
2,145 -
Edenor Notes due on 2017
10,030 556
Edenor Notes due on 2017
407 23

Under US GAAP, Transfer and Servicing topic of the FASB Accounting Standards Codification states that  the reacquisition by the debtor of its outstanding debt securities whether the securities are canceled or held as so-called treasury bonds constitutes an extinguishment of the liability. Therefore, the Company considered that the repurchase made by the financial Trust should be treated as treasury bonds and, a gain on the transaction was recognized together with the elimination of the related short-term investment and liability recorded under Argentine GAAP.

On September 3, 2009, the discretionary trust was dissolved and the trust property was liquidated and transferred to the Company.

F-71

g)
Basic and diluted earnings per share

As mentioned in Note 3.s, under Argentine GAAP, the Company is required to disclose earnings per share information in accordance with FACPCE TR 18 for all the years presented.

Under US GAAP, basic and diluted earnings per share are presented in conformity with topic ASC 260 for all years presented.  Pursuant to this topic, ordinary shares and convertible preferred shares issued or granted for nominal consideration prior to the anticipated effective date of an initial public offering must be included in the calculation of basic and diluted earnings per share as if they had been outstanding for all periods presented. To date, the Company has not had any issuance or grants for nominal consideration.

The following tables set forth the computation of basic and diluted earning per common share under US GAAP for the years presented:

For the years ended December 31,
2009
2008
2007
Net Earning per share
Numerator:
Net income for the year
73,081 264,527 215,797
Denominator:
Weighted average number of shares used in basic and diluted EPS
897,042,600 897,042,600 906,455,100
Net earning per share - basic and diluted
0.081 0.295 0.238

There are no potential dilutive equity shares.

h)
Segment information
As stated in Note 3.t., under Argentine GAAP, the Company is required to disclose segment information in accordance with RT 18. It establishes standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to shareholders. Operating segments are components of a company about which separate financial information is available that is regularly evaluated by the chief operating decision maker(s) in deciding how to allocate resources and assess performance. The statement also establishes standards for related disclosures about a company’s products and services, geographical areas and major customers.
Under US GAAP, criteria set by ASC 280 Segment Reporting topic of the FASB Accounting Standards Codification is applicable. The Company segment information is based on the components of a company about which separate financial information is available and the management’s analysis for making operating decisions.
The Company is a natural monopoly that operates in a single business segment, electricity distribution, in a specific geographical urban area and under the terms of the concession contract by which this public service is controlled. The Company activities have similar economic characteristics and are similar in terms of the nature of their products and services, the nature of the electricity distribution process, the type or class of customer, the geographical area, and methods of distribution.  The management evaluates Company’s performance based on net income.

The management evaluated if the agreements with Comunicaciones y Consumos S.A. and Préstamos y Servicios S.A., signed in 2008 as described in Note 15, represented new business segments and concluded that these operations have no impact both quantitatively and qualitatively in these financial statements. Thus, no additional disclosure is required under US GAAP.

i)
Cash flow information

Under Argentine GAAP, the Company is required to present the statements of cash flows in the primary financial statements in accordance with TR 9, as amended. Guidance set forth in TR 9 (as amended) is similar to the guidelines set forth in ASC 230 “Statement of Cash Flows”.  As described in Note 18.a, the Company considers all highly liquid investments to be cash equivalents.

F-72

Under US GAAP, following Topic 230 “Statement of Cash Flows” (ASC 230), the Company classified its investments in Corporate Debt Securities within investing activity.  As their maturity occurs beyond 3 months, the Corporate Debt Securities are not included as part of cash equivalents.

Under Argentine GAAP, the Company classified as financing activities purchases and sales of debt securites, other than cash equivalents.

Under US GAAP, following ASC 230 and Topic ASC 320 “Investments – Debt and Equity Securities”, the Company classified those transactions as investing activities.

The following table presents the reconciliation of the statement of cash flows between Argentine GAAP and US GAAP:

For the years ended as of December 31,
Reconciliation of cash flows under Argentine GAAP and US GAAP
2009
2008
2007
Net cash flow provided by operating activities under Argentine GAAP
667,977 547,543 427,182
Reclasification from operating activities to investing activities:
Effect of exchange rate changes on cash and cash equivalents
(7,021 ) (2,447 ) (12,198 )
Net cash flow provided by operating activities under US GAAP
660,956 545,097 414,984
Net cash flow used in investing activities under Argentine GAAP
(404,165 ) (325,380 ) (336,851 )
Effect of consolidation of Edenor’s financial trust
(11,345 ) 11,345
Decrease (Increase) in current and non current investments
13,614 (67,893 ) -
Debt securities classified as cash equivalents under Argentina GAAP
(48,524 ) - -
Net cash flow used in investing activities under US GAAP
(450,420 ) (381,928 ) (336,851 )
Net cash flow used in financing activities under Argentine GAAP (*)
(161,839 ) (196,962 ) (21,806 )
( Decrease) Increase in current and non current investments
(13,614 ) 67,893 -
Net cash flow used in financing activities under US GAAP
(175,453 ) (129,069 ) (21,806 )
Net increase in cash and cash equivalents under US GAAP
42,104 36,546 68,525
Effect of exchange rate changes on cash and cash equivalents
7,021 2,447 12,198
Net increase in cash and cash equivalents under US GAAP after effect of exchange rate changes on cash and cash equivalents
35,083 34,099 56,327
Cash and cash equivalents at the beginning of the year
137,744 101,198 32,673
Cash and cash equivalents at the end of the year
179,848 137,744 101,198

2009
2008
Cash and cash equivalents under Argentine GAAP (Note 18)
228,372 126,399
Effect of Trust consolidation
Cash
- 4,024
Debt Securities – third parties debt
- 7,321
Corporate Debt Securities – Not qualified as cash equivalent under US GAAP (Note 27.I.e)
(48,524 ) -
Cash and cash equivalents in the Statement of Cash Flows under US GAAP
179,848 137,744

F-73

(*)
In 2007, under US GAAP the breakdown is as follows:
Proceeds from issuing notes
719,838
Payments on redeemed notes
(923,417 )
Capital increase
181,773
Net cashflow used in financing activities
(21,806 )

j)
ASC 825, The Fair Value Option for Financial Assets and Financial Liabilities

On January 1, 2008 the Company adopted ASC 825 “Fair value option”, which permits a company to measure certain financial assets and financial liabilities at fair value that were not previously required to be measured at fair value. The Company has not elected to measure any financial assets and financial liabilities at fair value which were not previously required to be measured at fair value. Therefore, the adoption of this standard has had no effect on the Company’s results of operations.

k)
Fair value measurements

The Company applies ASC Topic 820, Fair Value Measurements (“ASC Topic 820”), which defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. Under US GAAP, certain assets and liabilities must be measured at fair value, and ASC Topic 820 details the disclosures that are required for items measured at fair value.
The Company has various financial instruments that must be measured under ASC Topic 820 including: certain money market funds, bonds, marketable securities; and derivatives. None of its current non-financial assets or non-financial liabilities must be measured at fair value on a recurring basis. The Company measures its financial assets and liabilities using inputs from the following three levels of the fair value hierarchy. The three levels are as follows:

§
Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities accessible at the measurement date.

§
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

§
Level 3 includes unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

F-74

In accordance with the fair value hierarchy, the following table shows the fair value as of year-end 2009, of those financial assets that must be measured at fair value and were classified as “Investments” and “Loans”:

Fair value measurements as of December 31, 2009
Description
Balance at
year-end
2009
Level 1
Level 2
Level 3
Assets
Government Bonds
63,917 63,917 - -
Money market funds
80,055 80,055 - -
Corporate Debt Securities
48,524 48,524 - -
192,496 192,496 0 0

Most of the Company’s financial assets and liabilities are valued using market prices on active markets (level 1). Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Derivative instruments are valued at fair value obtained from readily-available pricing sources for comparable instruments (level 2). As of December 31, 2009, the Company did not have any assets or liabilities without observable market values that would require a high level of judgment to determine fair value (level 3).

The unrealized net gains on short-term investments are reported as a component of other comprehensive income.

As of December 31, 2009, the carrying value of the Company’s cash and cash equivalents approximated their fair value which was held primarily in bank deposits and there were no financial liabilities measured at fair value. For the years ended December 31, 2009 and 2008, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or mortgage-backed securities.

l)
Derivative financial instruments

Corporate Notes

There is a disclosure difference between Argentina GAAP and US GAAP for the derivate financial instruments described in Note 23.

Under Argentina GAAP, as of December 31, 2009, these transactions have been fully settled, there being no outstanding balances. As of December 31, 2008 a receivable related to derivate financial instruments amounting to 7,905 offset Current liabilities-Loan- Interest.

Under US GAAP, and following topic ASC 815-10-45 such receivable had been included as an asset in the condensed consolidated balance sheet as of December 31, 2008.

Forward and Futures Contracts

There is no difference between Argentina GAAP and US GAAP for these financial transactions. Thus, it is not deemed necessary to include additional disclosure under US GAAP in the Company’s financial statements.

Topic ASC 815 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities.

m)
Statement of Income classification differences between Argentine GAAP and US GAAP

Net Sales

Under Argentine GAAP, during the year ended December 31, 2007, the Company recognized revenues amounting to 218,591 from the retroactive tariff increase derived from the application of the new electricity rate schedule to non-residential consumption for the period since November 2005 through January 31, 2007 (Note 17.b). Due to the fact that such tariff increase is being invoiced in 55 equal and consecutive monthly installments, adjustments to present value related to this matter and related to the Payment Plan Agreement with the Province of Buenos Aires (Note 13), were recorded and included as a separate line below operating income (amounting to 29,618 for the year ended December 31, 2007).

F-75

For US GAAP purposes, the discounts resulting from the determination of present value at the date of transaction offset revenues. Additionally, the amortization of such discounts should be reported as interest according to ASC 835-30 (amounting to 14,769 for the year ended December 31, 2007).

Under Argentine GAAP, penalties have been deducted from sales. For US GAAP purposes, penalties are included as transmission and distribution expenses (amounting to 58,500, 34,775 and 23,940 for the years ended December 31, 2009, 2008 and 2007).

Under Argentine GAAP, during the year ended December 31, 2007, the electricity distributed to shantytowns was recorded as sales. Under US GAAP the conditions to recognize revenue were not met, thus, such sales have been eliminated in the Statement of Income (amounting to 24,500). During the year ended December 31, 2008, the Framework Agreement was signed with the Federal Government (September 2008) and therefore, the corresponding allowance for doubtfull accounts was recovered under Argentina GAAP. Under US GAAP, these sales are recognized since the conditions required are met (amounting 24,016).

During the year ended December 31, 2009, the Addendum to the New Framework Agreement entered into by the Government of the Province of Buenos Aires and the Company, was ratified by Decree No. 732 published in the Official Gazette of the Province of Buenos Aires (June 2009). As a consequence, the allowance for doubtfull accounts was partially recovered under Argentina GAAP. Under US GAAP, these sales are recognized since the conditions required are met (amounting 26,956).

As a result of these differences, net sales under US GAAP would have been 2,163,316, 2,058,988 and 1,936,980 for the years ended December 31, 2009, 2008 and 2007, respectively.

Gross margin

In addition to the above explained differences under Argentine GAAP, transmission and distribution expenses have been included whithin operating expenses, but excluded from gross margin calculation. Under US GAAP, such expenses have been included whithin gross margin calculation.

As a result of these differences, gross margin under US GAAP would have been 535,985, 547,356 and 569,641 for the years ended December 31, 2009, 2008 and 2007, respectively.

Net operating income

Under Argentine GAAP, certain operating expenses have been included as other expenses - net, excluded from operating income. Under US GAAP, such expenses have been included as operating expenses - net.

As a result of these differences, operating income under US GAAP are 208,762, 250,725 and 362,131 for the years ended December 31, 2009, 2008 and 2007, respectively.

Financial income (expense), net

Under Argentine GAAP the adjustment ENRE penalties has been included as Financial (expense), net and holding gains. Under US GAAP, such adjustment has been included in penalties as part of Transmission and Distribution Expenses (amounting to 17,162 and 18,084 for the years ended December 31 2008 and 2007, respectively). During the year ended December 31, 2009, there was no ENRE penalties adjustment.

Under Argentine GAAP, the adjustment to present value of the retroactive tariff increase and the Payment Plan Agreement with the Province of Buenos Aires has been included in a separate line below Financial income (expense) and holding gains (losses). Under US GAAP, the amortization of the discount derived from the adjustment to present value of the retroactive tariff increase has been reclassified to interest gain, within Financial income (expense), net.

In addition, under US GAAP, Financial income (expense), net includes the adjustment of Troubled Debt Restructuring and Repurchases of Debt, described in Note 27.I,d), the reversal of the gain obtained by the Trust under Argentine GAAP, as described in Note 27.I.f) and the adjustment on unrealized loss on available-for-sale investments as described in Note 27.I.e).

F-76

As a result of this disclosure difference, Financial (expense) income, net under US GAAP would have been (42,583), 81,965 and (46,479) for years ended December 31, 2009, 2008 and 2007, respectively.

The condensed consolidated statements of income for the years ended December 31, 2009, 2008 and 2007 under US GAAP are as follows:

For the year ended December 31,
2009
2008
2007
Net sales / Services revenues
2,163,316 2,058,988 1,936,980
Electric power purchases
(1,003,362 ) (934,660 ) (889,885 )
Transmission and Distribution Expenses
(623,969 ) (576,972 ) (477,454 )
Gross margin
535,985 547,356 569,641
Operating expenses, net
(327,223 ) (296,631 ) (207,510 )
Net operating income
208,762 250,725 362,131
Financial (expense) income, net
(42,467 ) 81,965 (46,479 )
Net income before income tax
166,295 332,690 315,652
Income tax expense
(93,214 ) (68,163 ) (99,855 )
Net income for the year
73,081 264,527 215,797
Earning per ordinary share
0.081 0.295 0.238

The condensed consolidated balance sheets under US GAAP as of December 31, 2009 and 2008 are as follows:

As of December 31,
2009
2008
Current Assets
703,283 666,694
Property, plant and equipment, net
3,552,413 3,331,204
Other non-current assets
260,404 258,426
Current liabilities
790,889 707,536
Non-current liabilities
1,923,762 1,821,634
Shareholders' equity
1,801,449 1,727,154

For the year ended December 31,
Summary of Condensed Shareholders’ equity in accordance with
US GAAP
2009
2008
Common stock
1,902,944 1,902,944
Treasury stock
(6,130 ) (6,130 )
Additional paid-in capital
24,970 24,970
Legal Reserve
59,476 53,320
Accumulated deficit
(255,787 ) (514,158 )
Net income
73,081 264,527
Accumulated Other Comprehensive Income
2,895 1,681
Total Shareholders’ equity
1,801,449 1,727,154

n)
Valuation of Property, plant and equipment

Under Argentine GAAP, assets transferred through the privatization of SEGBA were valued at their fair value on the privatization date as described in Note 3.g.

Under US GAAP, following the accommodation allowed as published in the SEC International Reporting and Disclosure Issues in the Division of Corporation Finance as revised on November 1, 2004, when reliable fixed asset records are not available and cannot be reasonably produced, the registrant may use the opening fair value balances as its costs basis. Thereafter, the assets are reported in the usual manner with respect to depreciation and evaluation of impairment.

F-77

Based on the foregoing, there is no difference between US GAAP and Argentine GAAP.

o)
ASC 740 Income Taxes

ASC 740 defines the criteria an individual tax position must meet for any part of the benefit of such position to be recognized in the financial statements. This topic establishes “a more-likely-than-not” recognition threshold that must be met before a tax benefit can be recognized in the financial statements. The topic also provides guidance, among other things, on the measurement of the income tax benefit associated with uncertain tax positions, de-recognition, classification, interest and penalties and financial statement disclosures.

As it is required by this topic, the Company has reassessed whether the “more-likely-than-not” recognition threshold has been met before a tax benefit can be recognized and how much of a tax benefits to recognize in the financial statements. The adoption of the topic did not have an impact on the Company’s financial position. There were no unrecognized tax benefits as of December 31, 2009.

The company classifies interest and penalties in the statement of income under the line “Income tax expense”.

On April 27, 2009, the Company adhered to the income tax regularization plan established in Law No. 26,476. In accordance with the assessment of the tax regularization plan, the Company’s debt was settled at Ps. 12,122 plus interest to be accrued. During the year 2009, the Company paid for this concept an amount of 1,487 and the remaining balance of the Company’s debt totals 10,635.  As a consequence of this tax regularization plan, the Company recognized a gain amounting to Ps. 23,341, net of legal fees amounting to Ps. 2,8 million, included within provision, in Annex E.

The reconciliation of the beginning and ending balances of recognized uncertain tax position as of December 31, 2009 and 2008 is the following:

Recognized uncertain tax position as of December 31, 2007
36,027
Gross increase due to interest on prior year uncertain tax position
2,236
Recognized uncertain tax position as of December 31, 2008
38,263
Gross decrease due to the assessment of the tax regularization plan
(38,263 )
Recognized uncertain tax position as of December 31, 2009
-

This decrease is due to the assessment of the tax regularization plan mentioned above, and therefore there is no need to record an additional income tax liability.

p)
Accounting for stock transferred by Argentine government to employees

Under Argentine GAAP, there are no specific rules governing the accounting to be followed by employers when a principal shareholder transfers shares to a company’s employees (Note 16.c).

Under US GAAP, the Company follows ASC 718 “Stock compensation”. The economic substance of a plan establish by the principal stockholders is substantially the same for the Company and the employee, whether the plan is adopted by the Company or a principal stockholder. Consequently, the Company should account for this type of plan when one is established or financed by a principal stockholder unless (1) the relationship between the stockholder and the company’s employee is one which would normally result in generosity, (2) the stockholder has an obligation to the employee which is completely unrelated to the latter’s employment, or (3) the company clearly does not benefit the transaction. The rationale established in this Interpretation has been applied to other situations in which a principal stockholder for the benefit of the company. ASC 225-10 requires any transaction undertaken by a company’s principal stockholder for the benefit of the company to be accounted for according to its substance and not its form. Under Topic ASC 718, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of the Company’s stock and the exercise price. ASC 718-10 defines a “fair value” based method of accounting for an employee stock option or similar equity investment.

The Argentine Government agreed to establish a Share Ownership Plan, principally for the benefit of the former employees of SEGBA transferred to the Company. Under the terms of the plan, employees eligible to participate acquired the shares of the Company previously held by the Government for an amount significantly less than the market value of the shares on September 1, 1992 (“grant date”). The purchase price formula was originally established during the privatization.

F-78

Had the Company been required by SEC regulations to include reconciliation between Argentine GAAP and US GAAP for the fiscal year 1992, it would have included as a reconciling item a charge amounting to 6,653 in the Statement of Income. However, this charge represented a reclassification between equity accounts, and consequently, it had no impact on shareholders’ equity or cash flows determined under US GAAP. The charge was calculated based upon the difference between the estimated total price per share paid by EASA as of the grant date and the purchase price to be paid by eligible employees.

There have been no additional grants of stocks to employees since September 1, 1992.

q)
Repurchase of own shares

During the year ended December 31, 2008, the Company’s Board of Directors decided to begin with the acquisition process of the Company’s own shares through market transactions.

Under Argentine GAAP the Company followed CNV standards and accounted for the repurchase of own shares by deducting from the shareholders’ equity accounts ‘Nominal Value’ and ‘Adjustment to Capital’ 9,412, and 10,347, respectively, representing the face value of the shares reacquired in the open market, and credited the accounts ‘Nominal Value Treasury Stock’ and ‘Adjustment to Capital Treasury Stock’, by the before mentioned amounts, respectively. Additionally, ‘Unappropriated Retained Earnings’ and ‘Cash and banks’ were deducted by 6,130, representing the amount effectively paid by the Company to the holders of its shares.

Under US GAAP, the Company followed Topic ASC 505 “Treasury Stock” and accounted for the repurchase of own shares by deducting the shareholders’ equity account ‘Nominal Value Treasury Stock’ and ‘Cash and banks’ by 6,130.

Under US GAAP, such transaction does not constitute a GAAP difference in measurement, but a disclosure difference exist, since the account ‘Nominal Value Treasury Stock’ should represent the amount effectively paid for the shares repurchased, no impact on capital accounts or retained earnings exist.

During the year ended December 31, 2009 no other acquisitions have been carried out.

r)
Comprehensive income

ASC 220, “Comprehensive Income” establishes guidelines for the reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. Comprehensive income represents the change in shareholders’ equity of the Company during the year from transactions and other events and circumstances from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

The following table summarizes the components of comprehensive income for the years ended December 31, 2009, 2008 and 2007:

For the year ended December 31,
2009
2008
2007
Net income under US GAAP
73,081 264,527 215,797
Other comprehensive (loss) income:
Unrealized gains and losses - Available for sale securities (net of a tax effect of 116 benefit and (1,905) loss for 2009 and 2008, respectively)
(216 ) 3,539 -
Pension plan (net of a tax effect of (770) loss, 1,001 benefit and 1 benefit, for 2009, 2008 and 2007, respectively)
1,430 (1,858 ) (1 )
Comprehensive income
74,295 266,208 215,796

F-79

The following table summarizes the components of accumulated other comprehensive income for the years ended December 31, 2009, 2008 and 2007:

For the year ended December 31,
2009
2008
2007
Accumulated unrealized gain on Available for sale securities
5,112 5,444 -
Accumulated estimated tax (loss) on Available for sale securities
(1,789 ) (1,905 ) -
Accumulated pension plan
(659 ) (2,859 ) 2
Accumulated estimated tax benefit (loss) on pension plan
231 1,001 (1 )
Accumulated Other Comprehensive income
2,895 1,681 1

s)
Recently issued accounting pronouncements

In May 2009, the FASB amended Accounting Standards Codification Section 855-10, Subsequent Events, Overall. These amendments establish the general standards of accounting for, and disclosure of, events that occur after the balance sheet date, but before financial statements are issued or available to be issued. These amendments are effective for interim and fiscal periods ending after June 15, 2009. The Company has evaluated subsequent events for the period from December 31, 2009, the date of these financial statements, through May 31, 2010, which represents the date the Company intends to file these financial statements with the Securities and Exchange Commission. Pursuant to the requirements of Accounting Standards Codification Section 855-10, there were no events or transactions occurring during this subsequent event reporting period that require recognition or disclosure in these financial statements.

In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”. This Statement establishes that the FASB Accounting Standards Codification TM (“ASC”) will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The authoritative guidance mentioned in this Annual Report includes ASC reference. The adoption of this new Standard does not have a material effect on the Company's financial position, results of operations, or cash flows.

On June 2009, the FASB issued SFAS 166 “Accounting for Transfers of Financial Assets” which amends SFAS 140. It improves the relevance and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This standard has not been incorporated into ASC and is effective for fiscal years beginning after November 15, 2009. The adoption of this statement is not expected to have a material effect on our financial position or results of operations.

In August 2009, the FASB issued Accounting Standards Update No. 2009-04, Accounting for Redeemable Equity Instruments—Amendment to Section 480-10-S99 (SEC Update), amending Accounting Standards Codification Section 480-10-S99, Distinguishing Liabilities from Equity, Overall ("Update No. 2009-04"), which requires certain securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (1) at a fixed or determinable price on a fixed or determinable date, (2) at the option of the holder, or (3) upon the occurrence of an event that is not solely within the control of the issuer. Update No. 2009-04 is effective for interim and fiscal periods ending after August 26, 2009. The Company estimates that this statement will not have an impact on its financial position.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Fair Value Measurements and Disclosures (Topic 820)—Measuring Liabilities at Fair Value, amending Accounting Standards Codification Section 820-10, Fair Value Measurements and Disclosures, Overall ("Update No. 2009-05"), which provides clarification of the fair value measurement of liabilities in circumstances in which a quoted price in an active market for the identical liability is not available. Update No. 2009-05 is effective for interim and fiscal periods ending after August 26, 2009. The Company estimates that this statement will not have an impact on its financial position.

F-80

FASB ASC 715 provides guidance on an employer’s disclosures about plan assets of a defined benefit pension or other post-retirement plans. This guidance is intended to ensure that an employer meets the objectives of the disclosures about plan assets in an employer’s defined benefit pension or other postretirement plan to provide users of financial statements with an understanding of the following: how investment allocation decisions are made; the major categories of plan assets; the inputs and valuation techniques used to measure the fair value of plan assets; the effect of fair value measurements using significant unobservable inputs on changes in plan assets; and significant concentrations of risk within plan assets. The adoption of this guidance did not have a significant impact on our financial position or results of operations.

ASC 350 amends the factors to be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under ASC 350. Its intent is to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure its fair value. The amendment is effective prospectively for intangible assets acquired or renewed after January 1, 2009. The adoption of ASC 350 will not have a material impact on the Company´s financial statements.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements, amending Accounting Standards Codification Section 820-10, Fair Value Measurements and Disclosures ("Update No. 2010-06"), which provides new disclosure requirements for in and out transfers of Level 1 and 2 and activity in Level 3 fair value measurements.  It also provides clarification on certain existing disclosures.  Update No. 2010-06 is effective for annual and interim reporting periods beginnig after December 15, 2009, except for the requirement to provide the Level 3 activity between purchases, sales, issuances, and settlements on a gross basis.  That requirement is effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

F-81
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
Empresa Distribuidora y Comercializadora Norte
Sociedad Anónima
By:
/s/ Luis Pablo Rogelio Pagano
Name:
Luis Pablo Rogelio Pagano
Title:
Chief Financial Officer
Date: June 7, 2010

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