EDN 20-F DEF-14A Report Dec. 31, 2010 | Alphaminr
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EDN 20-F Report ended Dec. 31, 2010

Balance Sheet
Cash Flow
Income Statement
20-F 1 v225803_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, 2010
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)
Avenida Del Libertador 6363
Ciudad de Buenos Aires, C1428ARG
Buenos Aires, Argentina
(Address of principal executive offices)
Ivana Del Rossi
Tel.: +54 11 4346 5127 / Fax: +54 11 4346 5325
Avenida Del Libertador 6363 (C1428ARG)
Buenos Aires, Argentina
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 ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ 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
1
Item 2.
Offer Statistics and Expected Timetable
1
Item 3.
Key Information
1
Item 4.
Information on the Company
22
Item 4A.
Unresolved Staff Comments
57
Item 5.
Operating and Financial Review and Prospects
57
Item 6.
Directors, Senior Management and Employees
94
Item 7.
Major Shareholders and Related Party Transactions
104
Item 8.
Financial Information
108
Item 9.
The Offer and Listing
113
Item 10.
Additional Information
116
Item 11.
Quantitative and Qualitative Disclosures about Market Risk
134
Item 12.
Description of Securities Other than Equity Securities
135
Item 13.
Defaults, Dividend Arrearages and Delinquencies
137
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
137
Item 15.
Controls and Procedures
137
Item 16A.
Audit Committee Financial Expert
138
Item 16B.
Code of Ethics
138
Item 16C.
Principal Accountant Fees and Services
139
Item 16D.
Exemptions from the Listing Standards for Audit Committees
139
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
139
Item 16F.
Change in Registrant’s Certifying Accountant
139
Item 16G.
Corporate Governance
139
Item 17.
Financial Statements
143
Item 18.
Financial Statements
143
Item 19.
Exhibits
143
Index to Financial Statements
F-1


PART I
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 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 exchange rates, including a devaluation of the Peso;
·
the impact of high rates of inflation on our costs;
·
the successful integration of the recently acquired businesses described under “Acquisition of EMDERSA and AESEBA” in Item 4 hereto; and
·
additional matters identified in “Risk factors.”

1
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, 2010 and 2009 and for each of the three years in the period ended December 31, 2010 are derived from our audited financial statements, which were audited by Price Waterhouse & Co. S.R.L., member firm of PricewaterhouseCoopers network .  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 [28] 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 (loss) income for the years then ended December 31, 2010, 2009 and 2008 and shareholders’ equity as of December 31, 2010 and 2009.
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, 2010 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, 2010 of Ps. 3.976 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.

2

Certain figures included in this annual report have been subject to rounding adjustments.  Accordingly, figures shown as totals may not sum due to rounding.
2010
2010
2009
2008
2007
2006
(in millions, except for per share and per ADS data)
Statement of operations data
Argentine GAAP
Net sales
U.S. $ 546.7 Ps. 2,173.6 Ps. 2,077.9 Ps. 2,000.2 Ps. 1,981.9 Ps. 1,378.3
Electric power purchases
(269.1 ) (1,069.7 ) (1,003.4 ) (934.7 ) (889.9 ) (799.1 )
Gross margin
277.6 1,103.9 1,074.5 1,065.5 1,092.0 579.3
Transmission and distribution expenses
(160.0 ) (636.3 ) (548.6 ) (497.9 ) (417.6 ) (362.1 )
Selling expenses
(48.9 ) (194.2 ) (159.0 ) (126.0 ) (120.6 ) (87.9 )
Administrative expenses
(45.0 ) (178.9 ) (144.0 ) (138.7 ) (124.7 ) (93.3 )
Subtotal
23.8 94.5 222.9 302.9 429.2 35.9
Other (expenses) income , net
(2.5 ) (9.8 ) 23.3 (29.8 ) 1.0 (22.9 )
Financial income (expenses) and holding gains (losses):
Generated by assets:
Exchange difference
1.9 7.4 21.4 8.1 (0.9 ) 2.6
Interest
7.1 28.4 16.2 9.8 13.4 13.9
Holding results
(3.7 ) (14.7 ) 37.6 (7.3 ) 0.1 0.1
Taxes on financial transactions (1)
(4.0 ) (16.0 ) (13.4 ) — — —
Generated by liabilities:
Financial expenses
(3.1 ) (12.5 ) (11.7 ) (10.0 ) (21.0 ) (25.4 )
Exchange difference
(10.1 ) (40.3 ) (99.1 ) (92.7 ) (29.9 ) (13.3 )
Interest
(23.0 ) (91.3 ) (87.7 ) (95.3 ) (74.5 ) (101.3 )
Taxes on financial transactions (1)
(5.3 ) (21.1 ) (19.2 ) — — —
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other receivables (2)
2.9 11.6 3.4 13.5 (29.6 ) —
Gain on extinguishment of former debt (3)
— — — — — 179.2
Adjustment to present value of notes (4)
(1.1 ) (4.2 ) (5.2 ) (8.5 ) (21.5 ) 57.1
(Loss) Gain from the purchase of notes (5)
(1.8 ) (7.1 ) 81.5 93.5 (10.2 ) —
Adjustment to present value of purchased notes (4)
— — — — (8.6 ) —
(Loss) Income before taxes
(18.9 ) (75.2 ) 170.0 184.3 247.4 125.9
Income tax (6)
0.3 1.1 (79.3 ) (61.2 ) (125.0 ) 167.2
Net (loss) income
U.S. $ (18. 6) Ps. (74.0 ) Ps. 90.6 Ps. 123.1 Ps. 122.5 Ps. 293.1
Net (loss) income per ordinary share – basic and diluted
(0.021 ) (0.082 ) 0.101 0.137 0.135 0.352
Dividends declared per ordinary share (7)
— — — — — —
Net (loss) income per ADS (8) — basic and diluted
(0.411 ) (1.633 ) 2.02 2.716 2.702 —
Number of shares outstanding
897,042,600 897,042,600 897,042,600 897,042,600 906,455,100 831,610,200
U.S. GAAP
Net sales/service revenues
U.S. $ 566.8 Ps. 2,253.7 Ps. 2,163.3 Ps. 2,059.0 Ps. 1,937.0 Ps. 1,403.5
Electric power purchases
(269.0 ) (1,069.7 ) (1,003.4 ) (934.7 ) (889.9 ) (799.1 )
Transmission and distribution expenses
(184.1 ) (731.8 ) (624.0 ) (577.0 ) (477.5 ) (450.3 )
Gross margin
113.7 452.1 535.9 547.3 569.6 154.1
Operating expenses, net
(93.7 ) (372.4 ) (294.7 ) (296.6 ) (207.5 ) (194.1 )
Net operating income (loss)
20.0 79.7 241.3 250.7 362.1 40.0
Financial (expense), net and holding gains
(33.9 ) (134.7 ) (75.0 ) 82.0 (46.5 ) (133.3 )
Net income (loss) before income taxes
(13.8 ) (54.9 ) 166.3 332.7 315.7 (173.3 )
Income tax
4.8 19.9 (93.2 ) (68.2 ) (99.9 ) 128.0
Net (loss) income for the year
(9.0 ) (35.7 ) 73.1 264.5 215.8 (45.3 )
Net (loss) income per ordinary share – basic and diluted (7)
0.010 0.040 0.081 0.295 0.238 (0.054 )
Net (loss) income  per ADS (8) — basic and diluted
0.20 0.80 1.62 5.90 4.761 —
(1)
For the years ended December 31, 2008, 2007 and 2006, taxes on financial transactions were included in administrative expenses.  For the years ended December 31, 2009 and 2010, taxes on financial transactions were included as a separate line item under financial income (expenses) and holding gains (losses) generated by assets and liabilities.
(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, 2010, no amounts were due under the payment plan agreement with the Province of Buenos Aires.  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. 21.4 million, Ps. 69.2 million and Ps. 118.8 million of the retroactive tariff increase had not been invoiced in 2010, 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 that reasonably reflects the market evaluation of the time value of money and specific risks, net of issuance expenses, for the retroactive tariff increase, recording the resulting non-cash charge as an adjustment to present value of this receivable.  See “Item 5. Operating and Financial Review and Prospects—Factors Affecting Our Results of Operations—Framework Agreement (Shantytowns).”

3

(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 that reasonably reflects the market evaluation of the time value of money and specific risks, net of issuance expenses, for the years ended December 31, 2010, 2009, 2008, 2007 and 2006.
(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 years ended December 31, 2008, 2009 and 2010, we repurchased U.S. $32.5 million, U.S. $32.2 million and U.S. $15.3 million principal amount of our outstanding Fixed Rate Par Notes due 2016, respectively, and U.S. $17.5 million, U.S. $53.8 million and U.S. $123.9 million principal amount of our outstanding Senior Notes due 2017, respectively.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”
(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.

4

2010
2009
2008
2007
2006
(in millions)
Balance sheet data
Argentine GAAP
Current assets:
Cash and banks
U.S. $ 2.2 Ps. 8.6 Ps. 8.7 Ps. 6.1 Ps. 3.5 Ps. 0.5
Investments
168.1 668.2 219.7 121.0 97.7 32.2
Trade receivables
105.9 421.2 389.2 400.5 346.0 270.9
Other receivables
10.9 43.4 61.1 42.8 26.0 30.2
Supplies
3.1 12.4 14.9 16.7 23.2 13.6
Total current assets
U.S. $ 290.2 Ps. 1,153.8 Ps. 693.6 Ps. 587.1 Ps. 496.3 Ps. 347.5
Non-current assets:
Trade receivables
11.5 45.5 87.0 111.4 100.3 —
Other receivables
30.0 119.2 88.8 99.5 144.1 256.5
Investments in other companies
0.1 0.4 0.4 0.4 0.4 0.4
Investments
— — — 67.2 — —
Supplies
5.8 23.2 18.6 12.8 13.8 4.9
Property, plant and equipment
927.9 3,689.5 3,482.4 3,256.3 3,092.7 2,925.4
Total non-current assets
U.S. $ 975.3 Ps. 3,877.9 Ps. 3,677.2 Ps. 3,547.6 Ps. 3,351.3 Ps. 3,187.2
Total assets
U.S. $ 1,265.5 Ps. 5,031.7 Ps. 4,370.7 Ps. 4,134.6 Ps. 3,847.6 Ps. 3,534.7
Current liabilities:
Trade account payable
95.2 378.5 347.8 339.3 316.2 267.6
Loans
13.6 54.1 83.0 27.2 29.3 2.0
Salaries and social security taxes
45.4 180.4 118.4 94.8 59.9 51.4
Taxes
27.9 111.1 140.3 111.0 84.6 62.2
Other liabilities
1.1 4.5 8.0 10.5 9.7 26.4
Accrued litigation
14.5 57.8 62.8 52.8 39.9 25.9
Total current liabilities
U.S. $ 197.8 Ps. 786.5 Ps. 760.3 Ps. 635.6 Ps. 539.6 Ps. 435.6
Non-current liabilities:
Trade account payable
12.8 51.0 46.9 40.2 35.5 31.3
Loans
260.3 1,035.1 707.5 913.1 949.1 1,095.5
Salaries and social security taxes
12.7 50.6 43.7 40.1 24.7 20.3
Taxes
2.3 9.0 9.4 0 0 0
Other liabilities (1)
247.6 984.5 610.8 369.0 281.4 241.1
Accrued litigation
1.7 6.8 10.1 45.1 42.8 40.6
Total non-current liabilities
537.5 2,137.1 1,428.3 1,407.5 1,333.5 1,428.7
Total liabilities
U.S. $ 735.3 Ps. 2,923.6 Ps. 2,188.5 Ps. 2,043.1 Ps. 1,873.0 Ps. 1,864.3
Shareholders’ equity
530.2 2,108.2 2,182.2 2,091.6 1,974.6 1,670.4
Total liabilities and shareholders’ equity
U.S. $ 1,265.5 Ps. 5,031.7 Ps. 4,370.7 Ps. 4,134.6 Ps. 3,847.6 Ps. 3,534.7
U.S. GAAP
Current assets
U.S. $ 290.6 Ps. 1,155.4 Ps. 703.3 Ps. 666.7 Ps. 536.7 Ps. 547.0
Property, plant and equipment, net
944.3 3,754.6 3,552.4 3,331.2 3,175.7 3,016.4
Other non-current assets
69.1 274.6 260.4 258.4 346.6 201.5
Total assets
U.S. $ 1,304.0 Ps. 5,184.6 Ps. 4,516.1 Ps. 4,256.3 Ps. 4,059.0 Ps. 3,764.9
Current liabilities
U.S. $ 205.8 Ps. 818.1 Ps. 790.9 Ps. 707.5 Ps. 573.7 Ps. 470.0
Non-current liabilities
653.5 2,598.5 1,923.8 1,821.6 2,018.2 2,225.1
Total liabilities
859.3 3,416.6 2,714.7 2,529.1 2,591.9 2,695.1
Shareholders’ equity
444.7 1,768.0 1,801.4 1,727.2 1,467.1 1,069.8
Total liabilities and shareholders’ equity
U.S. $ 1,304.0 Ps. 5,184.6 Ps. 4,516.1 Ps. 4,256.3 Ps. 4,059.0 Ps. 3,764.9
(1)
Includes the amounts collected through the PUREE, which as of December 31, 2010, 2009 and 2008 amounted to Ps. 529.1 million, Ps. 233.3 million and Ps. 33.5 million, respectively.  Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA in order to reimburse Edenor for the amounts it is owed under CMM increases not yet reflected in the distribution margin.

5

2010
2009
2008
2007
2006
(in millions)
Cash flow data
Argentine GAAP
Operating activities:
Net (loss) income
U.S. $ (18.6 ) Ps. (74.0 ) Ps. 90.6 Ps. 123.1 Ps. 122.5 Ps. 293.1
Adjustment to reconcile net (loss) income to net cash flows provided by (used in) operating activities:
Depreciation of property, plant and equipment
44.9 178.4 175.4 170.3 174.4 179.0
Retirement of property, plant and equipment
0.3 1.1 2.8 1.9 1.1 0.7
Gain from the sale of real property
(1.3 ) (5.3 ) — — — —
Gain on extinguishment of former debt
— — — — — (179.2 )
Gain from investments in affiliated parties
— — — — (0.1 ) (0.1 )
(Gain) Loss from investments
(14.0 ) (55.7 ) 26.4 (4.3 ) (8.5 ) —
Adjustment to present value of notes
1.1 4.2 5.2 8.5 21.5 (57.1 )
Loss (Gain) from the purchase and redemption of notes
1.8 7.1 (81.5 ) (93.5 ) 10.2 —
Adjustment to present value of the repurchased and redeemed notes
— — — — 8.6 —
Exchange differences, interest and penalties on loans
12.5 49.5 178.6 232.7 69.5 49.1
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
— — (35.6 ) — — —
Income tax
(0.3 ) (1.1 ) 79.3 61.2 125.0 (167.2 )
Allowance for doubtful accounts
4.1 16.3 13.5 17.1 — —
Reversal of the allowance for doubtful accounts
— — (27.0 ) (24.0 ) — —
Allowance for other doubtful accounts
1.2 4.9 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
(2.9 ) (11.6 ) (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)
0.1 0.2 48.1 (49.5 ) (36.9 ) (39.0 )
Net (increase) decrease in other receivables
(0.1 ) (0.3 ) 5.3 (33.4 ) (8.4 ) (23.1 )
(Increase) decrease in supplies
(0.6 ) (2.2 ) (3.9 ) 7.4 (18.4 ) 1.4
Increase in trade accounts payable
8.8 34.9 15.2 27.8 52.7 67.1
Increase in salaries and social security taxes
17.4 69.0 27.2 50.3 12.9 25.2
(Decrease) increase in taxes
(11.5 ) (45.8 ) (56.9 ) 26.4 22.5 (5.7 )
Increase in other liabilities
18.7 74.5 39.3 78.1 17.7 91.7
Increase in funds obtained from the Program for the Rational Use of Electric Power (PUREE) (1)
74.4 295.8 199.8 — — —
Net (decrease) increase in accrued litigation
(2.1 ) (8.2 ) 10.6 15.1 16.2 9.5
Financial interest paid, net of interest capitalized
(16.3 ) (64.9 ) (76.8 ) (62.7 ) (25.5 ) (26.7 )
Financial and commercial interest collected
15.1 60.2 32.2 6.9 11.6 2.2
Net cash flow provided by operating activities
132.5 526.9 668.0 547.5 427.2 215.0
Investing activities:
Additions of property, plant and equipment
(97.8 ) (388.8 ) (404.2 ) (325.4 ) (336.9 ) (179.7 )
Collection of property, plant and equipment sold
1.9 7.4 — — — —
Net cash flow used in investing activities
(95.9 ) (381.3 ) (404.2 ) (325.4 ) (336.9 ) (179.7 )
Financing activities:
Decrease (increase) in current and non-current investments
— — 13.6 (67.9 ) — —
Net increase (decrease) in loans
76.2 302.9 (175.5 ) (122.9 ) (203.6 ) (310.8 )
Capital increase
— — — — 181.8 —
Treasury shares purchased
— — — (6.1 ) — —
Net cash flows provided by (used in) financing activities
76.2 302.9 (161.8 ) (197.0 ) (21.8 ) (310.8 )
Cash variations:
Cash and cash equivalents at beginning of year
U.S. $ 57.4 Ps. 228.4 Ps. 126.4 Ps. 101.2 Ps. 32.7 Ps. 308.1
Cash and cash equivalents at end of the year
170.2 676.8 228.4 126.4 101.2 32.7
Net increase (decrease) in cash and cash equivalents
112.8 448.5 102.0 25.2 68.5 (275.5 )
(1)
For the year ended December 31, 2008, funds obtained from the Program for the Rational Use of Electric Power (PUREE) were included under “Increase in other liabilities”.

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Year ended December 31,
2010
2009
2008
2007
2006
Operating data
Energy sales (in GWh):
Residential
7,796 7,344 7,545 7,148 6,250
Small commercial
1,543 1,470 1,530 1,485 1,433
Medium commercial
1,634 1,565 1,597 1,552 1,446
Industrial
3,378 3,204 3,277 3,628 3,364
Wheeling system (1)
3,891 3,622 3,700 3,111 3,211
Others:
Public lighting
654 644 644 643 650
Shantytowns
377 351 304 301 261
Others (2)
20 20 19 18 18
Customers (in thousands) (3)
2,662 2,605 2,537 2,490 2,445
Energy losses (%)
12.5 % 11.9 % 10.8 % 11.6 % 11.1 %
MWh sold per employee
7,123.9 6,936.1 7,392.8 7,230.6 6,736.6
Customers per employee
971 978 997 998 982
(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.

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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,
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
2010
3.79 3.99 3.91 (1) 3.98
Month
November 2010
3.96 3.99 3.97 (2) 3.99
December 2010
3.97 3.98 3.98 (2) 3.98
January 2011
3.97 4.01 3.98 (2) 4.01
February 2011
4.01 4.03 4.02 (2) 4.03
March 2011
4.03 4.05 4.04 (2) 4.05
April 2011
4.05 4.09 4.07 (2) 4.08
May 2011
4.08 4.09 4.08 (2) 4.09
June 2011 (3)
4.09 4.09 4.09 (4) 4.09

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 June 1 through June 9, 2011.
(4)
Represents the average of the lowest and highest daily rates from June 1 through June 9, 2011.

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RISK FACTORS
Risks Related to Argentina
Overview
We are a limited liability corporation ( sociedad anónima ) 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 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.  After the slowdown in Argentina’s economy in 2009, which started in the last quarter of 2008 and continued into much of 2009 (impacted by the largest global crisis in decades and negative domestic factors), 2010 experienced a growth of about 8.3%, according to preliminary official public estimates.  However, uncertainty about the sustainability of this growth rate remains.  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 credit is scarce;
·
investment as a percentage of GDP remains too low to sustain the growth rate of recent years;

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·
the Argentine government’s fiscal surplus shows a steady decline, with risk of becoming a fiscal deficit in the near term;
·
Argentina’s public debt remains high and international financing is limited;
·
inflation has accelerated recently and may rise to levels that threaten economic stability;
·
the regulatory environment continues to be uncertain;
·
the recovery has depended to some extent on high commodity prices, which despite having a favorable long-term trend, are volatile in the short-term and beyond the control of the Argentine government; and
·
the trade surplus (and the fiscal surplus, to a lesser extent) depends largely on the production of grains and soybeans, such that risk is magnified by the possibility of a new major drought affecting the crop (as in the 2008-2009 campaign).
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 consumer 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 National Statistics and Census Institute ( Instituto Nacional de Estadística y Censos , or INDEC), the rate of inflation  reached 10.9% in 2010, 7.7% in 2009 and 7.2% in 2008. 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.
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 Stabilization Coefficient ( Coeficiente de Estabilización de Referencia , or CER Index), a currency index that 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.

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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.  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 this restructuring, it had approximately U.S. $129.2 billion in total gross public debt as of December 31, 2005.  Certain bondholders that did not participate in that restructuring, mainly from the United States, Italy and Germany, have filed legal actions against Argentina to collect on the defaulted bonds.  Many of these proceedings are still pending as of this date and holdout creditors may initiate new suits in the future.
On January 3, 2006, Argentina repaid in full its debt of approximately U.S. $9.8 billion with the International Monetary Fund.
In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Central Bank in an amount equal to approximately U.S. $6.5 billion.  However, as of the date of this annual report, the National Government has not yet cancelled such debt.  In late 2010, President Cristina Fernández de Kirchner announced a new round of negotiations with the Paris Club to cancel such debt, which then totaled approximately U.S. $8.0 billion, without the intervention of the IMF.  The Minister of Economy and Public Finance, Amado Boudou, is currently carrying out the related negotiations and the terms of a final agreement are not yet known.  If no agreement with the Paris Club creditor nations is reached, financing from multilateral financial institutions may be limited or not available, which could adversely affect economic growth in Argentina and Argentina’s public finances.
Certain groups of holders that did not participate in the 2005 restructuring have filed claims against Argentina and it is possible that new claims will be filed in the future.  In addition, foreign shareholders of several Argentine companies have filed claims before the ICSID (International Centre for Settlement of Investment Disputes) alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party.  Since May 2005, the ICSID tribunals have issued several awards against Argentina.  Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently firm, which decisions required that the Argentine government pay U.S. $133.2 million, U.S. $165.2 million and U.S. $105 million, respectively.  As of the date of this annual report, Argentina has not yet paid the amounts referred to above.

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On April 30, 2010, Argentina launched a new debt exchange to holders of the securities issued in the 2005 debt exchange and to holders of the securities that were eligible to participate in the 2005 debt exchange (other than brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment.  As a result of the 2005 and 2010 exchange offers, Argentina restructured over 91% of the defaulted debt eligible for the 2005 and 2010 exchange offers.  The creditors who did not participate in the 2005 or 2010 exchange offers may continue with legal action against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets.
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 and awards 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 to attach or enjoin assets of Argentina.  In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness.  Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets.  Although neither the United States Congress nor the New York state legislature has taken any significant steps towards adopting such legislation, we can make no assurance that 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.
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.
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 stability since 2002, 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.

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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 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.
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.  Some of 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.  Among the 2005 restrictions is a requirement that for certain funds remitted into Argentina an amount equal to 30% of the funds be deposited into an account with a local financial institution as a U.S. Dollar deposit for one year without such deposit accruing interest, yielding any other kind of benefit or being posted as collateral for any transaction. See “Exchange Rates—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 interest or principal payments abroad or adversely affect our business and results of operations.
In recent years a significant portion of the local demand for debt of Argentine 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 National Social Security Agency ( Administración Nacional de la Seguridad Social , 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 could 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.

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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 originated 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.  Moreover, in recent years several European Union members have been obliged to reduce their public expenditures due to their high indebtedness rates, which has negatively impacted the Euro zone’s economy.  Also, Japan has announced that it will cut fiscal expenditures.
After acknowledging difficulties to meet payment of its public debt, the accounts of Greece were put under the supervision of the European Union.  Mainly due to fears of contagion and to the drastic decline in Greece’s public debt ratings, the European Union, together with the International Monetary Fund, designed a plan of aid for Greece involving the supply of approximately 110 billion Euros.  This contribution was granted based on the adjustment plan approved by the European Union for Greece, which included pay cuts for civil servants, pensions and retirement reductions, and significant increases in taxes. This led to widespread rioting in the streets.
Spain, Portugal, Germany and the UK similarly have made adjustments in all areas to prevent further deterioration of their accounts. More recently, Ireland has adopted similar measures.
Notwithstanding these measures, it is unclear what consequences there would be in the global financial system if any of the major global financial institutions became insolvent, or what effects such a situation might have on the rest of the financial system.  The current global economic condition may have significant long-term effects on Latin America and Argentina, mainly reflected in the lack of access to international credit, reduced demand for Argentine exports, and significant reductions in foreign direct investment.
The realization of any or all of these risk factors, as well as events that may arise in the main regional partners, including members of Mercosur, could have a material adverse effect on the Argentine economy and, indirectly, on our operations, business, and results.
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 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.

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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 us by the economic crisis and its aftermath. If we become unable to cover the costs of distribution or receive an adequate return on our asset on our base, our results of operations may be adversely affected.
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 experienced significant growth, increasing an estimated average of approximately 5.1% per annum from 2003 through 2010.  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.  Increases in electricity distribution margins, which increase the cost of electricity to residential customers, may have a negative effect on demand, and 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.

15

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.
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 an integral tariff revision process ( Revisión Tarifaria Integral , or RTI) with the ENRE, as required by the Adjustment Agreement.  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 or 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 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 between 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 seven increases under the CMM beginning in May 2008 that are still being reviewed by the ENRE. Under the terms of the Adjustment Agreement, these seven increases should have been approved in May 2008, November 2008, May 2009, November 2009, May 2010, November 2010 and May 2011.  If we are not able to recover all of these incremental costs and all such future cost increases or there is a significant lag time between when we incur the incremental costs and when we receive increased revenues, we may experience a material decline in our results of operations, which may have a material adverse effect on the value of our ADSs and Class B common shares.

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We may fail to realize the anticipated benefits of our acquisition of EMDERSA and AESEBA, and the integration of EMDERSA and AESEBA with our operations may present significant challenges.
In March 2011, we acquired EMDERSA and AESEBA and several related companies, which are now our subsidiaries. The success of these acquisitions will depend in part on our ability to realize the anticipated growth opportunities and cost savings from combining our business with EMDERSA’s and AESEBA’s businesses.  We may face significant challenges in consolidating our operations, integrating our organizations, and streamlining procedures in a timely and efficient manner while retaining key personnel from these companies. The integration of EMDERSA and AESEBA will be costly, complex and time consuming and will require substantial management attention. These costs could be greater than we currently anticipate, which could reduce our profitability. The integration of these businesses could also disrupt the operation of our and their existing businesses, or result in additional administrative procedures or regulatory oversight. It could also adversely affect our and their ability to maintain relationships with customers, suppliers, employees and others with whom we have business dealings.
Our acquisition of EMDERSA and AESEBA is subject to approval by the Argentine Antitrust Commission and by ENRE
Our acquisition of EMDERSA and AESEBA is subject to approval by the Argentine Antitrust Commission and by ENRE. Although we have submitted all required documentation to the Argentine Antitrust Commission and to ENRE, we cannot assure you that the Argentine Antitrust Commission or ENRE will authorize the acquisitions and, therefore, the acquisitions may be revoked if any of the approvals is not granted.
Our tariff adjustments may be subject to challenge by Argentine consumer and other groups
In November 2006, two Argentine consumer associations, Civil Association for Equality and Justice ( Asociación Civil por la Igualdad y la Justicia , or ACIJ) and Consumers’ Cooperative for Community Action ( Consumidores Libres Cooperativa Limitada de Provisión de Servicios de Acción Comunitaria ), 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 January 2009, the Public Ombudsman ( defensor del pueblo ) 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 “Business—Legal Proceedings—Proceedings Challenging the Renegotiation of our Concession—Preliminary Injunction of the Public Ombudsman.”
In addition, in December 2009, another Argentine consumer association, Unión de Usuarios y Consumidores , brought an action against us and the Argentine government seeking to annul certain retroactive tariff increases.  In November 2010, the relevant court upheld the claim.  We appealed the court’s order and requested that it be stayed pending a decision on the appeal.  In December 2010, the court stayed its order pending a decision on the appeal.  On June 1, 2011, the Administrative Court of Appeals ( Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal – Sala V ) overturned the judgment of the lower administrative court.  The Argentine consumer association may file an extraordinary appeal (“Recurso Extraordinario Federal”) to have the case tried by the Argentine Supreme Court.  As of the date of this annual report, to Edenor’s knowledge, the Argentine consumer association has not filed such extraordinary appeal.

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We cannot make assurances regarding how these complaints will be resolved (nor, in the action brought by Unión de Usuarios y Consumidores in December 2009, whether the plaintiff may decide to file an extraordinary appeal as described above) 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.
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, 2010, our accrued fines and penalties totaled Ps. 455.4 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, 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 12.5% in 2010.  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.
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 has 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

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·
our shareholders or former shareholders do not desist from its ICSID claims against the Argentine government following completion of the RTI and the approval of a new tariff regime.
In 2010, the fines and penalties imposed on us by the ENRE amounted to Ps. 80.0 million, which represented 3.6% of our energy sales.  See “Item 4. Information on the Company —Our Concession—Fines and Penalties.”
If the Argentine government were to foreclose its pledge over our Class A Shares, pending the sale of those shares, the Argentine government would also have the right to exercise the voting rights associated with the 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, our Senior Notes issued in October 2007, and our Senior Notes issued in October 2010, 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, our results of operations and financial condition could be significantly affected and the market value of our ADSs and Class B common shares could be affected too.
Default by the Argentine government could lead to termination of the concession, and have a material adverse effect on our business and financial condition
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. Any such default could have a material adverse effect on our business and financial condition .
We employ a largely unionized labor force and could be subject to an organized labor action
As of December 31, 2010, 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.  If we are unable to negotiate salary agreements or if we are subject to strikes or work stoppages, our results of operations, financial condition.
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 2,682 third-party employees under contract with our company as of December 31, 2010.  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 and 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.
Our insurance may not be sufficient to cover certain losses. As of December 31, 2010, our physical assets were insured for up to U.S. $665.5 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 would trigger a repurchase obligation under the terms of our restructured debt, our Senior Notes due 2017 and our Senior Notes due 2022, and have a material adverse effect on our results of operations and financial condition.
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 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.
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.

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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.
Item 4. Information on the Company
HISTORY AND DEVELOPMENT OF THE COMPANY
Empresa Distribuidora y Comercializadora Norte S.A., or Edenor, is a public service company incorporated as a sociedad anónima (limited liability corporation) under the laws of the Argentine Republic, or Argentina.  Our principal executive offices are located at Avenida del Libertador 6363, Ciudad de Buenos Aires, C1428ARG, Argentina, and our general telephone number at this location is +54 11 4346 5000.
We were incorporated on July 21, 1992, under the name Empresa Distribuidora Norte Sociedad Anónima,  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.

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A group of international investors, which included EDF International S.A. (a wholly owned subsidiary of Électricité de France S.A.), 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.”
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 April 12, 2011, ANSES hold 229,125,205 of our Class B shares, representing 25.3% of our capital stock.

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Acquisition of EMDERSA and AESEBA
On January 19, 2011, our indirect controlling shareholder, Pampa Energía, agreed to acquire from AEI and certain of its subsidiaries (directly or through one or more of its affiliates) the following:
(i)
77.19% of the outstanding capital stock of Empresa Distribuidora Eléctrica Regional S.A. (“EMDERSA”), a company engaged in the distribution of electricity in the Argentine provinces of San Luis, La Rioja and Salta through its subsidiaries Empresa Distribuidora de San Luis S.A. (“EDESAL”), Empresa Distribuidora de La Rioja S.A. (“EDELAR”) and Empresa Distribuidora de Salta S.A. (“EDESA”), and in the generation of electricity through its subsidiary Emdersa Generación Salta S.A. (“EGSSA”); and
(ii)
99.99% of the outstanding capital stock of AESEBA S.A. (“AESEBA”), an electric utility company, which owns 90% of the outstanding capital stock of Empresa Distribuidora de Energía Norte S.A. (“EDEN”), an electricity distribution company with the concession area in the north region of the Province of Buenos Aires.
In addition, Pampa Energía agreed to acquire from AEI 0.01% of the outstanding capital stock of EDESAL, 0.02% of the outstanding capital stock of EGSSA and 0.01% of the outstanding capital stock of EDELAR that were held directly by AEI and its subsidiaries (other than EMDERSA).
Pursuant to the terms of the sale of the shares described above, Pampa Energía was entitled to designate one or more of its affiliates to act as transferees of such shares.  In light of this, Pampa Energía designated Edenor as transferee of the shares and Edenor purchased the shares on March 4, 2011, for a total purchase price of U.S $140.0 million, of which U.S.$ 90.0 million relates to the acquisition of the shares of EMDERSA and U.S.$ 50.0 million relates to the acquisition of the shares of AESEBA.  In addition, we made loans totaling approximately U.S. $70.0 million to EDESAL, EDESA, EDELAR and EDEN.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”  The acquisitions are pending approval from ENRE and from the Argentine Antitrust Commission.  See “Risk Factors—Risks Relating to Our Business.”
In addition, if within three years from March 4, 2011, we sell all or part of such shares, Pampa Energía will have the right to receive from us a payment equal to 50% of the value we receive for the sale of any such shares in excess of the price paid to AEI for any such shares.
Edenor has agreed with AEI to purchase up to 22.81% of EMDERSA’s outstanding capital stock, which is publicly held, at U.S. $0.68 price per share in the event AEI acquires such shares in the context of the mandatory tender offer to be made by AEI regarding those shares of EMDERSA. Alternatively, Edenor may, if so agreed with AEI and authorized by the CNV, participate jointly and severally with AEI in such mandatory tender offer.
As of the date of this annual report, we are exploring the possibility of divesting one or more of the newly acquired assets described in this section.  Although we have received preliminary indications of interest from third parties in respect of certain of these assets and we have engaged in preliminary discussions with several of these third parties, we cannot assure you that we will sell one or more of these assets or on what terms any such sale may be made.
EMDERSA and its Subsidiaries
EMDERSA, through EDESAL, EDELAR and EDESA, supplies electricity to a service area with a population of approximately 2.0 million that encompasses approximately 124,000 square miles in the Provinces of San Luis, La Rioja and Salta, respectively.  As of December 31, 2010, EMDERSA had approximately 530,771 customers and sold approximately 3,056 GWh of electricity in 2010.  EDESA also owns 99.99% of Empresa de Sistemas Eléctricos Dispersos (“ESED”), an electricity generation and distribution company that supplies energy to customers in remote areas of the Province of Salta through the utilization of photovoltaic solar panels.  In addition, EMDERSA’s subsidiary EGSSA obtained in 2008 the approval from the Argentine Secretary of Energy to act as agent of the Wholesale Electricity Market.  EGSSA is located in the northeast region of the Province of Salta, and commenced its operations in the second half of 2010.  EMDERSA is a public company, which is traded on the Buenos Aires Stock Exchange under the symbol “EMDEHR”. EMDERSA owns 99.9% of the capital stock of each of EDESAL, EDELAR, and EGSSA, and 90.0% of the capital stock of EDESA.  The remaining 10.0% of EDESA is owned by certain of its employees through an Employee Stock Participation Program.  Our acquisition of EMDERSA is still pending antitrust approval.

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EDESAL, EDELAR and EDESA each hold an exclusive long-term renewable concession from the San Luis, La Rioja and Salta Province regulators respectively.  EDESAL’s concession agreement is divided into several administrative periods, the first of which was 15 years and expired in 2008, followed by eight successive ten-year periods, the next of which will expire in 2018.  At the end of each period a competitive bid process for the sale of a minimum of 51% of the share capital of EDESAL will take place.  We can participate in the bidding and will only be required to sell and transfer control of our interest in EDESAL if there is a higher bidder, in which case we will receive the amount bid by such bidder.  Following the auction, a new ten-year concession will be granted to EDESAL at the end of which the auction process would be held again.  EDELAR’s concession is divided similarly with an initial period of 15 years (which expired in 2010) followed by eight successive ten-year periods with a competitive bidding process at the end of each period which follows the same process as described for EDESAL.  As of the date of this annual report, the competitive bidding process with respect to EDELAR has not yet taken place.  EDESA’s concession has an initial period of 20 years (expiry in 2016) followed by two successive 15-year periods with a competitive bidding process at the end of each period which follows the same process as described for EDESAL and EDELAR.
Tariffs for Argentine electricity distribution companies are periodically reviewed by the regulators within the service area in which the concession is located.  EMDERSA’s subsidiaries generally have integral tariff reviews, or RTIs, every five years.  EDESAL’s and EDESA’s tariffs are currently under an RTI process, and EDELAR’s tariffs were last reviewed in an RTI in 2008.  Under the current tariff scheme, the tariffs are designed to provide for a pass-through to customers of the main variable cost items (mainly power purchases and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make needed capital investments and a regulated rate of return on its regulated asset base.  Tariffs are also adjusted every six or 12 months for inflation of fixed costs and to pass-through adjustments to variable costs.  EMDERSA’s subsidiaries have been granted adjustments to their tariffs periodically to reflect increases in costs.
The tables below summarize energy sales information regarding EDESAL, EDELAR and EDESA, solely on the basis of EMDERSA’s public securities filings in Argentina.
EDESAL’s Energy Sales
Year ended December 31,
2010
2009
2008
(in MWh, except percentages)
Residential
340,247 26.9 % 311,543 26.8 % 296,034 25.2 %
Commercial
109,978 8.7 % 104,680 9.0 % 97,039 8.3 %
Public lighting
61,300 4.8 % 60,964 5.2 % 59,425 5.1 %
Large users
394,681 31.2 % 361,799 31.1 % 385,731 32.8 %
Industrial ( Grandes Usuarios del MEM )
358,772 28.4 % 325,218 27.9 % 337,543 28.7 %
Total
1,264,978 100.0 % 1,164,204 100.0 % 1,175,772 100.0 %
EDELAR’s Energy Sales
Year ended December 31,
2010
2009
2008
(in MWh, except percentages)
Residential
353,009 33.9 % 315,057 33.3 % 228,236 27.3 %
Commercial
88,646 8.5 % 83,911 8.9 % 76,170 9.1 %
Public lighting
36,758 3.5 % 37,586 4.0 % 35,846 4.3 %
Large users
350,723 33.7 % 316,184 33.5 % 299,714 35.8 %
Industrial ( Grandes Usuarios del MEM )
219,994 20.4 % 192,215 20.3 % 196,156 23.5 %
Total
1,042,130 100.0 % 944,953 100.0 % 836,122 100.0 %

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EDESA’s Energy Sales
Year ended December 31,
2010
2009
2008
(in MWh, except percentages)
Residential
645,717 45.6 % 593,074 44.9 % 551,443 44.7 %
Commercial
172,839 12.2 % 157,502 11.9 % 150,919 12.2 %
Public lighting
88,187 6.2 % 90,443 6.8 % 85,827 7.0 %
Large users
413,962 29.2 % 381,289 28.9 % 344,601 27.9 %
Industrial ( Grandes Usuarios del MEM )
95,720 6.8 % 99,010 7.5 % 100,820 8.2 %
Total
1,416,425 100.0 % 1.321.318 100.0 % 1,233,610 100.0 %
The tables below summarize certain key financial information regarding EMDERSA and its subsidiaries, solely on the basis of EMDERSA’s public securities filings in Argentina.
Consolidated Income Statement:
Year ended December 31,
2010 (1)
2009
2008
(in millions)
Net sales
U.S. $ 187.2 Ps. 744.2 Ps. 648.8 Ps. 532.4
Cost of sales
111.0 (441.5 ) (387.2 ) (321.4 )
Gross profit
76.1 302.8 261.6 211.0
Administrative, selling and other expenses
(44.5 ) (177.1 ) (140.1 ) (107.6 )
Other operating income (or costs)
5.2 20.6 17.4 16.7
Operating income
36.8 146.3 138.8 120.1
Financial and holding results
(17.0 ) (67.4 ) (79.0 ) (34.1 )
Goodwill
— (0.1 ) (0.3 ) (0.3 )
Other income or costs
0.93 3.7 3.5 2.5
Income before income taxes and minority interest
20.8 82.6 63.1 88.3
Minority interest
(0.4 ) (1.7 ) (0.5 ) (1.8 )
Income tax expenses
(7.3 ) (28.9 ) (24.1 ) (38.5 )
Income for the year
U.S. $ 13.1 Ps. 51.9 Ps. 38.5 Ps. 48.0
(1)  As of December 31, 2010, EMDERSA elected to recognize as a temporary difference (deferred tax liability) the difference between the accounting and tax values resulting from the adjustment for inflation included in non-monetary assets.
Year ended December 31,
Balance Sheet:
2010 (1)
2009
2008
(in millions)
Current assets
US. $ 54.1 Ps. 214.9 Ps. 187.6 Ps. 266.3
Non-current assets
276.0 1,097.4 971.1 856.2
Goodwill
0.1 0.6 0.8 1.2
total assets
330.2 1,312.9 1,159.4 1,123.6
Current liabilities
72.9 289.7 400.9 244.1
Non-current liabilities
75.2 299.0 12.1 173.5
Total liabilities
148.1 588.7 413.0 417.6
Minority interest
5.3 20.9 23.1 22.6
Total shareholders’ equity
176.9 703.2 723.3 683.4
Total liabilities and shareholders’ equity
U.S. $ 330.2 Ps. 1,312.9 Ps. 1,159.4 Ps. 1,123.6
(1)  As of December 31, 2010, EMDERSA elected to recognize as a temporary difference (deferred tax liability) the difference between the accounting and tax values resulting from the adjustment for inflation included in non-monetary assets.
AESEBA and its Subsidiaries
AESEBA is a holding company that owns 90% of the outstanding capital stock of EDEN, an electricity distribution company that supplies electricity to a service area with a population of approximately 1.0 million that encompasses approximately 42,000 square miles in the northern part of the Province of Buenos Aires.  As of December 31, 2010, EDEN had approximately 334,000 customers and sold approximately 2,648 GWh of electricity in 2010.  The remaining ownership interest is owned by EDEN employees. Our acquisition of EDEN is still pending antitrust approval.

26

EDEN holds an exclusive long-term renewable concession from the Buenos Aires Province regulator.  EDEN’s concession agreement is divided into several administrative periods, the first term of which is 15 years and expires in 2012, followed by eight ten-year periods thereafter.  At the end of this term, a competitive bid process for the sale of a minimum of 51% of the share capital of EDEN will take place.  We can participate in the bidding and will only be required to sell and transfer control of our interest in EDEN if there is a higher bidder, in which case we will receive the amount bid by such bidder.  Following the auction, a new ten-year concession will be granted to EDEN at the end of which the auction process would be held again.
Tariffs for Argentine electricity distribution companies are reviewed periodically by the regulators within the service area that the concession is located (in the case of EDEN this is the Buenos Aires Province).  EDEN periodically has integral tariff reviews.  EDEN’s tariffs are currently under an RTI process.  Under the current tariff scheme, the tariffs are designed to provide for a pass-through to customers of the main variable cost items (mainly power purchases and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make needed capital investments and a regulated rate of return on its regulated asset base.  Tariffs are also adjusted for inflation of fixed costs and to pass-through adjustments to variable costs.  EDEN has been granted adjustments to its tariff periodically to reflect increases in costs.
The table below summarizes energy sales information regarding EDEN.
EDEN’s Energy Sales
Year ended December 31,
2010
2009
2008
(in MWh, except percentages)
Residential
603,368 22.8 % 603,371 24.0 % 582,917 23.3 %
Commercial
308,926 11.7 % 291,914 11.6 % 291,272 11.6 %
Public lighting
77,737 2.9 % 74,310 3.0 % 73,657 2.9 %
Large users
1,357,732 51.3 % 1,266,465 50.3 % 1,271,814 50.8 %
Industrial (Grandes usuarios del MEM)
299,936 11.3 % 281,714 11.2 % 284,836 11.4 %
Total
2,647,699 100.0 % 2,517,774 100.0 % 2,504,496 100.0 %
27

The tables below summarize certain key financial information regarding EDEN, solely on the basis of EDEN’s financial statements issued in Argentina.

Income Statement:
Year ended December 31,
2010
2009
2008
(in millions )
Net sales
U.S. $ 117.5 Ps. 467.2 Ps. 401.3 Ps. 371.1
Cost of sales
(82.8 ) (329.1 ) (302.8 ) (297.7 )
Gross profit
34.7 138.1 98.4 73.4
Administrative and selling expenses
(20.1 ) (80.0 ) (67.7 ) (54.2 )
Other operating income *
5.0 20.0 15.3 -
Operating income
19.6 78.1 46.0 19.2
Financial results
(5.2 ) (20.7 ) (20.0 ) (22.4 )
Other income or costs, net
(1.6 ) (6.4 ) 34.9 9.2
Income before income taxes
12.8 51.1 60.9 6.0
Income tax expenses
(4.5 ) (17.8 ) (19.5 ) (2.4 )
Income for the year
U.S. $ 8.4 Ps. 33.3 Ps. 41.4 Ps. 3.6
* In the year ended December 31, 2008, “other operating income (or costs)” amounted to Ps. 14.1 million and was included in the line item “other income or costs, net” in an amount equal to Ps. 11.6 million and in “Financial results” in an amount equal to Ps. 2.6 million.
Year ended December 31,
Balance Sheet:
2010
2009
2008
(in millions)
Current assets
U.S $ 43.0 Ps. 170.8 Ps. 172.1 Ps. 148.6
Non-Current assets
196.9 783.0 768.9 757.3
Total assets
239.9 953.8 941.0 905.9
Current liabilities
70.9 282.0 232.5 342.5
Non-Current liabilities
36.2 144.1 174.8 71.1
Total liabilities **
107.2 426.1 407.3 413.6
Total shareholders’ equity
132.7 527.7 533.8 492.3
Total liabilities and shareholders’ equity
U.S. $ 239.9 Ps. 953.8 Ps. 941.0 Ps. 905.9
** On March 4, 2011, as a result of the change of control in EDEN triggered by our acquisition of AESEBA, EDEN prepaid the loan it had with Standard Bank Argentina S.A. and HSBC Argentina S.A.  Such repayment was made with EDEN's funds and with the proceeds from a loan that we granted to EDEN in an aggregate amount equal to Ps. 80.0 million.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”
BUSINESS OVERVIEW
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 2010.  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, 2010, we served 2,662,068 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
2010
110,767 22,053 19.9 %
2009
104,592 20,676 19.8 %
2008
105,959 20,863 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.

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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 2010.  We serve the largest number of electricity customers in Argentina, which at December 31, 2010 amounted to 2,662,068 customers.  Our electricity purchases, used to meet customer demand in our service area, accounted for approximately 19.9% of total electricity demand in the country in 2010.  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 971 customers per employee and 7,123.9 MWh sold per employee in 2010.
·
We have a well-balanced capital structure .  As of December 31, 2010, our financial debt amounted to U.S. $282.3 million, including U.S. $267.7 million principal amount of Dollar-denominated notes and Ps. 58.2 million Peso-denominated notes.  We have continued to strengthen our capital structure during 2010 acquiring U.S. $123.9 million principal amount of Senior Notes due 2017, through their repurchase and their exchange for Senior Notes due 2022.
·
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.

29
·
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.
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.

30

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, 2010, we had invoiced Ps. 197.2 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 fund established by Rational Use of Electric Energy Plan ( Plan de Uso Racional de la Energía Eléctrica , or PUREE), a program established by the Argentine government in 2003 in an attempt to curb increases in energy demand, 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 June 1, 2011 we had submitted to the ENRE seven requests from CMM adjustments as described in the table below, since May 2008:
Assessment Period
Application Date
CMM Adjustment Requested
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 %
November 2009 – April 2010
May 2010
7.103 %
May 2010 – October 2010
November 2010
7.240 %
November 2010 – April 2011
May 2011
6.104 %
Cumulative:
47.829 %

As of the date of this annual report, the ENRE has not yet responded to these requests (other than the request submitted in May 2008, as explained above).
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).
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.

31
As of December 31, 2010 and 2009 the amounts collected through the PUREE, amounted to Ps. 529.1 million and Ps. 233.3 million, respectively, and have been disclosed under other non-current liabilities. Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA in order to reimburse Edenor for the amounts it is owed under CMM increases not yet reflected in the distribution margin.
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.
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
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The table below sets forth certain information relating to our operating territories as of and for the period ended December 31, 2010:
Operating territory
Area
(km 2 )
Customers
(in thousands)
% of Sales
Morón
1,761 826.4 32.2 % 26.9 %
Norte
164 858.0 31.0 % 28.1 %
Olivos
1,624 490.8 18.4 % 23.0 %
Pilar
1,088 486.8 18.3 % 22.0 %
Total
4,637 2,662.1 100 % 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.
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.

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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.
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.

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The following table sets forth the frequency and duration of interruptions of our service in the periods indicated:
Year ended December 31,
2010
2009
2008
Average frequency of interruptions
5.13 4.42 4.10
Average duration of interruption (in hours)
10.62 8.79 8.31
December 2010 was an atypically warm month since maximum temperatures were over 33°C (91.4° F) (with peaks of 37°C (98.6° F)), which had a significant impact on our grid.  The impact in December 2010 was such that more than 70% of the interruptions in 2010 occurred between December 21 and December 31, 2010.  Were it not for this atypical situation, the annual values would have remained within the historical range.
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.
Fines relating to our failure to meet any of the quality and delivery standards described above are payable by granting credits or bonuses to our customers to offset a portion of their electricity charges. Since 1996 we have operated a central information system that allows us to directly credit customers who are affected by these quality or delivery deficiencies in the amount of the applicable fines.
Fines and penalties that are not directly related to our customers are paid directly to the ENRE. These include fines imposed on us by the ENRE for any network installations that it determines to pose a safety or security hazard in a public space, including streets and sidewalks. In addition, the ENRE may fine us for inconsistency in technical information that we are required to furnish to the ENRE. Fines paid to the ENRE are deposited in the Reserva de Fondos de Terceros del ENRE (Third Party Reserve Fund of the ENRE) in an account at 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. According to the terms of the payment plan, we will repay our fines and penalties in fourteen semiannual installments, with the first installment due upon the termination of a 180-day grace period after the date 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. In addition, we are required to make adjustments to our accrued fines and penalties under the payment plan in order to reflect increases in our distribution margins, including the CMM adjustments. For the year ended on December 31, 2008, we recorded adjustments of Ps. 17.2 million, to reflect CMM adjustments. We did not record any adjustments in 2009 and 2010. In 2010, the fines and penalties imposed on us by the ENRE amounted to Ps. 80.0 million, which represented 3.6% of our energy sales. As of December 31, 2010 our accrued fines and penalties imposed by the ENRE amounted to Ps. 455.4 million as compared to Ps. 377.5 million as of December 31, 2009. 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. 361.6 million in accordance with the payment plan provided for in the Adjustment Agreement, although we cannot be certain of what amounts, if any, we will ultimately be forgiven.

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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)
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Accruals at beginning of year
377.5 331.6 281.4 241.1 169.7 99.3 63.4 49.0 19.0 13.6
ENRE Fines and Penalties
80.0 58.5 34.8 23.9 25.2 72.7 36.0 14.6 31.7 16.4
Quality of Technical Service
46.0 15.0 15.2 7.0 10.4 4.9 4.7 3.2 5.6 5.2
Quality of Technical Product
3.4 3.1 3.0 0.9 0.6 1.1 6.9 6.5 5.5 2.9
Quality of Commercial Service
3.0 2.4 1.6 1.1 1.2 — 1.2 0.5 1.5 1.7
Public Safety
19.4 34.0 11.6 10.3 6.7 25.4 10.9 2.0 4.9 4.2
Transport Technical Function
0.4 0.3 0.3 0.2 0.4 — 0.2 0.2 0.2 —
Reporting Violations
6.6 3.7 2.9 4.4 5.6 33.7 12.2 1.7 4.9 1.9
Others
1.3 — — — 0.2 7.5 — 0.4 9.0 0.5
Less: Paid during period:
Quality of Technical Service
— — — — — 1.6 — — 0.9 3.3
Quality of Technical Product
— — — — — — — — — 2.3
Quality of Commercial Service
1.9 3.7 — 1.5 0.4 0.1 0.1 0.1 0.3 1.4
Public Safety
0.1 8.9 1.5 — — — — — — 2.1
Transport Technical Function
— — — 0.1 0.3 — — 0.1 0.3 0.2
Others
— — — — — 0.6 — — — 1.8
Total paid during period
2.0 12.7 1.7 1.7 0.7 2.4 0.1 0.2 1.6 11.1
Plus: Adjustment to fines and penalties pursuant to the ratification of the Adjustment Agreement
— — 17.2 18.1 47.0 — — — — —
Accruals at year-end
455.4 377.5 331.6 281.4 241.1 169.7 99.2 63.4 49.0 19.0

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.

On February 8, 2011, ENRE passed Resolution 32/2011, imposing two fines on us and obligating us to compensate customers for any disruption in service resulting from a power outage during a heat-wave that occurred from December 20 to December 31, 2010 in alleged violation of our concession.  The two fines against us are in the amounts of Ps. 0.8 million and Ps. 0.4 million.  Pursuant to the ENRE resolution, we are required to credit the accounts of affected customers in an amount equal to each customer’s portion of the aggregate fine.
In addition, the ENRE resolution requires that we compensate our customers (in amounts ranging from Ps. 180 to Ps. 450 per customer, depending on the duration of the power outage) by directly crediting customer accounts and, if necessary, making cash payments for the balance of the amount due to the customer as compensation.
The approximate amount of such compensation is Ps. 22.4 million, which is recorded under Other Non-Current Liabilities of the Financial Statements for the year ended December 31, 2010.
As of the date of this annual report, we have filed administrative and judicial actions against ENRE Resolution No. 32/2011. On April 28, 2011, the Appellate Court denied the provisional relief sought by the Company. The Company will file an extraordinary appeal (“Recurso Extraordinario Federal”) against such decision with the purpose of having the Supreme Court of Justice decide upon the admissibility of the provisional relief that we seek.
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:

36
·
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;
·
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.

37
Our Network
As of December 31, 2010, the system through which we supply electricity was composed of 71 Sub-Stations of high/high voltage, high/high/medium voltage, high/medium voltage, representing 13,619 MVA of transformer capacity and 1,368 kilometers of high-voltage power lines 220 kV and 132 kV.  The distribution system of medium/low voltage was comprised of 15,185 transformers of medium/low voltage, representing 5,684 MVA of transformer capacity, 9,364 kilometers of medium-voltage power lines 33 and 13.2 kV and 25,123 kilometers of low-voltage power lines 380 V.
The following table provides certain information concerning our transmission and distribution system as of the dates presented:
At December 31,
2010
2009
2008
Kilometers of transmission lines
High voltage
1,368 1,365 1,364
Medium voltage
9,364 9,191 8,890
Low voltage
25,123 24,761 24,445
Total
35,855 35,317 34,699
Transformer capacity (MVA)
High voltage/high voltage
7,048 7,048 7,048
High voltage/medium voltage
6,571 6,356 6,106
Medium voltage/low voltage and medium voltage/medium voltage
5,849 5,643 5,369
Total
19,468 19,047 18,523
Demand is provided from points of interconnection with the Argentine Interconnection System ( Sistema Argentina de Interconexión , or SADI) (500 kV-220 kV Rodríguez Substation, 220 kV Ezeiza Substation) and from the local Puerto and Costanera power plants.  In turn, the transmission network links these nodes with head sub-stations of 220V: Casanova, Malaver, Matheu, Morón, Talar and Zappalorto, and 132 kV Matanza, Ramos Mejía, Agronomía, Puerto Nuevo, Nuevo Puerto Colegiales and Edison.
This transmission and subtransmisson system (the “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 the SADI 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 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.”

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Systems
During 2010 we continued with the consolidation of the Systems Plan and Medium-Term Plan for Telecommunications.  The major projects implemented were the following:
·
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 two stages, namely: (i) implementation of the solution for big customers, by the end of August 2011; and (ii) deployment for the rest of our customer base, by the beginning of 2012.
·
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. The completion of this project in 2010 enabled us to implement instant messaging features and audio and video communication, achieving an important qualitative leap to streamline the organization of virtual meetings. Monitoring and management tools of the platform were implemented, enabling automatic and remote software or operating system update functions.
·
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. The latter objective was achieved by distributing printing costs to each area of the organization through an accounting service.
·
In regard to the Nexus system, we implemented a mobile solution that allows the derivation and closure of individual claims through mobile devices (cellular), directly connected to the Nexus OMS module, significantly streamlining operation in the field and the quality of input data. To this end, the Operational Communications system was replaced by the Nextel trunking system with 900 devices that can operate with voice and data.
·
With the intention of moving the headquarters to a new building, various tasks were allowed to provide it with technology. The new building was equipped with technology from telephony networks and next-generation IP data. In this way, we achieved through implemented Microsoft tools a unified communications solution.  We also enabled WiFi service throughout the building and installed entry control systems and virtual printing through a single credential per user which enables the use and registration of such services.
·
We implemented the SAP-SRM product which allows for more efficient purchasing management.  We are one of the first companies in the region to implement this system.
·
We conducted the Trame Network unification for remote control. This allowed us to standardize network operations and be technologically up to date to support the deployment of new Telecontrol remote, and be aligned with the new Control Center deployed for SACME.
·
We continued updating the Corporate Network in Commercial Offices to provide quality service in available applications and to improve connectivity.
·
There was the deployment of 500 km. of optical fiber on Low Voltage on the following districts of the Province of Buenos Aires: 3 de Febrero, Morón and San Martín. This allowed us to be prepared for remote monitoring and management of MT networks, improve availability of telecommunications networks, expand our transport capacity to reach secure communications to the Transformation Center.
We carried out the change in analog recording system technology of the Call Center for a new generation system that will allow us to have high availability of the recording system and integration with Call Center applications.
39
Customers
The following graph shows the evolution of our customer base through December 31, 2010:
As of December 31, 2010, we served 2,662,068 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 2010, 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 2010, 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 2010, this category accounted for approximately 8% 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 2010, 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, 2010, the total number of such large users was 643, and in 2010 this category represented approximately 20% of our electricity sales.
·
Others: public lighting (T1-PL) and shantytown customers whose peak capacity demand is less than 10kW.  In 2010, 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.

40

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.).
Public lighting customers are billed a monthly variable energy charge based on each unit of energy consumed.

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The table below shows the number of our customers per category at the dates indicated.
At December 31,
2010
2009
2008
Residential
2,325,574 2,271,960 2,206,847
Small commercial
299,822 297,070 295,827
Medium commercial
29,820 28,923 28,397
Industrial
5,816 5,628 5,437
Wheeling system
643 636 626
Other*
393 395 393
Total
2,662,068 2,604,612 2,537,527
*
Represents public lighting and shantytown customers.

Since 1995, we have maintained two billing systems: one for small- and medium-demand customers and another for large users.  Both systems 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, independent contractors in each operating area, subject to strict controls, distribute them.
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. 56.0 million as of December 31, 2009 to Ps. 72.0 million as of December 31, 2010.  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 Public 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 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).”
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 that 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.

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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, 2009 and 2010, over 2,900,000 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,
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
Technical losses
9.8 % 9.8 % 9.8 % 9.6 % 8.6 % 8.3 % 8.1 % 8.0 % 7.8 % 7.5 % 7.3 %
Non-technical losses
2.7 % 2.1 % 1.0 % 2.0 % 2.5 % 2.7 % 3.4 % 4.7 % 4.5 % 3.6 % 2.7 %
Total losses
12.5 % 11.9 % 10.8 % 11.6 % 11.1 % 11.0 % 11.5 % 12.7 % 12.3 % 11.1 % 10.0 %

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.

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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.  We are currently negotiating a new extension to the Framework Agreement.
In November and December 2009, we received Ps. 20.0 million from the National Government.  Between March and December 2010, we received Ps. 19.3 million from the National Government.
Our receivables for amounts accrued but not yet paid for the supply of energy to shantytowns under the framework agreement amounted to Ps. 33.0 million as of December 31, 2010, 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, which are bonds issued by the Province of Buenos Aires for the purpose of paying outstanding obligations of the Province. The agreement was signed subject to the approval of the Provincial Executive Power and the Company’s board of directors. The Company’s board accepted the agreement in the meeting held on April 27, 2010.  In 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 (principal amount) of Cancellation Bonds.  These Cancellation Bonds were issued by the Province of Buenos Aires on December 15, 2009, with a maturity of March 15, 2011.  The Cancellation Bonds we received amortise in twelve equal and consecutive payments, have a three month grace period for capital payments and earn interest at a rate of BADLAR plus 450 base points and are freely transferable.  As of December 31, 2010, we hold Ps. 8.7 million of Cancellation Bonds and all payments on these Cancellation Bonds have been made according to schedule.
Insurance
As of December 31, 2010, we are insured for loss or damage to property, including damage due to floods, fires and earthquakes covering amounts up to U.S. $665.5 million, with the following deductibles:
·
transformers, between U.S. $175,000 and U.S. $850,000 (depending on the power level thereof);
·
equipment of sub-stations (not including transformers), U.S. $75,000.
·
commercial offices, U.S. $1,500 for each office; and
·
deposits and other properties, U.S. $25,000.
We are insured against theft of cash and securities for a maximum amount of U.S. $100,000 and U.S. $5,000, respectively, and against acts of terrorism for a maximum amount of U.S. $10,000,000, with a deductible of U.S. $50,000.
In addition, we maintain the following insurance, subject to customary deductibles and limitations:
·
Directors’ and Officers’ Liability insurance;
·
Civil Liability insurance;
·
Automobile insurance;
·
Mandatory life insurance which is maintained in accordance with Argentine law; and

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·
Workmen’s compensation insurance.
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 hazardous waste, including polychlorinated biphenyl (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.
Over the course of 2009, Edenor completed the removal of PCBs from all its transformers with contaminated cooling oils exceeding 50 ppm (parts per million), the limit established by Federal law.
As part of our investment plan, we made important improvements to our network and implemented technological innovations 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 and deepened 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 November 2010.
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.”

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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.
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.
Regulatory and Legal Framework
Role of the Government
The Argentine government has restricted its participation in the electricity market to regulatory oversight and policy-making activities. These activities were assigned to agencies that have a close working relationship with one another and occasionally even overlap in their responsibilities. The Argentine government has limited its holding in the commercial sector to the operation of international hydropower projects and nuclear power plants. Provincial authorities followed the Argentine government by divesting themselves of commercial interests and creating separate policy-making and regulatory entities for the provincial electricity sector.

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Limits and Restrictions
To preserve competition in the electricity market, participants in the electricity sector are subject to vertical and horizontal restrictions, depending on the market segment in which they operate.
Vertical Restrictions
The vertical restrictions apply to companies that intend to participate simultaneously in different sub-sectors of the electricity market. These vertical restrictions were imposed by Law No. 24,065, and apply differently depending on each sub-sector as follows:
Generators
•
Under Section 31 of Law No. 24,065, neither a generation company, nor any of its controlled companies or its controlling company, can be an owner or a majority shareholder of a transmitter company or the controlling entity of a transmitter company; and
•
Under Section 9 of Decree No. 1398/1992, since a distribution company cannot own generation units, a holder of generation units cannot own distribution concessions. However, the shareholders of the electricity generator may own an entity that holds distribution units, either as shareholders of the generator or through any other entity created with the purpose of owning or controlling distribution units.
Transmitters
•
Under Section 31 of Law No. 24,065, neither a transmission company nor any of its controlled companies or its controlling entity can be owner or majority shareholder or the controlling company of a generation company;
•
Under Section 31 of Law No. 24,065, neither a transmission company, any company controlled by a transmission company nor any company controlling a transmission company can own or be the majority shareholder or the controlling company of a distribution company; and
•
Under Section 30 of Law No. 24,065, transmission companies cannot buy or sell electricity.
Distributors
•
Under provision 31 of Law No. 24,065, neither a distribution company, nor any of its controlled companies or its controlling company, can be owner or majority shareholder or the controlling company of a transmission company; and
•
Under Section 9 of Decree No. 1398/1992, a distribution company cannot own generation units. However, the shareholders of the electricity distributor may own generation units, either directly or through any other entity created with the purpose of owning or controlling generation units.
Definition of Control
The term “control” referred to in Section 31 of Law No. 24,065 (which establishes vertical restrictions) is not defined in the Electricity Regulation Framework. Section 33 of the Argentine Companies Law states that “companies are considered as controlled by others when the holding company, either directly or through another company: (1) holds an interest, under any circumstance, that grants the necessary votes to control the corporate will in board meetings or ordinary shareholders’ meetings; or (2) exercises a dominant influence as a consequence of holding shares, quotas or equity interest or due to special linkage between the companies.” We cannot assure you, however, that the electricity regulators will apply this standard of control in implementing the restrictions described above.

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Horizontal Restrictions
In addition to the vertical restrictions described above, distribution and transmission companies are subject to horizontal restrictions, as described below.
Transmitters
•
According to Section 32 of Law No. 24,065, two or more transmission companies can merge or be part of the same economic group only if they obtain an express approval from the ENRE. Such approval is also necessary when a transmission company intends to acquire shares of another electricity transmission company;
•
Pursuant to the concession agreements that govern the services rendered by private companies operating transmission lines above 132Kw and below 140Kw, the service is rendered by the concessionaire on an exclusive basis over certain areas indicated in the concession agreement; and
•
Pursuant to the concession agreements that govern the services rendered by the private company operating the high-tension transmission services equal to or higher than 220Kw, the company must render the service on an exclusive basis and is entitled to render the service throughout the entire country, without territorial limitations.
Distributors
•
Two or more distribution companies can merge or be part of the same economic group only if they obtain an express approval from the ENRE. Such approval is necessary when a distribution company intends to acquire shares of another electricity transmission or distribution company; and
•
Pursuant to the concession agreements that govern the services rendered by private companies operating distribution networks, the service is rendered by the concessionaire on an exclusive basis over certain areas indicated in the concession agreement.
2001 Economic Crisis
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.

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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.
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.”

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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
·
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

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·
a stabilization fund, managed by CAMMESA, which 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;
·
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 74 generation companies, 19 auto-generation and three co-generation companies, in Argentina, most of which operate more than one generation plant.  As of December 31, 2010, Argentina’s installed power capacity was 32,734 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.

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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., the largest integrated electricity Company of Argentina.  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.
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.

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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 where 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.
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, the 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 instructed 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.

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During 2010, the seasonal rate chart was revised twice.  For the months of June and July, tariffs were revised so that residential customers with consumption levels above 1000 KWh received a full subsidy for their energy purchases.  For the months of August and September, residential customers with consumption levels above 1000 KWh received a subsidy equal to 70 percent of their energy purchase price.  These revised tariff schemes did not affect our VAD.
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, 2010, the stabilization fund deficit totaled approximately Ps. 37,000 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.
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.
Energía Plus
In September 2006, the Secretariat of Energy 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 industrial and commercial users whose energy demand is at or below 300 kW and who do not have access to other viable energy alternatives. To achieve this, the resolution provides that:

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·
large users in the wholesale electricity market and large customers of distribution companies (in both cases above 300 kilowatts), 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 system at unregulated market prices. The Energía Plus system consists of the supply of additional energy generation from new generation and/or generating agents, co-generators or autogenerators that are not agents of the electricity market or who as of the date of the resolution were not part of the WEM. 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.
Only the new generation facilities (which include generators that were not connected to the SADI as of September 5, 2006) and new generation capacity expansions in respect of existing capacity as of such date are entitled to sell electricity under the Energía Plus system.
The resolution also established the price large users are required to pay for excess demand, if not previously contracted under Energía Plus , which is equal to the marginal cost of operations. This marginal cost is equal to the generation cost of the last generation unit transmitted to supply the incremental demand for electricity at any given time. The Secretariat of Energy established certain temporary price caps in place until December 2008, to be paid by large users for any excess demand (Ps. 225/MWh for GUDIs and Ps. 185/Mwh for GUMEs and GUMAs).
ORGANIZATIONAL STRUCTURE
We are a subsidiary of Pampa Energía, the largest fully integrated electricity company in Argentina.  In addition to its indirect stake in us, Pampa Energía 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), and 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.).
The following diagram presents our current corporate structure, including our subsidiaries and their respective direct ownership interests, as of March 4, 2011:
All of the subsidiaries presented above have their jurisdiction of incorporation in the Republic of Argentina.
See “—History and Development of the Company—Acquisition of EMDERSA and AESEBA.”

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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, 2010, 2009 and 2008 was Ps. 3,689.5 million, Ps. 3,482.4 million and Ps. 3,256.3 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, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008.  Our audited financial statements have been prepared in accordance with Argentine GAAP, which differ in certain significant respects from U.S. GAAP.  Note 28 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 (loss) income for the years ended December 31,2010, 2009 and 2008 and shareholders’ equity as of December 31,2010 and 2009.  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.”
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, 2010, we had 2,662,068 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.

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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. 80.0 million in fines and penalties from our revenues in the year ended December 31, 2010,  Ps. 58.5 million in the year ended December 31, 2009 and Ps. 34.8 million in the year ended December 31, 2008.  We incurred significantly higher levels of fines and penalties in 2009 and 2010, due to an increase in the underlying cost of energy factors upon which the fines and penalties are calculated . In addition, on February 8, 2011, ENRE passed Resolution 32/2011, imposing fines on us and obligating us to compensate customers for any disruption in service resulting from a power outage during a heat-wave that occurred from December 20 to December 31, 2010 in alleged violation of our concession.  The approximate amount of the fines was Ps. 22.4 million, which is recorded in the Other non-current liabilities line item of our financial statements for the year ended December 31, 2010.  See “Item 4. Information on the Company—Our concession —Fines and penalties.”
The following table sets forth the composition of our net sales for the periods indicated:
Year ended December 31,
2010
2009
2008
(in millions of Ps.)
Energy sales (1)
Ps. 2,205.4 Ps. 2,094.3 Ps. 2,000.8
Fines and penalties
(80.0 ) (58.5 ) (34.8 )
Net energy sales
2,125.4 2,035.8 1,966.0
Late payment charges
22.2 20.7 17.8
Connection charges
5.6 5.7 3.7
Reconnection charges
2.4 2.0 2.2
Pole leases
18.1 13.6 10.5
Net sales
Ps. 2,173.6 Ps. 2,077.9 Ps. 2,000.2
(1)
Includes CMM adjustment collected through PUREE funds in 2008, which totaled Ps. 84.6 million.

The following tables show our energy sales by category of customer (in GWh and in Pesos) for the periods indicated:
Year ended December 31,
2010
2009
2008
2007
2006
(in GWh)
Residential
7,796 40 % 7,344 40 % 7,545 41 % 7,148 40 % 6,250 38 %
Small commercial
1,543 8 % 1,470 8 % 1,530 8 % 1,485 8 % 1,433 9 %
Medium commercial
1,634 8 % 1,565 9 % 1,597 9 % 1,552 9 % 1,446 9 %
Industrial
3,378 18 % 3,204 18 % 3,277 18 % 3,628 20 % 3,364 20 %
Wheeling system (1)
3,891 20 % 3,622 20 % 3,700 20 % 3,111 17 % 3,211 19 %
Others:
Public lighting
654 3 % 644 4 % 644 3 % 643 4 % 650 4 %
Shantytowns
377 2 % 351 2 % 304 2 % 301 2 % 261 2 %
Others (2)
20 — 20 — 19 — 19 — 18 —
Total
19,292 100 % 18,220 100 % 18,616 100 % 17,886 100 % 16,632 100 %
(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.
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Year ended December 31,
2010
2009
2008 (2)
2007 (1)
2006
(in millions of Pesos)
Residential
Ps. 692.0 31 % Ps. 679.6 32 % Ps. 575.8 30 % Ps. 488.7 29 % Ps. 445.4 32 %
Small commercial
336.1 15 % 322.3 15 % 307.7 16 % 276.5 16 % 202.7 15 %
Medium commercial
349.5 16 % 335.4 16 % 317.4 17 % 288.1 17 % 216.5 16 %
Industrial
607.6 27 % 569.2 27 % 498.2 26 % 481.9 28 % 376.8 27 %
Wheeling system (3)
142.0 6 % 139.2 7 % 113.6 6 % 84.9 5 % 60.7 4 %
Others:
Public lighting
56.6 3 % 55.3 3 % 55.9 3 % 55.2 3 % 46.9 4 %
Shantytowns and others (4)
21.6 1 % (6.7 ) 0 % 47.6 2 % 29.1 2 % 23.6 2 %
Total
Ps. 2,205.4 100 % Ps. 2,094.3 100 % Ps. 1,916.2 100 % Ps. 1,704.4 100 % Ps. 1,372.5 100 %
(1)
Does not include the retroactive portion (Ps. 218.6 million ) of our February 2007 VAD increase.
(2)
Does not include CMM adjustments collected through PUREE funds in 2008, which amounted 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, Shantytowns sales totaled Ps. 28.4 million, which was more than offset by an adjustment due to the reversal of the rate chart that determines the prices we charged our customers for electrical power purchases in June and July 2009.  See “Item 5. Operating and Financial Review and Prospects—Factors Affecting our Results of Operations—Recognition of Cost of Electric Power Purchases.”
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.
Argentine Economic Conditions and Inflation
Because substantially all 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.

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The following table sets forth key economic indicators in Argentina during the years indicated:
Year ended December 31,
2010
2009
2008
2007
2006
Real GDP (% change)
8.3 1.0 7.0 8.7 8.5
Nominal GDP (in millions of Pesos)
1,470,000 1,146,258 1,038,188 812,456 654,413
Real Consumption (% change)
8.3 1.1 6.7 8.8 7.4
Real Investment (% change)
17.1 (7.6 ) 9.0 13.6 18.2
Industrial Production (% change)
9.7 0.4 5.0 7.6 8.9
Consumer Price Index
10.9 7.7 7.2 8.5 9.8
Nominal Exchange Rate (in Ps. /U.S.$ at year end)
4.01 3.80 3.45 3.15 3.06
Exports (in millions of U.S.$)
68,500 55,750 70,589 55,933 46,569
Imports (in millions of U.S.$)
56,443 38,771 55,413 44,780 34,159
Trade Balance (in millions of U.S.$)
12,057 16,979 13,176 11,153 12,410
Current Account (% of GDP)
1.2 2.8 2.5 2.7 3.6
Reserves (in millions of U.S.$)
52,145 46,355 46,383 46,176 32,037
Tax Collection (in millions of Pesos)
409,900 304,930 269,375 199,781 150,008
Primary Surplus (in millions of Pesos)
25,115 17,286 32,529 25,719 23,156
Public Debt (% of GDP at December 31) *
44.8 46.4 48.5 55.9 64.6
Public Debt Service (% of GDP)
5.4 5.4 4.9 5.8 5.1
External Debt (% of GDP at December 31)
35.8 40.6 39.2 47.9 51.5
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.
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.

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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);
·
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.

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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. $129.2 billion and extended payment terms.  In April 2010, the Argentine Government launched a new exchange offer for the outstanding sovereign bonds that did not participate in the 2005 restructuring.  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’s economy 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.
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, contracted 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 interest rates increased periodically during the course of the year, the exchange market remained relatively stable throughout.

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According to official indicators, in 2010, real GDP in Argentina grew approximately 8.3%, showing a significant acceleration as compared to real GDP growth in 2009.  The four most important factors behind the economic recovery are the following:
·
the agricultural boom, with a record harvest (especially soybeans);
·
a favorable international context (with Brazil growing at a 7.5% rate in 2010, which had a positive effect on the local industrial sector, and China pushing the demand for commodities in an environment of high prices);
·
a climate of financial stability prevented major shocks in the short term, primarily due to an oversupply of private dollars and a reduced probability of sovereign default in the short term; and,
·
an expansionary economic policy program (fiscal, monetary and income).
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.
The following chart shows the variation in our average tariff, including taxes, in Pesos per 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);

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·
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)).
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 bi-monthly consumption levels below 1,000 kWh.  In 2008, we collected Ps. 84.6 million through PUREE funds.
On August 14, 2009, the 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 in 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 instructed us to break down the variable 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 in January 2007, 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.

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We purchased a total of 18,156 GWh in 2010, 17,040 GWh in 2009 and 17,169 GWh in 2008 (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 10.8% in 2008, 11.9% in 2009 and 12.5% in 2010.
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,
2010
2009
2008
Technical losses
9.8 % 9.8 % 9.8 %
Non-technical losses
2.7 % 2.1 % 1.0 %
Total losses
12.5 % 11.9 % 10.8 %

In 2010, we recorded total energy losses of 12.5%, compared to 11.9% in 2009, primarily as a result of an increase in theft of electricity.
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.

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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.
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, 2010, we had invoiced Ps. 197.2 million of this amount.

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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 June 1, 2011, we had submitted to the ENRE seven requests from CMM adjustments as described in the table below, since May 2008:
Assessment Period
Application Date
CMM Adjustment Requested
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 %
November 2009 – April 2010
May 2010
7.103 %
May 2010 – October 2010
November 2010
7.240 %
November 2010 – April 2011
May 2011
6.104 %
Cumulative:
47.829 %

As of the date of this annual report, the ENRE has not yet responded to these requests (other than the request submitted in May 2008, as explained above).
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.
As of December 31, 2010 and 2009 the amounts collected through the PUREE, amounted to Ps. 529.1 million and Ps. 233.3 million, respectively, and have been disclosed under other non-current liabilities. Edenor is permitted to retain funds from the PUREE that it would otherwise be required to transfer to CAMMESA in order to reimburse Edenor for the amounts it is owed under CMM increases not yet reflected in the distribution margin.

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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 %
(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.

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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.  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 an integral tariff proposal to the ENRE’s Board of Directors as requested by ENRE Resolution No. 467/2008.  Our proposal included, 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, modification to our quality of service standards and penalty scheme and, finally, a revision of our asset base and rate of return.  Our presentation included three different scenarios and related tariff proposals;  two scenarios contemplated in Resolution No. 467/08 of the ENRE and a third scenario which contemplated a quality regime and cost of undelivered energy similar to the one currently in effect. Each scenario included the assumptions on which the hypothetical scenario was prepared and detailed supporting studies: projected demand, demand curve studies by client category, 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.  Each scenario assumed that the tariff increase would be implemented in three equal semiannual installments.
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.  The presentation included regulatory and legal considerations as well.  Due to the lack of data provided by the ENRE, we were unable to include an electricity rate structure or schedule and included instead the revenue requirements per voltage level for each of the options we presented.
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 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.”

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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.

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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.
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 %
2010
110,767 22,053 19.9 %
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 4.3% 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 2010:

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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 5.1% per annum from 2003 through 2010.  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 6.1% in 2010, primarily due to the addition of new appliances and the relative low cost of energy, in real terms.  Demand by our high-demand customers and wheeling system customers also experienced a 6.5% increase in 2010 due to an increase in economic activity, particularly in the industrial sector (which includes wheeling customers).
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 decreased the rewards that such 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.

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The chart below shows seasonality of demand in our industrial customer category for the periods indicated.
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.  We are currently negotiating a new extension to the Framework Agreement.
In November and December 2009, we received Ps. 20.0 million from the National Government.  Between March and December 2010, we received Ps. 19.3 million from the National Government.
Our receivables for amounts accrued but not yet paid for the supply of energy to shantytowns under the framework agreement amounted to Ps. 33.0 million as of December 31, 2010, Ps. 54.8 million as of December 31, 2009 and Ps. 49.4 million as of December 31, 2008.

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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 ), which are bonds issued by the Province of Buenos Aires for the purpose of paying outstanding obligations of the Province. The agreement was signed subject to the approval of the Provincial Executive Power and the Company’s board of directors. The Company’s board accepted the agreement in the meeting held on April 27, 2010.  In 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 (principal amount) of Cancellation Bonds.  These Cancellation Bonds were issued by the Province of Buenos Aires on December 15, 2009, with a maturity of March 15, 2011.  The Cancellation Bonds we received amortize in twelve equal and consecutive payments, have a three month grace period for capital payments and earn interest at a rate of BADLAR plus 450 base points and are freely transferable.  As of December 31, 2010, we held Ps. 8.7 million of Cancellation Bonds and all payments on these Cancellation Bonds have been made according to schedule.
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 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 2,682 third party employees under contract with our company as of December 31, 2010, 3,611 third-party employees under contract with our company as of December 31, 2009 and 3,029 as of December 31, 2008.  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, 2010, 2009 and 2008.
Year ended December 31,
2010
2009
2008
(in millions of Pesos)
Net sales
Ps. 2,173.6 Ps. 2,077.9 Ps. 2,000.2
Electric power purchases
(1,069.7 ) (1,003.4 ) (934.7 )
Gross margin
1,103.9 1,074.5 1,065.5
Transmission and distribution expenses
(636.3 ) (548.6 ) (497.9 )
Selling expenses
(194.2 ) (159.0 ) (126.0 )
Administrative expenses
(178.9 ) (144.0 ) (138.7 )
Subtotal
94.5 222.9 302.9
Financial income (expenses) and holding gains (losses)
Generated by assets
5.1 61.8 10.6
Generated by liabilities
(165.2 ) (217.7 ) (197.9 )
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
11.6 3.4 13.5
Adjustment to present value of notes
(4.2 ) (5.2 ) (8.5 )
(Loss) Gain from repurchase of notes
(7.1 ) 81.5 93.5
Other (expenses) income, net
(9.8 ) 23.3 (29.8 )
Net (loss) income before income tax
(75.2 ) 170.0 184.3
Income tax
1.1 (79.3 ) (61.2 )
Net (loss) income for the year
Ps. (74.0 ) Ps. 90.6 Ps. 123.1
Year Ended December 31, 2010 Compared with Year Ended December 31, 2009.
Net Sales
Net sales increased 4.6% to Ps. 2,173.6 million in the year ended December 31, 2010 from Ps. 2,077.9 million in the year ended December 31, 2009.  Net energy sales represented approximately 98% of our net sales in 2010 and 98.0% in 2009; late payment charges, pole leases, and connection and reconnection charges account for the remaining balance.  Energy sales increased by 5.3% (Ps. 111.0 million) to Ps. 2,205.4 million in the year ended December 31, 2010 from Ps. 2,094.3 million in the year ended December 31, 2009. This increase was partially offset by a Ps. 21.5 million increase in the accrual for fines.
This increase in net sales was mainly due to a 5.9% increase in the volume of energy sales, which went from 18,220 GWh in 2009 to 19,292 GWh in 2010.  This increase is mainly due to a 3.4% increase in the average consumption per customer and a 2.2% increase in the number of customers.
Electric Power Purchases
The amount of electric power purchases increased 6.6% to Ps. 1,069.7 million for the year ended December 31, 2010 from Ps. 1,003.4 million in the year ended December 31, 2009, mainly due to an increase in the average consumption per customer and in the number of customers.
The volume of energy purchased in the year ended December 31, 2010 was 18,156 GWh, which was 6.5% higher when compared to the year ended December 31, 2009, when we purchased 17,040 GWh (in both cases excluding wheeling system demand).

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Energy losses increased to 12.5% in the year ended December 31, 2010 from 11.9% in the year ended December 31, 2009.  The difference in the increase between the volume of energy purchased in 2010 (6.5%) and the volume of energy sales in 2010 (5.9%) is mainly explained by the increase in energy losses.  See “—Factors Affecting Our Results of Operations—Recognition of Cost of Energy Losses.”
Gross Margin
Our gross margin increased 2.7% to Ps. 1,103.9 million in the year ended December 31, 2010 from Ps. 1,074.5 million in the year ended December 31, 2009, mainly due to the increases in energy and capacity sales mentioned above.  The positive effects on our gross margin prompted by the increase in energy and capacity sales were offset by the Ps. 21.5 million increase in the accrual for fines and the energy losses mentioned above.
Transmission and Distribution Expenses
Transmission and distribution expenses increased 16.0% to Ps. 636.3 million in the year ended December 31, 2010 from Ps. 548.6 million in the year ended December 31, 2009, mainly due to a Ps. 73.4 million increase in salaries and social security taxes attributable to an increase in employee compensation granted in 2010, and a Ps. 8.3 million increase in outsourcing, mainly attributable to increases in contractor prices.
The following table sets forth the principal components of our transmission and distribution expenses for the years indicated:
Year ended December 31,
2010
% of 2010
net sales
2009
% of 2009
net sales
(in millions of Pesos)
Salaries and social security taxes
Ps. 293.3 46.1 % 13.5 % Ps. 219.8 40.1 % 10.6 %
Supplies consumption
36.8 5.8 % 1.7 % 34.3 6.3 % 1.7 %
Outsourcing
118.4 18.6 % 5.4 % 110.2 20.1 % 5.3 %
Depreciation of property, plant and equipment
169.4 26.6 % 7.8 % 166.8 30.4 % 8.0 %
Others
18.4 2.9 % 0.8 % 17.4 3.2 % 0.8 %
Total
Ps. 636.3 100.0 % 29.3 % Ps. 548.6 100.0 % 26.4 %
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 22.2% to Ps. 194.2 million in the year ended December 31, 2010 from Ps. 159.0 million in the year ended December 31, 2009, primarily as a result of a Ps. 16.5 million increase in salaries and social security taxes and an increase of Ps. 8.0 million in outsourcing attributable to price increases in our outsourcing services contracts.
In terms of percentage of net sales, selling expenses increased from 7.6% in the year ended December 31, 2009 to 8.9% in the year ended December 31, 2010.
The following table sets forth the principal components of our selling expenses for the years indicated:
Year ended December 31,
2010
% of 2010
net sales
2009
% of 2009
net sales
(in millions of Pesos)
Salaries and social security taxes
Ps. 68.1 35.1 % 3.1 % Ps. 51.6 32.5 % 2.5 %
Allowance for doubtful accounts
21.2 10.9 % 1.0 % 18.6 11.7 % 0.9 %
Outsourcing
48.1 24.8 % 2.2 % 40.1 25.2 % 1.9 %
Taxes and charges
20.6 10.6 % 0.9 % 17.9 11.3 % 0.9 %
Others
36.2 18.7 % 1.7 % 30.8 19.3 % 1.5 %
Total
Ps. 194.2 100.0 % 8.9 % Ps. 159.0 100.0 % 7.6 %

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Administrative Expenses
Our administrative expenses include, among others, expenses associated with accounting, payroll administration, personnel training, systems operation, maintenance and advertising.  Administrative expenses increased 24.2% to Ps. 178.9 million in the year ended December 31, 2010 from Ps. 144.0 million in the year ended December 31, 2009, primarily as a result of a Ps. 18.1 million increase in salaries and social security taxes attributable to an increase in employee compensation granted in 2010, a Ps. 8.1 million increase in leases and insurance, and a Ps. 3.9 million increase in computer services due to a renewal of certain of our hardware and software licenses.
The following are the principal components of our administrative expenses for the years indicated:
Year ended December 31,
2010
% of 2010
net sales
2009
% of 2009
net sales
(in millions of Pesos)
Salaries and social security taxes
Ps. 77.0 43.0 % 3.5 % Ps. 58.9 40.9 % 2.8 %
Computer services
26.7 15.0 % 1.2 % 22.8 15.8 % 1.1 %
Outsourcing
13.9 7.8 % 0.6 % 15.1 10.5 % 0.7 %
Advertising expenses
18.4 10.3 % 0.8 % 16.8 11.6 % 0.8 %
Others
42.8 23.9 % 2.0 % 30.4 21.1 % 1.5 %
Total
Ps. 178.9 100.0 % 8.2 % Ps. 144.0 100.0 % 6.9 %
Financial Income (Expense) and Holding Gains (Losses)
Financial income and holding gains generated by assets were Ps. 5.1 million in the year ended December 31, 2010, compared to Ps. 61.8 million in the year ended December 31, 2009.  This decrease of Ps. 56.8 million was primarily due to:
·
a loss in 2010 generated by the valuation of the derivatives covering for risks generated by exchange rate fluctuations between the Argentine peso and U.S. dollars; and
·
to a lesser extent, a decrease in income arising from the variations in the exchange rate of dollar-denominated investments (Ps. 14.0 million).
This decrease was offset by an increase in interest on our assets (Ps. 12.2 million).
Financial expenses and holding losses generated by liabilities which include financial interest, exchange results and other expenses, decreased to Ps. 165.2 million in the year ended December 31, 2010 compared to Ps. 217.7 million in the year ended December 31, 2009, mainly due to a lower difference by exchange rate in the liabilities of the Company (Ps. 58.8 million).
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.  The adjustment to present value of the future cash flows of our outstanding debt issued applying a market annual interest rate of 10.5%, generated an accounting non-cash loss of Ps. 5.2 million in the year ended December 31, 2009 and of Ps. 4.2 million in the year ended December 31, 2010.

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Adjustment to Present Value of the Retroactive Tariff Increase Arising From the Application of the New Electricity Rate Schedule
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, 2010, Ps. 197.2 million of the retroactive tariff adjustment has been invoiced to our non-residential customers.
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.  We recorded a total non-cash loss of Ps. 11.6 million in the year ended December 31, 2010 as adjustment to present value of these receivables, compared to a non-cash loss of Ps. 3.4 million in the year ended December 31, 2009.
Other Income (Expenses), Net
Other income (expenses), net, includes mainly voluntary retirements, severance payments and accrual for lawsuits. We recorded a loss of Ps. 9.8 million in the year ended December 31, 2010, compared to a gain of Ps. 23.3 million in the year ended December 31, 2009. The variation in 2010 versus 2009 was mainly due to the recovery of the allowance for doubtful accounts (Ps. 21.2 million) and the recovery of the allowance for tax contingencies (Ps. 23.4 million) accounted for in 2009, and voluntary retirement bonuses (Ps. 4.7 million) accounted for in 2010, partially offset by an increase in provisions for accrued litigation (Ps. 14.3 million) in 2010.
Income Tax
We recorded an income tax credit of Ps. 1.1 million in the year ended December 31, 2010, compared to a charge of Ps. 79.3 million in the year ended December 31, 2009.
Net (Loss) Income
We recorded net loss of Ps. 74.0 million in the year ended December 31, 2010, compared to net income of Ps. 90.6 million in the year ended December 31, 2009.  This decrease was mainly due to an increase in operating expenses, a decrease in financial results generated by assets and a decrease in other income, as described above.
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 average 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;
·
a 2.7% increase in the number of T1R and T1G customers, which are billed for a fixed charge payable bimonthly; and
·
a Ps. 7.8 million increase in late payment charges, pole leases, and connection and reconnection charges.
These increases were partially offset by:

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·
a 2.1% 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); and
·
an increase in ENRE penalties of Ps. 23.7 million, due to an increase in the underlying cost of energy inputs upon which the fines and penalties are calculated.
Electric Power Purchases
The amount of electric power purchases increased 7.4% 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 increased 0.8% to Ps. 1,074.5 million in the year ended December 31, 2009 from Ps. 1,065.5 million in the year ended December 31, 2008.
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. 44.2 million increase in salaries and social security taxes, attributable to an increase in employee compensation 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 with Électricité de France S.A.
The following table sets forth the principal components of our transmission and distribution expenses for the years indicated:
Year ended December 31,
2009
% of 2009
net sales
2008
% of 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 20.1 % 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
17.4 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. 159.0 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
% of 2009
net sales
2008
% of 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 % 1.5 % 25.8 20.5 % 1.3 %
Total
Ps. 159.0 100.0 % 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 3.8% to Ps. 144.0 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. 12.5 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. 3.7 million increase in outsourcing expenses as a result of price increases in our outsourcing services contracts.
The following are the principal components of our administrative expenses for the years indicated:
Year ended December 31,
2009
% of 2009
net sales
2008
% of 2008
net sales
(in millions of Pesos)
Salaries and social security taxes
Ps. 58.9 40.9 % 2.8 % Ps. 46.5 33.5 % 2.3 %
Computer services
22.8 15.8 % 1.1 % 16.9 12.2 % 0.8 %
Outsourcing
15.1 10.5 % 0.7 % 11.4 8.2 % 0.6 %
Advertising expenses
16.8 11.6 % 0.8 % 12.8 9.3 % 0.6 %
Others
30.5 21.1 % 1.5 % 51.1 36.9 % 2.6 %
Total
Ps. 144.0 100.0 % 6.9 % Ps. 138.7 100.0 % 6.9 %
Financial Income (Expenses) and Holding Gains (Losses)
Financial income and holding gains generated by assets were Ps. 61.8 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. 51.2 million is primarily due to:
·
a Ps. 44.9 million increase in holding gains resulting from the repurchases of our 2017 and 2016 Notes (including the Par Notes due 2017 we received upon the liquidation of the discretionary trust; see “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Discretionary Trust Agreement”); and

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·
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 increased 9.9% to Ps. 217.7 million in the year ended December 31, 2009 compared to 197.0 million in the year ended December 31, 2008, primarily as a result of a change in the accounting treatment of the tax on financial transactions, which was accounted for under administrative expenses in 2008 and not in 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.  The adjustment to present value of the future cash flows of our outstanding debt issued applying 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 an 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.
Gain from Repurchase of Notes
During 2009 we repurchased at market prices U.S. Ps.32.2 million principal amount of our outstanding Fixed Rate Par Notes due 2016 and U.S. $53.8 million principal amount of our outstanding Fixed Rate Par Notes due 2017.  This transaction generated a net gain of Ps. 81.5 million.
During 2008, we repurchased at market prices U.S. $32.5 million principal amount of our outstanding Fixed Rate Par Notes due 2016 and U.S. $17.5 million principal amount of our outstanding Fixed Rate Par Notes due 2017.  This transaction generated a net gain of Ps. 93.5 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. 23.3 million in the year ended December 31, 2009, compared to a loss of Ps. 29.8 million in the year ended December 31, 2008.  The gain in 2009 was mainly comprised of 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 No. 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).

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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.
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.”
As of December 31, 2010, our cash and cash equivalents amounted to Ps. 676.8 million.  We generally invest our cash in a range of instruments, including sovereign debt, corporate debt securities and other securities.  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,
2010
2009
2008
(in millions of Pesos)
Cash and cash equivalents at the beginning of the year
Ps. 228.4 Ps. 126.4 Ps. 101.2
Net cash provided by operating activities
526.9 668.0 547.5
Of which:
Financial interest paid, net of interest capitalized
(64.9 ) (76.8 ) (62.7 )
Net cash used in investing activities
(381.3 ) (404.2 ) (325.4 )
Net cash provided by (used in) financing activities
302.9 (161.8 ) (197.0 )
Cash and cash equivalents at the end of the year
Ps. 676.8 Ps. 228.4 Ps. 126.4

Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased by 21.1% to Ps. 526.9 million in the year ended December 31, 2010, compared to Ps. 668.0 million in the year ended December 31, 2009.  This decrease is attributable to:
·
a decrease in net income;

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·
positive adjustments in net income for non-cash charges in the year ended December 31, 2010, which include Ps. 178.4 million for depreciation of assets, Ps. 49.5 million for differences in exchange rates, interest and penalties on loans, and Ps. 16.3 million allowance for doubtful accounts, which was partially offset by a Ps. 55.7 million decrease in other investments and Ps. 11.6 million by the valuation at present value of the retroactive amount due under the Adjustment Agreement and other receivables; and
·
an increase in assets and liabilities, due to a Ps. 295.8 million increase in funds collected through the Program on Rational Use of Electric Energy (PUREE), a Ps. 74.5 million increase in other liabilities and a Ps. 69.0 million increase in wages and social charges. These increases were partially offset by a Ps. 45.8 million decrease in tax payments.
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:
·
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. 81.5 million in gains from the repurchase of notes, Ps. 35.6 million in the recovery of the accrual for tax contingencies and Ps. 27.0 million in the reversal 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 receivables, and Ps. 27.2 million increase  in salaries and social security taxes. These increases were partially offset by a decrease of Ps. 56.9 million in taxes.
Net Cash Used in Investing Activities
Net cash used in investing activities decreased 5.6% to Ps. 381.3 million in the year ended December 31, 2010 from Ps. 404.2 million in the year ended December 31, 2009.
Net cash used in investing activities increased 24.2% to Ps. 404.2 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).
The changes in net cash used in investing activities in each of these years were primarily due to variations in our capital expenditures in accordance with the investment plan initially contemplated by the Adjustment Agreement.  See “Business—Liquidity and Capital Resources—Capital Expenditures.”
Net Cash Used in Financing Activities
In the year ended December 31, 2010, we increased by Ps. 302.9 million the cash generated by financing activities, primarily as a result of the issuance of Senior Notes due 2022.  A portion of the funds arising from the issuance of the Senior Notes due 2022 were used to pay a portion of the principal amount of our Peso-denominated loan with Banco Nación , a portion of the principal amount of our Par Notes due 2013 and to make advance payments on certain outstanding revolving credit lines.
In the year ended December 31, 2009, we used Ps. 175.4 million 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 repurchase Senior Notes due 2017 and Fixed Rate Par Notes due 2016.  In addition, part of our cash position was used to create our discretionary trust for a total amount of Ps. 67.9 million.  See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Discretionary 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.

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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 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.
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:
Year ended December 31,
2010
2009
2008
(in millions of Pesos)
Supplies
Ps. 262.8 Ps. 280.8 Ps. 235.6
Network maintenance and improvements
69.5 67.2 57.6
Legal requirements (1)
6.6 15.8 12.2
Communications and telecontrol
7.6 13.7 8.7
Others
42.3 26.7 21.7
Total
Ps. 388.8 Ps. 404.3 Ps. 335.7
(1)
Capital expenditures required to be made to comply with the ENRE quality standard and other regulations.
In 2010, in accordance with our capital expenditure program, we invested Ps. 388.8 million.  In order to keep pace with the growth in our customer’s base (our customer base increased 2.2% in 2010) 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.  Historical information on capital expenditures is not indicative of future capital expenditures.
As of February 28, 2011, we had incurred Ps. 31.3 million in capital expenditures since January 1, 2011.
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.

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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 (as of the date of this annual report, none of our Fixed Rate Par Notes due 2016 were outstanding), 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 (as of the date of this annual report, none of our Floating Rate Par Notes Due 2019 were outstanding), 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.
As of the date of this annual report, all of the restructuring notes have been repaid and cancelled.
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 due 2017.  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.
During 2008, we repurchased and cancelled in several market transactions U.S. $32.5 million principal amount of our Fixed Rate Par Notes due December 2016 and repurchased U.S. $17.5 million of our Senior Notes due 2017, of which U.S. $6 million Senior Notes due 2017 were cancelled.
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.  As of December 31, 2010, the outstanding amount was Ps. 58.2 million.
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.
On October 25, 2010, as a result of the Cash Offer, we issued Senior Notes due 2022 with a nominal value of U.S. $140 million.  In addition, as a result of the Exchange Offer, we exchanged Senior Notes due 2017 with a nominal value of U.S. $90.3 million for Senior Notes due 2022, and paid in cash U.S. $ 9.5 million, including payments for accrued and unpaid interest on the Senior Notes due 2017.  On such date, as a result of the Offer to Purchase, we also purchased Senior Notes due 2017 with a nominal value of U.S. $33.6 million for U.S. $35.8 million, including payment of accrued and unpaid interest on the Senior Notes due 2017.

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On October 25, 2010, as a result of the transactions described in the previous paragraph, we issued Senior Notes due 2022 for a total of U.S. $230.3 million. The Senior Notes due 2022 have a 12-year maturity and were issued with an issue price of 100% of the principal amount, accruing interest from the date of issuance at a fixed rate of 9.75%, payable semi-annually on October 25 and April 25 of each year, with the first interest on April 25, 2011 and amortization of principal being fully paid in 2022.
During 2010 we repurchased and cancelled in several market transactions approximately U.S. $7.3 million in principal amount of our Fixed Rate Par Notes due 2016 and U.S. $0.04 million of our Senior Notes due 2017.  Additionally, on October 18, 2010, we cancelled Senior Notes due 2017 with a nominal value of U.S. $65.3 million.
On October 25, 2010, November 4, 2010, and December 9, 2010, we cancelled, as a result of the Cash Subscription Offer and the Exchange Offer, Senior Notes due 2017 for a nominal value of U.S. $122.6 million, U.S. $1.3 million, and U.S. $0.04 million, respectively, representing approximately 83.3% of the notes then in circulation prior to said cancellation. As of December 31, 2010, the outstanding amount of Senior Notes due 2017 was U.S. $24.8 million.
On December 13, 2010, we completely cancelled the entire outstanding amount of our Fixed Rate Par Notes due 2016.
In February 2011, we were granted a series of short-term loans with local entities (JPMorgan Chase Bank N.A., Sucursal Argentina, Deutsche Bank S.A., Banco Macro S.A., Banco de la Nación Argentina and Standard Bank Argentina S.A.).  These loans were obtained for a total of Ps. 280 million, at an average annual interest rate of 14.5% and the average term of the loans was 90 days.  The proceeds from these loans were applied to grant short-term loans to certain of our affiliates.  Our affiliates used the proceeds from these short-term loans to repay a portion of their indebtedness.  Below is a brief description of the Short-Term Loans and of the short-term loans granted to certain of our affiliates.
Brief description of the Short-Term Loans:
·
Banco Macro S.A. granted us a loan in an aggregate principal amount of Ps. 60 million (approximately U.S. $15 million) maturing on May 13, 2011 and bearing interest at an annual rate of 15.16%, payable in a single installment at maturity;
·
Deutsche Bank S.A. granted us a loan in an aggregate principal amount of Ps. 60 million (approximately U.S. $15 million) maturing on May 13, 2011 and bearing interest at an annual rate of 14.85%.  Accrued interest shall be payable monthly and principal shall be repaid in a single installment at maturity;
·
Standard Bank Argentina S.A. granted us a loan in an aggregate principal amount of Ps. 55 million (approximately U.S. $13.75 million) maturing on May 13, 2001 and bearing interest at an annual rate of 14.75%.  Accrued interest shall be payable monthly and principal shall be repaid in a single installment at maturity;
·
Banco de la Nación Argentina granted us loans in an aggregate principal amount of Ps. 81 million (approximately U.S. $20.25 million), in three different tranches: (i) Ps. 50 million (approximately U.S. $12.5 million) were disbursed on February 16, 2011; this tranche bears interest at an annual rate equal to the BADLAR Rate (as defined below) plus 400 bps and matures on August 16, 2011, (ii) Ps. 21 million (approximately U.S. $5.25 million) were disbursed on February 16, 2011; this tranche bears interest at an annual rate of 11% and is renewable for fifteen-day periods until September 30, 2011, and (iii) Ps. 10.0 million (approximately U.S. $2.5 million) were disbursed on March 4, 2011; this tranche bears interest at an annual rate equal to the BADLAR Rate plus 400 bps and matures on September 5, 2011.  The BADLAR Rate is the interest rate for a 30 to 35 day fixed-term deposit of more than Ps. 1.0 million in private banks, which is published daily by the Central Bank; and
·
JPMorgan Chase Bank N.A., Sucursal Argentina granted us a loan in an aggregate principal amount of Ps. 24 million (approximately U.S. $6 million) maturing on May 13, 2001 and bearing interest at an annual rate of 12%.  Accrued interest is payable monthly and principal shall be repaid in a single installment at maturity.
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Brief description of the short-term loans that we granted to certain of our affiliates with the proceeds from the Short-Term Loans:

·
Loan granted to EDEN in an aggregate principal amount of Ps. 80 million (approximately U.S. $20.0 million);
·
Loan granted to EDELAR in an aggregate principal amount of Ps. 31.18 million (approximately U.S. $7.80 million);
·
Loan granted to EDESA in an aggregate principal amount of Ps. 131.32 million (approximately U.S. $32.83 million); and
·
Loan granted to EDESAL in an aggregate principal amount of Ps. 37.50 million (approximately U.S. $9.37 million).
The proceeds of the short-term loans granted to EDELAR, EDESA and EDESAL were applied to repay certain overdrafts of EDELAR, EDESA and EDESAL, and a portion of the loan agreement dated July 15, 2010, among EDELAR, EDESA, EDESAL, Standard Bank Argentina S.A., Banco Hipotecario S.A., Banco de Galicia y Buenos Aires S.A., Banco Ciudad de Buenos Aires y Banco Itaú Argentina S.A.
On April 29, 2011, we refinanced the loans granted to EDEN, EDESAL, EDELAR and EDESA. The loans will mature on April 30, 2012 and accrue interest at an annual rate of 16%, payable semiannually on October 31, 2011 and April 30, 2012.
On March 4, 2011, as a result of the change of control in EDEN triggered by our acquisition of AESEBA, EDEN prepaid the loan it had with Standard Bank Argentina S.A. and HSBC Argentina S.A.  Such repayment was made with EDEN's funds and with the proceeds from the short-term loan that we granted to EDEN in an aggregate amount equal to Ps. 80.0 million.
On the same date, we redeemed and cancelled all of our Floating Rate Par Notes due 2019.
In addition, we entered into a U.S. $5.0 million loan agreement with Pampa Energía for purposes of financing various investments under our business plan.  The loan bears interest at an annual rate of 5% and matures in 2013.
On April 26, 2011, we issued approximately U.S. $69.7 million Senior Notes due 2022.  This issuance constituted a reopening of the Senior Notes due 2022 originally issued in 2010; the new notes have the same terms as the Senior Notes due 2022 originally issued in 2010.  The first interest payment on the new notes will be on October 25, 2011.
In the last week of April, we used the cash proceeds from the reopening of the Senior Notes due 2022 to cancel the Short-Term Loans.
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 made monthly interest payments on accrued interest at a floating rate equal to BAIBOR, as published by the Argentine Central Bank, plus 5%.
As of December 31, 2010, the loan with Banco Nación was fully repaid.

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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 managed 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 U.S. $21.7 million principal amount of Par Notes due 2016 and U.S. $24.5 million principal amount of Senior Notes due 2017.
On September 3, 2009, we liquidated the discretionary trust and the U.S. $24.5 million principal amount Senior Notes due 2017 held by the trust were transferred to us.
Derivatives Contracts
Derivative Instruments Relating to Our Outstanding Notes
In 2010, we entered into various derivative financial agreements with JP Morgan Chase Bank N.A. to hedge our exposure to fluctuations in exchange rates on our interest payments.
These derivative financial agreements provide hedging on the fluctuation of exchange rates relating to our interest payments due on April 25, 2011, October 25, 2011, April 25, 2012 and October 25, 2012 under the Senior Notes due 2022 issued in October 2010.  We have not formally qualified these transactions as hedge instruments. For accounting purposes, we have followed the guidelines under Resolución Técnica No. 18 of the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE). According to said Resolution, derivative instruments which do not qualify as coverage instruments must be recorded in our financial statements at their net realizable value (if recorded as assets) or settlement value (if recorded as liabilities). Our income statement records the financial gains and losses associated with these instruments.
As of December 31, 2010, the economic impact of this operation implied a loss of Ps. 7.3 million, which is accounted for under financial income (expense) and holding gains (losses) generated by liabilities, under exchange difference in the statement of operations, and under the line item loans under current liabilities.
In April 2011, we entered into a derivative financial agreement with Deutsche Bank S.A. to hedge our exposure to fluctuations in exchange rates on certain of our interest payments under the Senior Notes due 2022 described in the following sentence. This derivative financial agreement provides hedging on the fluctuation of exchange rates relating to our interest payments due on October 2011, April 2012 and October 2012 under the Senior Notes due 2022 that were issued in the reopening of such notes in April 2011 for an approximate aggregate amount equal to U.S. $69.7 million.
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.
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.

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Year ended December 31,
2010
2009
2008
(in millions of Ps. )
Allowance for doubtful accounts:
Beginning balance
Ps. 19.7 Ps. 33.1 Ps. 40.0
Additions
16.3 20.3 23.6
Retirements
(6.7 ) (6.8 ) (6.5 )
Recovery
- (27.0 ) (24.0 )
Ending balance
Ps. 29.3 Ps. 19.7 Ps. 33.1
As of December 31, 2010, 2009 and 2008, the allowance for doubtful accounts was Ps. 29.3 million, Ps. 19.7 million and Ps. 33.1 million, respectively.  During 2010, 2009 and 2008, the additions to the allowance for doubtful accounts amounted to Ps. 16.3 million, Ps. 20.3 million and Ps. 23.6 million, respectively, and the retirements amounted to Ps. 6.7 million, Ps. 6.8 million and Ps. 6.5 million, respectively.  The recovery of Ps.27.0 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, although, in the case of the PUREE funds, we cannot assure you that we will continue to be able to retain such funds in the future or that we will not be obligated to return a portion or all of such funds already retained.
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.

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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, 2010 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 2010, we recorded a net decrease to our accrual for litigation of Ps. 8.2 million .  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. 64.7 million at December 31, 2010, Ps. 72.9 million at December 31, 2009 and Ps. 97.8 million at December 31, 2008.
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. 13.0 million at December 31, 2010, Ps. 16.0 million at December 31, 2009 and Ps. 20.9 million at December 31, 2008.
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. 43.8 million at December 31, 2010, Ps. 33.9 million at December 31, 2009 and Ps. 26.0 million at December 31, 2008.  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.

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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”), according to which those entities that make a public offer of their capital stock or of securities pursuant to Law No. 17,811, or have requested authorization for their being included in such public offer regime, would be required to comply with the provisions of Technical Resolution No. 26 of the FACPCE. The application of such regulations will be mandatory for the Company as from the fiscal year beginning January 1, 2012.
On April 27, 2010, our Board of Directors approved a specific implementation plan, which contemplates the assessment of the effects of the adoption of IFRS.
In addition, on July 1, 2010, the CNV issued Resolution No. 576, which provides corrections, additional guidance and further explanation of those aspects concerning Resolution No. 562 about which the issuers of financial statements had raised objections or asked for clarification.
As of the date of this annual report, we are in compliance with the implementation plan for the adoption of IFRS in accordance with the timetable originally set.  The implementation plan is currently in the final stage of diagnosis of the impact of the implementation of IFRS.
As a result of monitoring the implementation plan specific to IFRS, our Board of Directors is not aware of any circumstance that may require modifications to that plan or that may indicate a possible deviation from the established objectives and implementation date.
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 28 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 (loss) income for the years ended December 31, 2010, 2009 and 2008 and shareholders’ equity as of December 31, 2010 and 2009.
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 (loss) 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, 2010, 2009 and 2008.

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TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual liabilities and commitments as of December 31, 2010.  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, 2010 of Ps. 3.976 to U.S. $1.00.
Payments due by period
Total
Less than
1 year
1-3
years
4-5
years
More than
5 years
(in millions of Pesos)
Long term debt obligations (1)
Ps. 1,089.2 54.1 42.5 5.0 987.6
Accrued fines and penalties (2)
455.4 — — — —
Financial assistance fees (3)
49.0 9.8 19.6 19.6 —
Operating leases (4)
35.3 6.7 25.6 3.0 —
Capital expenditures (5)
— — — — —
Taxes (6)
10.3 1.4 3.4 2.3 3.2
Total
Ps. 1,639.2 Ps. 72.0 Ps. 71.5 Ps. 10.3 Ps. 990.8
(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 totaled U.S. $12.7 million as of December 31, 2010).  On March 4, 2011, we redeemed and cancelled our Floating Rate Par notes due 2019.  All of our indebtedness is unsecured.  None of our indebtedness is guaranteed.  See “—Debt” in this section for a broader description of our financial debt.
(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 (i) Ps. 47.0 million to reflect the increase to our VAD pursuant to the Adjustment Agreement and the May 2006 CMM and (ii) Ps. 17.2 million and Ps. 18.1 million to reflect the CMM adjustment for the years ending 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. 361.6 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 “Business—Our Concession—Fines and Penalties.”
(3)           Fees payable under our financial services agreement with EASA, our controlling shareholder.  This agreement expired in 2010 and was renewed for a five-year period.  See “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 “—Liquidity and Capital Resources—Capital Expenditures.”
(6)           Represents a liability for the tax claim that we have with the Argentine federal 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.  See “Business—Legal Proceedings—Tax Claims.”

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.

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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
45
2010 (Class A)
Marcos Marcelo Mindlin**
Vice Chairman
46
2010(Class A)
Damián Miguel Mindlin**
Director
44
2010 (Class A)
Gustavo Mariani
Director
40
2010 (Class A)
Luis Pablo Rogelio Pagano
Director
57
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
46
2010 (Class B/C)
Edgardo Alberto Volosín
Director
56
2010 (Class B/C)
Alfredo MacLaughlin *
Director
68
2010 (Class B/C)
Eduardo Orlando Quiles*
Director
67
2010 (Class B/C)
Javier Douer
Alternate Director
37
2010 (Class A)
Pablo Díaz
Alternate Director
53
2010 (Class A)
Brian Henderson
Alternate Director
65
2010 (Class A)
Jorge Miguel Grecco
Alternate Director
50
2010 (Class A)
Ariel Schapira
Alternate Director
48
2010 (Class A)
Ricardo Sericano
Alternate Director
62
2010 (Class A)
Jaime Barba
Alternate Director
47
2010 (Class A)
Maia Chmielewski
Alternate Director
30
2010 (Class B/C)
Gabriel Cohen
Alternate Director
46
2010 (Class B/C)
Alejandro Mindlin**
Alternate Director
35
2010 (Class B/C)
Rafael Mancuso*
Alternate Director
68
2010 (Class B/C)
Eduardo Maggi
Alternate Director
55
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 Argentinean Business Development Institute ( Instituto para el Desarrollo Empresarial Argentino , or IDEA) and a member of the Argentinean Council for International Relationships ( Consejo Argentino para las Relaciones Internacionales , or CARI).

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Marcos Marcelo Mindlin .  Mr. Mindlin is a founding partner and has been Portfolio Manager and shareholder of Grupo Dolphin since 1989.  From 1996 to 1999, he was Director of the Real Estate Securities Fund of Venezuela and Brazil Realty.  He 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 CADE, an Argentine energy services institution.  He also serves as chairman of Transener, Central Térmica Guemes, Central Térmica Loma la Lata and vice chairman of Central Térmica Piedra Buena and two hydroelectric complexes, Nihuiles and Diamante, and is a member of the board of several subsidiaries of Pampa Energía and numerous companies comprising Grupo Dolphin.  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.
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., Pampa Inversiones 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 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 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.  Between 2001 and 2003, 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 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 the Universidad de Buenos Aires in 1971.

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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 Alternativa 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 the 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.
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 S.A., Royal Group Argentina S.A. and Estancia Maria S.A.  He also is a member of the supervisory committee of Dolphin Creditos 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. and Grupo STSA.  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., Maltería del Puerto S.A. and Partners I 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 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.  He has served as Executive Director of the International Monetary Fund since 2010.
Eduardo Orlando Quiles .  Mr. Quiles has been a member of the board of directors since 2009.  Between 1965 and 1971 he served as the Light and Power Union of the Capital ( Sindicato de Luz y Fuerza de Capital Federal ) in the Treasury and Accounting Department.  Subsequently, he worked as general accountant at Credit Union of Light and Power ( Cooperativa de Crédito Luz y Fuerza Ltda .) until 1980.  Between 1980 and 1985 he served as tax chief in Petersen Thiele y Cruz S.A.  He was a member of the subcommittee of the Argentine Chamber of Construction ( Cámara Argentina de la Construcción ) from 1985 to 2000.  He is also founding partner of Auditoría Quiles & Asociados, since 1985 to date and has among its key customers Petersen Thiele and Cruz S.A., Construcciones Civiles José M. Aragón (today CCI), EMACO S.A., Cabaña Avícola Jorjú S.A., the Argentine Chamber of Construction, Light and Power Union ( Sindicato de Luz y Fuerza ) and their cooperatives, among others.  He holds a CPA from the Universidad de Buenos Aires and he has a master degree in professional independent bureau in taxes and audit.

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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 Energía S.A., Hidroeléctrica Diamante S.A., Hidroeléctrica Nihuiles S.A., Citelec S.A. and Transener S.A.  Previously, he was an Advisor at the Argentine Undersecretary for Electrical Energy ( Subsecretaría de Energía Eléctrica ) 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., 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 America, 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.
Jorge Miguel Grecco .  Mr. Grecco has been an alternate director of Edenor since 2006.  Mr. Grecco serves 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 was 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 the Universidad de Buenos Aires.
Ricardo Sericano .  Mr. Sericano has been an alternate director at Edenor since 2007.  In addition, he served as the technical director of Edenor from December 2006 to August 2010.  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 the 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 CAMMESA, and a member of the supervisory committees at Petropack S.A. and 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.

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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 in Spain.
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 Electric Light and Power Labor Union of the City of Buenos Aires ( Sindicato de Luz y Fuerza de la Capital Federal ) 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 S.A. from 1993 through 1997.
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 2010 was Ps. 3.7 million, Ps. 0.09 million and Ps. 16.2 million, respectively.
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;
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·
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.
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;
·
supervising and reporting to regulatory authorities the existence of any kind of conflict of interest;
·
supervising external audit and evaluating their independence, plans and performance;
·
evaluating plans and performance of the internal audit, and
·
supervising the operations of the complaints channel.
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.

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Senior Management
The following table sets forth information regarding our senior management:
Name
Current Position
Age
Alejandro Macfarlane
Chief Executive Officer
45
Luis Pablo Rogelio Pagano
Chief Financial Officer
57
Daniel Eduardo Flaks
Technical Director
46
Eduardo Maggi
Director of Operations
55
Victor Augusto Ruiz
Principal Accounting Officer
51
Jorge Miguel Grecco
Director of External Relations
50
Edgardo Alberto Volosín
Director of Corporate Affairs
57
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.
Daniel Eduardo Flaks. Mr. Flaks joined Edenor in 1993. Between 1993 and 2003, he served as department head and assistant manager in the areas of San Justo and Olivos. Between 2003 and 2006, he worked first as business manager and later as operations manager of the areas of Olivos and Pilar. Between 2006 and 2010, he worked as manager of distribution, responsible for directing, coordinating and controlling the technical and commercial operations of Edenor relating to the operation of the high, medium and low voltage facilities, control centers and commercial operations referring mainly to the attention of customers and the relationship with municipal governments and the ENRE. He currently serves as technical director of Edenor. Between 1993 and 1998, he was assistant professor of electrical power systems at Universidad Tecnológica Nacional. Mr. Flaks has a degree in electrical engineering from the Universidad Tecnológica Nacional and holds an MBA from the Universidad del Salvador in Argentina.
Supervisory Committee
Argentine commercial corporate 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.
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.

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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., Nortel Inversora S.A., Patagonia Oil and Gas S.A.  In addition, he is a member of the statutory audit committees of IEASA, Dolphin Energía, Desarrollos Caballito S.A., Pegasus Realty S.A., O.P.M. Inmobiliaria S.A., Entertainment Depot S.A., FinanGroup S.A., GSF S.A., Grupo Unión S.A., Farmacity S.A., Freddo S.A., Canepa Hermanos SAICAF, Central Térmica Loma de la Lata S.A., Chain Services S.A., Grupo Los Grobo S.A., LM Los Grobo S.A., Los Grobo Agropecuaria S.A., Los Grobo Inversora S.A., Maltería del Puerto S.A., Pampa Participaciones S.A., Pampa Real Estate S.A., Partners I S.A., TGLT S.A. and Transelec Argentina S.A., Pampa Cheese S.A., Pampa Generación S.A., Pampa Participaciones II S.A., Edenor S.A., Corporación Independiente de Energía S.A., Inversora Ingentis S.A.,  Petrolera Pampa S.A., Pampa Renovables S.A. and Central Hidroeléctrica Lago Escondido.  Mr. Errecondo is also an alternate member of the statutory audit committee of BA Mall S.R.L., Cablevisión S.A., EASA, Energía Distribuida S.A., Grupo S.T. S.A., Inversora Guemes S.A. and Estancia María S.A.
José Daniel Abelovich .  Mr. Abelovich obtained a degree in accounting from the Universidad de Buenos Aires. He is a founding and senior partner of the audit firm Abelovich, Polano & Asociados SRL/Nexia International, an accounting firm in Argentina.  For eight years he served in different areas, from assistant to manager, at the firm Harteneck, Lopez and Cia, correspondents of Coopers & Lybrand in Argentina and abroad. In 1988 and 1989, he was a consultant for a United Nations project – World Bank – Institutional Building Program – Enforcement Agency – Internal Revenue Service.  He was senior consultant in the Descentralización de la Acción Project for the City of Buenos Aires, ARG 90/005 UNDP project (United Nations Development Program). He also served as assistant teacher in the “General Accounting” course at the School of Management at the University of Salvador and in a “Financial Statements” course at the Faculty of Economics at the University of Buenos Aires.  He is also currently in charge of the auditing and training at the firm Abelovich, Polano & Asociados S.R.L and is responsible for the conduction of several courses on topics of his specialty. He has attended numerous Congresses and conferences relating to professional issues, and is a member of professional associations and trustee of numerous corporations.
Jorge Roberto Pardo .  Between 1993 and 2008, Mr. Pardo worked at General Union of the Republic of Argentina ( la Sindicatura General de la Nación , or SIGEN) in several positions, including as Joint General Statutory Auditor of the Nation.  Between 1983 and 1992 he worked in General Union of State-Owned Companies ( la Sindicatura General de Empresas Públicas , 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. Between 1994 and 1995, he worked as an international associate at the United States law firm Shearman & Sterling LLP. Mr. Dellatorre received his law degrees with honors from the Universidad Católica Argentina in 1990. He is a director of Cablevisión S.A., Dico S.A., Embotelladoras ARCA Argentina S.A., Envases Plásticos S.A., Formosa Refrescos S.A. and Salta Refrescos S.A.; and an alternate director of AEI Servicios Argentina S.A., Patagonia Oil and Gas S.A., PSA Energy Mendoza S.A., and Urbanizadora del Sur S.A. In addition, he is a member of the statutory audit committee of Empresa de Energía Río Negro S.A. (EdERSA); and an alternate member of the statutory audit committee of Dolphin Energía S.A., GSF S.A., Canepa Hermanos SAICAF, Chain Services S.A., EASA, Grupo Los Grobo S.A., LM Los Grobo S.A., Los Grobo Agropecuaria S.A., Los Grobo Inversora S.A., Los Grobo San Pedro S.A., Los Grobo Servicios S.A., Los Silos del 13 de Abril S.A., Maltería del Puerto S.A., Partners I S.A. and TGLT S.A.

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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.  For several years, he was in charge of the financial management of private companies of mass consumption.  He served as Deputy General Manager of Administration and Finance of Gas del Estado – Sociedad del Estado and was a member of the Operating and Procurement Committee of that company. He also participated in the Committee that was responsible for the privatization of that Company.  He ran the area of Administration and Finance at Gas del Estado – Sociedad del Estado and is a specialist in Mergers and Acquisitions. He is a member of professional associations and trustee of numerous corporations.  He has attended numerous congresses and conferences relating to professional issues.
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.
EMPLOYEES
As of December 31, 2010, we had 2,669 full-time employees and 30 part-time employees, for a total of 2,699 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.  As of December 31, 2010, 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 in order to achieve a lower and more flexible cost base and to provide us with the ability to respond more quickly to changes in our market.  We had approximately 2,682 third-party employees under contract with our company as of December 31, 2010, 3,611 as of December 31, 2009 and 3,029 as of December 31, 2008.  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, 2010, contractors’ employees were seeking indemnification from us for an aggregate amount of Ps. 79.0 million, including legal fees and interest and as of such date, based on legal advice, have recorded accruals for an aggregate amount of Ps. 32.7 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, our audit committee or our senior management beneficially own any shares of our capital stock, except Messrs. Marcos Marcelo Mindlin, Damián Miguel Mindlin and Gustavo Mariani that, through Pampa Energía, are controlling shareholders of Dolphin Energía and IEASA, which makes them indirect beneficiaries of all of our Class A shares.  In addition, Messrs. Diego Martín Salaverri and Gustavo Mariano are each, individually, the beneficial owners of less than one percent of our capital stock represented by Class B shares.  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
Percent
Ownership
Electricidad Argentina S.A. (2)
A 462,292,111 51.0 %
Employee Stock Participation Program
C 1,952,604 0.2 %
Public
B 167,438,026 18.5 %
Pampa Inversiones
B 36,234,654 4.0 %
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, except as described in the following sentence.  On April 12, 2011, the Executive Power issued Emergency Decree No. 441, which annulled the restrictions under Section 76(f) of Law No. 24,241 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.  The annulment of the restrictions under Section 76(f) of Law No. 24,241 came into effect on April 14, 2011.  As of such date, ANSES may exercise its voting power in any local or foreign company, such as the Company, based on the actual interest held in the relevant company’s capital stock.
As of December 31, 2010, we had approximately 4,800,960 ADSs outstanding, representing 96,019,200 Class B shares.
Acquisition by Dolphin Energía and IEASA
In September 2005, Dolphin Energía and IEASA purchased an indirect controlling stake in Edenor 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 an 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 S.A.)
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 U.S. $912 million as of December 31, 2010.  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 14.85% 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 22.5% 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, and Gustavo Mariani, a member of the board of directors.  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 validly 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 our shares for up to Ps. 45 million, 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.

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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.
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.

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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.
The term of the agreement is five 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.  The Board of Directors of both EASA and the Company approved the agreement, and our audit committee indicated that the agreement was entered into on a commercial arms’ length basis.  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.
On August 26, 2010, we signed an amendment to the EASA agreement extending the term of the agreement to five years following September 19, 2010.  Our Board of Directors approved the amendment on August 31, 2010.  No other terms of the contract have been modified.
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.

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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.
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 .
Loan Agreement with Pampa Energía
On March 4, 2011, we entered into a U.S. $5.0 million loan agreement with Pampa Energía for purposes of financing various investments under our business plan.  The loan bears interest at an annual rate of 5% and matures in 2013.
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, 2010, we had established accruals in the aggregate amount of Ps. 64.7 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
Provincial 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.  As a result, we have not established any accruals in our financial statements for this claim.

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Federal tax claims. 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, in connection with this claim by the Argentine federal tax authorities 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. 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 costs and legal fees of Ps. 0.9 million.  As of December 31, 2010, we had paid Ps. 2.6 million of this amount, thus the remaining balance of our debt totals Ps. 10.4 million, excluding the interest amount.  Although we expect that all federal tax claims against us will be dropped upon our payment of these amounts, we cannot assure you that this will be the case or that new tax claims will not be brought against us in the future.
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. This appeal was dismissed by the Supreme Court on May 26, 2010. There are no instances and/or potential appeals that may be brought against such decision.

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Proceedings Challenging the Renegotiation of our Concession
In November 2006, two Argentine consumer associations, ACIJ and 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.
In December 2009, an Argentine consumer association, Unión de Usuarios y Consumidores, brought an action against us and the Argentine government before a federal administrative court seeking to (i) abrogate Clause 4.6 of Annex I of the Adjustment Agreement, which provides that the rate increase has retroactive effects; (ii) annul ENRE Resolution No. 51/07, which authorizes the retroactive increase of rates in our favor; (iii) obtain an order that requires that we reimburse our users the full amounts paid by them based on the retroactive rate increase and that such reimbursement be made by crediting our users’ accounts.
On November 11, 2010, the judge upheld the claim and ordered that (i) Clause 4.1 of Annex I of Decree No. 1957/06 and Articles 2, 3 and 4 of ENRE Resolution 51/07, which had authorized the retroactive rate increase for the period between 11/1/2005 and 1/31/2007,  be annulled; (ii) the fees collected retroactively during such period be repaid to our users; (iii) the ENRE be instructed to control our distribution of refunds and to report the results to the court; and (iv) each party bear its own court-related costs.  On November 25, 2010, we appealed the court’s order and requested that the court’s order be stayed pending a decision on the appeal.  On December 2, 2010, the court stayed its order pending a decision on the appeal.  On June 1, 2011, the Administrative Court of Appeals ( Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal – Sala V ) overturned the judgment of the lower administrative court.
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 tariffs.
Preliminary Injunction of the Public Ombudsman
On October 31, 2008, the Secretary of Energy approved the 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.  As of the date of this annual report, a Supreme Court decision is pending.
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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 a consumer association, the Consumer’s Cooperative for Community Action, 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, Association for the Legal Defense of Consumers ( Asociación de Defensa de los Derechos de los Usuarios y Consumidores ) and Consumers Union Legal Defense ( Unión de Usuarios y Consumidores en Defensa de sus Derechos ), have joined the complaint.
The remedies sought in the complaint are as follow:
·
that all the most recent tariff resolutions be declared null and unconstitutional (ENRE Resolution No. 324/08 – 365/08 – 628/08, 645/08 and Secretary of Energy No. 1169/08 – 797/08 – 1170/08 and its annexes) and, as a consequence, that the amounts billed by virtue of these resolutions be refunded.
·
that all the defendants be required to 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, 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.
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.
Breach of Contract Claims
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 and on April 22, 2010, we answered the complaint and filed a motion to dismiss for lack of standing on the part of the plaintiffs.  While we expect to prevail in this matter, an adverse decision could have a material adverse effect on our results of operations.

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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.
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:
(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.

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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
2010
2.90 1.26 14.32 6.36
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
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

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Buenos Aires Stock
Exchange
New York Stock
Exchange
Pesos per Share
U.S. dollars per ADS
High
Low
High
Low
2010
First Quarter
1.59 1.32 8.48 6.75
Second Quarter
1.55 1.26 7.98 6.36
Third Quarter
1.57 1.27 7.94 6.37
Fourth Quarter
2.90 1.55 14.32 7.87
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
2010
November
2.52 1.94 12.84 9.85
December
1.59 1.42 8.48 7.48
2011
January
2.71 2.51 13.49 12.11
February
2.60 2.18 12.88 10.44
March
2.28 2.12 10.87 9.97
April
2.37 2.13 11.31 10.20
May (1)
2.20 2.06 10.41 9.35

( 1) Represents the corresponding sale prices from May 1 through May 16.

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.

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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, 2010, 66 companies had equity securities listed on the BCBA, of which the ten most traded companies accounted for approximately 71.4% of the total market capitalization during 2010.
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.
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.

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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.
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.

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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;
·
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.

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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.
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.

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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.
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.

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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.
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.

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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.
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.

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In January 2002, pursuant to the Public Emergency Law, the Executive Power was empowered to establish a system to determine the exchange rate between the peso and foreign currencies and to formulate exchange regulations.  On February 8, 2011, pursuant to Decree No. 260/2002, the Executive Power established a single free currency market ( mercado único y libre de cambios ) through which all foreign currency exchange operations were to take place, and provided that foreign currency exchange operations would be made at a freely determined exchange rate, subject to certain requirements and regulations of the Central Bank.
Beginning in January 2003, the Central Bank has gradually eased the restrictions mentioned above 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 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.
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.

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Money Laundering
On April 13, 2000, the Argentine Congress passed Law No. 25,246 (as amended by Laws No. 26,087, 26,118 and 26,286, 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; and
·
Crimes related to terrorism financing (Article 213, quater of the Penal Code).
Argentina’s Law of Money Laundering, like other international money laundering laws, 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.
Financial entities must inform the Unidad de Información Financiera (“UIF”) about any suspicious or unusual transaction, or transactions lacking economical or legal justification, or being unnecessarily complex.  The Central Bank publishes a list of “non-cooperating” jurisdictions.  The UIF has regulated the duty to report through Resolutions 37/2001 and 33/2011.  In addition, it has established guidelines and internal procedures for unusual or suspicious transactions which must be implemented by financial institutions and other entities.

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CNV regulations provide that entities involved in the public offering of securities (other than issuers), including, among others, underwriters of any primary issuance of securities, must comply with the standards set by the UIF.  In particular, they must comply with the obligation regarding customer identification and required information, record-keeping, precautions to be taken to report suspicious operations, policies and procedures to prevent money laundering and terrorist financing. With respect to issuers (such as the Company), CNV regulations provide that any entity performing significant capital contributions or loans must be identified, whether or not a shareholder at the time of the contributions, and must meet the requirements for general participants in the public offering of securities, provided in the CNV regulations and the UIF regulations, especially with regards to the identification of such persons and to the origin and legality of the funds and loans provided.
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 (AITL), 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.

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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.
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, 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.
U nited S tates F ederal I ncome T ax C onsiderations
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:

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a dealer in securities or currencies;
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a trader in securities that elects to use a mark-to-market method of accounting for securities holdings;
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a bank;
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a life insurance company;
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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
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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.  A U.S. holder will have a tax basis in such Pesos for U.S. federal income tax purposes equal to the U.S. Dollar value on the date of such receipt.  Any subsequent gain or loss in respect of such Pesos arising from exchange rate fluctuations will be ordinary income or loss and will be treated as income from U.S. sources for foreign tax credit purposes.  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, 2013 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 2009 or 2010 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 2011 taxable year.

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Based on existing guidance, it is not entirely clear whether dividends received with respect to the Class B 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.
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, 2013 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.  It is unclear whether the Argentine personal assets tax (as described in “—Argentine Tax Considerations”) is treated as an income tax for U.S. federal income tax purposes.  If the Argentine personal asset tax is not treated as an income tax for U.S. federal income tax purposes, a U.S. holder would be unable to claim a foreign tax credit for any Argentine personal property tax withheld.   A U.S. holder may be able to deduct such tax in computing its U.S. federal income tax liability, subject to applicable limitations.  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.

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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.
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.

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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.
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.

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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.
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:
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we do not wish the depositary to vote those deposited securities;
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we think there is substantial shareholder opposition to the particular question; or
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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.
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:
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are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;
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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;
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are not liable if either of us exercises discretion permitted under the deposit agreement;
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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:
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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;
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satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and
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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.
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.

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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.
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.
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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, 2010, we had no material exposure to interest rate risk because only approximately 9.6% of our outstanding financial debt bore interest at variable rates.  In addition, we had no material exposure to commodity price risk because our commodities represented less than 1.8% 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.  Our cash and deposits in U.S. Dollars amounted to approximately U.S. $140.3 million at December 31, 2010.  In addition, approximately 6% of our operating expenses were denominated in U.S. Dollars.  These costs were principally related to supplies, computer services, insurance and communications.
As of December 31, 2010, 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, 2010, was approximately Ps. 50.4 million, primarily due to the increase in the principal amount of, and debt service payments on our foreign currency indebtedness.  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.
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 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.
In 2010, we entered into various derivative financial agreements with JP Morgan Chase Bank N.A. to hedge our exposure to fluctuations in exchange rates on our interest payments.
These derivative financial agreements provide hedging on the fluctuation of exchange rates relating to our interest payments due on April 25, 2011, October 25, 2011, April 25, 2012 and October 25, 2012 under the Senior Notes due 2022.  We have not formally qualified these transactions as coverage instruments.  For accounting purposes, we have followed the guidelines under Resolución Técnica No. 18 of the Federación Argentina de Consejos Profesionales de Ciencias Económicas (FACPCE).  According to said Resolution, derivative instruments which do not qualify as coverage instruments must be recorded in our financial statements at their net realizable value (if recorded as assets) or settlement value (if recorded as liabilities).  Our income statement records the financial gains and losses associated with these instruments.  As of December 31, 2010, the economic impact of this operation implied a loss of Ps. 7.3 million, which has been accounted for under financial income and holding gains generated by liabilities, under exchange difference in the income statement, and under the line item loans under current liabilities.
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.

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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
·
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.

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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.
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.

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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 then-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.  As of the date of this annual report, all of the restructuring notes have been repaid and cancelled.  For a description of our debt following the restructuring see “Item 5. Operating and Financial Review and Prospects—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, 2010.
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, 2010, 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.
(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:

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(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, 2010. 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, 2010. The effectiveness of the Company´s internal control over financial reporting as of December 31, 2010 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 2010 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.”
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 posted a copy of our revised code of ethics, in both English and Spanish, on our website at http://www.edenor.com.ar .

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Item 16C.
Principal Accountant Fees and Services
Price Waterhouse & Co. S.R.L. (member firm of PricewaterhouseCoopers network) acted as our independent registered public accounting for the fiscal years ended December 31, 2010 and 2009.  The chart below sets forth the services rendered to the Company by Price Waterhouse & Co. S.R.L. and the fees billed in each year for those services (including related expenses), and breaks down these amounts by category of service in Pesos:
Year ended December 31,
2010 (1)
2009 (2)
Audit fees
Ps. 1,491,300 Ps. 1,439,164
Audit-related fees
451,998 122,500
Non-Audit fees
235,414 –
Total
Ps. 2,178,712 Ps. 1,561,664
(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, 2010 of Ps. 3.976 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, 2009 of Ps. 3.80 to U.S. $1.00.
All of our audit fees, audit-related fees and non-audit fees, contained in the above table were billed by Price Waterhouse & Co. S.R.L., independent registered public accounting firm.
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.
Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Neither we nor any affiliated purchaser has engaged in share repurchases during the year ended December 31, 2010.
Item 16F.
Change in Registrant’s Certifying Accountant
Not applicable.
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 ).
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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 the date of this annual report, 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.
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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.  We note, however, that CNV corporate governance rules recommend having a nominating / 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.  However, our Audit Committee is required to give an opinion about the reasonableness of a director’s fees and stock option plans (if applicable), as proposed by our Board of Directors.
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.
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.
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.
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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, 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. 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 those respective 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.
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.
Section 303A.12(c) The listed company must submit an executed Written Affirmation annually to the NYSE.  In addition, each listed company must submit an interim written affirmation as and when required by the interim written affirmation form specified by the NYSE.
Edenor complies with the certification requirements under §303A.12(c).

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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- of this annual report.
Item 19.
Exhibits
Documents filed as exhibits to this annual report:
1.1
Estatutos 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).
2.5
Indenture dated October 25, 2010, 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.
8.1
List of Subsidiaries of Edenor.
12.1
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
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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 13th, 2011
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Index to financial statements

Audited Financial Statements
Page
Report of Independent Registered Public Accounting Firm
F-2
Balance Sheets as of December 31, 2010 and 2009
F-3
Statements of Operations for the years ended December 31, 2010, 2009 and 2008
F-4
Statements of Changes in Shareholders’ Equity for the years ended December 31, 2010, 2009 and 2008
F-5
Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
F-6
Notes to the Financial Statements
F-7
F-1

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 operations, 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, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 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, 2010, 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 28 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 13, 2011.
PRICE WATERHOUSE & CO. S.R.L.
Carlos Martín Barbafina (Partner)
F-2
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2010 AND 2009

(stated in thousands of pesos)
2010
2009
CURRENT ASSETS
Cash and banks
8,611 8,685
Investments (Note 27 Exhibit D)
668,232 219,687
Trade receivables (Note 4)
421,193 389,236
Other receivables (Note 5)
43,361 61,098
Supplies
12,407 14,854
Total Current Assets
1,153,804 693,560
NON-CURRENT ASSETS
Trade receivables (Note 4)
45,531 87,047
Other receivables (Note 5)
119,249 88,756
Investments in other companies (Note 27 Exhibit C)
415 408
Supplies
23,249 18,584
Property, plant and equipment (Note 27 Exhibit A)
3,689,482 3,482,386
Total Non-Current Assets
3,877,926 3,677,181
Total Assets
5,031,730 4,370,741
2010
2009
CURRENT LIABILITIES
Trade accounts payable (Note 6)
378,505 347,782
Loans (Note 7)
54,108 82,988
Salaries and social security taxes (Note 8)
180,432 118,377
Taxes (Note 9)
111,080 140,301
Other liabilities (Note 10)
4,542 8,012
Accrued litigation (Note 27 Exhibit E)
57,832 62,813
Total Current Liabilities
786,499 760,273
NON-CURRENT LIABILITIES
Trade accounts payable (Note 6)
50,984 46,854
Loans (Note 7)
1,035,113 707,499
Salaries and social security taxes (Note 8)
50,633 43,673
Taxes (Note 9)
8,989 9,374
Other liabilities (Note 10)
984,518 610,775
Accrued litigation (Note 27 Exhibit E)
6,816 10,084
Total Non-Current Liabilities
2,137,053 1,428,259
Total Liabilities
2,923,552 2,188,532
SHAREHOLDERS' EQUITY (as per related statements)
2,108,178 2,182,209
Total Liabilities and Shareholders' Equity
5,031,730 4,370,741
The accompanying notes 1 through 28 are an integral part of these financial statements.
F-3
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(stated in thousands of pesos)
2010
2009
2008
Net sales (Note 11)
2.173.644 2.077.860 2.000.198
Electric power purchases
(1.069.747 ) (1.003.362 ) (934.660 )
Gross margin
1.103.897 1.074.498 1.065.538
Transmission and distribution expenses (Nota 27 Exhibit H)
(636.289 ) (548.583 ) (497.870 )
Selling expenses (Nota 27 Exhibit H)
(194.236 ) (158.956 ) (126.016 )
Administrative expenses (Nota 27 Exhibit H)
(178.897 ) (144.034 ) (111.736 )
Subtotal
94.475 222.925 329.916
Other (Expenses) Income, net (Note 12)
(9.810 ) 23.290 (29.825 )
Financial income (expenses) and holding gains (losses)
Generated by assets
Exchange difference
7.412 21.402 8.139
Interest
28.372 16.204 9.772
Holding results (Note 22)
(14.680 ) 37.589 (7.300 )
Tax on financial transactions
(16.048 ) (13.352 ) (10.950 )
Generated by liabilities
Financial expenses
(12.484 ) (11.713 ) (9.964 )
Exchange difference
(40.278 ) (99.096 ) (92.707 )
Interest
(91.335 ) (87.739 ) (95.273 )
Tax on financial transactions
(21.120 ) (19.181 ) (16.051 )
Adjustment to present value of the retroactive tariff increase arising from the application of the new-electricity race schedule and other receivables (Notes 13)
11.581 3.413 13.454
Adjustment to present value of notes (Note 3.j)
(4.198 ) (5.243 ) (8.457 )
(Loss) Gain from the purchase of notes
(7.054 ) 81.455 93.535
Net (Loss) Income before taxes
(75.167 ) 169.954 184.289
Income tax (Note 3.m)
1.136 (79.311 ) (61.174 )
Net (loss) income for the year
(74.031 ) 90.643 123.115
(Losses) Earnings per common share
(0,082 ) 0,101 0,137

The accompanying notes 1 through 28 are an integral part of these financial statements.
F-4
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
(stated in thousands of pesos)
Shareholders' contributions
Retained earnings
Nominal
Value
(Note 16.a)
Adjustment to
Capital
Additional
Paid-in Capital
Nominal
Value
Treasury Stock
Note 1
Adjustment
to Capital
Treasury Stock
Note 1
Total
Appropriated Retained
Earnings
Legal Reserve
Unappropriated
(Accumulated
Deficit) Retained
Earnings
Total
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
Absorption resolved by the General Annual Meeting held on April 7, 2010 (Note 16.d)
- - - - - - 4.532 (4.532 ) -
Net loss for the year
- - - - - - - (74.031 ) (74.031 )
Balance as of December 31, 2010
897.043 986.142 18.317 9.412 10.347 1.921.261 64.008 122.909 2.108.178

The accompanying notes 1 through 28 are an integral part of these financial statements.
F-5
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 AND 2 008
(stated in thousands of pesos)
2010
2009
2008
Cash flows from operating activities
Net (loss) income for the year
(74.031 ) 90.643 123.115
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities
Depreciation of property, plant and equipment (Note 27 Exhibit A)
178.380 175.419 170.263
Retirement of property, plant and equipment (Note 27 Exhibit A)
1.125 2.763 1.910
Gain from the sale of real property (Notes 3.g and 12)
(5.266 ) 0 0
Gain from investments in related company SACME S.A. (Note 27 Exhibit C)
(7 ) (11 ) (7 )
Loss (gain) from investments
(55.650 ) 26.379 (4.310 )
Gain (loss) from the purchase and redemption of notes (Note 14)
7.054 (81.455 ) (93.535 )
Adjustment to present value of notes (Note 3.j)
4.198 5.243 8.457
Exchange difference and interest on loans
49.512 178.586 232.743
Recovery of the accrual for tax contingencies (Note 27 Exhibit E)
- (35.553 ) -
Income tax (Note 3.m)
(1.136 ) 79.311 61.174
Allowance for doubtful accounts (Note 27 Exhibit E)
16.313 13.547 17.107
Recovery of allowance for doubtful accounts (Note 27 Exhibit E)
- (26.956 ) (24.016 )
Allowance for other doubtful accounts (Note 27 Exhibit E)
4.891 3.335 1.673
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule and other receivables (Note 13)
(11.581 ) (3.413 ) (13.454 )
Changes in assets and liabilities:
Net decrease (increase) in trade receivables
245 48.070 (49.454 )
Net decrease (increase) in other receivables
(275 ) 5.342 (33.350 )
(Increase) decrease in supplies
(2.218 ) (3.889 ) 7.384
Increase in trade accounts payable
34.853 15.221 27.797
Increase in salaries and social security taxes
69.015 27.173 50.279
(Decrease) increase in taxes
(45.842 ) (56.915 ) 26.380
Increase in other liabilities
370.273 239.118 78.077
Net increase in accrued litigation
(8.249 ) 10.616 15.123
Financial interest paid (net of interest capitalized) (Notes 3.g and 18.b)
(64.908 ) (76.827 ) (62.685 )
Financial and commercial interest collected (Note 18.b)
60.232 32.230 6.872
Net cash flows provided by operating activities
526.928 667.977 547.543
Cash flows from investing activities
Collection of property, plant and equipment sold (Note 12 and Note 27 Exhibit A)
7.435 0 0
Additions of property, plant and equipment (1)
(388.770)
(404.165 ) (325.380 )
Net cash flows used in investing activities
(381.335 ) (404.165 ) (325.380 )
Cash flows from financing activities
Decrease (increase) in current and non current investments
0 13.614 (67.893 )
Adquisition of treasury shares (Note 1)
0 0 (6.130 )
Net increase (decrease) in loans
302.878 (175.453 ) (122.939 )
Net cash flows provided by (used in) financing activities
302.878 (161.839 ) (196.962 )
Net increase in Cash and Cash Equivalents
448.471 101.973 25.201
Cash and Cash Equivalents at the beginning of year
228.372 126.399 101.198
Cash and Cash Equivalents at the end of year
676.843 228.372 126.399
(1) Net of 145 and 8.276 related to the 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.

F-6

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.
F-7

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%.

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 on 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.

F-8

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.

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) 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 (text consolidated 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 March 3, 2011, the Company held the General Annual Meeting which resolved by majority of votes to extend for 3 years the term for holding the treasury shares acquired within the framework of section 68 of Decree No. 677/01.

On October 27, 2008, the Company requested authorization for the above-mentioned public offering from the National Securities Commission (CNV).
F-9
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.

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 (text consolidated 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.

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, 2010 and 2009, the Company’s capital stock, represented by 906,455,100 shares is comprised of the following (Note 16.a):

2010
2009
Holder
Number of shares
Class
% held
EASA (1)
462,292,111 462,292,111 “A” 51.00
Market in general (2)
442,210,366 442,210,356 “B” 48.78
Banco Nación (3)
1,952,604 1,952,604 “C” 0.22
New Equity Ventures LLC
19 19 “B” 0
EDF Internacional S.A.
0 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, 2010 and 2009.
(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 generally accepted accounting principles used in Argentina (“Argentine GAAP”) and the regulations of the Comisión Nacional de Valores (the Argentine National Securities Commission or “CNV”), which differs in certain significant respects from generally accepted accounting principles in the United States of America (“US GAAP”). Such differences involve methods of measuring the amounts shown in the financial statements, as well as additional disclosures required by US GAAP and the Regulation S-X of the Securities and Exchange Commission (“SEC”).  A description of the significant differences between Argentine GAAP and US GAAP as they relate to the Company is set forth in Note 28 to these financial statements.
F-10
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 (consolidated 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 adopted 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.

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 the results of operations for the year ended December 31, 2010, 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, 2010 a deferred tax liability of approximately 358,263 and a credit to the results of operations for the year, under the income tax account, amounting to 24,978, 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
2011
21,826
2012
21,043
2013 – 2017
93,840
2018 – 2022
82,209
Remainder
139,345
Total
358,263

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.
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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.

Additionally, on July 1, 2010, the CNV issued Resolution No. 576 which provides solutions to, corrections and further explanation of those aspects concerning Resolution No. 562 about which the issuers of financial statements had raised objections or asked for clarification.

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.

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 rates in effect as of the end of each year. The corresponding detail is disclosed in Note 27 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 and Shares, which have been valued at the prevailing market price as of the end of each year.
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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 Temporary Tariff Regime (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 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 rates in effect as of the end of each year (Note 27 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 closing date 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.

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, 2010 and 2009, the investment in SACME has been recorded at its equity value (Note 27 Exhibit C).

In order to determine the equity value, the audited financial statements of SACME S.A. as of December 31, 2010 and 2009 have been used. The accounting principles used by SACME are similar to those applied by EDENOR for the preparation of its financial statements.
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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.

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 2009 and during the year ended December 31, 2010. Financial costs capitalized for the years ended December 31, 2010 and 2009 amounted to 19.522 and 24,966, respectively.

During the years ended December 31, 2010 and 2009, direct and indirect costs capitalized amounted to 57,443 and 49,566 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 in the Property, plant and equipment account (Note 27 Exhibit A) as of December 31, 2009; 3,744 in Other Liabilities under Other (Note 10) as of December 31, 2009, and 256 and 1,088 in the Statement of Income under Financial interest as of December 31, 2010 and 2009, respectively.

In the year ended December 31, 2010, the Company sold the real property located at 837, 839, and 845 Juan B. Justo Street of the City of Buenos Aires for a total price of US$ 2,000,000.
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This transaction resulted in a gain, net of expenses, of 5,266 which has been included in the Other (Expense) Income account under Gain from the sale of real property (Note 12).

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 27 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 27 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 National Appellate Court in Contentious and Administrative Federal Matters. During the appeal process, payment of such claim had been suspended.
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 plus 868 of court costs. As of December 31, 2010, the Company paid for this concept an amount of 2,637, thus the remaining balance of the Company’s debt totals 10,353 (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 27 Exhibit E.
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j)
Loans:

As of each year-end, 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 rate that reasonably reflects market assessments of the time value of money and specific debt risks, net of issuance expenses.

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 4,198 and 5,243 as of December 31, 2010 and 2009, respectively.

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 assets and/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 -Corporate Notes- have been recognized by the Company in the Financial income (expense) and holding gains (losses) generated by liabilities account of the Statement of Income as of December 31, 2010 under Exchange difference (Note 23.a), whereas the changes in the accounting basis of financial instruments -Forward and futures contracts- have been recognized by the Company in the Financial income (expense) and holding gains (losses) generated by assets account of the Statement of Income as of December 31, 2010 and 2009 under Holding results (Note 23.b) both with a contra-account in Current Liabilities – Loans under Derivative financial instruments (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.

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 other trade receivables 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).
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The reconciliation between the income tax as charged to the statement of income for the years ended December 31, 2010, 2009 and 2008, and the amount that would result from applying the tax rate in effect (35%) to the (loss) income before taxes for each year, is as follows:

2010
2009
2008
(Loss) Income for the year before taxes
(75,167 ) 169,954 184,289
Applicable tax rate
35 % 35 % 35 %
(Loss) Income for the year at the applicable tax rate
(26,308 ) 59,484 64,501
Permanent differences:
Adjustment for inflation of property, plant and equipment
24,978 26,980 30,404
Accruals and other
194 (7,153 ) (33,731 )
Total income tax  (benefit) charge for the year
(1,136 ) 79,311 61,174
Adjustment Income tax return
0 1,636 0
Variation between deferred assets (liabilities) charged to (loss) income
17,371 14,623 38,571
Income tax for the year
16,235 95,570 99,745

Additionally, the breakdown of deferred tax assets and liabilities as of December 31, 2010, 2009 and 2008 is as follows:

2010
2009
2008
Non-current deferred tax assets
Tax-loss carry forward
11,586 4,293 8,316
Accruals
162,053 127,033 74,823
Other
13,532 14,058 15,577
187,171 145,384 98,716

2010
2009
2008
Non-current deferred tax liabilities
Property, plant and equipment and other
(82,725 ) (58,309 ) (17,948 )
Net deferred tax assets
104,446 87,075 80,768

2010
2009
2008
Net deferred tax assets - Initial balance
87,075 80,768 42,197
Use of tax loss carryforward
0 (8,316 ) 0
Variation between deferred assets (liabilities) charged to (loss) income
17,371 14,623 38,571
Net deferred tax assets - Ending balance
104,446 87,075 80,768

Furthermore, as of December 31, 2010, the Company has determined a minimum presumed income tax charge of 12,926 (Note 5).

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 lease contract of the Handling and Energy Transformation Center 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.
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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, 2010, 2009 and 2008, future minimum lease payments with respect to operating leases are as follow:

2010
2009
2008
2009
0 0 6,031
2010
0 8,400 5,934
2011
6,748 2,645 2,275
2012
8,659 336 259
2013
8,470 209 203
2014
8,406 147 147
2015
2,900 147 0
2016
147 0 0
Total future minimum lease payments
35,330 11,884 14,849

Total rental expenses for all operating leases for the years ended December 31, 2010, 2009 and 2008 are as follow:

2010
2009
2008
Total lease expenses
13,130 8,478 5,013

As lessor, Edenor has entered into 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, 2010, 2009 and 2008, future minimum lease collections with respect to operating leases are as follow:

2010
2009
2008
2009
0 0 10,303
2010
0 12,831 1,490
2011
20,898 12,294 0
2012
1,924 2,167 0
2013
89 75 0
2014
20 18 0
Total future minimum lease collections
22,931 27,385 11,793

Total rental income for all operating leases for the years ended December 31, 2010, 2009 and 2008, is as follows:

2010
2009
2008
Total lease income (Note 11)
18,114 13,582 10,463
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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, 2010 and 2009, the accrual for such bonuses amounted to 12,432 and 9,064, 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, 2010 and 2009, the accrual for these benefits amounted to 31,356 and 24,820, 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, 2010 and 2009, respectively, on the basis of actuarial studies conducted by an independent actuary as of December 31, 2010 and 2009. 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, 2010 and 2009 amount to 6,165 and 6,185  (current) and 6,845 and 9,789  (non-current), respectively (Note 8).

The periodical components of the personnel benefits plan for the years ended December 31, 2010, 2009 and 2008 are as follow:

2010
2009
2008
Cost
1,828 1,608 1,488
Interest
7,825 4,843 4,441
Amortization of recognized net actuarial loss
814 1,314 779
10,467 7,765 6,708

The detail of the variations in the Company’s payment commitments under the personnel benefits plan as of December 31, 2010, 2009 and 2008 is as follows:

2010
2009
2008
Payment commitments under the personnel benefits plan at the beginning of the year
31,195 26,623 19,083
Cost
1,828 1,608 1,488
Interest
7,825 4,843 4,441
Actuarial income (loss)
4,572 (886 ) 3,638
Benefits paid to participating employees
(3,928 ) (993 ) (2,027 )
Payment commitments under the personnel benefits plan at the end of the year
41,492 31,195 26,623
Payment commitments under the personnel benefits plan at the end of the year
41,492 31,195 26,623
Unrecognized net actuarial loss
(10,136 ) (6,375 ) (8,575 )
Total personnel benefits plan (Note 8)
31,356 24,820 18,048

Actuarial assumptions used were the following:

2010
2009
2008
Discount rate
24 % 25 % 18 %
Salary increase
15 % 15 % 15 %
Inflation
18 % 11.5 % 11,5 %
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The actuarial method used by the Company is the “Projected Unit Credit Method”.

As of December 31, 2010, 2009 and 2008, the Company does not have any assets related to the personnel benefits 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.

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 Temporary Tariff Regime (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, applicable as from February 1, 2007, was approved by Resolution No. 51/2007 of the ENRE.
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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 National Regulatory Authority for the Distribution of Electricity 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)
Losses  - Earnings per share :

It has been computed on the basis of the number of shares outstanding as of December 31, 2010 and 2009 which amounts to 897,042,600 (net of the treasury shares as of December 31, 2010 and 2009 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.
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, 2010, 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, 2010 and 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 5, 7 and 23.b).

Additionally, as of December 31, 2010, the Company has carried out transactions with derivative financial instruments with the aim of hedging the exchange rate of the amounts in foreign currency that it will have to pay in the next four interest payment dates of its financial debt, Class 9 Fixed Rate Par Notes (Notes 3.j, 7 and 23.a).

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, 2010 and 2009. The collectibility of trade receivables balances related to the Framework Agreement, which amount to 33,047 and 54,823 as of December 31, 2010 and 2009, 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, 2010 and 2009, approximately 80% 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.
F-22
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.

F-23
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.

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, 2009 have been reclassified for comparative purposes, following the disclosure criteria used for the financial statements as of December 31, 2010.

Such reclassifications do not imply any changes in shareholders’ equity as of December 31, 2009 and/or in the results of operations for the year ended as of that date.
4.
TRADE RECEIVABLES

The detail of trade receivables as of December 31, 2010 and 2009 is as follows:

2010
2009
Current:
Receivables from sales of electricity:
Billed
216,749 181,595

F-24
2010
2009
Unbilled
Sales of electricity
149,046 139,181
Retroactive tariff increase arising from the application of the new electricity rate schedule (Note 17.b item d)
21,442 37,391
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule (Note 3.c)
(1,170 ) (2,516 )
Framework Agreement (Notes 3.v and 13)
33,047 36,273
Adjustment to present value of Framework Agreement (Note 13)
0 (1,406 )
Framework Agreement - Payment plan agreement with the Province of Bs. As. (Note 13)
0 2,292
National Fund of Electricity (Note 17.a)
3,437 2,840
Bonds for the cancellation of debts of the Province of Bs. As. (Note 13)
8,743 0
Specific fee payable for the expansion of the network, transportation and others (Note 17.b)
4,477 2,459
In litigation
14,681 10,815
Subtotal
450,452 408,924
Less:
Allowance for doubtful accounts (Note 27 Exhibit E)
(29,259 ) (19,688 )
421,193 389,236
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)
0 31,795
Adjustment to present value of the retroactive tariff increase arising from the application of the new electricity rate schedule (Note 3.c)
0 (4,119 )
Framework Agreement (Notes 3.v and 13)
0 18,550
Adjustment to present value of Framework Agreement (Note 13)
0 (4,710 )
45,531 87,047

5. OTHER RECEIVABLES

The detail of other receivables as of December 31, 2010 and 2009 is as follows:

2010
2009
Current:
Prepaid expenses (1)
4,625 2,800
Advances to suppliers
4,014 142
Advances to personnel
6,276 6,396
Related parties (Note 15)
4,169 1,604
Receivables from activities other than the main activity (2)
23,321 20,402
Allowance for other doubtful accounts (Note 27 Exhibit E)
(12,799 ) (7,908 )
Initial margins and other (3)
0 32,544
Tax on financial transactions
3,693 682
Other (4)
10,062 4,436
43,361 61,098

F-25
2010
2009
Non-current:
Prepaid expenses
1,199 1,439
Net deferred tax assets (Note 3.m)
104,446 87,075
Tax on minimum presumed income (net of advances and payments on account)
12,283 0
Other
1,321 242
119,249 88,756

(1)
Includes 70 and 447 in foreign currency (Note 27 Exhibit G) as of December 31, 2010 and 2009, respectively.
(2)
Includes 3,970 and 1,367 in foreign currency (Note 27 Exhibit G) as of December 31, 2010 and 2009, respectively.
(3)
Related to initial margins on derivative financial instruments (Notes 3.u and 23.b), 22,899 of which are denominated in foreign currency (Note 27 Exhibit G) as of December 31, 2009.
(4)
Includes 607 and 129 in foreign currency (Note 27 Exhibit G) as of December 31, 2010 and 2009, respectively.
6.
TRADE ACCOUNTS PAYABLE
The detail of trade accounts payable as of December 31, 2010 and 2009 is as follows:

2010
2009
Current:
Payables for purchase of electricity and other purchases (1)
221,626 214,693
Unbilled electric power purchases
111,860 92,945
Customer contributions (Note 3.p)
33,965 28,874
Other (2)
11,054 11,270
378,505 347,782
Non-Current:
Customer deposits (Note 3.p)
49,129 44,179
Other (3)
1,855 2,675
50,984 46,854

(1)
Includes 20,053 and 29,034 in foreign currency (Note 27 Exhibit G) as of December 31, 2010 and 2009, respectively. Also, includes balances with SACME S.A. for 1,392 and 1,000 as of December 31, 2010 and 2009, respectively, and balances with Préstamos y Servicios S.A. for 8 as of December 31, 2010 (Note 15).
(2)
Includes 821 and 683 as of December 31, 2010 and 2009, respectively 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, 2010 and 2009 is as follows:

2010
2009
Current:
Financial loans:
Principal
0 43,333
F-26
2010
2009
Interest
0 305
Subtotal debt for financial loans
0 43,638
Corporate Notes (Note 14):
Floating Rate Par Notes – Class 8
23,285 17,464
Interest (1)
21,237 15,885
Floating Rate Par Notes – Class A (2)
2,505 0
Derivative financial instruments (Notes 3.u, 3.j, 23.a and 23.b)
7,253 6,001
Subtotal debt for corporate notes
54,280 39,350
Adjustment to present value of notes  (Note 3.j)
(172 ) 0
Debt for Corporate Notes at present value
54,108 39,350
54,108 82,988
Non-current:
Corporate Notes (Note 14):
Floating Rate Par Notes – Class 8
34,951 58,236
Fixed Rate Notes – Class 7 (2)
98,446 565,022
Fixed and Incremental Rate Par Notes – Class A (2)
0 58,091
Floating Rate Par Notes – Class A (2)
47,813 48,093
Fixed Rate Notes – Class 9 (2) (3)
871,476 0
Subtotal debt for corporate notes
1,052,686 729,442
Adjustment to present value of notes  (Note 3.j)
(17,573 ) (21,943 )
Debt for Corporate Notes at present value
1,035,113 707,499
1,035,113 707,499

(1)
Includes 19,691 and 13,996 in foreign currency (Note 27 Exhibit G) as of December 31, 2010 and 2009, respectively.
(2)
In foreign currency (Note 27 Exhibit G) as of December 31, 2010 and 2009.
(3)
Net of issuance expenses for 44,202.

8.
SALARIES AND SOCIAL SECURITY TAXES

The detail of salaries and social security taxes as of December 31, 2010 and 2009 is as follows:
2010
2009
Current:
Salaries payable and accruals
160,616 101,435
Social Security (ANSES)
13,651 10,757
Early retirements payable (Note 3.o)
6,165 6,185
180,432 118,377
Non-Current (Note 3.o) :
Personnel Benefits Plan
31,356 24,820
Seniority-based bonus
12,432 9,064
Early retirements payable
6,845 9,789
50,633 43,673

F-27

9.
TAXES

The detail of taxes as of December 31, 2010 and 2009 is as follows:

2010
2009
Current:
Provincial, municipal and federal contributions and taxes
32,024 28,957
Value Added Tax (VAT)
30,901 28,554
Income tax and tax on minimum presumed income (net of  advances, withholdings and payments on account) (Note 3.m)
0 37,867
Withholdings
9,798 9,464
Municipal taxes
27,159 24,693
Tax regularization plan Law No. 26,476 (Note 3.i.1)
1,364 1,261
Other
9,834 9,505
111,080 140,301
Non-Current:
Tax regularization plan Law No. 26,476 (Note 3.i.1)
8,989 9,374

10.
OTHER LIABILITIES

The detail of other liabilities as of December 31, 2010 and 2009 is as follows:

2010
2009
Current:
Other (1)
4,542 8,012
4,542 8,012
Non-current:
ENRE penalties and discounts (Note 17 a and b)
455,421 377,456
Program for the rational use of electric power (PUREE) (Note 17 a)
529,097 233,319
984,518 610,775

(1)
Includes 1,345 and 1,370 in foreign currency (Note 27 Exhibit G) as of December 31, 2010 and 2009, respectively.
Additionally, includes 3,744 related to the software lease agreement (Note 3.g) as of December 31, 2009.
11.
NET SALES

The breakdown of net sales for the years ended December 31, 2010, 2009 and 2008 is as follows:

2010
2009
2008
Sales of electricity (1)
2,125,390 2,035,845 1,966,017
Late payment charges
22,197 20,686 17,764
Right of use on poles (Note 3.n)
18,114 13,582 10,463
Connection charges
5,550 5,700 3,729
Reconnection charges
2,393 2,047 2,225
2,173,644 2,077,860 2,000,198
F-28

(1) Net of ENRE discounts and penalties for 80,006, 58,500 and 34,775 for the years ended December 31, 2010, 2009 and 2008, respectively (Note 17 a and b). As of December 31, 2008, includes 84,585 related to the application of the Cost Monitoring Mechanism (MMC) (Note 17.a).
12.
OTHER (EXPENSES) – INCOME, NET

The breakdown of other (expense) – income, net for the years ended December 31, 2010, 2009 and 2008 is as follows:

2010
2009
2008
Non-operating income
985 4,529 8,392
Commissions on municipal taxes collection
4,905 3,844 2,291
Net expense from technical services
(4,114 ) (785 ) (1,566 )
Voluntary Retirements - Bonuses
(10,103 ) (5,381 ) (31,334 )
Severance paid
(4,658 ) (4,419 ) (4,228 )
Accrued litigation (Note 27 Exhibit E)
(1,213 ) (15,500 ) (19,900 )
Disposal of property, plant and equipment (Note 27 Exhibit A)
(1,125 ) (2,763 ) (1,910 )
Gain from the sale of real property (Note 3.g)
5,266 0 0
Recovery of allowance for doubtful accounts (1)
0 21,236 14,087
Net recovery of accrued litigation (2)
0 23,431 0
Other
247 (902 ) 4,343
(9,810 ) 23,290 (29,825 )

(1) Related to the Framework Agreement Province of Buenos Aires (Note 13, Note 27 Exhibits E and H).
(2) Related to the Company’s adherence to the tax regularization plan (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.

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.

F-29
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 National Regulatory Authority for the Distribution of Electricity approves the extension of the regulations established in the Addendum to the new Framework Agreement in the terms of Resolution No. 22/2004.

Additionally, 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.

As of the date of issuance of these financial statements, the abovementioned agreements have expired. Nevertheless, the Company considers that they will be renewed and has therefore begun the corresponding negotiations.

During November-December 2009 and March through December 2010, the Company received payments from the Argentine Federal Government for 20,000 and 19,291, 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 verified and paid with Bonds for the Cancellation of Debts, the debt stated therein in the amount of 32,797. The aforementioned agreement has been ratified by the Executive Power of the Province of Buenos Aires and the Company’s Board of Directors. As of December 31, 2010, the balance of Bonds for the Cancellation of Debts held by the Company amounts to 8,743 (Note 4).

Additionally, as of December 31, 2010 and 2009, balances with the Argentine Federal Government and the Government of the Province of Buenos Aires amount to 33,047 and 54,823, respectively (Note 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 Company’s 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.

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.

F-30
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 is amortized in 13 consecutive and quarterly installments, the first of which became due 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 Company used the net proceeds from the sale of the Corporate Notes to finance the capital expenditures plan.

Furthermore, the Company’s Board of Directors has approved, within the framework of the Program, the issuance and placement by means of a public offering or an exchange offer of fixed rate Corporate Notes due in 2022 for a nominal value of up to US$ 300 million. In accordance with the terms of the Pricing Supplement dated September 28, 2010, the Corporate Notes may be subscribed:

(i) in cash, at the issue price determined by the Company prior to the Date of Issuance on the basis of the result of the placement and awarding procedure of the Corporate Notes, or

(ii) in kind, through the delivery of Class 7 fixed rate Corporate Notes due 2017 in exchange for Corporate Notes, pursuant to the following exchange ratios:

·
in the case of Class 7 Corporate Notes tendered before October 20, 2010, Corporate Notes due in 2022 for a nominal value of US$ 1,000, plus US$ 100.90 and additional amounts in cash instead of fractions of Corporate Notes, and

·
in the case of Class 7 Corporate Notes tendered after the Early Offer deadline through November 1, 2010, Corporate Notes due in 2022 for a nominal value of US$ 1,000, plus US$ 80.90 and additional amounts in cash instead of fractions of Corporate Notes.

Together with the Subscription Offer and the Exchange Offer, the Company carried out a public offering for the repurchase of Class 7 Corporate Notes at a cash repurchase price. The holders of Class 7 Corporate Notes who validly tendered their notes to the Purchase Offer and whose offers were accepted by the Company, received the following:

F-31
·
US$ 1,060 in exchange for each US$ 1,000 nominal value of Class 7 Corporate Notes tendered before October 15, 2010

·
US$ 1,045 in exchange for each US$ 1,000 nominal value of Class 7 Corporate Notes tendered after such date through November 1, 2010.

On October 25, 2010 and as a result of the Subscription Offer in cash, the Company issued Corporate Notes for a nominal value of US$ 140 million. Furthermore, as a result of the exchange offer, the Company accepted and exchanged Class 7 Corporate Notes for a nominal value of US$ 90,301,000 that had been tendered through November 1, 2010, for Corporate Notes due 2022, at a fixed rate of 9.75% for a nominal value of US$ 90,301,000 and paid US$ 9,532,000 in cash, including payments of accrued and unpaid interest on Class 7 Corporate Notes; and accepted and purchased Class 7 Corporate Notes for a nominal value of US$ 33,593,000 that had been tendered through November 1, 2010, having paid US$ 35,750,000, including the payment of accrued and unpaid interest on Class 7 Corporate Notes.

The new Class 9 Corporate Notes for an amount of US$ 230,301,000 have been issued at an issue price of 100% of the principal amount. The twelve-year term corporate notes accrue interest as from the date of issuance at a fixed rate of 9.75%, payable semiannually on October 25 and April 25 of each year, with the first interest payment maturing on April 25, 2011. The principal will be amortized in a lump sum payment at maturity date in 2022. The Company has requested authorization for the listing of the Corporate Notes on the Buenos Aires Stock Exchange and admission for trading on the Mercado Abierto Electrónico S.A. (the OTC market of Argentina), as well as authorization for the listing of the Corporate Notes on the Luxembourg Stock Exchange and admission for trading on the Euro MTF Market, which is the alternative market of the Luxembourg Stock Exchange.

The Company will use the net proceeds from the sale of the Corporate Notes in this offer to refinance in whole or in part the debt currently outstanding, and/or finance the capital expenditures plan and/or increase working capital.

Additionally, on October 18, 2010, the Company cancelled Class 7 Corporate Notes held in its portfolio for a nominal value of US$ 65,310,000.

On October 25, November 4, and December 9, 2010, as a result of the repurchase and exchange offer, the Company cancelled Class 7 Corporate Notes for nominal values of US$ 122,644 thousand, 1,250 thousand and 36 thousand, respectively, which represented approximately 83.3% of the Corporate Notes outstanding at such time.

The Company’s debt structure as of December 31, 2010 and 2009 was comprised of the following Notes:

Debt issued in United States dollars:

Type
Class
Debt structure as of
December 31, 2009
in thousands of US$
Debt purchase as of
December 31, 2010
in thousands of US$
Debt structure as of
December 31, 2010
in thousands of US$
Balance as of
Dec. 31, 2010 (Note 7)
in thousands of pesos
Fixed Rate Par Note
A 15,287 (15,287 ) 0 0
Floating Rate Par Note
A 12,656 0 12,656 50,318
Fixed Rate Par Note
7 148,690 (123,930 ) 24,760 98,446
Fixed Rate Par Note (1)
9 0 0 219,184 871,476
Total
176,633 (139,217 ) 256,600 1,020,240
(1) Net of debt issuance costs for 44,202.

F-32

Debt issued in Argentine pesos:

Debt structure (in thousands of pesos) as of
Type
Class
December 31, 2009
December 31, 2010
(Note 7)
(Note 7)
Floating Rate Par Note
8 75,700 58,236
Total
75,700 58,236
The debt structure for US dollar-denominated corporate notes originally issued and payments made during fiscal years 2007, 2008 and 2009 were as follow:

Initial debt
Debt purchase
Debt purchase
Debt structure
Balance as of
structure
2008 fiscal year
2009 fiscal year
as of December 31, 2009
Dec. 31, 2009 (Note 7)
Type
Class
in thousands of US$
in thousands of US$
in thousands of US$
in thousands of US$
in thousands of pesos
A 73,485 (29,347 ) (27,853 ) 15,287 58,091
Fixed Rate Par Note
B 50,289 (3,186 ) (4,375 ) 0 0
Floating Rate Par Note
A 12,656 0 0 12,656 48,093
A 152,322 0 0 0 0
Discount Note
B 87,678 0 0 0 0
Fixed Rate Par Note
7 220,000 (17,500 ) (53,810 ) 148,690 565,022
Total
596,430 (50,033 ) (86,038 ) 176,633 671,206

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

Year
Amount
2011
25,802
2012
25,803
2013
14,182
2014
2,517
2015
2,517
2016
2,517
2017
103,468
2018
5,034
2019
25,152
2020
0
2021
0
2022 (1)
871,484
1,078,476

(1) Net of debt issuance costs for 44,202.

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:

F-33
-
encumbrance or authorization to encumber its property or assets;
-
incurrence of indebtedness, in certain specified cases;
-
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 RELATEDPARTIES - SECTION. 33 LAW 19550
In the normal course of business, the Company carries out transactions with the controlling company and related parties.
As of December 31, 2010 and 2009, the outstanding balances with the controlling company and related parties are as follow:

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2010
2009
Current investments (Note 27 Exhibit D)
Transener S.A.
17,527 0
Total
17,527 0
Other receivables (Note 5)
Electricidad Argentina S.A.
0 1
Préstamos y Servicios S.A.
1 0
SACME S.A.
4,168 1,603
Total
4,169 1,604
Trade accounts payable (Note 6)
SACME S.A.
(1,392 ) (1,000 )
Préstamos y Servicios S.A.
(8 ) 0
Total
(1,400 ) (1,000 )

Transactions carried out with the controlling company and related parties for the years ended December 31, 2010 and 2009 are as follow:

2010
2009
Other income
Comunicaciones y consumos S.A.
205 0
Préstamos y Servicios S.A.
1 9
Electricidad Argentina S.A.
4 10
Total
210 19
Expenses from services
SACME S.A.
(5,823 ) (5,068 )
Préstamos y Servicios S.A.
(84 ) (415 )
Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio
(310 ) (70 )
Total
(6,217 ) (5,553 )
Financial expenses and interest
Electricidad Argentina S.A.
(9,771 ) (6,918 )
Errecondo, Salaverri, Dellatorre, Gonzalez & Burgio
0 (145 )
Total
(9,771 ) (7,063 )

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.
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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.

On August 31, 2010, the Company’s Board of Directors approved a new addendum to the agreement for the provision of technical advisory services, which extended the term of the agreement for 5 years to commence as from September 19, 2010. The rest of the contractual terms have not been modified.

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 Communications 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 National Regulatory Authority for the Distribution of Electricity, which approved this through Resolution No. 381/2007.

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The activities related to the aforementioned agreement have been temporarily suspended in the Company’s offices.
16.
CAPITAL STOCK

a) General

As of December 31, 2010 and 2009, 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, 2010 and 2009, 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.

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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.

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 prohibitory 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, 2010 and 2009, 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 April 7, 2010 the General Annual Meeting resolved that the income for the 2009 fiscal year be absorbed by the Unappropriated retained earnings account:

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- Income for the 2009 fiscal year
90,643
- Legal Reserve (5% of the income for the year) (Note 24)
(4,532 )
- Unappropriated retained earnings for the 2009 fiscal year
86,111

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.

As of December 31, 2010 and 2009, the Company has accrued penalties for resolutions not yet issued by the ENRE corresponding to the six-month control periods elapsed over those dates. 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, 2010 and 2009, liabilities for ENRE penalties and discounts amount to 455,421 and 377,456, respectively, and have been included in other non-current liabilities (Note 10).

In addition, as of December 31, 2010, 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 3,437 and 2,840 as of December 31, 2010 and 2009, 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.

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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 National Regulatory Authority for the Distribution of Electricity 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, 2010, 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%
November 2009 – April 2010
May 2010
7.103%
May 2010 – October 2010
November 2010
7.240%
November 2010 – April 2011
May 2011
6.104%

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.

As of December 31, 2010 and 2009 liabilities generated by the excess funds deriving from the application of the Program for the Rational Use of Electric Power (PUREE), amount to 529,097 and 233,319 respectively, and have been disclosed in other non-current liabilities (Note 10). This increase in liabilities is due to the fact that the Company was allowed to keep such funds in order to cover the MMC (Cost Monitoring Mechanism) increases not transferred to the tariff.

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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;

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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);

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, 2010 amounts to 115,317. 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 a) and b) above) and from May 1, 2006 through January 31, 2007 (item c) 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.

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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, 2010, the installments corresponding to the months of February 2007 through December 2010 for a total of 197,149 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.

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.

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.

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.
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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 National Regulatory Authority for the Distribution of Electricity 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 Company’s value added distribution.

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).

Within the framework of the case, on January 27, 2009, the ENRE notified the Company of a prohibitory 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 precautionary measure has been appealed by the Company and the Argentine Federal Government. On September 1, 2009, National Appellate Court in Contentious and Administrative Federal Matters No. V affirmed the first instance decision, thus maintaining in effect the prohibitory injunction granted 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 for the determination of a claim” was served upon the Company, which the Company answered in due time and under the formalities prescribed by the law. 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 an appeal, within the term prescribed by the law, about which, as of the date of these financial statements, no decision has been made by the Court of Appeals. Court No. 10, Clerk’s Office No. 20, ordered the joinder of these proceedings into the case entitled “Carbonel Silvia Cristina vs Federal Government – Ministry of Planning - Resolution 1169/08 of the Energy Secretariat and others, proceeding for the protection of constitutional rights under law 16,986”, due to the analogous nature of these claims.

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.

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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”.

Furthermore, by Resolution No. 347/2010, the National Energy Secretariat approved the winter scheduling for the Wholesale Electric Power Market (MEM) for the period May 1 – October 31, 2010. In the reasons supporting such resolution, the National Energy Secretariat also stated that it considered it necessary that the seasonal prices to be paid by the customers of distribution companies should take into account not only the situation existing in such seasonal period but also the payment capacity of the different social classes included in the residential category of the electricity rate schedules of the referred to distribution companies. Therefore, considering the level of electricity consumption during winter and with the aim of not negatively affecting user payment capacity, the National Energy Secretariat resolved to suspend the application of sections 6, 7, and 8 of its Resolution No. 1169/2008 from June 1, 2010 through September 30, 2010. It must be pointed out that this situation had already been contemplated by the National Energy Secretariat in 2009 in its Resolution No. 652/2009, which gave rise to the issuance of Resolution No. 433/2009 of the ENRE.
As a consequence of the aforementioned Resolution No. 347/2010 of the Energy Secretariat, on May 21, 2010 the Company was notified of Resolution No. 294/2010 of the ENRE, which approved the values of the Company’s Electricity Rate Schedule included in Appendix I of such Regulatory Authority’s Resolution No. 433/2009, applicable to consumption recorded from midnight June 1, 2010.

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Furthermore, on July 23, 2010, the Company was notified of Resolution No. 421/2010 of the ENRE, which approved the values of the Company’s Electricity Rate Schedule included in Appendix IV of such Regulatory Authority’s Resolution No. 433/2009, applicable to consumption recorded from midnight August 1, 2010.

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 for the determination of a claim” 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 Contentious and Administrative Federal 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.

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 precautionary measure 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 main cause, it has been answered by the Company within the term and under the formalities prescribed by law.

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 value added 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 ordinary the proceeding that had been brought as an extraordinary summary proceeding, thus extending the time periods involved in the process. With regard to the provisional relief sought, on that date, the court ordered the carrying out of actions to add and clarify existing evidence, prior to taking any decision thereon.

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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, except for the Federal Government, have already answered the notice of the complaint served upon them. As of the date of issuance of these financial statements, no decision has been made by the Court hearing the case concerning the Company’s request that CAMMESA be summoned as a third-party defendant.

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 Contentious and Administrative Federal 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.

-
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. These pleadings were made available to the plaintiff. Having this procedural step been complied with, as from June 16, 2010 the proceedings are yet to be resolved.

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.

In accordance with the provisions of Resolution No. 467/2007 of the ENRE, the commencement of the process for the sale of the shares 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.

Furthermore, other legal actions have been brought against the Company, which are detailed below:

-
“ NATIONAL OMBUDSMAN VS FEDERAL GOVERNMENT LAW 25790 AND OTHERS, PROCEEDINGS FOR THE DETERMINATION OF A CLAIM ”. The aim of this legal action is that section 4 of Law No. 25,790 - Decree No. 1957/06 – Decree No. 1959/06, Resolutions Nos. 50, 51 and 102 of the ENRE be declared unconstitutional.
The granting of a “prohibitory injunction” has been requested. The Company has been summoned as a third-party defendant. The case is currently on appeal. On September 16, 2010, lower court judgment was entered “rejecting the complaint filed by the National Ombudsman against the Federal Government – EP and holding the plaintiff liable for costs”.

F-47
The case is pending in National Court in Contentious and Administrative Federal Matters No. 4 – Clerk’s Office No. 7.
The judgment was appealed by the National Ombudsman, thus the proceedings were derived to the Court of Appeals in Contentious and Administrative Federal Matters No. IV. The Company has already responded to the appellant’s briefs.
-
“UNION DE USUARIOS Y CONSUMIDORES VS FEDERAL GOVERNMENT DECREE 1957/06 (RESOLUTION 51/07 OF THE ENRE - EDENOR) AND OTHERS, PROCEEDINGS FOR THE DETERMINATION OF A CLAIM”. Notice of the complaint filed by the association for the defense of consumer rights Unión de Usuarios y Consumidores against the Federal Government and Edenor, which is pending in National Court of Original Jurisdiction in Contentious and Administrative Federal Matters No. 12, Clerks’ Office No. 23, was served upon the Company on December 9, 2009.
The remedies sought in the complaint are as follow:
a) that clause 4.6 and related ones of Appendix I of the Adjustment Agreement be revoked, inasmuch as it establishes that the tariff increase will be retroactive;
b) that Resolution No. 51/07 of the ENRE be nullified inasmuch as it authorizes the retroactive increase of tariffs in favor of the Company;
c) that Edenor be ordered to reimburse customers all the amounts paid as retroactive tariff increase for the period of November 1, 2005 through January 31, 2007;
d) that the reimbursement be implemented through a credit in favor of customers.
The Company answered the complaint on December 9, 2009.
The judgment sustaining the complaint was entered on November 11, 2010.
An appeal with a stay of execution was filed on November 25, 2010. On December 2, 2010, the Court upheld the petition of the Company and the Federal Government and granted the appeal with a stay of execution, which means that the court ruling will not be carried out until the appeal is resolved by the higher court.

On December 13, 2010, the Company formally submitted to the Court of Original Jurisdiction the written bases of the appeal concerning the merits of the case upon which judgment had been rendered. Appellate Court in Contentious and Administrative Federal Matters No. V will hear the case.

It must be pointed out that if the lower court ruling is affirmed by the Appellate Court, the Company will suffer a very significant economic harm. However, we believe it is premature to estimate such amount because in the opinion of the Company’s legal advisors there is a strong probability that the court ruling against the Company will be reversed. Such opinion is based on criteria applied by both the Federal Court of Appeals in Contentious and Administrative Matters and the Supreme Court of Justice in similar cases. That being so specifically with regard to the lack of standing ( falta de legitimación ) of the “Unión de Usuarios y Consumidores” to present claims as the one filed. In addition to this fact –which is of vital importance and would lead to the in limine rejection of the action– and considering the main question at issue in the complaint (alleged retroactivity of the increase), Decree 1957/06 does not have such “retroactive effect” because it does not create the Company’s right to increase rates but rather recognizes that the Federal Government had seriously altered the balance of the economic and financial equation of the Concession Agreement and that the Company, when entering into the “Adjustment Agreement” in September 2005, acquired the right to apply the temporary “Tariff Regime”, aimed at restoring -although partially and temporarily- such balance.

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

On February 9, 2011, the Company was notified of the issuance of Resolution No. 32/2011 of the ENRE, whereby the Regulatory Authority fined the Company in the amount of 1,125 for the power cuts that had occurred between December 20 and December 31, 2010, based on the following:

- Non-compliance with the obligations arising from section 25 – sub-sections a), f) and g) of the Concession Agreement and section 27 of Law 24,065 (provide electric power in accordance with quality levels, make the necessary investments, guarantee supply and availability of electricity to meet demand, and maintenance of facilities in order to guarantee adequate service to users, respectively, pursuant to the criterion adopted by the regulatory authority). Amount of the fine: 750.

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- Non-compliance with the obligations arising from section 25 – sub-sections b) and y) of the Concession Agreement (supply all the electric power required within the concession area, meeting new customer demand/demand for increased power supply, and compliance with regulations issued by the ENRE, respectively, pursuant to the criterion adopted by the regulatory authority). Amount of the fine: 375.

Furthermore, the Company was ordered to compensate those customers who had been affected by the power cuts in accordance with the following: 180 pesos to each small-demand residential customer who suffered power cuts that lasted from more than 12 continuous hours to 24 hours, 350 pesos to those who suffered power cuts that lasted from more than 24 continuous hours to 48 hours, and 450 pesos to those who suffered power cuts that lasted more than 48 continuous hours.
As of the date of issuance of these financial statements, within the framework of section 81 of Law No. 24,065, the Company will file a direct appeal (“ Recurso Directo ”) to the Appellate Court in Contentious and Administrative Federal Matters, with the aim of obtaining that the resolution be declared null and void. Prior to that, as authorized by section 207 and related sections of the Federal Code of Civil and Commercial Procedure, the Company has applied to the same Court for provisional remedies requesting that payment of the fined imposed be suspended until a final judgment is issued on the main cause.

Said penalties amount to approximately 22,374, which, based on that which has been mentioned in the preceding paragraph, have been recorded in Non-current liabilities under Other liabilities (Note 11).

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, 2010 and 2009, principal owed for this concept amounts to 2,676 and 3,358 respectively, which have 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 real 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 real 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.

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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 with original maturities of three months or less.

As of
December
31, 2010
As of
December
31, 2009
As of
December
30, 2008
Cash and Banks
8,611 8,685 6,061
Time deposits
17,523 27,191 0
Money market funds
117,458 80,055 88,548
Corporate notes and Shares
533,251 112,441 393
Government bonds
0 0 30,717
Municipal bonds
0 0 680
Total cash and cash equivalents in the Statement of Cash Flows
676,843 228,372 126,399

b)
Interest paid and collected:

For the years ended
December 31,
2010
2009
2008
Interest paid during the year
(84,430 ) (101,793 ) (94,162 )
Interest collected during the year
60,232 32,230 6,872

19.
INSURANCE COVERAGE

As of December 31, 2010, the Company carries the following insurance policies for purposes of safeguarding its assets and commercial operations:

Risk covered
Amount insured
Comprehensive (1)
US$
665,486,167
Mandatory life insurance
$ 32,244,000
Additional life insurance
$ 92,125,592
Funeral and burial insurance
$ 80,610,000
Theft of securities
US$
100,000
Vehicles (theft, third-party liability and damages)
$ 16,630,401
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 fines 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.

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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.

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 issued an order of 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 affirmed the judgment 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 case law, 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.

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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 affirmed 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 affirmed 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. On May 26, 2010, the Supreme Court expressly dismissed the appeal. It is worth mentioning that this decision is final and conclusive, accordingly, as soon as notice thereof has been given to all the parties involved, the proceedings will be sent to the court of original jurisdiction (Federal Court of Campana – Criminal Proceedings) for their filing.

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, 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.

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23.
DERIVATIVE FINANCIAL INSTRUMENTS

a) Corporate Notes

During the year ended December 31, 2010, the Company has contracted forward contracts with the JP Morgan Chase Bank NA with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions.

Contracted amount in
thousands of US$
Average rate of
exchange
Settlement date
11,227,174
4.569
04/25/2011
11,227,174
4.594
10/25/2011
11,227,174
4.594
04/25/2012
11,227,174
4.594
10/25/2012

This instrument provides an economic and financial hedge of the amounts in foreign currency that the Company must pay on the interest payment dates of its financial debt –Class 9 Fixed Rate Notes (Note 14)-, maturing on April 25, 2011, October 25, 2011, April 25, 2012 and October 25, 2012, 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 fair value, with changes through profit and loss..

As of December 31, 2010, the economic impact of this transaction resulted in a loss of 7,253, which has been recorded 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 under Loans (Note 7).

b) Forward and Futures Contracts

As of December 31, 2010 and 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, 2010, these transactions have been fully settled.

The main features of the contracts entered into with Standard Bank Argentina S.A. and Banco Finansur S.A., were as follow:

Entity
Contracted amount in
thousands of US$
Average
rate of
exchange
Transaction
date
Settlement
date
Book value Assets
(Liabilities) Note 7
(in thousands of pesos)
12/31/2010
12/31/2009
12/31/2010
12/31/2009
Banco Finansur
0 9,000 4.1645
07/27/2009
04/30/2010
0 (1,814 )
Banco Finansur
0 1,000 4.2420
07/27/2009
06/30/2010
0 (202 )
Standard Bank
0 12,000 4.4475
09/30/2009
12/31/2010
0 (1,338 )
Banco Finansur
0 33,000 4.2400
09/30/2009
06/30/2010
0 (1,532 )
Standard Bank
0 10,000 4.4475
10/01/2009
12/31/2010
0 (1,115 )
Standard Bank
0 0 4.2735
01/22/2010
12/31/2010
0 0
Standard Bank
0 0 4.2700
01/25/2010
12/31/2010
0 0
0 65,000 0 (6,001 )

As of December 31, 2010 and 2009, the economic impact of these transactions resulted in losses of 20,837 and 12,266, respectively 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.

F-53

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 April 7, 2010 appropriated 4,532 of Unappropriated Retained Earnings as of December 31, 2009 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, 2010, are as follow:

Term
Investments
Receivables
(1)
Financial
Debt
(Loans)
Other payables
(2)
With no explicit due date
0 45,531 0 984,518
With due date
Past due:
Up to three months
0 68,939 0 0
From three to six months
0 25,667 0 0
From six to nine months
0 19,917 0 0
From nine to twelve months
0 12,087 0 0
Over one year
0 30,731 0 0
Total past due
0 157,341 0 0
To become due:
Up to three months
668,232 347,339 9,753 631,101
From three to six months
0 1,070 26,198 14,470
From six to nine months
0 709 5,821 14,486
From nine to twelve months
0 153 12,336 14,502
Over one year
0 119,249 1,035,113 110,606
Total to become due
668,232 468,520 1,089,221 785,165
Total with due date
668,232 625,861 1,089,221 785,165
Total
668,232 671,392 1,089,221 1,769,683
(1) Excludes allowances
(2) Comprises total liabilities except accrued litigation and financial debts.

F-54

The financial debt mentioned in Note 14 accrues interest at floating and fixed rates, which amount to approximately 10.35%, on average; only 9.75% of the debt accrues interest at a floating rate whereas the remaining accrues interest at a fixed rate.

26.
SUBSEQUENT EVENTS

a) Repurchase of Corporate Notes

From January 1, 2011 through the date of issuance of these financial statements, the Company has repurchased at market prices and in successive operations all “floating rate par notes” due in 2019, for a nominal value of US$ 12,656 thousand (Note 14).

b) Loans taken out

On February 16, 2011 the Company took out a series of loans and bank overdrafts from local entities (JPMorgan, Deutsche Bank, Banco Macro, Banco Nación and Standard Bank) in order to be able to meet its future capital needs. These facilities, whose average term is 90 days, total 280,000 and carry interest at an annual rate of 14.5% on average.

c) Acquisition of assets:

On March 4, 2011, the Company’s Board of Directors decided to accept the gratuitous offer from its indirect controlling company Pampa Energía S.A. (“Pampa”), whereby Edenor was offered the possibility of acquiring certain electricity distribution assets, which Pampa was entitled to acquire (either directly or through one or more subsidiaries), from Grupo AEI in accordance with an agreement entered into on January 19, 2011 by and between Pampa, party of the first part, and AEI Utilities, S.L., a limited company ( sociedad limitada ) organized under the laws of Spain ("AEIU"), AEI Servicios Argentina S.A., a corporation ( sociedad anónima ) organized under the laws of Argentina, and AEI, a company organized under the laws of  the Cayman Islands, parties of the second part.

As a consequence of the acceptance by the Company of said offer, Edenor was appointed by Pampa as the acquiring party under the PESA-AEI Agreement. Therefore, on March 4, 2011, the Company acquired from AEIU (i) 182,224,095 common shares of EMDERSA S.A. (“Emdersa”), representing 77.19% of Emdersa’s capital stock and votes (“Emdersa Shares”), (ii) 2 common shares of Empresa Distribuidora de San Luis S.A. (“Edesal”) representing 0.01% of Edesal’s capital stock and votes, (iii) 600 common shares of Emdersa Generación Salta S.A. (“EGSSA”)  representing 0.02% of EGGSA’s capital stock and votes, (iv) 1 common share of Empresa Distribuidora de Electricidad de la Rioja S.A. (“EDELAR”) representing 0.01% of EDELAR’s capital stock and votes, (v) 1 common share of Empresa de Sistemas Eléctricos Abiertos S.A. (“ESED”) representing 0.01% of ESED’s capital stock and votes, (all the shares mentioned in items (ii) through (v) hereinafter referred to as the “Residual Shares”) and (vi) 29,118,127 common shares of AESEBA S.A. representing 99.99% of AESEBA’s capital stock and votes (“AESEBA’s Shares”). The price paid by the Company for the aforementioned assets amounted to US$ 90,000,000 for Emdersa’s Shares and the Residual Shares acquired from AEIU and to US$ 49.998,280 for AESEBA’s Shares acquired from AEIU.

F-55

Emdersa owns: (i) 99.99% of EDESAL’s capital stock and votes, (ii) 90% of the capital stock and votes of Empresa Distribuidora de Electricidad de Salta S.A. ("EDESA"),  (iii) 99.98% of EGSSA’s  capital stock and votes, and (iv) 99.99% of EDELAR’s capital stock and votes. EDESA owns 99.99% of ESED’s capital stock and votes. Furthermore, AESEBA in turn owns 90% of the capital stock and votes of Empresa Distribuidora de Energía Norte, S.A. ("EDEN"), which provides electricity distribution services in the northern and central part of the Province of Buenos Aires.

Within the framework of the offer made by Pampa and accepted by the Company, the parties have additionally agreed that if within the 3 years following acquisition date of Emdersa’s Shares, the Residual Shares and AESEBA’s Shares, the Company sold either totally or partially any of such shares, Pampa would be entitled to receive from the Company a payment equivalent to 50% of the amount received for the sale thereof in excess of the amount paid to AEIU for any of such Shares (Emdersa’s Shares and/or Residual Shares and/or AESEBA’s Shares).

In order to evaluate the above described transaction, the Company engaged the services of the investment bank Citigroup Global Markets Inc. (“Citigroup”) to render a fairness opinion to the Company’s Board of Directors, concerning the fairness of the price that would have to be paid for Emdersa’s shares, the Residual shares and AESEBA’s shares. The opinion of the Company’s Audit Committee was also requested. Both Citigroup and the Company’s Audit Committee rendered their opinion, prior to the acquisition, stating that the informed values are adequate and within the market’s parameters.

In compliance with current regulations, it is hereby stated that the Company has formally consulted the National Securities Commission about the steps to be followed with regards to the public offering for the acquisition of Emdersa’s shares that the Company must make to Emdersa’s minority shareholders due to the change in that company’s control and in accordance with the provisions of Decree No. 677/01 and the National Securities Commission’s regulations. The aforementioned consultation was made due to the fact that the authorization and carrying out of the public acquisition offering that for the same reasons is to be carried out by AEIU at a price of US$ 0.68 per Emdersa’s common share, is still pending. Therefore, the situation generated by the potential coexistence of two public offerings must, in the Company’s opinion, be clarified.

The Company has fully assumed its obligation to carry out the public acquisition offering it is required to make due to the new change in Emdersa’s control, which will be carried out at the same price per Emdersa’s common share that the Company paid to AEIU, i.e. US$ 0.49 per Emdersa’s common share, in the manner and time period established by the control authority. The carrying out of said public acquisition offering was approved by the Company’s Board of Directors on March 4, 2011, and constitutes an irrevocable commitment with Emdersa’s shareholders.

Finally, within the framework of the reported transaction for the acquisition of shares, the change in control of the acquired companies constitutes grounds for calling the loans taken out by their subsidiaries due. Therefore, on March 4, 2011, the Company granted a series of loans to them in order to allow for the restructuring, putting them in a better position to negotiate. The loans, which carry interest at an annual rate of 16% and mature on April 30, 2011, will be distributed in the following manner: i) EDEN 80,000; ii) EDELAR 31,178; iii) EDESA 131,319.5 and iv) EDESAL 37,502.5.

Furthermore, the Company has initiated the proceedings aimed at obtaining authorization from the corresponding control authorities.

d) Loan with related companies (Section 33 Law No. 19,550)

On March 4, 2011, the Company and Pampa Energía S.A. entered into an agreement pursuant to which the Company will receive a US$ 5 million two-year term loan at an annual rate of 5%. The loan will be used to finance several investments that the Company intends to make in accordance with its business plan.

F-56

e) Relaunching of the Issuance of Fixed Rate Class 9 Corporate Notes due in 2022 for a nominal value of up to US$ 69,699,000.

On April 26, 2011, the Company issued Corporate Notes for a nominal value of US$ 69,699,000, thus completing the original amount of the series of up to US$ 300,000,000.

The new Class 9 Corporate Notes, which may be 100% merged with the previous issue, have been issued at an issue price of 101.25% of the principal amount plus interest accrued from April 25, 2011 through the date of issuance. The twelve-year term notes accrue interest as from April 25, 2011 at a fixed rate of 9.75%, payable semiannually on October 25 and April 25 of each year, with the first interest payment maturing on October 25, 2011. The principal will be amortized in a lump sum payment at maturity date in 2022. The Company has requested authorization for the listing of the Corporate Notes on the Buenos Aires Stock Exchange and admission for trading on the Mercado Abierto Electrónico S.A., as well as authorization for the listing of the Corporate Notes on the Luxembourg Stock Exchange and admission for trading on the Euro MTF Market, which is the alternative market of the Luxembourg Stock Exchange.

The Company will use the net proceeds from the sale of the Corporate Notes in this offer to refinance in whole or in part its short-term debt, and/or finance the capital expenditures plan and/or increase working capital (Note 14.b).

f) Derivative Financial Instruments - Corporate Notes

In April 2011, the Company carried out a transaction with a derivative financial instrument with Deutsche Bank S.A. with the aim of hedging the foreign currency exchange rate of the cash flows and derivatives of interest payment transactions arising from the new issue for up to US$ 69,699,000.

g) Loan with subsidiary and related companies (Section 33 Law No. 19,550)

On April 29, 2011, the Company entered into a refinancing agreement with EDEN, EDESAL, EDELAR and EDESA with the purpose of allowing for the restructuring of the financial loans granted to them at the time of acquistion. The one-year term loans, which amounted to 80,000 in the case of EDEN, 31,178 in the case of EDELAR, 131,319.5 in the case of EDESA and 502.5 in the case of EDESAL, become due on April 30, 2012 and accrue interest at an annual rate of 16%, payable semiannually on October 31, 2011 and April 30, 2012. The terms of these loans are in agreement with ordinary market conditions for this type of transactions.

27.
OTHER INFORMATION
F-57
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEET AS OF DECEMBER 31, 2010
EXHIBIT A
PROPERTY, PLANT AND EQUIPMENT
Page 1 of 2
(stated in thousands of pesos)
Original value
Depreciation
Net
At beginning
Retirements
At end
At beginning
Retirements
For the
Annual
At end
book value
MAIN ACCOUNT
of year
Additions
(1)
Transfers
of year
of year
(1)
year
rate
of year
2010
FACILITIES IN SERVICE
Substations
1,027,225 0 0 111,931 1,139,156 362,172 0 30,537 3 - 4 % 392,709 746,447
High voltage networks
462,272 0 0 19,743 482,015 156,557 0 12,615 3 - 4 % 169,172 312,843
Medium voltage networks
881,843 0 (122 ) 65,657 947,373 348,568 (104 ) 25,550 3 - 4 % 374,014 573,364
Low voltage networks
1,771,311 0 (2,212 ) 58,022 1,827,121 1,032,580 (1,444 ) 44,427 4 - 5 % 1,075,363 751,558
Transformation chambers and platforms
615,038 0 (543 ) 45,774 660,269 224,852 (237 ) 19,075 3 - 4 % 243,690 416,579
Meters
679,812 0 0 66,029 745,841 285,626 0 27,615 4 - 5 % 313,241 432,600
Buildings
96,374 0 (2,634 ) 13,332 107,072 23,152 (465 ) 1,392 2 - 3 % 24,079 82,993
Communications network and facilities
96,315 0 0 6,694 103,009 61,477 0 4,914 4 - 5 % 66,391 36,618
Total facilities in service
5,630,190 0 (5,511 ) 387,182 6,011,861 2,494,984 (2,250 ) 166,125 2,658,859 3,353,002
FURNITURE, TOOLS AND EQUIPMENT
Furniture, equipment and software projects
191,338 8,706 (37 ) 0 200,007 177,755 (37 ) 9,232 12 - 13 % 186,950 13,057
Tools and other
46,878 1,695 (282 ) 0 48,291 43,896 (265 ) 657 10 - 11 % 44,288 4,003
Transportation equipment
23,837 5,040 (112 ) 0 28,765 14,874 (96 ) 2,366 20 % 17,144 11,621
Total furniture, tools and equipment
262,053 15,441 (431 ) 0 277,063 236,525 (398 ) 12,255 248,382 28,681
Total assets subject to depreciation
5,892,243 15,441 (5,942 ) 387,.182 6,288,924 2,731,509 (2,648 ) 178,380 2,907,241 3,331,683
CONSTRUCTION IN PROCESS
Transmission
157,329 112,871 0 (131,674 ) 138,526 0 0 0 - 0 138,526
Distribution and other
164,323 260,458 0 (255,508 ) 169,273 0 0 0 - 0 169,273
Total construction in process
321,652 373,329 0 (387,182 ) 307,799 0 0 0 0 307,799
Total 2010
6,213,395 388,770 (5,942 ) 0 6,596,723 2,731,509 (2,648 ) 178,380 2,907,241 3,689,482

(1) Includes net value of retirements for the sale of real property as of December 31, 2010 for 2,169 (Notes 3.g and 12).
F-58
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 2 of 2
(stated in thousands of pesos)
Original value
Depreciation
Net
Net
At beginning
At end
At beginning
For the
Annual
At end
book value
book value
MAIN ACCOUNT
of year
Additions
Retirements
Transfers
of year
of year
Retirements
year
rate
of year
2,009 2,008
FACILITIES IN SERVICE
Substations
887,222 0 (3,066 ) 143,069 1,027,225 336,203 (2,473 ) 28,442 3 - 4 % 362,172 665,053 551,019
High voltage networks
398,304 0 0 63,968 462,272 144,675 0 11,882 3 - 4 % 156,557 305,715 253,629
Medium voltage networks
829,470 0 (597 ) 52,970 881,843 323,671 (223 ) 25,120 3 - 4 % 348,568 533,275 505,799
Low voltage networks
1,715,331 0 (4,153 ) 60,133 1,771,311 986,478 (2,375 ) 48,477 4 - 5 % 1,032,580 738,731 728,853
Transformation chambers and platforms
545,342 0 (46 ) 69,742 615,038 207,332 (43 ) 17,563 3 - 4 % 224,852 390,186 338,010
Meters
631,670 0 0 48,142 679,812 260,044 0 25,582 4 - 5 % 285,626 394,186 371,626
Buildings
92,514 0 0 3,860 96,374 22,056 0 1,096 2 - 3 % 23,152 73,222 70,458
Communications network and facilities
84,223 0 0 12,092 96,315 56,824 0 4,653 4 - 5 % 61,477 34,838 27,399
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 2,846,793
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 19,475
Tools and other
46,499 379 0 0 46,878 43,170 0 726 10 - 11 % 43,896 2,982 3,329
Transportation equipment
18,777 5,656 (596 ) 0 23,837 14,097 (581 )
1,358
20 % 14,874 8,963 4,680
Total furniture, tools and equipment
252,054 10,663 (664 ) 0 262,853 224,570 (649 ) 12,604 236,525 25,528 27,484
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 2,874,277
CONSTRUCTION IN PROCESS
Transmission
242,401 121,965 0 (207,037 ) 157,329 0 0 0 - 0 157,329 242,401
Distribution and other
139,580 271,682 0 (246,939 ) 164,323 0 0 0
-
0 164,323 139,580
Total construction in process
381,981 393,647 0 (453,976 ) 321,652 0 0 0 0 321,652 381,981
Total 2009
5,818,111 404,310 (8,526 ) 0 6,213,895 2,561,853 (5,763 ) 175,419 2,731,509 3,482,386
Total 2008
5,486,985 335,722 (4,596 ) 0 5,818,111 2,394,276 (2,686 ) 170,263 2,561,353 3,256,258

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-59
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2010 AND 2009
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
2010
Main
activity
Date
Nominal
Capital
Stock
Income
for the year
Equity
% interest
in capital
stock
Net book value
2099
NON-CURRENT INVESTMENTS
Section 33 Law No. 19,550 as amended -Companies-
Related Company:
SACME S.A.
common non-endorsable
$ 1 6,000 15 415 415
Electric power services
12/31/2010
12 14 830 50 408
Total
415 408
F-60
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2010 AND 2009
EXHIBIT D
OTHER INVESTMENTS
(stated in thousands of pesos)

Net book value
MAIN ACCOUNT
2010
2009
CURRENT INVESTMENTS
Time deposits
. in foreign currency (Note 27 Exhibit G)
17,523 27,191
Money market funds
. in local currency
117,458 80,055
Corporate Notes and Shares (1)
. in foreign currency (Note 27 Exhibit G)
533,251 112,441
Total Current Investments
668,232 219,687
Total Investments
668,232 219,687

(1) Includes Corporate Notes of Transener S.A. for 17,527 as of December 31, 2010 (Note 15).
F-61
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2010
ALLOWANCES AND ACCRUALS
EXHIBIT E
Page 1 of 3
(stated in thousands of pesos)
2010
MAIN
ACCOUNT
At beginning of
year
Additions
Retirements
Recoveries
At end of year
Deducted from current assets
For doubtful accounts
19,688
16,313 (6,742 ) 0 29,259
For other doubtful accounts
7,908 4,891 0 0 12,799
Included in current liabilities
Accrued litigation
62,813 3,613 (8,594 ) 0 57,832
Included in non-current liabilities
Accrued litigation
10,084 0 (868 ) (2,400 ) 6,816
F-62
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31, 2009
ALLOWANCES AND ACCRUALS
EXHIBIT E
Page 2 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 20327 (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 27 Exhibit H).
The 35,553 related to the recovery of the accrual for tax contingencies (Notes 3.i and 12).
F-63
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER 31,2008
ALLOWANCES AND ACCRUALS
EXHIBIT E
Page 3 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-64
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
BALANCE SHEETS AS OF DECEMBER31,2010 AND 2009
EXHIBIT G
FOREIGN CURRENCY DENOMINATED ASSETS AND LIABILITIES

2010
2009
Account
Currency and
amount (2)
Exchange
rate (l)
Booked amount
in thousands of
pesos
Currency and
amount (2)
Booked amount
in thousands of
pesos
Current Assets
Cash and banks
US$ 382,816 3.936 1,507 US$ 292,212 1,099
ECU 45,911 5.2191 240 ECU 42,394 229
Investments
Time deposits
US$ 4,452,058 3.936 17,523 US$ 7,226,043 27,170
ECU 0 5.2191 0 ECU 3,983 21
Corporate Notes
US$ 135,480,437 3.936 533,251 US$ 29,904,415 112,441
Other receivables
Expenses advanced
US$ 17,682 3.936 70 US$ 118,878 447
Receivables from activities other than the main activity
US$ 1,008,586 3.936 3,970 US$ 363,665 1,367
Initial margins
US$ 0 3.936 0 US$ 6,090,200 22,899
Other
US$ 5,797 3.936 23 US$ 5,600 21
ECU 111,954 5.2191 584 ECU 19,949 108
Total Current Assets
557,168 165,802
Total Assets
557,168 165,802
Current Liabilities
Trade accounts payable
US$ 4,476,084 3.976 17,797 US$ 7,513,124 28,550
ECU 304,112 5.2726 1,603 ECU 15,438 84
CHF 153,989 4.2429 653 CHF 108,826 400
Loans
Corporate Notes
US$ 5,582,495 3.976 22,196 US$ 3,682,978 13,996
Other liabilities
Other
US$ 338,302 3.976 1,345 US$ 347,618 1,321
ECU 0 5.2726 0 ECU 8,913 49
Total Current Liabilities
43,594 44,400
Non-Current Liabilities
Loans
Corporate Notes
US$ 255,969,567 3.976 1,017,735 US$ 176,633,106 671,206
Total Non-Current Liabilities
1,017,735 671,206
Total Liabilities
1,061,329 715,606

(1) Selling and buying exhange rate of Banco de la NaCion Argentina in effect at the end of the year.
(2) US$ = US Dollar, ECU = Euro; CHF Swiss Franc.
F-65
EMPRESA DISTRIBUIDORA Y COMERCIALIZADORA NORTE S.A. (EDENOR S.A.)
INFORMATION REQUIRED BY SECTION 64 CLAUSEb) OF LAW No. 19,550
EXHIBIT H
FOR THE YEARS ENDED DECEMBER 3 1 , 2010, 2009 AND 2008

(stated in thousands of pesos)
2010
2009
2008
Transmission and
Distribution
Selling
Administrative
Description
Expenses
Expenses Expenses Total Total Total
Salaries and social security taxes
293,265 68,100 76,983 438,348 330,358 257,629
Postage and telephone
5,656 11,531 2,034 19,221 15,038 12,919
Bank commissions
0 10,667 0 10,667 9,373 7,529
Allowance for doubtful accounts (1)
0 21,204 0 21,204 18,582 15,304
Supplies consumption
36,788 662 2,754 40,204 37,727 34,298
Work by third parties
118,440 48,131 13,887 180,458 165,341 140,129
Rent and insurance
3,914 663 14,264 18,841 11,697 6,967
Security services
6,162 491 2,932 9,585 6,854 5,314
Fees
849 5 5,468 6,322 6,233 6,259
Computer services
350 6,708 26,746 33,804 28,602 21,148
Advertising
0 0 18,444 18,444 16,769 12,849
Reimbursements to personnel
1,034 217 481 1,732 2,571 6,077
Temporary personnel
164 1,207 746 2,117 1,918 2,111
Depreciation of property, plant and equipment
169,402 4,033 4,945 178,380 175,419 170,263
Technical assistance
0 0 0 0 0 15,377
Directors and Supervisory Committee members' fees
0 0 3,672 3,672 2,860 2,912
Taxes and charges
1 20,554 2,302 22,857 19,940 16,437
Other
264 63 3,239 3,566 2,291 2,100
Total 2010
636,289 194,236 178,897 1,009,422 - -
Total 2009
548,583 158,956 144,034 - 851,573 -
Total 2008
497,870 126,016 138,737 - - 735,622

(1) As of December 31, 2009, net of recovery of the allowance Framework Agreement with the Province of Buenos Aires for 5,720 (Notes 12 and 13 and Note27 Exhibit E).
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28. 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 accounting under 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.

F-67

As of December 31, 2007, the valuation allowance 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 valuation allowance of 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, 2010, there is no valuation allowance of deferred income tax assets.

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 asset or liability 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 28.II.e). As a result, as of December 31, 2010 and 2009, the Company recognized a deferred tax asset amounting to 3,548 and 2,232, 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 28.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 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, 2010 and 2009.

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. As such, the US GAAP reconciling ítem represents the additional depreciation of the interest capitalized during the period from January 1, 2002 through December 31, 2005.

The effect of this US GAAP adjustment on net income and shareholders’ equity are presented in the Note 28.I.g).

c)
Asset retirement obligations – net

Under Argentine GAAP, in accordance with FAPCE TR 17, the Company 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.

F-68

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, the Company removed PCB from its transformers during the fiscal year 2008 extinguishing its obligation. 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.

Thus, under US GAAP an additional asset and liability was recognized.

The effects on US GAAP net income and shareholders’ equity includes the amortization of the asset retirement costs which is included in depreciation expense.

The effect of this US GAAP adjustment on net income and shareholders’ equity are presented in the Note 28.I.g) below.

d)
Troubled debt restructuring and repurchases of debt

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 its 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, 2010, was increased by approximately Ps. 116.7 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. 9,893 and Ps. 15,645 as of December 31, 2010 and 2009 respectively was included in deferred income tax in Note 28.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.

F-69

On December 13, 2010 the Company redeemed US$ 8.0 million principal amount of the outstanding Fixed Rate Par Notes due 2016, which generated a net gain amounting to Ps. 858 thousands and which has been reversed for US GAAP purposes. As a result of the redemption and other repurchases, the Company had no Fixed Rate Par Notes due 2016 outstanding at December 31, 2010.

These notes constituted an “Early extinguishment of debt”. The cash flows showed that the carrying amount of the payable exceeded the future cash payments. As such, these facts implied that gains should have been recognized as of the date of the measurements of the debt amounting to Ps. 41,570 and 150,269, as of December 2010 and 2009, respectively (excluding the gain on debt restructuring already recognized in 2007).

The following items were reversed out under US GAAP for the year ended December 31, 2010 and 2009:

- the adjustment to present value of the notes (loss of Ps. 17,7 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 loss from the purchase and redemption of notes due in 2016 during 2010 (Ps. 0,7 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);
- the adjustment to present value of purchased and redeemed notes due in 2016 during 2009 (gain of Ps. 8,0 million); and,
- the adjustment to present value of purchased and redeemed notes due in 2016 during 2010 (gain of Ps. 1,6 million).

Aditionally, as of December 31, 2010, 2009 and 2008, deferred tax assets amounting to 1,469, 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 11,362 was recorded for US GAAP purposes.

The effect of these US GAAP adjustments on net (loss)  income and shareholders’ equity is presented in the Note 28.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 operations.

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.

F-70
December 31, 2010
Gross Unrealized
Cost
Fair Value
Gain
Loss
Money Market Funds
115,616 117,458 1,842 -
Equity Securities
102,639 102,415 - (224 )
Corporate Debt Securities
425,156 430,836 5,680 -
Total
643,411 650,709 7,522 (224 )

Under US GAAP, as of December 31, 2010, 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, 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 )

The maturities as of December 31, 2010, of the available-for-sale 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
Corporate Debt Securities
430,836 430,836 - -

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 28.I.g) below.

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g)
Effects of conforming to US GAAP

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

For the year ended December 31,
2010
2009
2008
Net (loss) income under Argentine GAAP
(74,031 ) 90,643 123,115
Deferred income tax (Note 28.II.a)
18,054 (13,903 ) (6,989 )
Interest capitalized – net (Note 28.II.b)
(5,095 ) (5,095 ) (5,095 )
Asset retirement obligations (Note 28.II.c)
175 175 (107 )
Trouble debt reestructuring and repurchases of debt (Note 28.II.d)
32,463 49,944 110,032
Investments in marketable securities (Note 28.I.e)
(7,298 ) 332 (5,444 )
Trust consolidation (Note 28.I.f)
- (49,015 ) 49,015
Net (loss) income under US GAAP
(35,732 ) 73,081 264,527

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

As of December 31,
2010
2009
Shareholders' equity under Argentine GAAP
2,108,178 2,182,209
Deferred income tax (Note 28.II.a)
(367,857 ) (384,673 )
Interest capitalized – net (Note 28.II.b)
69,399 74,494
Asset retirement obligations (Note 28.II.c)
(4,293 ) (4,468 )
Trouble debt restructuring and repurchases of debt (Note 28.II.d)
(27,275 ) (59,738 )
Pension Plan (Note 28.II.e)
(10,136 ) (6,375 )
Shareholders' equity under US GAAP
1,768,016 1,801,449

The changes in shareholders’ equity under US GAAP as of December 31, 2010 and 2009 are as follows:

For the year ended December 31,
2010
2009
Shareholders' equity under US GAAP - Beginning balance
1,801,449 1,727,154
Net income for the year in accordance with US GAAP
(35,732 ) 73,081
Accumulated Other Comprehensive income - Pension Plan, net of tax and Investments in marketable securities, net of tax (Note 28.II.p)
2,299 1,214
Shareholders' equity under US GAAP - Ending balance
1,768,016 1,801,449

F-72

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:

As of December 31,
2010
2009
2008
Income tax under Argentine GAAP:
Current income tax
(16,235 ) (95,570 ) (99,745 )
Other adjustments
- 1,636 -
Deferred income tax - benefit
17,371 14,623 38,571
Total income tax benefit (expense) under Argentine GAAP
1,136 (79,311 ) (61,174 )

As of December 31,
2010
2009
2008
US GAAP adjustments:
Adjustment for inflation on property, plant and equipment
24,978 26,980 30,404
Interest capitalized
1,783 1,783 1,783
Deferred income tax effect on the adjustment to present value of the notes
(1,469 ) (1,835 ) (2,960 )
Deferred income tax effect on troubled debt restructuring and repurchases of debt
(9,893 ) (15,645 ) (35,551 )
Asset Retirement Obligation
(61 ) (61 ) 38
Accruals - ENRE Penalties
- (24,991 ) -
Investments in marketable securities
2,554 (116 ) 1,905
Others
162 (18 ) (2,608 )
US GAAP adjustments
18,054 (13,903 ) (6,989 )
Income tax benefit (expense) under US GAAP
19,190 (93,214 ) (68,163 )

As of December 31,
2010
2009
2008
Decrease (Increase) of the valuation allowance of value of deferred tax assets
Under Argentine GAAP
- - 34,482
US GAAP adjustments
- - -
Variation of the valuation allowance under US GAAP
- - 34,482

Deferred tax assets (liabilities) as of December 31, 2010 are summarized as follows:

F-73
As of December 31, 2010
Argentine
GAAP
balance
US GAAP
adjustment
US GAAP
balance
Deferred tax assets
Tax losses carry forward
11,586 - 11,586
Accruals
162,053 5,051 167,104
Troubled debt restructuring and repurchases of debt
- 3,335 3,335
Others
13,532 - 13,532
Total deferred tax assets, net
187,171 8,386 195,557
Deferred tax liabilities
PP&E and others
(82,725 ) (376,243 ) (458,968 )
Total deferred tax liabilities
(82,725 ) (376,243 ) (458,968 )
Total net deferred tax assets (liabilities)
104,446 (367,857 ) (263,411 )

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 )

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

As of December 31,
2010
2009
2008
Income tax calculated at tax rate on net income before taxes under US GAAP
19,222 (58,203 ) (116,442 )
Permanent differences:
Effect of Trust consolidation
- (17,155 ) 17,155
Other non-deductible expenses
(32 ) (17,856 ) (3,358 )
Subtotal
19,190 (93,214 ) (102,645 )
Variation of the valuation allowance under US GAAP
- - 34,482
Income tax benefit (expense) under US GAAP
19,190 (93,214 ) (68,163 )

F-74

US GAAP deferred tax assets (liabilities) as of December 31, 2010 and 2009 breakdowns are summarized below:

As of December 31, 2010
Total
Current
Non Current
Deferred tax assets
Tax losses carry forward
11,586 - 11,586
Accruals
167,104 1,211 165,892
Troubled debt restructuring and repurchases of debt
3,335 - 3,335
Others
13,532 411 13,122
Total deferred tax assets
195,557 1,622 193,935

As of December 31, 2010
Total
Current
Non Current
Deferred tax liabilities
PP&E and others
(458,968 ) (30,888 ) (428,080 )
Total deferred tax liabilities
(458,968 ) (30,888 ) (428,080 )
Total net deferred tax liabilities
(263,411 ) (29,266 ) (234,145 )

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 )

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:

F-75
As of December 31,
2010
2009
2008
Interest expense incurred under US GAAP
103,782 139,193 59,908
Interest capitalized under US GAAP
19,522 24,966 31,477

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

For the year ended December 31,
2010
2009
2008
Depreciation of interest capitalized (Note 28.I.g)
(5,095 ) (5,095 ) (5,095 )

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

As of December 31
2010
2009
Interest capitalized
125,294 125,294
Depreciation on interest capitalized
(55,895 ) (50,800 )
Interest capitalized – net (Note 28.I.g)
69,399 74,494

c)
Asset retirement obligations

Under US GAAP, a decrease in asset must be recognized as of December 31, 2010 and 2009, as follows:

As of December 31,
2010
2009
Asset retirement costs
- -
Less: accumulated depreciation
(784 ) (959 )
Net book value
(784 ) (959 )
Asset retirement obligation
- -
Net Shareholders’ equity impact
(784 ) (959 )

The effects on US GAAP net income and shareholders’ equity includes the amortization of asset retirement costs included in depreciation expense.

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

As of December 31,
2010
2009
2008
Depreciation of asset retirement costs
175 175 175
Accrued interest
- - (282 )
Total impact (Note 28.I.g)
175 175 (107 )

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

As of December 31,
2010
2009
Accumulated depreciation of asset retirement costs
(784 ) (959 )
Accrued interest
(3,509 ) (3,509 )
Total impact (Note 28.I.g)
(4,293 ) (4,468 )

The asset retirement obligation was settled on December 2008.

F-76

d)
Troubled debt restructuring and repurchases of debt

The reconciliation between financial debt under US GAAP and Argentine GAAP as of December 31, 2010 and 2009 is as follows:

As of December 31,
2010
2009
Financial debt (current and non current) under Argentine GAAP
1,089,221 790,487
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
17,745 21,943
Interest expense
116,733 104,286
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 46,182
Loss from the purchase and redemption of notes 2016 during 2010
(743 ) -
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 7,932
Adjustment to present value of purchased and redeemed notes 2016 during 2010
1,601 -
Gain on debt restructuring
(66,803 ) (66,803 )
Gain on early extinguishment of debt
(339,375 ) (297,805 )
Financial debt (current and non current) under US GAAP
1,116,495 850,225
Total impact in shareholders’ equity under US GAAP (Note 28.I.g)
27,275 59,738

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

For the year ended December 31,
2010
2009
2008
Gain on early extinguishment of debt
41,570 150,269 147,537
Interest expense and exchange differences
(12,447 ) (51,454 ) 18,203
Adjustment to present value of notes
4,198 5,243 8,457
Adjustment to present value of purchased and redeemed notes due in 2016
(1,601 ) (7,932 ) (8,980 )
Gain (loss) from the purchase and redemption of notes due in 2016
743 (46,182 ) (55,185 )
Total impact in net income (Note 28.I.g)
32,463 49,944 110,032
F-77

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.

The components of net periodic benefit cost under Argentina GAAP and US GAAP for 2010, 2009 and 2008 are as follows:

As of December 31,
2010
2009
2008
Components of net year benefit cost
Service cost
1,828 1,608 1,488
Interest cost
7,825 4,843 4,441
Recognized net actuarial loss
814 1,314 779
Net year benefit cost
10,467 7,765 6,708
F-78

The changes in benefit obligations for the years ended December 31, 2010 and 2009 are as follows:

As of December 31,
2010
2009
Benefit obligation - beginning of year
31,195 26,623
Service cost
1,828 1,608
Interest cost
7,825 4,843
Actuarial (gain)/ loss
4,572 (886 )
Benefits paid to participants
(3,928 ) (993 )
Benefit obligation – end of year
41,492 31,195

The adoption of ASC section 715-30-25-1 on December 31, 2006 resulted in the recognition of the “unrecognized actuarial loss” amounting to 5,716 as adjustment to accumulated other comprehensive loss, and a deferred tax asset of approximately 2,001, also in accumulated other comprehensive loss net of charge of 3,715 as adjustment to accumulated other comprehensive loss. As of December 31, 2010, 2009 and 2008, the Company recognized a net charge of 2,445, a net gain of 1,430 and a net charge of 1,858, 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, 2010, 2009 and 2008:

Net
of tax
Tax
effect
Gross
amount
Balance as of January 31, 2008
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
Net actuarial loss (gain) for the year 2010
2,445 (1,316 ) 3,761
Balance as of December 31, 2010
6,588 (3,548 ) 10,136

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

2011
4,515
2012
5,825
2013
5,252
2014
5,875
2015
5,768
2016-2020
30,269

The components of the projected net periodic pension benefit costs for 2011 are as follows:
Service cost
1,828
Interest cost
7,825
Amortization of net actuarial loss
814
Net year benefit cost
10,467

F-79

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,
2010
2009
2008
Projected benefit obligation
41,492 31,195 26,623
Effect of a one-percentage-point increase
39,470 29,676 25,218
Effect of a one-percentage-point decrease
43,804 32,935 28,227
Assumptions
2010
2009
2008
Weighted - discount rate
24.0 % 25.0 % 18.0 %
Weighted - salary increase
15.0 % 15.0 % 15.0 %
Weighted - long term inflation
18.0 % 11.5 % 11.5 %

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.

F-80

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

F-81

g)
Basic and diluted (loss) 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,
(Loss) Earning per share
2010
2009
2008
Numerator:
Net (loss) income for the year
(35,732 ) 73,081 264,527
Denominator:
Weighted average number of shares used in basic and diluted EPS
897,042,600 897,042,600 897,042,600
(Loss) Earning per share - basic and diluted
(0.040 ) 0.081 0.295

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.

F-82

i)
Cash flows 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.

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 condensed statements 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
2010
2009
2008
Net cash flow provided by operating activities under Argentine GAAP
526,928 667,977 547,543
Reclasification from operating activities to investing activities:
Effect of exchange rate changes on cash and cash equivalents
(10,119 ) (7,021 ) (2,447 )
Net cash flow provided by operating activities under US GAAP
516,809 660,956 545,097
Net cash flow used in investing activities under Argentine GAAP
(381,335 ) (404,165 ) (325,380 )
Effect of consolidation of Edenor’s financial trust
- (11,345 ) 11,345
Decrease (Increase) in current and non current investments
- 13,614 (67,893 )
Corporate debt securities classified as cash equivalents under Argentina GAAP
(382,312 ) (48,524 ) -
Net cash flow used in investing activities under US GAAP
(763,647 ) (450,420 ) (381,928 )
Net cash flow used in financing activities under Argentine GAAP (*)
302,878 (161,839 ) (196,962 )
( Decrease) Increase in current and non current investments
- (13,614 ) 67,893
Net cash flow used in financing activities under US GAAP
302,878 (175,453 ) (129,069 )

F-83

For the years ended as of December 31,
Reconciliation of cash flows under Argentine GAAP and
US GAAP
2010
2009
2008
Net increase in cash and cash equivalents under US GAAP
66,159 42,104 36,546
Effect of exchange rate changes on cash and cash equivalents
10,119 7,021 2,447
Net increase in cash and cash equivalents under US GAAP after effect of exchange rate changes on cash and cash equivalents
56,040 35,083 34,099
Cash and cash equivalents at the beginning of the year
179,848 137,744 101,198
Cash and cash equivalents at the end of the year
246,007 179,848 137,744

2010
2009
Cash and cash equivalents under Argentine GAAP (Note 18)
676,843 228,372
Corporate debt securities – Not qualified as cash equivalent under US GAAP (Note 28.I.e)
(430,836 ) (48,524 )
Cash and cash equivalents in the condensed statements of cash flows under US GAAP
246,007 179,848

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.

F-84

§
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.

In accordance with the fair value hierarchy, the following table shows the fair value as of year-end 2010, 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, 2010
Description
Balance as of
December 31,
2010
Level 1
Level 2
Level 3
Assets
Money market funds
117,458 117,458 - -
Equity Securities
102,415 102,415
Corporate Debt Securities
430,836 430,836 - -
Liabilities
Derivatives
7,253 7,253

Company’s financial assets included in Level 1 are valued using market prices on active markets. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Derivative instruments included in Level 2 are valued at fair value obtained from readily-available pricing sources for comparable instruments. As of December 31, 2010 and 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, 2010, 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, 2010 and 2009, the Company held no direct investments in auction rate securities, collateralized debt obligations, structured investment vehicles or mortgage-backed securities.

l)
Statement of Income classification differences between Argentine GAAP and US GAAP
Net Sales

Under Argentine GAAP, penalties have been deducted from sales. For US GAAP purposes, penalties are included as transmission and distribution expenses (amounting to 80,006, 58,500 and 34,775 for the years ended December 31, 2010, 2009 and 2008).

Under Argentine GAAP, during the year ended December 31, 2008, the Framework Agreement was signed with the Federal Government and therefore, the corresponding allowance for doubtful accounts was recovered under Argentina GAAP. Under US GAAP, these sales are recognized since the conditions required are met (amounting 24,016).

F-85

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. As a consequence, the allowance for doubtful 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 2,253,650, 2,163,316 and 2,058,988 for the years ended December 31, 2010, 2009 and 2008, respectively.

Gross margin

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.

Under US GAAP the interest capitalization adjustment amounting to 5,095 has been included as Transmission and Distribution expenses.

Furthermore, certain other incomes and expenses amounting to 10,564 have been reclassificatied as Transmission and Distribution expenses in order to improve exposure.

As a result of these differences, gross margin under US GAAP would have been 452,125, 535,970 and 547,356 for the years ended December 31, 2010, 2009 and 2008, 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, net operating income under US GAAP would have been 79,746, 241,295 and 277.726 for the years ended December 31, 2010, 2009 and 2008, respectively.

Financial income (expense), net

Under Argentine GAAP ENRE penalties have been included within Financial (expense) net and holding gains (losses). Under US GAAP, such penalties have been included within Transmission and Distribution Expenses amounting to 17,162 for the year ended December 31, 2008. During the years ended December 31, 2010 and 2009, there were no ENRE penalties adjustments.

Under Argentine GAAP, the adjustments to present value of the retroactive tariff increase and the Payment Plan Agreement with the Province of Buenos Aires have 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 28.I,d), the reversal of the gain obtained by the Trust under Argentine GAAP, as described in Note 28.I.f) and the adjustment related to unrealized gain (loss) on available-for-sale investments described in Note 28.I.e).

As a result of these disclosure differences, Financial (expense) income, net under US GAAP would have been (134,668), (75,000) and 54.964 for the years ended December 31, 2010, 2009 and 2008, respectively.

F-86

The condensed statements of income for the years ended December 31, 2010, 2009 and 2008 under US GAAP are as follows:

For the year ended December 31,
2010
2009
2008
Net sales / Services revenues
2,253,650 2,163,316 2,058,988
Electric power purchases
(1,069,747 ) (1,003,362 ) (934,660 )
Transmission and Distribution Expenses
(731,778 ) (623,984 ) (576,972 )
Gross margin
452,125 535,970 547,356
Operating expenses, net
(372,379 ) (294,675 ) (269,630 )
Net operating income
79,746 241,295 277,726
Financial (expense) income, net
(134,668 ) (75,000 ) 54,964
Net (loss) income before income tax
(54,922 ) 166,295 332,690
Income tax (benefit) expense
19,190 (93,214 ) (68,163 )
Net (loss) income for the year
(35,732 ) 73,081 264,527
(Loss) Earning per share
(0.040 ) 0.081 0.295
The condensed balance sheets under US GAAP as of December 31, 2010 and 2009 are as follows:

As of December 31,
2010
2009
Current Assets
1,155,425 703,283
Property, plant and equipment, net
3,754,590 3,552,413
Other non-current assets
274,599 260,404
Current liabilities
818,099 790,889
Non-current liabilities
2,598,499 1,923,762
Shareholders' equity
1,768,016 1,801,449
Summary of Condensed Shareholders’ equity in
For the year ended December 31,
accordance with US GAAP
2010
2009
Common stock
1,902,944 1,902,944
Treasury stock
(6,130 ) (6,130 )
Additional paid-in capital
24,970 24,970
Legal Reserve
64,008 59,476
Accumulated deficit
(187,238 ) (255,787 )
Net (loss) income
(35,732 ) 73,081
Accumulated Other Comprehensive Income
5,194 2,895
Total Shareholders’ equity
1,768,016 1,801,449

m)
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-87

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

n)
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, 2010.

The company classifies interest and penalties, if any, 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.

The reconciliation of the beginning and ending balances of recognized uncertain tax position as of December 31, 2010 and 2009 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
-
Gross decrease due to the assessment of the tax regularization plan
-
Recognized uncertain tax position as of December 31, 2010
-

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).

F-88

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.

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)
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, 2010, 2009 and 2008:

For the year ended December 31,
2010
2009
2008
Net income under US GAAP
(35,732 ) 73,081 264,527
Other comprehensive (loss) income:
Unrealized gains and losses - Available for sale securities (net of a tax effect of 2,554 loss, 116 benefit and 1,905 loss, for 2010, 2009 and 2008, respectively)
4,744 (216 ) 3,539
Pension plan (net of a tax effect of 1,316 benefit, 770 loss and 1,001 benefit, for 2010, 2009 and 2008, respectively)
(2,445 ) 1,430 (1,858 )
Comprehensive income
(33,433 ) 74,295 266,208
F-89

The following table summarizes the components of accumulated other comprehensive income for the years ended December 31, 2010, 2009 and 2008:

For the year ended December 31,
2010
2009
2008
Accumulated gross unrealized gain on Available for sale securities
12,410 5,112 5,444
Accumulated estimated tax (loss) on Available for sale securities
(4,343 ) (1,789 ) (1,905 )
Accumulated gross pension plan
(4,420 ) (659 ) (2,859 )
Accumulated estimated tax benefit (loss) on pension plan
1,547 231 1,001
Accumulated Other Comprehensive income
5,194 2,895 1,681
r)
Business combination occurred after the balance sheet date but before the issuance of the financial statements

U.S. GAAP, ASC 805-10-50 prescribes that when a business combination took place after the balance sheet date but before the issuance of the financial statements, the acquirer shall disclose supplemental pro forma financial information, unless it’s impracticable.   The acquisitions described in Note 26 were carried out during March 2011; as such the Company considers that the disclosure requirements results impracticable as it has limited information in order to report pro forma finanacial information under U.S. GAAP..

s)
Recently issued accounting pronouncements

In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations (a consensus of the FASB Emerging Issues Task Force) ASU 2010-29 specifies that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. Additionally, this Update also expand the supplemental pro forma disclosures under ASC 805,  to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this Update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  Early adoption is permitted. The Company is currently assessing the impact it will have on its financial statements.

In May 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Fair Value Measurement – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). ASU No. 2011-04 generally represents clarifications to the current fair value measurement standard under U.S. GAAP and hence many of its amendments are not intended to result in a change in the application of the requirements of the current standard. However, ASU No. 2011-04 does include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. The Company will adopt ASU No. 2011-04 in the fourth quarter of fiscal 2012. The Company is currently assessing the impact it will have on its financial statements.

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